In this episode of Executive Connect, Melissa Aarskaug sits down with Bonnie Humphrey to challenge several assumptions that keep successful professionals and business owners financially uncertain. Bonnie explains why high income does not automatically create wealth, why filing an accurate tax return is different from proactive tax planning, and why relying on one retirement account may leave important gaps.

The conversation explores lifestyle creep, coordinated advisory teams, tax diversification, retirement cash flow, and the hidden cost of putting financial decisions on autopilot. Bonnie also shares why every plan should begin with a clear end goal and why financial confidence comes from asking better questions, understanding your options, and choosing strategies designed around your life rather than following a default path.

This episode is for executives, entrepreneurs, and families who want their income, taxes, investments, and retirement planning to work together instead of operating as disconnected pieces.

Chapters:

(0:28) Meet Bonnie and the financial myths keeping people stuck

(1:55) Why successful people still feel uncertain about money

(4:19) The notebook that helped Bonnie build financial confidence

(6:23) Why accumulated assets do not guarantee a coordinated strategy

(8:11) High income versus lasting family wealth

(9:06) Defining your financial goal and retirement number

(10:09) Why having an advisor does not mean everything is covered

(12:44) Building a coordinated financial advisory team

(16:13) Tax preparation versus proactive tax strategy

(19:29) Why taxes should be designed, not discovered

(23:09) Avoiding overly aggressive tax strategies

(27:31) The retirement myth surrounding the 401(k)

(30:18) The hidden tax bill inside retirement accounts

(33:38) When to begin planning for tax diversification

(36:05) Building retirement income instead of chasing one number

(39:47) Being asset rich but cash flow constrained

(41:52) Why financial autopilot becomes risky

(45:40) Updating your plan as life changes

(46:10) The financial cost of waiting

(49:34) How to begin building your financial strategy

(52:13) Bonnie’s final advice for building financial confidence

Bonnie

(0:00) Really find out what it is you’re trying to accomplish. (0:03) What’s your end game? (0:03) What’s your goal?

(0:04) You can meet with a lot of advisors, but they really can’t define that for you. (0:08) So you really have to have an end game in mind. (0:12) But then from there, you don’t need to go it alone.

(0:15) Reach out to, you know, ask questions, reach out to advisors, look to see, you know, learn what you don’t know, right? (0:23) But develop enough confidence in yourself through kind of understanding what it is that you want to do.

Melissa

(0:28) Have you ever looked around and assumed that everyone had their financial life figured out? (0:33) They know how to invest. (0:35) They know how to reduce their taxes.

(0:37) They seem confident about their retirement. (0:40) And somehow they always appear to be several steps of ahead of where you are. (0:46) But the truth is many successful professionals and business owners are quietly carrying the same uncertainty.

(0:53) They earn well, save consistently and follow conventional financial advice, but they never stopped to ask whether the strategy they were given is actually designed for the life they want. (1:05) Today’s guest, Bonnie Humphrey is here to challenge the three of the biggest myths that keep people stuck. (1:12) The belief that everyone else has it figured out.

(1:15) The assumption that filing tax return is the same as having a tax strategy. (1:21) And the idea that contributing to your 401k actually means you are prepared for retirement. (1:29) These myths may sound harmless, but over a lifetime, they can quietly cost individuals, families, and businesses, hundreds of thousands, and maybe even sometimes millions of dollars.

(1:42) This conversation is about replacing financial assumptions with intentional strategies. (1:48) Welcome, Bonnie.

Bonnie

(1:50) Thanks, Melissa. (1:51) I’ve been really looking forward to having this conversation with you.

Melissa

(1:55) Well, we’re excited to unpack it with you. (1:58) Money is one of the few subjects people are expected to understand, yet almost no one is taught how it actually works. (2:08) Why does so many successful professionals feel like everyone else is understanding finances better than they do?

Bonnie

(2:17) Yeah. (2:17) I mean, this is such a great question. (2:21) I think a lot of it is because too, money is highly emotional, right?

(2:25) We tie money to our self-identity, our self-worth, and people have a hard time separating it, really, from how they view themselves. (2:38) And exactly like what you just said, we’re not taught. (2:41) I mean, typically in schools, we’re not taught this.

(2:44) We’re not taught at home because parents typically don’t have conversations with their kids about it. (2:49) And so, as adults, we’re expected, you know, we’re holding jobs, we’re successful, we’re doing all the right things. (2:55) I think there’s just this unwritten expectation that everybody’s supposed to know and be able to figure it out.

(3:01) But really, we figure it out by trial and error because there really hasn’t been anybody to show us the way. (3:08) And because it’s so highly emotionally charged, there’s this fear to really open up and talk about it and ask questions and learn new strategies, learn what’s out there. (3:20) And so, we kind of keep it locked in.

(3:22) But it’s interesting because when you think about money, it doesn’t matter who you are. (3:27) You know, male, female, employed, unemployed, rich, poor, your ethnic, religious background, it doesn’t matter. (3:33) Money affects everyone.

(3:35) At some point, everyone needs to be able to learn how to manage and take care of their finances. (3:42) And a lot of that revolves, too, around knowing what works for you, right? (3:47) So, if you are, you know, thinking, okay, I want to get organized in my financial life.

(3:52) I want to have, you know, this ability to manage my finances. (3:57) I really need to know and understand what is it that I want to do? (4:01) Because there’s loads of advice out there.

(4:04) But we need to know and understand what applies to us. (4:09) And I think a lot of that comes with asking questions. (4:12) You know, being able to get over that fear, that fear of embarrassment, and being able to ask questions.

(4:19) I’ll take a little side note here for just a moment. (4:22) When I was in my early years, we were just barely brand new married. (4:26) My husband and I did a study abroad.

(4:28) And we went over to Tokyo, Japan. (4:30) And at that time, I, you know, we were both grad students. (4:33) We were poor.

(4:34) We didn’t have any money. (4:35) And I was really quite worried. (4:38) That time, the yen was strong.

(4:39) And so, I had massive sticker shock when we got into the country about how expensive everything was. (4:45) And so, I bought this little pocket-sized notebook that I kept in my pocket and started to just keep track of everything that I spent. (4:54) And among the students, it became a little bit of a running joke, you know?

(4:59) Like, they would kind of chide me for it. (5:01) Oh, there’s money in our notebook. (5:03) But over time, it laid the foundation for what we, you know, for healthy conversations between me and my husband.

(5:12) We kept track of everything that we spent. (5:14) And it helped me really start to understand that, you know, how to start to manage. (5:22) I got over that fear of embarrassment of, you know, trying something, asking questions, figuring out what worked, right?

(5:29) And so, yeah, I mean, I had a lot of people kind of poking at us for doing it. (5:34) But it really made a difference. (5:36) So, I think one of the biggest things is getting over that fear of embarrassment and getting over that fear of thinking everybody else has it figured out.

(5:46) And so, I just quietly need to figure it out on my own. (5:49) And instead, it’s asking questions. (5:51) It’s reaching out.

(5:52) It’s finding new ways and discovering and building your confidence through increasing your knowledge base.

Melissa

(6:00) And I love that. (6:01) I think it’s so true. (6:02) I think the, you know, interesting thing for me is we get it figured out and then life changes.

(6:07) We get married or we have kids or we change jobs or we change financial, you know, how much money we’re making and we have to start again. (6:16) So, it’s really a constant strategy. (6:19) And I’m really curious to get your opinion.

(6:23) How often do you see successful people who have accumulated assets but do not have an actual coordinated strategy?

Bonnie

(6:44) To be honest, quite often. (6:47) You know, I think sometimes we’re very good at making things look good on the outside. (6:52) So, we have the right house, the right car, the right, you know, whatever it is, you know, that we’re doing.

(6:59) We make it look good on the outside. (7:01) But it’s interesting because as I meet with people, I meet with a lot of highly compensated W-2 employees. (7:06) I meet with a lot of business owners.

(7:08) And I also teach a lot of financial literacy classes in underprivileged areas, neighborhoods. (7:15) And a lot of the issues are kind of the same. (7:18) They run across that gamut in terms of inside.

(7:22) You know, on the outside, we make it look really nice. (7:25) But on the inside, we’re still just kind of struggling from that paycheck to paycheck mentality. (7:31) With that lifestyle creep comes in, our expenses go up.

(7:35) And so, the money that comes in as income just turns around and goes right back out to either just pay off the credit card, to pay the bills. (7:43) There’s not really a coordinated strategy to think, how can I keep a portion of what I’ve earned and put it to work? (7:51) And so, there’s a lot of people I meet with that just really on the inside struggle.

(7:55) They don’t feel like they know what they’re trying to do. (7:58) They don’t feel like they have a strategy. (8:00) They don’t feel like they’ve got advisors that they can often go to, or maybe they feel the advisor isn’t giving the right advice.

(8:08) And so, we see it, you know, more often than you would think.

Melissa

(8:11) Yeah, I thought you might say that. (8:13) And I think it’s interesting. (8:15) I think as high-functioning, high-performing executives, they just get into the doing.

(8:22) They get into the doing and the money-making and they go after that high income. (8:29) But it’s not the same as being in creating wealth for your family. (8:33) You could earn a lot of money and have no money.

(8:37) And I often find the expenses often rise as the income rises. (8:41) I’ve seen this in my own life. (8:42) I see it in my friend’s life.

(8:44) We wish for, you know, different things for our life. (8:48) But many people assume that when you earn more money, it’s going to solve any of your financial problems. (8:54) I’m going to get a new this or a new that.

(8:56) But this is not always the case. (8:59) And so, I’d like to get your thoughts on why it’s not the case.

Bonnie

(9:06) Yeah. (9:06) I mean, typically, because we don’t know where a lot of, well, let me back it up a little bit. (9:11) I think we don’t know where we’re going, right?

(9:14) There’s, especially for very successful, high-performing executives, they’re very good at setting goals, right? (9:21) So, they set a goal, whether it’s in their professional life, their personal life. (9:27) They set these goals.

(9:28) They know where they want to go. (9:30) For whatever reason, money seems to be the exception. (9:33) A lot of times when we meet with people, they don’t know what their goal number is.

(9:37) They don’t know what they need for retirement. (9:39) They don’t know what the end game is. (9:41) So, if they are even saving some money, they’re just tucking it away, letting it maybe grow in a brokerage account or whatnot, in hopes that when retirement comes or when, you know, that long-term goal hits, that there’ll be enough there.

(9:56) So, I always find that a little bit interesting that there’s sometimes that disconnect with the goal setting. (10:02) But I think, again, it goes back to a lot of people just don’t feel confident in being able to plan out their financial life.

Melissa

(10:09) Yeah. (10:09) And I find, like, I’ve had a lot of advisors in my life and not all of them agreed or maybe, you know, I had different CPAs that knew a little bit of this and not about that. (10:20) So, I often felt like a lot in my career, you know, I was taking one advisor’s advice and not the other.

(10:29) And so, I thought, and I know many people believe that having a CPA or a financial advisor means that their financial life is being addressed and they have kind of that box checked. (10:41) But you said it is one of the biggest misconceptions. (10:45) Why is that?

Bonnie

(10:48) Well, again, I mean, you can search online. (10:52) You can talk to all your friends and colleagues. (10:55) Everybody will have advice.

(10:56) There’s loads of people out there that can give advice. (10:59) I think where the disconnect is, is coming back to knowing, but what’s right for me? (11:05) And again, because we’re not taught and we, you know, build our financial life on a lot of trial and error, we really don’t know.

(11:14) We don’t know what we don’t know. (11:16) Right. (11:16) So, when we work with people, we always like to call ourselves educators more than anything and really educate on different options and opportunities and strategies and things that are available.

(11:26) Right. (11:27) So, that people start to, maybe they don’t need to become experts, but they start to understand and know what they don’t know. (11:35) Right.

(11:35) So, that as they search through that information, because there’s a plethora of advice out there, then people can say, I’ll listen to, you know, so-and-so, but they need to be able to say, is that the right advice for me? (11:48) And that’s ultimately where, really where it comes down to. (11:51) There’s a lot of good trusted advisors out there, but if the advice they’re giving is not right for you, then it’s not right for you.

(11:59) But we need to, you know, on an individual level, build that confidence and that knowledge base to a point where we can sift through a lot of the information that’s being thrown at us to say, you know, that works for me or that doesn’t work for me. (12:13) And I think that’s the key because nobody can, you know, decide that for you. (12:17) You really have to, you know, know on your own, does this really hit home with what I’m trying to accomplish?

Melissa

(12:23) Yeah. (12:23) And I love that. (12:24) I think, you know, I’ve had an advisor who was doing pretty good individually, but my overall financial strategy, in my opinion, was still failing.

(12:33) They were really focusing in one area only. (12:36) And that was the area that they were the most comfortable in and that they knew the most on. (12:41) And so, they really just focused in that one area.

(12:44) So, let’s talk about the importance of building a team that’s coordinated. (12:49) And so, if one advisor cannot see the entire financial picture, how does an effective advisory team actually look like and what do they actually do?

Bonnie

(13:02) Yeah, this is a really great question and we run into this a lot as well. (13:06) One of the big pillars that we lean on and really believe, you know, firmly in as a value of the firm is collaboration. (13:14) And so, when we come in and we start to work with clients, we really try to take that holistic view.

(13:20) I think, oftentimes, you may have an advisor, a financial advisor, who’s working on the retirement plan or maybe building, you know, a portion of assets for you, investments, right, an AUM account. (13:31) You may have a CPA or a tax preparer who’s looking at the compliance of your tax returns. (13:38) But there’s often not really somebody in that team that’s looking at the whole picture.

(13:44) How is your financial universe put together? (13:46) How do all the pieces come together? (13:48) And this gets even a bit more complicated for business owners, right, because they’ve got a lot going on in their business.

(13:54) They’ve got a lot going on in the personal life. (13:56) And so, it’s really important to come in and have an advisor that can see the whole picture and really understand how does money come into your financial universe, how does it move around in your financial universe, and then how does it come out of your financial universe. (14:14) And there’s a lot involved with, you know, growing those assets, but there’s a lot involved with just keeping those assets through, you know, the tax mitigation strategies or whatever they may be.

(14:24) But really, it’s important to have this collaboration. (14:27) I know that it’s an industry sometimes where the competition is fierce and high. (14:31) And so, there’s a lot of nervousness or concern from other advisors, you know, that people are trying to steal my clients or whatnot.

(14:39) And we do a lot of work to get over that, right, because I really, truly believe in the power of collaboration. (14:45) I think a lot more can be done for a client when advisors collaborate together and build out that very rounded picture for a client and not just these pointed strategies of like, to your point, Melissa, you know, an advisor may be good at one thing, so that’s really where they focus on and they don’t really see the rest. (15:05) And that’s why collaboration is so crucial to providing the best value for the client.

Melissa

(15:11) And I don’t, this is just an analogy that I’ve often thought about the game of money. (15:17) It’s, for me, it’s like a chessboard. (15:19) Every piece has an important role, but they all must work together to win the game.

(15:25) And so, I think a lot of times that, you know, if an advisor is unwilling to collaborate, you’re going to receive fragmented advice, and ultimately, it’s going to cost you money. (15:38) If your advisors can play the game, the chess game, with the other players, it’s best for everyone. (15:46) At some point, we’ve got to pull one of the pieces off the board to move the race forward.

(15:52) And sometimes we get that piece and we pull that piece back in. (15:55) And so, I think a lot of times, I, like I know in my early years, I thought my tax plan was the best strategy for me because I would save on taxes. (16:09) I would, you know, figure out my write-offs.

(16:13) And so, I was very confused a bit at the beginning. (16:17) And I think most people assume their CPAs are filing their taxes everywhere, every year, and they’re already applying the lowest amount legally possible in taxes. (16:31) But is this actually true?

Bonnie

(16:35) Yeah, I mean, this is a very good question topic to bring up. (16:39) You know, oftentimes, I think most clients are similar to yourself, Melissa, that they assume, oh, my CPA or my tax preparer is preparing my taxes. (16:48) They must be filing in the most tax-advantaged, tax-efficient way.

(16:52) But it really isn’t the case, right? (16:56) And it’s interesting. (16:57) So, I work a lot with my dad.

(16:59) We’re a dad-daughter duo. (17:00) He’s a CPA by trade. (17:02) He’s been in the business for about 50 years.

(17:04) He’s been around the block. (17:06) He’s seen a lot, right? (17:08) About 30, 40 years ago, that was the case.

(17:11) If you went into a tax preparer, they would have a large portion of their servicing towards your account in tax strategy. (17:18) And they would ask you questions and really look at it from that standpoint. (17:22) That trend has really phased out.

(17:24) And there’s a variety of reasons for it. (17:26) I mean, the tax codes become a bit more complicated. (17:28) There’s more regulation around how that CPAs need to be in line with in terms of the compliance and how they file.

(17:36) There’s more competition. (17:37) And so, sometimes just turning out volume to increase revenue is part of that. (17:42) And the adoption of the software, right?

(17:45) It used to be tax returns were all prepared by hand. (17:48) And so, somebody was manually going through and looking at all those pieces coming together. (17:52) Now, there’s software built and those software programs have a default path built into them.

(17:58) And so, typically, people just get put on that default path. (18:02) When clients come and meet with us, we’ll look at their returns. (18:06) There’s nothing wrong with their returns in terms of compliance, right?

(18:10) They’re done correctly according to the law, according to IRS regulation, right? (18:15) But they’re not typically done in the most strategic way. (18:19) And tax preparers, there’s a lot of really great tax preparers out there.

(18:23) They just don’t have the time and the capacity to keep up with different strategies, how to interconnect the tax code, to provide strategies for clients. (18:32) And so, oftentimes, they aren’t able to provide that strategic look to a client situation.

Melissa

(18:39) Yeah. (18:39) And I love that. (18:40) I think, at least for me, some of the largest tax opportunities have happened for us before the tax return was ever prepared.

(18:51) It’s getting things organized and April’s everybody’s kind of month to get going. (18:59) But I think there’s consequences that people should consider before we prepare kind of the tax return. (19:08) And I often think too, a lot of times, I’ve been in situations where I needed more than one CPA to get a tax return done because one CPA didn’t understand the tax write-offs the way I saw the tax write-offs.

(19:24) So, I had to kind of have two CPAs to prepare one tax return. (19:29) And so, you’ve said that taxes should be designed, not discovered. (19:33) What exactly does that mean?

Bonnie

(19:37) Yeah. (19:37) I mean, well, when you think about the discovery part, typically for clients, the discovery part is when you get that letter from your CPA and it says, okay, and now you need to send a check to the IRS for this amount, right? (19:50) And we discover and we have that heart attack of like, wait, what?

(19:54) How much do I need to pay in tax? (19:55) Right? (19:56) And so, again, design versus discovery or even default, right?

(20:02) Is taking that proactive look. (20:04) How can we take a proactive look at setting up and organizing ourselves so that we are set in the most tax efficient way? (20:13) And, you know, there’s a lot of opportunities out there in terms of purchasing things for tax deductions or credits and different things.

(20:21) We really start even a step before that. (20:24) And we look at how is a client structured? (20:27) Again, going back to what I said before, how does money come into their universe?

(20:31) How does it move around in their universe? (20:33) And then how does it come out of their universe? (20:35) And just looking at that overall structure, oftentimes when a client comes to us, we will, you know, rework that structure.

(20:44) There’s some data, like I mentioned, my dad’s been in this business for a very long time. (20:48) He’s kept a survey up that he’s done since the eighties. (20:51) And he’s found that about 85% of all entrepreneurs overpay in tax.

(20:57) And that’s something that’s stayed true through, you know, different, the wars, the up and down of the, you know, the economic climate since then. (21:05) I mean, we’ve had COVID, we’ve had a variety of social issues, you know, all the different things that have happened, right? (21:11) That statistic has stayed true.

(21:13) And so for us, when we meet with a client, we typically feel pretty confident. (21:17) We’ve got an 85% chance that there is something that we can do for this client to help them in their restructuring and their organization to help them minimize tax. (21:26) And a lot of that is just because it’s not, there’s not a lot of tax preparers, CPAs looking at it from the strategic viewpoint anymore.

(21:35) So that design really, that’s the design is really understanding the client, what they’re trying to accomplish and putting something together that fits their situation.

Melissa

(21:46) Yeah. (21:47) And I love that because I think that’s really key. (21:50) I feel oftentimes people look at, you know, April is like, you know, tax day is like a very stressful, stressful thing.

(22:01) They’re fearful of the thing. (22:03) And so a lot of times people just, you know, take the minimum because they don’t want to be audited or, you know, they’re scared or whatever. (22:14) Maybe their CPA is suggesting they don’t take, you know, the full write-off for, you know, like I’ve been told personally, don’t take the full write-off.

(22:23) It increases your, you know, your, your chance of being audited. (22:28) And so I don’t, right. (22:30) But if I think about that, if, if I had that happen to me every single year for all the years I’ve been, you know, basically doing a tax return, that’s hundreds of thousands, maybe even millions of dollars in, you know, tax money I could have saved and that money being invested, you know, where would I be today?

(22:49) And so I think about kind of, since we’ve been talking, I’ve been thinking about that. (22:53) And, you know, I think people hear the phrase like tax strategy, and they either become skeptical or they, you know, feel like they’re being pulled towards a promise that sounds too good to be true. (23:07) And so they, you know, don’t engage.

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Bonnie

(24:06) Yeah, that’s a really good question because you’re exactly right. (24:11) I mean, there’s a lot of strategies and strategies out there that are, you know, really pushing the limit and pushing the envelope on where things can go. (24:19) Again, I mean, maybe just speaking a little bit to the philosophy that we take, again, we look at that structuring.

(24:26) You know, we really feel like the way that a client is structured in combining, if they’re a business owner, so combining their business and their personal side and that structuring when structured properly opens up natural portals. (24:41) We call them the success paths inside the tax code that are standard, well-tested, proven, audited, right? (24:50) And so there’s a lot of research and review that goes behind those strategies.

(24:56) So if a client is, if someone listening is being presented with a strategy that they can’t find any additional information for, they can’t, their CPA can’t find any review material for, that may be a sign to say, hey, let me look at this a little bit more in depth because maybe we’re pushing the envelope too much here, right? (25:18) But there are some very creative ways in terms of going back to this restructuring, how different pieces now can become connected. (25:27) I think that one of the problems is, is a lot of times tax preparers or CPAs or clients, even, you know, they see the tax code as these individual silos out there.

(25:36) You know, this section deals with this, this section deals with that, but coming in and having more of a strategy that can connect those and get those to work together. (25:46) So if I do this, now it opens up a portal to do that, right? (25:51) All standard, above board, you know, straightforward planning, but it’s the creativity in terms of how those things come together.

(26:00) You know, you think about the tax code and this is something we share a lot with our clients. (26:05) We, you know, it’s really designed around social engineering. (26:08) You know, if you take a step back and you look at the tax code and you think, okay, all things being considered equal, why is it that a married person pays less in tax than a single person, right?

(26:19) And again, all things considered equal, why is it a married person with children pays less in tax than a married person without children? (26:27) There’s a lot of social engineering that goes into the design and development of, you know, these cumulative tax laws that have now created the tax code that we use today. (26:37) The same social engineering is true for entrepreneurs.

(26:41) There are a lot of success paths or opportunities built into the tax code to help entrepreneurs succeed. (26:48) And the reason is, is because if entrepreneurs are able to succeed, our economy grows. (26:53) They employ people, those people buy houses, they buy cars, they buy groceries, right?

(26:57) And it helps to build our economy. (26:59) And so if you look for those success paths within the tax code and apply them appropriately to your situation, then there are a lot of advantages open to people. (27:10) It’s just, I think, again, going back to this design aspect, a lot of times people just aren’t looking at it from that perspective.

(27:17) You make a lot of money, sorry, you got to pay a lot in tax, but that is just not true.

Melissa

(27:22) And you know, it’s funny, it’s so true though. (27:25) I think, you know, there’s just so much I want to unpack with that, but I agree with you. (27:30) It’s just not true.

(27:31) And you know, there’s so many myths I’ve personally been told. (27:36) And one of the worst myths I think is about the 401k. (27:42) And I have always been told, invest in your 401k, you should be good to retire off your 401k.

(27:49) And so I did that. (27:52) Younger in my career is just invest in the 401k and focus on that. (27:56) And so I think most Americans have been told consistently about investing in their 401k and it’s enough, but what is missing from that advice?

Bonnie

(28:06) Yeah. (28:06) I mean, this is a really great question as well. (28:09) And I think let’s take it back to the beginning question where we talked about, you know, typically a lot of times people don’t have a lot of confidence when it comes to managing their financial life, right?

(28:20) Again, they feel like everybody else has it figured out, but inside they don’t. (28:24) And so what happens is, is then people will feel safe in doing what everybody else is doing or feel safe in what’s recommended. (28:33) There’s nothing wrong with a 401k.

(28:35) It has its pros and cons or any kind of, you know, traditional IRA or qualified plan has its pros and cons, but where the fault comes in is by just taking that default path and not actually thinking, how much do I need to put into my 401k? (28:51) Will it be enough? (28:53) What is my end goal?

(28:54) Right? (28:55) And so going back again to the beginning of the conversation, a lot of times people, they don’t know their numbers. (29:00) They don’t know what they think they’ll need in retirement.

(29:03) And then will the 401k get them there? (29:06) So that’s, that’s really the big issue. (29:08) In fact, Fidelity just put out a study this year saying on average for average Americans, 401k only cover about 45% of needed expenses during retirement.

(29:20) So we have to look for other ways to save and prepare for retirement. (29:24) We can’t just rely solely on that 401k.

Melissa

(29:28) Yep. (29:29) I absolutely agree with that. (29:30) I think it’s even worse.

(29:33) It’s like inside the 401k, if you’re not properly diversified, I’ve seen people put money in a 401k and the 401k is not growing because they’ve had it poor, poorly diversified or like growing a little bit. (29:48) So they have kind of this money. (29:50) They’ve been diligent to put the money in the 401k, but it’s not properly diversified or incorrectly diversified where maybe it’s less risky and they’re in their twenties or more risky and they’re in their sixties.

(30:03) I think really having a financial strategy is super important. (30:08) It could either set you back or, you know, or, you know, not make you any of the money. (30:12) So let’s talk a little bit about some of the hidden tax bills that are inside retirement.

(30:18) And so many people appreciate the tax deduction they may receive today when contributing to traditional retirement accounts, like 401ks and such.

Bonnie

(30:28) What often gets overlooked? (30:31) Yeah, this is a really good question. (30:33) And again, kind of what I mentioned before, the 401k has its pros and cons.

(30:36) You get that tax deduction when you contribute to it. (30:39) But what I don’t think people think about is then the taxation that happens on the backend when they withdraw from their 401k. (30:47) So let’s say, let’s just kind of, it’s just math, right?

(30:51) So let’s say you’re in the 24% federal tax bracket and we’re only looking at federal taxes, right? (30:56) And let’s say you want to pull out a hundred thousand net out of your 401k. (31:01) So for whatever reason you need to have a hundred thousand in your pocket.

(31:05) So you’re going to pull money out of your 401k and after tax, you need that to net at a hundred thousand. (31:10) You would need to pull out $132,000, which is substantial. (31:15) If you jump up to the highest tax bracket, which is the, you know, 37% tax, you would need to pull out $159,000 to then net $100,000.

(31:26) That is a substantial cut that you’re going to take in terms of paying taxes on your 401k. (31:34) And so, you know, it’s great you get the tax deduction coming in, right? (31:38) But eventually at some point, uncle Sam will get his money.

(31:41) So this is something that we often talk about with clients as we say, look, utilize the 401k, especially if you have a company matching, right? (31:50) Get that free money. (31:52) But then after that, it’s really crucial that you look at other supplemental ways to save for retirement.

(31:59) And there’s ways to save in tax advantage ways that have tax-free growth, you have ways that you can put money into a long-term savings plan that can provide those tax benefits, can take a lot of that risk off the table and really provide a nice supplemental piece to your overall retirement planning. (32:19) And so again, it’s including a lot of options, not just going on that default path, assuming my 401k will be enough because sometimes oftentimes it’s not, it won’t be enough for what people need, especially after they pay that tax bill.

Melissa

(32:32) Yeah. (32:32) And I think the other important piece to think about is, you know, to your earlier point, when you’re younger and just starting out, you’re in a different tax bracket, likely you’re making less money. (32:44) You’re not married.

(32:45) You don’t have children. (32:47) Then you make more money and then you get married and have kids like that whole journey. (32:52) There is a different tax rate you will be from when you start working to when you retire, it’s going to go up and down and up and down.

(33:00) And then in theory, you know, when you retire, you’re in a lower tax bracket because you’re not working or maybe you are working, but you’re not working at the same rate. (33:11) And so I think the other thing to consider is not only, you know, the ups and downs of what you’re paying tax wise, but being tax diversified, there’s, you know, different write-offs when you’re, you want, when you’re making more money versus write-offs when you’re, you know, retired. (33:29) And so I think all of this takes time and planning and it’s math and you’re so spot on about, you know, the math of it.

(33:38) So when we talk about tax diversification, when should somebody start thinking about that? (33:46) And, you know, is it early? (33:48) Is it later?

(33:49) Let’s unpack a little bit about tax diversification.

Bonnie

(33:53) Yeah. (33:53) I mean, I would say today, right? (33:55) I mean, young, old, it’s, you know, I kind of mentioned at the beginning, I do a lot of financial literacy classes for youth, especially like in underprivileged neighborhoods and stuff.

(34:06) One of my favorite, most favorite things to show them is a compound, a compounding interest calculator, right? (34:12) Where they can see how little bits that they save and put away today grow to enormous amounts in the future. (34:20) Right?

(34:20) And so when you ask like, when is the best time to do it? (34:24) If you start young, you’ve got so much time to really let that, that grow. (34:29) Right.

(34:30) And if you can build it in a tax advantaged way, that’s just more money going into your pocket, letting it grow. (34:36) If you have been, you know, just kind of contributing to your 401k and thinking that’s enough, but now I’m nearing retirement, you start to see that light at the end of the tunnel, maybe you’re 10, 15, or even five years away from retirement. (34:50) And you haven’t really looked at some of these tax advantage opportunities.

(34:55) I would say the time to look at it is today. (34:57) I mean, it’s really just take action. (34:59) If you haven’t done that kind of planning, take advantage of it now, whether your timeframe to retirement is short or long, there’s still a lot that can be done to help supplement and boost the retirement, especially with the tax savings.

(35:13) So, you know, a lot of times when we work with clients, we have them come in, we really only ask them, you know, for two things. (35:21) We ask them the question, what’s important about money to you, because we want to understand their goals. (35:25) And then we ask them for two years of their last filed returns, both business and personal.

(35:30) And from there, we look at that, their tax universe, their whole financial universe, kind of where they’re at, where they’re positioned. (35:37) And then we design a structure for them to help them take advantage of these tax savings, and then redirect those tax savings into long-term financial retirement planning. (35:51) And so the pieces all fit together, right?

(35:54) But, you know, whether you’ve got a lot of time or small amount of time, I mean, the best time is just start, you know, look at it and start today.

Melissa

(36:05) Yeah. (36:05) And I think it’s funny. (36:07) I, similar to you, when you were mentioning your notebook that you had with your husband, you know, I’ve set goals really young for retirement.

(36:16) I probably too young. (36:17) For me, it was always about a dollar amount. (36:19) Like it was always a number I wanted to hit and then I could retire.

(36:24) But I think one of the things now for me is I’m rethinking that number because, you know, retirement could last 20, 30, 40, 50 years and people are living longer too, right? (36:35) So I think that’s another thing to take into consideration. (36:39) So you don’t, it needs to be continually planned because you may decide that you want to retire at 50 instead of 65, or you may want to retire at 45 and it may change.

(36:51) And so I guess the question is, should people be thinking more about a balance or more about a lifetime income strategy?

Bonnie

(37:01) Yeah. (37:02) I mean, again, it depends on the client and what they’re looking for. (37:06) So that’s one of the, we kind of mentioned earlier in the, in this interview here, this conversation is that you really need to understand what is it that you want?

(37:16) You can meet with loads of advisors. (37:18) You can have lots of advice coming at you, but if you really don’t know deep down what it is that you want to accomplish, that none of that advice is worthwhile. (37:27) But to your point, when we work with clients, building a cashflow stream is crucial.

(37:35) I mean, that’s having a plan in place that you can have some liquidity for retirement that you can count on, whether it’s at 45, 65, 85, whenever it is you decide to retire. (37:47) But knowing that you have this liquidity and this cashflow stream to depend upon is crucial. (37:54) And so, again, that’s one of the things that we look at with clients is we say, okay, how are you structured?

(38:00) How can we help bring your pieces together to provide you with the tax savings? (38:05) And then how can we use that tax savings to create this liquidity for you? (38:09) And you think about it, oftentimes if people are saving, maybe they are saving in their 401k and then, or something similar, and then perhaps they have some additional discretionary income that they can put away.

(38:22) Typically what we see is that it goes one of two places. (38:24) They will either put it into a brokerage account where they can have somebody help them manage it, asset center management, and build that investment portfolio, or they put it into real estate, or maybe a combination of the two. (38:38) There’s pros and cons to both, right?

(38:41) You’re going to have a lot of tax issues still dealing with a brokerage account and investment portfolio. (38:47) And with real estate, especially if you’re planning on it for retirement, it’s not liquid. (38:51) And it’s really hard to tap into that real estate for liquidity purposes when you’re in retirement.

(38:58) And again, if you’re going to sell that, then you’re going to run into some tax issues as well. (39:03) So it’s really understanding how am I utilizing my assets? (39:07) Where am I putting my assets?

(39:09) And how will they serve me when it’s time for me to look at retirement? (39:14) Will they be there for me? (39:15) Are they liquid?

(39:16) Can I depend upon them, right? (39:18) And will I be able to access them in a tax-free or tax advantaged way? (39:24) And so those are the things that we look at to help clients round out their overall financial picture to make sure that they’ve got those bases covered.

(39:32) Because nobody wants to enter retirement and then think, oh, I’m not going to be able to retire. (39:38) I got five or 10 more years that I still got to work because I didn’t quite hit those goals. (39:43) So those are some really crucial things that we look at.

Melissa

(39:47) Yeah. (39:48) And I think people can be asset rich, but cash flow constrained, right? (39:53) I think a lot of time looking at, there’s a lot of things to look at, right?

(39:58) There’s longevity, like I was mentioning. (40:00) There’s inflation changes. (40:02) That’s all part of the calculation.

(40:05) It’s how I see retirement is different than how my husband sees retirement. (40:10) How I spend the money may be different than how he wants to spend the money. (40:13) Maybe I want to travel in retirement and maybe he just wants to stay home and just play golf.

(40:20) It could be very different. (40:22) And so really having somebody that can build this financial plan as it evolves, right? (40:28) I think we’re all evolving and changing as the world is evolving and changing.

(40:34) And so something for me is I used to put a lot of this on autopilot and say, one day I’ll have to worry about it. (40:41) I’m really young right now. (40:42) I don’t want to think about it.

(40:44) And my opinion has drastically changed over the last couple of years with fluctuations with the market, the economy dropping, the economy increasing. (40:55) And so I think we can’t put our finances on autopilot anymore and contributions are happening automatically. (41:04) Our statements arrive, or maybe they arrive in our email box.

(41:08) You know, in some cases I don’t check it and then life just continues on, but it’s really risky to live that way. (41:17) So can you help us understand why that can become really risky? (41:22) If you’re a business owner paying more in taxes than necessary, it can quietly drain your cash flow.

(41:28) Cashflow Master specializes in strategic tax design, builds tax efficient strategies and structures that strengthen your long-term cash flow, working alongside your CPA, financial advisor and attorney to uncover opportunities that others miss. (41:46) Visit cashflowmaster.com to schedule your complimentary tax strategy review.

Bonnie

(41:52) Well, yeah. (41:52) I mean, to a lot of the points that you even just brought up, I mean, life changes, right? (41:57) New things come at us.

(41:59) Our goals may change or our needs may change. (42:02) And if we aren’t tapped into how our assets are serving us, even if they’re just still in that growth mode, you know, we’re accumulating and growing our assets, but if we’re not tapped in to how they’re tracking against our overall goals, you know, over time, what’s going to be the tax implications of that growth if they’re, if they are growing, right? (42:24) If we’re not tapped into taking care of those assets, then when it comes time to utilize those assets, we don’t know if, one, if they’re going to be enough, two, if we’re going to be able to access them as we hoped, right?

(42:42) But I think a bigger part of that too is we each, you know, as somebody talked about at the beginning, everyone’s affected by money, right? (42:51) Whether you’re employed or unemployed, male or female, you know, whatever your situation is, everyone is affected by money. (42:58) Money is the means, you know, like it or not, right?

(43:02) Money is the means that we operate by. (43:04) I mean, it’s how we provide for ourselves. (43:06) It’s how we provide for those that we care about.

(43:09) It’s how we provide for goals that we want to reach. (43:13) And so, you know, typically when we meet with clients, they are very proactive on their goals. (43:18) They’re very diligent, disciplined, motivated to reach their goals.

(43:23) And so it’s always a little surprising to me that the means that we use to fund those goals sometimes gets forgotten about or just, you know, set on autopilot, kind of the set it and forget it mindset, right? (43:38) And again, I think, you know, when I look at that disconnect, I think, why does this happen? (43:43) I think it comes down again to people’s confidence money.

(43:48) They feel maybe intimidated or again, that emotional aspect, the stress just goes through the roof each month when they think, oh, I should look at that statement. (43:57) I should look at how I’m diversified. (43:58) Maybe I should change things up, right?

(44:01) And this, you know, they just, for some people that that’s too much stress, they just don’t want to deal with it. (44:06) That’s really where an advisor can come in and help bridge the gap. (44:10) You don’t have to go in alone, but you do need to be responsible because, you know, it’s like, you know, sometimes I think about it with caring for kids.

(44:19) Nobody’s going to love my kids more than me. (44:22) I’m going to be their greatest advocate, right? (44:24) I can have teachers or other support network family members to help, you know, build them into the humans that I hope they’ll become, but nobody’s going to love them more than me.

(44:35) And it’s kind of like with our financial assets, nobody’s really going to be more motivated to take care of those than we are. (44:42) So we really need to be the ones to say, okay, I may not know exactly what I need to do here, but I care about it enough to go out and ask questions, to do some research, to get some help, to figure out what I need to do, because otherwise, again, time is a huge asset. (45:00) And the earlier that you can take a look at what you’ve got going on and get it organized and structured, then the earlier you can reshape that or recast what you’ve got, not put it on autopilot, but be directional and proactive in how you design and organize it to make sure that it’ll fit your goals.

(45:20) Even if those goals pivot or change, you know, if they do, you’ll know what to do. (45:24) But I think it’s so critically important to pay attention and be accountable to those assets that we accumulate and not just set them on the side and hope one day that there’ll be enough, you know, when we come knocking on the door to start, you know, pulling from them.

Melissa

(45:40) A financial plan could be outdated quickly. (45:43) If there’s a marriage, a divorce, an inheritance, children, caregiving responsibilities, there’s a lot that goes into, you know, humans living life, right? (45:54) We go through all of these different seasons and each season requires a new plan, right?

(46:00) And a new strategy. (46:01) And so it’s, you know, looking at that now, it’s not a set it and forget it. (46:05) It’s an ongoing process rather than a one-time document, right?

(46:10) And so let’s talk about the cost of waiting. (46:13) I love this question because I’ve made some serious financial mistakes by waiting. (46:19) And so let’s talk about financial planning is really kind of an easy thing to postpone because we get into the go of life and it doesn’t automatically present itself to be important.

(46:32) So what does waiting actually cost someone?

Bonnie

(46:37) I mean, it’s kind of like what I mentioned with that time, you know, the compounding interest calculator. (46:43) I mean, the time value of money, the earlier that you can start, you’ve got a couple of things going for you. (46:49) One, you’ve got more time for your assets to grow.

(46:52) But on top of that, the earlier that you can start to make sure that you’re properly organized in a way that fits your goals. (47:00) Maybe there are some tax savings. (47:02) Maybe there’s some ways to redesign things so that more money can come back into your pocket.

(47:07) That’s money that can then be growing over a number of months or years, however long your time frame is, right? (47:14) To add to your overall accumulation. (47:18) And so it really, time, you know, people often think of money and growing money and, you know, I guess think of money itself.

(47:27) But time is such a huge player in this, I don’t want to call it a game, a huge player in this overall situation, right? (47:36) Because the more time that we have, then the more time, you know, the more that those assets can grow. (47:43) And so time really is a crucial, critical part to all of this.

Melissa

(47:49) Yeah, I would agree. (47:50) I love that. (47:51) Well, you’ve spent many years helping people navigate these big, tough decisions.

(47:58) What kind of shapes the way you think about money and financial planning?

Bonnie

(48:04) Oh, really? (48:05) Good question. (48:07) I have always seen it as something, it’s an asset.

(48:13) How do I want to say this? (48:15) If I manage it properly, it’s an asset that can serve me. (48:19) If I let it run amok, it’s something that mass, like it controls me, right?

(48:25) I see this a lot when we work with clients who may have a lot of debt, right? (48:29) Or just don’t have the proper organization. (48:32) Money kind of takes over and is the manager of them, right?

(48:38) Or I see it a lot, even with very highly successful executives, if they’re still in this kind of paycheck to paycheck mode, where the money comes in and just turns around and then gets spent, right? (48:50) Then money is sort of being the master over how they run and dictate their life. (48:56) If we can flip that and have the right organization and kind of a proactive method and plan going forward, right, we can be the controllers and the masters of those assets that we have.

(49:11) And that’s really how it should be. (49:12) So I think the more that we can have that confidence to manage and control those assets, to move them in the direction that we want them to go, not the other way around, that’s what creates a healthy relationship with money and knowing I’m on track with my goals. (49:29) It’s serving the way that I want it to serve me and feeling confident in that.

Melissa

(49:34) Perfect. (49:34) Now, I want to talk a little bit about for anyone that’s listening and believes that they need one, or they should start developing one, where should they begin to start developing a financial tax strategy plan?

Bonnie

(49:56) I mean, number one, and we’ve kind of mentioned this throughout our conversation here, number one is really find out what it is you’re trying to accomplish. (50:05) What’s your end game? (50:06) What’s your goal?

(50:07) You can meet with a lot of advisors, but they really can’t define that for you. (50:11) So you really have to have an end game in mind. (50:15) But then from there, you don’t need to go it alone.

(50:18) Reach out to, you know, ask questions, reach out to advisors, look to see, you know, learn what you don’t know, right? (50:26) But develop enough confidence in yourself through kind of understanding what it is that you want to do to know that when information or advice comes at you, whether it’s online or with colleagues or other advisors that you meet with, be able to know this works for me, or this doesn’t work for me. (50:45) It may be good advice.

(50:46) It just might not be good advice for you. (50:48) And so you really need to develop that, that confidence within yourself and knowing your goals and what you need to know, does this work for me or does this not? (50:58) One of the things that we do when we work with clients, and I’ve mentioned it before, we always ask them the question at the beginning, what’s important about money to you?

(51:06) We really want to understand where does the client want to go? (51:10) What are their goals? (51:10) What are they trying to accomplish?

(51:12) What keeps them up at night, right? (51:14) Because we, when we design something for a client, it can go in a hundred different directions and they’re all workable, good solutions, but it might not be the right solution for the client. (51:27) And so it’s really important to understand what it is that you want as the client or as the main part of the show here, what is it that you want to accomplish and then find advisors to help you reach that goal.

(51:44) Don’t try to conform to what you think you’re supposed to do or what social norms or standards are, or what the advisors are saying. (51:50) No, no, you really should go in this direction. (51:52) Really understand what it is you’re trying to accomplish and then find people who will help you get there.

Melissa

(52:00) Yep. (52:00) I love that. (52:00) I think that’s such great advice.

(52:02) Any final thoughts or anything that you would like to leave with our listeners or lessons you want them to take away with from this conversation today?

Bonnie

(52:13) Yeah. (52:14) I mean, we’ve mentioned it in multiple times, but build that financial confidence, right? (52:19) There’s a lot of information out there.

(52:21) There’s a lot of things you don’t know what you don’t know. (52:24) And so build your financial confidence, be brave, ask the questions, and then find people who will help you get to where you want to go.

Melissa

(52:32) I love it. (52:33) Thank you so much for being here today, Bonnie. (52:36) If you’ve enjoyed this conversation, please subscribe to the Executive Connect YouTube channel or wherever you podcast, where we unpack more discussions about wealth, investment, financial strategies, and other executive leaders on building wealth, freedom, and long-term impact.

(52:55) And subscribe to the Executive Brief, where we turn these conversations into practical takeaways and insights you can apply immediately. (53:05) That’s it. (53:07) Thank you for being here, Bonnie.

(53:09) That’s the Executive Connect podcast.