Intro And Rob’s Unusual Path

SPEAKER_00 0:00

Welcome to the Influential Advisor Podcast. Today we're joined by Rob Bettinghouse, a CFP professional and founder of Bettinghouse Wealth Planning in Lebanon, Ohio. Before becoming a financial advisor, Rob spent six years earning a PhD in linguistics, and that background as a teacher shows up in everything he does with clients. He recently published Beyond the Numbers, Your Smart Guide to Retirement Income, Tax Efficiency, and Lasting Legacy. In this conversation, we get into what actually happens when clients have to flip from saving to spending in retirement. Rob walks us through his bucket framework for staying grounded when markets get choppy, and we dig into a story about a couple on track for a $10 million tax bill and what Rob did about it.

SPEAKER_01 0:57

Hi, Rob. Welcome to the podcast. How are you doing today? Thanks, Gabe. I appreciate you having me here and uh doing well. How are you? Good and glad to get to talk to you. And the first thing I wanted to ask you, Rob, could you tell me about your background and how you arrived at where you are today?

SPEAKER_02 1:13

Absolutely. You know, it's been a non-traditional path uh to becoming a financial advisor. I was actually going to be a college professor, got a PhD in Spanish linguistics of all things at Indiana University about 11 years ago, and decided after that point I was gonna switch careers. And that really came about because I loved teaching and I got into academia because I was gonna be a teacher. And what I realized after doing grad school for a while was that the teaching part's great, but this whole other part of kind of publish or parish environment was not really something I was into. And I happen to have a conversation with my dad, who was a financial advisor as well, and around Christmas time one year, and he said, you know, I know you've been doing your thing, and that's great. If you want to keep doing that, totally fine. But you know, I'm thinking about retiring down the road a little bit, don't have any family in the business. And if you'd be interested in joining me, that would be great, but just something to think about. And so went back to talking to my wife and thinking about the different options in front of me, and ultimately decided that what my dad was doing was education at the heart of it, which is really what I like. It's just not in the traditional academic setting. And so I was like, you know, I can learn something new. I've this linguistic stuff I've been doing. I didn't really know much about that before I started down that path. I've learned that, able to get a PhD in that. I can learn a new topic, finance, investments, all of that, planning. Yeah, I decided to kind of uproot my family, move back to where I grew up in uh Cincinnati and go to work with my dad. And it was a great decision that I've enjoyed. I love teaching people, helping people make important decisions. So at the end of the day, what I love is coming out of a meeting with a client, they say, Wow, I really learned a lot today. I appreciate you kind of drawing it out on the board, helping me understand it. And you know, that's really why I do what I do.

SPEAKER_01 3:12

Yeah. I love that natural teacher's

Why He Wrote Beyond The Numbers

SPEAKER_01 3:15

heart showing up and what you do still. And recently, Rob, you've written a book. Could you tell me about your book, what it's called, and who it's intended to help?

SPEAKER_02 3:24

Sure. The book is called Beyond the Numbers, Your Smart Guide to Retirement Income, Tax Efficiency, and Lasting Legacy. And I chose to write a book because writing is something that I've been doing for years. You know, in grad school, you're always writing, you're communicating in that way. I had to write a dissertation that five people in the world probably read, like 400 pages, and you know, didn't make a meaningful impact on the world, in my opinion. But yeah, it was a good experience to go through that and have to research and write. And so I learned to type really quickly. I type about 85 words a minute with 98% accuracy.

SPEAKER_01 4:01

And that is super fast, Rob.

SPEAKER_02 4:03

Yeah, it's pretty fast. It's kind of crazy, but when you do it every day for years, it just kind of becomes second nature.

SPEAKER_01 4:09

Yeah.

SPEAKER_02 4:10

So communicating in written form is very natural to me. And so I thought, what better way for me to educate people, get the message out about how I think and some important things that I deal with my clients day in and day out than writing a book. So that's what I've done over the last year. It's really written for people age 50 to 75 or so who are nearing retirement, thinking about it, um, in retirement, and they want to optimize what that looks like from a financial perspective, from a legacy perspective, taxes, income, risk mitigation, healthcare, these different questions that people are asking themselves about that time of life. Now, people that are under age of 50 can definitely benefit from it as well because a lot of the things that we talk about in the book uh are even more impactful if you even give it more time. So if you get to it early enough, it can even be more impactful for you. So, really, anyone can benefit from it, but that's the target audience. And really, yeah, I work with clients day in and day out. And it really comes from the questions that they're asking me and that we're talking about and that I'm

The Hard Switch To Spending

SPEAKER_02 5:20

helping them with on a daily basis.

SPEAKER_01 5:22

Rob, I wanted to ask you something you talk about in the book is a mindset shift that takes place. And this is when people get to retirement and they're going from years of saving and getting ready for that event, and now they're getting to the point where they need to spend it. And you say that this can be one of the hardest transitions that people face. So can you tell me what that looks like with the clients that you're helping and why is it so hard?

SPEAKER_02 5:46

It is hard and uh harder than I ever expected it to be. In fact, when I started my career, I would have told you that the uphill battle I would be fighting would be getting people to spend less money and kind of focus more on their financial goals. Now, that that's definitely happened. You know, it's not like that doesn't happen.

SPEAKER_01 6:04

Right.

SPEAKER_02 6:05

But I found that with retirees, the transition from going from 30 to 40 years of living on less than you make, saving diligently, sacrificing so that you can build wealth for the future. And then all of a sudden, having to flip that switch and go to, oh, I need to spend this money. I don't need to save any more money. Uh, that feels wrong. Spending this money down that I build up feels wrong. So it's a very difficult transition for people to go through, in my experience. And but it's a really important one because I'm a big believer in getting the most enjoyment that we can out of this life and maximizing our time with our family, our memories that we make with people, um, the impact that we can have on other people, being generous and helping others. And if we just keep staying in that same saving kind of scarcity mindset, then we miss out on a lot of those things. I help people think through these questions. And a good example is I was working with someone who had done a good job saving for many years. They also inherited some money, and they still haven't really changed, hadn't really at the time changed much about their lifestyle. Still living pretty much on social security, not spending much of their assets at all. And so I challenged them. I said, you know, you've got this wealth. What do you want it to do for you for the rest of your life? I think you should try to spend some of it or give some of it away or do something that would be meaningful. And so the first step that they took was to just, hey, our cars are really, really old. We're just gonna get some newer cars. So they they got some newer cars, uh, which was a good step. And they were like, you know, you've never nobody's ever made us think about this before, but we appreciate you helping us think through this and like, okay, it's okay to spend some money, it's okay to enjoy this, it's okay to have a bit nicer car. It wasn't a brand new car that wouldn't have really fit them, but it was a nicer car. And so it's baby steps, right? It's transitioning a mindset that's been ingrained for a long period of time. And uh, I really enjoy helping people with that. And the even more fun part is on the giving side, too, is some other clients of mine have been blessed and they have more than they'll need for the rest of their life. And the government's also forcing them to take out $70,000 a year in required minimum distributions from retirement accounts. Yeah. And so at the same time that they were helping this charity a little bit here and there, they found out the charity needed to, you know, would benefit from paying off their mortgage, which was around $70,000. And I said, why don't you just you don't need this $70,000 for your income. Why don't you gift that money to the charity? It's called a qualified charitable distribution, and it goes directly to them. They can pay off the mortgage. And we did some basic tax calculations, and they were going to save about $25,000 in taxes by doing that as well, because it was no longer taxable income. So they were able to kill two birds with one stone there and help the charity significantly go to the board meeting. They were ecstatic about getting that money to pay off the mortgage, but then also save taxes, save money on taxes themselves. And so it was a win-win situation. And those are the things that really get me uh excited day in and day out is helping people to make that impact and you know use their

Cash Flow Planning For Retirement

SPEAKER_02 9:30

money to accomplish what's important to them. Yeah, I love that.

SPEAKER_01 9:33

And Rob, you talk about the foundation of this is understanding your true cash flow needs as they're coming up when you reach that point in your life. So, can you tell me about what's the number one thing that people aren't taking seriously enough when it comes to cash flow and why does this matter so much and what happens if people are skipping thinking about that?

SPEAKER_02 9:53

Yeah, cash flow is king when it comes to retirement. You have to understand what are your expense needs that you have. Yes. And then what income sources do I have that are more fixed, maybe social security, pensions, maybe rental income from a property or a business on the side or something. And then what's that gap that I have to fill from investments or from a portfolio? Right. But first, you have to understand the cash flow need. And this is where I think it's a hard thing for people. Nobody likes budgeting. Well, some people like budgeting. I like budgeting, I'm a money nerd.

SPEAKER_01 10:29

Right, but most of us engineers engineers tend to like budgeting.

SPEAKER_02 10:33

Yes. But there's a lot of people that don't like budgeting. It's like going to the dentist and getting your tooth pulled. So I uh one of my challenges is trying to get people to care about at least doing some initial thinking about the cash flow that they're gonna need in the future. What things are gonna change? It's hard to think about 20 years from now, 30 years from now, 10 years from now. But we can get an estimate of okay, well, my mortgage should be paid off by this time. Maybe we'll travel more so we bump that part of the budget up. Our healthcare could look like this, right? We try to do an exercise of today versus the future and figure out all right, how much are we gonna need? And then we let the calculators and software do the inflation calculations because we all know recently inflation has been a problem that's top of mind. Right. Costs are up, but that's gonna continue to happen long term, most likely, right? So we can figure out in the future how much we might need. Then we can back into how much money do I have to fill that gap? How much do I have to be saving to get there? And answer all those questions. So really understand the cash flow, and then we can figure out okay, do we have a situation where we have some excess we can spend? Going back to the other question you asked me about um, you know, spending, going from saving to spending. So it's all part of the planning

Bucket Framework For Volatile Markets

SPEAKER_02 11:48

process.

SPEAKER_01 11:48

Another thing I wanted to ask you about was market volatility. That when markets get choppy, can you tell me about how you help to ease clients' minds? Now, you use something called your bucket framework, and how does that help? And so they have peace of mind when they're thinking about their retirement and the markets are starting to go crazy. Sure.

SPEAKER_02 12:10

The market is a manic teenager. Uh, it's depressed one day, yes, hyped up the next day. And you know, if there's anything that's true about investing, it's that it's an emotional roller coaster. Nobody is immune to it, including myself. I deal with this day in and day out, but I still get emotional sometimes, right? Investing, I think, is a huge portion of it is psychological because the market's going to do what it's going to do, but it's how you act, react, and are proactive around that really determines the outcome for the future and achieving what's important to you. And so I think one of my biggest jobs when it comes to investing is just helping people psychologically handle the markets. And the bucket framework is a great way to do that. What I like about it is it's something that's easy to understand. People can wrap their head around it. You can show them a picture of what it looks like and they intuitively understand it. And essentially what it is is all right, instead of just investing in, okay, I'm gonna buy 60% stocks, 40% bonds, or something like that. We bucket the money into different time frames until you need that money. And then we invest each of those buckets appropriately for that time frame from a risk perspective, income and growth, et cetera. Yes. And so the idea is all right, the next 12 months I'm gonna need this much money. That's set aside in something very conservative that's generating income, and I pull that income out of that. The next couple years after that is set aside in something a little more aggressive than that, not by a lot, but potentially better return. And then I can switch to using that money in the future. So the idea is that you get the long-term money growing, you know, that you're not going to touch for eight to 10 years, and we can let that be and do its thing.

SPEAKER_01 14:03

Right.

SPEAKER_02 14:03

And so that we have our needs in the future covered, but that we also have six or seven years into the future covered in terms of cash flow needs so that when the market's down, things are volatile, you're still getting your income. You can look at it and say, Oh, I've got plenty of money in here. I can still meet all my needs. I don't have to sell stocks when they're down, which is very destructive to your compounding of your wealth. Yes. And so the bucket framework is largely a psychological tool to help people cope with the manic depressive aspect of the stock market and to help them stay on track

Building Income With Risk In Mind

SPEAKER_02 14:40

long term, which is what is the largest determiner of their success. Right.

SPEAKER_01 14:45

Now, Rob, once that bucket structure is in place, how are you actually generating the income to fill those buckets?

SPEAKER_02 14:54

Yeah, that's a great question. There are tons of investment options out there. And one of my big jobs when it comes to investing is helping people choose the ones that fit their bucket framework the best to get the income that they need, to be within the risk profile that they're comfortable with, to really make that bucket fill out, those buckets fill out so that the goals are accomplished, right? So you've got all kinds of investments out there, bonds, stocks, you've got alternative investments, you've got other income generating things. So that's my job is to align the investor with the strategies that help them achieve that. While we don't have time to go through all those different investment options today, that's the message I want to get across is when you're saving for all those years, you're generally investing in a pretty simple set of investments that are really growth oriented and you're just trying to get that balance up. But then as you shift toward retirement, you really have to start thinking not just growth, but you have to start thinking income, risk, and growth at the same time. Because risk is very important. We know from all kinds of research, well researched in the past, that big losses and investments in the early years of retirement is extremely destructive and is very difficult to recover from. And so if you never change your strategy, you leave yourself susceptible to that. And also, if you generate income, that helps offset risk and it also helps you meet your goals. So switching the focus to a multi-pronged approach rather than just growth at all costs, I think is really important. I had uh someone I was working with for a while. They wanted to retire maybe four or five years ago, a bit early. It wasn't quite in the cards in terms of the planning. It was like, I don't think you're quite ready yet. But we did get there a couple years ago, and he retired. We went with more of a bucket investing framework as he transitioned into retirement. And then last year the market tanked for a few months pretty aggressively, and he wasn't really bothered by it because he was still getting his income. The yeah, the longer-term assets went down some, but at the end of the day, we're letting those grow for the long term. And I was able to point to him and say, hey, we still got income for years into the future covered here. We don't need to worry about it, right? And that's the beauty of the bucket framework, is that it helps people deal with the craziness of investing in

The $10 Million Tax Bomb

SPEAKER_02 17:25

public stock markets. Right.

SPEAKER_01 17:27

Rob, you describe another couple in the book that you said they did everything right, that they were saving diligently their whole careers, and then you ran the projections and they're looking at a $10 million tax burden over their lifetime. So can you take me into that conversation you were having with them?

SPEAKER_02 17:45

If there is one story I love to tell about the value of proactive planning, it's this one. Right. Because in in America today, I think there is a significant lack of really in-depth information about the transition into retirement. Many people are told, all right, if you just max out your 401k, you save for years and years and years, you'll be a multimillionaire, you'll have a great retirement, you'll be able to do whatever you want to do. Sounds good. That is true in a sense, right? But the question is, is it the optimal retirement in terms of how much money you're giving to the government versus keeping for yourself or your and your family as an inheritance or charities, et cetera? Yes. But so tax planning really is very tied in with retirement planning in general. And that's where this story is really powerful. Okay. So just to set the scene a little bit, we've got a couple that's done just about everything right, like I said, around 50 years old, been saving for years and years, dual income, living less than they make, debt-free, uh, multi-million saved in retirement accounts and some other investments as well, and feeling great. They're like, hey, we want to retire maybe in 10 years or something like that. Yeah. So we sat down, we started doing all the planning. We started looking at what are things going to look like 10 years from now, 20 years from now, et cetera. If anybody knows about IRAs and 401ks, is eventually now it's age 73, but for people born after certain years, it's age 75 now, where you start having to take money out of those retirement accounts, forced every year by the IRS to take money out, pay taxes on it. It's called a required minimum distribution. I said, let's take a look at where you're likely to be if this plan goes according to you know goes according to plan, where you'll be at age 75. All right, are you ready for this? Okay. So at age 75, they're facing approximately $700,000 per year of required minimum distributions from those retirement accounts for age taxable income. And within a couple years, that's projected to be a million dollars plus per year. If they do nothing, right? The $10 million comes from our software calculated an estimated lifetime tax liability through the from now until their projected lifespan.

SPEAKER_01 20:19

Yeah.

SPEAKER_02 20:20

And it was $10 million going to the government.

SPEAKER_01 20:23

They must have been shocked.

SPEAKER_02 20:24

Yeah, totally floored. Totally floored. But that does not include the taxes their kids would pay upon inheriting millions millions of dollars in these accounts, which they now have to distribute over 10 years and pay taxes on it uh after they inherit it. And so we're talking millions and millions of dollars in taxes. So, what's the solution? Well, I said you have three choices. One is you don't do anything, you just live your life, you will be able to retire, you will be able to do the things you want to do, but you are gonna give a ton of money to the government. The second option is you can switch to contributing to Roth accounts instead of those tax-deferred accounts. But the problem is that's not really gonna be that powerful because you only have seven, eight, ten years left until you retire. That money is not really gonna grow as much as the money that's already in those tax-deferred accounts, is gonna keep compounding at a higher rate. So you're gonna have more money in those by a long shot.

SPEAKER_01 21:24

Yeah.

SPEAKER_02 21:25

So I said the main way to mitigate this is what's called Roth conversion, where you convert money from a pre-tax account to a Roth account. You pay taxes when you do that, uh, but then that money, as long as you follow all the Roth rules, et cetera, going forward, then grows tax free for the rest of your life. And so the benefit of that is that you're front loading taxes now on a smaller amount of money, smaller pie, so that more of that pie can grow tax free and less of it can grow to become that big. Big tax bomb down the road. But I said, you're going to have to do something to lower your income, your other income, so that you can lower the tax rate that you're paying on those conversions. So I said, why don't you consider this? What if you consider retiring maybe four or five years earlier, which they could afford to do? That's important. You have to be able to afford to do that. Then what you're planning, that gets rid of your salaries. You live off this other bucket of money that's not in those accounts, which they could also do, and then convert significant amounts of money to Roth every year for five or six years. So it's a limited period of time. Take a tax hit in that short period of time. And then the numbers on that scenario were much, much improved. So the total tax liability went from around 10 million estimated to around 2 million estimated over the rest of their life.

SPEAKER_01 22:56

It's a big difference.

SPEAKER_02 22:57

Yeah. And by the time they were 75, you know, those pre-tax accounts were way, way down, and the Roth accounts were way, way up. That simple change, which affects five or six years of their life, had an outsized impact on the rest of their life and their children's lives and everything like that. So these are the kind of decisions that are very important for people to make. And the earlier you catch it, the better. Right. So for those who are doing the right thing, saving, investing, maximizing those tax-deferred accounts, that's great. But you really need to be thinking about what's this going to look like 20, 25 years from now. Right. And do I need to do anything differently now so that I end up in a better situation then?

SPEAKER_01 23:43

Rob, they started off when you presented this to them, shocked at the tax liability that they were going to face. How'd they feel when you showed them that there was a better path that would save them that much? What was their reaction at that point?

SPEAKER_02 23:55

Very relieved that there was something they could do about it. It was kind of a shock to them to think about retiring five years earlier than they were estimated. And we're now working through that of all right, what does that look like? Is that how you want to do it? Right. So there's different ways we could work that. But the initial conversation, they were relieved to know that there's something they could do about it. All right, let's talk about now how are we going to make that happen? Right. What does that mechanically look like? And then we can go on into that conversation. So uh it's all about having these conversations, educating clients, uh, educating people about their choices and helping them put together

Leaving A Legacy Versus Living One

SPEAKER_02 24:30

the strategy that works most, you know, best for their life. Right.

SPEAKER_01 24:34

Rob, you make a distinction in the book between leaving a legacy and living one. So can you tell me about that? What does living a legacy mean to you and why does that matter for the people that you're working with?

SPEAKER_02 24:46

Yeah, absolutely, Gabe. The legacy is really important to me. I had a good example from my parents, my dad, he had a successful career. And but he wasn't always just focused on building more wealth, right? He was focused on creating a legacy through giving, through spending time with the family, doing vacations together and making memories, right? And so I was taught through that example that money is not the be-all end-all of our life. It's simply a tool to accomplish what is most important to us. And that's what's different between person to person is this person cares about this, this person cares about that. But money is a tool to help them achieve what's most important. And so, what I like to encourage people to think about is what's not just the financial legacy that you'll leave, that is important, right? So, in that last example, we were talking about the tax bill the kids might have to pay versus the inheritance and things. That that's important to think about. We want to craft a financial legacy that makes sense for our situation. But also, what's the personal legacy that you want to leave? How do you want to be remembered? You want to be remembered as a stingy miser that you know never spent any money and never did anything with anybody, or do you want to be able to do that?

SPEAKER_01 26:04

Have you had any clients that pick that option?

SPEAKER_02 26:06

Thankfully, not really, but uh, you know, it's I I think people generally want to be helpful to others, which is good. Yes. Uh, and in my experience, when I get people thinking about this, they're usually open to exploring some different ideas. Right. But what do you want to be remembered as a generous person? You want your kids to remember you as someone who invested in the family and in memories and in your grandkids and your kids? And that's what I try to get people to think about. It's not just how much wealth can I accumulate and then die and leave it to whoever. It's how do I see the impact that I'm having while I'm living? It's a living legacy. Right. How can I help organizations I care about? How can I help individuals in my life that maybe need a little lift? How can I help my kids and grandkids learn about our values? How can I help them uh along their way? Maybe they're trying to make it in life, they're starting a family and they need a little a gift. If I'm a financial gift would really help them get a house for their family or something. Thinking beyond just how much am I going to leave? But what am I doing now where I can enjoy seeing that impact in my day-to-day life and being part of that? So that's really what I mean there is pass along your values, not just wealth. See the impact while you're living. And actually, I it's interesting. I've seen some news articles recently about some billionaires and well-known people out there who are kind of starting to adopt this mindset. Like maybe they went from having this foundation or something that they were just, you know, it was growing and growing, and they were giving some out every year, to saying, you know, I'm going to actually distribute the rest of this over the next 15 or 20 years because I want to see the impact of what it does. Yeah. Um, and I think that's really important.

SPEAKER_01 27:53

I think that's such an incredible idea that you can actually see the impact and that it's not just the financial side of things, but it's the values as well. That as you're passing along that living legacy and then can see what your children and grandchildren are doing with it, that must be something very special for the people as they think through that and then see active ways that they can put that into practice. For

Where To Get The Book

SPEAKER_01 28:15

sure. Yeah. Rob, I've gotten a lot from the things that you've shared. Thanks so much for taking the time. I wanted to ask you for those listeners that would like to get in touch with you or to get a copy of your book, how should they do that? That's a great question.

SPEAKER_02 28:29

And so the book has a website. The website is beyond numbersbook.com. So at the website, you can get a free e-copy of the book if you put your name and email in there. It's got contact information on there as well. Um, and then also my business website is bettinghousewealth.com, B-E-D-I-N-G-H-A-U-S W E A L T H dot com. I always get asked how I spell my last name, so I'm just used to to spelling it out. Yes. And so yeah, I'm happy to talk. If anybody has questions about what they read in the book or anything like that, I would be happy to engage about that. Fantastic.

SPEAKER_01 29:07

BeyondNumbersbook.com. Beyond numbersbook.com. Rob, thanks so much for taking the time to talk today. Thanks, Gabe. I appreciate your time.