August 29, 2025 • 38 mins
Most of us spend decades chasing “more”—more returns, more growth, more money. But what happens when you’ve already won the game? On today’s episode of Simply Money presented by Allworth Financial, Bob and Brian explore when enough is actually the best strategy. From high-net-worth investors risking too much on tech stocks and crypto, to the psychology of always wanting “just a little more,” they break down why preservation and simplicity often beat chasing returns.
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Episode Transcript
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Speaker 1 (00:06):
Tonight, we look under the hood and talk about when
enough could be a better strategy than more. You're listening
to Simply Money, presented by all Worth Financial on Bob
Sponseller along with Brian James. We talk a lot on
this show about growing your wealth, making smart investment decisions,
and not leaving money on the table. But here's a
(00:26):
curveball for your Friday and heading into a long weekend.
What if you're already there. What if the smartest financial
move isn't chasing those bigger returns, but actually dialing it
back a little bit, because at a certain level of wealth,
the game changes. Brian, this is an interesting topic and
one that we actually run into and talk about a
(00:49):
lot with our clients, So let's get into it.
Speaker 2 (00:52):
So, Yeah, I actually just had a meeting just the
other day with somebody that's probably in this situation. Older
couple has worked extremely hard their entire lives over decades
building a portfolio of real estate, and they've done it
by not hiring a property manager. They've done all the
work themselves. And this is just how what the little
business they've built for their family, Well, they've had a
(01:13):
point where they hit that time of life where now
health problems are creeping in and all these other things.
And so we've had a very brief conversation. And the
first thing I asked was what is the first thing
that you think about when you wake up in the morning,
what's on your mind? And the answer was, I'm worried
about my spouse's health. And I said, okay, that's great.
You haven't You did not say your spreadsheet. You did
(01:34):
not say growing your wealth. You did not say worrying
about the tenant that left you message overnight. You said
something very family oriented. And so that as we continue
to talk, we realized that this family has built such
a powerful machine that they are the most of this
assets are going to go to the kids. And that
is a good thing because obviously they've built something that
will support themselves. But also it means that they've probably
(01:56):
been taking on a lot more stress than is necessary
because they've allowed that machine to kind of run their lives.
Speaker 3 (02:02):
Even though they didn't really need it anymore.
Speaker 2 (02:04):
So let's walk through an example here. Let's say you're
sixty two years old, you and your spouse retiring a
couple of years, maybe two million dollars between four to
one k's iras brokerage counts, and then a little bit
of cash, no doubt, house paid off, want to travel
a bit, spend some time with the grandkids, and go
go hit that Viking River cruse you've been talking about
for years and you've heard your friends do. If we
assume we need maybe ten thousand a month or one
(02:24):
hundred and twenty thousand a year to live comfortably between
social Security and maybe a modest pension that sometimes still
exists out there, and about a four percent draw down
from your portfolio, you might be all set.
Speaker 3 (02:34):
So if that's the case, why.
Speaker 2 (02:35):
Are you still like trying to invest, like you're trying
to build that two million dollars instead of using it
the way it currently is.
Speaker 1 (02:43):
Yeah, Brian, I'm thinking of a particular client. I've worked
with he and his wife for I don't know, six
to eight years now, and it's just been an interesting
evolving relationship with this couple in money, and it's kind
of going back to the first example you cited when
I asked them, what are your biggest fear? What do
you think about every day? They this guy told me
(03:03):
the market, the stock market, the volatility of the market,
the uncertainty of everything going on in Washington and around
the world and political stuff and all that, and he
just doesn't want to deal with it, and it makes
him nervous. And as he approached retirement, he was afraid
to retire. This guy, they have plenty of money, he's
almost seventy years old. He was afraid to retire because
(03:27):
he was worried that he wasn't going to have enough money.
And every time we ran the financial plan, you know, backwards, sideways,
you know, rik testing it, you know all of that,
they are fine. I mean, one hundred percent probability of
meeting all the financial goals, no problem. Yet he was
almost embarrassed to say, you know, I'm too scared to
(03:48):
be in the stock market. And thankfully we have finally
gotten to a point where it's like, it's okay, you
are a risk averse investor, You've done the planning, you
have enough money. What I want, you know, is the advisor,
what I want you to do. You know, you mentioned
the Viking River Crew, you know almost and sometimes we
joke about that that's what they should be doing. They
should be going out and enjoying their retirement. So we
(04:10):
got them in. You know, some structured notes. We got
them in some safe stuff. They're earning a return that
outpaces inflation, and they can sleep at night. They're enjoying
their retirement. I used to get five or six phone
calls from this guy per year. Now my phone never rings,
and that tells me that this is a success story.
Speaker 3 (04:30):
Well, he must have a pretty good advisor.
Speaker 1 (04:32):
In the mikeing, well, it's not about me. It's about
understanding what your needs and wants really are and then
finding an advisor and a strategy to match that so
you can enjoy your retirement.
Speaker 3 (04:42):
But go ahead.
Speaker 2 (04:43):
Yeah, we spend a lot of time convincing people that
what they've built is okay, and they're allowed to spend it.
I googled it, Bob, You're allowed to spend your own money.
It's the darnedest thing, right, a little bit of the
worst kept secret everage you can spend your own dollars.
But when we do these financial plans, you know, like
we said, a lot of people have several incomes verses.
They have a couple Social Security checks, maybe there's rental income,
(05:03):
or there's a pension or whatever. So when we come
to this conclusion that, well, my spouse and I we
bring home two hundred and fifty three hundred thousand dollars. Therefore,
that's our lifestyle. We must need to generate three hundred
thousand dollars because that's our gross salary. That is very very,
very very wrong, because you've never seen your gross salary.
You're throwing money into your four O one K that's
usually in your peak earning years, that's usually getting maxed out.
(05:25):
So that can be you know, sixty seventy thousand dollars
of your three hundred going in there, depending on how
you set things up. And you're also paying taxes, fight
A taxes, payroll taxes, income taxes, state, local, all of
that stuff. You're probably bringing home, if you're lucky, maybe
sixty percent of your three hundred. So there is no
way that your budget is your gross salary. It's probably
(05:47):
maybe a little more than half of that, some more
like a one to seventy one eighty. And then you
add in here's what's coming from social security. People who
have worked a long time, you know, in social security generally,
see I'll throw out maybe maybe the one who had more,
who focus on their career a little more, you know,
maybe is at forty fifty thousand, and if it's a
married couple than the one that took time off to
raise kids, maybe sometimes they're around maybe twenty thousand, so
(06:09):
we might be looking at fifty thousand of the one
eighty coming from social Security. So now we've got a
couple million dollars. It really only needs to generate one
hundred thousand or so. That's a four or five percent
rate of return. All of the puzzle pieces fit. You
just got to look at them. You've got to stand
back and look at all of them at the same time,
not fixate on this particular pile is in the market
that is therefore risky, and that's what can sink my ship.
(06:30):
That is looking at the trees, not the forest.
Speaker 1 (06:33):
You're listening to simply money present up by all Worth Financial.
I'm Bob Sponseller along with Brian James. Brian, let's do
a one to eighty here and talk about the other
end of the spectrum, the the dangers of folks that
just want to overwork their money even though they've already
kind of won the game and they have enough. Let's
talk about that because we run into that from time
to time as well.
Speaker 2 (06:54):
Yeah, these are the ones who simply can't let go
of the let go of the bull market.
Speaker 3 (06:58):
Right.
Speaker 2 (06:58):
So we're going so well and people will say sometimes
I'll say, you know what, I'm really I can do
this job in my sleep. I love it where it's
doing great, the company is doing awesome. I just want
one more year, one more year, two more years, whatever,
and it just it never seems to fail. That that's
when some goofy healthcare problem sets in, maybe for them
or more likely for their parents, or something comes out
(07:18):
of left field and then causes an awful lot more stress,
or you know, they get they just get obsessed with
the market.
Speaker 3 (07:24):
We're sitting here right now.
Speaker 2 (07:25):
You know, we've had a really good run these last
few years, and maybe they're still chasing performance.
Speaker 3 (07:30):
These tech stocks, AI crypto, private.
Speaker 2 (07:32):
Placements and all this stuff, and they ride it too
long and start to lose. At this point, losing, at
this point of life, losing feels a lot more painful
than winning feels good. But it's hard to pull ourselves
out of the you know, out out of the situation,
the growth oriented situation, when we've been doing that for
forty years, and we tend to wait until it's too
late until the market kicks us in the teeth. So
(07:55):
the answer is focus on what you want. Have I
accomplished what I need to do what I want not,
and I grow this pile a little bit bigger because
it's usually not necessary and adds unnecessary stress.
Speaker 1 (08:05):
Yeah. I find sometimes people that are highly successful. I mean,
let's face it, they run on adrenaline. They're used to
competing and winning, and it's hard to give that up,
you know, the dopamine rush, the adrenaline rush, whatever you
want to call it. You know, they just can't stop.
Like you said, it's what's made them successful, it's what
they enjoy and they want to keep going. So let's
(08:25):
talk about what folks should do as they approach you know, retirement,
you know, as far as a financial plan or written
income plan, and then really redefining what return on investment
or quality of life really means. Let's get into some
of the discussions that we have with clients and what
people should really be thinking about as they transition into retirement.
Speaker 2 (08:47):
Yeah, one of the smartest things you can possibly do.
It's not about that next great stock pick, right, It's
not about that, you know, the next hit that's going
to give you a little explosion of money. It's when
you've reached this stage of life. Now it's time to
get a written income plan that's going to help you
understand how long your money will last and what buckets
to pull from when. And honestly, that part right there, Bob,
that's the more complicated one, because these days people are
(09:08):
coming in. We've got taxable money in a brokerage account.
Maybe they sold something business, or maybe they inherited something.
We've got pre tax money that's been hanging out in
those four oh one k's and iras for thirty forty years,
and now over the last ten fifteen years, we've got
WROTH money in the mix. Those are all great things
to have, but there are decisions to be made there
as to how to maximize When do I hit my
(09:28):
wroth for tax free distributions? When do I take something
that is maybe taxable as income. How are rmds required
minimum distributions by the irs? How's that going to factor in?
And all of these different things will dictate when you
should And this isn't a path that there isn't a
stated path that everyone should follow. It's not black and white.
Your different situations. Will will will differ from client to client,
(09:51):
and I will give one people that look otherwise identical.
There are often reasons to have somebody do it one
way and another couple do it another way entirely well in.
Speaker 1 (09:59):
The other thing to mention here, Brian, and I know
you see this all the time. Occasionally we'll have people
come in they got fifteen different investment accounts, you know,
thirty five different mutual funds, maybe three or four different
people that they call quote unquote advisors that are really
just product salesman. There's no strategy, there's no income and
tax strategy, and not having a strategy and coordination can
(10:23):
really rob you from a tax standpoint and from an
income security standpoint. Down the road. Here's the all Worth advice.
If you've already won the game, stop playing like you're
still trying to win it. Coming up next, a look
at the huge rise in home equity over the last
five years and what that could mean for you. You're listening
(10:43):
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 on Bob Sponsorller along with
Brian James, Should you never take Social Security early if
you can afford to wait? Is that fact or fiction?
(11:05):
We're going to tackle that question and others straight ahead
of six forty three. When the pandemic hit, the housing
market turned upside down, Mortgage rates plummeted while demand skyrocketed,
and that created a sudden, you know, huge rise in
home equity. Brian, let's talk about where things stand five
(11:26):
years after the pandemic, well, Bile.
Speaker 2 (11:29):
According to a recent study by bank Rate, the average
Ohio property owner has a little more than eighty seven
thousand dollars in equity. That's one hundred and forty eight
percent from twenty twenty. So south of the river in Kentucky,
the home equity amount has jumped about two hundred and
seven percent over that time period. So yeah, we are
definitely seeing the benefits of the the rise in home
(11:49):
values here total value of.
Speaker 1 (11:51):
Property and property tax bills to go with it.
Speaker 3 (11:53):
Oh, of course, absolutely.
Speaker 2 (11:54):
And that's really why we're hearing so much of a
debate about that, because people are saying, hey, it's great
that my house is worth more, but that just takes
more money out of my checking account, you know, in
a lot of different ways. Total value of mortgaged homes
across the country has risen fast too, by about ten
trillion dollars in the last five years. That's faster than
mortgage debt itself, according to the Property Data to a
(12:15):
property data analyst called ICE Mortgage Technology. So that's another
sign of you know, the more expensive a house is,
the more debt people have. And we're getting stretched a
little thin in these places.
Speaker 1 (12:25):
Yeah, a lot of a lot of this home equity,
you know, which isn't measured in that study, is people
that have paid off their homes. I guess that's not
factored into these numbers. But let's get into certain states.
States with the highest growth in home equity over the
last five years, and these numbers, these are kind of
surprising results. West Virginia, Oklahoma, Connecticut, Kansas, and Illinois. Not
(12:49):
exactly what we'd call destination states that you hear about
all the time in the media, yet that's where the
home equity has just ballooned in the last five years.
States with the lowest growth in home equity over the
past five years Washington, d C. Which isn't officially a
state by the way, Louisiana, Alaska, North Dakota, and Colorado. Brian,
(13:11):
any surprise, are you surprised by you know, this list
of states and equity movements.
Speaker 2 (13:16):
A little bit here, because you would think, you know,
I would have thought that the lowest growth in home
equity over the past five years, you know, that would
would have been more of the states where it's grown
the quickest. And I say that because right here, little
old Cincinnati, Cincinnati has been been a hotbed of real
estate growth simply because we're we're we've got kind of
got a lot to offer, and we're fairly cheap place
(13:37):
to live, to raise a family and so forth.
Speaker 3 (13:38):
So yeah, I was a little surprised by this.
Speaker 2 (13:40):
But DC actually saw a decline about thirty eight percent,
dropping from one hundred and seventy two and twenty twenty
to one hundred and six and twenty twenty five, and
then Louisiana dropped about twenty two percent.
Speaker 3 (13:52):
Alaska, North, North Code.
Speaker 2 (13:54):
And Colorado were all positive, but just not as positive
as elsewhere. So yeah, this is an interesting little gathering
of different things happening.
Speaker 1 (14:01):
All right. Something else that continues to rise the cost
of home insurance, and we've talked about this a couple
times on the show. We've got some new data out
from bank Rate right now. The average annual premium in
the United States Brian for home insurance two thousand, four
hundred and seventy dollars. And the data proves out where
the highest rates per household income Florida, Nebraska, and Louisiana.
(14:27):
This is not a surprise to me, Brian. We've got
hurricanes in Florida. I mean Baton or New Orleans is
a city that is situated below sea level. Nebraska has
high winds blowing through there all the time. This doesn't
surprise me. But again another reminder that when you think
(14:47):
about moving somewhere, you know, at retirement, it's not just
about the tax rates. You got to factor in other
things like home insurance. This is becoming a bigger and
bigger deal.
Speaker 3 (14:59):
Yeah, it absolutely is.
Speaker 2 (15:00):
And the thing you mentioned there that all those places
have in common is extreme weather conditions. And so we're
kind of in a hurricane season now. So this is
when we hear that such and such beach community was
wiped out and the little hot dog stand that was
there for fifty years is now gone, and all that
kind of stuff. And then a few months later, we
hear about what happened to the insurance premiums in those states.
(15:21):
And I do know I have some clients that actually
made some investments down to Fort Myers before that big
hurricane hit a few years ago. I'm sorry after the
big hurricane hit a few years ago from people that
just wanted to get out and just take their insurance
money and go away, thinking that it was all going
to be redeveloped. And it seems like the buyers seem
to have slowed a little bit down there on the
other end of it, So some of them are starting
(15:41):
to regret maybe making those purchases because I think people
are just less interested because of what we just talked about.
It's a lot more expensive. You're not just buying a house,
you're also buying an insurance policy, you're buying an HOA
and sometimes you're buying a mortgage. So do your due
diligence and make sure you understand what's involved in that policy.
Speaker 3 (15:58):
We're going to make a move like this.
Speaker 1 (16:00):
Well, the good news from the insurance front, as Ohio
sits in the middle of the pack, it finished twenty
second in terms of the cost of home insurance with
an average annual premium of one four hundred and six
dollars in Kentucky. Brian, the premium, I don't know why,
but it's way higher, I mean more than double that,
at thirty little over thirty five hundred dollars a year. Brian,
(16:20):
Why are these rates so high in Kentucky? You have
any idea? Because I have no clue.
Speaker 2 (16:24):
Honestly, I don't know, and that that's something we should
definitely look into, because I'm sure that somebody's gonna call
in and tell us exactly why. My Kentucky clients might
be right on top of that, but that's not something.
Speaker 1 (16:35):
And I vaguely remember some tornadoes blowing through, you know,
northern Tennessee and southern Kentucky that there might be a
little hangover from that, but who knows. All Right, every
Sunday you find our all Worth Advice in the Cincinnati
Inquire and here's a preview. Jason and Rebecca in Terrace
Park say, we've got three kids, all in their early twenties.
(16:55):
What's the smartest way to give them money without completely
spoiling them? Well, Jason and Rebecca, my wife and I
also have three kids in their early to late twenties.
So the best advice I could give is what I'm
trying to do with our kids, and that's communicate and
see some evidence of them acting responsibly, building a financial plan,
(17:16):
getting all their ducks in a row, in other words,
being able to handle money responsibly before we start just
doling out some money to them, because what you don't
want to do is enable poor habits or non existing
habits just to quote unquote rescue them. So I think
if the kids are doing things responsibly and you can
(17:37):
see evidence of that, and you can help them out,
a little bit of money for a twenty four year
old in the right situation can be game changing for them,
and I'm all for it. But go in with your
eyes wide open and communicate. Communicate, communicate, all right, Brian,
this one's for you, LD from Loveland, says a friend
of mine, you know, says she has her young kids
(17:59):
on her credit cards to build their credit score. I
know you're an expert at this topic. Is this something
you can actually do? And do you recommend it? He?
Speaker 2 (18:07):
Yeah, this is one of my absolute favorite topics. And
I'm on the back end the benefit side of this now.
So I did this years ago, We've got three kids.
And what we're talking about here is an authorized user
not getting their own credit card necessarily, but this.
Speaker 3 (18:18):
Helps you do that.
Speaker 2 (18:20):
An authorized user, over time will inherit the credit score
of the person who actually owns the other credit card.
I guess, so, in other words, my kids have inherited
our credit score. Just watched my twenty four year old
sale through the credit check, the credit check on getting
an apartment, so it actually does work.
Speaker 3 (18:34):
Highly recommend it. All right.
Speaker 1 (18:36):
All Worths chief investment Officer Andy Stout is in next
with some strategies for the investor who wants to be
tax efficient, and let's face it, who doesn't want to
be tax efficient. You're listening to Simply Money, presented by
all Worth Financial on fifty five KRC, the talk station.
Speaker 2 (18:56):
You're listening to Simply Money, brought to you by Allworth Financial.
I'm Brian Names and I'm joined by Andy Stout, chief
investment officer for all Worth Financial. And contrary to the
music we just heard, or in parallel to the music
we just heard, he is the best around. Today we're
going to talk about something called tax Alpha. There's a
lot of words and catch words and phrases and jargon
(19:17):
gets thrown around on the investment industry and there's a
whole bunch of Greek letters attached to him. So sometimes
you run across something called beta, which is just comparing
an investment to a benchmark, and it has a beta
one point two or point nine or whatever, and that's
just kind of relative to a specific benchmark. Alpha is
slightly different. Alpha is something that we look at in
terms of managing, you know, a specific management strategy and
(19:37):
whatever the unique factors is around are around those that
strategy that causes it to do less, to perform, outperform
an index, or underperform.
Speaker 3 (19:47):
What are the reasons behind it?
Speaker 2 (19:49):
So specifically, we're going to talk about tax alpha, which
has what is the after tax impact of investment strategy?
So Andy, tell me a little bit about how can
you control the tax alpha of an invent some strategy.
Speaker 4 (20:01):
Yeah, that's a great question, and it's a might sound confusing. Oh,
tax afa one, what does that mean? Well, let's just
take a step back even from that. Let's say you
own two stocks, Procter and Gamble and Kroger. Let's say
one of those stocks you bought and has a thousand
dollars gained one of them has a thousand dollars loss.
(20:23):
Without tax planning, let's say you happen to sell the
one that has a thousand dollars gain and you keep
the one with a thousand dollars loss. What happens is
that you owe taxes on that gain, so you might
end up paying you know, three hundred bucks. But if
you had some tax aware planning or did some taxace harvesting,
what you would do is you would also sell stock
(20:43):
be the one with the loss, and essentially the loss
would offset the gain and you would owe no taxes
in your portfolio value overall would still be the same.
So tax alpha is really just the extra investment returned
by minimizing taxes is through you know, smart planning strategies.
Speaker 3 (21:03):
Okay, so is this something I would be doing with
my mutual funds or my four to oh one K
or where are the specific places that this is impactful?
Speaker 4 (21:12):
Yeah, that's a great question and really impactful. And taxble
accounts you don't want to do in your four O
on K because it's not even possible from the IRS's perspective,
So don't worry about that. But what you want to
be focused on is if you have a trust account,
or a joint account or an individual account, those are
the accounts. Typically there are others, but those are the
(21:32):
main ones that where you can employ these tax alpha
strategies to sentially reduce the amount of money you pay
the IRS. I mean, that's what we all want to
do anyway.
Speaker 3 (21:42):
Okay, so that's starting to make some more sense.
Speaker 2 (21:44):
But it sounds like this is something where I really
you know, if I have a diversified portfolio of mutual funds,
I may or may not be able to benefit too
much from that, even if it isnt a taxable account.
Speaker 3 (21:53):
Is that right?
Speaker 4 (21:54):
Well, now, if it's out a loss or you have
a gain in other error, if you have a gain
in the mutual fund, you could possibly if you want
to get out of that, sell that and look for
losses in other areas. Or maybe that mutual one has
a loss. It's really just whether or not that investment
has a gain or loss in how you can offset
that in other areas. What you know, we like to
focus on a lot are you know, tax loss harvesting
(22:15):
strategies where you're looking at individual positions. Those could be
mutual funds, could be exchange trade of funds or ETFs.
It could also be individual stocked or individual bonds as well.
Really any security that's in a taxable count, and we're
looking specifically at those investments and sometimes what's called at
lot levels, because you could buy maybe Procter and Gamble
(22:37):
and on one day and then buy it on another day.
You could sell from those specific lots. If one of
them happens to be a higher cost basis, meaning you
might have a lower or an increased loss, you could
sell from that specific one. And it's really just being
laser focused on the ability to target specific securities and
(22:58):
specific lots to harvest losses. And here's the key brine
while still maintaining your overall investment exposure and not deviating
from your broad strategy. So by harvesting those losses, we
can offset gains in other areas, allowing your portfolio to
grow in a tax free way. And if you do
(23:19):
take on more losses than gains, you have a couple
of other options, which is really great. Well, you can
take basically three thousand dollars and use that to offset
your income overall to lower that but probably more importantly
as you can carry over as many losses in one
calendar year and use them in the future. So if
you happen to have banked maybe tens or hundreds of
(23:41):
thousand dollars of losses and you didn't use them all
in one year, you can use them in another year.
You've got to keep track of it.
Speaker 2 (23:47):
Okay, So this sounds like I don't want to root
for losses, but since they're kind of inevitable and they
happen from time to time, this is kind of like
it almost sounds like this is kind of a silver lining.
It's things to go through, that kind of thing. But
at the same time, as long as I know how
the tax code works, it can be kind of beneficial. Now,
I think, aren't there other you know, it seems like
there are other things involving charities. Are there other ways
that I can add some a positive tax return to
(24:09):
my portfolio?
Speaker 4 (24:11):
Yeah, there's a few things you can do. Let's just
say you have a bunch of individual stocks and you're
charitably inclined instead of donating cash, look for the stocks
that have the highest appreciation so with the largest gains,
and you can donate those. You get a tax right off,
and then guess what you didn't pay any taxes on
those gains, and you're still in the same position you were,
(24:31):
Whereas if you would have donated the cash and then
you sell the stocks later, all of a sudden you're
paying taxes on those gains. You can avoid that all
together just by donating your most appreciated stocks. So that's
another really good strategy. You combine that with tax loss harvesting,
and you can do that through a variety of methods.
One's called a direct index, which basically tries to match
(24:54):
an index return but provide that tax alpha. So when
you marry those two things of the charitable donation with
the act of tax sauce harvesting, it's a really powerful
tool that you can have in your tool bell to
lower the amount that you pay the IRS.
Speaker 3 (25:12):
That's great, that's fantastic information.
Speaker 2 (25:13):
None of this is new. This is just the tax code.
This isn't financial products or anything like that. This is
just how the tax code works and understanding how to
apply it to your portfolio. So super helpful information from
Chief Investment Officer Andy Stout. I'm Brian James, and you've
been listening to Simply Money on fifty five KRC, the
talk station.
Speaker 1 (25:37):
You're listening to Simply Money and presented by all Worth
Financial on Bob Sponseller along with Brian James. Do you
have a financial question for us? There's a red button
you can click while you're listening to the show right
there on the iHeart app. Simply record your question and
it will come straight to us. All right, it's time
to play some financial factor fiction. Brian. Let's start off
(25:58):
with you factor fiction and you should never, and I
say never, take social Security early if you can afford
to wait. Factor fiction, Brian.
Speaker 2 (26:07):
You know, Bob, there are some words that I hate
when they come up in a financial planning discussion, and
those words are always and never. There are no rules
of thumb. Everybody's got a different puzzle to put together.
Everybody get me exactly. Yeah, you got to deal with
your own situation anyway. So this one's fiction. There are
reasons to take social security early, if you know. Some
(26:28):
of the sadder stories I've ever heard in my life
is where you know, a married couple is getting ready
to retire, and they're excited about going forward and so forth,
and then all of a sudden, one of them comes
down with something super significant and serious. Forget the math
forget the spreadsheet, forget the you know, the snowball effect
that that's when you need to take control of the
time that you have left and go in And a
lot of times that does involve turn on the Social
(26:49):
Security spigot and don't worry about those eight percent increases.
But on the other hand, there are some others where
if there's plenty of resources out there, you know, and
you then you could benefit significantly from those eight percent
in and push it out till seventy Most of us
are going to be somewhere in the middle.
Speaker 3 (27:03):
All right, my turn, Bob. Fact or fiction, Bob spawn Seller.
As state taxes.
Speaker 2 (27:08):
Can still apply at the state level even if you're
below the federal exemption.
Speaker 1 (27:12):
We think, well, this is a fact, and it depends
on what state you die in and where your airs are.
And let me give you an example. In Ohio, there
is no a state tax at the state level. In Kentucky,
on the other hand, it's a little more jumbled up mess.
You know, if you leave assets to let's say, your
spouse or child or grandchild, no estate taxes. But if
(27:36):
you get into some other airs, there's a schedule, you know,
put out by the state of Kentucky where there's exemption amounts,
there's different percentages that the person inheriting the money has
to pay depending on what the dollar amount is. So
be careful to check the state you live in, in the
state you think you're going to die in and leave
money in, because things can change depending on where you live.
Speaker 3 (27:58):
Sounds like job security for lawyers and accounts.
Speaker 1 (28:01):
Yep, all right, Brian. If I'm maxing out my four
oh one K, I'm saving enough for retirement factor fiction.
Speaker 2 (28:08):
It's another declarative statement that i'd ever like. So I'm
gonna call that one fiction because maybe you know it
depends on your other situation. Maxing out your four oh
one K, that's one thing that's good. I mean, obviously
it's gonna give you the a bigger pile of money.
The more you put in, the more it's gonna grow.
Eventually you'll come to a situation of, Okay, should I
be paying down my mortgage? You know, maybe, And that's
(28:29):
a that's a decision that's a lot of people run
into when they're in the maybe like the last three
five seven years of retirement, where there might be already
a good chunk put into the four oh one K,
And in that case, it may be okay to drop
from the twenty fifteen percent or whatever they're putting in
their four oh one k, drop it back to a
certain amount, to a lower percentage, and then reroute those
savings toward that toward that mortgage. But that's just one example. Again,
(28:50):
it's all about puzzle pieces. Everybody's puzzle pieces look different,
but they all do fit together one way or another.
You gotta figure out what you want your puzzle to
look like. Factor fiction Bob spot on Seller. Tax loss
harvesting in a direct indexing portfolio can improve after tax
returns even if the market is flat or only up
a little bit.
Speaker 3 (29:08):
Is that truer think?
Speaker 1 (29:10):
This is an absolute fact? And this is one of
my favorite things about these tax loss harvesting strategies that
are prevalent out there, and we've got a great one
here at all Worth two. I mean, the thing you
could take advantage of and this is one of the
times you could take a ton of advantage of short
term market volatility because these tax advantage strategies, the way
(29:32):
they work is it's an algorithm floating in the background.
There's you know, things going on that none of us
are looking at and it's it's constantly harvesting losses when
you have them, and then immediately get into something very similar.
So you're fully invested in the market, but you've captured
that capital loss and you can use it later to
(29:54):
offset future gains. It's a wonderful strategy that works really well,
irrespective of whether the market's going up, down, sideways, or
anything in between. All right, Brian factor fiction. Deferred compensation
plans can lower your current taxable income but create future
(30:14):
income timing complexity factor fiction, Brian.
Speaker 3 (30:17):
Oh, this one is fact.
Speaker 2 (30:18):
The deferred compensation plans are complicated themselves, and they make
other things complicated downstream. So if you haven't heard of
a deferred comp plan, then you may not have one.
These are essentially plans. This is something beyond your four
to one K, beyond your you know, your normal retirement
plans that generally everybody has access to. If you're in
an executive role or you're a key employee, a highly
(30:40):
compensated person, you're your employer maybe offering you some kind
of extra plan that you can get access to to
continue to put more money away. Now, what this does, though,
is you generally have to decide, yes, I'm gonna I'm
eligible for this bonus now, but I don't want to
receive it now because I don't need the income first
and foremost currently and like to defer the taxes on it.
(31:01):
So I want to pick a time in the future.
You know, that might be five, six, seven, it could
be ten years from now, depending on how your plan works.
That's up to your employer, but you're picking a time
in the future to receive those assets. Therefore, you are
deferring the compensation, hence the name. What that does, though,
is that it creates a tax overhang in that year,
and they can be a little complicated and they're very
stressful decisions because you're asking somebody you know, to decide
(31:23):
when do I want to take this tax hit. I
don't really know what's going to go on five seven,
ten years from now, but I'll have to decide and
commit to something. And the income time and complexity of
all of that is, of course, that's going to have
an impact on your bracket that year well into the future,
and we don't know what the brackets are going to be.
We never know what tax is going to look like
in the future. But remember well into the future, you'll
be dealing with things such as such as IRMA. IRMA
(31:46):
is something that will you retire one year, start taking income,
and then two years later your Medicare premiums will be
calculated based on what your income was that twenty four
month period prior. So these are all things Again you
have to kind of plan well in the future. You
don't get a chance to really truly understand what's coming.
But again these are these are plans that not everyone
has access to. It's something over and above your four
(32:09):
oh one.
Speaker 1 (32:09):
K well, Brian, the other thing, the other thing we
got to watch out for there in terms of future income,
timing is required minimum distribution. Some people think, hey, defer
the income, defer the income, defer the taxes, and you
just keep putting it away, putting it away, and then
you look and lo and behold, when you hit you
RMD age age seventy three, seventy five, you got a
(32:30):
boatload of income coming in and you might get jumped
significantly up in terms of tax rates. So in some cases,
not all, but in some cases it makes sense to
not defer that income now because you could pay taxes now.
Its potentially a lower bracket. There's a lot to think
about here.
Speaker 3 (32:48):
If I eat all my dessert now I got nothing
but vestibles later. You gotta spread it out, all right,
Come in your way there, here's our last one of
the day.
Speaker 2 (32:55):
So, Bob, fact or fiction? Structured notes are too complicated
for most investors.
Speaker 1 (33:00):
What do you think, Well, I'm going to say fiction.
They're not like a lot of things in life. You know,
we're not trying to talk down to people here. I
think most people can understand a lot of this stuff,
and I would put structured notes in that camp as
long as they're provided with the information. So I would
say for most people out there, structured notes are not
(33:21):
a do it yourself proposition because there's caps on what
you can make, there's different floors on what you can
protect yourself from. And all these structured notes are tied
to different investment indices or blends of different indices. So
I think that's again, that's where a good advisor, if
they explain this stuff clearly to most investors. I find
(33:43):
most investors understand this stuff within five to ten minutes
if we just boil it down to plain English and
tell them, you know what the deal is, and people
can make an appropriate decision. What do you think about that, Brian.
Speaker 2 (33:55):
You sound like an experienced advisor. That's mostly what we
spend our time doing is this educate on how the
tools work, on how the how the different moving parts
work together, and how does it apply to somebody's specific situation.
Speaker 1 (34:07):
Yeah, just taking what we do all day is we
take complex financial concepts and we try to boil it
down into plane English and demystify it for people. That's
what we do, all right. Coming up, coming up next,
you're gonna get my two cents, uh, municipal bonds and
cash management stuff, and I'm talking about the taxes around
(34:27):
all of that. 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
on Bob's Sponseller along with Brian James, and it's time
for my little two cent segment Brian, and tonight, I
(34:48):
want to talk about an actual situation I've been dealing
with with a with a client, a fairly affluent client
that's got a bunch of money in municipal bonds and
a bunch of money in cash and we're having ongoing
conversations about because these people are very intelligent, but for
some reason they're they're having a hard time grasping the
(35:11):
concept of before tax and after tax returns on both
the money they've got in the bank and sav these
accounts and their municipal bond holdings. And in this particular situation, Brian,
I'm actually finding that the more I dig into where
the actual client's tax rate is, it makes sense to
not have all the money in municipal bonds. And I'm
(35:33):
having a hard time telling these people, hey, it's okay
to pay a little bit in taxes because your net
return is going to be higher. You ever running into
anything similar, Brian.
Speaker 2 (35:44):
Yeah, this is This is very common. I think a
lot of people are attracted to the term tax free
for obvious reasons.
Speaker 3 (35:50):
Right, we don't want to pay any taxes.
Speaker 2 (35:51):
But the assumption is that, well, if I need bonds,
I want them to be tax free because I can
get a five percent CD from a bank. That therefore
means I could get a five percent unicipal bond and
not pay taxes on it.
Speaker 3 (36:02):
So that's a no brainer, right Bob. What doesn't work
that way?
Speaker 2 (36:04):
Of course, I'm going to make up numbers here a
little bit, but a five percent CD might might equate to,
you know, maybe a three and a half percent municipal bond.
The states that issue municipal bonds, you can be buying
this from state of Ohio, state of Kentucky. You're basically
buying the debt of a government entity, and it will
be federal tax free to you. Ohio does not tax
(36:25):
income on its own municipal bonds as well, so it
can be totally tax free. But again you're getting less.
You're getting three and a half percent. If you look
at the tax free nature there that that looks like
a good deal. But if you're only in say the
twenty percent bracket, then my five percent becomes four percent
after taxes, which is a little higher than the three
and a half. So it seems to me, Bob, you
(36:46):
really need to be there is a wide, wide gap,
wider than I recall in the past twenty thirty years
between the two and you really need to be twenty
four percent or higher bracket. That's I hate rules of thumb,
but that's in that bracket. I think that's where where
it might start make this start to make sense. To
consider tax free.
Speaker 3 (37:01):
Yeah.
Speaker 1 (37:01):
Another thing I'm running into more often that I used
to is this dramatic difference, you know, in how these
cash interest rates float, you know, the cash interest rate
that banks are paying on deposits. I mean, the name
of the game in our industry, as you know, Brian,
is assets under management au M, and all the banks.
(37:23):
I mean, everybody's trying to gather assets. And what I'm
talking about here is these short term teaser rates. And
I've run into more than a few clients this year
that tell me, hey, I'm getting four point seven at
the bank, and you know, why should I invest I'm
getting four point seven percent. Well, that might have been
for three months or six months, and then that rate
(37:44):
goes right back down to three and a half three
point seven percent, and it flies right on by people
unless they actually look at their statement and see what
they're earning. I'm seeing that happen more often than I
care to mention. Right now, what about you with your
more bricks.
Speaker 2 (38:00):
And mortar, the less rate of return you're gonna get, right, So,
a lot of if you look at a bank account
now and you see that it's not paying you very much,
there's a chance of two, three, four, five years ago.
It was some kind of teaser rate that attracted you
at the time, and you maybe kind of forgot, which
is exactly what the bank wants. They want to pay
you that teaser rate to keep the assets after you're
forgotten that.
Speaker 3 (38:18):
That's the thing.
Speaker 1 (38:19):
Yeah, and I think the real point we're trying to
drive home here is just make sure you're reviewing what
you actually own, and if it's not something you want
to do or you have no interest in doing it,
get a good fiduciary advisor to sit down and look
under the hood and actually you look at and tell
you what you're actually getting. Thank you for listening tonight.
You've been listening to Simply Money, presented by all Worth
(38:40):
Financial on fifty five KRC, the talk station
Tonight, we look under the hood and talk about when
enough could be a better strategy than more. You're listening
to Simply Money, presented by all Worth Financial on Bob
Sponseller along with Brian James. We talk a lot on
this show about growing your wealth, making smart investment decisions,
and not leaving money on the table. But here's a
(00:26):
curveball for your Friday and heading into a long weekend.
What if you're already there. What if the smartest financial
move isn't chasing those bigger returns, but actually dialing it
back a little bit, because at a certain level of wealth,
the game changes. Brian, this is an interesting topic and
one that we actually run into and talk about a
(00:49):
lot with our clients, So let's get into it.
Speaker 2 (00:52):
So, Yeah, I actually just had a meeting just the
other day with somebody that's probably in this situation. Older
couple has worked extremely hard their entire lives over decades
building a portfolio of real estate, and they've done it
by not hiring a property manager. They've done all the
work themselves. And this is just how what the little
business they've built for their family, Well, they've had a
(01:13):
point where they hit that time of life where now
health problems are creeping in and all these other things.
And so we've had a very brief conversation. And the
first thing I asked was what is the first thing
that you think about when you wake up in the morning,
what's on your mind? And the answer was, I'm worried
about my spouse's health. And I said, okay, that's great.
You haven't You did not say your spreadsheet. You did
(01:34):
not say growing your wealth. You did not say worrying
about the tenant that left you message overnight. You said
something very family oriented. And so that as we continue
to talk, we realized that this family has built such
a powerful machine that they are the most of this
assets are going to go to the kids. And that
is a good thing because obviously they've built something that
will support themselves. But also it means that they've probably
(01:56):
been taking on a lot more stress than is necessary
because they've allowed that machine to kind of run their lives.
Speaker 3 (02:02):
Even though they didn't really need it anymore.
Speaker 2 (02:04):
So let's walk through an example here. Let's say you're
sixty two years old, you and your spouse retiring a
couple of years, maybe two million dollars between four to
one k's iras brokerage counts, and then a little bit
of cash, no doubt, house paid off, want to travel
a bit, spend some time with the grandkids, and go
go hit that Viking River cruse you've been talking about
for years and you've heard your friends do. If we
assume we need maybe ten thousand a month or one
(02:24):
hundred and twenty thousand a year to live comfortably between
social Security and maybe a modest pension that sometimes still
exists out there, and about a four percent draw down
from your portfolio, you might be all set.
Speaker 3 (02:34):
So if that's the case, why.
Speaker 2 (02:35):
Are you still like trying to invest, like you're trying
to build that two million dollars instead of using it
the way it currently is.
Speaker 1 (02:43):
Yeah, Brian, I'm thinking of a particular client. I've worked
with he and his wife for I don't know, six
to eight years now, and it's just been an interesting
evolving relationship with this couple in money, and it's kind
of going back to the first example you cited when
I asked them, what are your biggest fear? What do
you think about every day? They this guy told me
(03:03):
the market, the stock market, the volatility of the market,
the uncertainty of everything going on in Washington and around
the world and political stuff and all that, and he
just doesn't want to deal with it, and it makes
him nervous. And as he approached retirement, he was afraid
to retire. This guy, they have plenty of money, he's
almost seventy years old. He was afraid to retire because
(03:27):
he was worried that he wasn't going to have enough money.
And every time we ran the financial plan, you know, backwards, sideways,
you know, rik testing it, you know all of that,
they are fine. I mean, one hundred percent probability of
meeting all the financial goals, no problem. Yet he was
almost embarrassed to say, you know, I'm too scared to
(03:48):
be in the stock market. And thankfully we have finally
gotten to a point where it's like, it's okay, you
are a risk averse investor, You've done the planning, you
have enough money. What I want, you know, is the advisor,
what I want you to do. You know, you mentioned
the Viking River Crew, you know almost and sometimes we
joke about that that's what they should be doing. They
should be going out and enjoying their retirement. So we
(04:10):
got them in. You know, some structured notes. We got
them in some safe stuff. They're earning a return that
outpaces inflation, and they can sleep at night. They're enjoying
their retirement. I used to get five or six phone
calls from this guy per year. Now my phone never rings,
and that tells me that this is a success story.
Speaker 3 (04:30):
Well, he must have a pretty good advisor.
Speaker 1 (04:32):
In the mikeing, well, it's not about me. It's about
understanding what your needs and wants really are and then
finding an advisor and a strategy to match that so
you can enjoy your retirement.
Speaker 3 (04:42):
But go ahead.
Speaker 2 (04:43):
Yeah, we spend a lot of time convincing people that
what they've built is okay, and they're allowed to spend it.
I googled it, Bob, You're allowed to spend your own money.
It's the darnedest thing, right, a little bit of the
worst kept secret everage you can spend your own dollars.
But when we do these financial plans, you know, like
we said, a lot of people have several incomes verses.
They have a couple Social Security checks, maybe there's rental income,
(05:03):
or there's a pension or whatever. So when we come
to this conclusion that, well, my spouse and I we
bring home two hundred and fifty three hundred thousand dollars. Therefore,
that's our lifestyle. We must need to generate three hundred
thousand dollars because that's our gross salary. That is very very,
very very wrong, because you've never seen your gross salary.
You're throwing money into your four O one K that's
usually in your peak earning years, that's usually getting maxed out.
(05:25):
So that can be you know, sixty seventy thousand dollars
of your three hundred going in there, depending on how
you set things up. And you're also paying taxes, fight
A taxes, payroll taxes, income taxes, state, local, all of
that stuff. You're probably bringing home, if you're lucky, maybe
sixty percent of your three hundred. So there is no
way that your budget is your gross salary. It's probably
(05:47):
maybe a little more than half of that, some more
like a one to seventy one eighty. And then you
add in here's what's coming from social security. People who
have worked a long time, you know, in social security generally,
see I'll throw out maybe maybe the one who had more,
who focus on their career a little more, you know,
maybe is at forty fifty thousand, and if it's a
married couple than the one that took time off to
raise kids, maybe sometimes they're around maybe twenty thousand, so
(06:09):
we might be looking at fifty thousand of the one
eighty coming from social Security. So now we've got a
couple million dollars. It really only needs to generate one
hundred thousand or so. That's a four or five percent
rate of return. All of the puzzle pieces fit. You
just got to look at them. You've got to stand
back and look at all of them at the same time,
not fixate on this particular pile is in the market
that is therefore risky, and that's what can sink my ship.
(06:30):
That is looking at the trees, not the forest.
Speaker 1 (06:33):
You're listening to simply money present up by all Worth Financial.
I'm Bob Sponseller along with Brian James. Brian, let's do
a one to eighty here and talk about the other
end of the spectrum, the the dangers of folks that
just want to overwork their money even though they've already
kind of won the game and they have enough. Let's
talk about that because we run into that from time
to time as well.
Speaker 2 (06:54):
Yeah, these are the ones who simply can't let go
of the let go of the bull market.
Speaker 3 (06:58):
Right.
Speaker 2 (06:58):
So we're going so well and people will say sometimes
I'll say, you know what, I'm really I can do
this job in my sleep. I love it where it's
doing great, the company is doing awesome. I just want
one more year, one more year, two more years, whatever,
and it just it never seems to fail. That that's
when some goofy healthcare problem sets in, maybe for them
or more likely for their parents, or something comes out
(07:18):
of left field and then causes an awful lot more stress,
or you know, they get they just get obsessed with
the market.
Speaker 3 (07:24):
We're sitting here right now.
Speaker 2 (07:25):
You know, we've had a really good run these last
few years, and maybe they're still chasing performance.
Speaker 3 (07:30):
These tech stocks, AI crypto, private.
Speaker 2 (07:32):
Placements and all this stuff, and they ride it too
long and start to lose. At this point, losing, at
this point of life, losing feels a lot more painful
than winning feels good. But it's hard to pull ourselves
out of the you know, out out of the situation,
the growth oriented situation, when we've been doing that for
forty years, and we tend to wait until it's too
late until the market kicks us in the teeth. So
(07:55):
the answer is focus on what you want. Have I
accomplished what I need to do what I want not,
and I grow this pile a little bit bigger because
it's usually not necessary and adds unnecessary stress.
Speaker 1 (08:05):
Yeah. I find sometimes people that are highly successful. I mean,
let's face it, they run on adrenaline. They're used to
competing and winning, and it's hard to give that up,
you know, the dopamine rush, the adrenaline rush, whatever you
want to call it. You know, they just can't stop.
Like you said, it's what's made them successful, it's what
they enjoy and they want to keep going. So let's
(08:25):
talk about what folks should do as they approach you know, retirement,
you know, as far as a financial plan or written
income plan, and then really redefining what return on investment
or quality of life really means. Let's get into some
of the discussions that we have with clients and what
people should really be thinking about as they transition into retirement.
Speaker 2 (08:47):
Yeah, one of the smartest things you can possibly do.
It's not about that next great stock pick, right, It's
not about that, you know, the next hit that's going
to give you a little explosion of money. It's when
you've reached this stage of life. Now it's time to
get a written income plan that's going to help you
understand how long your money will last and what buckets
to pull from when. And honestly, that part right there, Bob,
that's the more complicated one, because these days people are
(09:08):
coming in. We've got taxable money in a brokerage account.
Maybe they sold something business, or maybe they inherited something.
We've got pre tax money that's been hanging out in
those four oh one k's and iras for thirty forty years,
and now over the last ten fifteen years, we've got
WROTH money in the mix. Those are all great things
to have, but there are decisions to be made there
as to how to maximize When do I hit my
(09:28):
wroth for tax free distributions? When do I take something
that is maybe taxable as income. How are rmds required
minimum distributions by the irs? How's that going to factor in?
And all of these different things will dictate when you
should And this isn't a path that there isn't a
stated path that everyone should follow. It's not black and white.
Your different situations. Will will will differ from client to client,
(09:51):
and I will give one people that look otherwise identical.
There are often reasons to have somebody do it one
way and another couple do it another way entirely well in.
Speaker 1 (09:59):
The other thing to mention here, Brian, and I know
you see this all the time. Occasionally we'll have people
come in they got fifteen different investment accounts, you know,
thirty five different mutual funds, maybe three or four different
people that they call quote unquote advisors that are really
just product salesman. There's no strategy, there's no income and
tax strategy, and not having a strategy and coordination can
(10:23):
really rob you from a tax standpoint and from an
income security standpoint. Down the road. Here's the all Worth advice.
If you've already won the game, stop playing like you're
still trying to win it. Coming up next, a look
at the huge rise in home equity over the last
five years and what that could mean for you. You're listening
(10:43):
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 on Bob Sponsorller along with
Brian James, Should you never take Social Security early if
you can afford to wait? Is that fact or fiction?
(11:05):
We're going to tackle that question and others straight ahead
of six forty three. When the pandemic hit, the housing
market turned upside down, Mortgage rates plummeted while demand skyrocketed,
and that created a sudden, you know, huge rise in
home equity. Brian, let's talk about where things stand five
(11:26):
years after the pandemic, well, Bile.
Speaker 2 (11:29):
According to a recent study by bank Rate, the average
Ohio property owner has a little more than eighty seven
thousand dollars in equity. That's one hundred and forty eight
percent from twenty twenty. So south of the river in Kentucky,
the home equity amount has jumped about two hundred and
seven percent over that time period. So yeah, we are
definitely seeing the benefits of the the rise in home
(11:49):
values here total value of.
Speaker 1 (11:51):
Property and property tax bills to go with it.
Speaker 3 (11:53):
Oh, of course, absolutely.
Speaker 2 (11:54):
And that's really why we're hearing so much of a
debate about that, because people are saying, hey, it's great
that my house is worth more, but that just takes
more money out of my checking account, you know, in
a lot of different ways. Total value of mortgaged homes
across the country has risen fast too, by about ten
trillion dollars in the last five years. That's faster than
mortgage debt itself, according to the Property Data to a
(12:15):
property data analyst called ICE Mortgage Technology. So that's another
sign of you know, the more expensive a house is,
the more debt people have. And we're getting stretched a
little thin in these places.
Speaker 1 (12:25):
Yeah, a lot of a lot of this home equity,
you know, which isn't measured in that study, is people
that have paid off their homes. I guess that's not
factored into these numbers. But let's get into certain states.
States with the highest growth in home equity over the
last five years, and these numbers, these are kind of
surprising results. West Virginia, Oklahoma, Connecticut, Kansas, and Illinois. Not
(12:49):
exactly what we'd call destination states that you hear about
all the time in the media, yet that's where the
home equity has just ballooned in the last five years.
States with the lowest growth in home equity over the
past five years Washington, d C. Which isn't officially a
state by the way, Louisiana, Alaska, North Dakota, and Colorado. Brian,
(13:11):
any surprise, are you surprised by you know, this list
of states and equity movements.
Speaker 2 (13:16):
A little bit here, because you would think, you know,
I would have thought that the lowest growth in home
equity over the past five years, you know, that would
would have been more of the states where it's grown
the quickest. And I say that because right here, little
old Cincinnati, Cincinnati has been been a hotbed of real
estate growth simply because we're we're we've got kind of
got a lot to offer, and we're fairly cheap place
(13:37):
to live, to raise a family and so forth.
Speaker 3 (13:38):
So yeah, I was a little surprised by this.
Speaker 2 (13:40):
But DC actually saw a decline about thirty eight percent,
dropping from one hundred and seventy two and twenty twenty
to one hundred and six and twenty twenty five, and
then Louisiana dropped about twenty two percent.
Speaker 3 (13:52):
Alaska, North, North Code.
Speaker 2 (13:54):
And Colorado were all positive, but just not as positive
as elsewhere. So yeah, this is an interesting little gathering
of different things happening.
Speaker 1 (14:01):
All right. Something else that continues to rise the cost
of home insurance, and we've talked about this a couple
times on the show. We've got some new data out
from bank Rate right now. The average annual premium in
the United States Brian for home insurance two thousand, four
hundred and seventy dollars. And the data proves out where
the highest rates per household income Florida, Nebraska, and Louisiana.
(14:27):
This is not a surprise to me, Brian. We've got
hurricanes in Florida. I mean Baton or New Orleans is
a city that is situated below sea level. Nebraska has
high winds blowing through there all the time. This doesn't
surprise me. But again another reminder that when you think
(14:47):
about moving somewhere, you know, at retirement, it's not just
about the tax rates. You got to factor in other
things like home insurance. This is becoming a bigger and
bigger deal.
Speaker 3 (14:59):
Yeah, it absolutely is.
Speaker 2 (15:00):
And the thing you mentioned there that all those places
have in common is extreme weather conditions. And so we're
kind of in a hurricane season now. So this is
when we hear that such and such beach community was
wiped out and the little hot dog stand that was
there for fifty years is now gone, and all that
kind of stuff. And then a few months later, we
hear about what happened to the insurance premiums in those states.
(15:21):
And I do know I have some clients that actually
made some investments down to Fort Myers before that big
hurricane hit a few years ago. I'm sorry after the
big hurricane hit a few years ago from people that
just wanted to get out and just take their insurance
money and go away, thinking that it was all going
to be redeveloped. And it seems like the buyers seem
to have slowed a little bit down there on the
other end of it, So some of them are starting
(15:41):
to regret maybe making those purchases because I think people
are just less interested because of what we just talked about.
It's a lot more expensive. You're not just buying a house,
you're also buying an insurance policy, you're buying an HOA
and sometimes you're buying a mortgage. So do your due
diligence and make sure you understand what's involved in that policy.
Speaker 3 (15:58):
We're going to make a move like this.
Speaker 1 (16:00):
Well, the good news from the insurance front, as Ohio
sits in the middle of the pack, it finished twenty
second in terms of the cost of home insurance with
an average annual premium of one four hundred and six
dollars in Kentucky. Brian, the premium, I don't know why,
but it's way higher, I mean more than double that,
at thirty little over thirty five hundred dollars a year. Brian,
(16:20):
Why are these rates so high in Kentucky? You have
any idea? Because I have no clue.
Speaker 2 (16:24):
Honestly, I don't know, and that that's something we should
definitely look into, because I'm sure that somebody's gonna call
in and tell us exactly why. My Kentucky clients might
be right on top of that, but that's not something.
Speaker 1 (16:35):
And I vaguely remember some tornadoes blowing through, you know,
northern Tennessee and southern Kentucky that there might be a
little hangover from that, but who knows. All Right, every
Sunday you find our all Worth Advice in the Cincinnati
Inquire and here's a preview. Jason and Rebecca in Terrace
Park say, we've got three kids, all in their early twenties.
(16:55):
What's the smartest way to give them money without completely
spoiling them? Well, Jason and Rebecca, my wife and I
also have three kids in their early to late twenties.
So the best advice I could give is what I'm
trying to do with our kids, and that's communicate and
see some evidence of them acting responsibly, building a financial plan,
(17:16):
getting all their ducks in a row, in other words,
being able to handle money responsibly before we start just
doling out some money to them, because what you don't
want to do is enable poor habits or non existing
habits just to quote unquote rescue them. So I think
if the kids are doing things responsibly and you can
(17:37):
see evidence of that, and you can help them out,
a little bit of money for a twenty four year
old in the right situation can be game changing for them,
and I'm all for it. But go in with your
eyes wide open and communicate. Communicate, communicate, all right, Brian,
this one's for you, LD from Loveland, says a friend
of mine, you know, says she has her young kids
(17:59):
on her credit cards to build their credit score. I
know you're an expert at this topic. Is this something
you can actually do? And do you recommend it? He?
Speaker 2 (18:07):
Yeah, this is one of my absolute favorite topics. And
I'm on the back end the benefit side of this now.
So I did this years ago, We've got three kids.
And what we're talking about here is an authorized user
not getting their own credit card necessarily, but this.
Speaker 3 (18:18):
Helps you do that.
Speaker 2 (18:20):
An authorized user, over time will inherit the credit score
of the person who actually owns the other credit card.
I guess, so, in other words, my kids have inherited
our credit score. Just watched my twenty four year old
sale through the credit check, the credit check on getting
an apartment, so it actually does work.
Speaker 3 (18:34):
Highly recommend it. All right.
Speaker 1 (18:36):
All Worths chief investment Officer Andy Stout is in next
with some strategies for the investor who wants to be
tax efficient, and let's face it, who doesn't want to
be tax efficient. You're listening to Simply Money, presented by
all Worth Financial on fifty five KRC, the talk station.
Speaker 2 (18:56):
You're listening to Simply Money, brought to you by Allworth Financial.
I'm Brian Names and I'm joined by Andy Stout, chief
investment officer for all Worth Financial. And contrary to the
music we just heard, or in parallel to the music
we just heard, he is the best around. Today we're
going to talk about something called tax Alpha. There's a
lot of words and catch words and phrases and jargon
(19:17):
gets thrown around on the investment industry and there's a
whole bunch of Greek letters attached to him. So sometimes
you run across something called beta, which is just comparing
an investment to a benchmark, and it has a beta
one point two or point nine or whatever, and that's
just kind of relative to a specific benchmark. Alpha is
slightly different. Alpha is something that we look at in
terms of managing, you know, a specific management strategy and
(19:37):
whatever the unique factors is around are around those that
strategy that causes it to do less, to perform, outperform
an index, or underperform.
Speaker 3 (19:47):
What are the reasons behind it?
Speaker 2 (19:49):
So specifically, we're going to talk about tax alpha, which
has what is the after tax impact of investment strategy?
So Andy, tell me a little bit about how can
you control the tax alpha of an invent some strategy.
Speaker 4 (20:01):
Yeah, that's a great question, and it's a might sound confusing. Oh,
tax afa one, what does that mean? Well, let's just
take a step back even from that. Let's say you
own two stocks, Procter and Gamble and Kroger. Let's say
one of those stocks you bought and has a thousand
dollars gained one of them has a thousand dollars loss.
(20:23):
Without tax planning, let's say you happen to sell the
one that has a thousand dollars gain and you keep
the one with a thousand dollars loss. What happens is
that you owe taxes on that gain, so you might
end up paying you know, three hundred bucks. But if
you had some tax aware planning or did some taxace harvesting,
what you would do is you would also sell stock
(20:43):
be the one with the loss, and essentially the loss
would offset the gain and you would owe no taxes
in your portfolio value overall would still be the same.
So tax alpha is really just the extra investment returned
by minimizing taxes is through you know, smart planning strategies.
Speaker 3 (21:03):
Okay, so is this something I would be doing with
my mutual funds or my four to oh one K
or where are the specific places that this is impactful?
Speaker 4 (21:12):
Yeah, that's a great question and really impactful. And taxble
accounts you don't want to do in your four O
on K because it's not even possible from the IRS's perspective,
So don't worry about that. But what you want to
be focused on is if you have a trust account,
or a joint account or an individual account, those are
the accounts. Typically there are others, but those are the
(21:32):
main ones that where you can employ these tax alpha
strategies to sentially reduce the amount of money you pay
the IRS. I mean, that's what we all want to
do anyway.
Speaker 3 (21:42):
Okay, so that's starting to make some more sense.
Speaker 2 (21:44):
But it sounds like this is something where I really
you know, if I have a diversified portfolio of mutual funds,
I may or may not be able to benefit too
much from that, even if it isnt a taxable account.
Speaker 3 (21:53):
Is that right?
Speaker 4 (21:54):
Well, now, if it's out a loss or you have
a gain in other error, if you have a gain
in the mutual fund, you could possibly if you want
to get out of that, sell that and look for
losses in other areas. Or maybe that mutual one has
a loss. It's really just whether or not that investment
has a gain or loss in how you can offset
that in other areas. What you know, we like to
focus on a lot are you know, tax loss harvesting
(22:15):
strategies where you're looking at individual positions. Those could be
mutual funds, could be exchange trade of funds or ETFs.
It could also be individual stocked or individual bonds as well.
Really any security that's in a taxable count, and we're
looking specifically at those investments and sometimes what's called at
lot levels, because you could buy maybe Procter and Gamble
(22:37):
and on one day and then buy it on another day.
You could sell from those specific lots. If one of
them happens to be a higher cost basis, meaning you
might have a lower or an increased loss, you could
sell from that specific one. And it's really just being
laser focused on the ability to target specific securities and
(22:58):
specific lots to harvest losses. And here's the key brine
while still maintaining your overall investment exposure and not deviating
from your broad strategy. So by harvesting those losses, we
can offset gains in other areas, allowing your portfolio to
grow in a tax free way. And if you do
(23:19):
take on more losses than gains, you have a couple
of other options, which is really great. Well, you can
take basically three thousand dollars and use that to offset
your income overall to lower that but probably more importantly
as you can carry over as many losses in one
calendar year and use them in the future. So if
you happen to have banked maybe tens or hundreds of
(23:41):
thousand dollars of losses and you didn't use them all
in one year, you can use them in another year.
You've got to keep track of it.
Speaker 2 (23:47):
Okay, So this sounds like I don't want to root
for losses, but since they're kind of inevitable and they
happen from time to time, this is kind of like
it almost sounds like this is kind of a silver lining.
It's things to go through, that kind of thing. But
at the same time, as long as I know how
the tax code works, it can be kind of beneficial. Now,
I think, aren't there other you know, it seems like
there are other things involving charities. Are there other ways
that I can add some a positive tax return to
(24:09):
my portfolio?
Speaker 4 (24:11):
Yeah, there's a few things you can do. Let's just
say you have a bunch of individual stocks and you're
charitably inclined instead of donating cash, look for the stocks
that have the highest appreciation so with the largest gains,
and you can donate those. You get a tax right off,
and then guess what you didn't pay any taxes on
those gains, and you're still in the same position you were,
(24:31):
Whereas if you would have donated the cash and then
you sell the stocks later, all of a sudden you're
paying taxes on those gains. You can avoid that all
together just by donating your most appreciated stocks. So that's
another really good strategy. You combine that with tax loss harvesting,
and you can do that through a variety of methods.
One's called a direct index, which basically tries to match
(24:54):
an index return but provide that tax alpha. So when
you marry those two things of the charitable donation with
the act of tax sauce harvesting, it's a really powerful
tool that you can have in your tool bell to
lower the amount that you pay the IRS.
Speaker 3 (25:12):
That's great, that's fantastic information.
Speaker 2 (25:13):
None of this is new. This is just the tax code.
This isn't financial products or anything like that. This is
just how the tax code works and understanding how to
apply it to your portfolio. So super helpful information from
Chief Investment Officer Andy Stout. I'm Brian James, and you've
been listening to Simply Money on fifty five KRC, the
talk station.
Speaker 1 (25:37):
You're listening to Simply Money and presented by all Worth
Financial on Bob Sponseller along with Brian James. Do you
have a financial question for us? There's a red button
you can click while you're listening to the show right
there on the iHeart app. Simply record your question and
it will come straight to us. All right, it's time
to play some financial factor fiction. Brian. Let's start off
(25:58):
with you factor fiction and you should never, and I
say never, take social Security early if you can afford
to wait. Factor fiction, Brian.
Speaker 2 (26:07):
You know, Bob, there are some words that I hate
when they come up in a financial planning discussion, and
those words are always and never. There are no rules
of thumb. Everybody's got a different puzzle to put together.
Everybody get me exactly. Yeah, you got to deal with
your own situation anyway. So this one's fiction. There are
reasons to take social security early, if you know. Some
(26:28):
of the sadder stories I've ever heard in my life
is where you know, a married couple is getting ready
to retire, and they're excited about going forward and so forth,
and then all of a sudden, one of them comes
down with something super significant and serious. Forget the math
forget the spreadsheet, forget the you know, the snowball effect
that that's when you need to take control of the
time that you have left and go in And a
lot of times that does involve turn on the Social
(26:49):
Security spigot and don't worry about those eight percent increases.
But on the other hand, there are some others where
if there's plenty of resources out there, you know, and
you then you could benefit significantly from those eight percent
in and push it out till seventy Most of us
are going to be somewhere in the middle.
Speaker 3 (27:03):
All right, my turn, Bob. Fact or fiction, Bob spawn Seller.
As state taxes.
Speaker 2 (27:08):
Can still apply at the state level even if you're
below the federal exemption.
Speaker 1 (27:12):
We think, well, this is a fact, and it depends
on what state you die in and where your airs are.
And let me give you an example. In Ohio, there
is no a state tax at the state level. In Kentucky,
on the other hand, it's a little more jumbled up mess.
You know, if you leave assets to let's say, your
spouse or child or grandchild, no estate taxes. But if
(27:36):
you get into some other airs, there's a schedule, you know,
put out by the state of Kentucky where there's exemption amounts,
there's different percentages that the person inheriting the money has
to pay depending on what the dollar amount is. So
be careful to check the state you live in, in the
state you think you're going to die in and leave
money in, because things can change depending on where you live.
Speaker 3 (27:58):
Sounds like job security for lawyers and accounts.
Speaker 1 (28:01):
Yep, all right, Brian. If I'm maxing out my four
oh one K, I'm saving enough for retirement factor fiction.
Speaker 2 (28:08):
It's another declarative statement that i'd ever like. So I'm
gonna call that one fiction because maybe you know it
depends on your other situation. Maxing out your four oh
one K, that's one thing that's good. I mean, obviously
it's gonna give you the a bigger pile of money.
The more you put in, the more it's gonna grow.
Eventually you'll come to a situation of, Okay, should I
be paying down my mortgage? You know, maybe, And that's
(28:29):
a that's a decision that's a lot of people run
into when they're in the maybe like the last three
five seven years of retirement, where there might be already
a good chunk put into the four oh one K,
And in that case, it may be okay to drop
from the twenty fifteen percent or whatever they're putting in
their four oh one k, drop it back to a
certain amount, to a lower percentage, and then reroute those
savings toward that toward that mortgage. But that's just one example. Again,
(28:50):
it's all about puzzle pieces. Everybody's puzzle pieces look different,
but they all do fit together one way or another.
You gotta figure out what you want your puzzle to
look like. Factor fiction Bob spot on Seller. Tax loss
harvesting in a direct indexing portfolio can improve after tax
returns even if the market is flat or only up
a little bit.
Speaker 3 (29:08):
Is that truer think?
Speaker 1 (29:10):
This is an absolute fact? And this is one of
my favorite things about these tax loss harvesting strategies that
are prevalent out there, and we've got a great one
here at all Worth two. I mean, the thing you
could take advantage of and this is one of the
times you could take a ton of advantage of short
term market volatility because these tax advantage strategies, the way
(29:32):
they work is it's an algorithm floating in the background.
There's you know, things going on that none of us
are looking at and it's it's constantly harvesting losses when
you have them, and then immediately get into something very similar.
So you're fully invested in the market, but you've captured
that capital loss and you can use it later to
(29:54):
offset future gains. It's a wonderful strategy that works really well,
irrespective of whether the market's going up, down, sideways, or
anything in between. All right, Brian factor fiction. Deferred compensation
plans can lower your current taxable income but create future
(30:14):
income timing complexity factor fiction, Brian.
Speaker 3 (30:17):
Oh, this one is fact.
Speaker 2 (30:18):
The deferred compensation plans are complicated themselves, and they make
other things complicated downstream. So if you haven't heard of
a deferred comp plan, then you may not have one.
These are essentially plans. This is something beyond your four
to one K, beyond your you know, your normal retirement
plans that generally everybody has access to. If you're in
an executive role or you're a key employee, a highly
(30:40):
compensated person, you're your employer maybe offering you some kind
of extra plan that you can get access to to
continue to put more money away. Now, what this does, though,
is you generally have to decide, yes, I'm gonna I'm
eligible for this bonus now, but I don't want to
receive it now because I don't need the income first
and foremost currently and like to defer the taxes on it.
(31:01):
So I want to pick a time in the future.
You know, that might be five, six, seven, it could
be ten years from now, depending on how your plan works.
That's up to your employer, but you're picking a time
in the future to receive those assets. Therefore, you are
deferring the compensation, hence the name. What that does, though,
is that it creates a tax overhang in that year,
and they can be a little complicated and they're very
stressful decisions because you're asking somebody you know, to decide
(31:23):
when do I want to take this tax hit. I
don't really know what's going to go on five seven,
ten years from now, but I'll have to decide and
commit to something. And the income time and complexity of
all of that is, of course, that's going to have
an impact on your bracket that year well into the future,
and we don't know what the brackets are going to be.
We never know what tax is going to look like
in the future. But remember well into the future, you'll
be dealing with things such as such as IRMA. IRMA
(31:46):
is something that will you retire one year, start taking income,
and then two years later your Medicare premiums will be
calculated based on what your income was that twenty four
month period prior. So these are all things Again you
have to kind of plan well in the future. You
don't get a chance to really truly understand what's coming.
But again these are these are plans that not everyone
has access to. It's something over and above your four
(32:09):
oh one.
Speaker 1 (32:09):
K well, Brian, the other thing, the other thing we
got to watch out for there in terms of future income,
timing is required minimum distribution. Some people think, hey, defer
the income, defer the income, defer the taxes, and you
just keep putting it away, putting it away, and then
you look and lo and behold, when you hit you
RMD age age seventy three, seventy five, you got a
(32:30):
boatload of income coming in and you might get jumped
significantly up in terms of tax rates. So in some cases,
not all, but in some cases it makes sense to
not defer that income now because you could pay taxes now.
Its potentially a lower bracket. There's a lot to think
about here.
Speaker 3 (32:48):
If I eat all my dessert now I got nothing
but vestibles later. You gotta spread it out, all right,
Come in your way there, here's our last one of
the day.
Speaker 2 (32:55):
So, Bob, fact or fiction? Structured notes are too complicated
for most investors.
Speaker 1 (33:00):
What do you think, Well, I'm going to say fiction.
They're not like a lot of things in life. You know,
we're not trying to talk down to people here. I
think most people can understand a lot of this stuff,
and I would put structured notes in that camp as
long as they're provided with the information. So I would
say for most people out there, structured notes are not
(33:21):
a do it yourself proposition because there's caps on what
you can make, there's different floors on what you can
protect yourself from. And all these structured notes are tied
to different investment indices or blends of different indices. So
I think that's again, that's where a good advisor, if
they explain this stuff clearly to most investors. I find
(33:43):
most investors understand this stuff within five to ten minutes
if we just boil it down to plain English and
tell them, you know what the deal is, and people
can make an appropriate decision. What do you think about that, Brian.
Speaker 2 (33:55):
You sound like an experienced advisor. That's mostly what we
spend our time doing is this educate on how the
tools work, on how the how the different moving parts
work together, and how does it apply to somebody's specific situation.
Speaker 1 (34:07):
Yeah, just taking what we do all day is we
take complex financial concepts and we try to boil it
down into plane English and demystify it for people. That's
what we do, all right. Coming up, coming up next,
you're gonna get my two cents, uh, municipal bonds and
cash management stuff, and I'm talking about the taxes around
(34:27):
all of that. 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
on Bob's Sponseller along with Brian James, and it's time
for my little two cent segment Brian, and tonight, I
(34:48):
want to talk about an actual situation I've been dealing
with with a with a client, a fairly affluent client
that's got a bunch of money in municipal bonds and
a bunch of money in cash and we're having ongoing
conversations about because these people are very intelligent, but for
some reason they're they're having a hard time grasping the
(35:11):
concept of before tax and after tax returns on both
the money they've got in the bank and sav these
accounts and their municipal bond holdings. And in this particular situation, Brian,
I'm actually finding that the more I dig into where
the actual client's tax rate is, it makes sense to
not have all the money in municipal bonds. And I'm
(35:33):
having a hard time telling these people, hey, it's okay
to pay a little bit in taxes because your net
return is going to be higher. You ever running into
anything similar, Brian.
Speaker 2 (35:44):
Yeah, this is This is very common. I think a
lot of people are attracted to the term tax free
for obvious reasons.
Speaker 3 (35:50):
Right, we don't want to pay any taxes.
Speaker 2 (35:51):
But the assumption is that, well, if I need bonds,
I want them to be tax free because I can
get a five percent CD from a bank. That therefore
means I could get a five percent unicipal bond and
not pay taxes on it.
Speaker 3 (36:02):
So that's a no brainer, right Bob. What doesn't work
that way?
Speaker 2 (36:04):
Of course, I'm going to make up numbers here a
little bit, but a five percent CD might might equate to,
you know, maybe a three and a half percent municipal bond.
The states that issue municipal bonds, you can be buying
this from state of Ohio, state of Kentucky. You're basically
buying the debt of a government entity, and it will
be federal tax free to you. Ohio does not tax
(36:25):
income on its own municipal bonds as well, so it
can be totally tax free. But again you're getting less.
You're getting three and a half percent. If you look
at the tax free nature there that that looks like
a good deal. But if you're only in say the
twenty percent bracket, then my five percent becomes four percent
after taxes, which is a little higher than the three
and a half. So it seems to me, Bob, you
(36:46):
really need to be there is a wide, wide gap,
wider than I recall in the past twenty thirty years
between the two and you really need to be twenty
four percent or higher bracket. That's I hate rules of thumb,
but that's in that bracket. I think that's where where
it might start make this start to make sense. To
consider tax free.
Speaker 3 (37:01):
Yeah.
Speaker 1 (37:01):
Another thing I'm running into more often that I used
to is this dramatic difference, you know, in how these
cash interest rates float, you know, the cash interest rate
that banks are paying on deposits. I mean, the name
of the game in our industry, as you know, Brian,
is assets under management au M, and all the banks.
(37:23):
I mean, everybody's trying to gather assets. And what I'm
talking about here is these short term teaser rates. And
I've run into more than a few clients this year
that tell me, hey, I'm getting four point seven at
the bank, and you know, why should I invest I'm
getting four point seven percent. Well, that might have been
for three months or six months, and then that rate
(37:44):
goes right back down to three and a half three
point seven percent, and it flies right on by people
unless they actually look at their statement and see what
they're earning. I'm seeing that happen more often than I
care to mention. Right now, what about you with your
more bricks.
Speaker 2 (38:00):
And mortar, the less rate of return you're gonna get, right, So,
a lot of if you look at a bank account
now and you see that it's not paying you very much,
there's a chance of two, three, four, five years ago.
It was some kind of teaser rate that attracted you
at the time, and you maybe kind of forgot, which
is exactly what the bank wants. They want to pay
you that teaser rate to keep the assets after you're
forgotten that.
Speaker 3 (38:18):
That's the thing.
Speaker 1 (38:19):
Yeah, and I think the real point we're trying to
drive home here is just make sure you're reviewing what
you actually own, and if it's not something you want
to do or you have no interest in doing it,
get a good fiduciary advisor to sit down and look
under the hood and actually you look at and tell
you what you're actually getting. Thank you for listening tonight.
You've been listening to Simply Money, presented by all Worth
(38:40):
Financial on fifty five KRC, the talk station
Simply Money News
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