One For The Money

Neither a Borrower Nor a Lender Be- Ep#69

Welcome to episode 69 of the One for the Money podcast. I am so very grateful you have taken the time to listen.  In this episode, I shared whether it is wise to lend money to family or friends. 

In the tips, tricks, and strategies portion, I share a tip regarding loans from a 401k. 

In this episode...

• Just Say No [1:24]
• If You Can’t Say No [6:06]
• 401k Emergency Loan [9:20]

MAIN

Recently I re-read The Tragedy of Hamlet by William Shakespeare. There are so many great quotes from this play. Just a few of these include:

• Brevity is the soul of wit
• there is nothing good or bad but thinking makes it so
• and one of the more famous lines - to be or not to be, that is the question.

But the quote most relevant to the subject of this podcast episode comes from Polonius’ counsel to his son Laertes. 

Amongst other sage advice he provides his son, he tells him t0 “Neither a borrower nor a lender be; for loan oft loses both itself and friend.”

Over the course of life, we will invariably all experience times where friends and family will ask us for money. It’s important to prepare prior to such a request as the wrong approach could ruin some of our closest relationships.  

Charles Barkley shared his thoughts on giving money to family.

Barkley and the rest of the Team USA basketball players were in Atlanta preparing for the 1996 Olympic Games when he heard a conversation between his teammate Grant Hill and Hill’s mother. Janet Hill told her son that she was only staying in town for a few days, because she had to return to work. Barkley wondered why she was still working, considering that her son was making tens of millions of dollars playing in the NBA. 

And Grant Hill’s mom said the following:

“Do not start taking care of your family and friends. They never gonna stop, and it’s gonna ruin all your relationships,” She also said. “When you start giving people money, they never gonna ask for money [just] one time. No matter what you do for them, the first time you tell them no, they hate you.”

Barkley took the advice to heart and started to tell people no when they asked for money, which temporarily led to some ruined friendships.

“It was a tough and painful lesson for me,” Barkley said.

Some would think that professional athletes should share.  Here is why most shouldn’t:

Nearly 80% of NFL players go bankrupt or are under financial stress within two years of retirement and 60% of NBA players go broke or are bankrupt within five years of retirement. Just look at the sad cases of Antoine Walker, Bernie Kosar and others.

When a family or friend asks for money, there could be a variety of reasons. Investing in their startup or helping them during a financially hard time. 

-The first thing I recommend is to thank them for coming to you and before you can consider helping them you will need to ask them for more details.

• For those wanting you to invest in their startup or small business, you have every right to ask for their business plan. How will they generate profits, what sort of experience do they have in that line of business, how many others have invested, what is their path to profitability, etc. 
• If they can’t answer those basic business questions, they are likely doomed to failure as most businesses fail. Better planning isn’t just for a better life but for better businesses as well and you want to ensure they have robust and well thought out plans.
• For those wanting to borrow money to get through a hard time, that one is more challenging. But you should ask them what the money is needed for. Was it because they lost their job, had an unexpected medical expense, or did they get in a financial bind? You have a right to ask what they have done already to make ends meet. There are things they may not have considered.. There may be a way for them to cut expenses, sell some assets, etc. It can make for a very challenging conversation but if you approach it with sincere concern and a willingness to help them they will hopefully understand. 
• In addition, to show your concern you can buy their groceries and/or make them meals and help with work around their house. 
• For those thinking of giving much larger sums of money or providing assistance over any period of time, its often better to not provide them with assistance. People are tremendously capable but sometimes it’s only through adversity where the conditions exist to discover them.  I worked with a remarkable gentleman a few years ago. He overcame stints in prison to eventually get his phd.  A motto of his was “rock bottom will teach you things mountain tops never will”. It can be heartbreaking to see your loved ones struggle, but sometimes the nicest thing you can do is withholding financial help 
• Lastly, for my clients I tell them to refer their friends and family to me and I can have an introductory conversation with them about their financial situation and provide recommendations. Any information shared with me, is confidential and cannot be shared with the referring family member, but it’s a way for them to provide their family member or friend with objective advice in private. 

TIPS, TRICKS AND STRATEGIES

The Internal Revenue Service has now made it easier to take a limited amount of money out of a traditional retirement account penalty-free. While previously you could tap your savings without penalty in more limited ways and often with more paperwork, (adoption, first time home buyer, etc), you can now take out up to $1,000 of your funds for any self-defined emergency.

The $1,000 provision is different from other retirement-account withdrawal options because you can just say that you have an emergency, without specifying what it is. So you can get the money faster. It is one of several ways Congress keeps making it easier for people to use their retirement savings as emergency funds.

You’ll still owe income tax on the $1,000 you take out if you don’t pay it back.

References

Charles Barkely - Don’t Give Money to Friends

Jr Bridgemen - $600 million Dollar NBA Man

WSJ - 401k Loan

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Welcome to episode 68 of the One for the Money podcast. This is part 2 of a 2-part series on novel investment strategies. In this episode, I’ll review a novel investment strategy called factor investing.

In the tips, tricks, and strategies portion, I will share a second tip regarding stock options this time regarding incentive stock options also known as ISOs. 

In this episode...

• Investment Factors & Potential Higher Returns [1:15]
• Factor Investing - Passive vs Active [6:32]
• Incentive Stock Options [9:12]

Factor investing is a strategy that chooses investments based on certain attributes or factors that historically have had higher rates of return. The assumption is that these same attributes will continue in the future. 

The First one is that historically, stocks have outperformed bonds. Since 1926 stocks returned between 8% – 10% whereas the bonds returned between 4% – 6%. If you invested $1 in 1926 and earned the bond average of 5% it would be $113 by 2023, but if that dollar earned the stock average of 9% return it would be $4269. That’s why for longer-term goals we invest in stocks because historically they give you more to spend in the future when things will cost more.

The second investment factor is that smaller companies tend to grow faster than larger companies. Amazon and Apple all started in a garage and look at them now. But if people only invest in the S&P500 which all of the large American companies then they will miss out on buying the Apples, Teslas, Nvidia, Microsofts when they were smaller. From 1927 through December 2023 small stocks outperformed large stocks, 55% of the time after one year, 59% of the time after 5 years, and 68% of the time after 10 years.

The third factor to consider while investing is the price of the stocks you are buying. Some stocks are more expensive than others. Confusingly, this has nothing to do with the price of the stock but rather the price of the stock relative to the earnings of the company. This is known as the P/E ratio.  On average, value stocks have outperformed growth stocks by 4.4% annually in the US since 1927. From 1926 through December 2023 value stocks were higher than growth stocks, 59% of the time after one year, 70% of the time after 5 years, and 78% of the time after 10 years. 

The final factor to consider is profitability. That may seem like a captain obvious type comment but factoring in companies with higher probability can make a significant difference for investors. From 1963 through December 2023 high profitability companies were higher than lower profitability companies, 67% of the time after one year, 82% of the time after 5 years, and 92% of the time after 10 years. 

Successful investing really should target factors that generate higher expected returns. Looking at average annualized returns going back decades, small-cap stocks have beaten large caps, value has outperformed growth, and high-profitability stocks have outgained low-profitability stocks. 

Unlike active investing or trend models, factor investing doesn’t use a crystal ball but instead is grounded in economic theory and backed by decades of empirical data. Of course, past performance is no guarantee of future results but investing based on science is way better than investing based on an active manager's hunch or predictions about the future.

Tips & Tricks

ISOs are usually issued by publicly traded companies or private companies planning to go public. My tip regarding ISOs is whether you should take a higher salary and fewer ISOs or a lower salary and more ISOs and it really comes down to how much risk can you afford. If you are in your 20s or early 30s it can make sense to take a lower salary so you can receive more ISOs because you can live with roommates and because you have time to invest later, if this company isn’t as successful as one had hoped it would be. This approach can also make sense if you are much older and are on track for retirement. But if you are older and not on track for retirement then you will really want to consider taking a higher salary and fewer ISOs or a different job altogether. There are too many people risking their retirement on the hope that their one company rockets higher. 

References

Factor investing

Incentive Stock Options 

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Welcome to episode 67 of the One for the Money podcast. I am so very grateful you have taken the time to listen. This is part 1 of a 2-part series on novel investment strategies. In this episode, I’ll go over what is sometimes referred to as the borrow, spend, die strategy.

In this episode...

• SBLOC Defined -[1:45]
• SBLOC in Practice -[4:58]
• Stock Options - Restricted Stock Units (RSUs) -[6:30]

Most people are familiar with the notion of buying and selling investments. The goal when buying an investment is that it increases in value and then you sell the investment to enjoy the proceeds. But there is a strategy where you can spend without ever having to sell. This is much less complicated than it may sound when one realizes it’s not all that different from a home equity line of credit, or HELOC, for short. With a HELOC the homeowner will borrow money against their appreciated property and aren’t required to sell their home to do so.  There is a similar option with stock market investments and it is called a security-based line of credit, or SBLOC for short. Here is how they work.

An SBLOC (Securities-Based Line of Credit) is a special type of loan where you use your non-retirement investments as collateral. Just how can you use some of this newfound wealth without triggering a huge tax bill and not missing out on potential future gains? Why an SBLOC of course. These allow you to borrow against these shares using your stock  as collateral.

In fact this is the exact same strategy that many uber wealthy utilize to access the wealth formed in the publicly traded companies that they founded. 

The strategy is sometimes called the borrow, spend, die strategy. They borrow from their massive wealth, spend the proceeds and when they die some of their shares are sold to pay off the loans. Often this can lead to massive tax savings as when they die, there could be a step up in the basis at death and the taxes could be severely limited.

Tips Tricks and Strategies 

RSUs (short for Restricted Stock Units) are a type of compensation given to employees by a company. They represent company shares that an employee will receive in the future. However, there are certain conditions, such as working for the company for a certain period of time or achieving specific performance goals, which must be met before the employee actually receives the shares

Once your shares are granted and taxes paid, there is no taxable benefit to staying invested in those shares. For many investors, it may make more sense to sell all of the shares and diversify their investments or use the proceeds to pay of higher interest debt.

References

Security Based Line of Credit

Borrow, Spend and Die Strategy

Restricted Stock Units

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What is one of the best ways a husband, wife, father, and mother can show their love financially? Hint it’s not diamond rings, cars, fancy trips, or a big house. It’s WAY cheaper than that.

In this episode...

• Financially caring for family in case of an accident [1:15]
• 5 factors that impact the price of life insurance  [4:43]
• The right type of Life Insurance [7:08]

If you died yesterday, how financially secure would your family be today, tomorrow, and for the years to come?

This is an incredibly depressing thought no doubt, but that’s exactly why we should address this just-in-case scenario. Because if you love your family, you will want to make certain that they are taken care of financially if you are not here today. Term life insurance is the only instrument that can provide sudden wealth for your loved ones in their greatest time of need all for just a fraction of the cost of the wealth obtained.  

Term life insurance can be incredibly inexpensive far too many Americans lack life insurance. Too often you see, what I refer to as the worst type of life insurance, the GoFundMe page. But with term insurance being priced like a commodity, it really shouldn’t be this way for millions of families.

Some people don’t bother with Life Insurance because they don’t want to “waste” money on term life insurance premiums. I can certainly relate because that’s the reason I never purchased term life insurance for many years.

For those who worry about the cost of life insurance here are the five factors that impact the price

#1 - A person’s Age - all things being equal, a 35-year-olds policy will be less expensive than a 40-year-olds

#2 - A person's Gender - Men are more expensive than women. Men do stupid things and have a higher probability of death at all ages.

#3 A person’s health rating - Think, BMI, smoker/non-smoker, etc ones driving record is also included. 

#4 The amount of the benefit - $2m of coverage will cost you more than $1m

#5 How many years you have coverage - Getting coverage for 10 years will be less than 20 years of coverage. 

 I must note that life insurance shouldn’t just be for the working spouse. If there is a stay at home parent they need life insurance as well. We cannot underestimate their contribution to the family. If they were to pass it would be devastating for the family and sure money would never replace their absence, it would help ease the tremendous burden so the working spouse can take the requisite time and have the means to help their family heal.  

Tips Tricks and Strategies

I absolutely love what I do but it wasn’t until after a lot of research that I finally found my dream career.  This career has married things that I love, namely personal finance, education, and being able to have a positive impact on others and for that reason, I became a Certified Financial Planner in order to have the greatest impact on my clients.  But that’s not actually, how it started out for me.  Due to my naiveté, I joined a “financial services" firm that claimed to put financial planning at the forefront of what they did but in truth, they primarily pushed expensive insurance that the overwhelming majority of people don’t need.  But, in my defense, it wasn’t anything like what I was promised during the interviews with the firm. I had interviewed a few actual CFP®s from the firm who spoke of the merits of being fiduciaries, a fiduciary is a professional that puts the interests of clients above their own, (apparently, this was in name only) and they in fact did not do comprehensive planning nor were they fiduciaries but the main efforts was to sell really expensive life insurance.

What sort of expensive Life Insurance am I talking about; namely Index Universal Life (IUL), Whole life, and similar permanent life policies? Life insurance legally cannot be sold as an investment, but there are far too many instances where an IUL is sold as such. More importantly, they don’t even determine if these policies are in the best interest of the individual as permanent insurance is almost always sold and rarely bought.

You might be wondering, are permanent life insurance like IUL or whole life so bad? The answer is yes because with very rare exceptions term insurance is all you need and permanent policies are WAY MORE EXPENSIVE and leave a person with way less wealth than other solutions. Jeremy Schneider compares investing in an IUL policy vs an index fund and the results are remarkable. He showed how an IUL policy could erode over 80% of your wealth compared to investing directly in an index fund.

Some say I want whole life insurance because I don’t want to waste the money. You hope it’s a waste because it’s insurance. 

References

Is Whole Life Insurance a Good Investment? - NerdWallet

The Statistic Whole Life Salesmen Don’t Want You To Know

Is IUL a Scam? Yes.

Jeremy Schneider - Founder - Personal Finance Club

Welcome to episode 65 of the One for the Money podcast. There are two huge risks when it comes to retirement, and they are contradictory to one another. In this episode, I’ll share those risks as well as a strategy to address them. 

In this episode...

• Retirement is a Miracle [1:13]
• The first biggest risk in retirement  [2:25]
• The second biggest risk in retirement [2:44]
• Enjoying more in retirement through planning [11:29]

Before we talk about these risks, it’s helpful to first appreciate the absolute miracle that is retirement.  A hundred years ago, three-quarters of the world’s population lived in extreme poverty. Today, it’s less than 10%. 

Interestingly, the two biggest risks retirees will face are contradictory to one another. The first is the most obvious one, running out of money. That’s really everyone’s biggest fear. But since people are so focused on the fear of running out of money they ignore the second biggest risk in retirement which is dying with WAY too much money. But, with the right retirement income strategy, you can spend WAY more money WITH your loved ones all while having a much more fulfilling retirement, and still leave your loved ones with a generous inheritance. 

Sadly way too many people go into retirement without a plan and just wing it instead. In episode 62 of this podcast, I shared the regrets of retired Americans and how more than 6 in 10 retirees say they change their retirement if they had the opportunity. 

I believe it is helpful to think of your approaching retirement as summiting your financial Mount Everest. Taking withdraws from your investments in retirement is like climbing down which requires even more guidance because the financial mistakes in retirement are WAY more costly, because when you are still working, you have the time and income to overcome most financial mistakes, but not in retirement. 

For these reasons, you need a plan that is designed to address your specific retirement needs. But not any plan will do because having the RIGHT plan is JUST as important as having a plan at all. Way too many people think they have a retirement plan when all they have is an expensive product sold to them by some salesman. Others may have a very “light” plan by following a certain rule of thumb believing that a one-size-fits-all all plan will fit their specific situation. Examples would include the  60/40 rule (having 60% invested in stocks 40% invested in bonds, and selling which is up for the year to provide the income. Or there is the 4% distribution rule. Neither of which accounts for how your account is invested or when is the best time to take social security or how to mitigate taxes.

What people need instead is a tailor-made income model to provide an inflation-adjusted income throughout their retirement.

For this reason, I create and implement a retirement income distribution plan for clients that accounts for all their income sources, pensions, social security, and rental income, and consequently we are able to maximize their income spending so that they can achieve wonderful goals throughout their retirement. With the properly structured retirement income models, we are able to help clients spend (i.e. enjoy) more in retirement.

Having a dynamic retirement Income model puts clients at ease and helps them enjoy retirement. They don’t have to fear running out of money or dying with too much. aspects of the strategy include investing money differently based on when you plan to spend this money.

I hope I’ve been able to convey that life in retirement turns out WAY better when you have a plan and that is especially the case when it comes to retirement income planning. Because with a plan that is designed and aligned with your specific goals, you won’t run out of money and just as tragic won’t die with too much. 

Tips Tricks and Strategies

Earlier in the podcast, I mentioned how one should review retirement as summiting a financial Mount Everest and that taking withdraws from investments in retirement is like climbing down which requires even more guidance because the financial mistakes in retirement are WAY more costly which is why you want a Sherpa to Help Guide You To and Through Retirement.

Certified Financial Planners are the Sherpas that guide people through the storms and beautiful weather up and down the mountain. Adjustments will need to be made as you make your way up and down the retirement mountain. 

With the right financial planner, you can feel confident and excited about the years and decades ahead in retirement. 

References

World Population Living in extreme poverty

• https://BetterPlanningBetterLife.com 
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Welcome to episode 64 of the One for the Money podcast. I am so very grateful you have taken the time to listen.While investments, taxes, estate plans, risk management and cash flow are critical aspects of a financial plan, they won’t mean anything if they aren’t aligned with what matters most. In this episode I’ll share how one can align their financial plan with exactly that.

In this episode...

• Where does Happiness come from [1:13]
• Financial success and relationships [5:41]
• Experiences or things, what will you remember most? [12:15]

A better life is a result of actions you have taken via better planning and when it comes to financial planning it’s imperative that the focus is on what is absolutely essential for happiness. The pursuit of happiness has been a recurring theme on this podcast and I have encouraged clients and listeners to pursue the things that ultimately lead to happiness. The Harvard Study of Adult Development started in 1938 has been investigating what makes people flourish. The study was launched as a result of the generosity of WT Grant and as a result is sometimes called the Grant study. and his goal for the study, using his words, was to “help people live more contentedly and peacefully and well in body and mind through a better knowledge of how to use and enjoy all the good things that the world has to offer them.”  

It’s the longest in-depth longitudinal study on human life ever done, and it’s brought the researchers to a simple and profound conclusion: Good relationships lead to both health and happiness. it’s not career achievement, money, exercise, or even a healthy diet that brings happiness. Rather the most consistent finding they found through 85 years of study is that Positive relationships keep a person happier, healthier, and help a person live longer. Those who scored highest on measurements of "warm relationships" earned an average of $141,000 a year more at their peak salaries.

If relationships are the most important criteria for a long and happy life, than surely the most meaningful relationships have the most importance, for example, one’s marriage or one’s relationship with their children.  Whether it’s right or wrong, good or bad, money has a significant impact on these relationships.

I talk with many clients and most say that they would rather spend more time with their family then have a bigger inheritance. For this reason, I encourage my clients to spend their money having family get togethers, because this is what will help them the most. But it’s more than just having good memories, people that have better relationships do better in many facets of life, including money. 

The Harvard Study of Adult Development noted that the warmth of childhood relationship with mothers matters long into adulthood: Men who had "warm" childhood relationships with their mothers earned an average of $87,000 more a year than men whose mothers were uncaring.

Interestingly, while the poorer participants had shorter lifespans than the Harvard men (attributed to more dangerous work conditions, and poorer access to health care) when it came to happiness, the inner-city men were just as happy as the Harvard men, and their families were just as happy and in some cases, happier.

Tips Tricks and Strategies

I will answer the question on whether one should spend money on experiences or should they spend it on things, and provide a strategy to help you decide. Most of the research shows that experiences can provide more joy and actual things. For instance, while a vacation might only last a week, a new car can be driven for many years. However, a 'thing' might last longer physically, the enjoyment of it and the memories it creates can wane over time. On the other hand, experiences act more like appreciating assets, in that the initial experience might be short, but the value of it tends to increase over time. From my own experience that has been the case. Throughout the years, I’ve asked my kids what they remember most and invariably it’s the trips we took.

References

Good Genes are nice, but joy is better

What Makes People Happy? Decoupling the Experiential-Material Continuum

The Grant Study

Lessons from the world’s longest happiness study

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The Case of Optimism - Part 3

Each year I record one episode of this podcast that makes the case for why we should be optimistic. This is part 3. (Click here for part 1 and here for part 2) There are a lot of disturbing events and trends that are happening in the world at present and yet despite all of these concerns I’ll argue the case for why we should remain optimistic about our future.

In this episode...

• The climate is actually great [6:18]
• How Happy Are Americans? [14:17]
• How Americans are missing out on billions [16:23]

This episode is airing in June of 2024 and we are starting to see some market volatility of late. That can create a lot of fear in the hearts of investors. Add to that a war that continues to rage in Europe, Add to that a war that continues to rage in Europe, and finally add to that a presidential election this November where a solid majority of people overwhelmingly don’t want either candidate to be president. There is a lot we can worry about but yet despite all of these concerns we really should remain optimistic. Let’s look at some of the evidence as to what’s so great:

The first is to consider the state of democracy. We are in an election year where we are told that our democracy is at stake, and you get that from leaders and followers of both political parties. For this reason the upcoming presidential election is one of investors chief concerns. there certainly has been more challenges to the pillars of democracy in the USA and also in other countries around the world but it’s much wiser to step back and take a longer view of the state of democracy. In 1976 just 23% of countries were legitimate electoral democracies but it’s 51% now. That is remarkable progress. 

The brutal terrorist attacks perpetuated by Hamas on October 7th, were absolutely sickening. Iran fired 170 drones, more than 30 cruise missiles and more than 120 ballistic missiles but due to the marvels of technology and the help of allies 99% of them were intercepted or eliminated.

I recently read the book “Unsettled” by Steven E Kooning, The subtitle of the books is this “What climate science tells us, what it doesn’t, and why it matters”. Dr. Kooning notes that heat waves in the US are now no more common than they were in 1900 and that the warmest temperatures in the US have not risen in the past 50 years. Weather-fixated television news would make us all think that disasters are getting worse. They’re not. Around 1900, 4.5 percent of the land area of the world would burn every year. Over the last century, this declined to 3.2 percent. In the previous two decades, satellites have shown further decline — in 2021, just 2.5 percent burned.

Here’s additional details on how far we have come: 

• Global poverty rates have been reduced by 50% in the past 20 years.  A hundred years ago, three-quarters of the world’s population lived in extreme poverty. Today, it’s less than 10%.
•  Human life expectancy has doubled over the past century, from 36 years in 1920 to more than 72 years today. 

Americans fell to 23rd place in happiness, down from 15th a year ago, according to data collected in the Gallup World Poll for the World Happiness Report 2024. In the U.S., self-reported happiness has fallen in all age groups, but especially among young adults. Americans 30 and younger ranked 62nd globally in well-being. If you want to know how great you have it, you should really travel more to third world countries. What we have here in America, especially the freedoms provided by the inspired constitution are the envy of the world. There are 7.9 Billion people on planet 🌎 yet only 4.2% of us live in the USA  331,449,281. It’s a remarkable privilege but it’s only appreciated if you travel.

Tips Tricks and Strategies

I will share a tip on how to earn more interest on your savings but oddly many Americans curiously are not doing so. This information is courtesy of a recent article in the WSJ entitled  The $42 Billion Question: Why Aren’t AmericansDitching Big Banks? Americans are missing out on billions of dollars in interest by keeping their savings at the biggest U.S. banks.

I’ve helped at least a dozen clients and even more non-clients transfer some of their deposits to online banks accounts earning as much as 5% which are also FDIC insured. These accounts were setup in as little as 20 minutes and they easily transferred funds between their traditional account and their new online bank account. 

References

Good News, the World Is Getting Better

U.S. Carbon (CO2) Emissions 1960-2024

Climate Change Indicators: U.S. Greenhouse Gas Emissions

American Airlines Announces Agreement to Purchase Boom Supersonic Aircraft

Ridley: Good News Is Gradual, Bad News Is Sudden

Is humanity doomed? Five ways the world is actually doing better - in data

The World has made spectacular progress

2022 Was One of the Worst Years Ever For Markets

The World Really Is Getting Better

The $42 Billion Question: Why Aren’t Americans Ditching Big Banks?

Why Climate Alarmism Hurts us All

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The Top Regrets of Retired Americans and How to Avoid Them - Ep #62

In episode 61, I  shared the top financial regrets of Americans and how to avoid them but in this episode, I’ll share the top regrets of Retired Americans and how to avoid them. The future is unknown so no one can plan their retirement perfectly we will all have some regrets, but it’s important to be aware of what the most common regrets are for retirees so we can take action now to avoid them in the future. In the tips, tricks, and strategies portion, I will share a tip regarding how to spend more in retirement. 

In this episode...

• 78% of retirees wish they would have saved more [2:10]
• Retire Earlier [13:44]
• Dynamic Retirement Spending Strategies [15:59]

More than 6 in 10 retirees say they would go back and change their retirement planning if they had the opportunity. This comes courtesy of a survey conducted by the Lincoln Financial Group and their results reveal many of the top regrets of retirees. businesswire.com referenced this survey and also shared  10 ways today’s retirees say they would have planned differently.

Save More

According to an annual study by the Transamerica Center for Retirement Studies, a full 78% of retirees wish they would have saved more. The majority (70 percent) would advise changing savings habits by saving or investing more or earlier. Other savings regrets included not making the most of their 401(k) plan, not enrolling in the plan early enough, and not saving the maximum amount allowed by their plan. What if I told you that if you invested $5000 per year for 40 years from age 25 to age 65 ($200,000 total) you could then withdraw ~$140,000 each year for the following 30 years? 

Not having a plan for retirement

According to a Transamerica study it found that only 18% of retirees have a written plan. This is one of my favorite things to do with clients when we plan financially. As we enter the data in their financial plan, and add their goals and wishes, it shows them everything that is possible. It’s especially great when I am able to surprise clients by telling them they can retire much sooner than they thought they could.

Plan more carefully for the fun they want to have in Retirement

Two-thirds of pre-retirees (68%) have not completed a budget of anticipated income and expenses, according to Fidelity Investments. With the proper financial plan, I can show how they can spend much more in the earlier years, while they have the best health to do so. It’s highly unlikely you will run out of money.In fact, overall, the retiree finishes with more than double their starting wealth in a whopping 2/3rds of the scenarios, and is more likely to finish with quintuple, or 5 times,  their starting wealth than to finish with less than their starting principal.

Plan For Health Care

Many people are surprised when they hear that Medicare does not cover everything. The annual expenses for a couple in retirement are around $12,000. One of the best things a person can do to prepare for healthcare costs in retirement is to exercise regularly. In episode 29 of this podcast I shared how many retirees can have a healthy wealthy and wise retirement.

Learn more about Personal Finance

A full 66% of retirees wish they were and had been more knowledgeable about financial planning.

Plan and make moves to protect money from taxes

Ed Slott the tax guru calls pre-tax retirement accounts a ticking tax time bomb. Every spring I hold strategy meetings with my clients that focus on strategies that ensure they don’t pay more taxes than they are required. In episode 15 I share about the ticking tax time bomb in retirement.

Anticipate the unexpected

we don’t have to look back too far to think of an example of the unexpected, namely Covid. Many retirees had planned to travel during 2020 and 2021 only to see those plans scuttled by the reactions to the pandemic.

Plan for Income

It can be challenging on how to turn your savings into income but once you do it can provide peace of mind. 

Have less Debt

One-third of retirees regret not paying off debts sooner. In episode X I explained whether you can retire with debt.

Retire Earlier

In episode 26 I shared about mini-retirement and how these can be a great way to enjoy moments of retirement sooner. Also, I shared in episodes 50 and 52 about the book Die with Zero whose title belies the true message of the book. I will always remember when a dear friend let me know after her husband had passed away in his 50s, that she was so relieved that they hadn’t waited to go on adventures and had went on many when they were younger.

Tips Tricks and Strategies

When it comes to retirement spending there really are two huge risks which are: running out of money and dying with too much money. To combat these conflicting risks I use a dynamic distribution strategy that allows clients to maximize their level of spending but, also ensures they won't run out of money.

References

Retirement Regrets: Top 10 Things Retirees Wish They Would Have Done Differently

7 Retirement Mistakes You Will Regret

10 Retirees Share Their Biggest Regrets

Over 60% of retirees wish they could get a “do-over”

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In this episode, I’ll share the top 3 financial regrets of Americans and how to counteract them. No one manages their finances perfectly so we all have regrets, but it’s important to be aware of what the most common ones are so we can take actions to avoid them.

In this episode...

• Emergency Funds [03:15]
• Investing for Growth [08:02]
• Buying a Home [9:57]
• Unconventional emergency fund options [14:25]

Now no one is perfect when it comes to financial decisions. Like everyone else, I’ve certainly made my fair share of financial mistakes which I chronicled in a few different episodes of this podcast. In episode 18 I shared about a time when I sold a stock for a 50% loss because I succumbed to fear during the Great Recession only to see that stock since that time, rocket over 11,000% higher. You heard that right, I missed out on an 11,000% return. In episode 43, I shared the financial mistakes I made as a young adult and what I wished I had known about money sooner. Having financial regrets is a normal part of learning and growing, but it’s important to be aware of the biggest regrets so we can take actions preemptively to avoid them.

So just what are the most common regrets of Americans so we can avoid them. These insights are courtesy of the personal finance software company Quicken, which surveyed about 1,000 Americans and found that a whopping 80% said they have financial regrets. 

The top three regrets were not having a big enough emergency fund (mentioned by 28% of respondents), not investing aggressively enough (25%) and not buying a house when they were younger (22%). A few of the other regrets mentioned were lending money to a friend and family member and not investing in stocks. 

Emergency Fund

As a Certified Financial Planner™, financially speaking I know that few things can provide the peace and security that an emergency fund can provide. An emergency fund is way more than for just emergencies, instead it’s financial insurance allowing you to have way more freedom in how you choose to live your life. For example, having an emergency fund allows you to quit a toxic workplace. I recommend having three months’ worth of expenses in savings if both spouses work and if you are single or only one spouse works, then you will need 4-6 months worth of expenses saved. Sadly, far too many Americans don’t have emergency savings as nearly 6 in 10 Americans could not come up with $1000 in the event of an emergency. Far too many think their credit card is their emergency fund.

How do we prevent this regret and ensure we have an emergency fund. The first step is to have a budget and ensure that you have extra money left over each month. The next step is to set aside these extra funds into an account that you don’t regularly access.

Not Investing For Growth

This had to be tied to the fact to some painful emotional memories. Maybe they succumbed to fear in the moment and sold stocks only to see the stock market soar higher. Here is why it’s so important to invest with a higher allocation to stocks. For nearly a century, stocks have provided returns of nearly three times that of inflation. As an asset class, they have been the greatest generator of effortless wealth in history. Since 1926 stocks returned between 8% – 10%  where as the bonds returned between 4% – 6%. The best way to counteract this fear of not investing aggressively enough, is to ignore the noise and stay invested. 

Buying A Home 

The third biggest regret for American’s was not buying a home when they were younger. This one seems a bit unfair as there can be a lot outside of ones control when it comes to purchasing a home. Prices shot up by 40% in the two years of Covid and inventory is at historic lows leaving too many buyers and too few sellers so these higher prices aren’t decreasing. My recommendations to these clients have been as follows. First of all, be sure your house savings is in a high-yield savings account. There are online accounts paying over 4.5 and in some cases over 5%. You don’t want to lose out to the silent thief of inflation. The next recommendation is to confirm that they plan to live in their home for at least the next 10 years. Given the closing costs, realtor fees, and other expenses associated with the purchase of a home a general rule of thumb is that you should own the home for 10 years. My final recommendation is that they should feel proud that they have worked so hard to have so much saved and that as they exercise patience they will be rewarded when they find the right home for the right price. 

TIPS, TRICKS AND STRATEGIES

Welcome to the tips, tricks, and strategies portion of the podcast where I will share a tip regarding unconventional emergency fund options, these unconventional emergency fund options can help in a pinch.

401k loan - Many 401k plans have a loan provision that allows participants to take out 50% of their account balance or $50,000 - whichever is less. You will need to pay back the loan over time with interest

IRA - Indirect Rollover 60-day rule - Most rollovers happen as direct transfers that go from one retirement account directly to the other. There are also indirect transfers where the individual owner of the retirement account takes the money out of an IRA that they can personally reinvest into another IRA, or they can reinvest back into the same IRA without any taxes or penalties if done within 60 days.

Roth 401k/IRA Contributions - A Roth is a retirement account to which you contribute after-tax funds. What many people don’t realize is that because you have already paid taxes on these contributions, the IRS allows you to withdraw the contributed sums (not the gains) at any time without taxes or penalties.

References

80% of Americans Say They Have Financial Regrets - Here are the Most Common Ones

How to Use Your Roth IRA as an Emergency Fund

A $1,000 Emergency would push many Americans into debt

About Half of Lower-Income Americans Report Household Job or Wage Loss Due to COVID-19

UPS to Offer Employees a Way to Save for Emergencies

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This episode is airing on April 15th, our tax filing deadline and a key aspect of my financial planning practice is to identify and implement tax-saving strategies for my clients. In this episode, I’ll share why it’s almost certain that everyone’s taxes will be going higher in the future because of our annual federal deficit and our cumulative national debt.

In this episode...

• The Government Spends Worse than a Drunken Sailor [3:10]
• Tax Burdens by Income Level [07:12]
• Possible revenue streams for the US Government [11:02]
• Tax Saving Strategies [15:24]

The National Debt 

The federal government of the United States has an annual budget. It’s the set amount that the Federal government spends throughout the year. The amount they are currently spending is much more than the “income” they receive from individual and corporate taxes. In the Calendar Year of 2023, the federal government spent $6.3 trillion but only collected $4.5 trillion in taxes. Just what happens when you add up all of this overspending year after year? That’s called our national debt. Right now that total is over $34Trillion dollars. I shared more in episode 33 of this podcast entitled Time to Pay the Piper. Our debt is steadily climbing at over $34T as of this recording and is expected to be over $5oT by 2032. you can see more at the website usdebtclock.org. 

We must get our deficits lowered because the interest costs are set to become enormous. In 2028, Federal tax revenue is expected to be $6.1T, actual spending is expected to be $11.7T and just the interest payments on the debt will be nearly $2.7T a year. In order to reduce our debt and the interest we pay on it,  we will need to stop adding to it each and every year with the government's extra spending.   As John Mauldin says: “Yet people continue to say we could balance the budget and pay down the debt by“making the rich pay their fair share.” I wish it were that easy. I really do. But sadly, as I’ll show you, it’s not.”

Tax Load

Here’s how it looked in 2020 (the latest available data from the IRS courtesy of the Heritage Foundation).

The top 1% earners in America, those that earn over $548k/year earn 22% of the income and pay 42% of the income taxes received by the Federal government.

The top 5% earn more than $220K 38% and pay 62% of the taxes paid to the government. The top 10% earn more than $152K earn 49% of the income and pay 73% of the taxes paid to the government.

The bottom 90% (those that make less than $152K) earned 50% of the income and paid 26% of the taxes.

The US deficit will rise by an average of about $2 trillion/ year for the next decade.

As John points out, to account for the extra $2 trillion of spending we will need $2T more of tax revenue. If we raised taxes by about 50% on everybody, from the bottom 1% to the top 1%, it would only get us $850 billion which is a little less than half the way there. Clearly, we don’t have enough money just to match the current projected spending of the government. Instead, they have to reduce spending and raise taxes on individuals and corporations and likely also look for additional sources of tax revenue because income tax by itself won’t cut it. The most likely option in my opinion is a national sales tax or value-added tax.

Suffice it to say, we and really our children are in a heap of trouble given our debt obligations. We’ll eventually have to pay the piper for our overspending. What exactly happens is uncertain but I believe what is almost certain, is that our taxes will be going higher to pay for it in the future.

Tips Tricks and Strategies

In past episodes, I’ve outlined numerous ways to save money on taxes. The Augusta rule, where you can rent your primary residence for 14 or fewer days each year and all of the money earned is tax-free. For business owners, it’s even better as they can rent their house to their business and get a deduction on the expense from their business and transfer-tax-free income to themselves. See episodes 8 and 9 for the details. I’ve also discussed Roth contributions and when they make the most sense (see episodes 1 ), Roth conversions (see episodes 12, 26, 49), and Roth IRAs for your kids (episode 6). I also discussed Traditional and 401k contributions (Ep 1). Defined benefit plans where I’ve helped several clients reduce over $250k in a single year from the highest tax rates (were highlighted in episode 7) and  Health Savings Accounts have figured prominently as well (see episodes 2, 8, 9, 26, 29, and 59). I also discussed tax loss harvesting and its incredibly powerful and less well-known sibling, tax gain harvesting (see ep 26).  In episode 34 I shared about Net Unrealized Appreciations or  NUAs which is a significant tax savings that could be hiding in your 401k if you own company stock.  In episode 51 I shared tax-advantaged ways to give to charity through Donor-advised funds, Qualified Charitable distributions as well as donating appreciated stock and a tax saving strategy to stack contributions.

References

US Budget Gap widened During Year on Rate Rise, Revenue drop

Responding To Critics of Rolling Back the Retirement Tax Break

Do the Rich Pay Their Fair Share

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