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Speaker 1: Tonight why your cash hoard might be costing you literally

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Speaker 1: millions over time. You're listening to Simply Money, presented by

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Speaker 1: all Worth Financial on Bob Sponseller along with Brian James. Well,

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Speaker 1: despite some market volatility so far this year, the S

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Speaker 1: and P five hundred is delivered. Obviously, as we talk

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Speaker 1: about all the time, massive gains over the past decades.

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Speaker 1: So why are so many successful families still sitting on

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Speaker 1: a pile of cash? And is that quote unquote safe

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Speaker 1: decision quietly costing folks millions of dollars? Brian? What say you?

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Speaker 2: Well, cash is and very important.

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Speaker 3: We always talk about the necessity of an emergency fund,

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Speaker 3: and it's something.

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Speaker 2: You have to be very thoughtful about.

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Speaker 3: You know, we have a lot of situations where people

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Speaker 3: get really, really comfortable with the idea that they've got

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Speaker 3: a big pile of cash and they should keep adding

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Speaker 3: to it. But eventually you start sacrificing an opportunity. Uh,

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Speaker 3: you know, with all the scary headlines and all of

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Speaker 3: the crazy you know, I'm not talking about just the

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Speaker 3: most recent I'm talking about the last several decades, the

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Speaker 3: market still continues to go up in the background. Because

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Speaker 3: all that really matters is whether companies have the ability

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Speaker 3: to make a profit margin.

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Speaker 2: That's it. None of the rest of it makes any difference.

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Speaker 2: So you know, so if you consider compounded the annual

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Speaker 2: total return.

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Speaker 3: Where would you where you would let it investment in

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Speaker 3: and its dividends continue to grow. We're talking about a

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Speaker 3: three hundred and thirty percent return over the past ten years.

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Speaker 3: That's a lot of money. If you stayed invested and

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Speaker 3: reinvested everything, that means a dollar would have grown to

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Speaker 3: about four dollars and thirty four cents. That's compounding, not

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Speaker 3: just price growth, but that's dividends. Being left alone to

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Speaker 3: do their job. That kind of run changes your lives,

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Speaker 3: and that makes a heck of a lot of difference

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Speaker 3: in terms of assuming you have to be conservative and

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Speaker 3: protect everything at all costs at all times and allow

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Speaker 3: things to rather allow things to ride.

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Speaker 2: The waves a little bit, knowing that you've got.

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Speaker 3: Enough cash on the sidelines to cover anything in the

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Speaker 3: short term. But here's what we're seeing more and more

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Speaker 3: around the Cincinnati area. And this is where it gets interesting.

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Speaker 3: Despite these gains, a lot lot of families, as Bob

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Speaker 3: was just hitting to sitting on fifteen twenty percent, sometimes

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Speaker 3: even thirty percent of their portfolios in cash. And this

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Speaker 3: isn't because of a conscious decision about liquidity. It's not

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Speaker 3: because they're retiring next month, they have bills to pay.

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Speaker 3: It's simply because they're still thinking of twenty twenty two,

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Speaker 3: or they haven't forgotten the sting of two thousand and

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Speaker 3: eight and they're waiting for that pullback.

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Speaker 1: Yeah, Brian, I take kind of a hybrid approach to this.

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Speaker 1: I mean, I think people are a lot of people

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Speaker 1: are smart. I mean they look at history. They know that,

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Speaker 1: you know, every three four years we have, you know,

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Speaker 1: some significant volatility that The problem is, it's virtually impossible

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Speaker 1: to predict when that volatility is going to come in

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Speaker 1: the magnitude of it, and then what happens. I mean,

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Speaker 1: just go back to April of last year when the

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Speaker 1: first tariff announcements were made. People that were sitting on

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Speaker 1: cash when that happened, they got even more fearful, not

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Speaker 1: less fearful. They didn't take advantage of the buying opportunity.

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Speaker 1: They said, oh, now what's going to happen next? I

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Speaker 1: better maybe think about having more cash. So having all

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Speaker 1: this cash sitting there, you know, earning lower and lower

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Speaker 1: interest rates as the FED drop rates, it does cost

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Speaker 1: you money over time, but again it comes down to

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Speaker 1: not predicting the next move for the market. It comes

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Speaker 1: down to having an actual comprehensive financial plan that is

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Speaker 1: going to work based on how you have your money allocated,

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Speaker 1: how much risk you need to take or don't need

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Speaker 1: to take. And you know, for people that we know

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Speaker 1: their plan is going to work in any market environment,

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Speaker 1: and they still want to be a little extra conservative

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Speaker 1: here in a midterm election year, what have you. I'm

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Speaker 1: fine with that. But I think the point here and

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Speaker 1: I think you'll agree with this, Brian, is it all

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Speaker 1: comes down to having a plan. And that's where you know,

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Speaker 1: if people need that six seven eight percent annualized return

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Speaker 1: over the next fifteen to twenty years to hit their

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Speaker 1: retirement goal and they're still trying to play around with

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Speaker 1: predicting the next market move, those are the people that

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Speaker 1: we're concerned about, you.

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Speaker 2: Know, those are the ones that leave money on the table.

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Speaker 3: So let's drill into this some of these reasons that

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Speaker 3: they come up with for thinking this way. So the

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Speaker 3: big one is but I'm waiting for a pullback. Well,

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Speaker 3: this comes up pretty pretty often it feels like a

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Speaker 3: smart thing to wait for a dip, you know, by

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Speaker 3: the dip.

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Speaker 2: We've heard that for you know, for years and years.

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Speaker 3: My question to those folks is always, well, how long

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Speaker 3: has this money been sitting in cash? And how much

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Speaker 3: money have you been sitting on waiting for this dip

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Speaker 3: to occur? You know, if you've been waiting for a dip,

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Speaker 3: then that means you've been sitting on this cast since

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Speaker 3: twenty twenty two most likely, and.

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Speaker 2: The bus has left the station.

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Speaker 3: So if the market goes up forty percent and pulls

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Speaker 3: back five percent, you know, then did you save five

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Speaker 3: percent or did you miss out on a thirty five

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Speaker 3: percent gain over several years? So no, I don't agonize

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Speaker 3: at all about if we have cash, we're going to

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Speaker 3: get it invested. We're not trying to time the market,

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Speaker 3: because we can be right nine times in a row

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Speaker 3: and be wrong to tenth. That's not how we're going

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Speaker 3: to protect ourselves from a market pullback. You're going to

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Speaker 3: protect yourself by making sure that none of the dollars

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Speaker 3: you need in the short term to get bills paid

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Speaker 3: that are predictable and are on the calendar already, none

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Speaker 3: of those dollars should be anywhere near the market anyway,

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Speaker 3: that's going to come from your sources of income and

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Speaker 3: perhaps some cash that you've set aside. And as Bob

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Speaker 3: and I always say, if we know there are big

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Speaker 3: expenses coming up when the market is at a peak,

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Speaker 3: carve some of it out, maybe not all of it,

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Speaker 3: but take some of the take some of it off

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Speaker 3: the table so that the market can't prevent you from

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Speaker 3: making a decision or doing something for your house or

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Speaker 3: your family that you know you need to do anyway.

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Speaker 1: Yeah, Brian, maybe maybe it'd be good to get into,

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Speaker 1: you know, why people are doing this. And you and

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Speaker 1: I both have been doing this long enough, you know,

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Speaker 1: over thirty years each of us to know, you know,

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Speaker 1: we've navigated through many presidential administrations and let's face it,

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Speaker 1: you know now, you know, based on the media and

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Speaker 1: where we all get our news and what have you,

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Speaker 1: fear is a thing out there and depending on our

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Speaker 1: our and we all have it, depending on our own

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Speaker 1: political bias. We think sometimes the you know, president or

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Speaker 1: political party that's in power is absolutely going to wreck

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Speaker 1: the entire economy in the world. And we just you know,

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Speaker 1: we we know the next shoe is going to drop,

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Speaker 1: and that's why we're sitting on a lot of cash.

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Speaker 1: I remember this happening when President Obama was elected. We

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Speaker 1: had people that swore that the world was going to

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Speaker 1: come to an end and you know, the whole thing

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Speaker 1: was going to be wrecked, and you know, the markets

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Speaker 1: just kept on performing and we still got these great

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Speaker 1: average annual returns. And the same thing has been happening,

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Speaker 1: you know, under the Biden administration, under the Trump administration,

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Speaker 1: and we actually have those numbers. We show those to

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Speaker 1: clients all the time, all of the socioeconomic and political

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Speaker 1: things that have gone on going all the way back

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Speaker 1: to nineteen twenty six, and we try to remind people

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Speaker 1: your money is not blue, it's not red, it's green.

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Speaker 1: But the media does not talk about that. It just

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Speaker 1: fans the flames of division and fear. And I think

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Speaker 1: that's what's causing a lot of people to just hoard

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Speaker 1: cash and sit on the sidelines, hopefully not to their detriment.

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Speaker 2: Yeah.

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Speaker 3: So in another case here, so sometimes when we've gotten

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Speaker 3: much more than enough, then it becomes tempting to just

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Speaker 3: leave an even bigger pile of cash without a conscious

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Speaker 3: thought as to why this is so sometimes the higher

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Speaker 3: your net worth.

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Speaker 2: Is, the easier it is to justify excess cash.

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Speaker 3: So, for example, I've got four hundred thousand dollars total save, well,

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Speaker 3: then I can't afford to really carve out too much

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Speaker 3: of that and leave it sit on the sidelines.

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Speaker 2: It pretty much all has to grow. But if I've

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Speaker 2: got three, four five.

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Speaker 3: Million dollars, well you might easily be able to say, well,

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Speaker 3: what's the big deal. Well, the big deal there again

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Speaker 3: is lifestyle and that math of legacy. So if that

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Speaker 3: excess cash costs four hundred and six hundred thousand dollars

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Speaker 3: over ten fifteen years because a chunk of your portfolio

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Speaker 3: stayed underinvested, then then that means you've sacrificed a bunch

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Speaker 3: of return for really no reason. That could be the

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Speaker 3: difference between upgrading your retirement lifestyle, or we're put differently,

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Speaker 3: maybe even covering a long term care expense you didn't

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Speaker 3: see coming without touching the principle, or even fully funding

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Speaker 3: five only nine plans for multiple grandchildren, setting up an

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Speaker 3: education dynasty for grandchildren who are great grandchildren who may

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Speaker 3: not even exist yet, meaningful charitable donations, or you know,

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Speaker 3: just greater flexibility for little gain in for the fact

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Speaker 3: of having several hundred thousand dollars sitting liquid. There's something

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Speaker 3: to be said for, of course having we need to

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Speaker 3: make sure there's oil in the engine, but we don't

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Speaker 3: need to be overdoing it from a standpoint of at

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Speaker 3: some points, too much carving.

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Speaker 2: Out of that cash is just sacrifice.

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Speaker 1: Yeah, Brian, I mean we've talked here for a few

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Speaker 1: minutes definitely several examples of what not to do. Let's

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Speaker 1: talk about how we should approach this whole issue of cash,

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Speaker 1: determining how much cash we should be sitting on. And

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Speaker 1: I've watched you do this in client meetings and you

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Speaker 1: do a wonderful job. So just walk us through how

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Speaker 1: to make that evaluation within the context of a comprehensive

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Speaker 1: financial plan to help people on an individual basis determine

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Speaker 1: how much cash you know they should be sitting on.

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Speaker 3: Well, first of all, figure out exactly what your lifestyle

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Speaker 3: looks like.

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Speaker 2: You know, what does it cost you to be you?

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Speaker 3: And don't go in You know, a lot of people

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Speaker 3: will come into this conversation about budgeting with a sense

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Speaker 3: of guilt, thinking that they have to you know, they

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Speaker 3: have to eliminate things from the well we used to do.

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Speaker 2: This, but we're not going to do that anymore. Don't

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Speaker 2: do that. Figure out what it costs you to be you.

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Speaker 3: Now, if we got to carve the budget out, we will,

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Speaker 3: but most of the time we figure out that we

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Speaker 3: really don't.

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Speaker 2: But it's okay.

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Speaker 3: Once you have a clear picture of what it costs

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Speaker 3: you on a month, month to month or an annual

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Speaker 3: basis to live your lifestyle, then let's figure out some

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Speaker 3: multiple of that six months, nine months, twelve months, maybe

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Speaker 3: twenty four months. If you want to be really conservative,

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Speaker 3: then don't have any more than that, because there's just

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Speaker 3: no need. Because I would encourage people to think about

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Speaker 3: what are the real risks of something going wrong? If

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Speaker 3: I'm retired of my income sources are my portfolio and

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Speaker 3: social security and a pension, there's not a whole lot.

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Speaker 3: There's not as much risk of my income going away

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Speaker 3: as there was when I was working for a company

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Speaker 3: that could lay me off whenever it wanted to, So

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Speaker 3: that risk will have lessened a little bit. As well

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Speaker 3: as you know, the fact that we we get really

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Speaker 3: worried about you know, people will bring up the well,

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Speaker 3: I know, so and so's cousin's former roommate's friend got

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Speaker 3: cancer and it wiped out their savings.

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Speaker 2: Well, most likely that's not going to happen to you.

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Speaker 3: Those are usually special, crazy situations of very rare illnesses,

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Speaker 3: or situations where somebody just had no coverage for whatever reason.

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Speaker 3: That is a very different story. Nobody says this happened

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Speaker 3: to my brother. It's always somebody fifteen people removed. So

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Speaker 3: let's not cover for risks that really aren't all that

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Speaker 3: likely to occur in the first place. So the real

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Speaker 3: question isn't should I own cash, It's how much liquidity

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Speaker 3: do I actually need? What is the opportunity cost? What

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Speaker 3: does it cost me when I carve that dollar amount out?

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Speaker 3: That is a planning conversation, not a hard dollar amount.

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Speaker 3: And very frequently we'll see people that maybe they inherited

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Speaker 3: some fixed sum of money, you know, from their parents

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Speaker 3: who have passed on, and now there's a half million

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Speaker 3: dollars sitting in a savings account, and they'll just declare, well,

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Speaker 3: that's our emergency fund, that half million dollars we're never

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Speaker 3: going to touch. And that's where I have to push

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Speaker 3: really hard to say, let's calculate the dollars here, figure

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Speaker 3: out what the real need is, then react to that.

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Speaker 3: Just label a specific account your emergency fund. Your parents

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Speaker 3: did not build all of that for you to send

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Speaker 3: on it. They want you to use it to benefit

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Speaker 3: your lives in your family's life. So think long and

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Speaker 3: hard before you simply label accounts as a one thing

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Speaker 3: versus the other.

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Speaker 1: Here's the all Worth advice. Hold enough cash to sleep

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Speaker 1: at night, but not so much that it steals your future.

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Speaker 1: Think filing a tax extension is a red flag. It

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Speaker 1: might actually be a sign you're doing it right. How

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Speaker 1: sophisticated investors are taking advantage and how you can too.

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Speaker 1: Coming up next, you're listening to Simply Money present it

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Speaker 1: by all Worth Financial on fifty five KRC the talk station.

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Speaker 1: You're listening to Simply Money because All Word Financial on

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Speaker 1: Bob Sponseller along with Brian James. If you can't listen

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Speaker 1: to Simply Money live every night, subscribe and get our

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Speaker 1: daily podcasts. Just search Simply Money on the iHeart app

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Speaker 1: or wherever you find your podcasts. From managing a concentrated

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Speaker 1: stocks position, to planning for oversized rmds and even stepping

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Speaker 1: back from full time work at say, age fifty nine.

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Speaker 1: We're helping local families make confident money decisions, answering your

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Speaker 1: questions straight ahead at six forty three. Some IRS data

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Speaker 1: from the first week of tax filing season shows that

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Speaker 1: as expected tax refunds are already a little bit larger

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Speaker 1: than last year. Brian, We've talked about this before, but

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Speaker 1: walk us through some numbers and the why behind it.

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Speaker 3: Well, we're starting to see the actual dollars hitting now

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Speaker 3: that people are filing. Those early birds who filed as

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Speaker 3: soon as they got that last ten ninety nine are

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Speaker 3: starting to see their checks. And so the average refund

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Speaker 3: amount in twenty twenty five, well that was about two

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Speaker 3: thousand and sixty five dollars. This year it's two two

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Speaker 3: hundred and ninety dollars, So about a two hundred and

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Speaker 3: thirty ozo over maybe let's call that a twelve percent

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Speaker 3: increase or so over last year. The reason is the

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Speaker 3: tax changes that have come from the One Big Beautiful

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Speaker 3: Bill Act. And so a reminder this isn't necessarily a

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Speaker 3: good news. If you've got a big, fat refund, well

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Speaker 3: then all you did is was give the IRS a

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Speaker 3: free loan. So you're not benefiting necessarily a lot of

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Speaker 3: people treat this as for savings. You know, a couple

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Speaker 3: hundred bucks, few thousand, no big deal. But if you're

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Speaker 3: getting seven, eight, nine, ten thousand dollars refunds, then you

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Speaker 3: really ought to look at what you're doing during the

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Speaker 3: year an adjustre withholding somehow some way, because you court,

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Speaker 3: you could have, of course, had that money to do

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Speaker 3: whatever you wanted to whatever your plan indicates that you

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Speaker 3: should be doing with extra dollars. So hopefully you've got

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Speaker 3: a plan in place so to help you figure that,

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Speaker 3: figure that out, so you know.

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Speaker 2: In tax extensions, let's talk about that.

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Speaker 3: There's a stigma around tax extensions, like it's a like

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Speaker 3: it's an issue, like it's a problem for those of

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Speaker 3: you who have never done it. A tax extension simply

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Speaker 3: means I don't have all my information, I'm not gonna

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Speaker 3: be able to file by the deadline. And all you

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Speaker 3: have to do, though is request an extension and you've

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Speaker 3: got all the way until mid October. I have not

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Speaker 3: heard of a situation where an extension has been denied.

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Speaker 3: The thing people miss, though, is that you if you

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Speaker 3: owe taxes, then you need to make a good faith payment.

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Speaker 3: You still have to do a little bit of math

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Speaker 3: by by the tax date in April to understand or

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Speaker 3: to get an idea of what you might owe and

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Speaker 3: make a payment toward that.

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Speaker 2: And it maybe you've have to true it up in October.

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Speaker 3: That's fine, but you can't sit on the payment and

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Speaker 3: completely until October. If you are going to get a refund,

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Speaker 3: then none of it matters. This is very very very

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Speaker 3: very common for anybody who owns a small business or

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Speaker 3: if you're in some kind of partnership where it just

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Speaker 3: takes a long time to get all of the math done.

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Speaker 3: Not everything spits out a clean ten ninety nine, and

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Speaker 3: so it's very common for people in those types of situations.

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Speaker 3: But anyway, there's no stigma to it. If you're just

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Speaker 3: if you just need a little more time, even if

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Speaker 3: it's just a few more weeks, just file for an extension.

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Speaker 2: You'll get it. You'll you'll get approved almost immediately.

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Speaker 1: On Yeah, Brian, and you and I both have worked

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Speaker 1: with people over the years. I mean, they are hell

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Speaker 1: bent on getting their taxes filed out on know, by

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Speaker 1: February tenth or something. You know, they want everything now,

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Speaker 1: and they want to file it now, and they want

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Speaker 1: to be done that can actually work to your detriment.

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Speaker 1: I mean, the more assets you have, you know, even

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Speaker 1: where you're not getting k ones, sometimes we get those

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Speaker 1: dreaded a men. I did ten ninety nine comprehensive reports

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Speaker 1: from all of these brokerage firms, Schwab, Fidelity, all of them.

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Speaker 1: And you want to make somebody's you know, heartbeat go

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Speaker 1: up in a hurry and get literally angry. And I've

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Speaker 1: seen this happen. You know, somebody that filed their tax

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Speaker 1: return in mid February early March has to go back

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Speaker 1: and file an amended return because something changed on that

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Speaker 1: ten ninety nine report. That's what gets people fired up

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Speaker 1: and get Amended returns can often trigger you know, higher

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Speaker 1: probability of an audit. So that's yet another reason to

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Speaker 1: just pump the brakes here, allow all that information to

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Speaker 1: come in correctly the first time, so that you know,

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Speaker 1: don't run into an amended return situation or god forbid

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Speaker 1: an audit. Things are getting more complex in terms of

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Speaker 1: tax reporting, not less complex. And I'm all about just

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Speaker 1: waiting and letting, for letting all the dust settle and

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Speaker 1: not being in such a hurry to run and file

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Speaker 1: the tax return.

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Speaker 2: Yeah, I couldn't agree more.

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Speaker 3: I feel like it's what I recommend people do and

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Speaker 3: I do myself, is go ahead and do the numbers

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Speaker 3: right as those ten ninety ninees come in. When you

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Speaker 3: get a good junk of them, put it all together

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Speaker 3: and get it done. If you're really wanting to January,

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Speaker 3: the weather's horrible, just get it over with, just don't file,

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Speaker 3: sit on it for another month or so and see

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Speaker 3: what else shows up in your mailbox.

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Speaker 2: Then you can fire it off.

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Speaker 3: But yeah, there's really no benefit to filing as soon

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Speaker 3: as possible, not to mention those amended returns will Those

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Speaker 3: usually have to be done on paper as well. You

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Speaker 3: can't file those electronically, so it's going to be an

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Speaker 3: extra couple steps aside from having to do the amendment

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Speaker 3: in the first place.

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Speaker 1: Well, and if you're if you're running to file early,

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Speaker 1: because you are, you already know your schedule to get

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Speaker 1: that big refund. You know that goes back to the

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Speaker 1: point that you made at the beginning of this segment.

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Speaker 1: If you're getting a huge refund, you know the way

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Speaker 1: to to treat that as a just youre withholdings, you know,

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Speaker 1: not loan the irs money for a for an extra

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Speaker 1: year and then for an entire year at no interest,

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Speaker 1: and then be you know, so anxious to claw it

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Speaker 1: all back that you make things really complicated at filing time. Hey,

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Speaker 1: speaking of taxes, there is a forty five minute webinar

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Speaker 1: that all Worth has put together that's still going to

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Speaker 1: be available to watch for folks on Saturday. If that's

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Speaker 1: something that you're interested in, you can sign up at

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Speaker 1: Allworth financial dot com and watch some people talk about

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Speaker 1: actual strategies to deploy about what we're talking about today,

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Speaker 1: but anything else you want to add on the tax front, Brian,

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Speaker 1: I think navigate clients through this right now.

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Speaker 3: So while we're talking about the benefits of extensions and

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Speaker 3: how easy it is, right, just because your deadline is

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Speaker 3: now October fifteenth, doesn't mean you have to wait until

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Speaker 3: October fifteenth. You can do it, you know, the last

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Speaker 3: week April if you just needed a little more time.

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Speaker 3: So again, very little harm there. But the deadlines that

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Speaker 3: do not change are the IRA contribution deadlines. Right, so

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Speaker 3: even if you're on extension, that does not mean you

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Speaker 3: have until October to make your prior year IRA contributions.

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Speaker 3: To make sure you're getting that done by tax. I

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Speaker 3: mean again, I can't stress enough. If you're going to

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Speaker 3: owe taxes, the extension does not help you with that payment.

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Speaker 3: You need to make some kind of estimated payment. So

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Speaker 3: pull as much together as you possibly can, and if

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Speaker 3: you owe money, make some kind of payment by the

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Speaker 3: April deadline. You don't have to file till April, but

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Speaker 3: until October, but that payment is due by April, so

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Speaker 3: make sure you're on top of that.

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Speaker 1: Well, I'll throw one additional thought in here too. I mean,

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Speaker 1: if you have put all the information together and you've

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Speaker 1: compiled your return and you just haven't filed yet, and

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Speaker 1: you're seeing some big, big surprises and you want to

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Speaker 1: go ahead and file an extension, those big surprises should

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Speaker 1: trigger a conversation or a meeting with your fiduciary financial

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Speaker 1: advisor in CPA or both to say, hey, here's what's

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Speaker 1: going on this year, here's some red flags to look at,

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Speaker 1: and that facilitates sometimes Brian, a wonderful discussion to get

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Speaker 1: out in front of some twenty twenty six planning opportunities.

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Speaker 1: And again, if you're just quick to file and you

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Speaker 1: don't even look at it, and don't even look at

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Speaker 1: what's behind those numbers. Sometimes people can't see the forest

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Speaker 1: through the trees and look at some actual planning opportunities

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Speaker 1: going into twenty twenty six. That you know that that's

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Speaker 1: an actual advantage of filing an extension, giving yourself time

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Speaker 1: to kind of look through everything and evaluate some potential opportunities.

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Speaker 2: Yeah, I couldn't agree more.

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Speaker 3: But just make sure you pay attention to those deadlines

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Speaker 3: and hopefully this drives everyone to just create. Make sure

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Speaker 3: you have a plan so you can reck to these

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Speaker 3: things in this way that we're talking about.

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Speaker 1: All Right, you only get one chance to sell your

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Speaker 1: business the right way next the three year runway before

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Speaker 1: and after a business sale. That could mean millions of

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Speaker 1: dollars in difference in terms of what you keep in

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Speaker 1: your pocket or your heirs keep. You're listening to Simply

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Speaker 1: Money presented by all Worth Financial on fifty five KRC

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Speaker 1: the talk station. You're listening to Simply Money presented by

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Speaker 1: all Worth Financial on Bob's spond Seller along with Brian James.

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Speaker 1: For many of you listening right now, your business, a

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Speaker 1: business that you personally own, represents the majority of your

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Speaker 1: net worth, and yet we routinely see business owners spend

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Speaker 1: twenty or thirty years building that company, and maybe only

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Speaker 1: about thirty days preparing to sell it. And that's where

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Speaker 1: if you're not careful, some real hard work, you know,

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Speaker 1: put in over the years and decades, and some real

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Speaker 1: wealth attached to that can get lost due to lack

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Speaker 1: of planning. Let's get into some things that we should

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Speaker 1: be thinking about, Brian.

437
00:20:30,480 --> 00:20:33,320
Speaker 3: But hopefully this isn't Hey, I gotta sell my business tomorrow.

438
00:20:33,359 --> 00:20:35,199
Speaker 3: I better think about it today. You want to be

439
00:20:35,200 --> 00:20:37,200
Speaker 3: planning ahead at least a little bit. So let's talk

440
00:20:37,200 --> 00:20:40,159
Speaker 3: about the three years before the sale, right, so that

441
00:20:40,600 --> 00:20:45,040
Speaker 3: usually the idea sparks a long time before the signatures

442
00:20:45,040 --> 00:20:47,640
Speaker 3: appear on the dotted line. So you know, the first

443
00:20:47,680 --> 00:20:49,960
Speaker 3: mistake a lot of owners make is deciding to sell

444
00:20:49,960 --> 00:20:52,840
Speaker 3: and then immediately starting by looking for buyers. That's the

445
00:20:52,880 --> 00:20:55,320
Speaker 3: backwards approach, because you really don't have any idea what

446
00:20:55,440 --> 00:20:57,560
Speaker 3: that business is worth. So if you're even thinking about

447
00:20:57,600 --> 00:20:59,879
Speaker 3: selling in the next three years, the first priority is

448
00:21:00,119 --> 00:21:03,399
Speaker 3: not finding a buyer. It's making sure the business is

449
00:21:03,480 --> 00:21:05,040
Speaker 3: purchasable so that buyers are.

450
00:21:04,960 --> 00:21:06,280
Speaker 2: Willing to compete for you.

451
00:21:06,320 --> 00:21:08,159
Speaker 3: And a lot of times this happens when maybe you

452
00:21:08,160 --> 00:21:11,200
Speaker 3: weren't necessarily thinking directly about selling. But you've been approached

453
00:21:11,800 --> 00:21:13,159
Speaker 3: now that that doesn't mean just because you have a

454
00:21:13,160 --> 00:21:15,000
Speaker 3: buyer doesn't mean that you should accept that right away

455
00:21:15,080 --> 00:21:17,760
Speaker 3: just because it's there if you haven't spent the time

456
00:21:17,840 --> 00:21:18,280
Speaker 3: to make.

457
00:21:18,200 --> 00:21:20,919
Speaker 2: Sure the business is in the most valuable state it

458
00:21:20,920 --> 00:21:21,199
Speaker 2: can be.

459
00:21:21,720 --> 00:21:24,679
Speaker 3: So buyers what we're getting into, you know, especially private

460
00:21:24,720 --> 00:21:27,360
Speaker 3: equity and strategic acquirers who kind of know what they're

461
00:21:27,359 --> 00:21:30,760
Speaker 3: doing and do this serially. They want to pay for predictability.

462
00:21:30,800 --> 00:21:33,920
Speaker 3: They like knowing what's coming, clean numbers. They will pay

463
00:21:33,960 --> 00:21:36,919
Speaker 3: for systems that don't entirely rely on the owner to

464
00:21:36,960 --> 00:21:40,440
Speaker 3: be there operating them, something that is repeatable and scalable.

465
00:21:40,600 --> 00:21:43,359
Speaker 3: So if your financials are messy, or if personal expenses

466
00:21:43,400 --> 00:21:46,000
Speaker 3: are running through the business, or if your ebadah has

467
00:21:46,040 --> 00:21:48,240
Speaker 3: to be explained, then you're going to get a discount

468
00:21:48,680 --> 00:21:51,360
Speaker 3: because of the fog that's kind of built into those

469
00:21:51,440 --> 00:21:54,880
Speaker 3: numbers there. So imagine that company. Your company generates maybe

470
00:21:54,880 --> 00:21:57,520
Speaker 3: three million dollars in ebit dah. If a buyer is

471
00:21:57,600 --> 00:22:01,040
Speaker 3: offering six times earnings, that's an eighteen million dollar valuation.

472
00:22:01,359 --> 00:22:03,439
Speaker 3: If you clean things up a little bit, now you

473
00:22:03,440 --> 00:22:06,560
Speaker 3: can command seven times earnings. That's twenty one million dollars.

474
00:22:06,560 --> 00:22:09,160
Speaker 3: So take the time that it's it is worth taking

475
00:22:09,160 --> 00:22:10,880
Speaker 3: the time to go clean those things up and make

476
00:22:10,880 --> 00:22:13,760
Speaker 3: sure you can highlight the predictability and the stability those

477
00:22:13,800 --> 00:22:15,840
Speaker 3: expenses and get all the things out of there that

478
00:22:15,840 --> 00:22:16,959
Speaker 3: aren't relevant to the business.

479
00:22:18,040 --> 00:22:19,920
Speaker 1: Yeah, and Brian, the problem is a lot of business

480
00:22:19,960 --> 00:22:22,440
Speaker 1: owners don't want to go through that exercise for one

481
00:22:22,480 --> 00:22:24,920
Speaker 1: of two reasons or maybe both. Number one, they don't

482
00:22:24,960 --> 00:22:28,360
Speaker 1: want to pay someone to actually do you know, some

483
00:22:28,440 --> 00:22:32,880
Speaker 1: forensic accounting people that know what acquires are looking for

484
00:22:33,080 --> 00:22:38,000
Speaker 1: to really give the seller, a potential seller, a realistic

485
00:22:38,119 --> 00:22:40,840
Speaker 1: idea of what that business is really worth. It costs

486
00:22:40,880 --> 00:22:44,000
Speaker 1: a little money and time to do that. And you know, again,

487
00:22:44,040 --> 00:22:47,919
Speaker 1: if we're talking about your largest you know, thing on

488
00:22:47,960 --> 00:22:50,320
Speaker 1: your network statement, your baby, so to speak, that you

489
00:22:50,400 --> 00:22:52,720
Speaker 1: built for years, you owe it to yourself to get

490
00:22:52,720 --> 00:22:55,760
Speaker 1: an objective, second or third set of eyes on this

491
00:22:55,880 --> 00:22:58,880
Speaker 1: to make sure you're living in reality before you even

492
00:22:58,920 --> 00:23:01,520
Speaker 1: put this business up for sale. And to the point

493
00:23:01,520 --> 00:23:04,520
Speaker 1: you've already made a lot of people use their businesses,

494
00:23:04,800 --> 00:23:07,320
Speaker 1: you know, is kind of their cash piggy bank to

495
00:23:07,359 --> 00:23:10,800
Speaker 1: pay for things and any kind of seller that has

496
00:23:10,880 --> 00:23:13,840
Speaker 1: any kind of expertise or someone working for them, they're

497
00:23:13,880 --> 00:23:16,399
Speaker 1: gonna find this stuff in a heartbeat. And then, like

498
00:23:16,440 --> 00:23:19,119
Speaker 1: you said, they're going to discount what they offer. And

499
00:23:19,240 --> 00:23:23,679
Speaker 1: sometimes that gets personally offensive and it's a surprise to

500
00:23:23,720 --> 00:23:26,480
Speaker 1: the seller. They didn't see it coming, they didn't plan

501
00:23:26,640 --> 00:23:29,159
Speaker 1: for it in terms of their overall financial plan. So

502
00:23:29,600 --> 00:23:31,919
Speaker 1: get some people on board to give you, you know,

503
00:23:31,960 --> 00:23:34,760
Speaker 1: to your point, Brian, what this thing is really worth,

504
00:23:35,000 --> 00:23:37,639
Speaker 1: you know, in the real world, not what you emotionally

505
00:23:37,680 --> 00:23:40,639
Speaker 1: think it's worth. Make sure all those hidden expenses are

506
00:23:40,680 --> 00:23:43,480
Speaker 1: taken out, and then sit down with your financial advisor

507
00:23:43,520 --> 00:23:46,160
Speaker 1: and CPA and say, hey, if I'm willing to part

508
00:23:46,200 --> 00:23:49,560
Speaker 1: with this business for this amount of money, is that

509
00:23:49,640 --> 00:23:51,359
Speaker 1: going to get it done for my family and I

510
00:23:51,440 --> 00:23:54,320
Speaker 1: in terms of actually being able to walk away and retire.

511
00:23:54,840 --> 00:23:56,639
Speaker 1: And that leads to the second point. We want to

512
00:23:56,680 --> 00:23:58,960
Speaker 1: cover a night. And there's a lot of tax planning

513
00:23:59,119 --> 00:24:00,880
Speaker 1: that goes into these decisions as well.

514
00:24:01,960 --> 00:24:04,239
Speaker 3: Uh, yeah, there's always tax planning with regard to with

515
00:24:04,240 --> 00:24:07,239
Speaker 3: with everybody should be thinking about tax planning. But when

516
00:24:07,280 --> 00:24:09,560
Speaker 3: you're selling a business, this is where you have major

517
00:24:09,600 --> 00:24:11,760
Speaker 3: moving parts and you're you're for this year, you're done

518
00:24:11,840 --> 00:24:13,719
Speaker 3: using TurboTax, right, we want to make sure we've got

519
00:24:13,760 --> 00:24:16,760
Speaker 3: a CPA in the corner to make sure this gets done. Okay,

520
00:24:17,240 --> 00:24:19,840
Speaker 3: So if you're wanting to explore giftings, this is where

521
00:24:19,920 --> 00:24:21,879
Speaker 3: people can get lost. If you're selling a business is

522
00:24:21,920 --> 00:24:24,120
Speaker 3: going to close in Q four, well, then you probably

523
00:24:24,160 --> 00:24:26,240
Speaker 3: don't have your eyes on other steps that you should

524
00:24:26,280 --> 00:24:29,600
Speaker 3: take uh to offset some of those taxes. And this

525
00:24:29,640 --> 00:24:32,320
Speaker 3: is where we get mad scrambles in December of somebody

526
00:24:32,320 --> 00:24:34,720
Speaker 3: who is just now learning what a donor advised fund

527
00:24:34,880 --> 00:24:36,919
Speaker 3: is to offset some of the taxes that are going

528
00:24:36,960 --> 00:24:38,480
Speaker 3: to occur as a result of that sale, you got

529
00:24:38,480 --> 00:24:40,440
Speaker 3: to get that stuff done in the same calendar year.

530
00:24:40,720 --> 00:24:43,280
Speaker 3: So you really not only want to focus on getting

531
00:24:43,320 --> 00:24:45,400
Speaker 3: that business sold, you also got to be looking at

532
00:24:45,520 --> 00:24:47,399
Speaker 3: what strategies will you want to put in place and

533
00:24:47,440 --> 00:24:49,520
Speaker 3: what kind of time do they need. Don't wait until

534
00:24:49,560 --> 00:24:51,960
Speaker 3: your signatures on the dotted line, Uh. Make sure you

535
00:24:52,040 --> 00:24:54,440
Speaker 3: understand what those look like and how those things work,

536
00:24:54,640 --> 00:24:56,440
Speaker 3: so that you can pull the trigger quickly when those

537
00:24:56,480 --> 00:24:59,800
Speaker 3: dollars arrive. Another area to think about is de risking.

538
00:24:59,840 --> 00:25:02,159
Speaker 3: So a lot of times when you own a business

539
00:25:02,240 --> 00:25:04,440
Speaker 3: that's seventy eighty ninety percent of your own net worth

540
00:25:04,480 --> 00:25:07,280
Speaker 3: tied up there, and that's a huge concentration risk that

541
00:25:07,280 --> 00:25:09,560
Speaker 3: you've lived with your entire life. Maybe you've been comfortable

542
00:25:09,560 --> 00:25:11,639
Speaker 3: with that because you can control every aspect of it,

543
00:25:11,840 --> 00:25:14,560
Speaker 3: But if you're within a few years of selling, it's

544
00:25:14,640 --> 00:25:16,959
Speaker 3: very much worth asking what happens if I have planned

545
00:25:16,960 --> 00:25:18,960
Speaker 3: on this sale in this certain dollar amount. What happens

546
00:25:18,960 --> 00:25:20,960
Speaker 3: if it falls apart at the last second, What happens

547
00:25:21,040 --> 00:25:24,120
Speaker 3: if the economy turns, buyers pull back where the valuation

548
00:25:24,280 --> 00:25:26,320
Speaker 3: drops or what they're willing to give me. Can I

549
00:25:26,600 --> 00:25:28,399
Speaker 3: how will I cover those next few years while I

550
00:25:28,400 --> 00:25:30,000
Speaker 3: wait to build it back up? Do I have the

551
00:25:30,040 --> 00:25:32,480
Speaker 3: ability to do it? And it is my family and

552
00:25:32,520 --> 00:25:34,480
Speaker 3: a place where we can hang on another few years.

553
00:25:34,480 --> 00:25:35,920
Speaker 3: These are all things to think about it as you're

554
00:25:35,920 --> 00:25:36,920
Speaker 3: looking to sell your business.

555
00:25:37,320 --> 00:25:40,080
Speaker 1: Now, that's a situation back to the you know our first,

556
00:25:40,520 --> 00:25:44,240
Speaker 1: you know first segment of today. That's a situation where

557
00:25:44,359 --> 00:25:47,440
Speaker 1: stockpiling some cash might be a good thing to buy

558
00:25:47,480 --> 00:25:50,119
Speaker 1: yourself some time to get this business sold the right way.

559
00:25:50,520 --> 00:25:52,720
Speaker 1: Here's the all Worth advice. If selling your business is

560
00:25:52,720 --> 00:25:56,960
Speaker 1: even a remote possibility, start planning three years ahead of

561
00:25:57,000 --> 00:25:59,879
Speaker 1: time or three years before you think you need to,

562
00:26:00,080 --> 00:26:06,280
Speaker 1: because preparation and timing makes a huge difference. Coming up next,

563
00:26:06,320 --> 00:26:10,880
Speaker 1: a single stock has taken over one portfolio, rmds are

564
00:26:10,920 --> 00:26:13,879
Speaker 1: proving to loom larger than expected, and is now the

565
00:26:14,000 --> 00:26:17,720
Speaker 1: right time to sell a highly appreciated rental property. We're

566
00:26:17,760 --> 00:26:21,440
Speaker 1: tackling smart moves for the next chapter of your financial life.

567
00:26:21,800 --> 00:26:24,159
Speaker 1: Coming up next, you're listening to Simply Money, presented by

568
00:26:24,160 --> 00:26:27,879
Speaker 1: all Worth Financial on fifty five KRC, the talk station.

569
00:26:34,320 --> 00:26:36,960
Speaker 1: You're listening to Simply Money presented by all Worth Financial

570
00:26:37,160 --> 00:26:40,240
Speaker 1: Bob spont Seller along with Brian James. Do you have

571
00:26:40,280 --> 00:26:42,520
Speaker 1: a financial question you'd like for us to answer? There's

572
00:26:42,520 --> 00:26:44,480
Speaker 1: a red button you could click while you're listening to

573
00:26:44,520 --> 00:26:47,880
Speaker 1: the show. If you're listening on the iHeart app, simply

574
00:26:47,920 --> 00:26:50,880
Speaker 1: record your question and it will come straight to us.

575
00:26:51,880 --> 00:26:54,480
Speaker 1: Tom and blue Ash leads us off tonight. Brian he says,

576
00:26:54,560 --> 00:26:57,240
Speaker 1: I'm sixty two years of age, I'm planning to retire

577
00:26:57,280 --> 00:27:01,359
Speaker 1: next year and most of our savings are in traditional IRA.

578
00:27:01,480 --> 00:27:05,280
Speaker 1: Should I be doing anything differently right now before my

579
00:27:05,359 --> 00:27:06,240
Speaker 1: income drops?

580
00:27:07,080 --> 00:27:07,359
Speaker 2: Well?

581
00:27:07,400 --> 00:27:09,560
Speaker 3: Hey, I got news for you here and hopefully This

582
00:27:09,600 --> 00:27:12,080
Speaker 3: is why you're asking. You're about to go through one

583
00:27:12,119 --> 00:27:14,720
Speaker 3: of the best windows for tax planning that you're ever

584
00:27:14,760 --> 00:27:17,680
Speaker 3: going to have, the year before retirement and the early

585
00:27:18,000 --> 00:27:21,240
Speaker 3: retirement gap years here. So compare your tax brackets now

586
00:27:21,320 --> 00:27:23,919
Speaker 3: versus later. Right now, you're probably one of your highest

587
00:27:23,920 --> 00:27:27,240
Speaker 3: lifetime income years, right since we are assuming that you've

588
00:27:27,240 --> 00:27:28,960
Speaker 3: had a long career and you're making this more than

589
00:27:29,000 --> 00:27:31,840
Speaker 3: you've ever made in your entire lives. Next year, earned

590
00:27:31,840 --> 00:27:34,760
Speaker 3: income drops, but at age seventy three or seventy five,

591
00:27:34,760 --> 00:27:37,640
Speaker 3: depending on your day to birth, that's when requirementimum distributions begin.

592
00:27:38,040 --> 00:27:40,439
Speaker 3: Those forced withdrawals can push you right back into those

593
00:27:40,480 --> 00:27:44,400
Speaker 3: higher brackets, depending on how large your pre tax savings are. Now,

594
00:27:44,440 --> 00:27:47,439
Speaker 3: throw in social Security and you've probably got some Medicare

595
00:27:47,560 --> 00:27:49,679
Speaker 3: ERMA search charges in there too, and your low income

596
00:27:49,720 --> 00:27:50,800
Speaker 3: retirement hasn't.

597
00:27:50,520 --> 00:27:51,920
Speaker 2: Actually held through here.

598
00:27:51,960 --> 00:27:53,879
Speaker 3: So the thing you're going to want to think about

599
00:27:53,920 --> 00:27:57,960
Speaker 3: is roth conversions during these early retirement years. Don't celebrate

600
00:27:58,040 --> 00:28:01,680
Speaker 3: those zero percent tax years if that's your situation. A

601
00:28:01,720 --> 00:28:03,760
Speaker 3: lot of people do find themselves in that situation. If

602
00:28:03,800 --> 00:28:06,000
Speaker 3: I have enough in savings and that I don't need

603
00:28:06,040 --> 00:28:09,240
Speaker 3: to turn on my Social Security checks or pensions, and

604
00:28:09,280 --> 00:28:11,280
Speaker 3: I'm not taking distributions from my accounts, and I literally

605
00:28:11,320 --> 00:28:13,000
Speaker 3: could be in a zero percent bracket. That is not

606
00:28:13,080 --> 00:28:15,840
Speaker 3: something to celebrate. That is a missed opportunity. You might

607
00:28:15,880 --> 00:28:19,199
Speaker 3: consider doing Roth conversions to fill up those brackets up

608
00:28:19,240 --> 00:28:21,440
Speaker 3: to say the twenty two percent bracket, maybe even twenty

609
00:28:21,440 --> 00:28:24,040
Speaker 3: four and that will reduce a lot of future RMD

610
00:28:24,119 --> 00:28:26,240
Speaker 3: pressure and give you a lot more control into the future.

611
00:28:26,240 --> 00:28:28,879
Speaker 3: Some of my happiest clients, they're the ones who built

612
00:28:29,400 --> 00:28:32,600
Speaker 3: tax free buckets alongside their pre tax buckets to make

613
00:28:32,640 --> 00:28:34,440
Speaker 3: sure that they didn't get hit in the face too

614
00:28:34,440 --> 00:28:38,560
Speaker 3: hard when those requirementum distributions when that season began. So

615
00:28:38,640 --> 00:28:41,360
Speaker 3: we'll move on there to Brian and Anderson. Brian's got

616
00:28:41,360 --> 00:28:43,480
Speaker 3: a position in one stock that has grown to almost

617
00:28:43,520 --> 00:28:45,400
Speaker 3: a quarter of the portfolio, and he says he knows

618
00:28:45,400 --> 00:28:47,680
Speaker 3: that's risky, but the tax build a trimid is just

619
00:28:47,680 --> 00:28:48,240
Speaker 3: too scary.

620
00:28:48,280 --> 00:28:49,840
Speaker 2: How do you think through that trade off?

621
00:28:51,320 --> 00:28:54,480
Speaker 1: Well, Brian, great question. The good thing you're already you're

622
00:28:54,520 --> 00:28:57,480
Speaker 1: already thinking about it, and you already recognize it's something

623
00:28:57,480 --> 00:29:00,800
Speaker 1: that probably has to be dealt with. Good news is

624
00:29:00,880 --> 00:29:03,640
Speaker 1: there are a lot of strategies out there where you

625
00:29:03,640 --> 00:29:05,959
Speaker 1: don't have to, you know, part with all that stock,

626
00:29:06,080 --> 00:29:08,560
Speaker 1: or even half of it. You can trim it off

627
00:29:08,600 --> 00:29:13,360
Speaker 1: gradually and in a tax efficient way using some tax

628
00:29:13,440 --> 00:29:17,600
Speaker 1: lost harvesting techniques that are out there, if you if

629
00:29:17,600 --> 00:29:20,760
Speaker 1: you pair this stock with some other parts of your portfolio.

630
00:29:21,000 --> 00:29:23,880
Speaker 1: So the good the important thing here is to model

631
00:29:23,920 --> 00:29:27,280
Speaker 1: it out both on a risk standpoint. You know what

632
00:29:27,680 --> 00:29:30,960
Speaker 1: risk is being introduced to your overall portfolio by having

633
00:29:31,000 --> 00:29:33,760
Speaker 1: twenty five percent of your portfolio in one stock. And

634
00:29:33,800 --> 00:29:37,240
Speaker 1: then once we recognize which often happens, the light goes

635
00:29:37,280 --> 00:29:40,120
Speaker 1: on and people say, well, I'm really not getting compensated,

636
00:29:40,480 --> 00:29:43,080
Speaker 1: you know, appropriately for the amount of risk I'm really

637
00:29:43,120 --> 00:29:45,800
Speaker 1: taking here. Then what do we do about it? And

638
00:29:45,880 --> 00:29:49,280
Speaker 1: how do we go about, you know, unwinding it responsibly

639
00:29:49,560 --> 00:29:52,640
Speaker 1: from a tax standpoint. So get with a good fiduciary

640
00:29:52,640 --> 00:29:56,000
Speaker 1: advisor who can help walk you through that, because there

641
00:29:56,040 --> 00:29:59,280
Speaker 1: are a lot of wonderful strategies you can deploy to

642
00:29:59,480 --> 00:30:02,840
Speaker 1: de risk your portfolio and help you sleep a little

643
00:30:02,840 --> 00:30:06,400
Speaker 1: better at night. Hope that helps. Brian Mark in Westchester says,

644
00:30:06,400 --> 00:30:09,400
Speaker 1: our rm ds start in a few years and look

645
00:30:09,680 --> 00:30:12,600
Speaker 1: larger than we'll need to spend. Is there anything we

646
00:30:12,640 --> 00:30:15,560
Speaker 1: should be doing before that happens, Brian, I know this

647
00:30:15,640 --> 00:30:16,840
Speaker 1: is right in your wheelhouse.

648
00:30:17,160 --> 00:30:19,880
Speaker 3: Yeah, we've talked about this a few times here in

649
00:30:19,880 --> 00:30:23,360
Speaker 3: this particular broadcast and earlier this week and meetings that

650
00:30:23,360 --> 00:30:25,920
Speaker 3: I have with clients, So pretty common topic these days.

651
00:30:25,960 --> 00:30:28,320
Speaker 3: So yeah, if those projected rmds are larger than your

652
00:30:28,360 --> 00:30:30,840
Speaker 3: spending needs, that's not really a withdrawal problem. That's a

653
00:30:30,840 --> 00:30:34,360
Speaker 3: tax control problem. Once those begin, your flexibility shrinks. So

654
00:30:34,400 --> 00:30:36,880
Speaker 3: the work has to happen before they start. As they

655
00:30:36,880 --> 00:30:39,200
Speaker 3: say in the sports world, championships are won in the

656
00:30:39,200 --> 00:30:41,440
Speaker 3: off season. Well, guess what when we're talking about rm ds,

657
00:30:41,480 --> 00:30:43,400
Speaker 3: this is the off season because you're not there yet.

658
00:30:43,680 --> 00:30:45,120
Speaker 3: You said you've got a few years to go, so

659
00:30:45,160 --> 00:30:47,880
Speaker 3: i'll assume you're maybe late sixties something like that. But

660
00:30:47,960 --> 00:30:49,840
Speaker 3: you know, the first step here is quantify what that

661
00:30:49,920 --> 00:30:52,800
Speaker 3: future tax compression is going to be. So project those

662
00:30:52,880 --> 00:30:56,160
Speaker 3: rmds at seventy three, figure out what you think those investments,

663
00:30:56,200 --> 00:30:58,800
Speaker 3: those pre tax accounts four one ks iras, et cetera,

664
00:30:59,360 --> 00:31:01,960
Speaker 3: might be worse, and then figure out what you know,

665
00:31:02,000 --> 00:31:03,960
Speaker 3: A good rule of thumb is maybe four to five

666
00:31:04,000 --> 00:31:06,560
Speaker 3: percent of that dollar amount will probably be what your

667
00:31:06,640 --> 00:31:08,600
Speaker 3: rm D is. The calculation is not that simple, but

668
00:31:08,640 --> 00:31:11,320
Speaker 3: that's good enough for now. Layer in social Security on

669
00:31:11,360 --> 00:31:13,600
Speaker 3: top of that. You might you might be surprised to

670
00:31:13,600 --> 00:31:15,880
Speaker 3: see that you're getting landing in a higher bracket because

671
00:31:15,880 --> 00:31:18,040
Speaker 3: of these rm ds, because of all these things. Now

672
00:31:18,080 --> 00:31:21,240
Speaker 3: you throw in those medicare Erma thresholds, and that effective

673
00:31:21,280 --> 00:31:23,800
Speaker 3: marginal rate jumps quickly and again. So that's what hopefully

674
00:31:23,800 --> 00:31:25,760
Speaker 3: give you an idea of what you're looking at. Now

675
00:31:25,760 --> 00:31:27,479
Speaker 3: that we know we've got a target to shoot at,

676
00:31:27,600 --> 00:31:29,920
Speaker 3: use that pre rm D window, which is right now

677
00:31:30,440 --> 00:31:33,480
Speaker 3: to deliberately fill those lower brackets. This is prime time

678
00:31:33,560 --> 00:31:37,520
Speaker 3: for partial Wroth conversions, intentionally converting each year to top

679
00:31:37,560 --> 00:31:39,840
Speaker 3: off that bracket. In other words, whatever income sources you

680
00:31:39,880 --> 00:31:42,840
Speaker 3: have are happening anyway, Maybe you file for Social Security,

681
00:31:42,880 --> 00:31:44,760
Speaker 3: maybe you haven't, maybe there's part time.

682
00:31:44,600 --> 00:31:45,240
Speaker 2: Work, whatever.

683
00:31:46,000 --> 00:31:48,400
Speaker 3: Fill up the rest of that twenty two percent bracket

684
00:31:48,400 --> 00:31:51,600
Speaker 3: with Wroth conversions, right, and that that's going to reduce. Yes,

685
00:31:51,640 --> 00:31:53,480
Speaker 3: you're gonna have to write checks to pay taxes for this,

686
00:31:53,520 --> 00:31:55,520
Speaker 3: and these can be sizeable checks. Let's make no you know,

687
00:31:55,760 --> 00:31:57,800
Speaker 3: let's make no mistake here. We're talking about a conscious

688
00:31:57,840 --> 00:32:01,640
Speaker 3: decision to sacrifice now and change for tax free growth later.

689
00:32:02,440 --> 00:32:05,640
Speaker 3: But the benefit is the snowball effect you'll have over

690
00:32:05,680 --> 00:32:08,280
Speaker 3: the next ten, fifteen, twenty years that's never going to

691
00:32:08,320 --> 00:32:11,479
Speaker 3: get taxed again. This is bracket management, not market timing.

692
00:32:11,720 --> 00:32:14,000
Speaker 3: Now that said, if you're thinking about this and the

693
00:32:14,000 --> 00:32:16,959
Speaker 3: market happens to have taken a dip, well accelerate your

694
00:32:17,000 --> 00:32:18,680
Speaker 3: thinking because if you're going to do this, the best

695
00:32:18,680 --> 00:32:20,400
Speaker 3: time to do it is move that money into a

696
00:32:20,400 --> 00:32:23,320
Speaker 3: tax free pile, keep it invested, don't go conservative either.

697
00:32:23,640 --> 00:32:26,040
Speaker 3: Let it grow and it'll grow tax free as it

698
00:32:26,040 --> 00:32:28,200
Speaker 3: digs out of that hole. You can also think about

699
00:32:28,280 --> 00:32:31,760
Speaker 3: qualified charitable distributions, which these are things that count as

700
00:32:31,760 --> 00:32:35,520
Speaker 3: your RMD. To benefit a charity, you can donate up

701
00:32:35,560 --> 00:32:37,640
Speaker 3: to one hundred thousand dollars and it actually doesn't even

702
00:32:37,720 --> 00:32:40,560
Speaker 3: hit your taxable income. That's a more complicated discussion, but

703
00:32:40,600 --> 00:32:43,840
Speaker 3: if you are charitably inclined to a significant amount these qcds,

704
00:32:43,960 --> 00:32:47,720
Speaker 3: qualified charitable distribution can accomplish two things at once, getting

705
00:32:47,760 --> 00:32:50,200
Speaker 3: you out of your rm D obligation and benefiting charities

706
00:32:50,200 --> 00:32:51,520
Speaker 3: that you would have anyway.

707
00:32:51,800 --> 00:32:52,960
Speaker 2: Lots of information here.

708
00:32:53,440 --> 00:32:55,160
Speaker 1: You do have to be over seventy and a half

709
00:32:55,160 --> 00:32:56,680
Speaker 1: to do that though, right, Brian.

710
00:32:56,680 --> 00:32:59,640
Speaker 3: Correct, we're talking about when you reach Yeah, so RMDA

711
00:33:00,000 --> 00:33:02,920
Speaker 3: that's a great point. RMD age is seventy three. Now

712
00:33:03,200 --> 00:33:05,560
Speaker 3: QCD age is only seventy and a half. They did

713
00:33:05,560 --> 00:33:07,400
Speaker 3: not increase it, So you can do that as early

714
00:33:07,400 --> 00:33:09,680
Speaker 3: as seventy and a half. But when you are eligible

715
00:33:10,360 --> 00:33:12,760
Speaker 3: or required to do minimum distributions.

716
00:33:12,280 --> 00:33:15,520
Speaker 2: That QCD will count toward that. So let's move on

717
00:33:15,920 --> 00:33:16,360
Speaker 2: for one more.

718
00:33:16,440 --> 00:33:19,040
Speaker 3: David in Milford, he's considering selling a rental property that

719
00:33:19,080 --> 00:33:21,320
Speaker 3: has a lot of appreciation built into it. He's wondering

720
00:33:21,360 --> 00:33:23,880
Speaker 3: how to evaluate whether it's time to simplify or keep

721
00:33:23,880 --> 00:33:24,440
Speaker 3: that income.

722
00:33:25,960 --> 00:33:28,360
Speaker 1: Well, David, you're not unlike a lot of folks that

723
00:33:28,400 --> 00:33:31,040
Speaker 1: we talk to that you know, have built a nice

724
00:33:31,080 --> 00:33:34,239
Speaker 1: network through self managing rental property, and folks do a

725
00:33:34,280 --> 00:33:36,400
Speaker 1: great job of that. But then you know, as we

726
00:33:36,480 --> 00:33:39,400
Speaker 1: all age, we want our life to simplify and we

727
00:33:39,440 --> 00:33:43,520
Speaker 1: want our net worth or portfolio to simplify. So you're

728
00:33:43,560 --> 00:33:47,880
Speaker 1: not alone here. Some of the great advantages of managing

729
00:33:48,360 --> 00:33:53,120
Speaker 1: rental property, meaning depreciation, that comes back to rear its

730
00:33:53,200 --> 00:33:56,720
Speaker 1: ugly head if you go to sell those properties. Because now,

731
00:33:56,760 --> 00:34:00,400
Speaker 1: as you are probably well aware already stay at a

732
00:34:00,440 --> 00:34:04,560
Speaker 1: large capital gains tax bill. So usually two reasons people

733
00:34:04,600 --> 00:34:08,400
Speaker 1: want to, as you said, simplify your income in your life.

734
00:34:08,480 --> 00:34:11,640
Speaker 1: One is you don't want to fix those rental properties anymore.

735
00:34:11,640 --> 00:34:15,040
Speaker 1: You don't want those you know, midnight phone calls saying

736
00:34:15,080 --> 00:34:17,960
Speaker 1: the toilet's you know, clogged and something needs to be fixed.

737
00:34:18,000 --> 00:34:21,319
Speaker 1: We get it, So how to simplify it. There are

738
00:34:21,480 --> 00:34:24,719
Speaker 1: a lot of good exchange programs out there where you

739
00:34:24,719 --> 00:34:28,719
Speaker 1: can defer the capital gains taxes and diversify and get

740
00:34:28,800 --> 00:34:34,120
Speaker 1: into a passively a passive, passively managed real estate portfolio

741
00:34:34,200 --> 00:34:37,439
Speaker 1: for yourself. It's still actively managed, you're just not having

742
00:34:37,440 --> 00:34:40,160
Speaker 1: to manage it, you know. You flip that rental property

743
00:34:40,200 --> 00:34:43,480
Speaker 1: into an exchange program and now you have a diversified

744
00:34:43,920 --> 00:34:48,120
Speaker 1: portfolio of real estate professionally managed that will continue that

745
00:34:48,200 --> 00:34:51,239
Speaker 1: income stream to you. So it's it's worth looking at

746
00:34:51,239 --> 00:34:55,040
Speaker 1: something like that again within the context of an overall

747
00:34:55,120 --> 00:34:57,440
Speaker 1: financial plan. You don't want to put all your eggs

748
00:34:57,440 --> 00:35:00,600
Speaker 1: in one basket, meaning have your entire net worth tied

749
00:35:00,680 --> 00:35:02,880
Speaker 1: up in real estate. So those are a couple thoughts

750
00:35:02,880 --> 00:35:06,520
Speaker 1: to consider coming out next. Brian has his bottom line

751
00:35:06,560 --> 00:35:09,560
Speaker 1: He's going to cover about what fifty to sixty years

752
00:35:09,600 --> 00:35:13,440
Speaker 1: of economic history in five minutes or less. Boy, I

753
00:35:13,480 --> 00:35:17,600
Speaker 1: wish I had Brian as my economics professor at Miami University.

754
00:35:17,600 --> 00:35:19,920
Speaker 1: I would have had a lot more time to fool

755
00:35:19,960 --> 00:35:22,840
Speaker 1: around at the fraternity house. You're listening to Simply Money

756
00:35:22,960 --> 00:35:25,960
Speaker 1: presented by all Worth Financial on fifty five KRC, the

757
00:35:26,280 --> 00:35:32,480
Speaker 1: talk station A let's get this bang moment. You're listening

758
00:35:32,480 --> 00:35:35,759
Speaker 1: to Simply Money presented by Allworth Financial. I'm Bob Sponsller

759
00:35:35,840 --> 00:35:39,520
Speaker 1: along with Brian James, and it's time for Brian's bottom line.

760
00:35:39,560 --> 00:35:42,920
Speaker 1: He's going to give us a great economics history lesson tonight.

761
00:35:43,760 --> 00:35:45,719
Speaker 3: Well, this can fit under the category of what does

762
00:35:45,760 --> 00:35:47,839
Speaker 3: Brian think at four in the morning when he wakes

763
00:35:47,920 --> 00:35:50,239
Speaker 3: up for no reason in stares at the ceiling, which

764
00:35:50,280 --> 00:35:53,080
Speaker 3: is fairly common these days. But anyway, so what I

765
00:35:53,080 --> 00:35:55,719
Speaker 3: want to talk about is the notion, this is a

766
00:35:55,800 --> 00:35:58,480
Speaker 3: question I get from clients, are we heading into a

767
00:35:58,600 --> 00:36:00,520
Speaker 3: higher for longer economy again?

768
00:36:01,440 --> 00:36:03,399
Speaker 2: Because this is you know, this is.

769
00:36:03,360 --> 00:36:06,280
Speaker 3: Really relevant right now because the markets and consumers businesses

770
00:36:06,360 --> 00:36:08,560
Speaker 3: are all getting the notion that interest rates are really

771
00:36:08,560 --> 00:36:11,120
Speaker 3: coming down, and we were all spoiled over the last

772
00:36:11,120 --> 00:36:14,200
Speaker 3: many years with those those zero percent interest rates, or

773
00:36:14,200 --> 00:36:17,359
Speaker 3: are we possibly settling in the structurally higher borrowing costs. So,

774
00:36:17,400 --> 00:36:19,440
Speaker 3: for more than a decade after two thousand and eight,

775
00:36:19,520 --> 00:36:22,160
Speaker 3: ultra low interest rates were the norm. Remember refinancing your

776
00:36:22,200 --> 00:36:24,360
Speaker 3: mortgage three times in a year. They were under four percent,

777
00:36:24,640 --> 00:36:27,960
Speaker 3: super cheap car loans, just about free corporate borrowing. Then

778
00:36:28,000 --> 00:36:31,879
Speaker 3: inflation hit not too long ago, triggered by the COVID pandemic. Right,

779
00:36:32,040 --> 00:36:34,919
Speaker 3: rate instrates spiked at the fastest pace in about forty years.

780
00:36:34,920 --> 00:36:37,359
Speaker 3: So now investors are expecting the pendulum to swing back

781
00:36:37,400 --> 00:36:39,959
Speaker 3: the other way, looking for these rate cuts, and people

782
00:36:40,000 --> 00:36:42,000
Speaker 3: are holding off, hoping for they can get a slightly

783
00:36:42,040 --> 00:36:44,239
Speaker 3: lower mortgage. You know, mom and Dad had that two

784
00:36:44,239 --> 00:36:46,640
Speaker 3: percent mortgage. Let's hold we just got married, let's hold

785
00:36:46,680 --> 00:36:49,160
Speaker 3: off until that happens for us. Well, you know what

786
00:36:49,280 --> 00:36:51,960
Speaker 3: the question is, what if higher for longer isn't temporary,

787
00:36:51,960 --> 00:36:54,840
Speaker 3: what if it's more structural. So historically speaking, you know,

788
00:36:54,880 --> 00:36:57,600
Speaker 3: interest rates moving really really long cycle. So the early

789
00:36:57,600 --> 00:36:59,480
Speaker 3: in the seventies through the early eighties, we had high

790
00:36:59,520 --> 00:37:02,680
Speaker 3: inflation in very high rates. That was actually known as

791
00:37:02,680 --> 00:37:04,919
Speaker 3: stagflation because we didn't get the growth that you would

792
00:37:04,960 --> 00:37:08,520
Speaker 3: assume comes along with inflation. The eighties through about twenty

793
00:37:08,560 --> 00:37:11,359
Speaker 3: twenty was a forty year decline in interest rates. This

794
00:37:11,400 --> 00:37:15,759
Speaker 3: is where bonds became less attractive slowly, and the stock

795
00:37:15,800 --> 00:37:18,279
Speaker 3: market became the thing that everybody had to do. And

796
00:37:18,440 --> 00:37:22,600
Speaker 3: also pension or retirement benefits moved away from pensions into

797
00:37:22,960 --> 00:37:25,279
Speaker 3: the equity markets because now we had companies saying we're

798
00:37:25,280 --> 00:37:26,759
Speaker 3: not going to give you a monthly check every month

799
00:37:26,800 --> 00:37:29,080
Speaker 3: after you retire, but we will give you the ability

800
00:37:29,080 --> 00:37:31,040
Speaker 3: to invest in the stock market. So a lot more

801
00:37:31,080 --> 00:37:34,560
Speaker 3: capital flowed in at a time where interest rates were

802
00:37:34,560 --> 00:37:37,120
Speaker 3: lower than they've been in history. Now post twenty twenty,

803
00:37:37,160 --> 00:37:41,520
Speaker 3: we're seeing a potential regime shift because of persistent federal deficits, right,

804
00:37:41,520 --> 00:37:44,840
Speaker 3: we can't get away from that anymore. Geopolitical issues and

805
00:37:44,880 --> 00:37:48,600
Speaker 3: supply chain rebuilding, restructuring of all these different things. Structurally

806
00:37:48,640 --> 00:37:53,640
Speaker 3: tighter labor markets, less globalization, and more national trying to

807
00:37:53,680 --> 00:37:55,640
Speaker 3: keep it within the borders. Those kinds of things. These

808
00:37:55,640 --> 00:37:58,680
Speaker 3: are structural forces, and this is important because it can

809
00:37:58,719 --> 00:38:01,160
Speaker 3: do things such as you can reaze the housing market.

810
00:38:01,200 --> 00:38:04,279
Speaker 3: Lower rate homeowners don't want to sell. Inventory remains tight,

811
00:38:04,320 --> 00:38:07,759
Speaker 3: affordability is tough to get to. Corporate America is looking

812
00:38:07,800 --> 00:38:10,400
Speaker 3: for fewer speculative investments, are getting a little more conservative,

813
00:38:10,440 --> 00:38:13,799
Speaker 3: more emphasis on profitability, more you know, make more with

814
00:38:13,920 --> 00:38:16,520
Speaker 3: less those kinds of things, and a lower tolerance for

815
00:38:16,600 --> 00:38:19,799
Speaker 3: unproductive capital. So we have to adjust our expectations the

816
00:38:19,840 --> 00:38:22,359
Speaker 3: old playbook just by growth and wait for those rate

817
00:38:22,360 --> 00:38:24,959
Speaker 3: cuts That may not work as reliably. Doesn't mean change

818
00:38:24,960 --> 00:38:27,640
Speaker 3: your portfolio, but it does mean we needed to possibly

819
00:38:27,719 --> 00:38:30,359
Speaker 3: change the expectation we have going forward. Just understand how

820
00:38:30,360 --> 00:38:32,520
Speaker 3: your plan works in this new environment.

821
00:38:33,760 --> 00:38:36,200
Speaker 1: Thanks for listening tonight. You've been listening to Simply Money,

822
00:38:36,200 --> 00:38:39,400
Speaker 1: presented by all Worth Financial on fifty five KRC, the

823
00:38:39,840 --> 00:38:40,359
Speaker 1: talk station