October 24, 2025 • 38 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian explore the real-life signs that you may be the perfect fit for advanced financial planning — the kind that goes far beyond basic investment advice. From pre-retirees with complex portfolios to retired couples blindsided by unexpected tax bills, small business owners nearing a sale, and even widowed spouses navigating new financial responsibilities — this episode breaks down why the right planning strategy is less about how much money you have and more about the life decisions you face.
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Episode Transcript
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Speaker 1 (00:06):
Tonight, how to know if you are the right fit
for some advanced financial planning. You're listening to Simply Money,
presented by all Worth Financial on Bobspondseller along with Brian James. Tonight,
we're gonna walk you through the real life signs that
you might be the perfect candidates for some financial planning
that goes way beyond just investment advice. Brian, let's let's
(00:29):
walk through a couple scenarios.
Speaker 2 (00:30):
So let's talk about some We've got a couple examples
of kind of perfect candidates for these types of things.
So first one, if you are if you are a
pre retiree with multiple buckets of financial resources. So let's start.
But we'll call these folks Dan and Karen fifty nine
and sixty one. They're thinking about retiring in five years.
That's a pretty common age to think about because that
would put them square in the where they can get
(00:51):
access to Medicare, so in barring anything else, that's usually
what people you know, kind of target. They save well
about two point eight million dollars between their IRA A
broker's account for oh one K. They've got a health
savings account because they've been listening to us and a
small rental property out there. So these are kind of
the poster children for advanced planning because they're in their
highest earning years, they are still young enough to be
(01:13):
doing ROTH conversions and in counting on that for future
tax free income, and they're they have a lot of
investments across different asset locations. Right, we talk about this
all the time. Asset location is not physically where the
dollars are. It's the tax treatment. What kind of tax
treatment is this particular account going to get? Is it
pre tax, is it after tax and therefore also known
(01:34):
as taxable, or is it tax free meaning WROTH or
possibly municipal bonds. Also, they haven't started Social Security yet,
so they've they're still controlling their income to some extent. Now,
this is this is a situation where any good financial
fiduciary advisor is going to map out which accounts to
draw from in which years, how to reduce those future
required minimum distributions, which which may mean consciously pulling some
(01:55):
taxation forward into current years. Even if we don't like that,
we would be wanting to to pay lower taxes for
a longer period of time versus no. Taxes now are
extremely low taxes now and extremely high taxes later. And also,
you know, finally that advisor hopefully is going to help
teach them how to offset using that income using tax
loss harvesting or charitable giving strategies. So here's the point.
(02:15):
They've given themselves options. That's great. Options are wonderful. The
job of an advisor is to make sure that a
client understands the pros and cons of each of those options.
They're probably all good ideas, but there's always a good
versus better versus best. That's the key. You need a
strategy to make the most and optimize which option you
choose well.
Speaker 1 (02:35):
In order to be effective with this, the advisor not
only has to have some good tools to use, but
know how to use them and implement them. Meaning, you know,
there are a ton and the growing number of nuances
in the tax code, which makes some of these decisions
very complicated to make if you don't have the numbers
in front of you. So thankfully you know, I know,
(02:57):
we've got some really good software that we use. I
know other advisors out there do as well, but you
got to have the right tools and know how to
use them to help people make these kind of very
important decisions. Let's talk about a situation the retired couple
with a tax problem. We'll call them Susan and David.
They've already retired, they're both in their late sixties. They're
living comfortably on Social Security, a pension, and about a
(03:20):
three and a half million dollar portfolios. So they're doing
just fine. But they hit their first required minimum distribution
here and suddenly their tax bill out of nowhere jumped
forty percent and they didn't see it coming. Their withdrawal
strategy wasn't coordinated with their tax bracket. They also did
not consider roth conversions in those gap years between when
(03:41):
they retired and when the rmds kicked in, So now
they're paying higher taxes on things like capital gains and
Medicare premiums. All of that could have been mitigated with
better planning. But we can't redo the past. All we
can do is pick things up and move forward. So
David and Susan are still perfect candidates for some active
(04:02):
strategic planning because they do have the opportunity to layer
their income with different different buckets of assets where we
can control the r and ds through some charitable giving,
some strategic estate planning to leave some kids, perhaps leave
some money to the kids perhaps now, you know, because
that's one of their big goals. So you know, in
(04:24):
this case, they don't need to focus much at all
on investing more money. They just need to coordinate what
they already have. And Brian, we see this all the time.
Speaker 2 (04:33):
Yeah, exactly, the situations where where they're kind of set
and not quite set in stone. That's not the right expression,
but but things are pretty much set versus you know,
we just talked about Dan and Karen, who are still
in that more flexible stage where they can do some
planning ahead of the requirementimum distributions. Well, it's unfortunate Susan
and David didn't get that chance because they didn't have
that fiducial advisor, But that doesn't mean there's nothing they
can do at all. So yeah, absolutely need to understand
(04:55):
what you have, what are you required to do via
via those r and ds, and then what strategies are
out there that could offset. Again, just like Bob said,
coordinate what you've got, all right, So another.
Speaker 1 (05:05):
Let's let's let's talk about ricks owner. Brian, I know
that and this is a fictitious situation that we made up,
but I know, you know, because you shared this with me.
You just helped a very successful business owner put together
a very sound financial strategy and it was wonderfully constructed.
Talk about some of the things that you can do
for business owners.
Speaker 2 (05:26):
Yeah, so we're going we'll do this with an example.
So so Rick is sixty two and this is this
example is based off of real you know, we make
them up, yes for the show here, but they're based
off of real clients because that's all that we know.
After Bob and I have been doing this for sixty
years between us, so it's kind of a we're not
fun at parties anyway. So Rick is sixty two six,
I've been at parties with you. You're right. So small
(05:49):
business owner. He's got a business worth about four and
a half million, and he's eyeing that sale. Right, So
this is two three years out. This is for those
of you who are business owners out there, even those
of you who are not, just know that this is
a huge, huge decision and so you do want to
start thinking about it well in advance. You can't decide that.
You know what, It's Friday, I'm super tired. I'm going
to sell the business on Monday.
Speaker 3 (06:06):
It's not going to work that way.
Speaker 2 (06:08):
So Rick knows that he's sitting on a ticking tax
time bomb. If he sells without a plan, just like
we just said, you know, he could pay hundreds of thousands,
if not more, in unnecessary taxes. Unnecessary meaning if you
plan for these things, you need to do it right,
then you can potentially control some of this taxation. So,
for example, he could be looking at strategies such as
installment sales spread that tax hit over time. That can
(06:31):
simply mean that you're maybe you're self financing, you are
allowing a buyer to pay you over time, taking the
risk yourself, or perhaps there's a bank that is a
middleman so that so you can shift that risk to
the buyer. But the point is changing those payments so
they don't happen all at once. You can also look
at something called qualified small business stock exclusions. If eligible.
(06:52):
There's lots of moving parts to that. That would be
a long, fascinating segment, I think if we ever got
into that level, but for now, just take the keyword
qualified small business stock exclusions. You can also use charitable trusts.
He's gonna have a of course, he's gonna have a
windfall here. That's the whole point of this. He will
have a windfall, and he could use charitable trust or
perhaps donor advise funds to offset some of these capital gains,
(07:14):
because a lot of people already have in mind that
if I've come into a windfall, I'm going to benefit
these various charities, my church, whatever, and that's fine plan
to do that, though in the same year where the
tax hit is gonna kick in, and that does take
some time. You can't just flip those together quickly, so
you want to make sure you know, if you're thinking
about this right now, really now is the time get
on the horn and get talking to your advisors to
(07:35):
get all this stuff coordinated. So he can also look
at something called it. Now he's got two three years left,
he could potentially look at setting up a defined benefit
plan for himself and its employees to load up on
tax deferred savings before exit. This is basically something where
he's funding a pension for a few years, but a
defined benefit plan allows you to focus on your older
employees first in terms of finances and smaller amounts going
(07:59):
to the younger employees because of the way pensions work.
So if if Rick is somebody who is you know,
Let's say he's he's sixty two and he's got a
bunch of employees in their twenties. This could be a
really really good way for him to benefit himself as
well as give his employees something as well. But let's
remember his situation isn't just about taxes. He needs a
post sale income strategy. What's he gonna do after this
money drops out of the sky. Right now, he knows
(08:21):
how the income works because he goes and sells his
products and services and he's been very successful at that.
But now he's gonna have a pile of money that
has nothing to do with those products and services. So
he's gonna need coordination between a CPA, a financial advisor,
and an attorney to make this new machine work to
spit out the income that he needs in a tax
efficient manner. Synchronizing all those moving parts. That's the whole
(08:42):
point of a financial plan.
Speaker 1 (08:44):
You're listening to Simple Money present up by all Worth
Financial on Bob Sponseller along with Brian James. Brian, let's
get into one more scenario and we run across this
often the charitably inclined empty nester couple we'll call them
Mark and Teresa. They're in their early seventies, they're retired.
They got about a six and a half million dollar
net worth, comfortable income coming in from a pension, investments
(09:05):
in Social Security. They have no mortgage, Their kids are
grown and are all financially stable, so you know, they're
just humming along here. They do annual charitable giving of
around twenty five thousand dollars and they have a strong
desire to lead a meaningful legacy to their kids and grandkids,
but they don't want to spoil them. So they're in
(09:26):
what we call this beautiful what now phase of life.
Their plan has been very successful, but now they need
to define some purpose and some legacy, and that's where
advanced planning really shines. You talk about donor advised funds before.
I mean, we use these all the time. The other thing,
qualified charitable distributions from their iras can come into play
(09:49):
here to really reduce the require minimum distribution tax impact
that gets overlooked so often with people we talk to.
And then if you are really charitably incline and want
to get some bang for your buck in terms of
tax deductions during your lifetime, a charitable remainder trust can
be a wonderful strategy to retain some income and get
(10:12):
some nice tax deductions during your lifetime. So a lot
of planning opportunities there. Again, you just got to sit
down and look at what some of the options are,
and then Brian walk us through one more. The widow's
spouse who's in transition.
Speaker 2 (10:27):
Yeah, this can be a scary time for people because
a lot of times only one spouse really knows where
all the finances are because the other generally doesn't have
interest or doesn't have time because it does take a
team to raise a family and so forth. So anyway,
Ellen is aged sixty six, recently widowed. She's got to
have three point two million dollars across her assets. These
are IRA's taxable investment accounts and a rental property. She's
(10:49):
not sure how to take over these financial decisions because
her spouse, like we were just discussing, had always handled them.
She of course wants to stay independent. She doesn't want
people making decisions for her because she wants to be,
you know, on her own. She wants to be empowered
to make those decisions, and she also doesn't want to
be a burden on her family in addition to supporting
her grandkids. This is a very very common and a
critical story. All of a sudden, she very quickly, because
(11:11):
her spouse died unexpectedly, very quickly, She's suddenly the CFO,
chief financial officer of her own household, not to mention
the CEO, which she probably has been for decades anyway.
Now she's responsible for all of it. So why is
she the perfect plan and candidate. Well, big changes in
her life, big shift in the income sources and the
tax filing status that changes the calculus of what she
(11:31):
has to do every April. She's going to have requiredmentum
distributions to deal with on a sizable pile of pre
tax money, and she's going to have Medicare decisions coming
out her fast and furious. And she's the only one.
She doesn't get to bounce off it, bounce it off
anybody at the dinner table anymore, unfortunately, So she's going
to need to simplify, consolidate her accounts. A lot of
emotions and financial transitions are happening at the same time.
(11:52):
That's where a financial advisor, a financial planner is going
to be able to be that buffer to kind of
help her understand, here's what other people in your situation
have done, here's the mistakes they made, and here's the
successes that they had. So if you're wondering and listening
whether this advanced planning type stuff is for you, look
at your life. Do you have overlapping income sources? Are
you close to retirement you're already drawing on it? Or
(12:13):
maybe tax planning is starting to grab your attention more
than it used to, and even more so than just
growing our pile of money? And do we want to
leave money behind efficiently? If those are questions you think about,
then advance financial planning is probably a good thing for
you to look into.
Speaker 1 (12:26):
Here's the all Worth Advice Advanced financial planning. Is it
about how much money you have, It's about how many
decisions you need to get right? Coming up next, what
two Nobel Prize winners think about Navidia's dominance and why
that should give you some comfort not fear as an investor.
You're listening to Simply Money presented by all Worth Financial
(12:47):
on fifty five KRC the talk station. You're listening to
Simply Money present up by all Worth Financial arm Bob
Sponseller along with Brian James straight up we had at
six forty three. We've got advice on roth versus pre tax,
saving private roots, pensions and caring for aging parents. Remember RCA.
(13:11):
How about Pan America Airlines or Eastman Kodak, all companies
that in their prime were the market, they were dominant,
they were untouchable, and now they're just distant memories. Or
if you're under the age of forty, they're companies you've
made the only heard about from your grandparents. Which brings
us to Navidia, one of the hottest stocks on the planet.
(13:33):
Investors can't stop talking about AI and Navidia's chips are
basically the heartbeat of AI. But here's the reality. According
to not one, but two Nobel Prize winning economists, Navidia
won't dominate forever. And get this, that's actually great news, Brian,
Why is that good news?
Speaker 2 (13:53):
Well, so let's talk about UT's. First of all, what
is in video? Did Nvidio drop out of the Skuy's
at a brand new company? Know, they've been around for
a very long time, but really only known to video
gamers and people whose companies use heavy duty graphical design software.
That kind of thing that, however, is now the it's
(14:13):
now the core of the brains that go behind artificial intelligence.
The types of chips that were used in graphic cards
once are now at artificial brains. So where this is
coming from. So Nobel laureates, these are smart guys. Robert
Schiller Williams Sharp financial advisors know them well because there
are ratios and things named after them. But they both
emphasize that over time, markets evolve, companies fall in and
(14:33):
out of favor. It really is just the natural cycle
of innovation.
Speaker 3 (14:36):
Right.
Speaker 2 (14:37):
You can name any company that was a big thing
fifty years ago, maybe not so much anymore. So let's
let's talk about some of those examples. Exxon, General, Motors,
and Seers. Those were the darlings of industry fifty years
ago and their various their various industries. Today we don't
really talk about them so much. We now talk about Apple, Microsoft, Amazon,
and of course in video like we're talking about today.
(14:57):
But you didn't have to chase them individually. As long
as you sat in the index, the market did that
work for you, and you owned a little of those
and a little of everything else. That's exactly why investing
in the broader market bob through the s and P
five hundred is so powerful and important. You don't have
to guess who the next Nvidia is. A lot of
people try to try to do this just so they
can talk about it at cocktail parties. Most people are
(15:18):
wrong and they never admit it and never want to
talk about it again. Those who are right are obnoxious
about it at those cocktail parties. But if you're just
in the index, you already owned tomorrow's winners. We don't
know where they're coming from anyway. So that approach is
going to add something else, gonna add a little discipline,
takes the guesswork and the emotion out of the portfolio.
You don't need to feel like you have to nail
that next big thing. You just need to own the
(15:38):
system that will find it for you.
Speaker 1 (15:40):
So we're basically talking about diversification, and diversification on steroids
is adding some tax efficiency to the whole thing. Instead
of just buying an index ETF for mutual fund, have
an active tax loss harvesting window or tax loss harvesting
algorithm or strategy working in the background to make this
(16:00):
thing really tax efficient and get the best of both worlds.
Tax efficiency and diversification wonderful strategies, all right, Topic number
B complete shifting of gears here. I know nothing about cruises, Brian,
I've never taken one. But some news coming down the
pike here from Norwegian Cruises. They just made a big
(16:22):
change and it's rubbing some loyal passengers the wrong way.
Do you know anything about this stuff at all?
Speaker 2 (16:28):
Next to nothing, Bob. But we're gonna talk about it anyway,
aren't we know. So we were never big cruise people,
and you know, all those ones sailing out into the
Atlantic Ocean and again getting staff infections all over the
boats a few years ago really kind of turned me off. AnyWho,
if you're landing one of these, just know that if
you're considering different cruises, here's something different coming down the pike.
Norwegian just rolled out a policy where passengers, you know,
(16:50):
they had a program called the Free at Sea package
that was just very lucrative in terms of food and
drinks and all those kinds of things. Well they're now
putting limits on it. This is really just the the
old loyalty program not being as rewarding as it used
to be, just like anywhere else now hitting the cruise line.
So the specialty dining options. Nope, no longer included that.
Norwegian is now going to charge five bucks for any
(17:11):
additional entree ordered in the main dining room beyond the
first So it's no longer really all you can eat.
It's all you can eat plus five bucks for every plate.
Room service is going to be limited. You'll only get
two meals per I guess people are sitting in the
rooms by themselves ordering eight meals at a time or something.
So what they're trying to do.
Speaker 1 (17:29):
Hey, bring me a rack of ribs and a six
packet every quarter of the football game that I'm watching
in my in.
Speaker 2 (17:36):
The second half, bring me to every ideal vacation, I
will have a bloody Mary, a steak sandwich, and a
steak sandwich put underhill. So they're of course doing this
the same for the same reason lots of industries or
moved things around. They're trying to make up for rising costs.
They're they're the end of the day, they got to
make a profit. Boat gas is a little expensive these days,
(17:56):
so they're going to make it up on the food side.
But this is irritating some of their loyal customers, especially repeat
cruisers who really were coming back because they love this program. Well,
all of a sudden they're gonna be looking at a
carnival and all the other you know, the other different
cruise lines are out there, so they're trimming some of
these unlimited perks. But they're also they are they are
changing the destinations. Uh so great stirrup Key is going
to get a new peer. They can handle multiple ships
(18:18):
there there. Therefore there won't be the need to jump
on a little boat to get back to the big boat,
bigger pool, more fun stuff and so forth. Anyway, so
if you can look forward to that, if if cruising
is your thing.
Speaker 1 (18:28):
All right, every Sunday you'll find our all worth advice
in the Cincinnati Inquire. Here's a preview ore from Wyoming says,
I added my adult son as an authorized user to
a few of my credit cards years ago to help
him build credit. Is this going to be a problem
for him later on down the line? Brian, you always
give great advice about helping young folks establish some credit
(18:52):
and good advice. What would you say to r E
about this, because he's sitting on a ticking time bomb?
Speaker 2 (18:59):
Can be just a I did this for my kids,
even when my son I think was ten when I
did it, and I did it with the intent of
an authorized user will inherit some portion of a credit score,
and did it for years, and it helped my oldest
who recently moved out of the nest. She sailed through
the credit check and getting an apartment because of it.
These kids are also responsible, though, so being an authorized
(19:20):
user means they do have a credit card in their name. Now,
whether you have physically given it to them, that's a
different story. If you don't give it to them, then
they can't spend it, but you can get them the
benefit of the credit scores. But just make sure that
that person does get to legally swipe that card for
whatever they want. So make sure that you trust them.
But it can be very, very beneficial. I liked it
for my family.
Speaker 1 (19:40):
Coming up next, a deep dive into sequence of return risk.
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 Allworth Financial on Bob Sponseller along
with Brian James. Most seasoned investors understand that markets fluctuate
(20:04):
up and down. What often goes unnoticed however, is the
timing and the magnitude of those potential fluctuations and how
profoundly it can impact a retirement strategy. For those drawing
income from their portfolios, the order in which returns occur
can quietly erode wealth even when the average annual return
(20:27):
appears very healthy. What we're talking about here is a
very important topic for income retirement income planning called sequence
of return risk.
Speaker 2 (20:37):
Brian walked through some of the data here. When does
the bad stuff happen? That is a sequence of return risk.
Let's go through an example here using two investors. Let's
assume everybody earns the same average annual return. There's no
difference there over a twenty year retirement period. However, one
experiences strong market performance in those early years, while the
other one takes a punch to the face right out
(20:57):
of the gate. This is what we're describing here as
anybody who retired and let's say two thousand and seven
or twenty twenty one, and then right after we had
the eight and twenty two, which were some of the
worst years the market has ever had. But we just said,
their same average annual rate of return, so their average
return is identical, but the outcomes are not, So why
(21:18):
does this happening. Well, once withdrawals begin, as they typically
do in retirement, that's kind of the point. Right, we retire,
we're going to draw on our nest egg and spend
our own dollars. Well, the order in which these returns
really starts to matter. When losses happen early, you're both
drawing income, you're spending money down, and your portfolio is
shrinking at the same time. So for example, let's say
we taught we always talk about that four percent rule.
(21:38):
Let's use that if the market pulls ten percent out
of your assets and it's down and you're withdrawing four
percent based on that rule we talk about all the time, Well,
your portfolio took a fourteen percent hit in year one.
That doesn't necessarily sink the ship, but it does change
the metrics a little bit. So every withdrawal compounds that
damage locks and losses and reduces that base that the
(21:58):
future growth depends on. Yeah, and this is.
Speaker 1 (22:01):
Why it's critical. And we talk about stress testing and
portfolio all the time, not only for you know, concentrated
stock exposure or things like that, but the main reason
to stress test a retirement income plan is this sequence
of return risk. And that's where some of this sophisticated
software really is worth its weight and goal because it
(22:23):
can go through all these different iterations of historical market
volatility based on all kinds of different asset allocation strategies
and really test how a portfolio and a retirement you know,
a retirement nest egg will perform given the best and
worst case scenarios of this sequence of return risk. It's
(22:46):
critical that when you sit down and get ready to
retire and develop an income strategy that you have factored
this in. What are some other things that we can
do about or should do about sequence of return risk
when we start to get ready to retire and actually
turn this pot of money into an income stream.
Speaker 2 (23:04):
Brian, Well, you might you might think about looking what
we call a multi bucket strategy, which is break down
all your spending goals into short term which might be
you know, zero to twenty four months. In that bucket,
you would want to keep that in cash or really
really short term bond funds, money market funds, high yield
savings accounts, anything you can identify your normal spending that
(23:26):
you would spend down Also any one time things are
you going to buy a car, or maybe you got
to replace the HVAC or something else, something else out
there that's going to be one time significant expense. That
stuff should be very very very short term in nature
and very little risk. Then then next is the mid term,
so something like three to seven years, maybe maybe these
similar things. You know, you got to make some expenses for.
(23:47):
This could be like maybe it's a wedding or you know,
just other things you know is out there that might
be something you put into a little more high quality
fixed fixed income, you know, even even throw some stocks
in the mix for modest growth, lower volatility. And then
of course we have our long term investments. That's really
where we spend most of our time thinking, because this
is where we have growth type orient investments, and this
(24:08):
is really your eight year plus bucket. Here. Some people
bob do this with individual accounts, and I have this
account that's for the next two years, and then this
account for the midterm, and then this account over here.
Other people just kind of arrange the entire portfolio inside
one account to make sure that it covers all these
different needs. There's a few ways to do it, but again,
the whole point is breaking down your spending goals in
(24:29):
terms of when those dollars are needed.
Speaker 1 (24:32):
Well, Brian, for those that listen to this show on
a somewhat regular basis, I think they hear me talk
about this all the time because this happens in my
office when people come in for meetings. I urge them, please,
if you're going to take that big cruise, or replace
a vehicle or do home, you know, large home repair projects,
please just let me know about it ahead of time
(24:53):
so that we can get out in front of this.
And even if we've got an account where all the
money is in kind of one acid at cation strategy,
we can segregate these short term needs, these big lump
sum needs out of a portfolio and really avoid and
bypass some of this sequence of return risks that we're
talking about. But you've got to communicate with your advisor,
(25:15):
if you have one, so we can help you with
this kind of stuff. Do you have similar conversations with
your clients.
Speaker 2 (25:21):
Absolutely, and it's just a matter of understanding exactly you
know what somebody needs. And a lot of times this
is this is where it helps to have an advisor
simply because you've got somebody in arms length away that
can really really help you understand based on stuff you've
told them before, based on their own experience of things
that maybe you haven't mentioned but they might be aware of,
to help you look under every stone for when those
(25:42):
things might come up.
Speaker 3 (25:44):
Here's the all Worth advice.
Speaker 1 (25:46):
Even the wealthiest investors aren't immune to bad timing. Let's
face it, none of us are immune to that. Protecting
your retirement from sequence of return risk means structuring income
taxes and withdraws so market downturns don't derail your long
term strategy. Coming up next, real listener questions that could
(26:07):
save you from some very costly mistakes.
Speaker 3 (26:10):
It's our ask the advisor segment.
Speaker 1 (26:12):
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. I'm Bob sponseller
along with Brian James. Do you have a financial question
you'd like for us to answer. There's a red button
you can click while you're listening to the show right
(26:32):
on the iHeart app. Simply record your question and it
will come straight to us. All right, Brian leaving us
off Tonight is Jeff in Anderson Township. Jeff says, I
got one point two million dollars in retirement accounts. Do
I pull from taxable accounts first or my IRA to
make that money last longer?
Speaker 2 (26:52):
Okay, Jeff, congratulations on obviously a pretty successful career. If
you put this is a largeum amount into your retirement account.
So yeah, so we don't We don't know much about
Jeff's taxable accounts. He doesn't tell us how much there is.
Sometimes the urge is to well, I can cut these
iras are pre tax I don't want to pay taxes ever,
so I'm gonna wait, wait, wait, wait, wait until you
(27:13):
know as long as I possibly can before I have
to pay taxes on these dollars. Well, remember we've got
that thing hovering out there around age seventy three or
seventy five, depending on when you were born, called a
required minimum distribution. That's when the IRS shows up on
your doorstep and says, hey, the gravy training has come
to an end. It's time to start paying taxes on
these dollars via the required minimum distribution. So draining or
(27:34):
draining your taxable accounts first and ignoring your iras may
put you could could result in you being in a
higher bracket. You know, So Jeff's one point two million
dollars is probably going to generate fifty sixty thousand dollars
in annual that that's based on now depends on how far.
We don't know how old Jeff is either, but that money
will grow from here on out, and that's going to
put him in a minimal bracket at least for a
(27:55):
long time. So I would say, look at those different
factors and see what you need first of all, and
then you might you might consider going ahead and taking
some out of the IRA, because you can figure out
which bracket you want to stay under.
Speaker 3 (28:06):
You can control it, but you could take over time.
Speaker 2 (28:09):
You could take those dollars out and pay taxes at
lower brackets over time, versus letting it all go and
then being stuck while holding the bag when retire minimum
distribution time comes around. So let's move on to Bill
and Linda and Mason. They've been they're hearing about private
reads and private credit funds, and they're wondering if they're
worth considering at their wealth level or are those two risky?
Speaker 1 (28:27):
Bob, Well, when I read how their actual question was worded.
They said, we've been pitched private reds and private credit funds.
So yeah, I have no idea what your current wealth
level is. I don't know what your financial plan looks like,
or if you even have one. But my spidey senses
go up right away when I hear the word pitched,
(28:49):
because pitched often means someone is trying to sell you
some of these things that come with front end commissions.
And so my first question is do you have a
financial plan and have you factored in these potential investments
from a risk tolerance standpoint and an asset allocation standpoint
as part of a coordinated financial plan. If the person
(29:12):
that is pitching these things to you have never done
that kind of work for you, or all of this
sounds foreign to you, don't walk run away from this
pitch and go work with a fiduciary financial advisor. Now,
all that being said, private rates and private credit funds
can they can positively improve your yield, and they do
(29:35):
work in certain situations, but you got to look at
the liquidity, the fees, the risk. These things can get
awfully complex in a hurry. So I think before you
jump into any of this kind of stuff. I strongly
urge you to sit down with a good fiduciary financial
advisor if you don't already have one, or have a
good one who can truly match this stuff or discard
(29:58):
it based on your personal planning needs.
Speaker 2 (30:01):
I hope that helps, all right.
Speaker 3 (30:03):
Next up is.
Speaker 1 (30:04):
Dan and pleasant Ridge. Brian, this is a great question,
Dan says, I've heard people talk about treating their pensions
like the bond portion of a portfolio. Can you explain
that for me?
Speaker 2 (30:15):
Yeah, this is a concept where you know, a lot
of people think of Social Security as the only source
of income in retirement, of true income versus just spending
down a pile of money. But there are still pensions
out there and for people in this situation, and I
always I always like to point out, you know, if
you worked in a situation where you were feeding money
into a pension that probably came somewhat at the expense
(30:37):
of a larger four oh one K or you know,
or some other type of a pile of money type
of retirement asset. But remember that pension a lot of
times can be your ace in the hold because if
you're you're a married person, for example, now there's three
paychecks coming in too, social Security and one pension. So
what Dan's question is is, so, since I have that
income coming in, right, I have these couple different sources
(30:58):
of income, Well, what is that I mean I should
do with my investments? And the answer is, well, you've
got a predictable stream of income probably I assume you've
got SO Security in the mix as well.
Speaker 3 (31:07):
We don't know what type of pension this is.
Speaker 2 (31:09):
Could be state pensioned too, But if those pension checks
and SO security are going to be enough to pay
your bills, then that means you could lean your portfolio
much more toward the aggressive side.
Speaker 3 (31:19):
I'm not a believer at all, Paul that or I'm
sorry Dan.
Speaker 2 (31:24):
That you should have your assets be super conservative just
because you were retired or just because you're a certain age.
Speaker 3 (31:31):
It has everything to do with when you're going to
need these dollars.
Speaker 2 (31:33):
If you've gotten multiple streams of income coming in to
support your retirement and therefore you won't need to touch
these dollars for ten twelve years, let them be aggressive.
Your pension can in that point serve as your bond portion.
So it's really kind of really a frame of thought there,
all right, Paul in Westchester. Paul says their net worth
is about two million dollars, but a lot of it
is not liquid. It's tied up in their house and
the rental property they have, and they're wondering how they
(31:54):
deal with making sure there's enough liquidity for retirement.
Speaker 1 (31:58):
Well, Paul, the simple answer here is you need a
financial plan. You need to take a look at what
your income needs and wants are in retirement and what
the sources of that income are going to be when
you factor in social Security a pension if you have one,
and if you don't have a pension, then more of
that monthly income nut is going to have to be
(32:18):
met through either rental property income or investment assets, or
a combination of the two. So you know, the potential
danger here is your net worth looks great on paper,
but as you just stated, you're pretty i liquid, so
it's really of no use to you because you can't
turn it into a monthly income stream at retirement. So
(32:38):
I think again, sit down with a good advisor, run
some scenarios based on what you and your and your
wife really need and want in terms of income and retirement,
and if it makes sense to maybe move some of
that real estate into more liquid assets that can generate
the income that you need. Might need to talk about
doing that, and you need to factor in tax ramifications
(33:01):
and all that in the mix. But again, sit down
and develop a good financial plan that factors in retirement
income and hopefully a good advisor will help you get
you where you need to be. All right, coming up next,
a quick mental check you can do every December that
could save you thousands and thousands of dollars in taxes
(33:22):
and it really only takes five seconds. 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 Fun Seller along with
Brian James. All Right, time for a quick December money trick.
(33:43):
This one could save you money on taxes and it
takes about five seconds. Brian lay it on us.
Speaker 3 (33:50):
This is this is.
Speaker 2 (33:51):
Good stuff right here, the five second tax filter. Here's
how it works. Every time you make a financial move
in December, whether that's you know, donating to a charity.
So this is close the book's time of year. Maybe
you're gonna look at it and sell it. Under performing
stock or buy a big ticket item, you know, a
little holiday present for somebody. Stop and ask yourself one
simple question, is this going to improve my tax situation
(34:11):
this year?
Speaker 3 (34:12):
Or is it going to cost me?
Speaker 2 (34:13):
Because you know, if this is the end of the year,
then it's only going to be three four months where
you have to figure out do do the math for
the for the final outcome that year. So that's really
it though, that's the filter because this December is that
month where little decisions have big tax consequences. So you're
either going to lock in those losses or realize some
gains or or you know, giving it away that's deductible
or not, meaning you may or may not be able
(34:35):
to deduct something in April, and so you need to
understand what the impact of that is. I would start
by figuring out where are you tax wise. It's November December,
we're you know, eleven months through the year, so most
of your tax situation not all, definitely, not all, but
most of your tax situation is already in stone. You
can figure out what dividends have you've received in tax
bill accounts, what capital gains have been generated. All that
(34:58):
kind of stuff is available from your investment cusse sodians.
You of course can look at your pace dubs and
your bank accounts and things and look for what interest
has been paid so far, and you can figure out
what dollar amounts of those various items have come your
way already, and then you can reposition those decisions. Is
this a good year to make a sizeable charitable contribution?
(35:18):
For example, if it's been a big year for perhaps
you sold a business or something like that, then you
might want to look at a donor advice fund to
support charities that you've always supported. But as we've talked
about before, you can make one lump sum contribution and
dole it out from the donor advised fund in a
slow manner as opposed to giving it directly to a
(35:39):
given charity.
Speaker 3 (35:39):
That's one idea, all.
Speaker 1 (35:41):
Right, Brian, Let's face it, we're moving into the season
now where we're going to start. We're going to get
inundated with advertisements for charitable giving. Most charitable giving in
the country gets done in the fourth quarter of the year.
I don't think that comes as any surprise to most people.
We're getting invited to, you know, fundraising events and things
like that, So charitable giving is on everyone's mind, and
(36:02):
I continue to run into too many people who just
write those checks and look, it's out of a huge
heart and a desire to help the charity, and I
love that. But what we're saying here is just pump
the brakes a little bit and think about if there's
a better way tax wise to do this charitable giving,
because we all want to see, if possible, more and
(36:25):
more money go to these charities that you care about
rather than to the irs. So, you know, just as
a reminder for a married couple, you got to have
you know, roughly thirty thousand dollars in itemized deductions, you know,
to even be.
Speaker 2 (36:39):
Able to itemize.
Speaker 1 (36:40):
So a lot of charitable giving is not getting deducted
from your taxes right now. And that's why we're calling
this thing out. You can bunch charitable gifts, you know,
not give one year and then double up the next
year to get you over that threshold.
Speaker 2 (36:54):
You can give away.
Speaker 1 (36:55):
Appreciated stocks, ETFs and mutual funds and avoid the capital
gain taxes and get the deduction you know if you itemize,
or as Brian just mentioned, use a donor advice fund
to pile in some of this money and get the
deduction and give it away later.
Speaker 3 (37:11):
So there's a lot of.
Speaker 1 (37:12):
Things you can be doing out there, but you got
to think a little bit and coordinate with your CPA
and your advisor to take full advantage.
Speaker 2 (37:20):
Yeah, Bobby, you touched on one thing. I want to
kind of flesh it out a little bit. Donation of
appreciated stock. If you bought something for ten bucks a
share and it's now worth twenty bucks a share, well
you now have a ten dollars gain if you sell that.
Some people might just sell it and say, stick that
money in my checking account, So I want it so
I can turn around and write a check to my
church or whatever charity I'm interested in. That's the wrong
(37:40):
move because what you've done in that case is you've
incurred taxes for the privilege of giving the proceeds away
from that sale. So what you can do is contact
that charity. They're going to have a financial account, a
brokerage account, investment account somewhere, and they're going to use
They'll have a little brochure with their logo on it
that explains the seven steps you got to follow, including
an account number, and it is something called a DTC
number that identifies the custodian all this stuff. They will
(38:02):
know how to do it and you can then transfer
those shares in kind. You're not selling, You're simply saying, hey, custodian,
please send X amount of these shares to this account
and then my charity will sell it and nobody pays taxes.
Speaker 1 (38:15):
Yeah, and remember smart investors too have more tools, direct indexing,
tax loss harvesting. There's a lot of things you can
and should be thinking about that out there. So this December,
before you hit send on that donation or sell on
that stock, take five seconds and.
Speaker 3 (38:30):
Ask yourself that one question.
Speaker 1 (38:32):
Thanks for listening. You've been listening to Simply Money present
about all Worth Financial on fifty five KRC, the talk
station
Tonight, how to know if you are the right fit
for some advanced financial planning. You're listening to Simply Money,
presented by all Worth Financial on Bobspondseller along with Brian James. Tonight,
we're gonna walk you through the real life signs that
you might be the perfect candidates for some financial planning
that goes way beyond just investment advice. Brian, let's let's
(00:29):
walk through a couple scenarios.
Speaker 2 (00:30):
So let's talk about some We've got a couple examples
of kind of perfect candidates for these types of things.
So first one, if you are if you are a
pre retiree with multiple buckets of financial resources. So let's start.
But we'll call these folks Dan and Karen fifty nine
and sixty one. They're thinking about retiring in five years.
That's a pretty common age to think about because that
would put them square in the where they can get
(00:51):
access to Medicare, so in barring anything else, that's usually
what people you know, kind of target. They save well
about two point eight million dollars between their IRA A
broker's account for oh one K. They've got a health
savings account because they've been listening to us and a
small rental property out there. So these are kind of
the poster children for advanced planning because they're in their
highest earning years, they are still young enough to be
(01:13):
doing ROTH conversions and in counting on that for future
tax free income, and they're they have a lot of
investments across different asset locations. Right, we talk about this
all the time. Asset location is not physically where the
dollars are. It's the tax treatment. What kind of tax
treatment is this particular account going to get? Is it
pre tax, is it after tax and therefore also known
(01:34):
as taxable, or is it tax free meaning WROTH or
possibly municipal bonds. Also, they haven't started Social Security yet,
so they've they're still controlling their income to some extent. Now,
this is this is a situation where any good financial
fiduciary advisor is going to map out which accounts to
draw from in which years, how to reduce those future
required minimum distributions, which which may mean consciously pulling some
(01:55):
taxation forward into current years. Even if we don't like that,
we would be wanting to to pay lower taxes for
a longer period of time versus no. Taxes now are
extremely low taxes now and extremely high taxes later. And also,
you know, finally that advisor hopefully is going to help
teach them how to offset using that income using tax
loss harvesting or charitable giving strategies. So here's the point.
(02:15):
They've given themselves options. That's great. Options are wonderful. The
job of an advisor is to make sure that a
client understands the pros and cons of each of those options.
They're probably all good ideas, but there's always a good
versus better versus best. That's the key. You need a
strategy to make the most and optimize which option you
choose well.
Speaker 1 (02:35):
In order to be effective with this, the advisor not
only has to have some good tools to use, but
know how to use them and implement them. Meaning, you know,
there are a ton and the growing number of nuances
in the tax code, which makes some of these decisions
very complicated to make if you don't have the numbers
in front of you. So thankfully you know, I know,
(02:57):
we've got some really good software that we use. I
know other advisors out there do as well, but you
got to have the right tools and know how to
use them to help people make these kind of very
important decisions. Let's talk about a situation the retired couple
with a tax problem. We'll call them Susan and David.
They've already retired, they're both in their late sixties. They're
living comfortably on Social Security, a pension, and about a
(03:20):
three and a half million dollar portfolios. So they're doing
just fine. But they hit their first required minimum distribution
here and suddenly their tax bill out of nowhere jumped
forty percent and they didn't see it coming. Their withdrawal
strategy wasn't coordinated with their tax bracket. They also did
not consider roth conversions in those gap years between when
(03:41):
they retired and when the rmds kicked in, So now
they're paying higher taxes on things like capital gains and
Medicare premiums. All of that could have been mitigated with
better planning. But we can't redo the past. All we
can do is pick things up and move forward. So
David and Susan are still perfect candidates for some active
(04:02):
strategic planning because they do have the opportunity to layer
their income with different different buckets of assets where we
can control the r and ds through some charitable giving,
some strategic estate planning to leave some kids, perhaps leave
some money to the kids perhaps now, you know, because
that's one of their big goals. So you know, in
(04:24):
this case, they don't need to focus much at all
on investing more money. They just need to coordinate what
they already have. And Brian, we see this all the time.
Speaker 2 (04:33):
Yeah, exactly, the situations where where they're kind of set
and not quite set in stone. That's not the right expression,
but but things are pretty much set versus you know,
we just talked about Dan and Karen, who are still
in that more flexible stage where they can do some
planning ahead of the requirementimum distributions. Well, it's unfortunate Susan
and David didn't get that chance because they didn't have
that fiducial advisor, But that doesn't mean there's nothing they
can do at all. So yeah, absolutely need to understand
(04:55):
what you have, what are you required to do via
via those r and ds, and then what strategies are
out there that could offset. Again, just like Bob said,
coordinate what you've got, all right, So another.
Speaker 1 (05:05):
Let's let's let's talk about ricks owner. Brian, I know
that and this is a fictitious situation that we made up,
but I know, you know, because you shared this with me.
You just helped a very successful business owner put together
a very sound financial strategy and it was wonderfully constructed.
Talk about some of the things that you can do
for business owners.
Speaker 2 (05:26):
Yeah, so we're going we'll do this with an example.
So so Rick is sixty two and this is this
example is based off of real you know, we make
them up, yes for the show here, but they're based
off of real clients because that's all that we know.
After Bob and I have been doing this for sixty
years between us, so it's kind of a we're not
fun at parties anyway. So Rick is sixty two six,
I've been at parties with you. You're right. So small
(05:49):
business owner. He's got a business worth about four and
a half million, and he's eyeing that sale. Right, So
this is two three years out. This is for those
of you who are business owners out there, even those
of you who are not, just know that this is
a huge, huge decision and so you do want to
start thinking about it well in advance. You can't decide that.
You know what, It's Friday, I'm super tired. I'm going
to sell the business on Monday.
Speaker 3 (06:06):
It's not going to work that way.
Speaker 2 (06:08):
So Rick knows that he's sitting on a ticking tax
time bomb. If he sells without a plan, just like
we just said, you know, he could pay hundreds of thousands,
if not more, in unnecessary taxes. Unnecessary meaning if you
plan for these things, you need to do it right,
then you can potentially control some of this taxation. So,
for example, he could be looking at strategies such as
installment sales spread that tax hit over time. That can
(06:31):
simply mean that you're maybe you're self financing, you are
allowing a buyer to pay you over time, taking the
risk yourself, or perhaps there's a bank that is a
middleman so that so you can shift that risk to
the buyer. But the point is changing those payments so
they don't happen all at once. You can also look
at something called qualified small business stock exclusions. If eligible.
(06:52):
There's lots of moving parts to that. That would be
a long, fascinating segment, I think if we ever got
into that level, but for now, just take the keyword
qualified small business stock exclusions. You can also use charitable trusts.
He's gonna have a of course, he's gonna have a
windfall here. That's the whole point of this. He will
have a windfall, and he could use charitable trust or
perhaps donor advise funds to offset some of these capital gains,
(07:14):
because a lot of people already have in mind that
if I've come into a windfall, I'm going to benefit
these various charities, my church, whatever, and that's fine plan
to do that, though in the same year where the
tax hit is gonna kick in, and that does take
some time. You can't just flip those together quickly, so
you want to make sure you know, if you're thinking
about this right now, really now is the time get
on the horn and get talking to your advisors to
(07:35):
get all this stuff coordinated. So he can also look
at something called it. Now he's got two three years left,
he could potentially look at setting up a defined benefit
plan for himself and its employees to load up on
tax deferred savings before exit. This is basically something where
he's funding a pension for a few years, but a
defined benefit plan allows you to focus on your older
employees first in terms of finances and smaller amounts going
(07:59):
to the younger employees because of the way pensions work.
So if if Rick is somebody who is you know,
Let's say he's he's sixty two and he's got a
bunch of employees in their twenties. This could be a
really really good way for him to benefit himself as
well as give his employees something as well. But let's
remember his situation isn't just about taxes. He needs a
post sale income strategy. What's he gonna do after this
money drops out of the sky. Right now, he knows
(08:21):
how the income works because he goes and sells his
products and services and he's been very successful at that.
But now he's gonna have a pile of money that
has nothing to do with those products and services. So
he's gonna need coordination between a CPA, a financial advisor,
and an attorney to make this new machine work to
spit out the income that he needs in a tax
efficient manner. Synchronizing all those moving parts. That's the whole
(08:42):
point of a financial plan.
Speaker 1 (08:44):
You're listening to Simple Money present up by all Worth
Financial on Bob Sponseller along with Brian James. Brian, let's
get into one more scenario and we run across this
often the charitably inclined empty nester couple we'll call them
Mark and Teresa. They're in their early seventies, they're retired.
They got about a six and a half million dollar
net worth, comfortable income coming in from a pension, investments
(09:05):
in Social Security. They have no mortgage, Their kids are
grown and are all financially stable, so you know, they're
just humming along here. They do annual charitable giving of
around twenty five thousand dollars and they have a strong
desire to lead a meaningful legacy to their kids and grandkids,
but they don't want to spoil them. So they're in
(09:26):
what we call this beautiful what now phase of life.
Their plan has been very successful, but now they need
to define some purpose and some legacy, and that's where
advanced planning really shines. You talk about donor advised funds before.
I mean, we use these all the time. The other thing,
qualified charitable distributions from their iras can come into play
(09:49):
here to really reduce the require minimum distribution tax impact
that gets overlooked so often with people we talk to.
And then if you are really charitably incline and want
to get some bang for your buck in terms of
tax deductions during your lifetime, a charitable remainder trust can
be a wonderful strategy to retain some income and get
(10:12):
some nice tax deductions during your lifetime. So a lot
of planning opportunities there. Again, you just got to sit
down and look at what some of the options are,
and then Brian walk us through one more. The widow's
spouse who's in transition.
Speaker 2 (10:27):
Yeah, this can be a scary time for people because
a lot of times only one spouse really knows where
all the finances are because the other generally doesn't have
interest or doesn't have time because it does take a
team to raise a family and so forth. So anyway,
Ellen is aged sixty six, recently widowed. She's got to
have three point two million dollars across her assets. These
are IRA's taxable investment accounts and a rental property. She's
(10:49):
not sure how to take over these financial decisions because
her spouse, like we were just discussing, had always handled them.
She of course wants to stay independent. She doesn't want
people making decisions for her because she wants to be,
you know, on her own. She wants to be empowered
to make those decisions, and she also doesn't want to
be a burden on her family in addition to supporting
her grandkids. This is a very very common and a
critical story. All of a sudden, she very quickly, because
(11:11):
her spouse died unexpectedly, very quickly, She's suddenly the CFO,
chief financial officer of her own household, not to mention
the CEO, which she probably has been for decades anyway.
Now she's responsible for all of it. So why is
she the perfect plan and candidate. Well, big changes in
her life, big shift in the income sources and the
tax filing status that changes the calculus of what she
(11:31):
has to do every April. She's going to have requiredmentum
distributions to deal with on a sizable pile of pre
tax money, and she's going to have Medicare decisions coming
out her fast and furious. And she's the only one.
She doesn't get to bounce off it, bounce it off
anybody at the dinner table anymore, unfortunately, So she's going
to need to simplify, consolidate her accounts. A lot of
emotions and financial transitions are happening at the same time.
(11:52):
That's where a financial advisor, a financial planner is going
to be able to be that buffer to kind of
help her understand, here's what other people in your situation
have done, here's the mistakes they made, and here's the
successes that they had. So if you're wondering and listening
whether this advanced planning type stuff is for you, look
at your life. Do you have overlapping income sources? Are
you close to retirement you're already drawing on it? Or
(12:13):
maybe tax planning is starting to grab your attention more
than it used to, and even more so than just
growing our pile of money? And do we want to
leave money behind efficiently? If those are questions you think about,
then advance financial planning is probably a good thing for
you to look into.
Speaker 1 (12:26):
Here's the all Worth Advice Advanced financial planning. Is it
about how much money you have, It's about how many
decisions you need to get right? Coming up next, what
two Nobel Prize winners think about Navidia's dominance and why
that should give you some comfort not fear as an investor.
You're listening to Simply Money presented by all Worth Financial
(12:47):
on fifty five KRC the talk station. You're listening to
Simply Money present up by all Worth Financial arm Bob
Sponseller along with Brian James straight up we had at
six forty three. We've got advice on roth versus pre tax,
saving private roots, pensions and caring for aging parents. Remember RCA.
(13:11):
How about Pan America Airlines or Eastman Kodak, all companies
that in their prime were the market, they were dominant,
they were untouchable, and now they're just distant memories. Or
if you're under the age of forty, they're companies you've
made the only heard about from your grandparents. Which brings
us to Navidia, one of the hottest stocks on the planet.
(13:33):
Investors can't stop talking about AI and Navidia's chips are
basically the heartbeat of AI. But here's the reality. According
to not one, but two Nobel Prize winning economists, Navidia
won't dominate forever. And get this, that's actually great news, Brian,
Why is that good news?
Speaker 2 (13:53):
Well, so let's talk about UT's. First of all, what
is in video? Did Nvidio drop out of the Skuy's
at a brand new company? Know, they've been around for
a very long time, but really only known to video
gamers and people whose companies use heavy duty graphical design software.
That kind of thing that, however, is now the it's
(14:13):
now the core of the brains that go behind artificial intelligence.
The types of chips that were used in graphic cards
once are now at artificial brains. So where this is
coming from. So Nobel laureates, these are smart guys. Robert
Schiller Williams Sharp financial advisors know them well because there
are ratios and things named after them. But they both
emphasize that over time, markets evolve, companies fall in and
(14:33):
out of favor. It really is just the natural cycle
of innovation.
Speaker 3 (14:36):
Right.
Speaker 2 (14:37):
You can name any company that was a big thing
fifty years ago, maybe not so much anymore. So let's
let's talk about some of those examples. Exxon, General, Motors,
and Seers. Those were the darlings of industry fifty years
ago and their various their various industries. Today we don't
really talk about them so much. We now talk about Apple, Microsoft, Amazon,
and of course in video like we're talking about today.
(14:57):
But you didn't have to chase them individually. As long
as you sat in the index, the market did that
work for you, and you owned a little of those
and a little of everything else. That's exactly why investing
in the broader market bob through the s and P
five hundred is so powerful and important. You don't have
to guess who the next Nvidia is. A lot of
people try to try to do this just so they
can talk about it at cocktail parties. Most people are
(15:18):
wrong and they never admit it and never want to
talk about it again. Those who are right are obnoxious
about it at those cocktail parties. But if you're just
in the index, you already owned tomorrow's winners. We don't
know where they're coming from anyway. So that approach is
going to add something else, gonna add a little discipline,
takes the guesswork and the emotion out of the portfolio.
You don't need to feel like you have to nail
that next big thing. You just need to own the
(15:38):
system that will find it for you.
Speaker 1 (15:40):
So we're basically talking about diversification, and diversification on steroids
is adding some tax efficiency to the whole thing. Instead
of just buying an index ETF for mutual fund, have
an active tax loss harvesting window or tax loss harvesting
algorithm or strategy working in the background to make this
(16:00):
thing really tax efficient and get the best of both worlds.
Tax efficiency and diversification wonderful strategies, all right, Topic number
B complete shifting of gears here. I know nothing about cruises, Brian,
I've never taken one. But some news coming down the
pike here from Norwegian Cruises. They just made a big
(16:22):
change and it's rubbing some loyal passengers the wrong way.
Do you know anything about this stuff at all?
Speaker 2 (16:28):
Next to nothing, Bob. But we're gonna talk about it anyway,
aren't we know. So we were never big cruise people,
and you know, all those ones sailing out into the
Atlantic Ocean and again getting staff infections all over the
boats a few years ago really kind of turned me off. AnyWho,
if you're landing one of these, just know that if
you're considering different cruises, here's something different coming down the pike.
Norwegian just rolled out a policy where passengers, you know,
(16:50):
they had a program called the Free at Sea package
that was just very lucrative in terms of food and
drinks and all those kinds of things. Well they're now
putting limits on it. This is really just the the
old loyalty program not being as rewarding as it used
to be, just like anywhere else now hitting the cruise line.
So the specialty dining options. Nope, no longer included that.
Norwegian is now going to charge five bucks for any
(17:11):
additional entree ordered in the main dining room beyond the
first So it's no longer really all you can eat.
It's all you can eat plus five bucks for every plate.
Room service is going to be limited. You'll only get
two meals per I guess people are sitting in the
rooms by themselves ordering eight meals at a time or something.
So what they're trying to do.
Speaker 1 (17:29):
Hey, bring me a rack of ribs and a six
packet every quarter of the football game that I'm watching
in my in.
Speaker 2 (17:36):
The second half, bring me to every ideal vacation, I
will have a bloody Mary, a steak sandwich, and a
steak sandwich put underhill. So they're of course doing this
the same for the same reason lots of industries or
moved things around. They're trying to make up for rising costs.
They're they're the end of the day, they got to
make a profit. Boat gas is a little expensive these days,
(17:56):
so they're going to make it up on the food side.
But this is irritating some of their loyal customers, especially repeat
cruisers who really were coming back because they love this program. Well,
all of a sudden they're gonna be looking at a
carnival and all the other you know, the other different
cruise lines are out there, so they're trimming some of
these unlimited perks. But they're also they are they are
changing the destinations. Uh so great stirrup Key is going
to get a new peer. They can handle multiple ships
(18:18):
there there. Therefore there won't be the need to jump
on a little boat to get back to the big boat,
bigger pool, more fun stuff and so forth. Anyway, so
if you can look forward to that, if if cruising
is your thing.
Speaker 1 (18:28):
All right, every Sunday you'll find our all worth advice
in the Cincinnati Inquire. Here's a preview ore from Wyoming says,
I added my adult son as an authorized user to
a few of my credit cards years ago to help
him build credit. Is this going to be a problem
for him later on down the line? Brian, you always
give great advice about helping young folks establish some credit
(18:52):
and good advice. What would you say to r E
about this, because he's sitting on a ticking time bomb?
Speaker 2 (18:59):
Can be just a I did this for my kids,
even when my son I think was ten when I
did it, and I did it with the intent of
an authorized user will inherit some portion of a credit score,
and did it for years, and it helped my oldest
who recently moved out of the nest. She sailed through
the credit check and getting an apartment because of it.
These kids are also responsible, though, so being an authorized
(19:20):
user means they do have a credit card in their name. Now,
whether you have physically given it to them, that's a
different story. If you don't give it to them, then
they can't spend it, but you can get them the
benefit of the credit scores. But just make sure that
that person does get to legally swipe that card for
whatever they want. So make sure that you trust them.
But it can be very, very beneficial. I liked it
for my family.
Speaker 1 (19:40):
Coming up next, a deep dive into sequence of return risk.
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 Allworth Financial on Bob Sponseller along
with Brian James. Most seasoned investors understand that markets fluctuate
(20:04):
up and down. What often goes unnoticed however, is the
timing and the magnitude of those potential fluctuations and how
profoundly it can impact a retirement strategy. For those drawing
income from their portfolios, the order in which returns occur
can quietly erode wealth even when the average annual return
(20:27):
appears very healthy. What we're talking about here is a
very important topic for income retirement income planning called sequence
of return risk.
Speaker 2 (20:37):
Brian walked through some of the data here. When does
the bad stuff happen? That is a sequence of return risk.
Let's go through an example here using two investors. Let's
assume everybody earns the same average annual return. There's no
difference there over a twenty year retirement period. However, one
experiences strong market performance in those early years, while the
other one takes a punch to the face right out
(20:57):
of the gate. This is what we're describing here as
anybody who retired and let's say two thousand and seven
or twenty twenty one, and then right after we had
the eight and twenty two, which were some of the
worst years the market has ever had. But we just said,
their same average annual rate of return, so their average
return is identical, but the outcomes are not, So why
(21:18):
does this happening. Well, once withdrawals begin, as they typically
do in retirement, that's kind of the point. Right, we retire,
we're going to draw on our nest egg and spend
our own dollars. Well, the order in which these returns
really starts to matter. When losses happen early, you're both
drawing income, you're spending money down, and your portfolio is
shrinking at the same time. So for example, let's say
we taught we always talk about that four percent rule.
(21:38):
Let's use that if the market pulls ten percent out
of your assets and it's down and you're withdrawing four
percent based on that rule we talk about all the time, Well,
your portfolio took a fourteen percent hit in year one.
That doesn't necessarily sink the ship, but it does change
the metrics a little bit. So every withdrawal compounds that
damage locks and losses and reduces that base that the
(21:58):
future growth depends on. Yeah, and this is.
Speaker 1 (22:01):
Why it's critical. And we talk about stress testing and
portfolio all the time, not only for you know, concentrated
stock exposure or things like that, but the main reason
to stress test a retirement income plan is this sequence
of return risk. And that's where some of this sophisticated
software really is worth its weight and goal because it
(22:23):
can go through all these different iterations of historical market
volatility based on all kinds of different asset allocation strategies
and really test how a portfolio and a retirement you know,
a retirement nest egg will perform given the best and
worst case scenarios of this sequence of return risk. It's
(22:46):
critical that when you sit down and get ready to
retire and develop an income strategy that you have factored
this in. What are some other things that we can
do about or should do about sequence of return risk
when we start to get ready to retire and actually
turn this pot of money into an income stream.
Speaker 2 (23:04):
Brian, Well, you might you might think about looking what
we call a multi bucket strategy, which is break down
all your spending goals into short term which might be
you know, zero to twenty four months. In that bucket,
you would want to keep that in cash or really
really short term bond funds, money market funds, high yield
savings accounts, anything you can identify your normal spending that
(23:26):
you would spend down Also any one time things are
you going to buy a car, or maybe you got
to replace the HVAC or something else, something else out
there that's going to be one time significant expense. That
stuff should be very very very short term in nature
and very little risk. Then then next is the mid term,
so something like three to seven years, maybe maybe these
similar things. You know, you got to make some expenses for.
(23:47):
This could be like maybe it's a wedding or you know,
just other things you know is out there that might
be something you put into a little more high quality
fixed fixed income, you know, even even throw some stocks
in the mix for modest growth, lower volatility. And then
of course we have our long term investments. That's really
where we spend most of our time thinking, because this
is where we have growth type orient investments, and this
(24:08):
is really your eight year plus bucket. Here. Some people
bob do this with individual accounts, and I have this
account that's for the next two years, and then this
account for the midterm, and then this account over here.
Other people just kind of arrange the entire portfolio inside
one account to make sure that it covers all these
different needs. There's a few ways to do it, but again,
the whole point is breaking down your spending goals in
(24:29):
terms of when those dollars are needed.
Speaker 1 (24:32):
Well, Brian, for those that listen to this show on
a somewhat regular basis, I think they hear me talk
about this all the time because this happens in my
office when people come in for meetings. I urge them, please,
if you're going to take that big cruise, or replace
a vehicle or do home, you know, large home repair projects,
please just let me know about it ahead of time
(24:53):
so that we can get out in front of this.
And even if we've got an account where all the
money is in kind of one acid at cation strategy,
we can segregate these short term needs, these big lump
sum needs out of a portfolio and really avoid and
bypass some of this sequence of return risks that we're
talking about. But you've got to communicate with your advisor,
(25:15):
if you have one, so we can help you with
this kind of stuff. Do you have similar conversations with
your clients.
Speaker 2 (25:21):
Absolutely, and it's just a matter of understanding exactly you
know what somebody needs. And a lot of times this
is this is where it helps to have an advisor
simply because you've got somebody in arms length away that
can really really help you understand based on stuff you've
told them before, based on their own experience of things
that maybe you haven't mentioned but they might be aware of,
to help you look under every stone for when those
(25:42):
things might come up.
Speaker 3 (25:44):
Here's the all Worth advice.
Speaker 1 (25:46):
Even the wealthiest investors aren't immune to bad timing. Let's
face it, none of us are immune to that. Protecting
your retirement from sequence of return risk means structuring income
taxes and withdraws so market downturns don't derail your long
term strategy. Coming up next, real listener questions that could
(26:07):
save you from some very costly mistakes.
Speaker 3 (26:10):
It's our ask the advisor segment.
Speaker 1 (26:12):
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. I'm Bob sponseller
along with Brian James. Do you have a financial question
you'd like for us to answer. There's a red button
you can click while you're listening to the show right
(26:32):
on the iHeart app. Simply record your question and it
will come straight to us. All right, Brian leaving us
off Tonight is Jeff in Anderson Township. Jeff says, I
got one point two million dollars in retirement accounts. Do
I pull from taxable accounts first or my IRA to
make that money last longer?
Speaker 2 (26:52):
Okay, Jeff, congratulations on obviously a pretty successful career. If
you put this is a largeum amount into your retirement account.
So yeah, so we don't We don't know much about
Jeff's taxable accounts. He doesn't tell us how much there is.
Sometimes the urge is to well, I can cut these
iras are pre tax I don't want to pay taxes ever,
so I'm gonna wait, wait, wait, wait, wait until you
(27:13):
know as long as I possibly can before I have
to pay taxes on these dollars. Well, remember we've got
that thing hovering out there around age seventy three or
seventy five, depending on when you were born, called a
required minimum distribution. That's when the IRS shows up on
your doorstep and says, hey, the gravy training has come
to an end. It's time to start paying taxes on
these dollars via the required minimum distribution. So draining or
(27:34):
draining your taxable accounts first and ignoring your iras may
put you could could result in you being in a
higher bracket. You know, So Jeff's one point two million
dollars is probably going to generate fifty sixty thousand dollars
in annual that that's based on now depends on how far.
We don't know how old Jeff is either, but that money
will grow from here on out, and that's going to
put him in a minimal bracket at least for a
(27:55):
long time. So I would say, look at those different
factors and see what you need first of all, and
then you might you might consider going ahead and taking
some out of the IRA, because you can figure out
which bracket you want to stay under.
Speaker 3 (28:06):
You can control it, but you could take over time.
Speaker 2 (28:09):
You could take those dollars out and pay taxes at
lower brackets over time, versus letting it all go and
then being stuck while holding the bag when retire minimum
distribution time comes around. So let's move on to Bill
and Linda and Mason. They've been they're hearing about private
reads and private credit funds, and they're wondering if they're
worth considering at their wealth level or are those two risky?
Speaker 1 (28:27):
Bob, Well, when I read how their actual question was worded.
They said, we've been pitched private reds and private credit funds.
So yeah, I have no idea what your current wealth
level is. I don't know what your financial plan looks like,
or if you even have one. But my spidey senses
go up right away when I hear the word pitched,
(28:49):
because pitched often means someone is trying to sell you
some of these things that come with front end commissions.
And so my first question is do you have a
financial plan and have you factored in these potential investments
from a risk tolerance standpoint and an asset allocation standpoint
as part of a coordinated financial plan. If the person
(29:12):
that is pitching these things to you have never done
that kind of work for you, or all of this
sounds foreign to you, don't walk run away from this
pitch and go work with a fiduciary financial advisor. Now,
all that being said, private rates and private credit funds
can they can positively improve your yield, and they do
(29:35):
work in certain situations, but you got to look at
the liquidity, the fees, the risk. These things can get
awfully complex in a hurry. So I think before you
jump into any of this kind of stuff. I strongly
urge you to sit down with a good fiduciary financial
advisor if you don't already have one, or have a
good one who can truly match this stuff or discard
(29:58):
it based on your personal planning needs.
Speaker 2 (30:01):
I hope that helps, all right.
Speaker 3 (30:03):
Next up is.
Speaker 1 (30:04):
Dan and pleasant Ridge. Brian, this is a great question,
Dan says, I've heard people talk about treating their pensions
like the bond portion of a portfolio. Can you explain
that for me?
Speaker 2 (30:15):
Yeah, this is a concept where you know, a lot
of people think of Social Security as the only source
of income in retirement, of true income versus just spending
down a pile of money. But there are still pensions
out there and for people in this situation, and I
always I always like to point out, you know, if
you worked in a situation where you were feeding money
into a pension that probably came somewhat at the expense
(30:37):
of a larger four oh one K or you know,
or some other type of a pile of money type
of retirement asset. But remember that pension a lot of
times can be your ace in the hold because if
you're you're a married person, for example, now there's three
paychecks coming in too, social Security and one pension. So
what Dan's question is is, so, since I have that
income coming in, right, I have these couple different sources
(30:58):
of income, Well, what is that I mean I should
do with my investments? And the answer is, well, you've
got a predictable stream of income probably I assume you've
got SO Security in the mix as well.
Speaker 3 (31:07):
We don't know what type of pension this is.
Speaker 2 (31:09):
Could be state pensioned too, But if those pension checks
and SO security are going to be enough to pay
your bills, then that means you could lean your portfolio
much more toward the aggressive side.
Speaker 3 (31:19):
I'm not a believer at all, Paul that or I'm
sorry Dan.
Speaker 2 (31:24):
That you should have your assets be super conservative just
because you were retired or just because you're a certain age.
Speaker 3 (31:31):
It has everything to do with when you're going to
need these dollars.
Speaker 2 (31:33):
If you've gotten multiple streams of income coming in to
support your retirement and therefore you won't need to touch
these dollars for ten twelve years, let them be aggressive.
Your pension can in that point serve as your bond portion.
So it's really kind of really a frame of thought there,
all right, Paul in Westchester. Paul says their net worth
is about two million dollars, but a lot of it
is not liquid. It's tied up in their house and
the rental property they have, and they're wondering how they
(31:54):
deal with making sure there's enough liquidity for retirement.
Speaker 1 (31:58):
Well, Paul, the simple answer here is you need a
financial plan. You need to take a look at what
your income needs and wants are in retirement and what
the sources of that income are going to be when
you factor in social Security a pension if you have one,
and if you don't have a pension, then more of
that monthly income nut is going to have to be
(32:18):
met through either rental property income or investment assets, or
a combination of the two. So you know, the potential
danger here is your net worth looks great on paper,
but as you just stated, you're pretty i liquid, so
it's really of no use to you because you can't
turn it into a monthly income stream at retirement. So
(32:38):
I think again, sit down with a good advisor, run
some scenarios based on what you and your and your
wife really need and want in terms of income and retirement,
and if it makes sense to maybe move some of
that real estate into more liquid assets that can generate
the income that you need. Might need to talk about
doing that, and you need to factor in tax ramifications
(33:01):
and all that in the mix. But again, sit down
and develop a good financial plan that factors in retirement
income and hopefully a good advisor will help you get
you where you need to be. All right, coming up next,
a quick mental check you can do every December that
could save you thousands and thousands of dollars in taxes
(33:22):
and it really only takes five seconds. 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 Fun Seller along with
Brian James. All Right, time for a quick December money trick.
(33:43):
This one could save you money on taxes and it
takes about five seconds. Brian lay it on us.
Speaker 3 (33:50):
This is this is.
Speaker 2 (33:51):
Good stuff right here, the five second tax filter. Here's
how it works. Every time you make a financial move
in December, whether that's you know, donating to a charity.
So this is close the book's time of year. Maybe
you're gonna look at it and sell it. Under performing
stock or buy a big ticket item, you know, a
little holiday present for somebody. Stop and ask yourself one
simple question, is this going to improve my tax situation
(34:11):
this year?
Speaker 3 (34:12):
Or is it going to cost me?
Speaker 2 (34:13):
Because you know, if this is the end of the year,
then it's only going to be three four months where
you have to figure out do do the math for
the for the final outcome that year. So that's really
it though, that's the filter because this December is that
month where little decisions have big tax consequences. So you're
either going to lock in those losses or realize some
gains or or you know, giving it away that's deductible
or not, meaning you may or may not be able
(34:35):
to deduct something in April, and so you need to
understand what the impact of that is. I would start
by figuring out where are you tax wise. It's November December,
we're you know, eleven months through the year, so most
of your tax situation not all, definitely, not all, but
most of your tax situation is already in stone. You
can figure out what dividends have you've received in tax
bill accounts, what capital gains have been generated. All that
(34:58):
kind of stuff is available from your investment cusse sodians.
You of course can look at your pace dubs and
your bank accounts and things and look for what interest
has been paid so far, and you can figure out
what dollar amounts of those various items have come your
way already, and then you can reposition those decisions. Is
this a good year to make a sizeable charitable contribution?
(35:18):
For example, if it's been a big year for perhaps
you sold a business or something like that, then you
might want to look at a donor advice fund to
support charities that you've always supported. But as we've talked
about before, you can make one lump sum contribution and
dole it out from the donor advised fund in a
slow manner as opposed to giving it directly to a
(35:39):
given charity.
Speaker 3 (35:39):
That's one idea, all.
Speaker 1 (35:41):
Right, Brian, Let's face it, we're moving into the season
now where we're going to start. We're going to get
inundated with advertisements for charitable giving. Most charitable giving in
the country gets done in the fourth quarter of the year.
I don't think that comes as any surprise to most people.
We're getting invited to, you know, fundraising events and things
like that, So charitable giving is on everyone's mind, and
(36:02):
I continue to run into too many people who just
write those checks and look, it's out of a huge
heart and a desire to help the charity, and I
love that. But what we're saying here is just pump
the brakes a little bit and think about if there's
a better way tax wise to do this charitable giving,
because we all want to see, if possible, more and
(36:25):
more money go to these charities that you care about
rather than to the irs. So, you know, just as
a reminder for a married couple, you got to have
you know, roughly thirty thousand dollars in itemized deductions, you know,
to even be.
Speaker 2 (36:39):
Able to itemize.
Speaker 1 (36:40):
So a lot of charitable giving is not getting deducted
from your taxes right now. And that's why we're calling
this thing out. You can bunch charitable gifts, you know,
not give one year and then double up the next
year to get you over that threshold.
Speaker 2 (36:54):
You can give away.
Speaker 1 (36:55):
Appreciated stocks, ETFs and mutual funds and avoid the capital
gain taxes and get the deduction you know if you itemize,
or as Brian just mentioned, use a donor advice fund
to pile in some of this money and get the
deduction and give it away later.
Speaker 3 (37:11):
So there's a lot of.
Speaker 1 (37:12):
Things you can be doing out there, but you got
to think a little bit and coordinate with your CPA
and your advisor to take full advantage.
Speaker 2 (37:20):
Yeah, Bobby, you touched on one thing. I want to
kind of flesh it out a little bit. Donation of
appreciated stock. If you bought something for ten bucks a
share and it's now worth twenty bucks a share, well
you now have a ten dollars gain if you sell that.
Some people might just sell it and say, stick that
money in my checking account, So I want it so
I can turn around and write a check to my
church or whatever charity I'm interested in. That's the wrong
(37:40):
move because what you've done in that case is you've
incurred taxes for the privilege of giving the proceeds away
from that sale. So what you can do is contact
that charity. They're going to have a financial account, a
brokerage account, investment account somewhere, and they're going to use
They'll have a little brochure with their logo on it
that explains the seven steps you got to follow, including
an account number, and it is something called a DTC
number that identifies the custodian all this stuff. They will
(38:02):
know how to do it and you can then transfer
those shares in kind. You're not selling, You're simply saying, hey, custodian,
please send X amount of these shares to this account
and then my charity will sell it and nobody pays taxes.
Speaker 1 (38:15):
Yeah, and remember smart investors too have more tools, direct indexing,
tax loss harvesting. There's a lot of things you can
and should be thinking about that out there. So this December,
before you hit send on that donation or sell on
that stock, take five seconds and.
Speaker 3 (38:30):
Ask yourself that one question.
Speaker 1 (38:32):
Thanks for listening. You've been listening to Simply Money present
about all Worth Financial on fifty five KRC, the talk
station
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Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!