August 15, 2025 • 38 mins
On today’s episode of Simply Money, Bob and Brian dive into the estate tax drama that could upend retirement plans — and how to prepare so your wealth stays in the family, not in Washington’s hands. Then, in a special “Would You Rather?” edition, they tackle tough money dilemmas that every high-net-worth household eventually faces: lump-sum pension or monthly checks? Buffered ETFs or total market indexing? Live off dividends or sell shares? Plus, they unpack a real-life story where estate taxes pushed a couple to divorce, and what you can learn from it.
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Episode Transcript
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Speaker 1 (00:06):
Tonight, a state tax drama that could wreck your marriage
plus one a roth conversion doesn't make sense, But first
tough questions to think through in the retirement planning process.
You're listening to Simply Money, presented by all Worth Financial
on Bob Sponsorer along with Brian James. All Right, tonight,
we've decided to play the financial planning version of would
(00:28):
you rather? Because the decisions you make now could have
a major impact on your future self. Let's get into
the first question, Brian, question number one, would you rather
take a lump sum pension buyout or just stick with
a guaranteed monthly payout?
Speaker 2 (00:44):
Well, Bob, what is our favorite answer? What's our catchphrase?
Let's sing it with eagles level harmony?
Speaker 1 (00:50):
Right, question like this? It depends.
Speaker 2 (00:53):
Wow, that was Don Henley and Glenn Fry right there.
You're welcome, ladies and gentlemen. Good show today. Glad you
came out. No, so did lump sum vers versus guaranteed
monthly is a very big decision that depends on your
other resources. So the math will show if we we're
comparing if I take a lump sum, obviously that's going
to be invested somehow, some way, it's going to grow
versus that monthly payout, which is a guaranteed, predictable and
(01:16):
that can have a good psychological impact. So it really
depends on what your priorities are. If you are somebody
who you know this. This decision often comes up with
people who are in state funded pension plans because those
folks generally have a decision of lump versus monthly and
it's got a lot of money built into it. Social
Security obviously does not come with a lump sum decision.
So but anyway, so if you are the math will
(01:38):
show that if you invest, you're gonna wind up with
more down the road, and that's going to give you
more for your kids. And for some people that's the
kicker right there. If I simply take my monthly pension,
then I will get it, my spouse will get something
based on survivor, but the kids will get squat. And
if my career was based around funding a pension like
a lot of teachers and hospital workers versus funding a
four oh and K, then the lump may be the
(01:59):
one because it'll leave something behind. On the other hand,
if it is more comfortable and there's a lot of
people for whom this is important, and it makes sense
once you've gone through it. If the predictability is most important,
then take the monthly. There's also way you can do
a little bit of both, but that's an individual situation.
So all right, I'm gonna throw it at Bob. Bob,
would you rather go with buffered ETF to reduce your
volatility or say the heck with it. I'm just going
(02:20):
to ignore the volatility and throw it in long term
index funds for growth.
Speaker 1 (02:23):
What feels better to you, Well, my initial response is neither.
I'm not going to go all in on either of these.
I like to have a little bit of everything. So,
you know, the buffer ETF strategy, you're basically putting a
floor under your money and you're putting a cap on
how much it can grow. So the more you start
to mix this stuff into a portfolio, it looks and
(02:44):
smells just like a balanced portfolio. You know, the buzzwords
are out there, buffered ETFs, it's fun, it's sexy. There's
a lot of nice moving parts in there. Sexy to you. Oh, Bob,
I better not touch that, all right. Anyway, it's an option,
it's a tool in the toolbox. I think it's good
to look at these things and then evaluate them according
(03:05):
to just a good balanced portfolio, and then everyone's situation's different.
You just brought this up on the last question. Where
does your income need to come from? Is it social security?
Is it pension? Is it IRA? What are your rmds?
You know, I think depending on how we're going to
structure an income strategy, that should dictate what tools we
use in an investment portfolio. The nice thing about all
(03:27):
of this is it's flexible and changeable, unlike some of
these permanent annuity strategies where you can't get out of
them if life and situations change. All right, Question number three,
would you rather have your entire portfolio in direct indexing
with personalized tax loss harvesting or in real estate that
(03:48):
generates cash flow? One? Two, three? It depends. Come on,
Bob ke, It doesn't depend for me. Okay, well you
answer and I disagree. But so again, the keyword is entire.
It says entire portfolios.
Speaker 2 (04:03):
Question we're being asked, Peck, No, I would not want
my entire portfolio in any of this stuff, so h
but I want a little of both because they're both
good things. If I got real estate. That's something that
can keep up with inflation. It'll spit out cash flow,
and I can do some things with some fun things
with tax planning. However, I also like just the overall
general growth of stuff, because I do believe in human
beings and their ability to be smart, come up with
(04:23):
creative things that other human beings like and make a
lot of money. That's where direct indexing comes in. On
the other hand, the tax codes as we live in
this country right now are heavily in favor of real
estate for a lot of reasons. So I want a
little bit of both.
Speaker 1 (04:36):
Pretty all right, all right, Well, the only reason why
I reacted the way that I did is when I
read real estate the cash flows, I'm thinking of being
a landlord and personally owning rental property. I've been there,
done that, gotten the phone calls at three in the
morning saying my toilet's clogged up. I want none of that.
That's it depends part fair enough. Yeah, Yeah, I think
(04:56):
what you're referring to is a professionally managed, diversified real
ess state portfolio. Yes, you know where you're not touching
it and you're not cleaning things up or doing yard work.
Speaker 2 (05:06):
Can work for nobody else's plumbing the toilets. Yes, yes,
all right, so good good stuff there, all right?
Speaker 1 (05:12):
Number four? Would you rather invest in a promising startup
that you're passionate about or a boring but reliable dividend
paying stock. This is a solid both, and the word
is passion.
Speaker 2 (05:23):
Now will I Will I get involved in a startup
just because somebody else told me it's cool and sexy
and whatever.
Speaker 1 (05:28):
There's that word again.
Speaker 2 (05:29):
But no, probably not, because I'm not really am not
really chasing the big pop anymore.
Speaker 1 (05:34):
I don't really care. I don't.
Speaker 2 (05:35):
That doesn't drive me, Because you can, You'll be wrong
nine times and you'll hit on the tenth and you'll
still be annoyed by.
Speaker 1 (05:39):
The first nine.
Speaker 2 (05:40):
But if it is truly something I am passionate about,
if it's a mission or a product that I think
is really cool and I'm going to pay attention to
it outside of the value of a stock, then yes
that that would.
Speaker 1 (05:48):
Definitely do that.
Speaker 2 (05:49):
Boring but reliable dividend paying stocks definitely play a role
for a portion of a portfolio there to be boring
and ignored and help me pay my bills.
Speaker 1 (05:56):
Now, the only thing I'll add on this startup is
I'm gonna want to do some heavy research on the
management team, what the edge is here? If I really
dig under the hood and I feel like I got
a good command on what's going on here with the
management and the strategy, and if, let's face it, if
the company has an edge that no one else has,
(06:16):
I'm going to tend to tilt toward that. But but
not put my whole portfolio in. Like you just said,
you know, dip your toe in the water, but don't
you know, don't bet the ranch on one thing, all right?
Would you rather live off dividends and interest or systematically
draw down your portfolio meaning the portfolio balance over time.
Speaker 2 (06:36):
Ran So this is a question of a financial plan.
It's not really so much choosing this method versus that method.
What do I need if my if my, if my,
if I can live off the dividends that my portfolio
is already generating, then that might be an okay situation.
Speaker 1 (06:51):
But I don't.
Speaker 2 (06:51):
I no longer believe in this notion of this sort
of antiquated notion of uh of living off keeping my
principal intact and only living off the dividends and the
interest that's not really a thing anymore. That was kind
of fifty sixty seventies thinking when dividends were a much
bigger piece of the return of a public traded stock.
Now we are all about the big pop and growth.
So companies attract stockholders not by paying a fat dividend.
(07:14):
Sorry to up and G people out there, great company,
but that's a fairly rare story nowadays. But now it's
about the growth side of things. So if I want
to live off my dividends and interest, I'm going to
wind up investing in companies that don't have a ton
of growth potential.
Speaker 1 (07:25):
All right, I'm going to take a little bit different
spin on this one. And this just comes down to
a client's objectives. And this is what I mean by this, Brian.
I have folks that come in and say, look, I'm
willing to die broke. I don't care if I leave
one penny to my kids. We've paid for their private education,
we've helped them out, you know in other ways. We
want to enjoy our retirement years, and we don't care
(07:47):
if this thing gets drawn down to almost nothing. I
have other clients that come in and say it is
critically important to us that we only spend down. You know,
we do not see that portfolio balance dwindle or go down,
because it's very important to them to leave a large
legacy to their kids and maybe the chosen charities, you know,
(08:08):
the instruments are that we use or the next phase
in the plan. But I think we first got to
get you know, people need to tell us what they
want to do. What are their objectives as far as
handling their wealth. Would you agree with that?
Speaker 2 (08:20):
Yeah, except again, I want people off the notion that
if I'm going to invest in dividend paying stocks to
protect my principle, There's no such thing. Dividend paying stocks
move up and down with the market, just like anything else.
So don't lull yourself to sleep that your principle will
stay solid and never move.
Speaker 1 (08:33):
Got it. You're listening to Simply Money presented by all
Worth Financial on Bob Sponseller along with Brian James. All right,
let's keep rolling here. Brian, would you rather buy a
second home in retirement or just rent when you travel?
Write the check, go in, use the home, and get
out of there and have no further involvement.
Speaker 2 (08:50):
So I'm a little slightly close to this. We don't
own a second home. I don't think we're going to.
But however, I do have to pay a lease, a
twelve month lease for a nine month academic year out
in Athens, Ohio, which is my and my wife's happy place.
So we have been out there probably seven times in
the last couple months, just because otherwise it's a storage unit.
Speaker 1 (09:07):
Got to pay for it anyway.
Speaker 2 (09:08):
And so that's been my experience having a second home,
and it has been fantastic to just roll and go
and our stuff is all there and we unlock the door.
Speaker 1 (09:15):
And then we're there.
Speaker 2 (09:16):
However, I would realistically, when it's me traveling, I want
to see different places. And I have seen a lot
of clients go through this, We're gonna buy a beach
home at such and such beach because we always love
to go there, and blah blah blah, and then they
get to a point where they feel guilty because they
want to go somewhere else to see something different, and
they'll feel like they're wasting their money. I want to
go see the Grand Canyon, but we have this condo
down in Florida, and we just got to go there
(09:37):
because otherwise it's a waste of money. It just seems
like not to mention when those those beach houses are
getting pricey anyway themselves, let alone the insurance. The real
estate market may fall apart, but those insurance and HOA
costs are going to stay up there because they're all
inflation based. So anyway, I will answer that one by saying,
I'm going to be a renter. I'm going to go
stay in cool airbnbs, and I'm just gonna be okay
with the fact that they're a little more expensive because
(09:57):
they're fun places to go.
Speaker 1 (09:59):
That being said, I know if that if that little
house in Athens, Ohio comes up at the right price,
you are dying to buy one because you want to
You want a reason to go hang out and go
party in Athens. You've been talking about it. May or
may not have broadcast this show from Athens, Ohio. It
sounds like your wife already put the cabash on that.
That's what I've known. She's leading the charts on it. Okay,
(10:21):
all right, Would you rather move closer to your adult
kids or stay put and just travel to see them?
This one's a This is a fun one for me.
Speaker 2 (10:31):
Actually, I'm gonna'm gonna do a quick answer, because I
want to hear you're in this situation.
Speaker 1 (10:34):
I'm not yet.
Speaker 2 (10:34):
Mine are still in the NESPA, getting close to leaving.
I I like the idea we just got done talking
about travel. I want them to go see the world,
and I want to want them to. I want to
go see their new world and what it's like and
have them tell me all about it. You're in this situation, though, Bob,
what is it like on the other side?
Speaker 1 (10:47):
My advice is never, I shouldn't say never, be very
careful about planning your life around, aligning where you live
to be close to your kids, because they're gonna move
around and do different things. Bob just said, always think
about yourself first. I'm just saying, kids move and and
you know, we've got three sons and I've watched them
(11:09):
move around, and you know, yeah, my wife wants to
play whack a ball and live, you know, down the
street from them. I think it's virtually impossible to plan
that out.
Speaker 2 (11:18):
That's my three studio apartments, yeah a block, Yes, all right.
Speaker 1 (11:23):
Would you rather gift a vacation home to your kids
now or wait and deal with it in your state? Plan? This?
Speaker 2 (11:30):
To me, this one's black and white because a lot
of people want to do this because they like the
notion that that that my kids will will you know,
I'll see them smile, right, I want I want to
see them happy with the things.
Speaker 1 (11:40):
Well, this is that makes sense.
Speaker 2 (11:41):
If you're giving the money that kind of thing, they
can do their thing and benefit from it. But this
is a home that they can use now, regardless of
whose name is on the title. If you give it
to them now, then they accept your original cost basis
in this property, and that means there's no step up
in basis. So in this one, this one's black and
white to me. Hang on to it, let them enjoy it,
give them the keys, go be a family and celebrate it.
Don't worry about the money side of it. Who cares
(12:03):
because when you pass on, if they inherit it via
the settlement of your state, they get a step up
in cost basis and it's as if they purchased it
that very day.
Speaker 1 (12:11):
All right. The thing I want to add to this topic,
and I agree with you deal with it in your
state plan. But deal with it meaning I like to
see folks put these vacation homes in a family limited partnership.
So they limit their liability. And sit down with your
kids now before you get old and can't make decisions,
and God forbid die and find out what your kids
(12:31):
want to do with this and how decisions are going
to be made about this home after you die. You
might be surprised at the answers you get, and that
would be a reason to do different things in your
state plan based on what your kids want to do.
Speaker 2 (12:44):
I'm going to tack onto your tack on because I
think that's a great point, because this is important. It
comes up all the time with other with clients where
I'll have some of the client passes away and now
we're working with their children, and the clients thought that
this vacation home was going to stay in the family forever,
but it doesn't. The kids come and they go. You know,
we've gone there for years. Our children are not into it.
They want to do different things. We just want to
sell it. So don't get married to the idea your
(13:05):
kids want this home.
Speaker 1 (13:07):
Here's the all Worth advice. Would you rather questions help
you figure out what truly matters before the big decisions
come knocking. Next, How a state taxes drove a couple
to divorce and the lesson we can all learn from that.
You're listening to Simply Money presented by all Worth Financial
here on fifty five KRC, the talk station. You're listening
(13:32):
to Simply Money presented by all Worth Financial. I'm Bob
Sponseller along with Brian James straight Ahead at six forty three,
we're going to separate financial planning fact from fiction and
bust some of the biggest myths investors are still holding
onto out there. All right, Let's imagine a high powered executive, brilliant, driven,
loved by his family, but so obsessed with shielding his
(13:55):
fortune from estate taxes that it cost him what mattered
most to him, his marriage and his connection with his kids.
We actually came across this actual story and market Watch
and it's turning into a It has turned into a documentary. Brian,
what's going on?
Speaker 2 (14:11):
Yeah, So there's this is a story about somebody who
just was so obsessed with poking the irs and the
eye it cost cost him everything. So who was Harvey Shine.
Let's talk about Harvey Shine for a second. So Harvey
was born in Brooklyn in nineteen twenty seven. He basically
smart guy, came through Harvard, wound up being a very
important figure in Sony America.
Speaker 1 (14:30):
Might have heard of him.
Speaker 2 (14:30):
He was the CEO of the nineteen seventies. So in
his later years he was absolutely obsessed with minimizing the
tax liability on the money that he had and more importantly,
his whole legacy. This is a new documentary coming out
called Death and Taxes that his son is directing, and
it basically he was This became his life. So twenty
years of all of the of the family trying to
(14:52):
figure this out, he insisted on moving to Florida to
avoid state taxes. That's not too crazy with lots of
people do that, but that's where his wife was miserable.
She hated Florida. She was a born and bred New Yorker,
loved it up there and wanted to stay, but he
basically forced the move because of his obsession with taxes.
So at the end of the day, so you know,
the point of this all is that it's a great
(15:15):
example of what not to do. Taxes are taxes. There
are things to plan around. I would also extend this
a little bit, so I'm thinking of a client. This
wasn't about taxes, but lots of clients get obsessed with
I want to hit a certain dollar amount before I retire,
you know, and I was thinking one specifically. His target
was two million dollars. The only reason he was two
is because he was kind of in that ballpark around
one point eight or so, also had some health problems
coming up and just some other things going on that
(15:36):
basically said, hey, you need to think about yourself and
your family more so than going to work for another
couple of.
Speaker 1 (15:41):
Years just to hit that that that mark.
Speaker 2 (15:43):
And I said, if you want to see your name
with the word two million dollars on it, then let's
throw the equity of your house into the mix here,
not just your investment accounts. There's two million dollars. Now,
go retire and be appy.
Speaker 1 (15:52):
And he did. And I'm kind of proud of that moment. Well,
the thing this guy did was he and he ignored
the advice that my dad gave me when I got
engaged and shortly before I became married, and it was this, bob,
just remember, if mama ain't happy, nobody's happy. This guy
moved his wife to Florida. She was a lifelong New Yorker,
(16:13):
so she loved the theater scene. She was a dancer,
she loved the city life in New York, threw her
down and probably Naples, Florida, just to avoid state income taxes,
and yeah she's miserable. He ends up getting divorced. All right.
What we learned from that story is the state planning
is it deeply practical, but never more important than human connections.
(16:34):
It's meant to protect you. Gotta sit down and think
through this stuff before you just let the proverbial tax
tail wag the dog.
Speaker 2 (16:42):
And Harvey's final years were spent talking to accountants and
lawyers and filling out paperwork endlessly over this. This is
something that his son brings up in the documentary. That's
his last memory of his father. Don't get obsessed with
this stuff.
Speaker 1 (16:52):
All right, Every Sunday you're gonna find our all Worth
advice in the Cincinnati Choirir. Here's a preview and Brian
will tee this one up for you from Della high
Township says or ask is there ever a time when
a Wroth conversion doesn't make sense? It seems like all
I ever hear is that the best things ever? I
love this question. Yeah I do too.
Speaker 2 (17:12):
It's always a fun conversation because everybody hears Roth's tax free,
will I'll just do that. I'm gonna appall from my
house into a roth ira. It's just that simple, right. Yeah.
Speaker 1 (17:20):
There, frequently it doesn't make sense.
Speaker 2 (17:22):
I'm gonna rephrase your question there, I'm gonna say, is
there ever a time when learning about a roth conversion
doesn't make sense? No, it's always a good idea to
learn about them. But a roth conversion is very, very
very much a conscious sacrifice, often of a significant amount
of dollars. If you're playing the long game, it can
be a very powerful tax move, but you got to understand,
you know what the impact is upfront. You are sacrificing
(17:44):
now to create a better tax situation a little bit
for yourself. You can reduce your rmds that way, with
those kick in at seventy three when you have to
take that those dollars out, but also for your heirs,
if it's important to you that they inherit the money,
you know, in an efficient manner than paying taxes when
you're young, in healthy sixty seventy or so and grow
it for another twenty five years. Remember they also get
an extra ten years to let that continue to grow.
(18:06):
Because of the way the way I eraser inherited. So
that's when it's a great idea. When it's not a
good idea is when you just can't stomach that big
fat check. You got it right to the irs on
the front end, But do the math and learn about it. Okay, Bob,
one for you from John and Patty and Warren County
who are asking about private equity. We keep hearing more
about investing in private equity and alternatives. Do you think
this is a smart play? What do you think, Bob?
Speaker 1 (18:26):
Well, they keep hearing about it because we keep talking
about it on this show nowhere that's coming from. But
there's a lot of headlines around this because private equity
and alternative investments. You know, the President has signed an
executive order. The investment companies are all wanting to put
these things in four oh one k plans now, so
it's going to be coming and you're going to hear
(18:47):
more and more about it. Is it a smart play?
You know? Back to our age old answer. It depends.
These things can have lock up periods, they can have
high fees, they can be very volatile, So it depends,
you know, painting just throwing that word private equity in
alternatives out there in one, you know, fell Swooth, that's
(19:08):
a dangerous thing to do. So all these investments are
very specific. They're designed to do different things. In my opinion,
if you're going to consider this stuff, sit down with
a good fiduciary advisor who is knowledgeable in these things
and can walk you through the pros and cons of
each of the instruments available to you, and then more importantly,
do they fit into your personal investment plan? All right?
(19:31):
Coming up next, all Worth Chief Investment Officer Andy Stout
is in with investment solutions for those focused on having
income streams. You're listening to Simply Money presented by all
Worth Financial on fifty five KRC the talk station. You're
(19:52):
listening to Simply Money presented by all Worth Financial. I'm
Bob Unteller along with Brian Jings, and we're back with
all Worth Chief Investment Officer Andy Stout. Andy Tonight, we're
going to talk about an important topic for most investors
out there. A lot of people are thinking about, Hey,
I got this pile of money, I have these investment accounts.
How do I craft an overall strategy focused on income generation?
(20:17):
What what do you tell investors? Savers retirees about that topic.
Speaker 3 (20:23):
Well, I would start by saying, tell me a lot more,
because there are so many ways that you can get income,
and it really depends on you know, what your objectives are,
what your besides.
Speaker 1 (20:35):
Income, Well, let me let me let me help you
out a little bit. I mean, obviously, we've got we've
got clients that are you know, almost one hundred percent
bond They just want a safe, income generating portfolio from
a mixture of bonds and cash. We have other folks,
as you well know, that are more balanced investors, you know,
more of that fifty to fifty sixty forty kind of investors.
(20:56):
And then we've got, you know, clients that want to
have a lease skew toward growth in their portfolio seventy
eighty ninety percent in stocks, but still want some income
you know, coming from their portfolio for cash flow. With
that as a backdrop, talk about some things that we
do in the way of portfolio construction for all three
(21:17):
of those kind of folks.
Speaker 3 (21:19):
But if you're looking for the individual bond, so that
first type of persona, if you will, that you described, yeah,
I would probably start to think about bond ladders, which
are a way to spread out your individual bond. So
think of like an example, being a one to five
year bond a ladder where you take your investment, say
it's a million dollars, just to keep it simple, basically
(21:44):
invest two hundred thousand dollars and bonds that mature in
one year from whenever you do it, two year, three year,
four year, and five years. And then as you get
closer to those bonds mature and you take those those
one year bonds that are now matured and buy a
new five year group of bonds. And so that allows
you to stagger your investments over a period of time
(22:05):
and helping to smooth out the overall interst rate risk
that's out there. And it's not just quote unquote bonds.
I mean, there's different types of bonds that people should consider. Okay,
if you're in a high tax bracket, you might want
to be looking at municipal bonds because that'll give you
a federal tax free income and possibly state tax free
(22:25):
income depending on the bond that you actually get. Now,
if you're not in a high tax bracket, or maybe
you already have a lot of exposure to me, you
needs to just want to diversify you can also look
at corporates and treasury bonds, so there's a lot of
options for you from that perspective.
Speaker 1 (22:43):
So you know, when you.
Speaker 3 (22:45):
Look at those bond ladders, that's one thing that I
think makes a lot of sense if you have individual bonds. Now,
another type of you know, PERSONA would be the person
who's investing in individual stocks. So if you're investing in
individual stocks, you know you want to make sure you
stay diversified from that perspective, and you can easily focus
(23:08):
on individual stocks to have a high you know, dividend
paying mentality if you will, and you used to look
at like what their yield has been or what their
expected yield is going to be. And the key is
really just to make sure you stay diversified. You want
to not have it all in one sector. So it's
really critical that you pay attention and not just buy
high dividend yielding stocks. And you also probably want to
(23:30):
actually look at the names because some of those names
could be paying a high dividend for all the wrong reasons.
So you might see, oh, this has a ten percent dividend,
this is great, Well, maybe it only has a ten
percent dividends because the stock has been crashing and maybe
there's no prospects for any sort of real improvement and
that dividend could be at risk. So you really need
to pay attention to stable cash flows, and you know,
(23:53):
we definitely want to focus on stable companies. And the
other person Ona that you know we talked about was
a diversified investor. Now you can certainly combine individual stocks
and individual bonds. You can also go to fund route.
You can use like exchange trade to have funds or
mutual funds to achieve pretty much the same thing. So
you can get income in at four five percent range,
(24:14):
depending on how much risk you're willing to take. By
having a diversified portfolio of stocks and bonds, so you
can have your typical you know, sixty forty mix as
an example, and get that roughly you know, four to
five percent yield. And the key here is to make
sure you're diversified. Don't just put it all into one
ETF or one mutual fund. You want to spread it
(24:36):
over different types of dividend payers and different types of
bond investments that pay out income. So there's lots of
opportunities there.
Speaker 2 (24:46):
So Andy, one thing i feel like I've seen talking
to my clients. You know, over the past fifteen years,
it seems like, obviously we've had really really low interest
rates up until about three years ago. It seemed like
during that period, when interest rates are so low, people
were much more attracted to the idea of, you know what,
I'll just invest in the diversified portfolio of you know, stocks, funds, bonds, whatever,
(25:06):
and just take distributions out of it, especially when it's
like an IRA where there's not much control over the
taxation anyhow, You're going to take your distributions to pay
your bills, and you're going to pay your taxes, and you're.
Speaker 1 (25:14):
Going to like it, by God.
Speaker 2 (25:16):
But in any case, have you seen a shift over
the last three years more interest in individual bonds? It
feels like we've maybe going back to where it was
in late nineties early two thousands.
Speaker 1 (25:25):
Are you seeing the same thing?
Speaker 3 (25:27):
Yeah, I'm seeing interest there for sure, for all the
reasons you just mentioned. But there's a few other things
that have been becoming more and more attractive for investors.
One thing that I'm seeing is covered calls. So if
you have a big position in proper and gamble as
an example, you're seeing some investors write call options on
(25:49):
them to generate their own income, and that's just another way.
Now you run the risk of that stock getting called away,
but there's rules you can put in place some minimize that.
Another thing that I'm seeing out there is some structured
notes to generate yield. So it's not just the individual
bonds that have seen increased attractiveness. And I don't call
(26:11):
these exotic investments. I mean covered calls, structor noteses are
relatively mundane in today's day and world. I mean twenty
years ago maybe you might have thought that, but now
not so much. But yeah, you were seeing a shift
in general to a broader offering overall.
Speaker 1 (26:30):
Good stuff there, Andy, and I think the point we
want to drive home to all investors out there, there's
a lot of options out there, a lot of things
to consider, and a lot of variables to factor in
when you construct a well designed income plan from your portfolio.
Thanks as always to our Chief investment Officer, Andy Stout
for joining us today. You're listening to Simply Money presented
(26:52):
by all Worth Financial on fifty five KRC the talk station.
You're listening to Simple Money presented by all With Financial
on Bob sponsorer along with Brian James. Do you have
a financial question for us to answer. There's a red
(27:14):
button you can click while you're listening to our show
right there on the iHeart app. Simply record your question
and it'll come straight to us. All right, Time to
play financial planning factor fiction, Brian, I'm gonna let you
start off factor fiction. Direct investing can offer better tax
efficiency than traditional ETFs. Fact, this is a fact, Bob.
Speaker 2 (27:39):
So Direct indexing basically means that instead of owning a
mutual fund that replicates a stock index or a bond
index or whatever you know. Most typically that's the S
and P five hundred, which is nothing more than the
five hundred largest American companies, you can own a fund
that does that kind of thing. However, nowadays you can
also own all five hundred stocks individually. That might seem
(27:59):
overWe and maybe I don't want a thirty page statement
and all that kind of thing, But if I own
all five hundred stocks, that means any of those five
hundred stocks is doing anything good, bad, and different. Some
are up, summer down. But if I've got the ability,
I can do some tax loss harvesting in a taxable account.
This doesn't help in an IRA roth IRA. It has
to be a you know, an account that's otherwise exposed
to taxes on an annual basis. But if I own
(28:21):
those five hundred individual stocks, I can sell some at
a loss during the year. Stuff is going to go
up and down. We know how that works. If I
incur that loss, I can stack that up and deduct
up to three thousand dollars off of my short term
you know, against any short term gains and off of
my income. I can also use those losses to offset
any long term capital gains that I may have incurred.
(28:43):
And that it could be because I sold some stock
somewhere else and I ate a capital gain. Maybe I
sold a business and there's a capital gain you know
from that. But direct indexing is a great way for
the right investors to have the ability to do some
tax loss harvesting, so that one which is in fact.
Speaker 1 (28:58):
It just puts more arrows in your quiver, right, Brian,
A lot more flexibility.
Speaker 2 (29:02):
Another weapon. All right, Bob, you're on the hot seat
here it comes fact or fiction, Bob. Social Security benefits.
Speaker 1 (29:08):
Are always tax free. That is fiction. And I think
most people understand this. But you know, your income doesn't
have to get much over forty thousand dollars for a
mery filey joint couple before eighty five percent of your
Social Security benefit is taxed. So now there are situations
if you're a lower income person, or if we can
(29:30):
make you into a lower income person by using accumulated
savings or taking advantage of some of the low capital
gains tax rates. There are ways we can bring that
taxable income number way down, but in most cases, most
people need to plan for paying taxes on their Social
(29:50):
Security benefit.
Speaker 2 (29:52):
Yeah, you're right, being low income isn't necessarily a bad
thing gives you because of control over your taxes.
Speaker 1 (29:56):
All right, my turn, Bob hit me. Structured notes Brian
can be designed with buffers against market losses while still
offering equity linked returns. Factor fiction. This is facts.
Speaker 2 (30:09):
That's what a structured note does.
Speaker 1 (30:11):
That's the whole point.
Speaker 2 (30:11):
Structured note is basically something that is a calculation based
off of what the underlying index, again most commonly the
S and P five hundred against what the underlying index
has done, meaning that we can put a floor under
it and also a ceiling. Right, so there's pros and
cons anything we do. But the purpose of a structured
note is for somebody who says, yeah, I believe in
the stock market. I believe it's going to be the
best source of growth going forward, in the best you know,
(30:34):
for that chunk of my portfolio. But on the other hand,
I also don't like the headlines, and I really don't
like the whiplash you can get, you know, when when
somebody says something, you know, the wrong words are uttered
into a microphone from one of our political leaders or
something like that.
Speaker 1 (30:47):
So I would really rather not have to go through that.
Speaker 2 (30:50):
So a structured note will put a floor in so
that you can't really lose beyond a certain amount. But
that also means you're sacrificing some of the upside. So
you'll decide that if you buy a structured note, that's
one of the decisions you make is how much downside
do you want to be protected from? And that in
turn requires you to sacrifice some of the upside. So,
like another arrow in the quiver. As we already discussed before,
(31:11):
these aren't the end all BLL. No investment is the
end all bell. But structured notes can be a great
way to offset some of the risk of a portfolio.
All right, coming your way again, Bob. Fact or fiction.
You don't need life insurance once you're retired.
Speaker 1 (31:24):
What say you, Well, this is one of those situations
where I'm gonna say it depends I think.
Speaker 2 (31:32):
The opinion that's a that's a that's a chicken financial
planner answer.
Speaker 1 (31:36):
It might be it might be chicken, but I'm doing
my job here, Brian. And the key point we want
to make is it depends on your financial situation. It
doesn't matter whether you're working or retired. What you want
to do is you want to look at your overall
plan and obviously look look at it through the lens
of if I die today, do my heirs have enough
(31:57):
money to accomplish all the goals that we've set out,
you know, with your spouse to accomplish. We ideally we
like to have people in a situation that by the
time they are ready to retire, they're in a position
to self insure they don't quote unquote need life insurance
to take care of things. Sometimes we find that people
are going to retire and they still need a little
(32:19):
bit of life insurance, maybe for five, ten, fifteen years.
Some people might want to keep their life insurance for
an estate planning tool, or to leave a legacy of
dollars to their heirs. So it's a it's an, it's
a it depends answer based on every single family's individual
financial planning needs.
Speaker 2 (32:40):
Yeah, it depends. Is such a common answer. I was
being mean to Bob just because I can. But that's
because there is no end all, be all black and white.
Everybody should do this answer to any of these topics.
Everything is affected by other outside influences that may only
exist in your situation.
Speaker 1 (32:55):
It depends. All right, Let's let's go back to a
very an easier question to answer definitively Brian factor fiction.
You can carry forward unused capital losses indefinitely.
Speaker 2 (33:06):
On the other hand, there are some that are black
and white. This one is fact. So if you have
a loss meaning you know, perhaps you bought a stock
sometime during the year and it went the wrong way
on you and.
Speaker 1 (33:16):
You sold it.
Speaker 2 (33:16):
Therefore you've incurred a loss, Yes, you can carry forward
those capital losses indefinitely. What that means is that you
are able to deduct up to three thousand dollars off
of your income of short term losses. That short term
meaning you bought it within a year or bought it
and sold it within a year and took a loss
on it that short term, and you can offset an
unlimited amount of gains with your losses. So if you
(33:41):
have a million dollar gain and you have a million
dollar loss, guess what, you're not paying any taxes. The
carry forward part of this means if you had more
losses than gains during the year after you've taken the
three thousand dollars deduction in addition to the long term offset,
then you can carry forward those into the future. This
is why you're asked when you do your taxes, do
you have any loss carry forwards? And most go Most
(34:02):
people go, I don't know know what that is, So
I'm gonna.
Speaker 1 (34:03):
Guess I don't. There is a form that you that
you are.
Speaker 2 (34:06):
Filled out, that you filled out as part of your
ten forty that will track that for you, So make
sure that you're on top of that so you don't
lose that benefit.
Speaker 1 (34:13):
Coming up next, I'm gonna give you my two cents
on proactive tax planning. You're listening to Simply Money presented
by all Worth Financial on fifty five KRC. The talk station.
You're listening to Simply Money, presented by all Worth Financial
Sponsorer along with Brian Jams. All Right, Brian, I feel
(34:36):
so strongly about this topic we're going to spend a
few minutes on and I'm anxious to hear your perspective
as well. And what we're talking about tonight is proactive
tax planning, actually taking the time in the effort sitting
down with a fiduciary advisor to actually dovetail your investment
strategy with your tax planning strategy. So few people, Brian,
(34:59):
we find or doing this, and it's one of the
biggest value ads I think that we add for our clients,
and it's something everyone should be taking advantage of.
Speaker 2 (35:09):
Yeah, I think that's a great point, and I think
there's an awful I'm glad to hear you're going to
be talking about this because there's an awful lot of
people who focus only on what's my ten to forty
gonna look like this year? How do I reduce my
taxes this year? That's not the only thing to focus on.
Speaker 1 (35:21):
Is about now, And I'm going to break this into
two categories. One is for an after tax account. You know,
so now we're not we're talking about your brokerage account,
not your IRA or your WROTH IRA, your taxable account.
You really do need to take a look at if
you're not doing so already, these tax loss harvesting opportunities
that can and should go on in the background through
(35:43):
a well managed investment portfolio, and that allows you to
harvest these short term losses to be used, you know,
in the future to offset future gains. It's a wonderful
planning opportunity and one that we're not seeing enough people
take advantage of just in the overall management of their portfolio.
And then the second thing that I want to talk
(36:04):
about is just overall strategy where this is where you
get into WROTH contribution or WROTH conversion strategies, social security
claiming strategies. Putting everything together in an overall income producing
strategy with an eye on tax management to keep your
marginal tax rate in the lowest possible bracket. It can
(36:27):
be Brian, it can pay huge dividends down the road.
And this is where you got to take advantage again,
usually with an advisor of some of the good software
and planning tools that are out there to actually walk
people through how to make this work. And then we
can run those projections on. Hey, if we do strategy A,
(36:47):
B or C, or a combination of all three, here's
how it impacts to your point, Brian, your tax situation
not only this year, but five, ten, fifteen, twenty years
down the road.
Speaker 2 (37:00):
Took a call last week, Bob that right on this topic.
One of the radio listeners called in wanting to know
how he can reduce taxes on his required minimum distribution.
So this gentleman's in his mid seventies, he's required to
take money out of his IRA, and I have a
choice about it, and he's wanting to reduce taxes. Unfortunately,
there's not a hike of a lot you can do
at that point unless you're own own a business, You've
(37:20):
got some you know, different entities out there generating losses
or whatever. It's not like the old days where you
can kind of just you know, look for hidden deductions
and so forth. The right answer to this would have been, Hey,
ten years ago, let's start reducing your IRA by converting
to a ROTH. That way, in the future you will
have fewer rmds.
Speaker 1 (37:37):
That's tax planning. Yeah, excellent point, Brian, And again we
want to get out in front of some of these
tax planning opportunities and what we find most often with clients. Brian,
you know, you feel free to weigh in here, but
there's usually this low income period of time, the intervening
years between when someone retires and when they have to
(38:00):
start taking those required minimum distributions. That's where a lot
of this magic can happen, where you can put their
entire plan. You know, I like to use the automotive analogy.
Put the entire plan up on the rack and look
for that ten, twelve to fifteen year window where we
can keep people in a very low tax bracket and
accomplish some big things, you know, down the road. Yeah.
Speaker 2 (38:23):
Absolutely, that's a great donut hole to be able to
take advantage of some tax obligations.
Speaker 1 (38:27):
Thank you for listening. You've been listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
Talk station
Tonight, a state tax drama that could wreck your marriage
plus one a roth conversion doesn't make sense, But first
tough questions to think through in the retirement planning process.
You're listening to Simply Money, presented by all Worth Financial
on Bob Sponsorer along with Brian James. All Right, tonight,
we've decided to play the financial planning version of would
(00:28):
you rather? Because the decisions you make now could have
a major impact on your future self. Let's get into
the first question, Brian, question number one, would you rather
take a lump sum pension buyout or just stick with
a guaranteed monthly payout?
Speaker 2 (00:44):
Well, Bob, what is our favorite answer? What's our catchphrase?
Let's sing it with eagles level harmony?
Speaker 1 (00:50):
Right, question like this? It depends.
Speaker 2 (00:53):
Wow, that was Don Henley and Glenn Fry right there.
You're welcome, ladies and gentlemen. Good show today. Glad you
came out. No, so did lump sum vers versus guaranteed
monthly is a very big decision that depends on your
other resources. So the math will show if we we're
comparing if I take a lump sum, obviously that's going
to be invested somehow, some way, it's going to grow
versus that monthly payout, which is a guaranteed, predictable and
(01:16):
that can have a good psychological impact. So it really
depends on what your priorities are. If you are somebody
who you know this. This decision often comes up with
people who are in state funded pension plans because those
folks generally have a decision of lump versus monthly and
it's got a lot of money built into it. Social
Security obviously does not come with a lump sum decision.
So but anyway, so if you are the math will
(01:38):
show that if you invest, you're gonna wind up with
more down the road, and that's going to give you
more for your kids. And for some people that's the
kicker right there. If I simply take my monthly pension,
then I will get it, my spouse will get something
based on survivor, but the kids will get squat. And
if my career was based around funding a pension like
a lot of teachers and hospital workers versus funding a
four oh and K, then the lump may be the
(01:59):
one because it'll leave something behind. On the other hand,
if it is more comfortable and there's a lot of
people for whom this is important, and it makes sense
once you've gone through it. If the predictability is most important,
then take the monthly. There's also way you can do
a little bit of both, but that's an individual situation.
So all right, I'm gonna throw it at Bob. Bob,
would you rather go with buffered ETF to reduce your
volatility or say the heck with it. I'm just going
(02:20):
to ignore the volatility and throw it in long term
index funds for growth.
Speaker 1 (02:23):
What feels better to you, Well, my initial response is neither.
I'm not going to go all in on either of these.
I like to have a little bit of everything. So,
you know, the buffer ETF strategy, you're basically putting a
floor under your money and you're putting a cap on
how much it can grow. So the more you start
to mix this stuff into a portfolio, it looks and
(02:44):
smells just like a balanced portfolio. You know, the buzzwords
are out there, buffered ETFs, it's fun, it's sexy. There's
a lot of nice moving parts in there. Sexy to you. Oh, Bob,
I better not touch that, all right. Anyway, it's an option,
it's a tool in the toolbox. I think it's good
to look at these things and then evaluate them according
(03:05):
to just a good balanced portfolio, and then everyone's situation's different.
You just brought this up on the last question. Where
does your income need to come from? Is it social security?
Is it pension? Is it IRA? What are your rmds?
You know, I think depending on how we're going to
structure an income strategy, that should dictate what tools we
use in an investment portfolio. The nice thing about all
(03:27):
of this is it's flexible and changeable, unlike some of
these permanent annuity strategies where you can't get out of
them if life and situations change. All right, Question number three,
would you rather have your entire portfolio in direct indexing
with personalized tax loss harvesting or in real estate that
(03:48):
generates cash flow? One? Two, three? It depends. Come on,
Bob ke, It doesn't depend for me. Okay, well you
answer and I disagree. But so again, the keyword is entire.
It says entire portfolios.
Speaker 2 (04:03):
Question we're being asked, Peck, No, I would not want
my entire portfolio in any of this stuff, so h
but I want a little of both because they're both
good things. If I got real estate. That's something that
can keep up with inflation. It'll spit out cash flow,
and I can do some things with some fun things
with tax planning. However, I also like just the overall
general growth of stuff, because I do believe in human
beings and their ability to be smart, come up with
(04:23):
creative things that other human beings like and make a
lot of money. That's where direct indexing comes in. On
the other hand, the tax codes as we live in
this country right now are heavily in favor of real
estate for a lot of reasons. So I want a
little bit of both.
Speaker 1 (04:36):
Pretty all right, all right, Well, the only reason why
I reacted the way that I did is when I
read real estate the cash flows, I'm thinking of being
a landlord and personally owning rental property. I've been there,
done that, gotten the phone calls at three in the
morning saying my toilet's clogged up. I want none of that.
That's it depends part fair enough. Yeah, Yeah, I think
(04:56):
what you're referring to is a professionally managed, diversified real
ess state portfolio. Yes, you know where you're not touching
it and you're not cleaning things up or doing yard work.
Speaker 2 (05:06):
Can work for nobody else's plumbing the toilets. Yes, yes,
all right, so good good stuff there, all right?
Speaker 1 (05:12):
Number four? Would you rather invest in a promising startup
that you're passionate about or a boring but reliable dividend
paying stock. This is a solid both, and the word
is passion.
Speaker 2 (05:23):
Now will I Will I get involved in a startup
just because somebody else told me it's cool and sexy
and whatever.
Speaker 1 (05:28):
There's that word again.
Speaker 2 (05:29):
But no, probably not, because I'm not really am not
really chasing the big pop anymore.
Speaker 1 (05:34):
I don't really care. I don't.
Speaker 2 (05:35):
That doesn't drive me, Because you can, You'll be wrong
nine times and you'll hit on the tenth and you'll
still be annoyed by.
Speaker 1 (05:39):
The first nine.
Speaker 2 (05:40):
But if it is truly something I am passionate about,
if it's a mission or a product that I think
is really cool and I'm going to pay attention to
it outside of the value of a stock, then yes
that that would.
Speaker 1 (05:48):
Definitely do that.
Speaker 2 (05:49):
Boring but reliable dividend paying stocks definitely play a role
for a portion of a portfolio there to be boring
and ignored and help me pay my bills.
Speaker 1 (05:56):
Now, the only thing I'll add on this startup is
I'm gonna want to do some heavy research on the
management team, what the edge is here? If I really
dig under the hood and I feel like I got
a good command on what's going on here with the
management and the strategy, and if, let's face it, if
the company has an edge that no one else has,
(06:16):
I'm going to tend to tilt toward that. But but
not put my whole portfolio in. Like you just said,
you know, dip your toe in the water, but don't
you know, don't bet the ranch on one thing, all right?
Would you rather live off dividends and interest or systematically
draw down your portfolio meaning the portfolio balance over time.
Speaker 2 (06:36):
Ran So this is a question of a financial plan.
It's not really so much choosing this method versus that method.
What do I need if my if my, if my,
if I can live off the dividends that my portfolio
is already generating, then that might be an okay situation.
Speaker 1 (06:51):
But I don't.
Speaker 2 (06:51):
I no longer believe in this notion of this sort
of antiquated notion of uh of living off keeping my
principal intact and only living off the dividends and the
interest that's not really a thing anymore. That was kind
of fifty sixty seventies thinking when dividends were a much
bigger piece of the return of a public traded stock.
Now we are all about the big pop and growth.
So companies attract stockholders not by paying a fat dividend.
(07:14):
Sorry to up and G people out there, great company,
but that's a fairly rare story nowadays. But now it's
about the growth side of things. So if I want
to live off my dividends and interest, I'm going to
wind up investing in companies that don't have a ton
of growth potential.
Speaker 1 (07:25):
All right, I'm going to take a little bit different
spin on this one. And this just comes down to
a client's objectives. And this is what I mean by this, Brian.
I have folks that come in and say, look, I'm
willing to die broke. I don't care if I leave
one penny to my kids. We've paid for their private education,
we've helped them out, you know in other ways. We
want to enjoy our retirement years, and we don't care
(07:47):
if this thing gets drawn down to almost nothing. I
have other clients that come in and say it is
critically important to us that we only spend down. You know,
we do not see that portfolio balance dwindle or go down,
because it's very important to them to leave a large
legacy to their kids and maybe the chosen charities, you know,
(08:08):
the instruments are that we use or the next phase
in the plan. But I think we first got to
get you know, people need to tell us what they
want to do. What are their objectives as far as
handling their wealth. Would you agree with that?
Speaker 2 (08:20):
Yeah, except again, I want people off the notion that
if I'm going to invest in dividend paying stocks to
protect my principle, There's no such thing. Dividend paying stocks
move up and down with the market, just like anything else.
So don't lull yourself to sleep that your principle will
stay solid and never move.
Speaker 1 (08:33):
Got it. You're listening to Simply Money presented by all
Worth Financial on Bob Sponseller along with Brian James. All right,
let's keep rolling here. Brian, would you rather buy a
second home in retirement or just rent when you travel?
Write the check, go in, use the home, and get
out of there and have no further involvement.
Speaker 2 (08:50):
So I'm a little slightly close to this. We don't
own a second home. I don't think we're going to.
But however, I do have to pay a lease, a
twelve month lease for a nine month academic year out
in Athens, Ohio, which is my and my wife's happy place.
So we have been out there probably seven times in
the last couple months, just because otherwise it's a storage unit.
Speaker 1 (09:07):
Got to pay for it anyway.
Speaker 2 (09:08):
And so that's been my experience having a second home,
and it has been fantastic to just roll and go
and our stuff is all there and we unlock the door.
Speaker 1 (09:15):
And then we're there.
Speaker 2 (09:16):
However, I would realistically, when it's me traveling, I want
to see different places. And I have seen a lot
of clients go through this, We're gonna buy a beach
home at such and such beach because we always love
to go there, and blah blah blah, and then they
get to a point where they feel guilty because they
want to go somewhere else to see something different, and
they'll feel like they're wasting their money. I want to
go see the Grand Canyon, but we have this condo
down in Florida, and we just got to go there
(09:37):
because otherwise it's a waste of money. It just seems
like not to mention when those those beach houses are
getting pricey anyway themselves, let alone the insurance. The real
estate market may fall apart, but those insurance and HOA
costs are going to stay up there because they're all
inflation based. So anyway, I will answer that one by saying,
I'm going to be a renter. I'm going to go
stay in cool airbnbs, and I'm just gonna be okay
with the fact that they're a little more expensive because
(09:57):
they're fun places to go.
Speaker 1 (09:59):
That being said, I know if that if that little
house in Athens, Ohio comes up at the right price,
you are dying to buy one because you want to
You want a reason to go hang out and go
party in Athens. You've been talking about it. May or
may not have broadcast this show from Athens, Ohio. It
sounds like your wife already put the cabash on that.
That's what I've known. She's leading the charts on it. Okay,
(10:21):
all right, Would you rather move closer to your adult
kids or stay put and just travel to see them?
This one's a This is a fun one for me.
Speaker 2 (10:31):
Actually, I'm gonna'm gonna do a quick answer, because I
want to hear you're in this situation.
Speaker 1 (10:34):
I'm not yet.
Speaker 2 (10:34):
Mine are still in the NESPA, getting close to leaving.
I I like the idea we just got done talking
about travel. I want them to go see the world,
and I want to want them to. I want to
go see their new world and what it's like and
have them tell me all about it. You're in this situation, though, Bob,
what is it like on the other side?
Speaker 1 (10:47):
My advice is never, I shouldn't say never, be very
careful about planning your life around, aligning where you live
to be close to your kids, because they're gonna move
around and do different things. Bob just said, always think
about yourself first. I'm just saying, kids move and and
you know, we've got three sons and I've watched them
(11:09):
move around, and you know, yeah, my wife wants to
play whack a ball and live, you know, down the
street from them. I think it's virtually impossible to plan
that out.
Speaker 2 (11:18):
That's my three studio apartments, yeah a block, Yes, all right.
Speaker 1 (11:23):
Would you rather gift a vacation home to your kids
now or wait and deal with it in your state? Plan? This?
Speaker 2 (11:30):
To me, this one's black and white because a lot
of people want to do this because they like the
notion that that that my kids will will you know,
I'll see them smile, right, I want I want to
see them happy with the things.
Speaker 1 (11:40):
Well, this is that makes sense.
Speaker 2 (11:41):
If you're giving the money that kind of thing, they
can do their thing and benefit from it. But this
is a home that they can use now, regardless of
whose name is on the title. If you give it
to them now, then they accept your original cost basis
in this property, and that means there's no step up
in basis. So in this one, this one's black and
white to me. Hang on to it, let them enjoy it,
give them the keys, go be a family and celebrate it.
Don't worry about the money side of it. Who cares
(12:03):
because when you pass on, if they inherit it via
the settlement of your state, they get a step up
in cost basis and it's as if they purchased it
that very day.
Speaker 1 (12:11):
All right. The thing I want to add to this topic,
and I agree with you deal with it in your
state plan. But deal with it meaning I like to
see folks put these vacation homes in a family limited partnership.
So they limit their liability. And sit down with your
kids now before you get old and can't make decisions,
and God forbid die and find out what your kids
(12:31):
want to do with this and how decisions are going
to be made about this home after you die. You
might be surprised at the answers you get, and that
would be a reason to do different things in your
state plan based on what your kids want to do.
Speaker 2 (12:44):
I'm going to tack onto your tack on because I
think that's a great point, because this is important. It
comes up all the time with other with clients where
I'll have some of the client passes away and now
we're working with their children, and the clients thought that
this vacation home was going to stay in the family forever,
but it doesn't. The kids come and they go. You know,
we've gone there for years. Our children are not into it.
They want to do different things. We just want to
sell it. So don't get married to the idea your
(13:05):
kids want this home.
Speaker 1 (13:07):
Here's the all Worth advice. Would you rather questions help
you figure out what truly matters before the big decisions
come knocking. Next, How a state taxes drove a couple
to divorce and the lesson we can all learn from that.
You're listening to Simply Money presented by all Worth Financial
here on fifty five KRC, the talk station. You're listening
(13:32):
to Simply Money presented by all Worth Financial. I'm Bob
Sponseller along with Brian James straight Ahead at six forty three,
we're going to separate financial planning fact from fiction and
bust some of the biggest myths investors are still holding
onto out there. All right, Let's imagine a high powered executive, brilliant, driven,
loved by his family, but so obsessed with shielding his
(13:55):
fortune from estate taxes that it cost him what mattered
most to him, his marriage and his connection with his kids.
We actually came across this actual story and market Watch
and it's turning into a It has turned into a documentary. Brian,
what's going on?
Speaker 2 (14:11):
Yeah, So there's this is a story about somebody who
just was so obsessed with poking the irs and the
eye it cost cost him everything. So who was Harvey Shine.
Let's talk about Harvey Shine for a second. So Harvey
was born in Brooklyn in nineteen twenty seven. He basically
smart guy, came through Harvard, wound up being a very
important figure in Sony America.
Speaker 1 (14:30):
Might have heard of him.
Speaker 2 (14:30):
He was the CEO of the nineteen seventies. So in
his later years he was absolutely obsessed with minimizing the
tax liability on the money that he had and more importantly,
his whole legacy. This is a new documentary coming out
called Death and Taxes that his son is directing, and
it basically he was This became his life. So twenty
years of all of the of the family trying to
(14:52):
figure this out, he insisted on moving to Florida to
avoid state taxes. That's not too crazy with lots of
people do that, but that's where his wife was miserable.
She hated Florida. She was a born and bred New Yorker,
loved it up there and wanted to stay, but he
basically forced the move because of his obsession with taxes.
So at the end of the day, so you know,
the point of this all is that it's a great
(15:15):
example of what not to do. Taxes are taxes. There
are things to plan around. I would also extend this
a little bit, so I'm thinking of a client. This
wasn't about taxes, but lots of clients get obsessed with
I want to hit a certain dollar amount before I retire,
you know, and I was thinking one specifically. His target
was two million dollars. The only reason he was two
is because he was kind of in that ballpark around
one point eight or so, also had some health problems
coming up and just some other things going on that
(15:36):
basically said, hey, you need to think about yourself and
your family more so than going to work for another
couple of.
Speaker 1 (15:41):
Years just to hit that that that mark.
Speaker 2 (15:43):
And I said, if you want to see your name
with the word two million dollars on it, then let's
throw the equity of your house into the mix here,
not just your investment accounts. There's two million dollars. Now,
go retire and be appy.
Speaker 1 (15:52):
And he did. And I'm kind of proud of that moment. Well,
the thing this guy did was he and he ignored
the advice that my dad gave me when I got
engaged and shortly before I became married, and it was this, bob,
just remember, if mama ain't happy, nobody's happy. This guy
moved his wife to Florida. She was a lifelong New Yorker,
(16:13):
so she loved the theater scene. She was a dancer,
she loved the city life in New York, threw her
down and probably Naples, Florida, just to avoid state income taxes,
and yeah she's miserable. He ends up getting divorced. All right.
What we learned from that story is the state planning
is it deeply practical, but never more important than human connections.
(16:34):
It's meant to protect you. Gotta sit down and think
through this stuff before you just let the proverbial tax
tail wag the dog.
Speaker 2 (16:42):
And Harvey's final years were spent talking to accountants and
lawyers and filling out paperwork endlessly over this. This is
something that his son brings up in the documentary. That's
his last memory of his father. Don't get obsessed with
this stuff.
Speaker 1 (16:52):
All right, Every Sunday you're gonna find our all Worth
advice in the Cincinnati Choirir. Here's a preview and Brian
will tee this one up for you from Della high
Township says or ask is there ever a time when
a Wroth conversion doesn't make sense? It seems like all
I ever hear is that the best things ever? I
love this question. Yeah I do too.
Speaker 2 (17:12):
It's always a fun conversation because everybody hears Roth's tax free,
will I'll just do that. I'm gonna appall from my
house into a roth ira. It's just that simple, right. Yeah.
Speaker 1 (17:20):
There, frequently it doesn't make sense.
Speaker 2 (17:22):
I'm gonna rephrase your question there, I'm gonna say, is
there ever a time when learning about a roth conversion
doesn't make sense? No, it's always a good idea to
learn about them. But a roth conversion is very, very
very much a conscious sacrifice, often of a significant amount
of dollars. If you're playing the long game, it can
be a very powerful tax move, but you got to understand,
you know what the impact is upfront. You are sacrificing
(17:44):
now to create a better tax situation a little bit
for yourself. You can reduce your rmds that way, with
those kick in at seventy three when you have to
take that those dollars out, but also for your heirs,
if it's important to you that they inherit the money,
you know, in an efficient manner than paying taxes when
you're young, in healthy sixty seventy or so and grow
it for another twenty five years. Remember they also get
an extra ten years to let that continue to grow.
(18:06):
Because of the way the way I eraser inherited. So
that's when it's a great idea. When it's not a
good idea is when you just can't stomach that big
fat check. You got it right to the irs on
the front end, But do the math and learn about it. Okay, Bob,
one for you from John and Patty and Warren County
who are asking about private equity. We keep hearing more
about investing in private equity and alternatives. Do you think
this is a smart play? What do you think, Bob?
Speaker 1 (18:26):
Well, they keep hearing about it because we keep talking
about it on this show nowhere that's coming from. But
there's a lot of headlines around this because private equity
and alternative investments. You know, the President has signed an
executive order. The investment companies are all wanting to put
these things in four oh one k plans now, so
it's going to be coming and you're going to hear
(18:47):
more and more about it. Is it a smart play?
You know? Back to our age old answer. It depends.
These things can have lock up periods, they can have
high fees, they can be very volatile, So it depends,
you know, painting just throwing that word private equity in
alternatives out there in one, you know, fell Swooth, that's
(19:08):
a dangerous thing to do. So all these investments are
very specific. They're designed to do different things. In my opinion,
if you're going to consider this stuff, sit down with
a good fiduciary advisor who is knowledgeable in these things
and can walk you through the pros and cons of
each of the instruments available to you, and then more importantly,
do they fit into your personal investment plan? All right?
(19:31):
Coming up next, all Worth Chief Investment Officer Andy Stout
is in with investment solutions for those focused on having
income streams. You're listening to Simply Money presented by all
Worth Financial on fifty five KRC the talk station. You're
(19:52):
listening to Simply Money presented by all Worth Financial. I'm
Bob Unteller along with Brian Jings, and we're back with
all Worth Chief Investment Officer Andy Stout. Andy Tonight, we're
going to talk about an important topic for most investors
out there. A lot of people are thinking about, Hey,
I got this pile of money, I have these investment accounts.
How do I craft an overall strategy focused on income generation?
(20:17):
What what do you tell investors? Savers retirees about that topic.
Speaker 3 (20:23):
Well, I would start by saying, tell me a lot more,
because there are so many ways that you can get income,
and it really depends on you know, what your objectives are,
what your besides.
Speaker 1 (20:35):
Income, Well, let me let me let me help you
out a little bit. I mean, obviously, we've got we've
got clients that are you know, almost one hundred percent
bond They just want a safe, income generating portfolio from
a mixture of bonds and cash. We have other folks,
as you well know, that are more balanced investors, you know,
more of that fifty to fifty sixty forty kind of investors.
(20:56):
And then we've got, you know, clients that want to
have a lease skew toward growth in their portfolio seventy
eighty ninety percent in stocks, but still want some income
you know, coming from their portfolio for cash flow. With
that as a backdrop, talk about some things that we
do in the way of portfolio construction for all three
(21:17):
of those kind of folks.
Speaker 3 (21:19):
But if you're looking for the individual bond, so that
first type of persona, if you will, that you described, yeah,
I would probably start to think about bond ladders, which
are a way to spread out your individual bond. So
think of like an example, being a one to five
year bond a ladder where you take your investment, say
it's a million dollars, just to keep it simple, basically
(21:44):
invest two hundred thousand dollars and bonds that mature in
one year from whenever you do it, two year, three year,
four year, and five years. And then as you get
closer to those bonds mature and you take those those
one year bonds that are now matured and buy a
new five year group of bonds. And so that allows
you to stagger your investments over a period of time
(22:05):
and helping to smooth out the overall interst rate risk
that's out there. And it's not just quote unquote bonds.
I mean, there's different types of bonds that people should consider. Okay,
if you're in a high tax bracket, you might want
to be looking at municipal bonds because that'll give you
a federal tax free income and possibly state tax free
(22:25):
income depending on the bond that you actually get. Now,
if you're not in a high tax bracket, or maybe
you already have a lot of exposure to me, you
needs to just want to diversify you can also look
at corporates and treasury bonds, so there's a lot of
options for you from that perspective.
Speaker 1 (22:43):
So you know, when you.
Speaker 3 (22:45):
Look at those bond ladders, that's one thing that I
think makes a lot of sense if you have individual bonds. Now,
another type of you know, PERSONA would be the person
who's investing in individual stocks. So if you're investing in
individual stocks, you know you want to make sure you
stay diversified from that perspective, and you can easily focus
(23:08):
on individual stocks to have a high you know, dividend
paying mentality if you will, and you used to look
at like what their yield has been or what their
expected yield is going to be. And the key is
really just to make sure you stay diversified. You want
to not have it all in one sector. So it's
really critical that you pay attention and not just buy
high dividend yielding stocks. And you also probably want to
(23:30):
actually look at the names because some of those names
could be paying a high dividend for all the wrong reasons.
So you might see, oh, this has a ten percent dividend,
this is great, Well, maybe it only has a ten
percent dividends because the stock has been crashing and maybe
there's no prospects for any sort of real improvement and
that dividend could be at risk. So you really need
to pay attention to stable cash flows, and you know,
(23:53):
we definitely want to focus on stable companies. And the
other person Ona that you know we talked about was
a diversified investor. Now you can certainly combine individual stocks
and individual bonds. You can also go to fund route.
You can use like exchange trade to have funds or
mutual funds to achieve pretty much the same thing. So
you can get income in at four five percent range,
(24:14):
depending on how much risk you're willing to take. By
having a diversified portfolio of stocks and bonds, so you
can have your typical you know, sixty forty mix as
an example, and get that roughly you know, four to
five percent yield. And the key here is to make
sure you're diversified. Don't just put it all into one
ETF or one mutual fund. You want to spread it
(24:36):
over different types of dividend payers and different types of
bond investments that pay out income. So there's lots of
opportunities there.
Speaker 2 (24:46):
So Andy, one thing i feel like I've seen talking
to my clients. You know, over the past fifteen years,
it seems like, obviously we've had really really low interest
rates up until about three years ago. It seemed like
during that period, when interest rates are so low, people
were much more attracted to the idea of, you know what,
I'll just invest in the diversified portfolio of you know, stocks, funds, bonds, whatever,
(25:06):
and just take distributions out of it, especially when it's
like an IRA where there's not much control over the
taxation anyhow, You're going to take your distributions to pay
your bills, and you're going to pay your taxes, and you're.
Speaker 1 (25:14):
Going to like it, by God.
Speaker 2 (25:16):
But in any case, have you seen a shift over
the last three years more interest in individual bonds? It
feels like we've maybe going back to where it was
in late nineties early two thousands.
Speaker 1 (25:25):
Are you seeing the same thing?
Speaker 3 (25:27):
Yeah, I'm seeing interest there for sure, for all the
reasons you just mentioned. But there's a few other things
that have been becoming more and more attractive for investors.
One thing that I'm seeing is covered calls. So if
you have a big position in proper and gamble as
an example, you're seeing some investors write call options on
(25:49):
them to generate their own income, and that's just another way.
Now you run the risk of that stock getting called away,
but there's rules you can put in place some minimize that.
Another thing that I'm seeing out there is some structured
notes to generate yield. So it's not just the individual
bonds that have seen increased attractiveness. And I don't call
(26:11):
these exotic investments. I mean covered calls, structor noteses are
relatively mundane in today's day and world. I mean twenty
years ago maybe you might have thought that, but now
not so much. But yeah, you were seeing a shift
in general to a broader offering overall.
Speaker 1 (26:30):
Good stuff there, Andy, and I think the point we
want to drive home to all investors out there, there's
a lot of options out there, a lot of things
to consider, and a lot of variables to factor in
when you construct a well designed income plan from your portfolio.
Thanks as always to our Chief investment Officer, Andy Stout
for joining us today. You're listening to Simply Money presented
(26:52):
by all Worth Financial on fifty five KRC the talk station.
You're listening to Simple Money presented by all With Financial
on Bob sponsorer along with Brian James. Do you have
a financial question for us to answer. There's a red
(27:14):
button you can click while you're listening to our show
right there on the iHeart app. Simply record your question
and it'll come straight to us. All right, Time to
play financial planning factor fiction, Brian, I'm gonna let you
start off factor fiction. Direct investing can offer better tax
efficiency than traditional ETFs. Fact, this is a fact, Bob.
Speaker 2 (27:39):
So Direct indexing basically means that instead of owning a
mutual fund that replicates a stock index or a bond
index or whatever you know. Most typically that's the S
and P five hundred, which is nothing more than the
five hundred largest American companies, you can own a fund
that does that kind of thing. However, nowadays you can
also own all five hundred stocks individually. That might seem
(27:59):
overWe and maybe I don't want a thirty page statement
and all that kind of thing, But if I own
all five hundred stocks, that means any of those five
hundred stocks is doing anything good, bad, and different. Some
are up, summer down. But if I've got the ability,
I can do some tax loss harvesting in a taxable account.
This doesn't help in an IRA roth IRA. It has
to be a you know, an account that's otherwise exposed
to taxes on an annual basis. But if I own
(28:21):
those five hundred individual stocks, I can sell some at
a loss during the year. Stuff is going to go
up and down. We know how that works. If I
incur that loss, I can stack that up and deduct
up to three thousand dollars off of my short term
you know, against any short term gains and off of
my income. I can also use those losses to offset
any long term capital gains that I may have incurred.
(28:43):
And that it could be because I sold some stock
somewhere else and I ate a capital gain. Maybe I
sold a business and there's a capital gain you know
from that. But direct indexing is a great way for
the right investors to have the ability to do some
tax loss harvesting, so that one which is in fact.
Speaker 1 (28:58):
It just puts more arrows in your quiver, right, Brian,
A lot more flexibility.
Speaker 2 (29:02):
Another weapon. All right, Bob, you're on the hot seat
here it comes fact or fiction, Bob. Social Security benefits.
Speaker 1 (29:08):
Are always tax free. That is fiction. And I think
most people understand this. But you know, your income doesn't
have to get much over forty thousand dollars for a
mery filey joint couple before eighty five percent of your
Social Security benefit is taxed. So now there are situations
if you're a lower income person, or if we can
(29:30):
make you into a lower income person by using accumulated
savings or taking advantage of some of the low capital
gains tax rates. There are ways we can bring that
taxable income number way down, but in most cases, most
people need to plan for paying taxes on their Social
(29:50):
Security benefit.
Speaker 2 (29:52):
Yeah, you're right, being low income isn't necessarily a bad
thing gives you because of control over your taxes.
Speaker 1 (29:56):
All right, my turn, Bob hit me. Structured notes Brian
can be designed with buffers against market losses while still
offering equity linked returns. Factor fiction. This is facts.
Speaker 2 (30:09):
That's what a structured note does.
Speaker 1 (30:11):
That's the whole point.
Speaker 2 (30:11):
Structured note is basically something that is a calculation based
off of what the underlying index, again most commonly the
S and P five hundred against what the underlying index
has done, meaning that we can put a floor under
it and also a ceiling. Right, so there's pros and
cons anything we do. But the purpose of a structured
note is for somebody who says, yeah, I believe in
the stock market. I believe it's going to be the
best source of growth going forward, in the best you know,
(30:34):
for that chunk of my portfolio. But on the other hand,
I also don't like the headlines, and I really don't
like the whiplash you can get, you know, when when
somebody says something, you know, the wrong words are uttered
into a microphone from one of our political leaders or
something like that.
Speaker 1 (30:47):
So I would really rather not have to go through that.
Speaker 2 (30:50):
So a structured note will put a floor in so
that you can't really lose beyond a certain amount. But
that also means you're sacrificing some of the upside. So
you'll decide that if you buy a structured note, that's
one of the decisions you make is how much downside
do you want to be protected from? And that in
turn requires you to sacrifice some of the upside. So,
like another arrow in the quiver. As we already discussed before,
(31:11):
these aren't the end all BLL. No investment is the
end all bell. But structured notes can be a great
way to offset some of the risk of a portfolio.
All right, coming your way again, Bob. Fact or fiction.
You don't need life insurance once you're retired.
Speaker 1 (31:24):
What say you, Well, this is one of those situations
where I'm gonna say it depends I think.
Speaker 2 (31:32):
The opinion that's a that's a that's a chicken financial
planner answer.
Speaker 1 (31:36):
It might be it might be chicken, but I'm doing
my job here, Brian. And the key point we want
to make is it depends on your financial situation. It
doesn't matter whether you're working or retired. What you want
to do is you want to look at your overall
plan and obviously look look at it through the lens
of if I die today, do my heirs have enough
(31:57):
money to accomplish all the goals that we've set out,
you know, with your spouse to accomplish. We ideally we
like to have people in a situation that by the
time they are ready to retire, they're in a position
to self insure they don't quote unquote need life insurance
to take care of things. Sometimes we find that people
are going to retire and they still need a little
(32:19):
bit of life insurance, maybe for five, ten, fifteen years.
Some people might want to keep their life insurance for
an estate planning tool, or to leave a legacy of
dollars to their heirs. So it's a it's an, it's
a it depends answer based on every single family's individual
financial planning needs.
Speaker 2 (32:40):
Yeah, it depends. Is such a common answer. I was
being mean to Bob just because I can. But that's
because there is no end all, be all black and white.
Everybody should do this answer to any of these topics.
Everything is affected by other outside influences that may only
exist in your situation.
Speaker 1 (32:55):
It depends. All right, Let's let's go back to a
very an easier question to answer definitively Brian factor fiction.
You can carry forward unused capital losses indefinitely.
Speaker 2 (33:06):
On the other hand, there are some that are black
and white. This one is fact. So if you have
a loss meaning you know, perhaps you bought a stock
sometime during the year and it went the wrong way
on you and.
Speaker 1 (33:16):
You sold it.
Speaker 2 (33:16):
Therefore you've incurred a loss, Yes, you can carry forward
those capital losses indefinitely. What that means is that you
are able to deduct up to three thousand dollars off
of your income of short term losses. That short term
meaning you bought it within a year or bought it
and sold it within a year and took a loss
on it that short term, and you can offset an
unlimited amount of gains with your losses. So if you
(33:41):
have a million dollar gain and you have a million
dollar loss, guess what, you're not paying any taxes. The
carry forward part of this means if you had more
losses than gains during the year after you've taken the
three thousand dollars deduction in addition to the long term offset,
then you can carry forward those into the future. This
is why you're asked when you do your taxes, do
you have any loss carry forwards? And most go Most
(34:02):
people go, I don't know know what that is, So
I'm gonna.
Speaker 1 (34:03):
Guess I don't. There is a form that you that
you are.
Speaker 2 (34:06):
Filled out, that you filled out as part of your
ten forty that will track that for you, So make
sure that you're on top of that so you don't
lose that benefit.
Speaker 1 (34:13):
Coming up next, I'm gonna give you my two cents
on proactive tax planning. You're listening to Simply Money presented
by all Worth Financial on fifty five KRC. The talk station.
You're listening to Simply Money, presented by all Worth Financial
Sponsorer along with Brian Jams. All Right, Brian, I feel
(34:36):
so strongly about this topic we're going to spend a
few minutes on and I'm anxious to hear your perspective
as well. And what we're talking about tonight is proactive
tax planning, actually taking the time in the effort sitting
down with a fiduciary advisor to actually dovetail your investment
strategy with your tax planning strategy. So few people, Brian,
(34:59):
we find or doing this, and it's one of the
biggest value ads I think that we add for our clients,
and it's something everyone should be taking advantage of.
Speaker 2 (35:09):
Yeah, I think that's a great point, and I think
there's an awful I'm glad to hear you're going to
be talking about this because there's an awful lot of
people who focus only on what's my ten to forty
gonna look like this year? How do I reduce my
taxes this year? That's not the only thing to focus on.
Speaker 1 (35:21):
Is about now, And I'm going to break this into
two categories. One is for an after tax account. You know,
so now we're not we're talking about your brokerage account,
not your IRA or your WROTH IRA, your taxable account.
You really do need to take a look at if
you're not doing so already, these tax loss harvesting opportunities
that can and should go on in the background through
(35:43):
a well managed investment portfolio, and that allows you to
harvest these short term losses to be used, you know,
in the future to offset future gains. It's a wonderful
planning opportunity and one that we're not seeing enough people
take advantage of just in the overall management of their portfolio.
And then the second thing that I want to talk
(36:04):
about is just overall strategy where this is where you
get into WROTH contribution or WROTH conversion strategies, social security
claiming strategies. Putting everything together in an overall income producing
strategy with an eye on tax management to keep your
marginal tax rate in the lowest possible bracket. It can
(36:27):
be Brian, it can pay huge dividends down the road.
And this is where you got to take advantage again,
usually with an advisor of some of the good software
and planning tools that are out there to actually walk
people through how to make this work. And then we
can run those projections on. Hey, if we do strategy A,
(36:47):
B or C, or a combination of all three, here's
how it impacts to your point, Brian, your tax situation
not only this year, but five, ten, fifteen, twenty years
down the road.
Speaker 2 (37:00):
Took a call last week, Bob that right on this topic.
One of the radio listeners called in wanting to know
how he can reduce taxes on his required minimum distribution.
So this gentleman's in his mid seventies, he's required to
take money out of his IRA, and I have a
choice about it, and he's wanting to reduce taxes. Unfortunately,
there's not a hike of a lot you can do
at that point unless you're own own a business, You've
(37:20):
got some you know, different entities out there generating losses
or whatever. It's not like the old days where you
can kind of just you know, look for hidden deductions
and so forth. The right answer to this would have been, Hey,
ten years ago, let's start reducing your IRA by converting
to a ROTH. That way, in the future you will
have fewer rmds.
Speaker 1 (37:37):
That's tax planning. Yeah, excellent point, Brian, And again we
want to get out in front of some of these
tax planning opportunities and what we find most often with clients. Brian,
you know, you feel free to weigh in here, but
there's usually this low income period of time, the intervening
years between when someone retires and when they have to
(38:00):
start taking those required minimum distributions. That's where a lot
of this magic can happen, where you can put their
entire plan. You know, I like to use the automotive analogy.
Put the entire plan up on the rack and look
for that ten, twelve to fifteen year window where we
can keep people in a very low tax bracket and
accomplish some big things, you know, down the road. Yeah.
Speaker 2 (38:23):
Absolutely, that's a great donut hole to be able to
take advantage of some tax obligations.
Speaker 1 (38:27):
Thank you for listening. You've been listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
Talk station
Simply Money News
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