Investing for a Tax Free Retirement
In this episode of Tuesday Morning Coffee John Jones interviews Phil Cavender, an investment and retirement specialist in Murfreesboro. They discuss building a tax free retirement.
JOHN: Hey, guys. John Jones here with Tuesday Morning Coffee. As I’ve told you guys many times before, I always love to learn from people that are a lot smarter than me, which isn’t hard to find. But today, it’s definitely the case. Phil Cavender with the Cavender Financial Group is here today with us, and Phil’s a good friend of mine. And Phil has done some amazing things to help people build wealth and also he specializes in tax-free investments. Is that fair to say? In a nutshell, Phil, tell people kind of what you do.
PHIL: Well, John, mainly we’re managing people’s I guess you’d say their money in safe money instruments; 401Ks, IRAs, SEPs are such a large part of what people have placed their money in, so you naturally have to look at those instruments and manage those. However, I think the greatest benefit that I offer really is more tax-free incomes that people are not aware of, something like a Roth IRA.
PHIL: Or some other things that actually outdo a Roth.
PHIL: So those are the things I look at. I try to get people on the idea of tax-free retirement income rather than taxable retirement incomes.
JOHN: I got you. In fact, we were just talking—pick up that book—talking about the tax man and the IRS. Phil is part of a group called Ed Slott’s Elite IRA Advisor Group, which you’re probably the only guy in Murfreesboro or maybe one of the few in Middle Tennessee that’s even a part of this group. They get together—
PHIL: Twice a year.
JOHN: —twice a year and they go over—just this right here is one year of tax law changes, just in one year. So this guy is on top of this stuff. But what was interesting is a few weeks ago, Phil and I were having lunch and I looked at Phil because I’ve been thinking about this. I said, “Phil, every year I’m told to put as much as I can into my IRA. I’m told to just man, really pump that up. That’s how you’re going to get wealthy, retirement income.”
And I was thinking about it and I said, “Okay, I’m taking every dime I can muster to put it in here because I’m supposedly saving taxes, tax savings in this current year. But it’s going to grow and it’s going to grow—hopefully—although it hasn’t. And then when I pull it out at 59-1/2 I’m going to be paying taxes on it. Correct?” And he said, “Yeah, You’re right, John.” And I said, “But Phil, I don’t know what the tax rates going to be then. So is this really smart? I don’t know. I’m uncertain.”
And he made the greatest analogy that I want him to share with you today, and it really hit home with me. And that’s about the corn. We’ve got corn here, guys. There’s a reason. We’ve got our props.
PHIL: You know, I might, John, add to that it would be like you with one of your clients and they’re buying a house. And they go to the bank to get the loan and the banker says, “Sure, we’ll let you borrow the money, but we’ll set the interest rate later on that, what that will cost you later.”
JOHN: Yeah. It’s kind of an unknown out there.
PHIL: I don’t know that many people would be taking advantage of that.
PHIL: But my point about my illustration that I told you about a few weeks ago was I compared it to a 401K or IRA plan to a farmer who gets ready in the springtime of the year to do his spring planning, so he goes to the co-op and he goes to buy seed. And the co-op manager that year says, “John, this year, if you want to you can pay the tax over here on the seed. And if you pay the tax over here on the seed, then when the harvest comes in over here, all that money will be yours tax free. On the other hand, if you want to defer the tax over here, then when this comes in at the end, you’re going to be taxed on all of that money and we don’t know what the tax rate’s going to be in the future.”
That’s the deal we have with our government. And so the point there about all the tax law changes, this is the tax law change in one year. And so it’s constantly changing. It’s manipulated. It’s kind of like social security when it all began. If you go back and look at the tenets of how it began, it was going to be tax-free money; it was going to deductible, the amount that you put in. None of those things are true today because the government makes the rules.
It’s like former President Gerald Ford, back when he was living, I had lunch with him one day in Nashville. And I was talking to him about what I did, and he said, “Just always remember this. Any government big enough to give you something is a government big enough to take it all away.” And I’ve never really forgotten that.
JOHN: That’s very true.
PHIL: And it’s certainly true in 401K, IRA distributions, SEPs and any other qualified retirement plan where somebody’s getting a deduction. There is no tax savings.
PHIL: The terminology’s wrong, and yet I hear everybody say they’re going to save taxes. The terminology’s wrong. They’re deferring taxes.
JOHN: They’re deferring it to a later date on the growth, and we don’t know what the rate is.
PHIL: It’s the harvest there.
JOHN: The harvest.
PHIL: And then you’ve got many people that have risk instruments, so in our illustration here today, you could take away half the basket of the harvest here because that’s where a lot of people are right now.
PHIL: They’ve got half of what they used to have, and yet that half hasn’t been taxed yet either.
JOHN: Wow. That’s interesting. That’s good stuff. Phil, if somebody wanted to contact you what’s your phone number out there?
PHIL: Our phone number is of course 615, but the number is 895-7773.
JOHN: What about your website?
PHIL: The website’s CavenderFinancial.com.
JOHN: Phil, thank you so much. I love your wisdom. I think it’s very powerful, and I think it makes a lot of sense. And I think your clients have done pretty well over the last few years compared to most. Wouldn’t you say?
PHIL: We haven’t lost a dollar of anybody’s money.
JOHN: Well, maybe I should have found you a few years ago, but Phil, thank you man. I appreciate you so much.
PHIL: You’re welcome. Thank you.