1 00:00:06,320 --> 00:00:11,520 Speaker 1: Tonight, the two million dollars retirement illusion. You're listening to 2 00:00:11,520 --> 00:00:14,400 Speaker 1: simple Money presided by all Worth Financial on Bob Sponseller 3 00:00:14,440 --> 00:00:18,240 Speaker 1: along with Brian James. For most of our working lives, 4 00:00:18,320 --> 00:00:22,319 Speaker 1: two million dollars would have sounded like financial independence, like 5 00:00:22,360 --> 00:00:25,480 Speaker 1: we were rich, literally, like we'd almost won the lottery. 6 00:00:26,640 --> 00:00:29,600 Speaker 1: It sounds like, you know, financial security. And it goes 7 00:00:29,640 --> 00:00:33,800 Speaker 1: back to people just pegging their assumption about retirement security 8 00:00:33,880 --> 00:00:37,800 Speaker 1: to hitting some number that's out there. But some families 9 00:00:37,800 --> 00:00:42,400 Speaker 1: with two million dollars feel calm, confident and completely secure. Others, 10 00:00:42,520 --> 00:00:46,159 Speaker 1: on the other hand, feel stressed, cautious, and unsure if 11 00:00:46,200 --> 00:00:51,440 Speaker 1: they can even retire same number. Completely different experience. Brian, 12 00:00:51,520 --> 00:00:53,199 Speaker 1: let's get into why. 13 00:00:53,760 --> 00:00:56,200 Speaker 2: Yeah, this is a common thing that I say. 14 00:00:56,240 --> 00:00:58,200 Speaker 3: And if I ever meet with any of you out 15 00:00:58,240 --> 00:01:00,480 Speaker 3: there who haven't met me before, you're going to hear 16 00:01:00,520 --> 00:01:02,120 Speaker 3: me say this at one point. If you've built up 17 00:01:02,160 --> 00:01:04,200 Speaker 3: some kind of a nest egg, I'll always say, well, 18 00:01:04,200 --> 00:01:06,080 Speaker 3: you're sitting here in front of me with two million dollars. 19 00:01:06,160 --> 00:01:08,880 Speaker 3: What if twenty two year old you knew that fifty 20 00:01:08,880 --> 00:01:10,560 Speaker 3: eight year old you was going to have two million 21 00:01:10,600 --> 00:01:12,000 Speaker 3: dollars in the bank. What would you have thought, and 22 00:01:12,040 --> 00:01:13,759 Speaker 3: the answer is always, Oh, I thought I was gonna 23 00:01:13,760 --> 00:01:14,880 Speaker 3: be in a fat city, you know, I wouldn't have 24 00:01:14,920 --> 00:01:17,280 Speaker 3: to ever have a care again. Yet here we sit 25 00:01:17,360 --> 00:01:19,280 Speaker 3: worrying that it's not enough. So that's what we want 26 00:01:19,319 --> 00:01:22,160 Speaker 3: to talk about this today. Now, if that sounds like you, 27 00:01:22,200 --> 00:01:24,040 Speaker 3: then chances are you're in better shape than you're going 28 00:01:24,040 --> 00:01:26,920 Speaker 3: to allow yourself to begin to believe. And I'll also 29 00:01:27,000 --> 00:01:29,440 Speaker 3: say that you will. Your biggest challenge will be tamping 30 00:01:29,480 --> 00:01:31,120 Speaker 3: down that voice in the back of your head that 31 00:01:31,120 --> 00:01:33,760 Speaker 3: tells you you're about to go bankrupt tomorrow. It got 32 00:01:33,800 --> 00:01:35,760 Speaker 3: you where you are now. That's the same voice that 33 00:01:35,840 --> 00:01:37,920 Speaker 3: told you to save, save, save for thirty forty years. 34 00:01:37,959 --> 00:01:38,600 Speaker 2: And that's a good thing. 35 00:01:39,040 --> 00:01:41,679 Speaker 3: But it's really really hard to shift that mindset around. 36 00:01:41,840 --> 00:01:43,959 Speaker 3: So let's talk about some math. Why does this occur 37 00:01:44,040 --> 00:01:47,119 Speaker 3: to us? Well, two million dollars feels different today because 38 00:01:47,120 --> 00:01:49,720 Speaker 3: if we go back about twenty years, two million dollars 39 00:01:50,160 --> 00:01:53,040 Speaker 3: invested at a four percent withdrawal rate means about eighty 40 00:01:53,080 --> 00:01:57,000 Speaker 3: thousand dollars per year worth of income before Social Security 41 00:01:57,240 --> 00:01:59,480 Speaker 3: throw in. You know, two social Security checks in many 42 00:01:59,520 --> 00:02:02,080 Speaker 3: households were north of one hundred and thirty hundred and 43 00:02:02,080 --> 00:02:04,960 Speaker 3: forty thousand dollars in retirement income in two thousand and six. 44 00:02:05,280 --> 00:02:07,280 Speaker 3: That felt like real money twenty years ago. 45 00:02:07,480 --> 00:02:10,840 Speaker 1: So, Bryan, all those numbers you just you know, spewed 46 00:02:10,840 --> 00:02:12,839 Speaker 1: out there, and they're great numbers. But those are all 47 00:02:13,000 --> 00:02:14,440 Speaker 1: four taxes too, right. 48 00:02:14,880 --> 00:02:15,320 Speaker 2: That's correct. 49 00:02:15,400 --> 00:02:16,800 Speaker 3: Yeah, your taxes, of course are going to have an 50 00:02:16,800 --> 00:02:18,839 Speaker 3: impact on this. So that that we just talked about 51 00:02:18,880 --> 00:02:21,040 Speaker 3: two million dollars, assuming that's in a pre tax ira 52 00:02:21,120 --> 00:02:21,680 Speaker 3: that's where. 53 00:02:21,520 --> 00:02:22,640 Speaker 2: Most people's dollars are. 54 00:02:23,280 --> 00:02:25,320 Speaker 3: That four percent is coming out at a pre tax rate, 55 00:02:25,360 --> 00:02:27,400 Speaker 3: so you're really talking about maybe three in a quarter 56 00:02:27,440 --> 00:02:29,960 Speaker 3: or something like that, you know, after the taxes hit. 57 00:02:30,280 --> 00:02:32,880 Speaker 3: So but in Social Security is taxed as well. I 58 00:02:32,919 --> 00:02:35,280 Speaker 3: hate to disappoint some people out there. It's not taxed 59 00:02:35,400 --> 00:02:38,640 Speaker 3: completely like ordinary income, but it does get taxed, you know, 60 00:02:38,800 --> 00:02:40,919 Speaker 3: at least a little bit there. So again, but that 61 00:02:41,040 --> 00:02:44,160 Speaker 3: and that's the same situation today. The difference is expenses 62 00:02:44,200 --> 00:02:47,160 Speaker 3: are higher, property taxes are up, healthcare costs are higher, 63 00:02:47,200 --> 00:02:49,280 Speaker 3: it's a lot more expensive to travel. I used to 64 00:02:49,320 --> 00:02:51,840 Speaker 3: do financial plans and people would say, well, we normally 65 00:02:51,840 --> 00:02:53,519 Speaker 3: go down to Hilton head More in a condo, you know, 66 00:02:53,560 --> 00:02:54,959 Speaker 3: a couple streets in from the beach, and that's a 67 00:02:54,960 --> 00:02:57,720 Speaker 3: couple thousand dollars. That's not the case at all anymore. 68 00:02:57,800 --> 00:03:00,360 Speaker 3: That's probably more like four thousand dollars. And you're going 69 00:03:00,440 --> 00:03:02,040 Speaker 3: to have more time that you want to do it, 70 00:03:02,280 --> 00:03:04,600 Speaker 3: so we should probably double that to eight, maybe even 71 00:03:04,639 --> 00:03:07,360 Speaker 3: ten thousand dollars to kind of keep your you know, 72 00:03:07,400 --> 00:03:10,919 Speaker 3: to meet the desires you'll have now that you've got 73 00:03:10,960 --> 00:03:14,480 Speaker 3: the time. So inflation is obviously taking a bite out 74 00:03:14,520 --> 00:03:16,840 Speaker 3: of this. And not to mention lifestyle and longevity. We 75 00:03:16,880 --> 00:03:19,880 Speaker 3: all happened to live longer too than the way we 76 00:03:19,919 --> 00:03:22,079 Speaker 3: are accustomed based on the way our parents and grandparents 77 00:03:22,200 --> 00:03:22,680 Speaker 3: educated us. 78 00:03:23,680 --> 00:03:26,000 Speaker 1: Well, Brian, let's face it, and we're seeing more and 79 00:03:26,080 --> 00:03:28,640 Speaker 1: more families dealing with this right now, you know, this 80 00:03:28,720 --> 00:03:31,839 Speaker 1: thing we call the sandwich generation, where you know, we're 81 00:03:31,880 --> 00:03:35,400 Speaker 1: not just taking care of ourself and our spouse anymore. 82 00:03:37,160 --> 00:03:40,120 Speaker 1: Those dreaded children that never seem to go away and 83 00:03:40,160 --> 00:03:44,040 Speaker 1: become financially independent. Let's face it, it cost a ton of 84 00:03:44,080 --> 00:03:47,000 Speaker 1: money to put kids through college, you know, over the 85 00:03:47,080 --> 00:03:49,920 Speaker 1: last five or ten years versus when we went to college, 86 00:03:50,440 --> 00:03:53,960 Speaker 1: and that can leave some debt overhang for folks, and 87 00:03:54,360 --> 00:03:57,840 Speaker 1: it's just expensive to write those checks. All the while 88 00:03:57,880 --> 00:04:01,720 Speaker 1: we're coming out from under that burden. Our parents are 89 00:04:01,760 --> 00:04:05,720 Speaker 1: living longer, and with longevity comes a lot of complexity, 90 00:04:05,840 --> 00:04:09,720 Speaker 1: you know, in care needs, expenses, trips to the doctor. 91 00:04:09,840 --> 00:04:12,400 Speaker 1: It all adds up. And if we're in a situation 92 00:04:12,880 --> 00:04:16,880 Speaker 1: we're needing to help multiple people here, not just with 93 00:04:16,920 --> 00:04:19,920 Speaker 1: our time and energy, but with our money. You got 94 00:04:19,920 --> 00:04:22,120 Speaker 1: to factor that into your financial plan as well. 95 00:04:22,640 --> 00:04:24,200 Speaker 3: Yeah, so I think we can do what we one 96 00:04:24,240 --> 00:04:26,320 Speaker 3: of our favorite things to do here, which is pull 97 00:04:26,400 --> 00:04:28,919 Speaker 3: some examples from the files of all Worth Financial with 98 00:04:29,520 --> 00:04:32,960 Speaker 3: the clients that we've dealt with typical situations. So let's 99 00:04:32,960 --> 00:04:35,200 Speaker 3: compare and contrast a couple families here. Each of them 100 00:04:35,240 --> 00:04:37,960 Speaker 3: has about two million dollars. But Family A, they need 101 00:04:37,960 --> 00:04:40,159 Speaker 3: about one hundred and twenty thousand dollars or ten thousand 102 00:04:40,200 --> 00:04:42,880 Speaker 3: a month to live comfortably. Think spending, not income. Right, 103 00:04:42,880 --> 00:04:45,719 Speaker 3: this is the after tax, just plane spending ten thousand 104 00:04:45,760 --> 00:04:47,880 Speaker 3: dollars a month. So they've got that two million dollars. 105 00:04:47,920 --> 00:04:49,800 Speaker 3: That means they need to pull four percent. So that's 106 00:04:49,800 --> 00:04:52,400 Speaker 3: what we always talk about. That's eighty thousand and the 107 00:04:52,600 --> 00:04:55,480 Speaker 3: Social Security will cover the rest that plan works just fine. 108 00:04:55,640 --> 00:04:57,600 Speaker 3: Now let's move on to family be with the same 109 00:04:57,640 --> 00:04:59,719 Speaker 3: two million dollars, but they've got a little bit more of. 110 00:04:59,720 --> 00:05:00,720 Speaker 2: An l evated lifestyle. 111 00:05:00,720 --> 00:05:02,400 Speaker 3: They've got a second home out there, they like to 112 00:05:02,440 --> 00:05:05,200 Speaker 3: travel back and forth. There are adult kids that they 113 00:05:05,200 --> 00:05:08,039 Speaker 3: need to support. So you know, that's same two million 114 00:05:08,080 --> 00:05:10,720 Speaker 3: dollars now needs to generate. You know, if they need 115 00:05:10,760 --> 00:05:13,520 Speaker 3: two hundred thousand, then that same two million needs to 116 00:05:13,560 --> 00:05:15,640 Speaker 3: spit out seven percent to make that math work. That 117 00:05:15,720 --> 00:05:19,720 Speaker 3: changes everything. Same portfolio size, but different spending and therefore 118 00:05:19,720 --> 00:05:22,600 Speaker 3: a different stress level. So of course we're talking about 119 00:05:22,600 --> 00:05:23,960 Speaker 3: at the end of the day, what we're talking about 120 00:05:23,960 --> 00:05:27,200 Speaker 3: here is investments, and every financial planning conversation really has 121 00:05:27,240 --> 00:05:29,800 Speaker 3: to do with the unpredictability of the investments I'm going 122 00:05:29,839 --> 00:05:31,720 Speaker 3: to be relying on. We just don't get to know 123 00:05:31,960 --> 00:05:34,000 Speaker 3: what the market's going to do and when it's going 124 00:05:34,080 --> 00:05:36,039 Speaker 3: to do it. So in these cases we have to 125 00:05:36,040 --> 00:05:38,480 Speaker 3: look at market risk. If you retire with two million 126 00:05:38,520 --> 00:05:41,279 Speaker 3: dollars and that market takes a twenty percent drop in 127 00:05:41,320 --> 00:05:43,200 Speaker 3: the first year, which by the way, this happened to 128 00:05:43,240 --> 00:05:44,960 Speaker 3: anybody who retired in twenty twenty one. 129 00:05:45,000 --> 00:05:46,080 Speaker 2: This is literally what they saw. 130 00:05:46,320 --> 00:05:47,960 Speaker 3: Now all of a sudden, you're at one point six 131 00:05:48,000 --> 00:05:51,640 Speaker 3: million dollars, you're four percent withdrawal. Well, that's not eighty thousand, 132 00:05:51,640 --> 00:05:54,680 Speaker 3: it's now closer to sixty four thousand dollars unless you 133 00:05:55,240 --> 00:05:57,120 Speaker 3: raise that percentage that you're going to take out. 134 00:05:57,520 --> 00:05:59,760 Speaker 2: And that's what's called sequence of returns. Risk. 135 00:06:00,279 --> 00:06:02,200 Speaker 3: Is the market gonna gonna take me, force me to 136 00:06:02,240 --> 00:06:04,320 Speaker 3: take those losses? And what can I do about it? 137 00:06:05,760 --> 00:06:08,359 Speaker 1: Well, Brian, as you know, you well know, you know, 138 00:06:08,400 --> 00:06:10,720 Speaker 1: when we run these financial plans, there's a couple of 139 00:06:10,800 --> 00:06:13,279 Speaker 1: levers you can pull and assumptions you can make that 140 00:06:13,440 --> 00:06:17,560 Speaker 1: really move the needle in terms of the probability of 141 00:06:17,720 --> 00:06:20,600 Speaker 1: success of your plan working out. One of those is 142 00:06:20,640 --> 00:06:24,480 Speaker 1: inflation assumptions, and inflation is always going to be there 143 00:06:24,560 --> 00:06:28,240 Speaker 1: in some form or fashion. Thankfully it's come under control 144 00:06:28,320 --> 00:06:33,600 Speaker 1: here over the last few years. Investment returns are investment returns. 145 00:06:33,880 --> 00:06:38,919 Speaker 1: You have volatility that the long term investment returns rarely change. 146 00:06:39,160 --> 00:06:41,840 Speaker 1: Those are assumptions, are things that we can bake into 147 00:06:41,880 --> 00:06:45,400 Speaker 1: any good financial plan. The one that really moves the 148 00:06:45,440 --> 00:06:48,880 Speaker 1: needle is how much you spend. And again a lot 149 00:06:48,920 --> 00:06:51,760 Speaker 1: of times I'm shocked at people that come into the 150 00:06:51,800 --> 00:06:54,440 Speaker 1: office and they have their they want to retire, they 151 00:06:54,440 --> 00:06:57,520 Speaker 1: want to retire next year or next month, and they 152 00:06:57,520 --> 00:07:00,840 Speaker 1: have no idea what they're spending goals are. And you know, 153 00:07:00,880 --> 00:07:03,320 Speaker 1: you throw out scenario A of spending one hundred and 154 00:07:03,320 --> 00:07:06,640 Speaker 1: twenty thousand a year versus scenario B of spending two 155 00:07:06,720 --> 00:07:10,320 Speaker 1: hundred thousand dollars a year, that is a massive difference, 156 00:07:10,800 --> 00:07:13,960 Speaker 1: especially if you're talking about, you know, supporting that kind 157 00:07:14,000 --> 00:07:17,520 Speaker 1: of a spending profile with i'll say only a two 158 00:07:17,560 --> 00:07:21,280 Speaker 1: million dollar portfolio. So the spending is what really moves 159 00:07:21,320 --> 00:07:25,120 Speaker 1: the needle, and you gotta know what that is. And 160 00:07:25,160 --> 00:07:28,080 Speaker 1: you got to stress test your your retirement plan in 161 00:07:28,200 --> 00:07:32,360 Speaker 1: different scenarios to know what realistic really is before you 162 00:07:32,400 --> 00:07:35,920 Speaker 1: pull the trigger and retire. And I guess that leads to, 163 00:07:36,440 --> 00:07:39,120 Speaker 1: you know, an issue that sometimes we have to counsel 164 00:07:39,200 --> 00:07:41,920 Speaker 1: people about, and that's that whole thing we'll call a 165 00:07:42,000 --> 00:07:43,520 Speaker 1: lifestyle creep problem. 166 00:07:43,800 --> 00:07:46,080 Speaker 3: Yeah, this sneaks up on a lot of people. And honestly, 167 00:07:46,120 --> 00:07:47,720 Speaker 3: I've noticed this in my own life too. You know, 168 00:07:47,760 --> 00:07:49,760 Speaker 3: as you build your well slowly, you get more and 169 00:07:49,760 --> 00:07:52,400 Speaker 3: more confident along the way. You get raises, you get bonuses, 170 00:07:52,480 --> 00:07:55,120 Speaker 3: you get compensated. Yeah, sometimes equity in a company which 171 00:07:55,120 --> 00:07:56,720 Speaker 3: can which can drop a lot of money out of 172 00:07:56,760 --> 00:07:58,600 Speaker 3: the sky if it goes the right direction. Maybe you 173 00:07:58,600 --> 00:08:01,600 Speaker 3: sell a business, there's an inheritance. Well, you're spending will 174 00:08:01,640 --> 00:08:04,040 Speaker 3: gradually rise as you slowly. You may not make a 175 00:08:04,040 --> 00:08:06,160 Speaker 3: conscious decision, you may not be able to identify the 176 00:08:06,200 --> 00:08:09,040 Speaker 3: point that you started that you specifically decided to live. 177 00:08:08,960 --> 00:08:09,920 Speaker 2: A little higher on the hog. 178 00:08:10,200 --> 00:08:12,640 Speaker 3: But at some point you'll stop checking the prices at 179 00:08:12,680 --> 00:08:15,040 Speaker 3: the grocery store. You'll stop caring that the bill ran 180 00:08:15,120 --> 00:08:16,800 Speaker 3: up a little more at that nice steakhouse, you know, 181 00:08:16,800 --> 00:08:19,640 Speaker 3: those kinds of things. Retirement income doesn't always keep pace 182 00:08:19,720 --> 00:08:21,720 Speaker 3: with those those peak earning years, though, so we want 183 00:08:21,720 --> 00:08:23,720 Speaker 3: to make sure we have eyeballs on it somehow. So 184 00:08:23,800 --> 00:08:26,040 Speaker 3: if you're making if you were making around three hundred 185 00:08:26,040 --> 00:08:27,760 Speaker 3: and fifty thousand dollars, let's say at the end of 186 00:08:27,760 --> 00:08:30,840 Speaker 3: your career, and you're in your total household income, retiring 187 00:08:30,880 --> 00:08:33,360 Speaker 3: at one hundred and forty feels restricted, but might feel 188 00:08:33,360 --> 00:08:36,800 Speaker 3: like you're sacrificing things, and it'll really hurt because now 189 00:08:36,840 --> 00:08:38,959 Speaker 3: you've got free time. If you were spending a lot 190 00:08:39,000 --> 00:08:40,880 Speaker 3: of that three hundred and fifty thousand dollars. Well, while 191 00:08:40,920 --> 00:08:43,160 Speaker 3: you were working, you were doing that while you were 192 00:08:43,160 --> 00:08:45,480 Speaker 3: working full time careers. Now you got more time. So 193 00:08:45,520 --> 00:08:49,080 Speaker 3: if you're needing to retire a lot significantly on less spending, 194 00:08:49,320 --> 00:08:52,160 Speaker 3: that might be the financially sound thing, but that's not 195 00:08:52,200 --> 00:08:55,280 Speaker 3: necessarily a math problem. That makes it a lifestyle recalibration problem. 196 00:08:55,320 --> 00:08:58,240 Speaker 3: Be okay with what you can afford, and you know 197 00:08:58,400 --> 00:09:00,320 Speaker 3: if you're not okay with it, then that then that's 198 00:09:00,360 --> 00:09:02,240 Speaker 3: going to drive that retirement decision. Maybe you need to 199 00:09:02,240 --> 00:09:03,760 Speaker 3: work a little longer to build up the nest egg 200 00:09:03,760 --> 00:09:05,960 Speaker 3: a little bit more, or if it's more important that 201 00:09:06,000 --> 00:09:08,280 Speaker 3: you gain your time back, just know that sometimes that 202 00:09:08,280 --> 00:09:11,400 Speaker 3: comes along with sacrificing a little bit of the lifestyle, which, 203 00:09:11,400 --> 00:09:12,920 Speaker 3: if you think about it, you step back and look 204 00:09:12,920 --> 00:09:14,960 Speaker 3: at the big picture, may only mean that, you know, what, 205 00:09:15,000 --> 00:09:16,520 Speaker 3: we got to live like we did ten years ago, 206 00:09:16,640 --> 00:09:18,800 Speaker 3: not like we did last year, and that's okay because 207 00:09:18,800 --> 00:09:19,400 Speaker 3: we get to live. 208 00:09:20,679 --> 00:09:24,240 Speaker 1: Another big consideration is taxes, and it comes down to, 209 00:09:24,360 --> 00:09:27,600 Speaker 1: you know, two million dollars to one person might not 210 00:09:27,760 --> 00:09:31,120 Speaker 1: be the same to two million dollars to the other 211 00:09:31,160 --> 00:09:35,199 Speaker 1: person because of how those assets are comprised. Whether you 212 00:09:35,280 --> 00:09:38,520 Speaker 1: know the person that has the entire two million dollars 213 00:09:38,559 --> 00:09:41,080 Speaker 1: in pre tax iras, they're going to have a different 214 00:09:41,160 --> 00:09:45,400 Speaker 1: after tax result than someone that has different buckets of assets. 215 00:09:45,440 --> 00:09:47,840 Speaker 1: And I know you're big on this, Brian, doing some 216 00:09:47,920 --> 00:09:52,479 Speaker 1: planning ahead of time to diversify your buckets of assets, 217 00:09:52,840 --> 00:09:55,480 Speaker 1: you know, some after tax money, some wroth yes, some 218 00:09:55,600 --> 00:09:59,480 Speaker 1: pre tax so that you've got different levers to pull 219 00:09:59,760 --> 00:10:03,880 Speaker 1: to create an actual withdrawal strategy to make that retirement 220 00:10:03,960 --> 00:10:07,960 Speaker 1: income as tax efficient as possible. That really moves the 221 00:10:08,000 --> 00:10:12,840 Speaker 1: needle as well. How the composition of that two million dollars. 222 00:10:12,520 --> 00:10:15,360 Speaker 2: Yeah, you're talking about asse that location? Where where is it? 223 00:10:15,400 --> 00:10:18,360 Speaker 3: What tax treatments are we talking about? Is it in 224 00:10:18,440 --> 00:10:21,520 Speaker 3: traditional irase pre tax? Is it in taxable accounts? Is 225 00:10:21,600 --> 00:10:24,200 Speaker 3: on the wroth side, two million dollars in pre tax 226 00:10:24,240 --> 00:10:26,680 Speaker 3: retirement accounts is not the same as two million dollars 227 00:10:26,720 --> 00:10:30,000 Speaker 3: in tax diversified accounts because the IRS has become a 228 00:10:30,000 --> 00:10:31,720 Speaker 3: member of your household that you need to feed. 229 00:10:32,200 --> 00:10:33,240 Speaker 2: And most people are in. 230 00:10:33,160 --> 00:10:35,600 Speaker 3: This situation, right, I mean, because if you have a 231 00:10:35,640 --> 00:10:38,480 Speaker 3: significant amount of wealth now, then you probably started building 232 00:10:38,480 --> 00:10:41,559 Speaker 3: it thirty years ago, late seventies, early eighties. That's a 233 00:10:41,559 --> 00:10:43,880 Speaker 3: little longer than what I just said, but regardless, that's 234 00:10:43,920 --> 00:10:46,160 Speaker 3: when you know that. That's when four oh one case 235 00:10:46,200 --> 00:10:48,080 Speaker 3: became the thing and the only choice you had was 236 00:10:48,120 --> 00:10:50,920 Speaker 3: pre tax. There was no wroth until the twenty first 237 00:10:50,920 --> 00:10:52,920 Speaker 3: century began, so that you probably had a good two 238 00:10:52,960 --> 00:10:55,199 Speaker 3: decades of putting money in on the pre tax side. 239 00:10:55,280 --> 00:10:56,959 Speaker 3: So don't feel like you made a mistake. You did 240 00:10:56,960 --> 00:10:59,560 Speaker 3: save an enormous amount of money. But at the same 241 00:10:59,559 --> 00:11:01,160 Speaker 3: time you got I remember the irs is going to 242 00:11:01,200 --> 00:11:04,160 Speaker 3: come wanting their chunks, so make sure that you take 243 00:11:04,160 --> 00:11:06,280 Speaker 3: that into account when you're thinking about how much you 244 00:11:06,320 --> 00:11:09,319 Speaker 3: can pull out. If you need four percent, that means 245 00:11:09,360 --> 00:11:11,160 Speaker 3: you need to pull out five so that you can 246 00:11:11,200 --> 00:11:11,679 Speaker 3: pay the man. 247 00:11:12,760 --> 00:11:16,280 Speaker 1: Here's the all Worth advice. Retirement success isn't just about 248 00:11:16,360 --> 00:11:19,920 Speaker 1: hitting a number. It's about aligning your money with your lifestyle, 249 00:11:20,520 --> 00:11:24,679 Speaker 1: knowing what your lifestyle actually is, and building a comprehensive 250 00:11:24,720 --> 00:11:29,040 Speaker 1: plan and withdrawal strategy that has room to adapt as 251 00:11:29,200 --> 00:11:32,800 Speaker 1: life changes down the road. Is the rate on your 252 00:11:32,840 --> 00:11:36,400 Speaker 1: high yield savings account about to drop? We'll talk about 253 00:11:36,400 --> 00:11:38,679 Speaker 1: that next. You're listening to Simply Money, presented by all 254 00:11:38,679 --> 00:11:46,439 Speaker 1: Worth Financial on fifty five KRC the talk station you're 255 00:11:46,480 --> 00:11:49,120 Speaker 1: listening to Simply Money, presented by all Worth Financial on 256 00:11:49,240 --> 00:11:52,480 Speaker 1: Bob spond Seller along with Brian James. How do you 257 00:11:52,559 --> 00:11:56,439 Speaker 1: adjust when your monthly budget and actual spending don't quite 258 00:11:56,640 --> 00:11:59,720 Speaker 1: match up? We'll help two local couples try to figure 259 00:11:59,760 --> 00:12:03,199 Speaker 1: that out out straight ahead of six forty three. If 260 00:12:03,240 --> 00:12:06,200 Speaker 1: you have a high yield savings account, are you curious 261 00:12:06,480 --> 00:12:09,560 Speaker 1: what you're interest rate is likely to be? Here as 262 00:12:09,600 --> 00:12:14,280 Speaker 1: we proceed through twenty twenty six, Brian, we've got some 263 00:12:14,360 --> 00:12:17,200 Speaker 1: new I guess assumptions out there on what might be 264 00:12:17,240 --> 00:12:18,600 Speaker 1: happening with interest rates. 265 00:12:19,400 --> 00:12:22,320 Speaker 3: So Federal Reserve Bank of Chicago President and member of 266 00:12:22,360 --> 00:12:25,120 Speaker 3: the Madden All Name Team, Austin Goulesby. That's one of 267 00:12:25,200 --> 00:12:26,760 Speaker 3: my favorite names in this financial space. 268 00:12:26,800 --> 00:12:27,760 Speaker 2: By the way, he. 269 00:12:27,720 --> 00:12:30,160 Speaker 3: Said this week there's potential for more interest rate cuts 270 00:12:30,160 --> 00:12:32,720 Speaker 3: this year, and that's the mode a lot of people 271 00:12:32,720 --> 00:12:35,040 Speaker 3: are in. We have a lot of clients holding off 272 00:12:35,080 --> 00:12:37,320 Speaker 3: on decisions thinking that interest rates cuts are still on 273 00:12:37,360 --> 00:12:40,240 Speaker 3: the way. But Austin gooles We said that that's possible 274 00:12:40,240 --> 00:12:42,880 Speaker 3: if inflation continues to return toward the central Backs two 275 00:12:42,960 --> 00:12:43,559 Speaker 3: percent target. 276 00:12:43,600 --> 00:12:44,760 Speaker 2: We're still stuck around three. 277 00:12:45,400 --> 00:12:47,520 Speaker 3: But as long as we keep sneaking back toward too, 278 00:12:47,800 --> 00:12:50,079 Speaker 3: we might be we might be looking at some rate cuts, 279 00:12:50,240 --> 00:12:52,840 Speaker 3: so he said, and I quote, I do think that 280 00:12:52,880 --> 00:12:54,839 Speaker 3: if this proves to be transitory, there's a. 281 00:12:55,000 --> 00:13:02,120 Speaker 1: Oh okay, gotta call he's got that's almost using that word. Yeah. 282 00:13:02,280 --> 00:13:04,600 Speaker 3: What we're referring to there is is the notion that 283 00:13:04,640 --> 00:13:08,319 Speaker 3: inflation was transitory during the pandemic, and that was now 284 00:13:08,400 --> 00:13:10,000 Speaker 3: going this is now going on five years ago. So 285 00:13:10,040 --> 00:13:11,960 Speaker 3: I'm not sure what the time limit is on transitory, 286 00:13:12,160 --> 00:13:14,640 Speaker 3: but I think we've uh, we've exceeded it here. But 287 00:13:14,760 --> 00:13:17,600 Speaker 3: in any case, Austin, at least one person out there, 288 00:13:17,640 --> 00:13:20,600 Speaker 3: one Federal Reserve Bank president, says there could be several 289 00:13:20,600 --> 00:13:22,280 Speaker 3: more rate cuts coman He's not the only one, but 290 00:13:22,320 --> 00:13:24,560 Speaker 3: there are plenty on the other side. So we'll just 291 00:13:24,600 --> 00:13:27,160 Speaker 3: have to keep an eye on what's going on. And 292 00:13:27,520 --> 00:13:30,320 Speaker 3: fortunately we've got Andy Stout, our chief investment officer, to 293 00:13:30,400 --> 00:13:32,920 Speaker 3: keep tabs on what the various talking heads at the 294 00:13:32,920 --> 00:13:33,600 Speaker 3: FED are thinking. 295 00:13:34,080 --> 00:13:36,520 Speaker 1: Well, more importantly, Brian, I mean, if we do get 296 00:13:36,559 --> 00:13:38,280 Speaker 1: a couple of rate cuts here, and I don't think 297 00:13:38,320 --> 00:13:40,040 Speaker 1: we're going to see one until the you know, at 298 00:13:40,120 --> 00:13:42,800 Speaker 1: least the middle of the year June July timeframe is 299 00:13:42,840 --> 00:13:45,920 Speaker 1: what we're kind of seeing priced into the market. What 300 00:13:46,040 --> 00:13:47,480 Speaker 1: should folks be doing about it? 301 00:13:48,720 --> 00:13:50,199 Speaker 2: Well, this is something you wouldn't You just want to 302 00:13:50,200 --> 00:13:51,000 Speaker 2: be paying attention to it. 303 00:13:51,280 --> 00:13:53,040 Speaker 3: If you're in a situation where maybe you had to 304 00:13:53,080 --> 00:13:54,839 Speaker 3: buy a house over the last two or three years 305 00:13:55,000 --> 00:13:57,240 Speaker 3: and you've got maybe a seven and a half eight 306 00:13:57,240 --> 00:13:59,400 Speaker 3: percent mortgage, well i'd be looking at that right now 307 00:13:59,440 --> 00:14:01,400 Speaker 3: because you can get into the sixes now on a 308 00:14:01,440 --> 00:14:06,560 Speaker 3: refinance and be looking for low cost refinance options. Don't 309 00:14:06,640 --> 00:14:09,080 Speaker 3: just go to your big box bank, right And if 310 00:14:09,120 --> 00:14:11,120 Speaker 3: you're banking at a bank that has branches on every 311 00:14:11,120 --> 00:14:13,080 Speaker 3: street corner, then you're not gonna get the lowest rates 312 00:14:13,080 --> 00:14:14,360 Speaker 3: that are out there because you're the one that has 313 00:14:14,400 --> 00:14:15,400 Speaker 3: to pay for that real estate. 314 00:14:15,600 --> 00:14:16,600 Speaker 2: So be open minded. 315 00:14:16,640 --> 00:14:18,160 Speaker 3: But if you're at seven and a half eight percent, 316 00:14:18,240 --> 00:14:20,960 Speaker 3: it probably is time to be looking even without another 317 00:14:21,040 --> 00:14:23,200 Speaker 3: rate cut. If you're lower than that, then again just 318 00:14:23,200 --> 00:14:26,000 Speaker 3: be paying attention. And it's the year the ten year Treasury. 319 00:14:26,000 --> 00:14:28,120 Speaker 3: If you want an idea of what of what mortgage 320 00:14:28,160 --> 00:14:29,800 Speaker 3: rates are going to because not all banks post them 321 00:14:29,840 --> 00:14:32,160 Speaker 3: on their website, pay attention to the ten year Treasury. 322 00:14:32,160 --> 00:14:33,280 Speaker 2: That's what most of them tie it to. 323 00:14:34,840 --> 00:14:38,240 Speaker 1: All right, have you checked your basement or attic lately? Yeah? 324 00:14:38,240 --> 00:14:40,320 Speaker 1: I mean, if you're anything like Brian, who I know 325 00:14:40,400 --> 00:14:44,120 Speaker 1: has a sizable Beanie Baby collection sitting there, it could 326 00:14:44,200 --> 00:14:44,560 Speaker 1: be worth it. 327 00:14:44,560 --> 00:14:46,440 Speaker 2: While coming back, Bob, don't judge me. 328 00:14:47,720 --> 00:14:51,400 Speaker 1: Now. While they might be worth something, it's likely nothing 329 00:14:52,200 --> 00:14:56,440 Speaker 1: compared to this rare Pokemon card that recently got sold. 330 00:14:57,480 --> 00:15:01,640 Speaker 1: Tell us about that, Brian, I don't. This is all 331 00:15:01,640 --> 00:15:04,560 Speaker 1: interesting stuff. Have you ever met a client or met 332 00:15:04,560 --> 00:15:07,160 Speaker 1: with a client who owns Pokemon cards? I have not. 333 00:15:07,720 --> 00:15:09,760 Speaker 1: I've been doing this for thirty five years, have you. 334 00:15:10,360 --> 00:15:12,640 Speaker 3: I think they would think a lot differently than us, 335 00:15:12,640 --> 00:15:14,480 Speaker 3: and the stuff that we talk about would bore them. 336 00:15:15,080 --> 00:15:18,760 Speaker 1: But this is a forgotten asset class that you know 337 00:15:18,920 --> 00:15:22,600 Speaker 1: I completely passed me by through my financial career. And 338 00:15:22,640 --> 00:15:23,640 Speaker 1: tell us a little bit why. 339 00:15:23,720 --> 00:15:26,600 Speaker 3: Maybe next week we can have Andy stout to address 340 00:15:26,640 --> 00:15:29,360 Speaker 3: why why we do or do not include Pokemon cards 341 00:15:29,360 --> 00:15:31,080 Speaker 3: in our asset allocation recommendations. 342 00:15:31,080 --> 00:15:32,560 Speaker 2: We'll see tune in next week. 343 00:15:33,080 --> 00:15:33,240 Speaker 1: Now. 344 00:15:33,280 --> 00:15:35,400 Speaker 3: The reason this is this is hitting the headlines here 345 00:15:35,440 --> 00:15:39,080 Speaker 3: is Logan Paul when he's one of those YouTube creator 346 00:15:39,120 --> 00:15:41,760 Speaker 3: influencer people who turned into a wrestler for a while 347 00:15:41,840 --> 00:15:44,200 Speaker 3: and as just a loud person who's always in your 348 00:15:44,200 --> 00:15:46,800 Speaker 3: face all the time. He sold a nineteen ninety eight 349 00:15:46,800 --> 00:15:50,320 Speaker 3: Pokemon card that was encased in a diamond necklace. Let's 350 00:15:50,320 --> 00:15:53,000 Speaker 3: not forget that detail. Sixteen and a half million dollars 351 00:15:53,040 --> 00:15:56,160 Speaker 3: in an online auction, and the founder of it was 352 00:15:56,200 --> 00:15:58,880 Speaker 3: somebody with too much money, another hedge fund manager out 353 00:15:58,880 --> 00:16:02,880 Speaker 3: there who basically is just looking to own things, just 354 00:16:02,960 --> 00:16:05,680 Speaker 3: bury money inside of things. This broke the the Guinness 355 00:16:05,680 --> 00:16:08,960 Speaker 3: World Record for the most expensive Pokemon card sold at auction, 356 00:16:09,360 --> 00:16:11,680 Speaker 3: and this was the second time that Logan Paul and 357 00:16:11,800 --> 00:16:14,200 Speaker 3: this specific card have broken a world record. 358 00:16:14,520 --> 00:16:15,840 Speaker 2: I don't care about any of this stuff. 359 00:16:15,920 --> 00:16:18,880 Speaker 3: It's just fascinating to know that it exists out there. 360 00:16:19,000 --> 00:16:22,640 Speaker 3: I've also seen another story recently that Logan Paul's brother 361 00:16:22,680 --> 00:16:24,920 Speaker 3: whose name escapes me and I don't care either, also 362 00:16:25,040 --> 00:16:28,160 Speaker 3: sold an NTF. Remember ntf's one of those I owned 363 00:16:28,160 --> 00:16:31,120 Speaker 3: this digital image out there. He bought one for hundreds 364 00:16:31,120 --> 00:16:33,760 Speaker 3: of thousands of dollars and it's now worth about fifteen dollars. 365 00:16:33,760 --> 00:16:36,280 Speaker 3: So that's the other headline there in the Paul family. 366 00:16:36,240 --> 00:16:38,120 Speaker 3: I have a feeling Logan might be having a little 367 00:16:38,160 --> 00:16:41,320 Speaker 3: chuckle over his brother's failures. Anyway, if you're listening to this, 368 00:16:41,560 --> 00:16:42,720 Speaker 3: don't touch this garbage. 369 00:16:43,320 --> 00:16:46,160 Speaker 1: All right, Let's actually try to do something useful here, Brian. 370 00:16:46,200 --> 00:16:48,760 Speaker 1: Every Sunday you'll find our all worth advice in the 371 00:16:48,800 --> 00:16:52,960 Speaker 1: Cincinnati Inquirer. Here's a preview question that came in from 372 00:16:53,080 --> 00:16:56,360 Speaker 1: DK in Madeira. He says, I invested in a private 373 00:16:56,600 --> 00:16:59,920 Speaker 1: real estate deal through an LLC and I just got 374 00:16:59,920 --> 00:17:04,160 Speaker 1: a K one showing thousands of dollars of taxable income, 375 00:17:04,280 --> 00:17:08,400 Speaker 1: but man, I never received a dime. What's going on here? Uh? 376 00:17:08,440 --> 00:17:11,560 Speaker 1: I chuckle, Brian, because I have had the same experience. 377 00:17:11,600 --> 00:17:13,760 Speaker 1: What are we supposed to do about this? Yeah? 378 00:17:13,800 --> 00:17:15,800 Speaker 2: So I'm just glad we're not talking about pluggingmon cars 379 00:17:15,840 --> 00:17:16,960 Speaker 2: or NFTs with this question. 380 00:17:17,040 --> 00:17:19,320 Speaker 3: This is a good, real, legitimate question and a good 381 00:17:19,400 --> 00:17:22,880 Speaker 3: a good education in a first time investment for somebody here. 382 00:17:23,080 --> 00:17:26,520 Speaker 3: So you ran into what's something that's called phantom income. Uh, 383 00:17:26,600 --> 00:17:29,040 Speaker 3: you ran into something called phantom income. That's when the 384 00:17:29,080 --> 00:17:31,680 Speaker 3: IRS says you made money, but you didn't actually see anything. 385 00:17:31,760 --> 00:17:34,479 Speaker 3: So one common example of this that's particular to real 386 00:17:34,600 --> 00:17:37,560 Speaker 3: estate is debt forgiveness. So let's say you're not involved 387 00:17:37,560 --> 00:17:39,440 Speaker 3: in this here, you're a passive investor. You just threw 388 00:17:39,480 --> 00:17:41,399 Speaker 3: them some money, and then there's people off doing something 389 00:17:41,440 --> 00:17:43,119 Speaker 3: with your money and a lot of other people's money 390 00:17:43,240 --> 00:17:43,520 Speaker 3: in the. 391 00:17:43,440 --> 00:17:44,320 Speaker 2: Real estate space. 392 00:17:44,600 --> 00:17:48,080 Speaker 3: So perhaps the a lender behind this real estate property 393 00:17:48,119 --> 00:17:51,000 Speaker 3: may have restructured or somehow forgiven part of a mortgage 394 00:17:51,000 --> 00:17:53,359 Speaker 3: as part of the you know, the daily operations of 395 00:17:53,359 --> 00:17:57,480 Speaker 3: this whatever this real estate entity is. That canceled amount, Well, 396 00:17:57,520 --> 00:18:00,760 Speaker 3: that's not cash that flows through to the shareholders, its 397 00:18:00,880 --> 00:18:04,280 Speaker 3: forgiven debt. So that is still income. The irs will 398 00:18:04,280 --> 00:18:07,280 Speaker 3: still recognize that as income. There's economic benefits to saying 399 00:18:07,440 --> 00:18:09,600 Speaker 3: you don't owe me any money anymore, but that's different 400 00:18:09,640 --> 00:18:12,719 Speaker 3: than receiving any cash. So because there's an economic benefit 401 00:18:12,760 --> 00:18:14,320 Speaker 3: to it, you're going to get a tax bill off 402 00:18:14,359 --> 00:18:16,359 Speaker 3: of it. Another part it could have come from, and 403 00:18:16,400 --> 00:18:18,960 Speaker 3: this is really common, is depreciation recapture. 404 00:18:19,280 --> 00:18:20,600 Speaker 2: So real estate. 405 00:18:20,640 --> 00:18:22,719 Speaker 3: One of the benefits of owning real estate is that 406 00:18:22,760 --> 00:18:26,359 Speaker 3: those buildings, those facilities do get depreciated, and there is 407 00:18:26,359 --> 00:18:28,320 Speaker 3: a tax benefit to that. Every single year you get 408 00:18:28,320 --> 00:18:32,080 Speaker 3: to take deductions. Well, eventually, some when the property is sold, 409 00:18:32,160 --> 00:18:35,600 Speaker 3: that depreciation has to get recaptured and taxed. So perhaps 410 00:18:35,680 --> 00:18:38,600 Speaker 3: if this real estate investment owns many many properties, perhaps 411 00:18:38,680 --> 00:18:40,879 Speaker 3: they sold something and bought something else, Well, then you 412 00:18:40,920 --> 00:18:43,840 Speaker 3: may have had some depreciation recapture in there. So this 413 00:18:43,880 --> 00:18:46,920 Speaker 3: can also sneak through and partnership k ones. A property 414 00:18:47,000 --> 00:18:50,480 Speaker 3: might generate taxable income on paper due to accounting adjustments, 415 00:18:50,760 --> 00:18:52,880 Speaker 3: even if cash flow was reinvested or used to pay 416 00:18:52,880 --> 00:18:55,480 Speaker 3: down that debt. So lots of the I think sounds 417 00:18:55,480 --> 00:18:57,000 Speaker 3: like this may be the first time you've invented in 418 00:18:57,040 --> 00:18:58,879 Speaker 3: real estate, but don't feel like you've made a mistake. 419 00:18:59,080 --> 00:19:01,240 Speaker 3: This is just something to anticipate in the future. It's 420 00:19:01,280 --> 00:19:02,960 Speaker 3: very common in these types of investments. 421 00:19:03,520 --> 00:19:05,800 Speaker 1: Yeah, and I get in the case of DK situation, 422 00:19:05,880 --> 00:19:07,800 Speaker 1: it's kind of water under the bridge at this point, 423 00:19:07,840 --> 00:19:09,480 Speaker 1: and I'm not making light of it at all, But 424 00:19:09,560 --> 00:19:13,000 Speaker 1: this is just a reminder to before you get involved 425 00:19:13,000 --> 00:19:15,920 Speaker 1: in some of these private real estate deals or any 426 00:19:16,000 --> 00:19:18,720 Speaker 1: kind of LLC or things that generate a K one 427 00:19:18,880 --> 00:19:22,080 Speaker 1: kind of have a sense of what could happen or 428 00:19:22,119 --> 00:19:25,960 Speaker 1: what has historically happened from a tax standpoint in these deals, 429 00:19:26,440 --> 00:19:29,720 Speaker 1: and make sure you've got enough liquidity in other areas 430 00:19:29,760 --> 00:19:34,520 Speaker 1: to cover these unexpected phantom income tax bills. Because they 431 00:19:34,560 --> 00:19:36,880 Speaker 1: do crop up from time to time, and we don't 432 00:19:36,880 --> 00:19:39,960 Speaker 1: want anybody to be caught off guard or surprised. Coming 433 00:19:40,000 --> 00:19:42,720 Speaker 1: up next, we launch a rescue mission on one of 434 00:19:42,720 --> 00:19:46,920 Speaker 1: the most overlooked parts of high net worth portfolios, that dreaded, 435 00:19:47,040 --> 00:19:50,639 Speaker 1: neglected four oh one K. You're listening to Simply Money 436 00:19:50,640 --> 00:19:53,560 Speaker 1: presented by all Worth Financial on fifty five KRC the 437 00:19:53,880 --> 00:20:06,440 Speaker 1: talk station. You're listening to Simply Money presented my all 438 00:20:06,440 --> 00:20:10,560 Speaker 1: Worth Financial on Bob Sponsller along with Brian James. Let's 439 00:20:10,560 --> 00:20:12,960 Speaker 1: be honest, when you hear the words four oh one K, 440 00:20:13,160 --> 00:20:16,680 Speaker 1: you probably think about your very first job out of college. 441 00:20:16,760 --> 00:20:19,520 Speaker 1: You set it, you forget about it, and you move on. 442 00:20:20,440 --> 00:20:23,040 Speaker 1: But if you're now worth let's say a few million bucks, 443 00:20:23,080 --> 00:20:26,520 Speaker 1: maybe even more, that first four oh one k or 444 00:20:26,560 --> 00:20:29,720 Speaker 1: first two or three four oh one ks could be 445 00:20:30,040 --> 00:20:32,720 Speaker 1: the weakest link in your whole financial plan if you've 446 00:20:32,720 --> 00:20:37,120 Speaker 1: completely thrown them in the proverbial drawer and forgotten about them. 447 00:20:37,480 --> 00:20:40,359 Speaker 1: And so tonight we're gonna go on a little rescue mission. 448 00:20:40,400 --> 00:20:43,119 Speaker 1: We're gonna tell the story of someone who built some 449 00:20:43,280 --> 00:20:46,560 Speaker 1: real wealth over the course of their career, but never 450 00:20:46,760 --> 00:20:50,359 Speaker 1: circled back to fix that major blind spot those old 451 00:20:50,440 --> 00:20:51,960 Speaker 1: four oh one k's, Brian. 452 00:20:52,400 --> 00:20:54,879 Speaker 3: Well, we're gonna talk about Laura. Laura is a fake person. 453 00:20:54,960 --> 00:20:55,120 Speaker 1: Now. 454 00:20:55,280 --> 00:20:57,280 Speaker 3: Most of our I say, all of our stories we 455 00:20:57,320 --> 00:20:59,520 Speaker 3: share here are real stories that come from real clients, 456 00:20:59,560 --> 00:21:02,159 Speaker 3: but dobby names are changed to protect the innocent. And 457 00:21:02,160 --> 00:21:05,160 Speaker 3: today the innocence fake name is Laura. Laura's fifty eight, 458 00:21:05,560 --> 00:21:07,679 Speaker 3: married with two grown kids, and she owns a marketing 459 00:21:07,720 --> 00:21:09,960 Speaker 3: firm in Cincinnati that did really well in her forties, 460 00:21:10,520 --> 00:21:12,240 Speaker 3: and today she and her husband have a net worth 461 00:21:12,280 --> 00:21:14,680 Speaker 3: of about three point two million, including some real estate 462 00:21:14,760 --> 00:21:18,679 Speaker 3: brokerage accounts, you know, growing cast reserve typical assets for 463 00:21:18,680 --> 00:21:21,359 Speaker 3: somebody in that kind of a position, and life is good. 464 00:21:21,520 --> 00:21:23,520 Speaker 3: But she came out to me with a financial advisor 465 00:21:23,600 --> 00:21:26,679 Speaker 3: and during that whole review, what stuck out was a 466 00:21:26,720 --> 00:21:29,440 Speaker 3: four oh one K that was a four hundred and 467 00:21:29,480 --> 00:21:31,800 Speaker 3: eighty thousand dollars account, you know, that's a significant chunk 468 00:21:31,840 --> 00:21:33,639 Speaker 3: of her net worth, still one hundred percent and a 469 00:21:33,680 --> 00:21:38,320 Speaker 3: twenty thirty five target date fund. Really no customization and 470 00:21:38,640 --> 00:21:40,920 Speaker 3: no real It looked like there hadn't been any discussion 471 00:21:41,000 --> 00:21:44,600 Speaker 3: of this account really at all, because she was busy 472 00:21:44,880 --> 00:21:47,000 Speaker 3: building her business. And that's where their net worth was 473 00:21:47,080 --> 00:21:48,920 Speaker 3: so now that wound up being a half million dollars 474 00:21:48,960 --> 00:21:51,600 Speaker 3: that could have been handled a lot differently. She's, for example, 475 00:21:51,600 --> 00:21:53,520 Speaker 3: she's in a position where she's got a decent amount 476 00:21:53,520 --> 00:21:57,120 Speaker 3: of assets sitting there outside the four on. Okay, that's 477 00:21:57,119 --> 00:22:00,560 Speaker 3: what they're going to rely on to live off of 478 00:22:00,600 --> 00:22:03,359 Speaker 3: in the earlier years of retirement. That means that these accounts, 479 00:22:03,480 --> 00:22:06,239 Speaker 3: the tax advantage ones a couple of things nobody had 480 00:22:06,280 --> 00:22:08,840 Speaker 3: had a conversation with her about should this stay, you know, 481 00:22:09,080 --> 00:22:11,440 Speaker 3: should this stay in the traditional size, Should we be 482 00:22:11,480 --> 00:22:14,880 Speaker 3: thinking about roth conversions here after you retire, And more importantly, 483 00:22:14,880 --> 00:22:16,880 Speaker 3: should it really be in a twenty five thirty twenty 484 00:22:16,880 --> 00:22:19,120 Speaker 3: thirty five target day fund that is not that far out, 485 00:22:19,160 --> 00:22:21,399 Speaker 3: and that these assets are going to sit there for 486 00:22:21,440 --> 00:22:23,800 Speaker 3: you know, maybe twenty years or longer, or possibly just 487 00:22:23,840 --> 00:22:26,040 Speaker 3: be inherited by your kids. Then that is a very 488 00:22:26,160 --> 00:22:29,200 Speaker 3: very different strategy. That's really where we're talking about roth conversions. 489 00:22:29,320 --> 00:22:32,280 Speaker 3: But again, it sat there in the same fund that 490 00:22:32,359 --> 00:22:34,399 Speaker 3: she had decided when she first set the thing up 491 00:22:34,400 --> 00:22:36,440 Speaker 3: when the business was barely off the ground, and hadn't 492 00:22:36,440 --> 00:22:38,880 Speaker 3: thought about it ever since because she worked so hard. 493 00:22:39,160 --> 00:22:41,719 Speaker 3: The end result it underperformed the market by about two 494 00:22:41,760 --> 00:22:44,080 Speaker 3: percent every year over the past seven years because it 495 00:22:44,160 --> 00:22:47,680 Speaker 3: was targeted for a risk tolerance portfolio that really didn't 496 00:22:47,720 --> 00:22:50,280 Speaker 3: match what she needed. Now, is this going to bankrupt her? 497 00:22:50,280 --> 00:22:53,119 Speaker 3: Of course not. But this is a question of efficiency. 498 00:22:53,119 --> 00:22:55,240 Speaker 3: When you look out any context of her wealth. That's 499 00:22:55,280 --> 00:22:57,520 Speaker 3: a big hole in the boat, Bob, because she left 500 00:22:57,520 --> 00:22:59,000 Speaker 3: a lot of money on the table over those years 501 00:22:59,080 --> 00:23:01,520 Speaker 3: for an asset that like most likely is going to 502 00:23:01,520 --> 00:23:03,600 Speaker 3: sit there for several decades till it gets inherited. 503 00:23:04,400 --> 00:23:06,439 Speaker 1: Yeah. I think the important thing here is just to 504 00:23:06,480 --> 00:23:08,800 Speaker 1: make sure when you sit down with your advisor you 505 00:23:08,920 --> 00:23:12,560 Speaker 1: are talking about all of your assets, you actually know 506 00:23:12,640 --> 00:23:16,119 Speaker 1: what you have and where it's sitting. I mean, sitting 507 00:23:16,119 --> 00:23:18,800 Speaker 1: in a target at twenty thirty five target date fund 508 00:23:19,720 --> 00:23:21,879 Speaker 1: isn't the worst thing in the world. I mean, the 509 00:23:21,960 --> 00:23:24,960 Speaker 1: thing got probably a pretty nice return over the period 510 00:23:25,000 --> 00:23:27,959 Speaker 1: that this person was ignoring it. I came across it. 511 00:23:27,960 --> 00:23:30,720 Speaker 1: So a situation late last year was which was a 512 00:23:30,760 --> 00:23:34,560 Speaker 1: bit more dramatic than that. These folks had sold a 513 00:23:34,600 --> 00:23:37,680 Speaker 1: business for quite a bit of money, and they were 514 00:23:37,960 --> 00:23:41,240 Speaker 1: very and are very risk averse people. I mean, they 515 00:23:41,280 --> 00:23:44,199 Speaker 1: want to be almost one hundred percent in bonds, you know, 516 00:23:44,240 --> 00:23:46,639 Speaker 1: maybe a ten to twenty percent slice in the stock 517 00:23:46,720 --> 00:23:50,600 Speaker 1: market just for some inflation protection. And you know, I 518 00:23:50,640 --> 00:23:53,640 Speaker 1: asked them about these old couple, old four to one 519 00:23:53,720 --> 00:23:56,720 Speaker 1: K accounts that they had. They hadn't looked at them 520 00:23:56,760 --> 00:23:59,639 Speaker 1: in fifteen years, and I said, well, why don't you 521 00:23:59,640 --> 00:24:01,760 Speaker 1: send the statements and we'll look at it. Well, they 522 00:24:01,800 --> 00:24:05,280 Speaker 1: sent the statements, Brian, and they were one hundred percent 523 00:24:05,480 --> 00:24:08,680 Speaker 1: invested in the stock market and they were in a 524 00:24:08,760 --> 00:24:13,080 Speaker 1: variable annuity. So not only was the risk profile completely 525 00:24:13,119 --> 00:24:16,480 Speaker 1: different from where these people wanted to be today as 526 00:24:16,520 --> 00:24:19,480 Speaker 1: they progressed through their retirement years, but when you ran 527 00:24:19,800 --> 00:24:23,320 Speaker 1: a fee analysis on the whole thing, I mean, they 528 00:24:23,320 --> 00:24:26,760 Speaker 1: were paying very very high fees upwards of you know, 529 00:24:26,760 --> 00:24:30,439 Speaker 1: about three percent all in on these annuities. And you know, 530 00:24:31,040 --> 00:24:34,399 Speaker 1: so again it in some cases it makes sense to 531 00:24:34,480 --> 00:24:36,960 Speaker 1: leave the money at the four to one k if 532 00:24:37,040 --> 00:24:39,640 Speaker 1: it matches what you're trying to do and you can 533 00:24:39,680 --> 00:24:42,399 Speaker 1: get the investments for low cost. But in a lot 534 00:24:42,400 --> 00:24:45,639 Speaker 1: of cases it's not the case. This was one example 535 00:24:45,680 --> 00:24:49,479 Speaker 1: where it was just a no brainer, for multiple reasons 536 00:24:49,480 --> 00:24:52,600 Speaker 1: that I've already covered, to just consolidate this over to 537 00:24:52,640 --> 00:24:55,800 Speaker 1: the assets that we were handling for them, and they 538 00:24:55,800 --> 00:24:57,200 Speaker 1: were glad we had the conversation. 539 00:24:58,160 --> 00:24:59,600 Speaker 3: Well, that's good to hear it because and that's the 540 00:24:59,640 --> 00:25:02,399 Speaker 3: whole point of that entire type of a discussion, So 541 00:25:02,760 --> 00:25:04,880 Speaker 3: just to make sure that you understand what you own. 542 00:25:04,920 --> 00:25:07,040 Speaker 3: And I would one of the interesting phenomenons we see 543 00:25:07,080 --> 00:25:09,320 Speaker 3: every now and as well we take people through this 544 00:25:09,440 --> 00:25:13,200 Speaker 3: risk discussion, they'll say that they're super conservative people and then, 545 00:25:13,240 --> 00:25:15,119 Speaker 3: like you just said, we look at the portfolio and 546 00:25:15,119 --> 00:25:19,600 Speaker 3: it's invested really really aggressively, and they haven't. And oftentimes 547 00:25:19,600 --> 00:25:22,000 Speaker 3: they won't. They'll show us this and they won't have 548 00:25:22,080 --> 00:25:24,280 Speaker 3: reacted to you know, twenty twenty two, which was one 549 00:25:24,280 --> 00:25:25,920 Speaker 3: of those I always say, one of the five worst 550 00:25:26,000 --> 00:25:28,399 Speaker 3: market years we've ever had, And it's like, are you 551 00:25:28,560 --> 00:25:32,040 Speaker 3: really risk this risk averse because it didn't appear to 552 00:25:32,080 --> 00:25:34,280 Speaker 3: have bothered you that twenty twenty two came out the 553 00:25:34,280 --> 00:25:36,560 Speaker 3: way it did. So it's almost like sometimes those risk 554 00:25:36,640 --> 00:25:39,399 Speaker 3: questionnaires are more of a here's where I think we 555 00:25:39,440 --> 00:25:42,080 Speaker 3: should probably be, but we're really okay not being there. 556 00:25:42,320 --> 00:25:45,040 Speaker 3: So that's why risk is a discussion, not just a questionnaire. 557 00:25:45,119 --> 00:25:46,840 Speaker 3: But that's still an important thing for you to talk 558 00:25:46,880 --> 00:25:48,680 Speaker 3: about with your advisor to make sure everybody's on the 559 00:25:48,720 --> 00:25:49,320 Speaker 3: same page. 560 00:25:49,760 --> 00:25:52,480 Speaker 1: Here's the all Worth advice. If you've built some real wealth, 561 00:25:52,600 --> 00:25:55,119 Speaker 1: you can't afford to just let those old four to 562 00:25:55,240 --> 00:25:58,800 Speaker 1: one k plans lay around in coast. It deserves the 563 00:25:58,880 --> 00:26:03,199 Speaker 1: same level of scrutin and customization as everything else in 564 00:26:03,240 --> 00:26:07,200 Speaker 1: your plan. All right, can you afford to give your kids, 565 00:26:07,320 --> 00:26:10,320 Speaker 1: let's say, twenty five thousand dollars each for a house 566 00:26:10,400 --> 00:26:13,919 Speaker 1: down payment and still retire comfortably? We'll dig into that 567 00:26:14,080 --> 00:26:17,440 Speaker 1: question from Loveland next, plus whether an eight thousand dollars 568 00:26:17,440 --> 00:26:21,440 Speaker 1: a month retirement budget really holds up over the long haul. 569 00:26:21,760 --> 00:26:24,280 Speaker 1: You're listening to Simply Money presented by all Worth Financial 570 00:26:24,320 --> 00:26:31,879 Speaker 1: on fifty five KRC, the talk station. You're listening to 571 00:26:31,880 --> 00:26:34,400 Speaker 1: Simply Money presid up by all Worth Financial. I'm Bob 572 00:26:34,440 --> 00:26:37,520 Speaker 1: Sponseller along with Brian James. Do you have a financial 573 00:26:37,600 --> 00:26:39,920 Speaker 1: question you'd like for us to answer. There's a red 574 00:26:39,920 --> 00:26:42,280 Speaker 1: button you can click while you're listening to the show. 575 00:26:42,400 --> 00:26:45,840 Speaker 1: If you're listening on the iHeart app, simply record your 576 00:26:45,920 --> 00:26:49,440 Speaker 1: question and it will come straight to us. All right, 577 00:26:49,480 --> 00:26:53,040 Speaker 1: Brian greg and Madeira says, I'm worried that one bad 578 00:26:53,160 --> 00:26:57,400 Speaker 1: year early in retirement could change everything for us. What 579 00:26:57,560 --> 00:27:01,760 Speaker 1: practical steps can you take to protect against that without 580 00:27:01,800 --> 00:27:03,359 Speaker 1: parking everything in cash? 581 00:27:03,520 --> 00:27:06,600 Speaker 3: Great question, Well, Greg, you're talking about something called sequence 582 00:27:06,600 --> 00:27:09,240 Speaker 3: of returns risk. And the reason this is so dangerous 583 00:27:09,080 --> 00:27:11,800 Speaker 3: it's it's timing, not the long term averages. So a 584 00:27:11,840 --> 00:27:13,880 Speaker 3: poor market year, like you said, in the first few 585 00:27:13,920 --> 00:27:16,560 Speaker 3: years of retirement can permanently shrink that capital base you're 586 00:27:16,600 --> 00:27:19,240 Speaker 3: drawing off of, even if markets recovered later, as they 587 00:27:19,280 --> 00:27:21,639 Speaker 3: have always have in the past. The solution is not 588 00:27:21,680 --> 00:27:24,120 Speaker 3: to walk away from growth, because this can happen. It's 589 00:27:24,160 --> 00:27:26,960 Speaker 3: to separate the income I need now from the money 590 00:27:26,600 --> 00:27:29,320 Speaker 3: that can that can grow over time. So really, what 591 00:27:29,359 --> 00:27:31,719 Speaker 3: that looks like, you know, maybe somewhere between a giant 592 00:27:31,720 --> 00:27:35,560 Speaker 3: cash pile, you know, and no cash pile at all. 593 00:27:35,960 --> 00:27:39,360 Speaker 3: Build that retirement paycheck buffer. I always suggest a look 594 00:27:39,359 --> 00:27:41,080 Speaker 3: at the things you're going to need to spend money on, 595 00:27:41,160 --> 00:27:42,800 Speaker 3: you know, the bills that are coming due over the 596 00:27:42,800 --> 00:27:46,000 Speaker 3: next twelve to twenty four months. A good idea would 597 00:27:46,000 --> 00:27:48,520 Speaker 3: be to make sure that that particular pile of cash 598 00:27:48,720 --> 00:27:51,080 Speaker 3: is sitting somewhere safe, generating a little bit of interest, 599 00:27:51,119 --> 00:27:53,280 Speaker 3: But its job is to be spent to pay those bills. 600 00:27:53,480 --> 00:27:55,320 Speaker 3: That means that if the market does go the wrong 601 00:27:55,359 --> 00:27:58,200 Speaker 3: direction earlier retirement, it doesn't hurt you because you weren't 602 00:27:58,200 --> 00:28:01,159 Speaker 3: going to spend those particular dollars in anyway. And you 603 00:28:01,200 --> 00:28:03,040 Speaker 3: can also take this a little further by looking at 604 00:28:03,320 --> 00:28:06,040 Speaker 3: and segmenting your dollars into buckets. You know, maybe the 605 00:28:06,040 --> 00:28:08,080 Speaker 3: first bucket is money you're gonna need between now and 606 00:28:08,160 --> 00:28:10,400 Speaker 3: three years, and that's really liquid. You know, again you're 607 00:28:10,400 --> 00:28:12,600 Speaker 3: looking for you know, money markets, high yield savings accounts 608 00:28:12,600 --> 00:28:13,320 Speaker 3: of those kinds of things. 609 00:28:13,320 --> 00:28:14,840 Speaker 2: Maybe a CD. 610 00:28:14,720 --> 00:28:17,199 Speaker 3: Second bucket for four to ten years, which would be 611 00:28:17,240 --> 00:28:20,440 Speaker 3: a little maybe like a balanced fund, you know, inflation 612 00:28:20,520 --> 00:28:22,800 Speaker 3: protected assets, those kinds of things. And then of course 613 00:28:22,840 --> 00:28:24,680 Speaker 3: you are ten years in out bucket. That's the long 614 00:28:24,760 --> 00:28:27,320 Speaker 3: term growth money that's going to be pretty heavily invested 615 00:28:27,520 --> 00:28:30,320 Speaker 3: towards the stock market side. So just be thoughtful about 616 00:28:30,359 --> 00:28:33,359 Speaker 3: when these dollars are due, and you don't have to 617 00:28:33,440 --> 00:28:36,360 Speaker 3: invest every single dollar the exact same way if these 618 00:28:36,359 --> 00:28:39,080 Speaker 3: are concerned. So I hope that helps Ron and marymount. 619 00:28:39,120 --> 00:28:41,000 Speaker 3: Ron says they need about one hundred and ten thousand 620 00:28:41,040 --> 00:28:43,680 Speaker 3: dollars to live comfortably, and he's wondering how much of 621 00:28:43,720 --> 00:28:47,480 Speaker 3: that should come from dividends interests versus selling investments, especially 622 00:28:47,480 --> 00:28:48,320 Speaker 3: in a down market. 623 00:28:49,720 --> 00:28:52,640 Speaker 1: Well, ron I would first say, you know, don't let 624 00:28:52,640 --> 00:28:55,880 Speaker 1: the proverbial tax tail wag the dog, meaning that you 625 00:28:55,920 --> 00:28:59,800 Speaker 1: should build a financial plan based on your personal goals 626 00:29:00,320 --> 00:29:03,440 Speaker 1: in your investment risk tolerance, and then set your asset 627 00:29:03,480 --> 00:29:08,520 Speaker 1: allocation accordingly. Once that's done, you know, if you've got money, 628 00:29:08,960 --> 00:29:10,800 Speaker 1: like you said, if you've got money coming in from 629 00:29:10,840 --> 00:29:14,200 Speaker 1: dividends and interest from bonds or some dividend paying stocks, 630 00:29:14,240 --> 00:29:17,360 Speaker 1: you know that's those are gonna be pretty consistent. The 631 00:29:17,440 --> 00:29:19,320 Speaker 1: other thing to look at, you know, if we're talking 632 00:29:19,360 --> 00:29:23,560 Speaker 1: about selling investments or using capital gains, you want to 633 00:29:23,600 --> 00:29:26,960 Speaker 1: try to get as much control over those capital gains 634 00:29:27,000 --> 00:29:31,240 Speaker 1: as possible, meaning have some type of tax loss harvesting 635 00:29:31,360 --> 00:29:34,600 Speaker 1: or tax smart investing going on, you know, in your 636 00:29:34,640 --> 00:29:39,880 Speaker 1: non IRA accounts, so you have some control over capital 637 00:29:39,920 --> 00:29:43,240 Speaker 1: gains and when those are generated, versus just waking up 638 00:29:43,280 --> 00:29:45,960 Speaker 1: in the fourth quarter of the year and being surprised 639 00:29:45,960 --> 00:29:49,400 Speaker 1: when you get a capital gain distribution. Obviously, from your question, 640 00:29:49,520 --> 00:29:51,480 Speaker 1: I don't know how much of your assets are in 641 00:29:51,560 --> 00:29:55,560 Speaker 1: iras versus you know, taxable accounts. That's a big, you know, 642 00:29:55,680 --> 00:29:59,000 Speaker 1: part of this whole discussion too. So I think, you know, 643 00:29:59,080 --> 00:30:02,720 Speaker 1: sit down, build your plan from an allocation standpoint, and 644 00:30:02,800 --> 00:30:05,840 Speaker 1: a good fiduciary advisor can take your plan and then 645 00:30:06,000 --> 00:30:10,320 Speaker 1: also apply some tax mark strategies to it as well 646 00:30:10,760 --> 00:30:13,880 Speaker 1: to make sure that we're pulling money from the right 647 00:30:13,920 --> 00:30:19,360 Speaker 1: places without triggering unnecessary taxation. Hope that helps all right. 648 00:30:19,400 --> 00:30:21,560 Speaker 1: Alan In Lovelin says, we want to give our kids 649 00:30:21,600 --> 00:30:26,040 Speaker 1: twenty five thousand dollars each toward home doown payments. How 650 00:30:26,080 --> 00:30:30,440 Speaker 1: do I evaluate Brian making those gifts against our long 651 00:30:30,560 --> 00:30:33,200 Speaker 1: term plan instead of just going with our gut and 652 00:30:33,240 --> 00:30:34,320 Speaker 1: giving the kids the money. 653 00:30:34,840 --> 00:30:36,720 Speaker 3: Yeah, this is a common you know, this is really 654 00:30:36,800 --> 00:30:38,120 Speaker 3: the core of financial planning. 655 00:30:38,240 --> 00:30:38,360 Speaker 1: Right. 656 00:30:38,440 --> 00:30:40,320 Speaker 3: So, I know I've got money now and I can 657 00:30:40,360 --> 00:30:42,840 Speaker 3: do whatever I want to do with it. But my 658 00:30:42,960 --> 00:30:45,400 Speaker 3: question is what's that impact in the future. Can I 659 00:30:45,400 --> 00:30:47,000 Speaker 3: get away with this now or is this going to 660 00:30:47,080 --> 00:30:48,880 Speaker 3: hurt me you know, ten fifteen years down the line. 661 00:30:49,040 --> 00:30:51,320 Speaker 3: So think of it in terms of retirement income, A 662 00:30:51,400 --> 00:30:54,360 Speaker 3: permanent twenty five thousand dollars gift is probably about one 663 00:30:54,360 --> 00:30:57,240 Speaker 3: thousand to twelve to twelve hundred bucks a year of 664 00:30:57,320 --> 00:31:00,920 Speaker 3: lifetime spending, your giving up, you've got two kids going on. 665 00:31:01,000 --> 00:31:03,640 Speaker 3: Now you're thinking twenty twenty five hundred dollars per year 666 00:31:04,200 --> 00:31:06,320 Speaker 3: for the rest of your life. So now you're thinking 667 00:31:06,640 --> 00:31:09,280 Speaker 3: this is different from can we spare the cash? Now 668 00:31:09,320 --> 00:31:12,400 Speaker 3: you're thinking, are we comfortable trading this much future spending 669 00:31:12,440 --> 00:31:14,280 Speaker 3: for this outcome? And then you're also going to look 670 00:31:14,280 --> 00:31:15,520 Speaker 3: at what dollars. 671 00:31:15,080 --> 00:31:15,840 Speaker 1: That you're using for. 672 00:31:15,880 --> 00:31:18,880 Speaker 3: If this is coming from your own excess taxable assets, 673 00:31:19,080 --> 00:31:21,320 Speaker 3: then that risk is usually pretty managable, not too painful. 674 00:31:21,320 --> 00:31:22,719 Speaker 3: But if you're going to be taking this out of 675 00:31:23,080 --> 00:31:27,240 Speaker 3: tax sheltered accounts you know wroth iras traditional areas that's 676 00:31:27,280 --> 00:31:30,640 Speaker 3: going to be income taxable and or you're sacrificing that 677 00:31:30,680 --> 00:31:33,000 Speaker 3: tax free growth, that'll have a bigger impact on it. 678 00:31:33,960 --> 00:31:36,040 Speaker 3: And I would also stress test the timing of it. 679 00:31:36,480 --> 00:31:38,800 Speaker 3: What if markets fall twenty percent right after we make 680 00:31:38,840 --> 00:31:40,760 Speaker 3: the gift. Well, hopefully you've already got a financial plan 681 00:31:40,800 --> 00:31:42,960 Speaker 3: in place where you can easily do this, model this 682 00:31:43,040 --> 00:31:45,360 Speaker 3: out and then pretend the market takes a hit. But 683 00:31:45,560 --> 00:31:47,640 Speaker 3: on the other hand, the other we don't know when 684 00:31:47,680 --> 00:31:49,240 Speaker 3: you're talking about doing this. You didn't give us the 685 00:31:49,240 --> 00:31:50,840 Speaker 3: age of your kids. They might be ten years old. 686 00:31:50,880 --> 00:31:53,040 Speaker 3: We're talking fifteen years now. You're thinking way ahead of time. 687 00:31:53,200 --> 00:31:54,720 Speaker 3: It could be this Christmas you're going to do it. 688 00:31:54,720 --> 00:31:55,120 Speaker 1: Who knows. 689 00:31:55,640 --> 00:31:57,560 Speaker 3: But in any case, what I would look at is 690 00:31:57,600 --> 00:32:00,720 Speaker 3: what have your investments done recently, because very often the 691 00:32:00,760 --> 00:32:03,000 Speaker 3: market has If the market has had a positive run, 692 00:32:03,120 --> 00:32:04,960 Speaker 3: you might be able to do these gifts with money 693 00:32:05,000 --> 00:32:08,240 Speaker 3: you didn't have a few months ago. If that's the case, oftentimes, 694 00:32:08,280 --> 00:32:11,000 Speaker 3: I say, you know, as long as the plan floats, 695 00:32:11,160 --> 00:32:13,040 Speaker 3: take the take the windfall that you found from that 696 00:32:13,080 --> 00:32:16,040 Speaker 3: recent market performance, and do the things that you want 697 00:32:16,080 --> 00:32:17,959 Speaker 3: to do for your family. So it's not about affordability, 698 00:32:18,000 --> 00:32:20,920 Speaker 3: it's about intentional trade offs. If you'd still be comfortable 699 00:32:20,920 --> 00:32:23,360 Speaker 3: with that decision after a bad market year, it fits 700 00:32:23,400 --> 00:32:26,360 Speaker 3: the plan, if you wouldn't change the size, the timing, 701 00:32:26,440 --> 00:32:29,280 Speaker 3: or maybe the source of that gift. We got one 702 00:32:29,280 --> 00:32:32,040 Speaker 3: more for Tony in Newport, and Tony's asking about a 703 00:32:32,040 --> 00:32:34,640 Speaker 3: single stock. He's got one worth over a half million 704 00:32:34,680 --> 00:32:37,120 Speaker 3: dollars and it's about twenty five percent of their portfolio. 705 00:32:37,400 --> 00:32:39,160 Speaker 3: He said he's concerned that if he sells it all, 706 00:32:39,160 --> 00:32:41,600 Speaker 3: he's going to owe about ninety thousand dollars in capital gains, 707 00:32:41,960 --> 00:32:44,400 Speaker 3: and he's wondering if it's smarter to spread that out 708 00:32:44,440 --> 00:32:46,280 Speaker 3: over the years or just tear the band aid off 709 00:32:46,280 --> 00:32:47,680 Speaker 3: and write the check and smile. 710 00:32:48,600 --> 00:32:51,400 Speaker 1: Well, tony, if you can help it. We don't want 711 00:32:51,440 --> 00:32:53,400 Speaker 1: to just you know, rip the band aid off and 712 00:32:53,400 --> 00:32:57,000 Speaker 1: write a ninety thousand dollars check. Usually there's some better 713 00:32:57,040 --> 00:32:59,440 Speaker 1: ways to go about this. But you know, twenty five 714 00:32:59,480 --> 00:33:02,240 Speaker 1: percent of your overall net worth is a bit high, 715 00:33:02,320 --> 00:33:04,160 Speaker 1: and we want to try to get that down, you know, 716 00:33:04,320 --> 00:33:07,840 Speaker 1: under ten if we can, but do it responsibly. So 717 00:33:08,000 --> 00:33:10,400 Speaker 1: we got to take a look at your overall tax situation, 718 00:33:10,600 --> 00:33:13,800 Speaker 1: what your income goals are. I mean, just as a reminder, 719 00:33:13,960 --> 00:33:16,960 Speaker 1: you know, up to ninety six thousand and change of 720 00:33:17,040 --> 00:33:21,080 Speaker 1: taxable income, you don't pay any capital gains taxes. So 721 00:33:21,200 --> 00:33:23,960 Speaker 1: you might be able to, you know, to use your words, 722 00:33:24,080 --> 00:33:26,640 Speaker 1: rip some of the band aid off this year, spread 723 00:33:26,640 --> 00:33:28,960 Speaker 1: it over a couple of years, and maybe you know, 724 00:33:29,120 --> 00:33:32,560 Speaker 1: gradually move down out of that position without paying any 725 00:33:32,680 --> 00:33:35,560 Speaker 1: taxes at all. But you know, the other option is 726 00:33:35,600 --> 00:33:38,280 Speaker 1: you you can you can literally use options, meaning you 727 00:33:38,320 --> 00:33:41,280 Speaker 1: can buy some put protection to protect your downside if 728 00:33:41,280 --> 00:33:43,960 Speaker 1: you want to help pay for some of that downside protection, 729 00:33:44,440 --> 00:33:46,560 Speaker 1: sell and out of the money call option on your 730 00:33:46,560 --> 00:33:48,719 Speaker 1: stock to help pay for some of that. There's some 731 00:33:48,880 --> 00:33:51,960 Speaker 1: there's varying ways to go about it, but uh yeah, 732 00:33:52,000 --> 00:33:54,160 Speaker 1: I would not rip the band aid off at once, 733 00:33:54,200 --> 00:33:56,920 Speaker 1: sit down with a good fiduciary advisor and come up 734 00:33:56,920 --> 00:33:59,520 Speaker 1: with a good strategy. All right, Coming up next, I've 735 00:33:59,560 --> 00:34:02,560 Speaker 1: got my two cents on a few things to consider 736 00:34:02,800 --> 00:34:06,960 Speaker 1: when you go over a periodic review of your life insurance. 737 00:34:07,240 --> 00:34:09,760 Speaker 1: You're listening to Simply Money presented by all Worth Financial 738 00:34:09,800 --> 00:34:16,120 Speaker 1: on fifty five KRC the talk station. You're listening to 739 00:34:16,120 --> 00:34:18,640 Speaker 1: Simply Money presented by all Worth Financial on Bob Spon 740 00:34:18,760 --> 00:34:22,320 Speaker 1: Seller along with Brian James. Let's spend a few minutes 741 00:34:22,360 --> 00:34:25,040 Speaker 1: talking about what everybody should do as part of their 742 00:34:25,080 --> 00:34:28,319 Speaker 1: comprehensive financial plan. I'd say at least every two to 743 00:34:28,360 --> 00:34:31,720 Speaker 1: three years. And that's just a life insurance review. Brian, 744 00:34:31,800 --> 00:34:34,239 Speaker 1: Let's get into some of the things we should be reviewing. 745 00:34:34,920 --> 00:34:38,040 Speaker 1: What does a life insurance review actually mean? I think 746 00:34:38,200 --> 00:34:41,840 Speaker 1: I'd start with step one as part of your financial plan, 747 00:34:42,040 --> 00:34:46,760 Speaker 1: determine how much life insurance you even still need giving 748 00:34:46,800 --> 00:34:50,120 Speaker 1: your current goals in your current stage of life. Not 749 00:34:50,360 --> 00:34:53,920 Speaker 1: what was in place fifteen twenty thirty years ago. So 750 00:34:54,280 --> 00:34:56,239 Speaker 1: a lot of people never do that. They have these 751 00:34:56,320 --> 00:34:59,520 Speaker 1: old policies they've had for years or decades, they don't 752 00:34:59,560 --> 00:35:01,719 Speaker 1: touch them, they don't look at them, and they don't 753 00:35:01,719 --> 00:35:04,920 Speaker 1: even take a look at do I even still need them? 754 00:35:05,000 --> 00:35:07,239 Speaker 1: And a lot of times, Brian, there's a lot of 755 00:35:07,320 --> 00:35:10,719 Speaker 1: hidden cash value in these policies that could be put 756 00:35:10,800 --> 00:35:14,319 Speaker 1: to better use elsewhere. So that's step one, take a 757 00:35:14,320 --> 00:35:17,600 Speaker 1: look at whether it's insurance that you actually still need 758 00:35:17,840 --> 00:35:20,880 Speaker 1: or want. The other thing, if you're talking about cash 759 00:35:20,960 --> 00:35:24,799 Speaker 1: value type of policies, and Brian, I find fewer and 760 00:35:24,840 --> 00:35:29,200 Speaker 1: fewer I'll call them advisors. Even do this anymore, is 761 00:35:29,320 --> 00:35:33,080 Speaker 1: do what's called an enforce illustration of the policy. Go 762 00:35:33,200 --> 00:35:36,799 Speaker 1: back to the insurance company and say, hey, run an 763 00:35:36,800 --> 00:35:40,880 Speaker 1: illustration as of today based on the current amount of 764 00:35:40,920 --> 00:35:44,120 Speaker 1: cash value, and assuming I want to keep this coverage 765 00:35:44,120 --> 00:35:46,640 Speaker 1: for the next fifteen to twenty years, what am I 766 00:35:46,680 --> 00:35:49,080 Speaker 1: going to need to pay out of pocket to keep 767 00:35:49,160 --> 00:35:53,239 Speaker 1: this thing enforced with the current interest rate structure? And 768 00:35:53,280 --> 00:35:55,400 Speaker 1: then run it a couple different ways. What if interest 769 00:35:55,440 --> 00:35:58,480 Speaker 1: rates go up interest rates go down? If you're in 770 00:35:58,560 --> 00:36:01,440 Speaker 1: a variable policy where your cash value is tied to 771 00:36:01,480 --> 00:36:03,640 Speaker 1: the stock and bond market. You want to look at 772 00:36:03,680 --> 00:36:06,719 Speaker 1: some variable average rates of return there too. What we 773 00:36:06,840 --> 00:36:09,960 Speaker 1: don't want to have happen is someone who really wants 774 00:36:10,000 --> 00:36:13,799 Speaker 1: to keep life insurance into their eighties or nineties wake 775 00:36:13,880 --> 00:36:16,839 Speaker 1: up at AIDS seventy seven seventy eight and realize their 776 00:36:16,840 --> 00:36:20,040 Speaker 1: cash value is about to go to zero, which means 777 00:36:20,160 --> 00:36:24,440 Speaker 1: unless they start writing humongous checks, their coverage is going 778 00:36:24,480 --> 00:36:27,560 Speaker 1: to lapse. So those are a couple things to factor in, 779 00:36:27,920 --> 00:36:31,080 Speaker 1: you know, as you're doing insurance reviews. I guess the 780 00:36:31,120 --> 00:36:34,120 Speaker 1: third one would be, you know, if we decide that 781 00:36:34,200 --> 00:36:38,000 Speaker 1: the life insurance is really not something that's suitable for 782 00:36:38,120 --> 00:36:40,920 Speaker 1: your current financial plan, there's some things that you can 783 00:36:40,960 --> 00:36:43,840 Speaker 1: do with that coverage. You can try to convert that 784 00:36:44,840 --> 00:36:47,960 Speaker 1: into some long term care type of coverage, maybe a 785 00:36:48,000 --> 00:36:51,920 Speaker 1: hybrid approach, or you know, just put it into you know, 786 00:36:52,200 --> 00:36:55,160 Speaker 1: avoid the taxes, put it into an annuity, turn it 787 00:36:55,200 --> 00:36:57,600 Speaker 1: into an income stream. There's a lot of options there. 788 00:36:57,880 --> 00:37:00,200 Speaker 1: The important thing is to sit down with a good 789 00:37:00,200 --> 00:37:03,839 Speaker 1: fiduci your advisor, someone that's not just trying to sell 790 00:37:03,880 --> 00:37:07,680 Speaker 1: you the next insurance product, but actually customize what you 791 00:37:07,840 --> 00:37:12,719 Speaker 1: have into your current financial plan based on your current needs. Yeah, 792 00:37:12,960 --> 00:37:15,040 Speaker 1: I know you run into this all the time too, Brian. 793 00:37:15,200 --> 00:37:18,040 Speaker 3: Yeah, my absolute favorite thing to do is when we 794 00:37:18,080 --> 00:37:21,239 Speaker 3: find a policy like this where it was and most 795 00:37:21,320 --> 00:37:24,000 Speaker 3: times it was, these things were purchased for good reason. Right, 796 00:37:24,040 --> 00:37:26,160 Speaker 3: we got babies, Now we got a mortgage, and we're 797 00:37:26,200 --> 00:37:28,120 Speaker 3: going to buy a whole life policy because that's what 798 00:37:28,280 --> 00:37:30,200 Speaker 3: is recommended to be a good idea. Now, now thirty 799 00:37:30,239 --> 00:37:32,799 Speaker 3: years have gone by, mortgages paid, the kids have their 800 00:37:32,800 --> 00:37:35,239 Speaker 3: own mortgages, we just don't need this anymore. So my 801 00:37:35,239 --> 00:37:37,680 Speaker 3: absolute favorite thing is to redeploy that into something that 802 00:37:37,719 --> 00:37:41,000 Speaker 3: doesn't cost a nickel in taxes, but now we'll provide 803 00:37:41,000 --> 00:37:43,520 Speaker 3: long term care benefits. That's like trading in your old 804 00:37:43,600 --> 00:37:46,239 Speaker 3: thirteen inch black and white TV for a for a 805 00:37:46,360 --> 00:37:50,480 Speaker 3: sixty inch led screen and not paying anything at all. 806 00:37:50,640 --> 00:37:52,960 Speaker 3: You're just redeploying those assets for a need you have 807 00:37:53,120 --> 00:37:55,720 Speaker 3: now and getting rid of that need you don't have anymore. 808 00:37:56,400 --> 00:37:58,600 Speaker 1: Yeah. So just again, make sure you sit down with 809 00:37:58,680 --> 00:38:01,799 Speaker 1: your advisor and talk out this stuff, because there might 810 00:38:01,840 --> 00:38:05,600 Speaker 1: be some better, more efficient uses for that capital that 811 00:38:05,640 --> 00:38:07,680 Speaker 1: you've worked so hard to build over the years. Thanks 812 00:38:07,719 --> 00:38:10,440 Speaker 1: for listening. Tonight you've been listening to Simply Money, presented 813 00:38:10,480 --> 00:38:13,480 Speaker 1: by all Worth Financial on fifty five KRC, the talk 814 00:38:13,560 --> 00:38:13,799 Speaker 1: station