Simply Money

Episode Transcript

Speaker 1 (00:07):
Tonight the number one mistake that successful savers and investors make.
You're listening to simply Money presented by all Worth Financial.
I'm Bob sponseller along with Brian James. You've done a
great job building up that nest egg. You think you've
done everything right, So why are you still making rookie
mistakes with your money? The mistake we're talking about a

(00:29):
bad strategy, or perhaps no strategy at all. Brian.

Speaker 2 (00:33):
Yeah, sometimes, Bob, people accumulate accounts but not a plan.
In other words, I have a stuff, I have a
lot of stuff, but I have nowhere to put my stuff,
and there's no organization to all my stuff. But I'm
going to push back on one word you said in there.
I don't think this is a rookie mistake. A rookie mistake,
in my opinion, is never having saved all this stuff
in the first place. And we see people every now
and then who come in their fifties and say they're
ready to start retirement planning and things don't work that way.

(00:57):
You can work around that, but that's not what we're
talking about today. While we're talking about today is somebody
who has put all that energy in there they got
a four oh one K account, brokers, accounts, investment accounts,
some old iras, old retirement plans from former employers they've
never done anything about, and there's no sense of coordination
to it. So this is not quite a rookie mistake.
This is a little bit of we'll call it a
double A or maybe a triple A mistake.

Speaker 1 (01:18):
Or maybe a football team without a playbook. You might
win a few plays, but you're not gonna win the
long game. And yeah, I agree with you. Getting that
money saved is the real objective. We can always help
people recover, but we can't create money out of thin
air for people. That's right.

Speaker 2 (01:36):
And it's not only about money. This is about time
because if you're not making these decisions, you don't have
a plan, you're losing time. The saddest thing that I
hear every now and then, and Bob, I'm sure you
see this happened occasionally too. You know a lot of
times we'll have, you know, maybe a client's kid or
somebody come in who just hasn't had a sit down
to talk about finances, and they'll pull out their old
four oh one K or their IRA or something that

(01:57):
they set up when they were when they were super young.
Now they're maybe in their mid late twenties. And what's
the first thing we see, Bob. It was never invested.
It's been sitting in some kind of money market fund
because they made the assumption that all I got to
do is throw money into this account and it will
magically do a thing. But they've never taken the step
to decide how to invest it, meaning they've also never
learned about the market, so the ups and downs of

(02:17):
the markets, they have participated in it at all. That's
kind of an extreme example, but that's a big thing.
That's just an illustration of how we can lose time
with these kinds of things. What other examples do you have, bub.

Speaker 1 (02:27):
Well, A good example is mutual funds. You know, we
see a lot of folks come in that have owned
and rightly so, mutual funds for decades, and they've been
diligent and saving and investing, and I think they've just
missed a lot of times the evolution of the financial
services industry. I'll say, over the last ten to fifteen years.
What do I mean by that? Tax management? Holding mutual

(02:51):
funds in a taxable account can be a very tax
efficient way of moving forward, especially when you're trying to
convert this into a cash flow. And Brian, this is
a good time to remind folks that the capital gains
rate this year and twenty twenty five for a married
filing joint couple is zero percent if they have taxable

(03:13):
income under ninety six seven hundred dollars. So there are
opportunities there if we can get under the hood and
look at the entire situation where we can help people
make that gradual conversion from tax inefficient mutual funds to
more tax efficient ETFs and save people a lot of
money not only this year, but set up a strategy

(03:36):
for down the road that'll be much more tax efficient
when it comes time to generate income from a portfolio
in retirement years.

Speaker 2 (03:45):
Yeah, and I want to make sure that that we
hit on an important point within there, because we were
talking about a couple different things mutual funds and exchange
traded funds and those kinds of things. Mutual funds, and
some of you may have learned this the hard way
over the decades. A mutual fund US must must by
law distribute any games it has in December of every year,
so worst case scenario. Let's say you buy a mutual

(04:05):
fund on December first, and it sold something earlier in
the year. Maybe it's here's an extreme example, if they
sold their apple position or a portion thereof that they've
been sitting on for twenty years. That's got a fat,
juicy gain in it. And if you didn't own the
fund until December first of this year, but you own
it during December, then you are going to receive a
distribution on that fund of that giant, fat juicy gain

(04:27):
even though you didn't benefit from it. So a lot
of people out there probably you're probably nodding your head, going, oh,
that's why I get that big, stupid ten ninety nine
that I didn't see coming. And there's always a big change,
you know, in December. Mutual funds have to distribute those gains.
So but a lot of times you also might be
stuck with them because you yourself are in a higher
income situation. Therefore you can't pull the trigger and sell it.

(04:47):
But like Bob was just saying, if you maneuver yourself,
and a lot of times this happens. You know, right
after retirement, if you've got the ability to maybe give
yourself a low income year after you retire, no more salaries,
maybe the income is minimal, best case scenario off of
savings or something. You're literally not in a bracket. You
don't pay any taxes because you're not in a bracket.
That's a great opportunity to pull the trigger and eat

(05:08):
some of these capital gains and minimize the taxes as
much as possible, and then move to something more tax efficient,
such as an exchange traded fund that does not have
that capital gain annual requirement.

Speaker 1 (05:19):
Yeah, shifting capital gains or roth conversions or both, it's
something to definitely take a look at, you know, during
those intervening years between the time you retire and you're
in a very low tax bracket and when those required
minimum distributions rear their ugly head at age seventy three, Brian,
here's something else we see all the time concentrated stock positions.

(05:40):
And we know why. You know, folks work for a
company their whole life and lo and behold sixty percent
of your net worth is tied up in one stock.
That's not a strategy. That's a potential liability. And the
good news is there are a lot of creative solutions
out there. Direct indexing, charitable giving strategies, Brian, and get

(06:00):
into some of those things that we like to talk,
you know, clients through and help them with these concentrated
stock positions.

Speaker 2 (06:07):
Yeah, we're fortunate to live in an area here, Bob,
where there are a lot of Fortune five hundred companies
that have been very successful. And it's always interesting to
me after doing this this job for several decades, you
can tell where somebody lives by what they own. Cincinnati
people tend to own P and G and Smuckers and
some of the other stuff that the P and G
has sped out over the years. Fantastic company. But like
we always say, sitting on one huge position is much

(06:28):
more of a liability than a benefit. So what can
I do about it? Well, there are some creative solutions
out there. Something called direct indexing is a tool that
more high net worth families are starting to look at
because that's a way that you can spread your risks
out by owning these individual stocks. In One way to
get into that, because remember we're talking about a concentrated position,
there are things called exchange funds where you can take

(06:50):
your giant position contribute it to a pulled fund full
of other people just like you who also have concentrated positions,
and rather than everybody sitting on their one concentrated position,
you all have pulled your big fat piles of stock
and now you each own a share of it. So
it's not going to be a perfect replica of the
S and P five hundred index, but generally speaking, there

(07:11):
it's a pile of pretty well respected companies. That's how
people end up with these concentrated positions. That is a
way that you can move your money around reduce the
risk of that concentrated position. But not you haven't sold anything.
You've simply contributed to a different pile in exchange for
a share of the of the larger pile. So there's
also if you're just worried about the prices. Yeah, Bob,
I think you've got some experience with things like collers.

(07:32):
Can you tell us a little bit about that.

Speaker 1 (07:34):
Yeah. Callers is simply where you have some option trades
tied to an individual stock position where you can protect
the downside. You know, they're called put options, where you
can buy put protection or insurance on your large stock position,
and you can oftentimes pay for that protection by selling
and out of the money call position, so you limit

(07:54):
your upside growth in that stock, but you take that premium,
you know, in other words, the premium you took in
by selling that call option, and that helps pay for
that downside protection. It's a wonderful way to mitigate the
huge risk that's inherent in having a ton of your
net worth tied up into one company. And Brian going

(08:15):
back to those exchange funds, I'm finding that when we
talk to folks about this, most people have never even
heard of such a thing, much less being aware that
it can be done. You know, through your financial advisor.
That's a real opportunity for people to take a closer
look at because it can change the game powerfully from

(08:36):
a tax standpoint. You're listening to simply money presented by
all Worth Financial. I'm Bob Sponseller along with Brian James. Brian,
let's not forget about a state planning in the midst
of all this retirement planning.

Speaker 2 (08:47):
Yeah, so one big thing to remember and a lot
of people, you know, a kind of bank on this.
If what lies behind all of this right now is
something caught a step up in cost basis. So yes,
if you have a huge game built into something and
you let you hang on to it until you pass
and your errors inherited as part of the settlement of

(09:07):
your state, then they will get a step up in
cost bases. You might be on the receiving end of
this too, those of you listening out there who may
have inherited something where the cost basis quote unquote the
purchase price. It's as if you purchased it the day
that your benefactor passed away. The data death prices is
what's known as the is the cost basis when you
inherit stock. Now the other hand, on the other side

(09:29):
of this is you have to be super careful if
it's a deathbed gift. In other words, at the end
of life, somebody hands you a pile of stock, then
you have also inherited their cost basis. That could go
back decades. We see sometimes where stocks have been passed
down for you know, two, maybe even three generations. Nobody
has any record, but there was some you know, at
the holidays, everybody gets a pile of stock, while you're
also getting a very low cost basis with that, So

(09:51):
be very mindful of that and understand what your situation
really is. Also, make sure you have these assets titled correctly,
and that not only is it in your name probably
as anyway, you're not having this conversation, But where does
it go after you pass? The simplest thing that everyone,
everybody ought to do is take all of your individual
accounts and even your joint accounts and name beneficiaries. Right,

(10:14):
I'm talking about not only investments but also banks. The
investments world. We call it a tood transfer on death.
The bank calls it a pod payable on death, but
it's the same thing. You are simply naming beneficiaries so
that those assets do not have to pass through probate.
All the airs need to do is produce a death
certificate and open accounts in their own names, or if
it happens to be an IRA, that's got its own

(10:35):
beneficiary on it too, so you'd open an inherited IRA.
Jump through some of those hoops. But these are things
to plan now, not last second.

Speaker 1 (10:42):
Yeah, we just went through a lot of stuff here quickly.
And the thing we want to remind folks you don't
need to go it alone. A good financial plan pulls
in investment strategy, it coordinates that with tax planning, estate planning,
risk management, everything, and a good fiduciary advisor should be
able to sit down and help you map out an
actual plan and an actual strategy. Here's the all Worth advice.

(11:06):
Wealth without a strategy is just expensive guessing. Get coordinated,
get clarity, and get your plan on paper. Coming up next,
if the market drops ten percent, would your portfolio be Okay?
We're going to talk about buffer btfs and why they
could be a smarter way to ride out the storm.
You're listening to Simply Money presented by all Worth Financial

(11:29):
on fifty five KRC the talk station. You're listening to
Simply Money presented by all Worth Financial. I'm Bob Sponseller
along with Brian James. Hey, if you can't listen to
Simply Money every night, subscribe and get our daily podcast.
And if you think your friends could use some financial advice,

(11:50):
tell them about us as well. Just search Simply Money
on the iHeart app or wherever you wherever you find
your podcast straight ahead at six forty three. Whither set
it and forget it approach might fail you after age sixty?
All right, tonight, we're going to delve into a strategy
that more investors are asking about lately, buffered ETFs. What

(12:13):
are they and why do they even matter? Brian? What
are they? Bob?

Speaker 2 (12:18):
Well, at the very core of buffer ETF is an
exchange traded fund, right, So, an exchange traded fund is
a very collective term. It's like saying kleenex is the
word for tissues. An exchange traded fund does not really
tell you anything about what's underneath it. It could be an
index fund, it could be a pile of bonds, it
could be a whole lot of different things. So these
are very specific types of exchange traded funds or ETFs
that offer some level of downside protection. These are set

(12:41):
up to limit your losses to a certain point. You know,
the buffer might be ten percent. The market goes down
fifteen percent, my statement is only going to go to
I will see that it only took a ten percent hit.
There is a there is a stop to the downside. Now,
of course, there's no you know, there's no free rides here, Bob.
There's also a cap to the upside. So what you're
doing is you are setting buffers on the downside and
on the upper side. But the benefit of these, though,

(13:04):
is that they trade their exchange traded funds. They trade
all day, every day, so you're not locking yourself into
any kind of time structure of those kinds of things.
So these are for people who who are really just
kind of looking for in the short run. You know,
maybe I'm about to retire'm about to transition. Things are
going to happen here. Maybe I want to have something
in my portfolio to take the stress off of that
the market may not cooperate when I need it to.

Speaker 1 (13:25):
Yeah, and there's you know, in terms of implementing a
strategy like this, you know, I know, what are folks
here at all worth doing? It's not just buying one
of these buffer ETFs. It's it's building a portfolio of
them that work together and developing an actual strategy. And
I will add this too, this is not a this
is not a do it yourself proposition. In my opinion,

(13:48):
these things have different caps. They have you know, higher
fees and a lot of cases you got to watch
the taxes, the tax impact of trading in and out
of these things. It can get pretty complicated in a hurry,
but it is a very good strategy that does give
you a lot of flexibility as opposed to some of
the other things out there that people use to mitigate

(14:10):
investment risk like index annuities or things like that which
are embedded with you know, extremely high fees, surrender charges,
lock up periods. This is a lot more flexible approach
to manage some downside risk in your portfolio.

Speaker 2 (14:27):
Yeah, and we're definitely not saying that everybody should run
out and get these. These are things to understand and
consider maybe adding to your portfolio if you happen to
check the right boxes. But you know, in those index
based annuities, we don't think annuities are evil by any
stretch of the imagination. They're tools, right. A tool is
just used for a specific purpose. If you got the purpose,
use the tool. If I got a hammer in my hand,

(14:48):
I can build a birdhouse with it, or I can
hit somebody in the head. So these different investment products
serve different purposes. The scary thing about annuities in this
case is that they do lock up. You don't have
the ability to pull out when whatever you might want,
as opposed to a BUFFERDTF, which again they trade all
day every day, so you could change your position pretty quickly.
Now we're certainly not advocating that you do that, because

(15:08):
Bob already kind of hinted at it. If you happen
to have a gain in one of these and you
go ahead and sell it out, then that's most likely
going to be a short term gain. Because if we're
trying to use these to ride out a shorter term
market period and you build a gain in, that's a
short term gain which is taxable as income.

Speaker 1 (15:24):
Well, and Brian, that's why I like these things again
for certain situations because of the flexibility that's embedded in
this strategy. If we have a change in the economic environment,
you know, a big change in interest rates or tax
law or a market correction, you can adjust on the
fly and protect that downside risk and then change and

(15:47):
adapt the portfolio as economic conditions change, or your personal
financial goals liquidity goals, spending goals might change. So it's
a great strategy because it can can evolve and adapt
to the changing things going on in the economy or
with the client's personal you know situation. Brian. I know

(16:09):
you've talked to clients about you know, buffer dts yourself
and your practice. Can you give us an example maybe
where this has been a good fit for somebody and
where where did you use it, you know, with an
actual client.

Speaker 2 (16:20):
So in the past I've been I've been doing this
almost three decades now, and in the past, bonds or
fixed income where we're kind of the the agreed upon
rudder for the portfolio to keep things on the straight
and narrow. But over the past several decades we've seen
bonds move more in the direction of the of the
overall stock market. So that doesn't mean bonds are bad
investment either. But at the same time, this is another

(16:41):
alternative where you can put a little bit in there
to kind of straighten out the the overall ups and
downs of the portfolio. And like I mentioned that, the
specific scenarios I'm thinking of where clients where we have
used this is where, for example, perhaps we have let's
say we have two spouses. One spouse makes all the
financial decisions, the other spouse is kind of arms length away,
only wants to be involved when he or she has

(17:02):
to be well. Then if the financial deciding spouse passes
away all of a sudden, surviving spouse, you know, unexpectedly
has to get up to speed really really quick on
things and all, and they may be super nervous about
all these about the ups and downs in the market,
they need a cycle or two to maybe get used
to it. So that's a case where bufferdtfs can temporarily

(17:24):
lessen distress that that person might be feeling because they
don't know the ups and downs of the market. So
we've used those in those cases because it is a
shorter term scenario, and then they can get used to
kind of dip a toe in the water and get
used to the ups and downs, and then we can
talk about whether it continues to be necessary. These are
not and really nothing nothing is set it and forget
it and forget about it forever. That's not the case here.
These aren't magical things that guarantee upside and no downside.

(17:45):
That's not the point. It offsets the stuff that drives
the upside because that anything invested in the stock market,
of course, is going to have its bumps, and bufferdtfs
can smooth it out without forcing you to make a
long term commitment to them.

Speaker 1 (17:58):
You're listening to simply money, I Allworth Financial. I'm Bob
Sponseller along with Brian James Bryan. In the example that
you cited, which I think is a good one, I
think the key here is you were talking to folks
that had, you know, maybe limited experience with the ups
and downs of the financial markets and the stock market.
And I run across people that just they they know

(18:19):
they need to earn a positive return on their money
that outpaces inflation, but they just do not want to
be sixty seventy eighty percent in stocks, which we know
is the asset class that outperforms everything else over the
long term. But sometimes people don't care about that. They say, look,
that's fine, I get it, but I don't want to

(18:40):
sit there and watch my portfolio decline by twenty percent
or fifteen percent, even in the short term. I want
some protection embedded in my portfolio, and that can be
a great place for these And you brought up bonds.
I mean, look, twenty twenty two is a great example
historically that you know, the old traditional approach to acid allocation,

(19:01):
Just put a bunch of money in bonds and that'll
cushion the blows, so to speak. That did not work
so well in twenty twenty two when the Federal Reserve
raised interest rates set you know, seven times in one year,
bonds took a hit, stocks took a hit, A lot
of things took a hit. And that's where something like
a buffer ETF strategy could have helped people, whether that
albeit short term storm, and had them not in a

(19:24):
situation where they're upset or panicking about their portfolio.

Speaker 2 (19:28):
Yeah. So I want to throw out one quick thought
because you started to go down this path of settling
for you know, something that beats inflation versus just trying
to grow as much as I can. If I've got
a financial plan, then that means I know what I
need and I may not need as much growth as
I wanted in my twenties and thirties. If I have
a certain rate of growth it makes my plan work.
Then it's okay to put these things in there to
buffer around that. But that means I will not keep

(19:49):
up with the overall market, and I don't have to.

Speaker 1 (19:52):
Here's the all Worth advice. You don't need to risk
everything to grow. There are smarter ways to play defense.
Next we'll show to make smart spending moves that secure
your financial future in the first ten years of retirement.
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC the talk station. You're listening to

(20:17):
Simply Money presented by all Worth Financial. I'm bob'sponseller along
with Brian James. If you're newly retired or planning to
retire soon, this next segment is for you because how
you spend in the first ten years of that retirement
period can determine how long your money lasts. And we're
talking about something I think a lot of us have

(20:39):
heard about or read about. There's been TV commercials about it,
the retirement red zone.

Speaker 2 (20:45):
Brian, what is that, well, Bob, the retirement red zone
is that time, that's that couple of years where you
start going, huh, pretty soon, I'm going to have to
turn on this money machine and make it work for
me so that I can quit getting out of bed
when I don't want to anymore. So this is the
most vulnerable stretch of your life, and you're making a
transition from saving suspending, and that is a huge mental shift, Bob.

(21:06):
I think that you've seen this too, but a lot
of clients really really struggle with the idea that I
have to rely on my own savings. But I've never
done that before. It's a huge psychological hurdle to get
over because we all have ground into our heads over decades.
I have got to save safe save. I cannot touch
these dollars. That's not allowed. It's a failure. If I
tap into my retirement savings. That is a massive hurdle.

(21:28):
We all tend to hide behind that in terms of
I just got to keep working, got to keep working.
And some people work well beyond when they could have
retired because they're too scared to tap into those retirement assets. Again,
that's where I written financial plan comes in.

Speaker 1 (21:42):
Well, and there's another risk ca all this, and some
people we don't see this a ton, but some people, Brian,
they retire and they're not working. Maybe they're a little bored.
They're fine looking for something to do. So they're like,
all right, we're going to splurge on some things, you know,
three or four big trips, remodel the kitchen, giving money
to kids, and you know what, before long, they've depleted

(22:05):
a lot of money in a very in a very
short amount of time. Again, we don't see that a lot,
you know, often, but it does happen. And sometimes we
got to talk people off the ledge from doing too
much too soon.

Speaker 2 (22:18):
Right, And that's that's an understandable desire. I've been working
my rear end off. If I'm married, my spouse and
I have been both been you know, just hitting it
so hard, and we're just tired, and we want to
celebrate and do some things and we feel like we've
been successful, and that's great and you should do that.
And the last person who should be discouraging you from
doing that is your financial advisor. However, all of you
need to agree on this is what we can get

(22:38):
away with, but here's what we can't. And so that's
where this that's where a full projection will come into play.
In other words, taking a look at what your resources are,
which is your streams of income that might be so security,
it could be pensioned, maybe there's an inheritance or some
real estate out there, something like that that's spitting out
income for you. And then looking at your piles of assets.
These are your iras and your investments. You've got piles

(22:59):
of money and streams of income, and then a long
discussion about what do we actually need this to do.
That's living expenses, the stuff we have to deal with
the rest of our lives. That's perhaps there's still a
mortgage in the mix, or you're supporting kids or maybe
your own parents or whatever. Let's figure out what these
costs are. Now that we have a combination of the
resources and the needs, we can run some projections, and

(23:19):
across those projections, we will mix up the rates of
return on the market because there's something called sequence of
returns risk, which simply means that if the market takes
a hit in early in my retirement, that's going to
have a bigger impact than if it happens later. And
this is something that happened to a lot of people
in twenty twenty one when we went over the cliffs
for a little while in twenty twenty two.

Speaker 1 (23:40):
Yeah, this sequence of return risk is real and it's counterintuitive.
I mean, I was shocked to see the impact of
this when I first started to look at this, you know,
many years ago, and even very experienced, very intelligent clients
have a hard time grasping this at first. Blush. When
you're accumulating money, you know, saving money, you really don't

(24:03):
care what the year by year return is. You care
about what the average return is because you're not spending
any money from your four to one K. Once you
start to convert this, you know, mass of accumulated wealth
into a paycheck, you know, to to replace your paycheck
volatility matters, and even if your long term return is

(24:25):
identical to what it was when you were saving and investing,
if that if that return gets volatile in the short
term while you're pulling money out every month or every
quarter every year, that money, once it's pulled out, cannot
be replaced at all. And that's why you got to
manage this sequence of return risk all Lah, what you

(24:45):
were starting to talk about in your example of cash
flow planning, Yeah.

Speaker 2 (24:49):
A good financial professional and anybody worth their salt in
this industry is going to help you come up with
a spending strategy where everyone agrees upon here's what we
need and here's where we're gonna get it from. We're
gonna hit the roth ira first, or maybe we're going
to hit the traditional ira first, or perhaps it's something
else entirely, but we have a plan. And if something happens,
as life tends to do, because God has a sense

(25:10):
of humor, so if something zigs when we wanted to zag,
well then we know how we're going to handle that.
That lessens the stress a lot and it prevents us
from making bad decisions. Taxes play a massive role in this, Bob,
because you know Obviously, different things get taxed differently, and
depending on your own situation as well as the overall
situation we've got in the country, we may want to

(25:30):
choose from one account versus another so that we can
maximize the efficiency of those taxable distributions.

Speaker 1 (25:36):
Well, and having that first one to two years of
spending one to two years of plan spending completely out
of harm's way, you know, in a high yield savings
account or short term bonds or something like that can
help cushion the blow as well, and it's critical that
you developed a strategy to get that in place. Here's
the all Worth advice your early retirement years, set the pace,

(25:58):
spend smart and your money will last. Next, why automated
investing can fail you when you need it most. You're
listening to Simply Money presented by all Worth Financial on
fifty five KRC the talk station. You're listening to Simply

(26:18):
Money presented by all Worth Financial. I'm Bob Sponsller along
with Brian James. Do you have a financial question you'd
like for us to answer. There's a red button you
can click while you're listening to the show right there
on the good old iHeart app Simply Record your question
and it will come straight to us straight ahead, a
five minute task that could save you from financial fraud.

(26:42):
In the good news, it's totally free. All right. If
you're over sixty and still relying on a set it
and forget it approach with your investments, we need to
talk look target date funds, auto rebalancing, and low maintenance portfolios. Brian.
They're all right when you're saving, but once you retire,

(27:03):
it can quickly become an entirely different ballgame.

Speaker 2 (27:07):
That's right, Bob. And then the reason that happens is
because now your money has a different job description. Your
pile of money's job description for probably thirty, maybe even
forty years was just to grow, just be a bigger pile,
and that's all I need for the first chunk of
my life. But now that we've successfully created that pile
and transitioned into retirement or are transitioning, now, it's about
cash flow, isn't it, Bob. We need more than just

(27:29):
a bigger pile. So it becomes about which accounts are
we going to hit first, and that triggers certain taxes.
Later down the road, you'll be dealing with required minimum distributions.
You have to work that in and certain methods that
you follow to simply pay your bills can cause things
like Medicare to premiums to spike. That's something called erma,
which is our maaa is one of these fancy acronyms

(27:50):
that everybody learns about once they retire, which simply means
that if two years ago I had a bunch of income,
then I might see a spike in my Medicare premiums.
And that's never a fun thing. Sometimes it's unavoidable, but
it's been to see things, see these things coming on
the horizon. So what about Social Security, Bob, have you
had had anybody with with any issues They're getting that
settled in?

Speaker 1 (28:08):
Well, we always have to run the number. I mean again,
people always ask, you know, and it's human natures. For
as soon as somebody is willing to write you a
check every month, you know, the default position position is yep,
sign me up. I want to take it, send me
that money. But the point you brought up, it's important
to run some projections on how that's going to impact

(28:29):
your income, taxes, your future Medicare premiums, all that kind
of stuff. And that's why it's important to do some
advanced planning. Uh and Brian, I want to get your
take on target date funds because we run into a
lot of folks that come to us, you know, to
hire us to do this kind of planning for them,
and you know, they're always they always come to us,

(28:50):
are usually come to us with that default you know
position in their four to one K plan, a retirement fund.
You and I haven't talked a whole lot and kicked
this back and forth. I'm interested in your thoughts on
the pros and cons of target date funds, especially as
someone enters these retirement years now.

Speaker 2 (29:10):
In contrary to the way we kicked off this segment,
I do think there are some times where a set
it and forget it approach is okay. If you're a
young person and you're just getting started with that four
to oh one K and it's literally got a few hundred,
few thousand dollars in it, a target date fund can
be a perfect solution. However, even in this case, if
you are if that's what you're looking at, look under
the hood and just make sure you know what it owns.

(29:30):
So it may look like a super aggressive fund it's
targeted for twenty sixty five forty years from now. I
saw one the other day, Bob, that had twenty percent
bonds in it, and that's not something a twenty year
old needs. Twenty year old needs it definitely a set it,
forget it, an aggressive approach. Now, on the other hand,
when you're on the back end of this, I kind
of I like to use a golf analogy here. That
twenty year old is standing on the tee of a

(29:51):
six hundred yard golf hole and there is little debate
about which club they need to pull out of the bag,
the big fat one, and they're going to swing out
of their shoes. It's okay, you're gonna be in the
You're gonna be you know, you'll miss the fairway from
time to time, but you can recover. Now the closer
I get to the green, when I'm fifty sixty yards out,
now I got a choice. What am I hitting today?
Which way is the wind going? Which club do I hate?
Which club do I think I have? Do I have

(30:12):
confidence in? You gotta be more specific the closer you
get to the goal. And so that's what we're talking
about here. Target date funds don't deliver on that requires
for specificity. When I get super close to that to
that goal of mine.

Speaker 1 (30:23):
Yeah. I love that golf analogy because it's hitting pretty
close to home. Now you're talking about my golf game, Brian.
I mean, I stand out there on the tee with
a five hundred and some yard par five. I pull
out the driver, well intentioned, but I hit that little
seventy yard worm burner and hack it to the left.
I got no shot of getting to that green anywhere

(30:45):
in regulation, and it puts me behind the eight ball
even before I get started. And I think that's a
good analogy to use for your, you know, twenty five
year old client. So let's talk about what we do suggest,
you know, when we talk about a withdrawal strategy and
the coordination and everything we're talking about to get people
set up the right way for retirement income. Yeah.

Speaker 2 (31:07):
So I think a lot of this has to do
with what outcome do I want. There are some people
out there, Bob, who are in a situation where, you
know what, I don't really care about taxes. Maybe I don't.
I don't have kids, and taxes are going to be
what they are. I would rather live my life. I'm
not really worried about tax efficiency and that's that's an
okay as long as people understand, you know, what is
the tax impact of your various decisions going to be,

(31:29):
That is an okay outcome. What I would say is
not okay is having no idea what's going to happen
and just saying I really don't care and throwing caution
to the wind and kind of ignoring all of the impacts.
But yeah, some people say, you know what, I'm not
worried about taxation on my require minimum distributions down the road.
It's just not important to me. On the other hand,
there are others who will say, you know what, I
just don't I don't trust this government. I feel like

(31:49):
taxes are going to go up, and I want to
do everything I can to control. So in that case,
you might be you might be a person who chooses
to pull your taxation forward. In other words, you know,
a lot of times people will retire in their sixties
and maybe have some savings or some cash to decide
they can live off of, and they are sitting on
some years where they are not in a bracket at all.
They're literally not paying taxes because there's literally no income.

(32:12):
Maybe a little bit spit out from a money market
fund or something like that. To me, that is not
something to be celebrated. That is a missed opportunity because
we ought to be filling the ten, the twenty two,
maybe even the twenty four percent bracket with roth conversions.
And that's what I mean when I say pulling taxation forward,
not waiting until I'm seventy three or seventy five when
my require minimum distributions come in and I got no choice,

(32:33):
but rather converting proactively paying taxes now spending some of
that money I've got on the sidelines to buy the
tax freedom of my pre tax dollars before I have
to pay the piper.

Speaker 1 (32:44):
Good stuff, Brian. And here's the thing. This doesn't have
to be overly complex. It just has to be intentional.
You don't need twenty different accounts, but you do need
one cohesive plan, and that plan does need to be
built to evolve. Because life after six isn't static. Things change.
Your money should be flexible enough to change with it.

(33:06):
Here's the all Worth advice. Retirement isn't the finish line.
It's just the next phase, and your investments need to
graduate along with you. Next. One of the simplest and
smartest things you can do today to protect yourself and
your family. You're listening to Simply Money presented by all
Worth Financial on fifty five KRC, the talk station. You're

(33:32):
listening to Simply Money presented by all Worth Financial. I'm
Bob Sponseller along with Brian James. Let's talk about something
that could literally take you five minutes but save you
thousands of dollars potentially, and that's freezing your credit. Brian,
this is so simple, it's free to do. This is
the closest thing to a no brainer. We're probably gonna

(33:55):
talk about here as far as I know.

Speaker 2 (33:57):
Yeah, freezing your credit simply means ain't nobody gonna open
a credit line in your name, including you. So what
this means is you're contacting the various credit bureaus and
you were jumping through their hoops to have your credit frozen,
meaning nobody can apply for anything. Obviously, you don't want
to do this right around when you're if you're gonna
be you know, actually needing your credit, you're gonna have
a mortgage or something like that. But the good thing

(34:19):
is this is not a permanent decision. You're simply freezing
it for the time being. You also, of course have
the have the right to unfreeze it when you do
need it. But it is, like you said, it is
a very very easy way to protect yourself from somebody
stealing your identity.

Speaker 1 (34:31):
Yeah, and let's make sure we separate freezing your credit
from identity theft protection. You know, some service that you
pay for and subscribe to, And we're not saying don't
do that too. What we're saying is just freezing your
credit if you're in a situation where you just know
you're not gonna need or want to borrow any money
anymore or for the foreseeable future. This again is a

(34:53):
no brainer, because most identity theft starts with a new
credit application. Somebody is trying to impersonate you and borrow
money in your name, and the credit free stops that
at the source. No lender can approve a new line
of credit without your explicit permission to unlock your report. Brian.

(35:15):
I've done this personally, you know, for myself, and it's
it's beautiful. It's like putting a padlock on your front door.
It doesn't stop people from trying, but it sure does
stop them from, you know, getting in.

Speaker 2 (35:26):
Yeah, and I would throw out there too, don't think
that just about yourself. Let's not be uh, let's not
be selfish here. You've got family and uh people, other
people you worry about. So if you've got kids out there,
then dude, here's a way to kill two birds with
one stone. First thing, put them on your and put
them on as authorized users on your credit card. That's
going to allow them to start building credit because they're
gonna inherit your score when they become independent. As soon

(35:48):
as you've done that, freeze their credit. Don't just freeze yours,
freeze theirs too, because they are they they have social
Security numbers, they are living beings who can have credit
as well. Uh, their identities get stolen too. And because
they're not as conne of course as the adults in
this situation, a lot of times that can't surface until
it's way too late. Kids will find out years later
when they're applying for you know, sometimes student loans or

(36:09):
a mortgage down the road, that there's been some debt
that's been unpaid forever and nobody has any idea what
it is. So that's why it's important to freeze these things.
And Bob I would throw out there too. Another way
that people are stealing identities is by looking at places
where you already have some kind of a presence. Right
if you're a client of a bank, then you have
the ability to do online banking. If you haven't set

(36:30):
it up, that means anyone can do it who has
the right amount of information for you. I have a
lot of clients that will say, you know, I don't
trust the Internet. I just don't want to do these
kinds of things. And that's all fine, you don't have
to use it, but I would still suggest set up
the online profile because that way, if somebody changes the password,
you're going to get notified on your phone, in the mail,
and you know a lot of different ways versus if
you never set it up at all and you'll never

(36:52):
hear that somebody has done that. You can also do
that with the federal government. They have a system called
id ME. That is another way that people that is
going to be ripe for, you know, for people stealing identity.
So own those things. You don't have to use them,
but I would definitely own them and get them set
up yourself so that you know that you did.

Speaker 1 (37:06):
It well and from a practical standpoint, again, this is
easy to do, but you do have to go online
to do this. So there are three credit bureaus out there, Equifax, Experience,
and TransUnion, and you do need to take the steps
and it's very quick and it's very free. You got
to freeze your credit at each bureau and Brian, you know,
we talk about the Sandwich generation all the time. This

(37:30):
is a good five to ten minute exercise that we
should sit down with our kids ado and then maybe
at the same time or in a follow up meetings,
sit down with our parents and do this. People sometimes
in their seventies or eighties, they and for good reason,
they don't know what's real and fake out there. We
counsel them about identity theft all the time. The last

(37:51):
thing somebody in their mid eighties wants to do is
sit down, you know, under their own devices, by themselves
and navigate through these credit bureau websites. This is a
good thing to do for our parents and for our
kids to just lock everything up at the same time.
It's quick and easy to do.

Speaker 2 (38:08):
Yeah, simple steps there are there are There are a
lot of things out there that we can do that
don't require a whole lot of energy and This is
really an easy one. Pour a cup of coffee and
jump on these three websites and go lock your credit
and that of those you love.

Speaker 1 (38:19):
Here's the all Worth advice. A credit freeze is one
of the easiest, smartest ways to guard your identity. Do it,
and do it today. Thanks for listening. You've been listening
to Simply Money, presented by all Worth Financial on fifty
five KRC, the talk station