Episode Transcript
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Speaker 1 (00:06):
Tonight, we're digging into one of our favorite topics, tax
smart retirement hacks you need to know about long before
you get close to retirement. You're listening to Simply Money
and presented by all Worth Financial. I Meani Wagner along
with Bob Spondseller. You know, we're heading into the weekends.
Hopefully it's a good one for everyone, and we're going
to focus on something you're not always hearing about. And
(00:28):
I know this because Bob, when someone comes into my
office for the first time and they've been working with
another advisor, I'm really interested to understand what that other
advisor was focusing on. Ninety percent, maybe ninety plus percent
of the time, I'm learning from people that that advisor
was never talking to them about tax strategies, tax planning strategies.
Speaker 2 (00:51):
And there's a huge miss here, is it because they're
talking to them exclusively about indexed annuities?
Speaker 3 (00:57):
Amy, maybe maybe that could be.
Speaker 2 (01:02):
Well, Hey, you bring up a great point, and I
know you are just really adamant and very skilled at
this HSA planning strategy. Why don't you take us through
that This is.
Speaker 3 (01:12):
A huge strategy.
Speaker 1 (01:13):
And I talk about this with every single person who
comes into my office.
Speaker 3 (01:17):
If you are thirty, if you are sixty.
Speaker 1 (01:20):
It doesn't matter if a high deductible health care plan
makes sense for you and your family.
Speaker 3 (01:24):
Right, if there's a.
Speaker 1 (01:25):
Chronic illness, if you have high out of pocket expenses,
it may not make sense for you. But if a
high deductible health care plan makes sense for you, you
likely will qualify for a health savings account. Some companies
will even give you seed money into these accounts because
they're paying less out of their coffers for your health insurance.
So first of all, you're winning there because there could
be free money associated. But where the real win is
(01:48):
triple tax advantage. Uncle Sam has nothing else like it
in the form of you're earning these dollars and you
may not.
Speaker 3 (01:56):
Ever pay taxes on them. If you use these accounts correctly,
I would say, the money goes in write tax free,
and then you invest it. You don't let it sit
in cash. That money gets invested the growth.
Speaker 1 (02:07):
Right, it's all going to grow tax free, and you
can take it out tax free for qualified healthcare expenses
if you.
Speaker 3 (02:15):
Can build up a large enough emergency fund to pay
for your medical expenses out of pocket. If you are
in your thirties.
Speaker 1 (02:21):
Forties, fifties, think about how much money you're going to
have later in life when healthcare expenses really hit big
time in these health savings accounts.
Speaker 4 (02:33):
Yeah, it's a wonderful strategy.
Speaker 2 (02:34):
Here's another one that we like to talk about with
some of our more high income earners, and this can
get a little bit complicated, but it's worth exploring. It's
called the mega backdoor WROTH. So this can get complicated.
You first, in your four to one K plan have
to be able to make after tax contributions. So we
got to look at the summary plan description and know
(02:55):
what is and is not included in your four to
one K plan with regard to contribution opportunities. But if
your four to one K plan allows it, you can
make after tax contributions. When it's all said and done,
now up to you know, for a lot of people,
you can get over seventy thousand dollars a year put
into your retirement plan and then you make these after
(03:17):
tax contributions and then right away roll it into the
WROTH four one K option or if your plan allows
for it, and in service withdraw right into your WROTH
IRA account that you have.
Speaker 4 (03:30):
You know, on the side through your advisor.
Speaker 2 (03:32):
It's a wonderful tax planning and tax free growth strategy
that more and more people are starting to learn about,
but not nearly enough people are doing this.
Speaker 1 (03:43):
It's a beautiful way for high income earners to stuff
dollars into their retirement accounts above and beyond what the
normal limit would be. And I'm having this conversation more
than I ever was before. This is, i think a
newer strategy that people talking about, but an excellent one.
If again, if you're a higher income earner, to be
(04:05):
able to look into this is maybe a not do
it yourself proposition.
Speaker 3 (04:09):
This is a.
Speaker 1 (04:09):
Work with someone who you can really trust to take
a close look at your plan and help you to
determine whether this makes sense for you. I just want
to talk about something the Wroth conversion ladder. These are
conversations I'm having, especially with my clients who are retiring,
maybe a little on the younger side. Before you get
to that rm D age right closer to seventy three,
(04:33):
you're likely going to be in a lower tax bracket.
And for people who have just stuffed chalk full their
traditional iras and their traditional four to one case, we
can do a series of conversions over the course of
several years where we're keeping you in the same tax bracket,
but we're moving that money out of that traditional bucket
into the wroth bucket. We're paying taxes at that time,
(04:57):
but then you can take advantage of tax free growth.
If you're in in your early sixties, think about how
much growth you could get over the course of even
your retirement.
Speaker 4 (05:06):
Yeah.
Speaker 2 (05:06):
I had a conversation about this exact strategy yesterday with
a client. The wife is retiring next month. She's sixty
the husband is sixty three. So to your point, Amy,
they've got this ten year runway until the rmds start
require minimum distributions, and I was able to show them
based on the current account balances, if we do nothing
(05:27):
and we just let these things run for another ten, eleven,
twelve years, they're going to jump from what they should
now be in a twelve percent marginal bracket up to
a twenty four percent marginal tax bracket. And if you
let it get to that point, there's nothing you can
do about it. You are involuntarily in that high tax
bracket for probably the rest of your life. So you know,
(05:50):
we're taking a look at, how much money do you
need in retirement? Where's the right place to take it from?
Should we do some of these Wroth conversions so we
are able to construct a customized retirement income and tax
strategy for this couple to really smooth out their retirement
income and keep them in a low tax bracket for
as long as possible. Most people should be having these
(06:13):
con conversations, and I think we talked about this yesterday.
Speaker 4 (06:16):
Amy.
Speaker 2 (06:17):
If your advisor is not at least bringing up this
topic and talking to you about it, you really do
need to seek out a different advisor because this is
this is something everybody should be talking about.
Speaker 1 (06:30):
You're listening to Simply Mohney presented by all Worth Financial,
I Meemy Wagnerre along with Bob Sponseller.
Speaker 3 (06:34):
We're talking about it.
Speaker 1 (06:35):
These are tax planning strategies that, if done well, ultimately
can mean thousands, tens of thousands of dollars that you
can keep in your pocket if you're paying attention versus
having to pay it out to Uncle Sam.
Speaker 3 (06:51):
We kind of talk about different sorts of buckets.
Speaker 1 (06:54):
You know, if you are you know, saving in your
four one K to lwer your taxable income, you know,
that's one bucket, your traditional bucket. I love WROTH for
that tax free growth, but there's another bucket of money
that I think can make a lot of sense to
save in. And these are taxable accounts. No one likes
the word taxable, but they're tax in a different way.
(07:15):
And essentially this there can be a huge advantage to
having these accounts. I'm often having this conversation with clients
who I'm working with at a younger age because if
you're going to retire before the age of fifty nine
and a half, having money tucked into these accounts gives
you the flexibility to not have.
Speaker 3 (07:30):
Penalties for withdrawing from them.
Speaker 1 (07:33):
But these are often taxed that if you hold the
investments in there for over a year, long term capital
gains and there's some things that you can do with
tax loss harvesting, but you've.
Speaker 3 (07:43):
Got to make sure that you're doing you're putting the
right kinds of investments into the right kind of accounts.
Speaker 2 (07:50):
Yeah, in a good income a good income retirement strategy
oftentimes results in taking some of your income from various sources,
and again it comes down to custom crafting your retirement
income strategy to take advantage of the tax law, and
I will bring this up again. I feel like I
bring it up almost every other day on this show.
(08:13):
You know, you can pay a zero percent capital gains
rate for taxable income of below ninety six five hundred dollars.
Most people have no idea you can do that. So
that's a way to just trim off some of those
taxable gain type investments and pay nothing. And that allows you,
(08:34):
when you do take some of that money from iras,
you know, keep your overall marginal and effective tax rate
at a much lower level.
Speaker 4 (08:42):
Yeah.
Speaker 1 (08:42):
Some of the best meetings that I have include me,
my clients, and their CPA right together, a meeting of
the minds of let's talk through the strategies that can
make the most sense and from a CPA's perspective, how
we can best implement those.
Speaker 3 (08:55):
Another fantastic strategy for those who.
Speaker 1 (08:58):
Are getting closer to our and or are already kind
of at the point where you have to take required
minimum distributions out of those traditional iras traditional floor one case.
One of the things I love about this area is
people are so generous. Many people have your favorite charities,
your church that you're giving to, and you're just used
to giving to it. It's coming out of your bank account,
(09:19):
your checking account, whatever it is. You can change where
that money is coming from, pull the money out of
that IRA, and you don't have to pay taxes on it.
It's called a qualified charitable donation, and for a lot
of people who are already charitably inclined, it makes so
much sense.
Speaker 3 (09:37):
It's a win win.
Speaker 2 (09:39):
Yeah, and not nearly enough people are aware of this
and are not using it, And it's something that's coming
up in almost every meeting I have with my clients
and people that are coming in, you know, talking about
becoming a client. Starting at age seventy and a half,
you can do this up to one hundred thousand dollars
a year. You could take money right out of your
IRA and use that is the source of your gift,
(10:02):
you know, your tithes to your church or gift to
other charities, and anything that you give to that charity
right out of your IRA to your point amy.
Speaker 4 (10:09):
And never hits your tax return.
Speaker 2 (10:11):
So it's a bit of a paradigm shift because a
lot of people are just used to dropping that check
in the offering plate.
Speaker 4 (10:17):
At church or what have you.
Speaker 2 (10:19):
You got to change that thinking a little bit, you know,
to take advantage of the tax opportunities that you have
available to you.
Speaker 1 (10:26):
Well's talk about this like from a dollars and cents perspective.
If you are someone who has a sizeable IRA, right,
you know that you're going to have to take rm
ds in a couple of years and it's going to
bump you up into a higher tax bracket. You can
start at seventy and a half just with the same
donations you're already giving, pulling money in or you know,
(10:47):
out of that account, make the same donations you're making anyway,
and all of a sudden, now maybe you are able
to pull down the amount that's in that account to
the point where when you have to take rm ds out,
the amount is lower and it's not going to kick
you into a higher tax bracket. These are strategies. They
can be complicated. They don't necessarily have to be not
(11:10):
all of them are, but they are definitely worth discussing.
Make sure you have an advisor who's talking to you
about these things.
Speaker 2 (11:16):
Well, in one final point, the only really complicated strategy
that we talked about today was that Megaba Backford Wrath
all the rest of this stuff really honestly, is just
basic blocking and tackling that everybody should be talking about
with their advisor. If you have a true fiduciary advisor
that is aware of these things and is willing to
(11:37):
take the time to model it out and explain it
to you, these are things everybody should be talking to
their advisor about because the impact of this can be
sizable when you compound this over a.
Speaker 4 (11:50):
Period of years.
Speaker 3 (11:51):
Absolutely, here's the all Worth advice.
Speaker 1 (11:53):
As always, it's important to work with a tax expert
and a fiduciary financial advisor to make sure that these
strategies are are going to fit with your personal situation.
But they definitely make sense to look into coming up
next look at how much the Social Security cost of
living adjustment could be for next year, and we tip
our hat to a man who pioneered a sensible way
to invest. You're listening to Simply Money presented by all
(12:14):
Worth Financial here on fifty five krs the talk station.
You're listening to Simply Money presented by all Worth Financial.
I mean you Wagner along with Bob Sponsor.
Speaker 2 (12:26):
Or.
Speaker 1 (12:27):
If you can't listen to our show every night, you
don't have to miss a thing we're talking about. We
have a daily podcast where you just search simply money
right there on the iHeart app or wherever you turn
to to get your podcasts. Coming up at six forty three,
We've got a lot of questions we're answering tonight, divorce,
structured notes, and much more.
Speaker 3 (12:45):
For those who are on.
Speaker 1 (12:46):
Social Security, they get really curious when these cost of
living adjustments come out because often, Bob, I think it
feels like, oh, you know, we're getting more money. I
will point out that often the cost of living adjustment
will happen, You'll get slightly more, and then your Medicare
premiums are coming up. So it's kind of what one
(13:06):
hand giveth the other take it away. But important to
know how much your benefit could change your toyar.
Speaker 2 (13:14):
Yeah, the twenty twenty five cost of living adjustment for
Social Security was two and a half percent, and we're
just now starting to see I don't know, and initial
thoughts and estimates for what twenty twenty six might look
at look like, and we're seeing the numbers come down.
Some folks are expecting two point one. Other surveys we're
(13:35):
seeing say expect two point three. The point is, and
it all ties back to inflation. They like to adjust
this to the inflation rate, but if you take twenty
twenty five, the cost of living adjustment for Social Security
was below the current inflation rate of three percent.
Speaker 4 (13:54):
So it's just kind of a watch out here that
you know it.
Speaker 2 (13:57):
I don't expect to don't expect Social Secure to keep
pace with inflation, at least from what we know of
the current environment.
Speaker 1 (14:06):
Here's the real news that I think is really interesting.
Earlier this month, there's a Kentucky Congressman Thomas Massey and
a bunch of other lawmakers reintroduce what's called the Senior
Citizens Tax Elimination Act. This is aimed at erasing the
tax on Social Security benefits. This is one of the
worst surprises investors come to when you get to retirement,
(14:27):
and that is when we start talking about what tax
bracket you're going to be in and retirement and how
that's all going to play out, and we'll say, oh,
and then your Social Security benefit will be taxed. Hold up,
what I've been paying into this for years. This was
a tax I paid, and now you're going to tax
me double on it. I think it'll be really interesting
to see how this plays out.
Speaker 2 (14:47):
Yeah, your income does not need to get very high
until eighty five percent of your Social Security benefits are
subject to tax. So Congressman Thomas Massey, as you pointed out,
is saying, and I'm just going to all this to
make Social Security great again.
Speaker 4 (15:03):
Act.
Speaker 2 (15:04):
If you eliminate Social Security taxes, that's a pretty powerful shift,
and I think it would result in their saying about
three thousand dollars a year for seniors, which they estimate
to be about five percent of a typical senior citizen's budget.
So that would be a nice break if that comes
(15:24):
to fruition. But again, this is all going to be
part of the negotiations that will happen here as we
get into the March April timeframe, where the President and
Congress start to banter back on making these tax cut permanent,
how do you pay for them, and some of the
other bells and whistles that different folks from different political
(15:45):
parties want to throw into the mix.
Speaker 4 (15:46):
It should be interesting to watch this weekend.
Speaker 1 (15:49):
There will be some big news floating around in the
financial world in the form of what's Warren Buffett saying
it is the annual report from Berkshire Hathaway will come
out and it will include Warren Buffett's annual letter to shareholders.
If you've listened to the show for any amount of time,
you know I am a huge Warren Buffett fangirl. I
(16:10):
just think he has been such a smart investor through
the years.
Speaker 3 (16:15):
When he speaks, it often makes so much sense.
Speaker 1 (16:18):
He doesn't go after this next big sexy thing that
everyone's talking about.
Speaker 3 (16:22):
He's just been a brilliant long term investor.
Speaker 1 (16:25):
But there's kind of another name out there of someone
who's been equally as influential on the way that all
of us invest and he doesn't necessarily get as much
love as Warren Buffett does.
Speaker 4 (16:37):
Yeah, and we're talking about John Bogeo, the founder.
Speaker 2 (16:39):
Of Vanguard and really the father, godfather, if you will,
of index investing. Bogo pioneered the first index fund back
in nineteen seventy six, the Vanguard five hundred Index Fund.
And boy, what a powerful change that.
Speaker 4 (16:56):
Fund made to the industry.
Speaker 2 (16:57):
Brought down investment fees significantly, allowed everybody to get a
very low cost, diversified portfolio spread out amongst you all
stocks in the S and P five hundred. That's really
a monumental shift in the way everybody invests.
Speaker 4 (17:15):
And now we're into the world of.
Speaker 2 (17:17):
Exchange traded funds, various kinds of indexes, internal operating expenses
down to three and.
Speaker 4 (17:24):
Four basis points.
Speaker 2 (17:26):
So kudos to mister Bogel because he really brought down
the whole fee structure and made things a lot more
palatable and profitable for folks, you know, participating in the
stock market.
Speaker 1 (17:37):
I think it was a game changer for how investors
look at investing, right because if you're going to understand
index investing, essentially, you're going to realize that individual stock
picking strategies or timing the market isn't the best thing.
Speaker 3 (17:51):
You just get your well diversified portfolio and let it
rip and time in the market. All right.
Speaker 1 (17:56):
Every Sunday you're going to find our all Worth advice
in the Cinsiety Inquire we give you Are you though?
Speaker 3 (18:00):
On Friday Night's.
Speaker 1 (18:01):
Show, first question from FJ and Mason. My wife and
I have saved and invested well over the years. Our
portfolio is nearly two million dollars. Congratulations, we're both in
our late sixties.
Speaker 3 (18:12):
I read it can make sense to take your required
just withdrawals early to save on taxes. Do you agree?
We kind of touched on this a little.
Speaker 2 (18:19):
Bit already, we did, and so I totally agree FJY.
And it's good that you're getting out in front of
this and at least considering this option.
Speaker 4 (18:28):
So we just talked about this topic.
Speaker 2 (18:31):
You want to have a good financial plan built and
then look at your cash flow strategy. As you head
into your late sixties and you've got this window of
thirteen years before you and your wife have to start
taking your required minimum distributions, it's a great time to
well sit down with your advisor model out the tax
(18:52):
implications of pulling money from your iras now to maybe
live on or do that laddered Roth conversion strategy that
we just talked about. Great thing to start to talk
about right now can make a huge difference for you.
Speaker 1 (19:06):
Yeah, they say that early bird gets the worm, right,
This is advanced planning. If you wait till the year
you have to take your RMD, not much we can
do about that. It is what it is at that point,
and if it knocks you into a hire tax bracket,
it knocks you into a higher tax bracket. But if
you are planning ahead, you can be looking at taking
money out a little bit earlier, shrinking the amount of
(19:26):
that account, and it may be much more beneficial to
you from a tax standpoint. I think it's really smart
to start looking at things like this. Coming up next
the scenario is when you're going to want to make
sure you have life insurance. You're listening to Simply Money
presented by all Worth Financial. Here in fifty five krs
the talk station. You're listening to simply Money presented by
(19:51):
all Worth Financial. I mean me Wagner, along with Bob'spondseeller.
I have had several people in my office recently, Bob
that when we were looking at their financial plan, they're
in their late sixties, early seventies, and they have term
life insurance policies that they're paying pretty high premiums for.
(20:11):
H and I start to say, hey, let's look at
whether we actually still need these policies and for so
much of our lives. You know, we're carrying life insurance
policies because they're protecting the paycheck that we're bringing home in.
You know, if something were to happen to me or
to you, Bob, you know how much of an impact
would that have on our families and so I think
(20:34):
it's really important to understand why we carry life insurance
when we need to be paying for it, and also
maybe when we don't need to be paying for it anymore.
Speaker 2 (20:44):
Yeah, I think the two big you know questions to
ask and have good answers to through a consolidated financial
plan are these? You know, if I were to pass away,
would the people I love and care about be hurt financially? Yeah,
the answer to that question is yes, then you need
some life insurance. And then the the discussion to be
(21:06):
had is for how long do you need the life insurance.
If the answer to that question is no, well then
there's an opportunity, to your point to maybe free up
some dollars to go to other places because you've.
Speaker 4 (21:18):
Outlived your need for life insurance.
Speaker 1 (21:21):
Go ahead, when you're in your twenties, thirties, forties, fifties, Right,
it's you and your spouse bringing in an income or
maybe just one of you. We've got kids that are
in college or not yet in college, and if your
paycheck was taken off the table, it would have a
devastating impact on your loved ones. That's when you need
(21:43):
a term life insurance policy. Right, it's to cover your
life during that term when people are relying on your income.
I also, though just mentioned hey, if both of you
are working, I also want to stress this here. If
you have one person who's staying home taking care of
the kids, there is a huge value to that, especially.
Speaker 3 (22:05):
When kids are younger and not in school yet.
Speaker 1 (22:07):
That person also needs a life insurance policy, not to
necessarily protect the income, but to protect Think about if
that spouse wasn't there and you were still having to
work and pay for childcare, right, that can be a huge.
Speaker 2 (22:23):
Huge expense totally, And I remember living this personally. You know,
when I first got into this industry in nineteen ninety one,
I wasn't thinking about you know, because my wife, when
we had our first child, stayed at home with the
kids until the kids were grown and all that. And
at the time I was thinking, why do I need
(22:43):
life insurance on my wife?
Speaker 3 (22:44):
Yeah, you know she.
Speaker 4 (22:45):
Doesn't quote unquote work.
Speaker 2 (22:47):
Well, you know what, I quickly got a lesson you
know what my wife did every day? Yeah, first years,
she worked way harder than I did, created way more
value than I did, and the cost to replace her
all joking aside, economically would have been huge if something
would have happened to her. So I bought a bunch
(23:10):
of life insurance term insurance on my wife, and from
that day forward, I encourage everyone else you know with
young children to do the same.
Speaker 1 (23:18):
A couple of other times I think that are worth
at least thinking through whether life insurance policy would apply
to This would be if you've co signed on a loan,
which is something that we normally say, hey, probably not
the best idea, because if something happens to that other person,
you're on the hook not for.
Speaker 3 (23:37):
Half of that loan, but for all of it.
Speaker 1 (23:41):
So if they default, but certainly if something happens to them, right,
you can you know, for a loved one, Yes, I'll
co sign on that student loan debt because I know
you're going to pay it off.
Speaker 3 (23:52):
So I think it could make sense.
Speaker 1 (23:53):
Sometimes if you have co signed on a loan, particularly
a pretty you know, high loan, a life insurance policy
on that part something happens to them to cover that
loan can also make sense.
Speaker 2 (24:04):
Yeah, and just a word to the wise here on
co signing again, I usually, well not usually always, if
a co signer is needed for a loan, it's because
the person that is taking out the loan, can't.
Speaker 4 (24:18):
Afford to take out the loan.
Speaker 2 (24:20):
So that's a whole different, you know, conversation in and
of itself. But yeah, it's uh yeah, that's one area
where again you might need to take out some insurance
coverage on that person until that loan is paid out.
Another thing, and this is just a big change that
I've seen just over the course of my career, Amy is,
people have bought life insurance to pay their federal estate taxes,
(24:45):
you know, and believe it or not. When I got
in this business in the early nineties, the you know,
the exemption amount was only six hundred thousand.
Speaker 4 (24:53):
Dollars per spouse.
Speaker 2 (24:54):
Yeah, so there was a lot of life insurance being
sold to pay federal estate taxes when both else has died.
Now the exemption of millions, Yeah, it's almost fourteen million dollars.
So that world has changed significantly. And then I'm just
going to give you, you know, as someone who got
started in this business working for an insurance based broker dealer,
(25:18):
I can tell you too much life insurance. You know,
too many life insurance and annuity policies are sold rather
than bought, Meaning anytime there's somebody that's going to make
a commission from getting you to buy these things, watch out.
Speaker 4 (25:34):
And that's the that's.
Speaker 2 (25:35):
The reason why you want to work with a fiduciary,
non commission based advisor who can make a true recommendation
based on a thorough financial plan on whether you need
this coverage or not and what kind of coverage you need.
Speaker 1 (25:52):
Yeah, I think it's important to fully understand, work with
a fiduciary on what kind of life insurance you need,
so that you're going in buying what you need, not
necessarily being sold. And then you know, it almost becomes
like a security blanket for a lot of the people
that I've worked with through the years.
Speaker 3 (26:09):
You know, I just need life insurance.
Speaker 1 (26:11):
And so then we start to have the conversation as
they turn out of that and you know, look at
the new premiums if we, you know, continued this life
insurance policy, and I'm like, you've got social Security, maybe
a pension, You've got, you know, some significant investment assets.
That's that's your insurance at this point. If something were
to happen to you, we know that your spouse.
Speaker 3 (26:31):
Would be just fine.
Speaker 1 (26:32):
That's part of the planning process to figure out do
we need to be paying for these policies anymore.
Speaker 3 (26:37):
Or do we not.
Speaker 2 (26:38):
Yeah, Now on the flip side, for some of the
higher net worth folks that have plenty of money, and
we can use their life insurance as an investment alternative.
And I had had a conversation with a client like
this the other day. They don't need life insurance anymore,
but there's been some health issues. The husband had a
heart attack. They have very good guaranteed interest rates on
(27:01):
their whole life policy, and we review their plan and
he said to me, Bob, this is important to me
that we keep this policy. This is the money that
I want to make sure goes to my grandkids. So
just as a wealth creation tool and leaving a legacy
either for kids, grandchildren or charity, life insurance can be
(27:21):
a great tool to accomplish that. So in those cases,
and again it all boils down to have a plan,
talk through all the options, make sure you know why
you have the insurance that you have, and how much
is appropriate for your situation.
Speaker 3 (27:37):
Here's the all Worth advice. Whether or not you need
life insurance.
Speaker 1 (27:40):
That's a question that should be answered not by a salesperson,
but by a full time fiduciary financial advisor. Let them
help you figure out exactly what you need coming up next.
Speaker 3 (27:51):
You've got questions, We've got answers. We are asking the advisor.
Speaker 1 (27:55):
You're listening to Simply Money presented by all Worth Financial
here in.
Speaker 3 (27:57):
Fifty five KRC the toxation.
Speaker 1 (28:05):
You're listening to Simply Money presented by all Word Financial.
I me mean Wagner along with Bob sponsor or. Do
you have a financial question you need help with. There's
a red button you can click on while you're listening
to the show. You'll find it right there on the
iHeart app. Record your question. It's coming straight to us
and we want to get straight to your questions for
us tonight. The first one is from Sandy in Westchester.
Speaker 3 (28:25):
I am getting divorced. Do I want the house or
the investment assets? This is a fantastic question.
Speaker 1 (28:31):
As someone who has been through this before, Far too
many people get this answer wrong, and I think it
is it depends on your financial situation. But Sandy, the
way that I want you to think about this is
you probably bought your home based on two incomes, and
so can you afford first of all, to keep it
(28:53):
up if it's just you and I do not downplay
the emotional impact of leaving the whole home that.
Speaker 3 (29:00):
You have raised your children in.
Speaker 1 (29:03):
Many times, financially the best thing to do is to
sell the house and each of you to start fresh.
Speaker 3 (29:10):
In a home where that you can truly afford.
Speaker 1 (29:13):
But for many it becomes this battle over this emotional
thing right the home. And often the person who wins,
if you want to look at that by the person
who does better long term, is they get the investment
assets right, So they have money set aside for the
four to oh one k and you know their future
(29:34):
and that money is going to grow. The house is great,
but when you get to retirement, what are you going
to live off of?
Speaker 2 (29:39):
Right?
Speaker 1 (29:40):
And so I think you have to not only think
about how you're feeling in the short term emotionally, but
how you're best going to take care of yourself long term.
And many times it's splitting up both of those things. Right,
If one of you has significantly more in retirement assets,
there's something called a quadro that a.
Speaker 3 (29:57):
Court can go ahead in order to up those assets.
Speaker 1 (30:01):
But really, if you're fighting for that home, make sure
first of all that you can afford it. Now, and
secondly that you will still have enough retirement assets to
get you through retirement.
Speaker 3 (30:11):
Let's get to Jerry's question now he's in Hyde Park.
Speaker 2 (30:14):
I had a friend suggest I talked to a financial
advisor about structured notes.
Speaker 4 (30:18):
I am not familiar with them.
Speaker 2 (30:20):
Well, Jerry, first of all, I think you should talk
to a financial advisor about these because they can get
a little bit complicated. They have all different terms and
bells and whistles and all that. But let me try
to boil it down to you, you know, so you're
at least familiar with them. What we find structured notes
are the best fit for people who are pretty risk
averse investors, meaning they want a definite downside protection on
(30:43):
their money and also have the opportunity to have some growth.
Speaker 4 (30:48):
So I'll give you an.
Speaker 2 (30:48):
Example of a very risk averse client that I worked
with a couple of weeks ago. You know, they've been
scared death of the market for years now and they've
been sitting in care and so what we did was
we said, hey, let's take a piece of your portfolio
for a four year period of time, and we could
literally these are bank guaranteed notes with FDIC protection and
(31:11):
all the bells and whistles. We can guarantee you that
you're not going to lose any money at all. You're
going to get all your principal back in four years,
and if the market goes up, you're gonna have the
upside of almost thirty percent of your money over the
next four years. So for that particular investor, they were like, great,
I'm not going to have any downside with this portion
(31:32):
of my portfolio. Again, portion, not the whole thing. Yeah,
because we are tying that portion up for four years.
But they get to have the opportunity to have some upside,
and for a lot of folks that solves a lot
of their emotional and economic concerns.
Speaker 3 (31:49):
Yeah.
Speaker 1 (31:50):
I think this is a newer conversation that we're able
to have with our clients, and a really good one.
Speaker 3 (31:55):
So if you are.
Speaker 1 (31:56):
Really risk averse, ask your advisor if this might be
a good option for you.
Speaker 3 (32:02):
Next question is from Frank in witten Woods.
Speaker 4 (32:05):
I have two hsas. Can I combine them?
Speaker 2 (32:08):
Yes, you can, and you can do it on a
tax free basis. Think of it as just a very
similar to an IRA rollover. Yeah, you can combine these things.
Make sure the paperwork's done correctly, you know, if you're
not really well versed on how all that works, work
with an advisor so you don't get into a tax
you know trap here. But yes, if done correctly, it
(32:30):
can be done very easily, very seamlessly, and with no
tax consequences.
Speaker 3 (32:36):
I have some clients to have two separate HSA's.
Speaker 1 (32:39):
One from an old job and it has you know,
a few thousand dollars in it. They're keeping that separate
because they're just going to spend that down. But the
other HSA is fully invested for growth and they're not
going to touch it. They're going to leave it there
for retirement. So circumstances like that, maybe it makes sense
to keep them separate. But most of the time it's
just another account that you've got floating out there, and
(33:02):
it makes sense just to combine them. Let's get to
Tony from Dearborn County.
Speaker 4 (33:07):
How often do you recommend checking for a one K performance? Tony.
Speaker 2 (33:11):
There's no hard and fast rule here, but you know,
just going you know, my gut feeling on this is
probably every six months. You know, you don't need to
check it every month, you know, every day, but i'd
look at it at least every six months, and certainly
look at it every year. And here's why you want
to be looking for major changes in your allocation. For example,
(33:35):
if you want it to be somebody that's seventy percent
in stock, fifty percent in stocks and the market has
moved tremendously one way or the other, you know, you
check it every you know, four to six months. That's
an opportunity to reset the allocation and get rebalanced. And
you know the proverbial buy low and sell high here applies.
(33:57):
So the other thing to look at is performance of
the visual funds relative to their benchmark, and also look
at fees. So that's a reason to just periodically check
in here. Again, I don't think you need to obsess
over it, but certainly be looking at it at least
every six months.
Speaker 1 (34:13):
Check it so that you know it's properly working for you,
that you're maximizing it. But I'm telling you, I know
some people who are checking it every day. I had
a conversation with one of them yesterday.
Speaker 3 (34:25):
It's just maddening. You're just going to drive yourself crazy.
There will be daily market.
Speaker 1 (34:30):
Fluctuations, and you know you can give yourself heartburn over that,
But you got to understand how the market works.
Speaker 3 (34:37):
That's the price of admission.
Speaker 1 (34:39):
But there are more updates than down days, and that's
how we grow our four one case.
Speaker 2 (34:44):
Yeah, and anytime that emotional quotient spikes, decisions often get
made that we regret later on.
Speaker 1 (34:52):
Yes, decisions that you can't recover from. Great point coming
up next. An important nugget to take away as we
head into.
Speaker 3 (34:59):
Bob's world of wealth.
Speaker 1 (35:00):
You're listening to Simply Money presented by all Worth Financial
here on fifty five cars the talk station. You're listening
to Simply Money presented by all Worth Financial. I mean
you ig here along with Bob Sponsller. That music means
it must be time to enter Bob's world of wealth. Bob,
(35:22):
what wisdom do you have for us today?
Speaker 3 (35:24):
Lay it on us.
Speaker 2 (35:25):
Well, even though this is not a day trading show
or a stock picking show, we are going to talk
about how to handle individual stocks today, Amy, because I.
Speaker 4 (35:34):
Know I have clients and you have clients.
Speaker 2 (35:36):
Where and we talk about the difference between serious money
and play money. You know, we all have clients that
like to play a little bit and participate in individual stocks.
So I just want to throw out a few guidelines
here for folks that can't help themselves and want to
venture into this world. You know, this is the world
of individual stocks.
Speaker 3 (35:55):
This is good.
Speaker 4 (35:56):
Number one.
Speaker 2 (35:57):
Try to keep it to no more than one to
five percent of your total portfolio in any one single stock.
One is better than five. But once you let that
get above five, you're taking on because of the volatility
that's inherent in individual stocks. You're taking on a little
more risk than you might bargain for based on short
(36:19):
term events that can happen. Number two, and this is
what virtually nobody has. Have a defined strategy going in.
Know why you're buying that stock, know why you're gonna
sell it, and have a defined upside target and downside target.
I find that men are way worse than this at
women because men hate to lose, and our ego gets
(36:42):
in the way, and we buy this stock with all
the best intention as it goes down and down and down,
and we can't take a loss, we can't move on,
and then we start averaging down into a poorly performing position,
and then you're just digging yourself a hole.
Speaker 4 (36:58):
So you know, and this is easy to do.
Speaker 2 (37:01):
You can enter limit orders on the upside, stop loss
orders on the downside so that the computer will sell
it for you so you don't have to think and
feel about.
Speaker 3 (37:11):
It and take the emotion out of it, right.
Speaker 4 (37:14):
Yeah, yeah, So those are my thing.
Speaker 2 (37:16):
And again things do change, and you've got to have
a plan going in and it's okay to take.
Speaker 4 (37:24):
A small loss on a stock.
Speaker 2 (37:26):
Let it keep falling, and then if you still believe
in that thesis long term, get back in later, you know,
hopefully at a much lower price and make even more money.
But don't take these huge hits on seven ten percent
of your portfolio and just upset the old, the whole
apple cart. Amy, I know you got thoughts on this.
Speaker 4 (37:47):
As well, well.
Speaker 1 (37:47):
I do. You know, we were just talking about how
often should you check your flour and K balance, and
we were saying, hey, maybe you know a couple of
times a year to make sure that you're fully maximizing that.
Speaker 3 (37:56):
But your flural and K should be very very.
Speaker 1 (37:59):
Well divers so that when one company or one sector
is up or down, right, it's not killing you. And
so when you look at individual stocks and you start
to invest in individual stocks, most people who I know
who've done that they're checking it multiple times a day,
and they're driving themselves crazy. So you have too much
of your portfolio on that. It's really really hard, first
(38:22):
of all, to sleep at night and to recover from
bad things that can inevitably happen when you're taking on
that much risk.
Speaker 3 (38:29):
Thanks for listening.
Speaker 1 (38:30):
You've been listening to Simply Money, presented by all Worth
Financial here on fifty five KRC, the talk station
Tonight, we're digging into one of our favorite topics, tax
smart retirement hacks you need to know about long before
you get close to retirement. You're listening to Simply Money
and presented by all Worth Financial. I Meani Wagner along
with Bob Spondseller. You know, we're heading into the weekends.
Hopefully it's a good one for everyone, and we're going
to focus on something you're not always hearing about. And
(00:28):
I know this because Bob, when someone comes into my
office for the first time and they've been working with
another advisor, I'm really interested to understand what that other
advisor was focusing on. Ninety percent, maybe ninety plus percent
of the time, I'm learning from people that that advisor
was never talking to them about tax strategies, tax planning strategies.
Speaker 2 (00:51):
And there's a huge miss here, is it because they're
talking to them exclusively about indexed annuities?
Speaker 3 (00:57):
Amy, maybe maybe that could be.
Speaker 2 (01:02):
Well, Hey, you bring up a great point, and I
know you are just really adamant and very skilled at
this HSA planning strategy. Why don't you take us through
that This is.
Speaker 3 (01:12):
A huge strategy.
Speaker 1 (01:13):
And I talk about this with every single person who
comes into my office.
Speaker 3 (01:17):
If you are thirty, if you are sixty.
Speaker 1 (01:20):
It doesn't matter if a high deductible health care plan
makes sense for you and your family.
Speaker 3 (01:24):
Right, if there's a.
Speaker 1 (01:25):
Chronic illness, if you have high out of pocket expenses,
it may not make sense for you. But if a
high deductible health care plan makes sense for you, you
likely will qualify for a health savings account. Some companies
will even give you seed money into these accounts because
they're paying less out of their coffers for your health insurance.
So first of all, you're winning there because there could
be free money associated. But where the real win is
(01:48):
triple tax advantage. Uncle Sam has nothing else like it
in the form of you're earning these dollars and you
may not.
Speaker 3 (01:56):
Ever pay taxes on them. If you use these accounts correctly,
I would say, the money goes in write tax free,
and then you invest it. You don't let it sit
in cash. That money gets invested the growth.
Speaker 1 (02:07):
Right, it's all going to grow tax free, and you
can take it out tax free for qualified healthcare expenses
if you.
Speaker 3 (02:15):
Can build up a large enough emergency fund to pay
for your medical expenses out of pocket. If you are
in your thirties.
Speaker 1 (02:21):
Forties, fifties, think about how much money you're going to
have later in life when healthcare expenses really hit big
time in these health savings accounts.
Speaker 4 (02:33):
Yeah, it's a wonderful strategy.
Speaker 2 (02:34):
Here's another one that we like to talk about with
some of our more high income earners, and this can
get a little bit complicated, but it's worth exploring. It's
called the mega backdoor WROTH. So this can get complicated.
You first, in your four to one K plan have
to be able to make after tax contributions. So we
got to look at the summary plan description and know
(02:55):
what is and is not included in your four to
one K plan with regard to contribution opportunities. But if
your four to one K plan allows it, you can
make after tax contributions. When it's all said and done,
now up to you know, for a lot of people,
you can get over seventy thousand dollars a year put
into your retirement plan and then you make these after
(03:17):
tax contributions and then right away roll it into the
WROTH four one K option or if your plan allows
for it, and in service withdraw right into your WROTH
IRA account that you have.
Speaker 4 (03:30):
You know, on the side through your advisor.
Speaker 2 (03:32):
It's a wonderful tax planning and tax free growth strategy
that more and more people are starting to learn about,
but not nearly enough people are doing this.
Speaker 1 (03:43):
It's a beautiful way for high income earners to stuff
dollars into their retirement accounts above and beyond what the
normal limit would be. And I'm having this conversation more
than I ever was before. This is, i think a
newer strategy that people talking about, but an excellent one.
If again, if you're a higher income earner, to be
(04:05):
able to look into this is maybe a not do
it yourself proposition.
Speaker 3 (04:09):
This is a.
Speaker 1 (04:09):
Work with someone who you can really trust to take
a close look at your plan and help you to
determine whether this makes sense for you. I just want
to talk about something the Wroth conversion ladder. These are
conversations I'm having, especially with my clients who are retiring,
maybe a little on the younger side. Before you get
to that rm D age right closer to seventy three,
(04:33):
you're likely going to be in a lower tax bracket.
And for people who have just stuffed chalk full their
traditional iras and their traditional four to one case, we
can do a series of conversions over the course of
several years where we're keeping you in the same tax bracket,
but we're moving that money out of that traditional bucket
into the wroth bucket. We're paying taxes at that time,
(04:57):
but then you can take advantage of tax free growth.
If you're in in your early sixties, think about how
much growth you could get over the course of even
your retirement.
Speaker 4 (05:06):
Yeah.
Speaker 2 (05:06):
I had a conversation about this exact strategy yesterday with
a client. The wife is retiring next month. She's sixty
the husband is sixty three. So to your point, Amy,
they've got this ten year runway until the rmds start
require minimum distributions, and I was able to show them
based on the current account balances, if we do nothing
(05:27):
and we just let these things run for another ten, eleven,
twelve years, they're going to jump from what they should
now be in a twelve percent marginal bracket up to
a twenty four percent marginal tax bracket. And if you
let it get to that point, there's nothing you can
do about it. You are involuntarily in that high tax
bracket for probably the rest of your life. So you know,
(05:50):
we're taking a look at, how much money do you
need in retirement? Where's the right place to take it from?
Should we do some of these Wroth conversions so we
are able to construct a customized retirement income and tax
strategy for this couple to really smooth out their retirement
income and keep them in a low tax bracket for
as long as possible. Most people should be having these
(06:13):
con conversations, and I think we talked about this yesterday.
Speaker 4 (06:16):
Amy.
Speaker 2 (06:17):
If your advisor is not at least bringing up this
topic and talking to you about it, you really do
need to seek out a different advisor because this is
this is something everybody should be talking about.
Speaker 1 (06:30):
You're listening to Simply Mohney presented by all Worth Financial,
I Meemy Wagnerre along with Bob Sponseller.
Speaker 3 (06:34):
We're talking about it.
Speaker 1 (06:35):
These are tax planning strategies that, if done well, ultimately
can mean thousands, tens of thousands of dollars that you
can keep in your pocket if you're paying attention versus
having to pay it out to Uncle Sam.
Speaker 3 (06:51):
We kind of talk about different sorts of buckets.
Speaker 1 (06:54):
You know, if you are you know, saving in your
four one K to lwer your taxable income, you know,
that's one bucket, your traditional bucket. I love WROTH for
that tax free growth, but there's another bucket of money
that I think can make a lot of sense to
save in. And these are taxable accounts. No one likes
the word taxable, but they're tax in a different way.
(07:15):
And essentially this there can be a huge advantage to
having these accounts. I'm often having this conversation with clients
who I'm working with at a younger age because if
you're going to retire before the age of fifty nine
and a half, having money tucked into these accounts gives
you the flexibility to not have.
Speaker 3 (07:30):
Penalties for withdrawing from them.
Speaker 1 (07:33):
But these are often taxed that if you hold the
investments in there for over a year, long term capital
gains and there's some things that you can do with
tax loss harvesting, but you've.
Speaker 3 (07:43):
Got to make sure that you're doing you're putting the
right kinds of investments into the right kind of accounts.
Speaker 2 (07:50):
Yeah, in a good income a good income retirement strategy
oftentimes results in taking some of your income from various sources,
and again it comes down to custom crafting your retirement
income strategy to take advantage of the tax law, and
I will bring this up again. I feel like I
bring it up almost every other day on this show.
(08:13):
You know, you can pay a zero percent capital gains
rate for taxable income of below ninety six five hundred dollars.
Most people have no idea you can do that. So
that's a way to just trim off some of those
taxable gain type investments and pay nothing. And that allows you,
(08:34):
when you do take some of that money from iras,
you know, keep your overall marginal and effective tax rate
at a much lower level.
Speaker 4 (08:42):
Yeah.
Speaker 1 (08:42):
Some of the best meetings that I have include me,
my clients, and their CPA right together, a meeting of
the minds of let's talk through the strategies that can
make the most sense and from a CPA's perspective, how
we can best implement those.
Speaker 3 (08:55):
Another fantastic strategy for those who.
Speaker 1 (08:58):
Are getting closer to our and or are already kind
of at the point where you have to take required
minimum distributions out of those traditional iras traditional floor one case.
One of the things I love about this area is
people are so generous. Many people have your favorite charities,
your church that you're giving to, and you're just used
to giving to it. It's coming out of your bank account,
(09:19):
your checking account, whatever it is. You can change where
that money is coming from, pull the money out of
that IRA, and you don't have to pay taxes on it.
It's called a qualified charitable donation, and for a lot
of people who are already charitably inclined, it makes so
much sense.
Speaker 3 (09:37):
It's a win win.
Speaker 2 (09:39):
Yeah, and not nearly enough people are aware of this
and are not using it, And it's something that's coming
up in almost every meeting I have with my clients
and people that are coming in, you know, talking about
becoming a client. Starting at age seventy and a half,
you can do this up to one hundred thousand dollars
a year. You could take money right out of your
IRA and use that is the source of your gift,
(10:02):
you know, your tithes to your church or gift to
other charities, and anything that you give to that charity
right out of your IRA to your point amy.
Speaker 4 (10:09):
And never hits your tax return.
Speaker 2 (10:11):
So it's a bit of a paradigm shift because a
lot of people are just used to dropping that check
in the offering plate.
Speaker 4 (10:17):
At church or what have you.
Speaker 2 (10:19):
You got to change that thinking a little bit, you know,
to take advantage of the tax opportunities that you have
available to you.
Speaker 1 (10:26):
Well's talk about this like from a dollars and cents perspective.
If you are someone who has a sizeable IRA, right,
you know that you're going to have to take rm
ds in a couple of years and it's going to
bump you up into a higher tax bracket. You can
start at seventy and a half just with the same
donations you're already giving, pulling money in or you know,
(10:47):
out of that account, make the same donations you're making anyway,
and all of a sudden, now maybe you are able
to pull down the amount that's in that account to
the point where when you have to take rm ds out,
the amount is lower and it's not going to kick
you into a higher tax bracket. These are strategies. They
can be complicated. They don't necessarily have to be not
(11:10):
all of them are, but they are definitely worth discussing.
Make sure you have an advisor who's talking to you
about these things.
Speaker 2 (11:16):
Well, in one final point, the only really complicated strategy
that we talked about today was that Megaba Backford Wrath
all the rest of this stuff really honestly, is just
basic blocking and tackling that everybody should be talking about
with their advisor. If you have a true fiduciary advisor
that is aware of these things and is willing to
(11:37):
take the time to model it out and explain it
to you, these are things everybody should be talking to
their advisor about because the impact of this can be
sizable when you compound this over a.
Speaker 4 (11:50):
Period of years.
Speaker 3 (11:51):
Absolutely, here's the all Worth advice.
Speaker 1 (11:53):
As always, it's important to work with a tax expert
and a fiduciary financial advisor to make sure that these
strategies are are going to fit with your personal situation.
But they definitely make sense to look into coming up
next look at how much the Social Security cost of
living adjustment could be for next year, and we tip
our hat to a man who pioneered a sensible way
to invest. You're listening to Simply Money presented by all
(12:14):
Worth Financial here on fifty five krs the talk station.
You're listening to Simply Money presented by all Worth Financial.
I mean you Wagner along with Bob Sponsor.
Speaker 2 (12:26):
Or.
Speaker 1 (12:27):
If you can't listen to our show every night, you
don't have to miss a thing we're talking about. We
have a daily podcast where you just search simply money
right there on the iHeart app or wherever you turn
to to get your podcasts. Coming up at six forty three,
We've got a lot of questions we're answering tonight, divorce,
structured notes, and much more.
Speaker 3 (12:45):
For those who are on.
Speaker 1 (12:46):
Social Security, they get really curious when these cost of
living adjustments come out because often, Bob, I think it
feels like, oh, you know, we're getting more money. I
will point out that often the cost of living adjustment
will happen, You'll get slightly more, and then your Medicare
premiums are coming up. So it's kind of what one
(13:06):
hand giveth the other take it away. But important to
know how much your benefit could change your toyar.
Speaker 2 (13:14):
Yeah, the twenty twenty five cost of living adjustment for
Social Security was two and a half percent, and we're
just now starting to see I don't know, and initial
thoughts and estimates for what twenty twenty six might look
at look like, and we're seeing the numbers come down.
Some folks are expecting two point one. Other surveys we're
(13:35):
seeing say expect two point three. The point is, and
it all ties back to inflation. They like to adjust
this to the inflation rate, but if you take twenty
twenty five, the cost of living adjustment for Social Security
was below the current inflation rate of three percent.
Speaker 4 (13:54):
So it's just kind of a watch out here that
you know it.
Speaker 2 (13:57):
I don't expect to don't expect Social Secure to keep
pace with inflation, at least from what we know of
the current environment.
Speaker 1 (14:06):
Here's the real news that I think is really interesting.
Earlier this month, there's a Kentucky Congressman Thomas Massey and
a bunch of other lawmakers reintroduce what's called the Senior
Citizens Tax Elimination Act. This is aimed at erasing the
tax on Social Security benefits. This is one of the
worst surprises investors come to when you get to retirement,
(14:27):
and that is when we start talking about what tax
bracket you're going to be in and retirement and how
that's all going to play out, and we'll say, oh,
and then your Social Security benefit will be taxed. Hold up,
what I've been paying into this for years. This was
a tax I paid, and now you're going to tax
me double on it. I think it'll be really interesting
to see how this plays out.
Speaker 2 (14:47):
Yeah, your income does not need to get very high
until eighty five percent of your Social Security benefits are
subject to tax. So Congressman Thomas Massey, as you pointed out,
is saying, and I'm just going to all this to
make Social Security great again.
Speaker 4 (15:03):
Act.
Speaker 2 (15:04):
If you eliminate Social Security taxes, that's a pretty powerful shift,
and I think it would result in their saying about
three thousand dollars a year for seniors, which they estimate
to be about five percent of a typical senior citizen's budget.
So that would be a nice break if that comes
(15:24):
to fruition. But again, this is all going to be
part of the negotiations that will happen here as we
get into the March April timeframe, where the President and
Congress start to banter back on making these tax cut permanent,
how do you pay for them, and some of the
other bells and whistles that different folks from different political
(15:45):
parties want to throw into the mix.
Speaker 4 (15:46):
It should be interesting to watch this weekend.
Speaker 1 (15:49):
There will be some big news floating around in the
financial world in the form of what's Warren Buffett saying
it is the annual report from Berkshire Hathaway will come
out and it will include Warren Buffett's annual letter to shareholders.
If you've listened to the show for any amount of time,
you know I am a huge Warren Buffett fangirl. I
(16:10):
just think he has been such a smart investor through
the years.
Speaker 3 (16:15):
When he speaks, it often makes so much sense.
Speaker 1 (16:18):
He doesn't go after this next big sexy thing that
everyone's talking about.
Speaker 3 (16:22):
He's just been a brilliant long term investor.
Speaker 1 (16:25):
But there's kind of another name out there of someone
who's been equally as influential on the way that all
of us invest and he doesn't necessarily get as much
love as Warren Buffett does.
Speaker 4 (16:37):
Yeah, and we're talking about John Bogeo, the founder.
Speaker 2 (16:39):
Of Vanguard and really the father, godfather, if you will,
of index investing. Bogo pioneered the first index fund back
in nineteen seventy six, the Vanguard five hundred Index Fund.
And boy, what a powerful change that.
Speaker 4 (16:56):
Fund made to the industry.
Speaker 2 (16:57):
Brought down investment fees significantly, allowed everybody to get a
very low cost, diversified portfolio spread out amongst you all
stocks in the S and P five hundred. That's really
a monumental shift in the way everybody invests.
Speaker 4 (17:15):
And now we're into the world of.
Speaker 2 (17:17):
Exchange traded funds, various kinds of indexes, internal operating expenses
down to three and.
Speaker 4 (17:24):
Four basis points.
Speaker 2 (17:26):
So kudos to mister Bogel because he really brought down
the whole fee structure and made things a lot more
palatable and profitable for folks, you know, participating in the
stock market.
Speaker 1 (17:37):
I think it was a game changer for how investors
look at investing, right because if you're going to understand
index investing, essentially, you're going to realize that individual stock
picking strategies or timing the market isn't the best thing.
Speaker 3 (17:51):
You just get your well diversified portfolio and let it
rip and time in the market. All right.
Speaker 1 (17:56):
Every Sunday you're going to find our all Worth advice
in the Cinsiety Inquire we give you Are you though?
Speaker 3 (18:00):
On Friday Night's.
Speaker 1 (18:01):
Show, first question from FJ and Mason. My wife and
I have saved and invested well over the years. Our
portfolio is nearly two million dollars. Congratulations, we're both in
our late sixties.
Speaker 3 (18:12):
I read it can make sense to take your required
just withdrawals early to save on taxes. Do you agree?
We kind of touched on this a little.
Speaker 2 (18:19):
Bit already, we did, and so I totally agree FJY.
And it's good that you're getting out in front of
this and at least considering this option.
Speaker 4 (18:28):
So we just talked about this topic.
Speaker 2 (18:31):
You want to have a good financial plan built and
then look at your cash flow strategy. As you head
into your late sixties and you've got this window of
thirteen years before you and your wife have to start
taking your required minimum distributions, it's a great time to
well sit down with your advisor model out the tax
(18:52):
implications of pulling money from your iras now to maybe
live on or do that laddered Roth conversion strategy that
we just talked about. Great thing to start to talk
about right now can make a huge difference for you.
Speaker 1 (19:06):
Yeah, they say that early bird gets the worm, right,
This is advanced planning. If you wait till the year
you have to take your RMD, not much we can
do about that. It is what it is at that point,
and if it knocks you into a hire tax bracket,
it knocks you into a higher tax bracket. But if
you are planning ahead, you can be looking at taking
money out a little bit earlier, shrinking the amount of
(19:26):
that account, and it may be much more beneficial to
you from a tax standpoint. I think it's really smart
to start looking at things like this. Coming up next
the scenario is when you're going to want to make
sure you have life insurance. You're listening to Simply Money
presented by all Worth Financial. Here in fifty five krs
the talk station. You're listening to simply Money presented by
(19:51):
all Worth Financial. I mean me Wagner, along with Bob'spondseeller.
I have had several people in my office recently, Bob
that when we were looking at their financial plan, they're
in their late sixties, early seventies, and they have term
life insurance policies that they're paying pretty high premiums for.
(20:11):
H and I start to say, hey, let's look at
whether we actually still need these policies and for so
much of our lives. You know, we're carrying life insurance
policies because they're protecting the paycheck that we're bringing home in.
You know, if something were to happen to me or
to you, Bob, you know how much of an impact
would that have on our families and so I think
(20:34):
it's really important to understand why we carry life insurance
when we need to be paying for it, and also
maybe when we don't need to be paying for it anymore.
Speaker 2 (20:44):
Yeah, I think the two big you know questions to
ask and have good answers to through a consolidated financial
plan are these? You know, if I were to pass away,
would the people I love and care about be hurt financially? Yeah,
the answer to that question is yes, then you need
some life insurance. And then the the discussion to be
(21:06):
had is for how long do you need the life insurance.
If the answer to that question is no, well then
there's an opportunity, to your point to maybe free up
some dollars to go to other places because you've.
Speaker 4 (21:18):
Outlived your need for life insurance.
Speaker 1 (21:21):
Go ahead, when you're in your twenties, thirties, forties, fifties, Right,
it's you and your spouse bringing in an income or
maybe just one of you. We've got kids that are
in college or not yet in college, and if your
paycheck was taken off the table, it would have a
devastating impact on your loved ones. That's when you need
(21:43):
a term life insurance policy. Right, it's to cover your
life during that term when people are relying on your income.
I also, though just mentioned hey, if both of you
are working, I also want to stress this here. If
you have one person who's staying home taking care of
the kids, there is a huge value to that, especially.
Speaker 3 (22:05):
When kids are younger and not in school yet.
Speaker 1 (22:07):
That person also needs a life insurance policy, not to
necessarily protect the income, but to protect Think about if
that spouse wasn't there and you were still having to
work and pay for childcare, right, that can be a huge.
Speaker 2 (22:23):
Huge expense totally, And I remember living this personally. You know,
when I first got into this industry in nineteen ninety one,
I wasn't thinking about you know, because my wife, when
we had our first child, stayed at home with the
kids until the kids were grown and all that. And
at the time I was thinking, why do I need
(22:43):
life insurance on my wife?
Speaker 3 (22:44):
Yeah, you know she.
Speaker 4 (22:45):
Doesn't quote unquote work.
Speaker 2 (22:47):
Well, you know what, I quickly got a lesson you
know what my wife did every day? Yeah, first years,
she worked way harder than I did, created way more
value than I did, and the cost to replace her
all joking aside, economically would have been huge if something
would have happened to her. So I bought a bunch
(23:10):
of life insurance term insurance on my wife, and from
that day forward, I encourage everyone else you know with
young children to do the same.
Speaker 1 (23:18):
A couple of other times I think that are worth
at least thinking through whether life insurance policy would apply
to This would be if you've co signed on a loan,
which is something that we normally say, hey, probably not
the best idea, because if something happens to that other person,
you're on the hook not for.
Speaker 3 (23:37):
Half of that loan, but for all of it.
Speaker 1 (23:41):
So if they default, but certainly if something happens to them, right,
you can you know, for a loved one, Yes, I'll
co sign on that student loan debt because I know
you're going to pay it off.
Speaker 3 (23:52):
So I think it could make sense.
Speaker 1 (23:53):
Sometimes if you have co signed on a loan, particularly
a pretty you know, high loan, a life insurance policy
on that part something happens to them to cover that
loan can also make sense.
Speaker 2 (24:04):
Yeah, and just a word to the wise here on
co signing again, I usually, well not usually always, if
a co signer is needed for a loan, it's because
the person that is taking out the loan, can't.
Speaker 4 (24:18):
Afford to take out the loan.
Speaker 2 (24:20):
So that's a whole different, you know, conversation in and
of itself. But yeah, it's uh yeah, that's one area
where again you might need to take out some insurance
coverage on that person until that loan is paid out.
Another thing, and this is just a big change that
I've seen just over the course of my career, Amy is,
people have bought life insurance to pay their federal estate taxes,
(24:45):
you know, and believe it or not. When I got
in this business in the early nineties, the you know,
the exemption amount was only six hundred thousand.
Speaker 4 (24:53):
Dollars per spouse.
Speaker 2 (24:54):
Yeah, so there was a lot of life insurance being
sold to pay federal estate taxes when both else has died.
Now the exemption of millions, Yeah, it's almost fourteen million dollars.
So that world has changed significantly. And then I'm just
going to give you, you know, as someone who got
started in this business working for an insurance based broker dealer,
(25:18):
I can tell you too much life insurance. You know,
too many life insurance and annuity policies are sold rather
than bought, Meaning anytime there's somebody that's going to make
a commission from getting you to buy these things, watch out.
Speaker 4 (25:34):
And that's the that's.
Speaker 2 (25:35):
The reason why you want to work with a fiduciary,
non commission based advisor who can make a true recommendation
based on a thorough financial plan on whether you need
this coverage or not and what kind of coverage you need.
Speaker 1 (25:52):
Yeah, I think it's important to fully understand, work with
a fiduciary on what kind of life insurance you need,
so that you're going in buying what you need, not
necessarily being sold. And then you know, it almost becomes
like a security blanket for a lot of the people
that I've worked with through the years.
Speaker 3 (26:09):
You know, I just need life insurance.
Speaker 1 (26:11):
And so then we start to have the conversation as
they turn out of that and you know, look at
the new premiums if we, you know, continued this life
insurance policy, and I'm like, you've got social Security, maybe
a pension, You've got, you know, some significant investment assets.
That's that's your insurance at this point. If something were
to happen to you, we know that your spouse.
Speaker 3 (26:31):
Would be just fine.
Speaker 1 (26:32):
That's part of the planning process to figure out do
we need to be paying for these policies anymore.
Speaker 3 (26:37):
Or do we not.
Speaker 2 (26:38):
Yeah, Now on the flip side, for some of the
higher net worth folks that have plenty of money, and
we can use their life insurance as an investment alternative.
And I had had a conversation with a client like
this the other day. They don't need life insurance anymore,
but there's been some health issues. The husband had a
heart attack. They have very good guaranteed interest rates on
(27:01):
their whole life policy, and we review their plan and
he said to me, Bob, this is important to me
that we keep this policy. This is the money that
I want to make sure goes to my grandkids. So
just as a wealth creation tool and leaving a legacy
either for kids, grandchildren or charity, life insurance can be
(27:21):
a great tool to accomplish that. So in those cases,
and again it all boils down to have a plan,
talk through all the options, make sure you know why
you have the insurance that you have, and how much
is appropriate for your situation.
Speaker 3 (27:37):
Here's the all Worth advice. Whether or not you need
life insurance.
Speaker 1 (27:40):
That's a question that should be answered not by a salesperson,
but by a full time fiduciary financial advisor. Let them
help you figure out exactly what you need coming up next.
Speaker 3 (27:51):
You've got questions, We've got answers. We are asking the advisor.
Speaker 1 (27:55):
You're listening to Simply Money presented by all Worth Financial
here in.
Speaker 3 (27:57):
Fifty five KRC the toxation.
Speaker 1 (28:05):
You're listening to Simply Money presented by all Word Financial.
I me mean Wagner along with Bob sponsor or. Do
you have a financial question you need help with. There's
a red button you can click on while you're listening
to the show. You'll find it right there on the
iHeart app. Record your question. It's coming straight to us
and we want to get straight to your questions for
us tonight. The first one is from Sandy in Westchester.
Speaker 3 (28:25):
I am getting divorced. Do I want the house or
the investment assets? This is a fantastic question.
Speaker 1 (28:31):
As someone who has been through this before, Far too
many people get this answer wrong, and I think it
is it depends on your financial situation. But Sandy, the
way that I want you to think about this is
you probably bought your home based on two incomes, and
so can you afford first of all, to keep it
(28:53):
up if it's just you and I do not downplay
the emotional impact of leaving the whole home that.
Speaker 3 (29:00):
You have raised your children in.
Speaker 1 (29:03):
Many times, financially the best thing to do is to
sell the house and each of you to start fresh.
Speaker 3 (29:10):
In a home where that you can truly afford.
Speaker 1 (29:13):
But for many it becomes this battle over this emotional
thing right the home. And often the person who wins,
if you want to look at that by the person
who does better long term, is they get the investment
assets right, So they have money set aside for the
four to oh one k and you know their future
(29:34):
and that money is going to grow. The house is great,
but when you get to retirement, what are you going
to live off of?
Speaker 2 (29:39):
Right?
Speaker 1 (29:40):
And so I think you have to not only think
about how you're feeling in the short term emotionally, but
how you're best going to take care of yourself long term.
And many times it's splitting up both of those things. Right,
If one of you has significantly more in retirement assets,
there's something called a quadro that a.
Speaker 3 (29:57):
Court can go ahead in order to up those assets.
Speaker 1 (30:01):
But really, if you're fighting for that home, make sure
first of all that you can afford it. Now, and
secondly that you will still have enough retirement assets to
get you through retirement.
Speaker 3 (30:11):
Let's get to Jerry's question now he's in Hyde Park.
Speaker 2 (30:14):
I had a friend suggest I talked to a financial
advisor about structured notes.
Speaker 4 (30:18):
I am not familiar with them.
Speaker 2 (30:20):
Well, Jerry, first of all, I think you should talk
to a financial advisor about these because they can get
a little bit complicated. They have all different terms and
bells and whistles and all that. But let me try
to boil it down to you, you know, so you're
at least familiar with them. What we find structured notes
are the best fit for people who are pretty risk
averse investors, meaning they want a definite downside protection on
(30:43):
their money and also have the opportunity to have some growth.
Speaker 4 (30:48):
So I'll give you an.
Speaker 2 (30:48):
Example of a very risk averse client that I worked
with a couple of weeks ago. You know, they've been
scared death of the market for years now and they've
been sitting in care and so what we did was
we said, hey, let's take a piece of your portfolio
for a four year period of time, and we could
literally these are bank guaranteed notes with FDIC protection and
(31:11):
all the bells and whistles. We can guarantee you that
you're not going to lose any money at all. You're
going to get all your principal back in four years,
and if the market goes up, you're gonna have the
upside of almost thirty percent of your money over the
next four years. So for that particular investor, they were like, great,
I'm not going to have any downside with this portion
(31:32):
of my portfolio. Again, portion, not the whole thing. Yeah,
because we are tying that portion up for four years.
But they get to have the opportunity to have some upside,
and for a lot of folks that solves a lot
of their emotional and economic concerns.
Speaker 3 (31:49):
Yeah.
Speaker 1 (31:50):
I think this is a newer conversation that we're able
to have with our clients, and a really good one.
Speaker 3 (31:55):
So if you are.
Speaker 1 (31:56):
Really risk averse, ask your advisor if this might be
a good option for you.
Speaker 3 (32:02):
Next question is from Frank in witten Woods.
Speaker 4 (32:05):
I have two hsas. Can I combine them?
Speaker 2 (32:08):
Yes, you can, and you can do it on a
tax free basis. Think of it as just a very
similar to an IRA rollover. Yeah, you can combine these things.
Make sure the paperwork's done correctly, you know, if you're
not really well versed on how all that works, work
with an advisor so you don't get into a tax
you know trap here. But yes, if done correctly, it
(32:30):
can be done very easily, very seamlessly, and with no
tax consequences.
Speaker 3 (32:36):
I have some clients to have two separate HSA's.
Speaker 1 (32:39):
One from an old job and it has you know,
a few thousand dollars in it. They're keeping that separate
because they're just going to spend that down. But the
other HSA is fully invested for growth and they're not
going to touch it. They're going to leave it there
for retirement. So circumstances like that, maybe it makes sense
to keep them separate. But most of the time it's
just another account that you've got floating out there, and
(33:02):
it makes sense just to combine them. Let's get to
Tony from Dearborn County.
Speaker 4 (33:07):
How often do you recommend checking for a one K performance? Tony.
Speaker 2 (33:11):
There's no hard and fast rule here, but you know,
just going you know, my gut feeling on this is
probably every six months. You know, you don't need to
check it every month, you know, every day, but i'd
look at it at least every six months, and certainly
look at it every year. And here's why you want
to be looking for major changes in your allocation. For example,
(33:35):
if you want it to be somebody that's seventy percent
in stock, fifty percent in stocks and the market has
moved tremendously one way or the other, you know, you
check it every you know, four to six months. That's
an opportunity to reset the allocation and get rebalanced. And
you know the proverbial buy low and sell high here applies.
(33:57):
So the other thing to look at is performance of
the visual funds relative to their benchmark, and also look
at fees. So that's a reason to just periodically check
in here. Again, I don't think you need to obsess
over it, but certainly be looking at it at least
every six months.
Speaker 1 (34:13):
Check it so that you know it's properly working for you,
that you're maximizing it. But I'm telling you, I know
some people who are checking it every day. I had
a conversation with one of them yesterday.
Speaker 3 (34:25):
It's just maddening. You're just going to drive yourself crazy.
There will be daily market.
Speaker 1 (34:30):
Fluctuations, and you know you can give yourself heartburn over that,
But you got to understand how the market works.
Speaker 3 (34:37):
That's the price of admission.
Speaker 1 (34:39):
But there are more updates than down days, and that's
how we grow our four one case.
Speaker 2 (34:44):
Yeah, and anytime that emotional quotient spikes, decisions often get
made that we regret later on.
Speaker 1 (34:52):
Yes, decisions that you can't recover from. Great point coming
up next. An important nugget to take away as we
head into.
Speaker 3 (34:59):
Bob's world of wealth.
Speaker 1 (35:00):
You're listening to Simply Money presented by all Worth Financial
here on fifty five cars the talk station. You're listening
to Simply Money presented by all Worth Financial. I mean
you ig here along with Bob Sponsller. That music means
it must be time to enter Bob's world of wealth. Bob,
(35:22):
what wisdom do you have for us today?
Speaker 3 (35:24):
Lay it on us.
Speaker 2 (35:25):
Well, even though this is not a day trading show
or a stock picking show, we are going to talk
about how to handle individual stocks today, Amy, because I.
Speaker 4 (35:34):
Know I have clients and you have clients.
Speaker 2 (35:36):
Where and we talk about the difference between serious money
and play money. You know, we all have clients that
like to play a little bit and participate in individual stocks.
So I just want to throw out a few guidelines
here for folks that can't help themselves and want to
venture into this world. You know, this is the world
of individual stocks.
Speaker 3 (35:55):
This is good.
Speaker 4 (35:56):
Number one.
Speaker 2 (35:57):
Try to keep it to no more than one to
five percent of your total portfolio in any one single stock.
One is better than five. But once you let that
get above five, you're taking on because of the volatility
that's inherent in individual stocks. You're taking on a little
more risk than you might bargain for based on short
(36:19):
term events that can happen. Number two, and this is
what virtually nobody has. Have a defined strategy going in.
Know why you're buying that stock, know why you're gonna
sell it, and have a defined upside target and downside target.
I find that men are way worse than this at
women because men hate to lose, and our ego gets
(36:42):
in the way, and we buy this stock with all
the best intention as it goes down and down and down,
and we can't take a loss, we can't move on,
and then we start averaging down into a poorly performing position,
and then you're just digging yourself a hole.
Speaker 4 (36:58):
So you know, and this is easy to do.
Speaker 2 (37:01):
You can enter limit orders on the upside, stop loss
orders on the downside so that the computer will sell
it for you so you don't have to think and
feel about.
Speaker 3 (37:11):
It and take the emotion out of it, right.
Speaker 4 (37:14):
Yeah, yeah, So those are my thing.
Speaker 2 (37:16):
And again things do change, and you've got to have
a plan going in and it's okay to take.
Speaker 4 (37:24):
A small loss on a stock.
Speaker 2 (37:26):
Let it keep falling, and then if you still believe
in that thesis long term, get back in later, you know,
hopefully at a much lower price and make even more money.
But don't take these huge hits on seven ten percent
of your portfolio and just upset the old, the whole
apple cart. Amy, I know you got thoughts on this.
Speaker 4 (37:47):
As well, well.
Speaker 1 (37:47):
I do. You know, we were just talking about how
often should you check your flour and K balance, and
we were saying, hey, maybe you know a couple of
times a year to make sure that you're fully maximizing that.
Speaker 3 (37:56):
But your flural and K should be very very.
Speaker 1 (37:59):
Well divers so that when one company or one sector
is up or down, right, it's not killing you. And
so when you look at individual stocks and you start
to invest in individual stocks, most people who I know
who've done that they're checking it multiple times a day,
and they're driving themselves crazy. So you have too much
of your portfolio on that. It's really really hard, first
(38:22):
of all, to sleep at night and to recover from
bad things that can inevitably happen when you're taking on
that much risk.
Speaker 3 (38:29):
Thanks for listening.
Speaker 1 (38:30):
You've been listening to Simply Money, presented by all Worth
Financial here on fifty five KRC, the talk station
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