REIA 396 Stephanie Walter: Would you like to have more tax free retirement income?

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Hello, enlightened investors. Welcome back to Real Estate Investing Abundance. I'm your host, Dr. Allen. Thanks so much for being with us. It is you who make our show, and we're delighted to have you back with us today. And with us today is a veteran of Real Estate Investing Abundance, Stephanie Walter, and she is an author and an expert in wealth building. And so what we're gonna talk about today is if we would like to have more tax-free retirement income, How can we go about obtaining that? So Stephanie is a wealth strategist, capital raiser, syndicator, author, and the CEO of Airbay Wealth. She has been helping her clients to follow the key principles she has learned from her wealthy investors. She teaches professional people to unlearn what We Have Been Wired to Think About Money, and she reeducates us to help us learn the secrets of the wealthy investors that she has come to know. So let's get into the show, Stephanie, and share a memorable experience that helped you to be who you are today.

Oh boy. Yeah, I thought about that. I think for me anyways, it was Growing up with both of my parents, but my dad essentially was an entrepreneur and he started several businesses when I was young. And I can remember when he started his— he transitioned from insurance to Dairy Queen. A very strange transition, but he absolutely loved ice cream. And he just, I just remember being a young kid and understanding how he was up every day at like 5 in the morning. And a lot of times he wouldn't come home until after 10 at night because he'd be working there to make that business work. And that really impacted me, one, to see how much he loved what he was doing, and two, just how hard someone has to work when they own their own business.

Well, good lessons at a young age. And you have come to learn many, many more lessons as you have had the opportunity to work with wealthy individuals and to learn how it is that they develop their wealth, how they manage their wealth, and how they continue to help their wealth to grow. And so I'm so delighted that you are with us today because Our audience, our viewers and listeners, are certainly looking to find out those secrets, and most of our viewers and listeners are fulfilled professionals who are very satisfied in the work of their calling. But they're looking for a way and means to develop passive streams of income so that they can follow their passions without having to exchange. their time and effort for money there. So what are some of the money myths that you discuss in your book?

Well, I think probably the one, one of the more surprising myths, there's 10 of them, but one of the more surprising myths is that the wealthy become wealthy because they invest in very high-risk investments. And actually, the reality is nothing could be further from the truth. They're very involved in what they're invested in. They're very knowledgeable about their— what they're invested in, but they like to be involved in very low-risk investments. And in fact, they look— what they look for rather than risky investments, they look for an asymmetrical return on the investments that they do, which just means that, you know, you get a much larger return on your investment than what your investment is initially. are out of proportion, basically. And so that's what I see with a lot of wealthy people. They don't grumble and complain about, you know, the market going up or down there because they're invested in things that they have control of. And usually they don't tolerate any downs, maybe with a very small portion of their money, but not like the majority of Americans who probably have 90 to 100% of their assets in the market.

Yeah. You say that wealthy people invest their money in asymmetrical returns, but they're not high risk. That's kind of counterintuitive to what we typically think. We think that asymmetrical returns come with high risk. So talk to us a little bit more about that.

Well, that's another falsehood that we're sold, especially I guess in the financial industry that where we just are told by our financial planners, the more risk you're willing to take, the more you can earn. And so that's just, you know, not what I see with the wealthy people. What I see with the wealthy is they educate themselves a lot on the asset classes they're looking to invest in, and they find possible opportunities where they're hitting the market or there's something special about the investment that's really going to perform well, they believe, after doing all their due diligence, that will get them a much higher return than what they're investing in to begin with.

And yes, they are not looking at losing any money in their investments unless it's strategic and they're looking to get maybe a tax benefit from losing, but it's very rare that the wealthy, the wealthy that I know anyways, they keep their money in very low, low-risk opportunities. Largely, there are things that have their asset-based, so it's actually they're investing in real things. So they're either investing in real estate through a syndication largely.

They don't manage their individual properties or private equity, which is, you know, in companies themselves. And again, that's something where you can have a little bit more control. You can know in both a syndication and a private equity opportunity who you're investing with, what their track record is, what they're wanting to achieve out of the particular investment you're looking at and kind of what an exit strategy might look like in that scenario.

So they know pretty much going in what the final outcome is going to be. It's not like when you purchase a stock, you really have no idea whether that's going to go up or down, or if it goes up, you have no idea how much it's going to go up. You're just guessing in the stock market.

Yes. Yeah. And yeah, I find that they like to— I guess as they have more wealth, they find more ways in which to invest in very proven methods of getting possibly a bit of a better return. That brings up the idea of they also invest a lot with insurance companies. And insurance companies, many people are like, oh, Insurance companies, they're the worst. But actually, insurance companies are some of the most stable companies that exist on Earth. A lot of companies that I, and I know that some of my investors are familiar with, are companies that have been around since the 1800s. And they are able to last that long and be that financially stable because they have an extremely conservative view on what they do with their money. And that is appealing to wealthy people to work with companies that are very stable like that and have a solid plan of how they make their money.

Well, what is tax treatment diversification?

Well, I like this. This is one of the later chapters in my book, but it's my favorite because most people talk and we're told again, through all the education we get, or lack of education that we get, that you need to diversify, diversify, diversify. So for a lot of people, that means I'm going to diversify within the stock market and have a whole bunch of, you know, stocks, bonds, mutual funds, whatever. But no, this is tax treatment diversification, and people usually eyes glaze over a little bit with that because They don't think about it. For one, they think, oh, taxes are just taxes. I'm gonna, you know, I— death and taxes are the only things that are guaranteed in this life. But that's actually not the case. You've got taxable income. That's income like your, you know, an income if you have money in your savings account. You get that little 1099 at the end that tells you how much interest you're paying that you have to claim on that.

So that's taxable income.

That's one bucket.

There's another bucket which is tax-deferred. Now that's the one that most Americans have the majority of their assets in.

Tax-deferred means they don't have to pay taxes on it now. They'll pay it on when they retire.

And that's a 401 that, you know, and again, that a lot of people are invested in that. There's problems with that that we really don't talk about, or most people hear, in that the 401 was created in the '80s. When we were in traditionally very high tax rates, much higher than what we are in today. And so the strategy of deferring your taxes when taxes are high and then getting the money when taxes are low was very sound. Now we're in a bit of a different situation. Most people don't realize where we are, very historically low taxes. I could Go over that, all those details if you're interested. But we're in historically low tax rates right now, and given what we're seeing as far as how much money the country's spending and how far in debt we are, you can always go to usdebtclock.com. It's always interesting, shows a running total of where we are with the debt. Very, very, you know, bad situation. So if we were to ask most people, where do you think tax rates are going to go? They're going to go up, very likely. And so then that strategy isn't the best for them.

But then we go to, well, tax-advantaged. I kind of use that as a 3rd bucket. That's like syndications, real estate. You can have some tax advantages, many tax advantages for investing in them, or you have the 4th bucket. The 4th bucket, I work with people all the time, and that is the smallest or non-existent bucket that most people have, tax-free. So that means that the— once you put your money into this vehicle, that's the last bite the IRS is ever going to get of that money. So it grows tax-free, it's distributed tax-free. A lot of people think, especially if your audience is professional people, they say, well, I can't really contribute to my 401 because I'm— or my Roth because I make too much money. But there are other tax shelters that are out there, and depending on what, you know, you're wanting to achieve, you really need to look at diversifying some of your money into that.

Yeah, good, good suggestions there. And so many people think that tax-deferred, the Roth IRAs, the 401s, not the Roth, but the regular IRAs and the 401s are tax-free. So many people don't realize that those, they're going to pay the taxes on those eventually. And so many people I know, they come into retirement and they start drawing on their 401s and IRAs. And surprise, surprise, they're being taxed on that income. And so what they were expecting is significantly reduced from the expectation. And that is sad. And I think it has to do a lot with benefit providers within our employers and with advisors and what have you. They just aren't sharing this information.

Yeah, I find that too. And people are very surprised to learn There's a chapter that reflects this in my book of how much you can take out and sustain or what people say that you can take out. So say you have $1 million saved in your 401, the company is Morningstar Financial. They came out just recently with that you can take out 3.3% a year and expect to live on that.

hopefully, you know, for the rest of your life. And most people, that's a heck of a surprise. They think it's more like 8%.

And that is, but again, as you mentioned, that's without taxes touching the money.

So if you figure that taxes are taking about half of that, that can be a terrible surprise when you retire.

Yeah, a real reduction in a lifestyle. You touched on this a bit, the history of tax rates that were much lower than, than what we were 30, 40 years ago. Is there anything else you need to add in terms of that?

Nope. I think that's the, you know, that's basically, I think it's a surprise to most people. I have a great chart and I'm sure you can pull it up if you go onto the internet, is this the history of tax rates. The income tax was created, I think, in Oh, I think 1913 or something like that, and shortly thereafter, about, I don't know, 10 years after that, the rates all of a sudden, when income tax was never taxed before, they went up to like 90%. So what you earned was taxed at 90% in a lot of cases, and actually if you do an average from the time that, that income tax was rolled out to today, the average tax rate was about 58%, almost 59% actually. And right now we're in rates that are about 39%, give or take. So we are historically low, and that's usually a big, like, surprise because people don't think about it.

Enlightened Investors, if you haven't done so already, Be sure and click that like button and also click that share so others can take advantage of the content. And finally, be sure to subscribe so you don't miss a single one of our upcoming episodes. So what is the major asset allocation problem for 90% of middle Americans, and why, why will that be A big wake-up call.

Oh, I mean, I always like to refer people to Tiger 21. It's a group of very well, you know, very— I believe they have to have $10 million to participate in this group. But what they do every year is they disclose what they're invested in. And it's very interesting. So, and it does change, but you can actually pull it up and see the last quarter of that report if you go online. And what it is, is it's pretty close to almost the 30%, 25 to 30% is real estate holdings, 25 to 30% is private equity, and about 20% is your public equities. So for the people at home, the public equity portion would be basically like your 401.

And but the average American puts all of their money in their 401, and so they've got 90% to 100% of their money not diversified, basically market dependent. And that is a big surprise because, you know, if you have a— markets go up, they go down, you know, no one really knows when, but depending on when markets go down as you approach retirement, That can be quite devastating to a retirement plan. I saw a lot of people in the 2008-2009 time period that had to delay their retirements almost a year, almost 10 years until, you know, they were able to recover the losses that they had sustained. So market timing is more important the closer You get to retirement.

Absolutely. And the stock market has really done very, very well since 2008. And so that's, you know, 15, 16 years that professionals have been in their 401s. And I think a lot of them think that that's just going to continue. But I mean, it never does. I mean, this has been a long, long run. It's been an unusually long run. That doesn't mean it's going to collapse tomorrow, but it very well could, and who knows? And as old as I am, I've seen that decline that we saw, not to the degree that we did in 2008, but I've seen it many, many a time when people are right at the door of retirement and the stock market drops, and whoops, there goes that retirement that they were expecting to do just Within months to a couple of years. And it's happened many a time in my life. So.

And it's a shame because I find that that's kind of where the average financial advisor, or say a person doesn't have a financial advisor and they're just depending on the 401, you know, advice that they get from their job, that's where it really lets them down because, you know, you should be talking to someone probably 10, 15 years ahead of time. Who can actually say these are your assets and this is what we predict your income will be if you stay on the same path. But you need to understand the sequence of returns in that if we have a 40% drop from now until retirement, this is what your income looks like. But most financial advisors or people are just not simply aware of what their retirement looks like based on their assets that they have right now.

Yeah, and it's, I mean, it's not particularly straightforward, and so it's easy to be deceived on where that is going to go. Well, is it possible to set up tax-free income for retirement? And if so, how do we do that?

The question is, it depends. It depends. There is no like one-size-fits-all for everyone, but there's absolutely, it's absolutely worth looking into to see If if that is, but there are many strategies that use tax-free income, and you know it's it's hard. Like I said, there's not any. It depends on everyone's particular situation what that looks like. But yes, you should be asking. You know, I don't know that this is something that you ask a financial planner, but you can certainly ask a wealth strategist like myself, and happy to show you different options that would. be, you know, applicable to your situation.

Well, what is sequence of returns risks, and why should we care about that?

Yeah, sequence of returns was what I was explaining before. So if we have a drop, you know, a 40% drop like we saw in 2008, 5 years from retirement, as opposed to 15 years from retirement or even 3 years from retirement, it really affects you. You need to see what some— what a potential drop like that would do to your retirement, and it can be fairly devastating. And so that's important as you get older, closer and closer to retirement, within those 10 to 15 years of retirement, to look at what you're invested in and maybe shifting some of those those assets out for things that are much less volatile. And, you know, you can not worry about having that loss in the stock market.

Well, Stephanie, tell us about Erbay Wealth and what it is that you do as a wealth strategist, and how does that differ from a financial planner?

Yeah, yeah, I actually— Erbay Wealth, I created that in 2016, and I worked with raising money largely for syndication, syndicated investments. And in the meantime, I began to work with all of my wealthy investors and really enjoyed getting to know them and seeing what, you know, they were doing in terms of their wealth and really learned a lot by being involved with them. I had— I changed my own investing as a result of being around them. And as a result, I was actually able to sell my main business, which was in 2021. And right now, this is what I do with is the wealth strategist. So I work with a lot of people to figure out how to maximize their tax-free income in retirement or even know, have the knowledge of what their tax-free or what their retirement will be when they get ready to. And I do that by kind of addressing the stock market risk, which really needs to be done. And I'm very interested, I'm very passionate about it. I wrote the book and I am looking to make an impact on people because this— I'm passionate about this. I've seen a lot of people like what you've said not be prepared for retirement, and that's just the not knowing can kill you. You know, people think ignorance is bliss and that everything will work out, and a lot of times that's just simply not the case.

Well, Stephanie, how can we get hold of you to take advantage of your services?

You can, um, you can get onto my website, and that's actually where I have a copy of the book if you'd like to download it or get a regular copy. It's for I have it on there for free, and by doing that you can be on my email contact list where I try to you know send my people that are on my list probably bi-monthly information. I try to send them a lot of education because I feel like that you know is what is going to help that people move to the next step, and then from there you can book a call to get. I could get to know you and your situation and see if I'm able to help or give you some insight to help you, you know, be better prepared for retirement or to, more importantly, utilize these tax-free strategies that are still available to you right now.

Well, Stephanie, just one last question. What was one of your most difficult setbacks in life and how did you come through that and what did you learn from that?

I think my, my most difficult setback was definitely was losing my father. That was 18 years ago. And I had re— I had actually about 5 months before that, I decided that I was going to exit, um, the corporate world and I was gonna do my own business. And I, I was right in the pretty early stages of, of starting my own business and running it when my dad passed away. And so that was very hard because I, I made that decision because I knew it was the right one for me, but I was depending kind of on my dad to, you know, be there more as a security blanket to talk me through different things and And so I was out there by myself, you know, trying to, to start, start this fledgling business. And I just really leaned into, you know, mentorship. I always have my whole life is I've been lucky to have really great mentors that in that particular case knew my dad, um, a couple business owners that had known him and, and stepped in and kind of advised me on some stuff. So I was, I was very lucky in that aspect, but then also just really leaned into what I was shown as a child, which is working incredibly hard. And, you know, I knew from watching my dad what kind of effort it takes to make a business successful. And I committed into that for, you know, several years before I eased off on, on that.

Well, Stephanie, it's been wonderful having you with us again. Thank you for sharing your wisdom, and, uh, thank you for bringing us the information through your book and through your website. And Enlightened Investors, what a pleasure it was being with you again today. Thank you for sharing your time with us, and I would greatly appreciate it if you would like, share, and subscribe if you have not done so already. And please go to Uh, Apple Podcasts and leave us a rating and review. Until next time, be well and prosper.

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