052: [Author Interview] The Tax-Smart Retiree with Phil Putney

In this episode, I welcome Phil Putney, a CPA and author of the Amazon number one bestseller, "The Tax Smart Retiree: A Guide to Thriving in Your Golden Years." Over the past year, we collaborated to transform Phil's extensive experience and knowledge into a book that guides retirees through the complexities of tax-efficient retirement planning.

From CPA to Financial Advisor with a Tax Focus

• Professional Evolution: Phil began his career over 30 years ago as a CPA with a master's in taxation. His journey took a pivotal turn when he integrated financial advisory services, driven by client needs for cohesive tax and investment strategies.
• Specialization in Retirement Planning: Recognizing a niche in retirement planning, He obtained his Personal Financial Specialist designation, enabling him to blend his tax expertise with financial advisory services.

The Tax Smart Retiree: Simplifying Complex Tax Strategies for Retirees

• Unique Tax Perspective: Phil emphasizes the importance of long-term tax planning, which is often overlooked in traditional retirement planning. His book provides strategies to manage and minimize taxes through various stages of retirement.
• Holistic Retirement Planning: The book extends beyond tax advice, offering insights into Social Security, required minimum distributions, and the impact of losing a spouse, which are crucial for comprehensive retirement planning.

Educational Initiatives and Phil's Teaching Philosophy

• Commitment to Education: His passion for education is evident through his classes and now, his book. His goal is to equip retirees with the knowledge to make informed decisions about their financial futures.
• Workshops and Classes: Prior to the book, Phil conducted extensive workshops that covered similar content. The book aims to reach a broader audience by condensing his teachings into an accessible format.

Insights for Future Financial Planning

• Anticipating Tax Changes: Phil discusses the potential implications of expiring tax laws and emphasizes the need for proactive planning based on current legislation.
• Retirement Income Planning: A significant focus of Phil's approach is understanding the personal spending needs in retirement and planning accordingly, using tax-efficient strategies to sustain the desired lifestyle.

Key Takeaways and Future Directions

• Importance of a Customized Plan: Phil stresses that every individual's financial situation is unique, and a one-size-fits-all approach does not apply in retirement planning.
• Advice for Prospective Clients: For those interested in deeper engagement, Phil offers initial consultations to discuss personal financial situations and explore the fit for his services.

About our Guest:

Phil Putney author of "The Tax Smart Retiree: A Guide to Thriving in Your Golden Years."

You can learn more about his work at:
www.afsfinancialgrp.com
https://www.thetaxsmartretireebook.com/
Phil Putney's LinkedIn

About Your Host:  Paul G. McManus is an accomplished author and expert in helping financial professionals grow their businesses. With over eight years of experience working exclusively with financial professionals, Paul has helped his clients generate tens of millions

Claim your free audiobook copy at: www.theshortbookformula.com

Transcript

Speaker 1: 0:32

Hello everyone. My name is Paul McManus. I'm the CEO of MCMF Publishing. Today it is my pleasure to have a chance to interview Phil Putney. We've been working with Phil over the past year to help him write and publish his book the Tax Smart Retiree A Guide to Thriving in your Golden Years. Welcome, phil. Glad to be here. First and foremost, congratulations on your Amazon number one bestseller status. After all the effort and work that goes into writing this, that must feel pretty good.

Speaker 2: 0:59

Glad that the word's getting out there because there's a lot to say in that book for those retirees. I'm glad that it made it there. Hopefully more people find it.

Speaker 1: 1:06

This is your first book, correct?

Speaker 2: 1:08

Yes, it is. Publishing a book has always been a goal of mine and I ran into you through another connection and was glad I did. We finally were able to get that put together over the last year. So it's been a project, but it's been very well worth it.

Speaker 1: 1:20

Before we dive into the content of the book, I'd love just to ask you a little bit about yourself. Who are you? What's been your career journey from when you started out, I believe, as a CPA, to what you do today?

Speaker 2: 1:31

I'm currently CPA, have been for the last 30 plus years and that's where I started. My career was as a CPA. Also have a master's of science in taxation, so tax has always been a big focus of my career. But early on in my career I got brought into this financial industry by clients through talking to them on the tax side of their investments and strategies that they were doing. That their advisors just didn't understand and the challenge always is who's going to help? Right, because they want me to help. But yet if I'm helping, then as a CPA I get paid hourly by charging them my hourly rate to help out and it just it was not really a good fit. So they kept asking me why don't you just help out with the investments as well? Brought me into the industry. I always say so. That was my trajectory from the CPA side into the financial services and then in doing that got my personal financial specialist designation, the PFS, so that just is a designation for CPAs that specialize in financial planning. So that has been my career trajectory is starting on that tax, the CPA side, moving into the advisory side. Did both for about 10 years and then at one point decided I had to pick so moved fully into the financial services, but still retaining that CPA tax background. I like to say I'm a recovering CPA.

Speaker 2: 2:47

Back then we had a full service firm, worked primarily with business owners. We did a lot of payroll and bookkeeping and taxes and everything involved. Now, yes, we still offer the tax services, but it's more just to individuals, typically to our clients or those that are in that process of becoming a client, where we're hoping, record and report the results of the planning and the tax moves that we've made, just to make sure that it gets accomplished correctly. Because again, at the end of the day, I found working with outside CPAs and nothing against them, it's just a different perspective. They don't necessarily understand fully the full picture of what we're trying to accomplish. We always have to re-explain to them. This is the reason we made X, y and Z moves. A lot of our clients again asked us to get back into that industry just to go ahead and report what happened. And that's, at the end of the day, what a traditional CPA is doing is a kind of a record keeper, right? They're just reporting. Here's what happened. A historian so to speak.

Speaker 1: 3:41

I know from working with you on this book that I think one of the things that's very unique about it is the tax. So in working with you on this book, the title it tax. So in working with you on this book, the title is the Tax Smart Retiree and I know that you cover a whole lot of different things that any pre-retiree or retiree should be thinking about, but there's a strong tax angle that informs it. So, just broadly speaking, from a pre-retirement standpoint or a retirement standpoint, why are taxes important?

Speaker 2: 4:11

I think taxes are one of those pieces in retirement that most pre-retirees or those even into retirement now think that's just something I have to do, right, I've got to pay taxes. And unfortunately, most of the time when you're looking at taxes, you're looking at it in a very narrow fashion, right? And this is frankly why most CPAs, from a retirement tax standpoint, are getting the wrong answer or looking at it wrong just because they're in a very narrow view. They're a traditional CPA's view is traditionally last year, this year and next that's the world that they're always living in For retirement.

Speaker 2: 4:45

If you're only looking at that, you're going to get the wrong answer, because you have to look at the long-term picture of what does taxes look like for you, not just today or next year or the year after, but throughout retirement, as various stages and things happen as you retire, as you turn on Social Security, what happens when you hit required minimum distribution ages? What happens when one of the spouses passes? So there's all these different factors that play in that are going to change your tax picture. So you need to understand what that looks like, going in up front, so that you can better prepare now, so that when you hit those ages, you're not getting a surprise.

Speaker 2: 5:19

That's the main reason that I started focusing on those that are, I would say, in and nearing retirement. Planning for retirement is that. It was again one of those pieces that I think most advisors didn't understand and at best they were probably telling their clients well, talk to your CPA about that, we don't handle taxes. Then if they go to their CPA, they don't have the right perspective to give them the best advice on the long-term picture of taxes. It just seemed to be a really good fit for my background and how I could help people best was preparing for taxes in retirement, how to minimize them.

Speaker 1: 5:52

So I know you don't have a crystal ball, but as of this point in 2024, looking over whether it's the next few years or even a decade or so out, what are maybe some of the insights or things that a person should be aware of if they're looking to create the most tax efficient retirement?

Speaker 2: 6:10

It really starts with understanding what your tax picture looks like going forward. Always map out your what I call the base scenario right If we did nothing change, you just went into retirement file for Social Security when you were thinking let required distributions happen, et cetera. What would that look like with the current tax structure that we have today? So that's the first place to start. Right now we're in one of the lowest points in history from our tax standpoint, which I mean. If you ask most people today, how are taxes? They're going to say, oh, worst they've ever been in history.

Speaker 1: 6:39

I hate them.

Speaker 2: 6:39

I hate them. No one likes taxes. Right, and don't throw me in that bucket. I'm not the tax collector. My goal and role in this process is to help you minimize them, but unfortunately, sometimes that means paying a lot more taxes right now, maybe up front, at these lower known rates today, because we do have some opportunities, or at least over the next couple of years under the current tax structure, before things start to change. So that's one of the pictures.

Speaker 2: 7:04

Looking forward is understanding what the law is today and what's in place. The 2018 Tax Cuts and Jobs Act, as it stands right now, is set to expire at the end of 2025. And when that happens, there are going to be some changes to take place. Unless Congress acts and makes a change in that law, whether that happens or not, who knows? It's conjecture. At that point, we want to plan based on the law today, but then, beyond that, it's just looking at the kind of the big picture of taxes.

Speaker 2: 7:32

This is always something when we're going through our class, because we teach a class on Social Security and taxes for those in and nearing retirement and we'll talk a lot about taxes, and when we're looking at it, you always have to look at history Because, to your point, oh yeah, they're the worst they've ever been. Reality is, when you look back at history, like I mentioned, we're at one of the lowest points in history. Our top marginal rate today is only 37%. Believe it or not, do the research. It's been as high as 97, right, we're not even close to the worst point in history, and who knows where we go from here, not to say that we're going to hit that again. But the reality is, yeah, it can get substantially worse than it is today. Probably we'll have to at some point, just because of the imbalance that we have of spending and revenue. We're just not bringing enough in in taxes as a country based on the spending. So something has to change. Either spending goes down or revenue goes up, and their revenue is taxes.

Speaker 1: 8:26

When it comes to retirement income planning and of course you talked about this in your book, but just from a broader how you help clients what is it that people need to know when it comes to retirement income planning? And of course you talk about this in your book, but just from a broader how you help clients, what is it that people need to know when it comes to retirement income planning and how do you help them do that?

Speaker 2: 8:38

Retirement income planning. It starts with understanding what do you need? What is that goal in retirement? And I always recommend starting with where you're at today. What are you spending today? What's your net spendable income today? Because that's the lifestyle you're comfortable with.

Speaker 2: 8:52

I always joke with clients. I said I don't want to know what retirement looks like to you, locked up in the house during COVID, for instance, where you couldn't go anywhere, you couldn't do anything. That's a pretty inexpensive retirement. If that's your vision of retirement, okay, that's fine. Let's make sure that's truly your vision, right?

Speaker 2: 9:07

If that's not, most of my clients, that's not their scenario. They have an active retirement, especially in the early years. They've got a bucket list of things that they have wanted to do, so they're going to do more active things in the first five to 10 years travel, hobbies, whatever it happens to be. So retirement income planning starts with number one having a good estimate of what that looks like. And I hesitate to use the B word, right, the budget word, and it's not a budget but it's a. Come up with a number and make it a fair, reasonable number that maybe is even erring on the high side, so that you have a little wiggle room and comfort in that plan to see if that works first I have to ask you mentioned the B word, budget.

Speaker 1: 9:48

Is that a sensitive word or can you expand upon that a little bit?

Speaker 2: 9:50

Most clients don't budget. Right, it's just and you don't have to. But when I say budget, just have a number and make it reasonable. I spent this amount of groceries and this amount eating out and this and whatever it is, because that's irrelevant right At the end of the day. What you need to know is what is that net number at the end of the month on average over the years? Because I know it's going to be up and down each month depending on whether property taxes are due or Christmas or all these other things. But what is that on?

Speaker 1: 10:16

average Is it?

Speaker 2: 10:16

5,000 a month? Is it 7, 8, 10,000 a month? What's your number? What is that target that you need? Because that's the goal that we have to accomplish. So that's where we start. Is that number? If you don't know that number, then we don't know what the plan should be at that point.

Speaker 1: 10:32

What are the other factors that a person should be thinking about, either as they approach retirement or if they're in retirement?

Speaker 2: 10:38

The process needs to start with a plan, and I've touched on it in a couple of places. If you don't have a plan, then you're just wandering through retirement, which, unfortunately, is what a lot of people do. Right, they just fall into retirement and they say, oh, just start spending from here, and they don't really have that long-term picture. And, unfortunately, if you do that, then that's when you get caught off guard by making the wrong decision on social security, making the wrong decision on taxes, because all of a sudden, now you're reaching required minimum distribution ages and if you've saved well, you're getting forced to take way more out of the IRA than maybe you even needed. So now you've got this huge tax burden. So there's ways to approach that. So, to me, all those pieces that we talk about really need to be in that plan, that blueprint. And that's where you need to start is map this out, either on your own, if that's something you're comfortable with, or, if not, seek the guidance of a professional that can help walk through those numbers.

Speaker 2: 11:32

To begin with, to me, the blueprint is like building a house right, it's to me, the map, so to speak, what we're trying to accomplish. That's the very first step, before you even start talking about investments. I always joke with clients and say if you were going to build a house, you wouldn't go to Home Depot or Lowe's or whatever your favorite store is and start throwing all these things in the cart and then come back around and say, okay, now I'm ready to build the house. And how do I make this bet Right, I have my wood, my nails.

Speaker 2: 11:59

I got the shower and the sink and the accessories, yeah, you're going to need, but maybe that's not the right accessory based on the ultimate design of the plan. But unfortunately, as individuals, that's just how we approach it a lot of times. Right, we've accumulated all these different pieces of investments everywhere and we try to plan retirement around the investments. And it should be the opposite way. We should be looking at retirement as a kind of a blank slate, so to speak. So, understanding the most important part about the investments is what I call the tax buckets, understanding which bucket those fit in, because that really is the piece of it that we can now start to control.

Speaker 2: 12:37

You know how much is in your taxable bucket the money that is after tax, that's gone in, but the interest, dividends, capital gains as they grow, are taxable each year. Your tax deferred bucket, the IRAs, the 401ks, 403bs, all those different traditional retirement accounts where you've never paid tax on either the principal that was put in or the growth. And that's the biggest risk you have for taxes, because the taxes on those are paid in the year the money comes out at, whatever the rate is that year. I always joke with clients and say it's like having an adjustable rate mortgage on your house. Right, the difference is number one. In this case, the creditor, the IRS, is who establishes what that rate is Technically. Congress does the government establishes the rate.

Speaker 2: 13:21

Secondly, the tax mortgage, so to speak, on your IRAs. It grows as the IRA balance grows, unlike your house. As the value grows you don't pay the bank any more money, but with this account you do. So you've got to be very conscious of how taxes affect that account. And then our third bucket is going to be the tax-free. So those are your Roth IRAs, roth 401ks, where it's after tax money has gone in. All the growth is tax-free as long as you follow the rules that relate to those accounts. So those are the pieces of how accounts are positioned. You need to understand when you're building out that blueprint first. So it's really again having a plan, and if you don't have a plan, the IRS has one for you.

Speaker 2: 14:01

It's either what I call the default government plan of falling into those, or looking at it early on and saying, okay, yeah, I understand what that looks like. Here's what I'm trying to accomplish. How do we make the most out of social security? How do we lessen our tax burden? By having that holistic approach of everything, looking at everything together.

Speaker 1: 14:19

I hear you saying over and over, is that one? It comes down to the plan. And secondly and I heard you use the word holistically what differentiates the way that and maybe you've already talked about this, but would you add anything to what differentiates the way that you approach helping people to what they might be doing currently?

Speaker 2: 14:41

The first thing is going to be taking that holistic approach and doing a true financial plan. Most clients are probably going to understand what that looks like because they and I can't imagine being a client that doesn't understand this industry looking at it. Because to you everyone is a financial advisor right, whether you're insurance only, meaning you can just sell insurance products. Or maybe you're just a broker and can only sell stock type investments, market-based investments, or you're a fee only or fee based, or you get commission all these different things considered one. Really, a lot of times clients look at you as one. But you have to be that holistic first, to step back and have an unbiased opinion, to put together that blueprint first. So you probably heard of the whole concept of being that fiduciary and that's really the type of advisor I think that's going to give you the best direction in this, because they truly have to act in your best interest and they have as a fiduciary, they have to have options available or be able to make recommendations beyond just what they offer. So somebody that's only an insurance-related or insurance-licensed advisor, they have a hammer and to them everything's a nail right Because that's what they can sell. So nothing wrong with that we use insurance products if they fit in the plan. On the opposite end, you've got those that are, oh, I hate annuities, right, it's only just market-based investments. Again, to them they got the screwdriver and everything's a screw and it's not. There's certain times that certain tools fit. It starts with again that plan in the beginning to know, okay, do I need a hammer, do I need a screwdriver, do I need a saw? What do I need to fix my scenario and make it work long-term? So that's really to me the key in starting this process is picking the right person at this stage.

Speaker 2: 16:23

Much aging and you change your doctors early on. You just need the general doctor, your general practitioner. They're just doing the health checkups. But as you age, you might start to have maybe health and heart conditions or diabetes or whatever it is. So you start to need some specialties. That's really the kind of the same concept as you start to transition into that retirement era where you're now looking at I've accumulated all these assets with the goal of retirement. The goal is I've accumulated them not just to sit there and look at them and continue to work the rest of my life, but to somehow now take what I've accumulated and make that into my lifestyle and to live comfortably and confidently through retirement. That's going to be probably a different advisor than maybe helped you get there, because that helped you build and accumulate. Their approach is different. They don't understand possibly the tax side, the social security, all the different aspects that go into an income plan at the end.

Speaker 1: 17:18

When we started this book project together, the initial core idea is that you do I want to say a couple of days or I forget the exact number of hours you have a course where you, in person, you teach in depth the concepts that are described in the book, and part of the goal and motivation for the book was to take essentially those classes that you already do in long form and condense them down to a book that someone could reasonably read, say within two hours. What is your goal for the book and what does a person get reading it, or what would you like them to think about it if they've read it or if they haven't read it but they're interested in looking into it?

Speaker 2: 17:57

That was the beginning of the books is this class I do teach a class on retirement and planning for just covers exactly the topics that are in the book. So the idea was to condense that down into a book that somebody doesn't have to make the commitment to coming two nights for two to three hours and kind of block that time off their calendar or be in the area to do that. Right, the book is open to anyone, anywhere, and education is key to me and that's the reason I love teaching, love educating, because it helps make you aware of some of these things that are going to approach as you get into retirement. So, working with somebody that knows how that works, I help clients retire every day. That's what we do.

Speaker 2: 18:37

So the idea of the book and the class really is to help educate on here's the things to consider all the different aspects that you're going to start to face as you change from that accumulation phase where you've built the assets to now you have to start converting that into this income stream and try to pay the least amount of taxes, leave the money if there's money left to the kids, et cetera all the different things you need to look at. So that's really the goal of that class in the book is to help educate. So you're at least aware. My goal is to help make you aware of here's the things to consider, the options you have. Now let's help you build that best result plan for you.

Speaker 1: 19:15

Do you work primarily with just local people? Do you work remotely? If someone's listening to this and they're thinking that they might want to reach out to you who qualifies or who's a good fit for your services?

Speaker 2: 19:27

That's a great place to start. Let's have a discussion, and we do work with clients all over the country. That's one of the kind of the advents of COVID that I think a lot of companies have experienced is being able to work remotely, and we have clients that are all over the country, either because they've retired and move or we've got in front of them in various fashions and we don't have to be face to face so we can work either way.

Speaker 1: 19:59

Getting back to the process of writing the book, and so this is your first book, Congratulations and I know that you've also done an audio book version of it. So just from an experiential level, what was it like not just writing the book but then putting it into audio? Just thoughts from a high level about the whole process and experience of writing and publishing a book.

Speaker 2: 20:19

It was interesting because I'm used to giving the class and there's granted slides and a script, so to speak, and it's not a script that we follow but a process that we go through. So writing the book was a pretty interesting process because now we're having to take number one, a class that is probably five or six hours in total time, and condense that down to not lose the core pieces, make it interesting, because it can't just be a textbook or otherwise. Eyes are going to glaze over and they're going to put it down. So that was. It was an interesting process and you guys were awesome in helping put that together, very instrumental in that. But it was interesting to me to take that approach because it makes me even think now differently, as I'm teaching the class, so to speak, to make it more storytelling, which the book does just that.

Speaker 2: 21:04

In fact, there's a great case study, so to speak, bill and Mary Smith, that it's a change the name to protect the innocent. They don't know it's them. I told them it's them, but if they could piece the pieces together they might figure it out. But yeah, so it takes their case study and walks you through. Here's what we're talking about and here's how that affected them. So it's an interesting process to help bring that material to life. That's really, I think, the key in understanding is being able to see yourself in that situation. So that's to me that was the most interesting part of the book process, and the audio too is because now you're reading back what was written, which is a whole other different aspect of you're hearing it audibly.

Speaker 1: 21:41

For someone watching this and listening to this, and whether or not they've read or listened to the book yet, but they've watched this video, that they've watched this interview. If you were to boil it down to one thing, what's the one key lesson or piece of advice from your book that you'd like to communicate to someone?

Speaker 2: 22:00

The key lesson, or the core aspect of the book, is understanding. You need to have a plan right. It's going to be a plan you're following and it's going to either be that again default plan where you're just falling into place with this is when you file for Social Security, this is what taxes do, etc. Or it's going to be a plan that you've actively been involved with in working with an advisor or on your own, if you're comfortable with all these aspects. But you've mapped this out and that again, is one of those things that in talking to most clients, they don't. They've never seen, they've never done that. Because accumulating for retirement is, I don't want to say, easy, but it's not as complex, for sure, as retirement. There's not as many moving parts and when you get into retirement and facing that, you have many decisions Social Security, when do you file for you and a spouse, and what are the ages and what's the right aspect there. If you're fortunate enough to still have a pension and we're in Metro Detroit, there's still a lot of companies the auto companies that have those. Most of them are frozen at this stage, but there's those that are nearing retirement now that still have that as an option. What's the option you should claim on the pension, and there's many options to consider there.

Speaker 2: 23:06

Taxes what should we do with the whole Roth conversion? I've heard of Roth and Roth has been a big topic that's starting to gain more momentum and publicity lately, which I'm glad about. We've been doing Roth conversions for years 15, 20 years so this is nothing new to me. My concern is with that publicity. I think there's a lot of misinformation that's being put out there on taxes and pay no taxes, that whole concept, and you have to really understand what this looks like. So, understanding taxes truly and knowing the options, that planning process is really about now making informed decisions on each one of those pieces, not all by itself but in a whole right. That more holistic scenario to say, now that I know what I'm trying to accomplish, here's my tax buckets, here's the social security, the pension, whatever it is. How do I bring all those pieces together?

Speaker 2: 23:55

At the end of the class I always put up these three circles, this trifecta I call it where everyone's got income of some sort, at least social security, we might have a pension, whatever else it is, everyone's accumulated some money for retirement somewhere, three tax buckets we talk about, and at the end of the day, everyone's going to pay taxes and the intersection of those three buckets is your cash flow. What do you need for retirement? And as you change one bucket, it changes the other and it changes the other. So everyone has those three buckets, or those three circles, that are going to intersect and create a plan for them. Our goal is to make sure that plan is the right plan for you, right?

Speaker 2: 24:32

It's not what your uncle or cousin has done, or your colleague at work, or the buddy that you sit next to at the golf club, or whatever it is. It's your plan, it's a specific plan. It's like a thumbprint right, Everyone's got one. They all look real similar but at the end of the day, yours is unique versus mine, versus somebody else. So that's really to me. I think, the key aspect of the book is first understanding all these moving parts that are in play and knowing that, yeah, there is a way to bring these together to make a plan for me. That is my plan and it's what's right for me, and it's one that I've had the input in and said, yes, this is the decision I want to make on these various aspects, based on the knowledge I now have.

Speaker 1: 25:11

Final question for someone listening to this and they're interested in potentially working with you what is the best next step for them?

Speaker 2: 25:20

Easiest way to do that is right on the book website.

Speaker 2: 25:23

So the tax smart retiree bookcom there's a place to contact us and start a just a 15 minute phone call, so that introductory phone call.

Speaker 2: 25:31

My goal in that really is to just get a quick snapshot of your scenario If there's questions you had from the book, to answer those quickly and see, okay, what is your situation, is there some way I think I can help and is there a good fit to maybe take it to that next level where we can meet for either virtually or in person for an hour and a half to delve a little bit deeper into your scenario, paint the picture of your tax buckets and social security and different things. We'll show you a little bit clearer that napkin sketch of, okay, based on your information, these are some things to consider and at that point I can show you, if you wanted to work with us, what that would look like going forward. Yeah, so the first place is just that quick 15 minute call just to see if there's a good fit and, just based on that, if there's something that I think we can provide value to you.

Speaker 1: 26:16

Congratulations on the book. I've enjoyed this interview and I'm looking forward to seeing the greater impact that you have as a result of all the hard work that you've done.

Speaker 2: 26:24

Thank you very much. I appreciate it, Paul.