Plan With The Tax Man

At first glance, each of these statements seem like basic common sense that everyone agrees with. But when we look at the way people actually behave with their money, it seems that common sense is actually a bit uncommon.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Hey everybody. Welcome in to the podcast. It's plan with the tax man, Tony Mauro, and myself, hanging out to talk investing finance and retirement. And this week on the show, we're going to talk uncommon sense. Tony, I got some statements here, some axioms that I think everybody will agree with. Pretty common knowledge that we all say, "Yes, that makes sense." We'll not our head, but yet when we go to put these in practice, especially these financial things, we tend to do the opposite, making them a bit uncommon. So we're going to dive into that this week and chat about it. But first, how you doing? You doing all right?

Tony Mauro: I'm doing good. Survived tax season and weather's getting warmer. And everybody's kind of getting back outside a little bit. So the sun starts shining then and everybody seems like they're in a better mood, so [crosstalk 00:00:45] ...good up here.

Speaker 1: That's good. Better mood all around is good, but there's certainly a lot going on right now, too, obviously from a financial standpoint facing our country and just the world in general. And so some of these things we're going to kind of bring up as we go through these axioms, as I said, because it seems like now more than ever, we want to make sure that we're certainly thinking these things through and in working with someone to help ensure that we're going to have the kind of retirement we've been hoping for because it's getting a little different out there. A little change. There's a change in the wind. That's for sure. So to speak, selling them, Hey, let's dive in and knock these out a little bit, buy low, sell high. You're not going to find one person that doesn't agree or disagree, I should say with this theory, right? We all know it, but Tony, more times than not, we do not put this into practice. We might do it when it comes to looking for the best price on gas in town, but we don't do it when it comes to investing.

Tony Mauro: No, and really it's so funny. And I picked this topic today because I've actually had talks with clients over the last couple of months, just on these types of topics. And so the buy low sell high it was the age old adage in the market and nobody wants to do it. Really, it's based on mostly emotion. The story I'm going to tell today is I actually I've had two employees and now they're both accountants and they don't have any investment experience at all. And they're starting to get into the hype of they see the market keep going up and up and up and they actually want to buy Bitcoin. And they've done a little research on it and I said, "Well, how much research have you done?" And "I just looked on the internet." But the point there, though, is everybody kind of wants in at probably the, I don't want to say the wrong time. There's never really a wrong time, but they, they want to buy high.

Tony Mauro: And while you have the same conversation, when things are going bad in the market and nobody wants to do anything, but yet when you just have a conversation about it, it's like, "Oh, yeah, I'll always do that." But in reality, they don't. I've got a couple of accounting clients that have called me and they literally shoot me an email and say, "What do you think about this stock? I think I want to buy some", and they don't even know anything about it. They heard about it. So I think sometimes you get caught up in that hype and you get caught up in the euphoria when the market is going up. And I'm not saying that's the exact wrong time to buy, but I don't know if I would just go speculating.

Speaker 1: Go willy nilly, or hog-wild, right?

Tony Mauro: Yeah. It needs to be part of the bigger picture so to speak.

Speaker 1: Well, I think one of the values, Tony, that you guys as advisors bring to the relationship is the fact that you're not emotionally invested. I mean, you're invested in your clients, obviously, and you want to do the very best job you can for them. It's important work that you guys are doing when you're talking about planning and helping someone maintain their nest egg. But at the same time, you can approach it with a bit more objectiveness. And often when we see when... Look, nobody has a problem when everything's riding high, but when we have the falls people are like, "Get me out of here, get me out of the", and that's when you really got to start to talk people through the process and maybe off the ledge so that they don't wind up hurting themselves.

Tony Mauro: Yeah. I mean, they do. And they just get so hung up on because there's so much news coming at us all, all day long nowadays, and so much information at our fingertips. And sometimes you watch a little too much TV and you think "Well, I can do this", and it's just not, not the best thing to do. I mean, I think it needs to be, if you're investing, it needs to be part of a plan. I mean, again, I got another story I mean a fairly wealthy client just came in and dropped some money into his investments. He wants to invest at all right away. So let's throw our costs to average it in the market over the next six, eight months. Let's not just throw it all into something just because you think he really has a passion for the airline industry, because he thinks it's a beat up industry and it is coming out of COVID. But that's just not the only reason you should just go on to throw all your money on that.

Speaker 1: Yeah. Have a good strategy. No, I agree. And again, I think that's where the value comes in. Right? It's that sounding board to say, "Hey, I got this great idea." And then your advisor's like, "Okay, well talk to me about it and then let's talk about points counterpoints and work our way through it." All right. So that's that first one there and learning through some uncommon sense. How about this one, Tony? So, I mean, obviously the show is Plan With the Tax Man. You're Tax Doctor, Inc. So taxes is right up your alley. Don't pay more in taxes than we have to. Well, people listening are going to go, "Duh", nobody wants to do that. I don't think there's anybody out on the street corner with a sign volunteering to say, Ooh, ooh, let me pay more taxes, right? But when you start to dissect things, Tony, you often find that is the case, especially with retirees and pre-retirees, we're not being as a tax efficient as we could be.

Tony Mauro: Yes. And through tax season I think a lot of people confuse tax preparation with tax planning. And I always try to tell them tax preparation is nothing more than a compliance that you got to do because the government says, we know we got to kind of reconcile our income and pay our fair share if we haven't paid enough. And that's not the time to do the tax planning, the tax planning is supposed to occur all year long. I think that's one thing. And a lot of people don't get it. And even if you do give them a couple of tips at tax preparation time, they forget to go out and implement it. And which is why I think you need somebody that can help you tax plan year round. The other thing though, too, is I think a lot of people think that tax planning is really only for the very wealthy and since they've got a job a W2 and maybe some kids and just home mortgage or whatnot, that there's nothing left for them, and that's totally not the case.

Tony Mauro: It may not be as quite as sophisticated as if you were extremely wealthy and being able to cut your taxes by maybe as much, but there are a lot of things you can do one and still the best deal on the street is generally your 401k. And I mean, the stats that I see just from our own clients of the people that don't invest in their employer's retirement plan are mind boggling. I mean, that's the easiest one out there. So, they really need to get with their advisor get with somebody, whether it's your financial advisor, your tax advisor and learn to at least get the basics.

Speaker 1: Right. Right.

Tony Mauro: Because otherwise, yeah, you're just kind of running, running blind and you're just, yeah, you're paying your fair share, but you're not doing anything to proactively keep it at a minimum legally. I mean, and that's [crosstalk 00:07:31].

Speaker 1:

...that's the thing. Right. Sometimes we get all wrapped up in these conversations about who pays the most or the little or whatever it might be. And often the people that have surely have the resources to hire folks, a team of folks to make sure that they pay as little as possible. That's a whole conversation about a tax loophole. It's not really a loophole if it's in the code, right? It's just finding out what's there and how you can best take advantage of what's written. It's just black and white.

Tony Mauro: Right. It's just black and white. Yeah. It's, like you said, if it's in the code you can use it if you don't have the financial resources to do some of that complicated stuff then, yeah, that's not for you, but there are some things for the average person that should be taken advantage of if you're spending the money anyway.

Speaker 1: Yeah. And often not. So, again, don't pay more in taxes than we have to. We would all agree with that. Yet, we often find that we're doing more than we maybe need to or should, and you can be more efficient or at least if nothing else, you could be more efficient. So, and leaving that behind to legacy then heirs and things of that nature is also usually paramount in that conversation as well. But we'll keep moving on. Keeping costs low. Again, nobody's going to disagree with this. I'd mentioned the gas price or bargain shopping, 50% sale, buy one, get one free. We look for all that stuff, Tony. But when it comes to our investments, we often think we're paying... How many times have you heard somebody say, "Well, I only pay 1%", right. Or something like that. And it's like, "No, you pay your advisor 1%, but let's talk about what you got." Right?

Tony Mauro: That's exactly it. And I think a lot of times, at least what I see is people don't, especially in funds in annuities and some other things, they don't know what the fees are and while they may say, "Hey, look, I'm trying to keep my fees low. I don't want to maybe necessarily work with an advisor and pay you plus the fees." They have no idea what, what they are. And a lot of times they're a little shocked because some of that's not, I don't want to say it's hidden, but it just isn't out there in front of you and it's not really disclosed. And I think if I can offer any tips to anybody is if you are working with advisor, you should know what they're making. And most advisors, if they're any good, I would say, I mean, they're going to tell you. I mean, just like anybody else, they deserve to get paid for their advice, but you want to keep your costs reasonable.

Tony Mauro: And you want to make sure that they're not crazy high, but I think at the same time you got to dig a little and make sure you're understanding what some of those fees are. I had one guy this year, again, I like to tell stories. He came in, now get this, so he comes in and he does all his own trading. He came in, he was so proud. He had 689 trades. And one of those deep discounters, he brought it in for us for taxes. And he didn't pay a ton in fees, but a lot it ended up because he traded so much, even at the very low prices, his fees were quite high.

Tony Mauro: And I said, did you ever look at this in total? No, he never had, he just looked at that per trade fee. So they were in excess of about 4% plus on top of that, he was telling me that he traded options which is very, very risky and speculation. And he had actually lost about $17,000 in 2020. When I said, man, you could've picked a number threw a dart at a board, done pretty much anything and not do that.

Speaker 1: Right, right.

Tony Mauro: And so yeah, sometimes they just, they get a little crazy with that, but it is something to watch.

Speaker 1: Well you know what? And that's actually a really good segue to talk about my final two pieces here on this list. We could pull out the grandma-ism and call it. Don't put all your eggs in one basket, if you wanted to Tony. But most people just, they understand that we're supposed to be diversified, but they still don't really understand how to do it or what it is. And to that point. So let's use the example of like a mutual funds for this scenario. Somebody will come in and they'll say, "Hey, I bought 10 different mutual funds from 10 different companies. And I'm diversified because I got them in different places and I'm good to go." Right? And so to the conversation of keeping costs low, well, there's probably fees in every single one of those mutual funds. But talk to us about why having 10 mutual funds is not really necessarily being diversified.

Tony Mauro: Yeah. I mean, mutual funds just like stocks, if you have 10 different mutual funds and they're, let's say, most or all are investing in the same sector.

Speaker 1: And they usually are, right. [crosstalk 00:12:11] They're not cross checking each other.

Tony Mauro: No. They're not cross checking. So if you had 10 mutual funds and they were all international funds. Yeah, you have some diversification amongst international investments, but when that area tends to go down [crosstalk 00:12:25].

Speaker 1: ...class, right?

Tony Mauro: Yeah, yeah, yeah. That class, and there there, there it goes for you.

Speaker 1: Yeah. Well, and often Tony, we see those being large cap, right? Most of the time when people come in and they have mutual funds, they're all in large cap.

Tony Mauro: They're all in large cap. Yeah. And they're so proud. They've got all these mutual funds and they've got all these different investments, but I tell them all, it's really all in the same sector, and [crosstalk 00:12:49] ...software.

Speaker 1: Right? Yeah. If it's tech, for example, which most times it is, right. The big bang stocks, so on and so forth when it takes a tank, that sector has a bad week or month or whatever, they all go down.

Tony Mauro: They all go down.

Speaker 1: Yeah. So you need some small cap. You need some international, you need some large... You need a little bit of everything.

Tony Mauro: You do need a little bit of everything. And that does temper a little bit. And again, we were just talking about the market being high. Some clients don't want that because they say, "Well, God, I want to be at all in this area because boy, the market's just doing so well." [crosstalk 00:13:24] As long as you're aware of the risks, because, in my mind, you'd rather take a little bit less overall and have a smoother ride than, by being diversified yeah. Then to try to it, which I think we're going to talk about next, timing the market and being wrong. And if anybody tells you they can time it, then that you should run.

Speaker 1: Right. Well kind of back to that story, you were just talking about a minute ago with the fellow, doing some speculating and doing some options and doing like you said, you could have thrown a dart at a board and probably came out better in 2020. And look at the end of the day, it's virtually impossible. I mean you can say, "Oh, I've got to get in on this digital currency thing." And then Elon tweets out something and tanks it for, and then the next week he says something else and it shoots through the roof. And then so where are you picking the right time to make the move? It's almost impossible. Right? I mean, it's like trying to catch a bullet train while it's moving, you can't do it.

Tony Mauro: You can't do it. That's a lot to do back with the emotions and whatnot. And when clients ask us just to, "Well, Hey, I'd like to buy this in particular, say stock." And after we ask him why, if it's not part of our plan, I generally say, "Well, look, what's the buy sell or to criteria?" And they ask, "What do you mean?" I said, "Well, when are we selling? If you buy right now, what's what's going to trigger you to sell that? Is it just me calling you up and say, 'oh, I think it's time', or is it something here on the news?" And that's if it goes up or down so, and they have no plan. So that's that whole market timing. They think they're going to just kind of time it right.

Speaker 1: Right, what's your strategy? What's its purpose? Right?

Tony Mauro: To me, that's not part of a good sound financial plan, especially. I mean, market timing. I mean, it's been said over and over again, that it, like I say, it's impossible to do consistently over the long-term and to me it's so nerve wracking as why do I do that?

Speaker 1: Right. It's kind of like if you're a duffer, if you get out there and play a little golf and you enjoy it and you're not bad, but you're not good. And you happened to be on a par three hole and you get a hole in one, right. Totally attainable. And you get one it's kind of, sometimes it's awesome. And it's also the worst thing for your game because now you're like, "Well, hey, I got this figured out. Next time I hit this par three, I'm going to be able to do this again." And it's the same kind of thing. If you get lucky, and you have a big winner in the market, it kind of gives you this false bravado like, "I figured this out. I'm the next Warren Buffet." It's like, I mean, even the great Warren Buffet says, "If you're not prepared to be in the market for 10 years, don't be in it for 10 minutes."

Tony Mauro: Exactly.

Speaker 1: Yeah. So...

Tony Mauro: That's exactly true, I mean...

Speaker 1: Timing is impossible. It's just one of those things. And again, so Tony, I think most people, again, would agree with all of these statements. We've all heard these. We've all said these. We all know these to be fairly common sense yet, we tend to do the opposite, especially if we don't have somebody in our corner, a good strategy, a good plan, and a good sounding board to talk to. So we're going to wrap it up this week on Plan With the Tax Man. But if you need a sounding board, if you need some help, make sure you reach out to a qualified professional before you take any action like Tony, he's an EA and a CFP of 23 plus years, helping folks get to and through this situation. So reach out to him, find him online at yourplanningpros.com.

Speaker 1: That is yourplanningpros.com. You can subscribe to the podcast on Apple, Google, Spotify, whatever platform you like to use, but definitely reach out to Tony. You can find all that information at the website, again, yourplanningpros.com. Tony, I'm going to let you go. I know that this evening you've got some plans going out for a little wine pairing and tasting, so I hope you enjoy.

Tony Mauro: All right. Sounds good. Take care till next time.

Speaker 1: We'll talk to you next time here on Plan With the Tax Man with Tony Mauro, from Tax Doctor, Inc.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

Sometimes the easiest way to learn about something is make it really simple. Like some of the first true/false tests you might have taken in school, let’s play a round of fact or fiction to test your financial planning acuity.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Marc: Hey, everybody. Welcome into May on this edition of Plan With The Tax Man with Tony Mauro and myself because we're going to hang out and talk about financial fact or fiction this go around. We're going to have a little bit of fun here. I've got some questions I'm going to lob at Tony and see if he can tell us if these are fact or fiction. Of course, like anything financial-related, you can almost always say it depends because it truly does. There's all these little variables. But we're going to try to see if we can get him to pin these down just a little bit. And like any of these things we talk about, they're kind of generalities and there's some different varying factors that might play into it.

Marc: So if you have any questions about something that you hear, please make sure you reach out and have a conversation about your specific situation with Tony and his team at (844) 707-7381. But we're going to have some fun with this and see what we get here on financial fact or fiction. Tony, what's going on, my friend? How are you?

Tony Mauro: I am spectacular. It's coming off one of the craziest tax seasons that I've ever been involved in, that's for sure.

Marc: Even more so than the prior year?

Tony Mauro: Even more so than the prior year with all the last-minute tax law changes.

Marc: Oh, very true. Yeah, very true.

Tony Mauro: It was a wild ride.

Marc: It's the wild west.

Tony Mauro: And the IRS, in our state anyway, are just trying to get back to some sort of normalcy and they've been running way behind.

Marc: Yeah. I've been hearing a lot of states have been duking it out with the feds on how they're doing things a little bit differently as well.

Tony Mauro: Yeah, man.

Marc: And that's kind of normal, I suppose, but I guess it's been heightened this past year.

Tony Mauro: Yeah.

Marc: So yeah, very, very interesting. And I'm glad that you're basically through it now. So we're right at the tail end of it. This is our early March, or excuse me, early May edition, so I think you got a little bit more to go, but we're almost there. So let's do some financial fact or fiction, okay?

Tony Mauro: All right.

Marc: Now, as I mentioned before, you could probably say it depends on all of these, and if you really need to, feel free to go for it.

Tony Mauro: All right.

Marc: But it could be in the wording of the statement. So listen carefully and see how you do. Your Social Security can be taxable fact or fiction?

Tony Mauro: That's fact. I hate to say it. But it is a fact. And it does depend on the income, but it can be taxable and you got to watch that on your tax return and in your financial situation quite a bit because if you go over the limits, meaning that if you have money coming in, in retirement from other sources, once you go over a certain limit, depending on your filing status, then that Social Security is taxable, not a hundred percent of it, only up to 85% of it, but a little bit of more income can cause you to have that taxable. Now, these are fairly low limits, so you want it to be taxable. I mean, if you've got any kind of financial plan at all, and you're living any type of retirement, some of your Social Security is going to be taxable. You're just going to have to plan on it.

Marc: Okay. And a couple of things on this. So how often do people actually realize that? Because I think it's gotten better over the last few years, but I know many folks just were like, what, seriously, didn't I pay tax on this, going in?

Tony Mauro: Going in, and which you did. And it usually affects people the first and second year of retirement when they're not expecting it. They'll start Social Security, get almost a full year of it, and then not hold anything out on it, and realize 85% of that was taxable. Now that's not an 85% tax rate.

Marc: Right. Thank you, yes.

Tony Mauro: Yeah. Just the amount, 85% is taxable. But if you're in the 20, 25% bracket, that all of a sudden adds to income and you may end up owing or getting a little less back because of that. I just had it yesterday, I was checking over a lady's tax return, and last year, she got a refund, in 2020, she started taking Social Security, she made over the limit and she owed. And of course, she was asking, anytime you go from getting a refund, oh, and you want to know why. And so I told her, you made enough to where it's taxable and we're going to have to plan for that, or you've got to make some estimates or withhold out of it.

Marc: Right.

Tony Mauro: Otherwise, every year you're going to owe.

Marc: Yeah. And so a lot of times it does catch people off guard. They're just not aware that it is possible. But again, it's not the end of the world. It's just something to be aware of. So there you go. That one is technically fact. It can be taxable. All right. Fact or fiction, Tony, your taxes will likely be lower in retirement?

Tony Mauro: Well, I'm going to say that most planners might disagree because I think they're going to say that that's a fact. I'm going to say that that's fiction because most of the clients I see, generally, the ones that have had a plan and now are starting to execute that plan, they're making as much or more in retirement than they did when they were working and all of their deductions have disappeared. And the deductions that they have now really are charity, medical expenses, and things like that, that they can't get over thresholds. And then all of a sudden it's kind of like, well, I don't have anything to deduct anymore and my taxes are actually a little higher. It's not by a lot. But I think that a lot of times that can be fiction. And like you said, at the beginning, it could go the other way. I mean, the old adage is, well, I'm going to be making less, therefore, I'm going to be in a lower bracket and my taxes are going to be lower. But I don't find that as much now.

Marc: Right. Yeah, and I think a lot of times, I guess, depending on how you're looking at this, Tony, it could be if you're saying total tax, I think in general, because yes, we're not paying FICA now typically, right? So when you're no longer working, there's maybe in total tax, it is less. But if you're talking just the income tax bracket, that is probably a different conversation piece there.

Tony Mauro: Okay. Yeah.

Marc: All right. I don't know why my computer is beeping, but it is. I can't seem to figure out why to shut it up, but that's okay. We're going to keep rocking and rolling here. Financial fact or fiction, this one, I might let you get away with, it depends on this.

Tony Mauro: All right.

Marc: But term life insurance is better than whole life insurance.

Tony Mauro: Yeah, you didn't give me any clue words, so I got to take [crosstalk 00:05:43].

Marc: Better is tough, right?

Tony Mauro: Yeah, better is tough. I'm going to say, here's what I tell clients, I tell young clients if you really need insurance, term is so cheap now, and if you need it to cover if you or your spouse dies and you need it to cover expenses, help the family, term insurance is the better option because it's so inexpensive now. And of course, the old adage is, buy term and invest the difference because whole life and some of the other life insurance policies, you'll pay more but you have permanent insurance generally, that you don't have to worry about. I mean, I loaded up on a bunch of term insurance when I was younger. But I'm coming off of that now because the maximum you can go out is 30 years and then that term runs out. If you outlive the term, now you have no more insurance. Now, I'm ending the years I really need it.

Tony Mauro: But I think whole life and some of these other life insurance policies still have some value depending on what you're looking for. It's generally not the most face amount you can buy. It's generally some cash value, some ability to borrow against, that kind of thing.

Marc: Gotcha. Yeah.

Tony Mauro: A little more involved.

Marc: Like a lot of products, Tony, there's pros and cons depending on what you need.

Tony Mauro: There is, yeah.

Marc: So there's some places where one may be better than the other, but the other may be again, vice versa. So in this situation, that's a little bit of a trick question there. So it's a little bit tougher.

Tony Mauro: Yeah, it's a tough one.

Marc: Tougher to just go fact or fiction on that because the time of life and what you're trying to accomplish with that particular product could make that a true or false scenario.

Tony Mauro: Yeah.

Marc: All right. Another little tricky one depending on how much you want to break this down. Medicare will cover most of your medical needs in retirement. And turning to fact or fiction, and what are we going to constitute as most?

Tony Mauro: Most, right. That's what I was going to ask you. But I would say if you're just going to random right off the top of your head, that's a fact. It's going to cover most. But how much is most? We don't know. And we all, I would assume, know that there are a lot of gaps with Medicare.

Marc: Sure.

Tony Mauro: Most people need supplements and things like that to cover those gaps because depending on your health and your needs that most could shrink down to less than 50 to 40% of it, depending.

Marc: Right. Because we're talking Part A and B. That's covering your hospital stuff and most of your basic doctor visits, but there is that 80/20 split, right?

Tony Mauro: Yeah. Yeah, and [crosstalk 00:08:11].

Marc: So that's if you're saying that's the general use, but there's nothing for dental, certainly nothing for long-term care.

Tony Mauro: No, the long-term care is the big one. Medicare doesn't cover hardly anything there and then you have to use Medicaid or private pay. But most of the people we work with on the financial planning side, we really make sure that they're covered all the way around should they want to be.

Marc: Right.

Tony Mauro: And almost everybody wants to be because well, the retirees do not like spending all their money on healthcare and that's a big cost for them.

Marc: Who would, right? Exactly.

Tony Mauro: Yeah.

Marc: Exactly. And so there's a lot of little ... I mean, Medicare could be a great system, definitely for sure.

Tony Mauro: True.

Marc: But there's definitely some gaps in there so you want to make sure you're having a conversation with an advisor on how to fill those gaps and how to cover some of those differences if you feel like Medicare is going to cover just about everything you need, it's a good chunk of it, but there's still some things that it definitely doesn't. I mean, something as simple as eye care, because it's a surgery like cataracts it helps with, but not just normal eye care visits. So going to the eye doctor doesn't count, but eye surgery does.

Tony Mauro: I'll tell you what, the Medicare is a whole niche. It's crazy what they do and don't cover. I mean, you really have to work with it every day to understand some of those gaps and whatnot. And the normal client, the normal person's not going to know that. And so you really want to make sure that you're covered because you got to have it.

Marc: Yeah, absolutely. A lot of firms actually wind up having a Medicare specialist or they'll freelance with someone who will come in to help sometimes when you have to really get into the nitty-gritty of it. Because it is, yeah, it's definitely its own animal unto itself for sure. All right. Let's do one more here. Fact or fiction, this one's kind of fun. I think some of these, Tony, too, you could also apply a timeline. Maybe sometime before 2000, maybe some of these might've been more fact than fiction or vice versa. But as you get older, we should probably gradually shift from stocks to bonds, fact or fiction?

Tony Mauro: Well, I think the old adage is that was a fact because people as they get to the end don't have time to make up for the gyrations in the stock market. However, I'm going to say, in these days, and I've been telling clients this for about eight years now, that that's fiction.

Marc: Okay.

Tony Mauro: Because all I've got to do is show them, well, if we go into bonds, here's what you're going to get.

Marc: And they're pretty volatile right now, too.

Tony Mauro: Yeah, they're volatile. They're not paying anything. And can you live on this? And most people say, absolutely not, I can't do that. Of course, I get some people saying, "Well, what happened to the 8% bonds?" I said, "Well, you've been out of it in a while."

Marc: You better call up 1986.

Tony Mauro: Yeah. And so they still think they can get 3, 4, 5% on their savings account. But we do go over things with them and we tell them you have to be the one to decide. But I think you need a little higher mix of stocks than in the older days because I think we're living longer and we've got inflation. Things are going up and it's just going to erode your purchasing power, which is going to lead to not that great of an existence over time.

Marc: Right.

Tony Mauro: But you'll some clients that just say, "You know what, I can't sleep at night unless I have FDIC insurance." And if that's the case, then we show them where they're at and try to make the best of it.

Marc: Well, let me ask you, Tony, if you were saying it used to be the case, and you'd kind of maybe lean towards fact that way. If the idea was, and this was the classic idea, was that shifting from stocks to bonds was to reduce risk, right?

Tony Mauro: Right.

Marc: So we would want to keep some money in the market to outpace inflation, but we were going to peel some risk off the table. Well, there's other ways to do that. It doesn't have to necessarily be bonds, right? There's other vehicles out there if you want to de-risk you can certainly talk to an advisor about.

Tony Mauro: Absolutely. There's a lot of different options out there that, yeah, I can get you somewhere between a lot of market risk and then bonds and really get a little hybrid-type of model going.

Marc: Exactly. Yeah.

Tony Mauro: Yeah.

Marc: Yeah, so that's something to certainly think about. So that's kind of along the lines of the classic 60/40 portfolio. And that's just not necessarily the case nowadays, as much as it used to be. So again, every situation is a bit different. So you want to have the conversation to say it doesn't have to all be ... People, we talk about this often, Tony, people feel like, well, it's either got to be in the market or in cash.

Tony Mauro: Right.

Marc: I mean, it's pretty much my only two options. It's like, no, there's a lot of other things. There are so many kinds of investment vehicles in the financial world, it's kind of staggering actually.

Tony Mauro: Today it is. I mean, from back when I first started in the business, well, even before I started back in '87, the amount of different product options today, it's mind-boggling compared to back then.

Marc: Yeah.

Tony Mauro: And most products, in my mind, generally, will fit some sort of investment purpose. Now, it's not for everybody.

Marc: Right.

Tony Mauro: I think some people get out there and they're watching the news and they see the latest and greatest this or that, and they just feel well, if it's out, I should have it. And that's definitely not the case, especially in retirement.

Marc: Exactly. Agreed. Especially in retirement. Yeah. So it's all about finding the right mix of things for you. And some of these things are definitely, some of these things are fact, some of these things are fiction. Some of these things definitely could go with it depends. But every situation is unique, so make sure you're having a conversation.

Marc: But just some basic things to remember when it comes to this week's show, hopefully, you found that interesting. Social Security can be taxable. A lot of people are surprised by that, things of that nature. So as always, follow up with a qualified professional like Tony. He's a CFP, certified financial professional, as well as an EA here in the Des Moines area. But also, he's got clients all over the place. So if you need some help and you caught this podcast, subscribe to it to catch future episodes on Apple, Google, Spotify, whatever you're using. Just hit the little heart button, I think on Apple to subscribe, things of that nature.

Marc: You can also find all of that and learn more about Tony and his team at yourplanningpros.com. That's yourplanningpros.com. You can check him out online and learn more, and reach out to him, maybe schedule some time to talk, whatever that might look like for you. All right, my friend, thanks for hanging out with me this week and playing financial fact or fiction. Hope you have a great week and looking forward to talking to you soon.

Tony Mauro: All right. Thanks, Marc.

Marc: We'll catch you later, folks, here on Plan With The Tax Man with Tony Mauro, from Tax Doctor, Inc., serving you here in the greater Des Moines area. We'll talk to you next time on the show. Stay safe and sane, folks. We'll catch you later.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

If you had a million dollars, how long would it last you in retirement? How drastically does that longevity change if you move to a bigger/smaller city? We’ll take a look at some stats from various areas across the country to show how difficult it is to make your money last in some areas, and how easy it might be in others.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Hey, everybody. Welcome into this edition of Plan With The Tax Man. Thanks for hanging out with us here on the podcast, with [Tony 00:00:05] and myself, as we talk, investing, finance, and retirement. This week we're going to run the numbers. A million bucks, how long will it last in some different areas around the country? People are always wanting to know. They think this million dollars is the magical number. Maybe it is, maybe it isn't. So we're going to talk about what it might look like if you're living in different parts of the country. Tony, what's going on, my friend, you're going to hang out with me today?

Tony: I'm ready to go. It's a spring, I'm off, I forgot to mention that off my second shot for the vaccine.

Speaker 1: Did it put you down, like a lot of people, the second one?'

Tony: I'll tell you, my wife and I went to get them at the same time, same place, from our doctor. And yeah, I had some symptoms and she had none.

Speaker 1: Hmm. Everybody's different. [crosstalk 00:00:49]

Tony: And the next day, I... Yeah, I had about seven hours of what everybody's kind of talking about. You know, body aches, fever, and then boom, it just went away. I don't know.

Speaker 1: Hmm. Very interesting.

Tony: Yeah.

Speaker 1: Yeah. It's affecting everybody a little bit differently, how it goes around it. But it does seem to be that the second one, for the most part, definitely smacks some people around a little bit. Although it sounds like your wife got lucky, so...

Tony: Yeah.

Speaker 1: And you were probably like, "You...".

Tony: I know, yeah. She was giving me a hard time [crosstalk 00:01:17].

Speaker 1: Well, she really, yeah. I was laughing. I was like, my wife and I were competitive. She's probably been like, "Ha ha", but then she would have taken care of me. So yeah. All good. All good. So, anyway, I'm glad to hear that you're back on the mend and doing well.

Speaker 1: So let's talk about this. We'll have some fun this episode. How long will the million bucks last? That seems to be that arbitrary number, Tony, that everybody loves to throw around. "I need a million bucks." Right? "I need a million bucks." And I get it, it's sexy. It's a good round number, right? Sounds good. Who wouldn't want to say they're a millionaire, right? So all those kinds of things.

Speaker 1: So there's a study by Yahoo, Yahoo Finance, and they wanted to see how long a million dollars would last you in retirement based on the city that you're in or the state. And so they took into account Tony, some various things. Of course, you've got this information as well. We'll both go over this together with the audience, but taking it into account cost of living, factoring in some basic averages for social security, how that would play into it. And they use 65 as an average age for retirement. And they have basically the annual expenditure. So they're calculating what they thought it would look like for groceries, housing, utilities, transportation, healthcare, all totaled up to what that would look like for an annual... Let's say, taking it from your retirement account, right? So whatever that dollar amount would look like. And then if that was the case, and it was fairly even across the board with some control numbers here, how long would that million bucks last you?

Speaker 1: So let's jump in and we'll get to Iowa in a minute, but we're going to do a few other places around the area. So California, we're going to start with the heavy hitter cause we can all pretty much assume it's going to be expensive there. Surprisingly, Los Angeles wasn't nearly as bad, or San Diego, as San Francisco.

Tony: San Francisco. Yeah.

Speaker 1: Rough.

Tony: San Francisco, yeah, is so high cost of living. I love to visit there by the way. But yeah, to live there these days, is so, so expensive. And it looks like, according to this study, basically it went with $136,000 of annual expenses and it seems low in San Fran... Some of these numbers do seem low on the annual expenses-

Speaker 1: They do seem a little low on the annual, but of course then a lot of folks might say, "$136,000 a year? That's, oh man, that's high." Right? No, but not for San Fran, but definitely high-

Tony: Not for San Fran. It is in Des Moines.

Speaker 1: Sure, yeah.

Tony: But for Sam Fran, I think you're middle income at best. And according to this study, that's only going to last about eight, nine years.

Speaker 1: Isn't that crazy? Nine years, a million bucks will last you.

Tony: Yeah. I mean, if you've been out there at all lately, just even traveling. I mean, people talking, I go out to the wine country, people come up from the Bay and talk about the just crazy costs, just to live in a little two-bedroom place.

Speaker 1: Oh yeah.

Tony: Compared to the Midwest, it's out of this world. Now, the salaries I I know are different out there and the amounts of money, but we're talking retirement here. Carrying a million bucks [crosstalk 00:03:59].

Speaker 1: Right. We're using this as a...Yep. This is kind of the set number of a million dollars because so many people kind of gravitate towards that. And the reason that kind of behind this, and I think is interesting for us to discuss Tony, is that we've said it a million times... No pun intended. We've said it a bunch of times that everybody's number and lifestyle is going to change that. So a million for you, Tony, might be necessary but a million for me might not, or vice versa.

Tony: I know.

Speaker 1: Right. So...

Tony: Exactly. And a lot of... I can't remember if you mentioned, if this study was taking into account, I'm assuming they're spending the principal. A lot of people don't want to spend the principal. They just want to live of course the earnings and then other forms of income, they can't outlive [crosstalk 00:04:38].

Speaker 1: This did not take into account interest, which was interesting, which, because that's going to play a big factor. And it also did not take into account long-term care or anything like that for retirees. That's another huge component. So yeah, these numbers might be a little low, but I think the idea was, if you were just thinking about your annual expenses, like the basic things we all think about to live...

Tony: Right? Yeah.

Speaker 1: How long would that million bucks last you? Again, they factored in that those annual things were healthcare, not long-term care, but just regular healthcare, transportation, utilities, housing and groceries, right? So fairly basic. Maybe that's why the numbers are a little... To your point, you felt like $136,000 was low for San Fran, because it's not taking in entertainment, doing things, so on and so forth, right? Property tax. All that housing costs maybe property tax is in there. But anyway, let's continue on a little bit. So $136,000 a year is what they're estimating, 10 years is about the max you're going to get off a million bucks if you live in San Fran. Now, Los Angeles, San Diego, also DC, and Boston, Seattle, all kind of fell into the next group. And you were going to go out $75,000 to $85,000 a year, cost of living there for the annual cost. And how long did that last you?

Tony: According to the study, 13 to 17 years, which in my mind, just again, just from visiting these places, it would seem more. That those cities would be more in line with San Fran. So I think that would be the maximum it would last you is the 13 to 17 years.

Speaker 1: Right. Right.

Tony: And like you said, I think people listening need to take these numbers and this is just your basic necessities, this isn't accounting any fun stuff. This is just to get by, I would say.

Speaker 1: Right. There you go. Yeah.

Tony: You pay your bills.

Speaker 1: And so if that's the case, now from a longevity or retirement planning setup, Tony, which whenever you're working with retirees and you're trying to help them plan for retirement, are you going to feel comfortable with 17 years? You know?

Tony: Exactly. Yeah. Yeah. I mean, that's what you got to be thinking about.

Speaker 1: Exactly. Okay. So let's keep moving along here. So Portland, Denver, Miami come in next at around 60 to 65 grand annually for expenses. Again, basic cost of living. Now, we're a little bit more respectable length of retirement.

Tony: Yeah.

Speaker 1: What do we got here?

Tony: Yeah. I mean, you've got 20 to 22 years. I mean, now you're starting to get a little closer to what financial planners start thinking about when they're projecting out. My son lives in Denver, been there for about a year and a half [crosstalk 00:07:07] city, but when we go to visit, it's higher prices for everything there. And I think obviously, that's why the 20, 22 years versus some of these other ones you're going to mention, which stretch out a lot longer.

Speaker 1: Right. Right. And so if you're thinking, okay, you take that million dollars, let's go to the 4% rule for a minute, Tony. So it's a general rule of thumb. You say, I'm going to pull out 4%. I got a million bucks. I'm taking out 40 grand a year. Okay. And that's just off of your nest egg. So let's just say that's... So now you add social security into it. Let's say, well, whatever that might be. And so folks might say, "Well, okay, maybe I could get by with 60 grand a year." But again, every area is going to be a little different. 60 grand a year in Des Moines might be great, might be exactly what you're looking for. But maybe not necessarily so much in Miami, which that one seems a little odd to me too. Let's jump over to the Midwest, Chicago, Minneapolis, $54,000 a year in annual expenses and a pretty good number here from a retirement planning standpoint as far as years, for a million bucks.

Tony: No, it is at 26 to 27 years, that's getting pretty good. And again, for 65, you're talking about 85, 91 years old, roughly. Chicago in there seems a little weird, but it is still Midwest even though I think it's higher than Minneapolis but still a bigger cities, but we're kind of... Ever notice how this kind of creeps inward and then you get to the colder climates-

Speaker 1: Yeah. Yeah.

Tony: It has all the... Although Phoenix is in the next one, so that's not too bad, but you get down here to where we're at and well, it's cold.

Speaker 1: It's colder. So I'll tell you what, let's go ahead and jump to the next two here. I'm going to hit Omaha, Kansas city, Louisville. Now we're in definitely more of the heartland, a little bit closer to it. And we do have some numbers on Iowa, we're going to do those just a second. But Omaha, Louisville and, or Louisville depending on how you say it, Kansas city, $43,000 to $47,000 a year. And if you want, Tony, we'll go ahead and just throw Iowa in here because Iowa's at $46,000 for annual expenses. And so these, which is again, this is interesting because in their same survey, they're saying 30 years in those cities at that price, but they're saying 21 years plus or so in Iowa. So kind of interesting.

Tony: That is interesting. I don't know why that would be.

Speaker 1: Unless it's a typo.

Tony: I would just have a little higher taxes. I don't know if they're factoring that in, but it...

Speaker 1: Could be.

Tony: In the Midwest here, I mean, in those other cities are obviously bigger than the Des Moines, in any city in Iowa. But now you're talking, though again, pretty much planning for someone to live past 95 and that's pretty much all you can ask out of your [crosstalk 00:09:57].

Speaker 1: As I say, is that a good number? Is that what you try to do as an advisor when you're helping people? Do you say, "Okay, look, we're going to plan for this longevity factor. We're going to shoot for, I don't know, a hundred." Even if that might not be the case.

Tony: Yeah. I mean, we generally will start out at 95 to a hundred, let the client tell us, "Hey, look, I don't want to... show me some different numbers. I don't want to go out that long or just at least show me some options." But we do have those conversations, but it starts at 30 to 35 years, just in case. And then show them some shorter time horizons, but never did we go down to 10 to 15 years generally?

Speaker 1: Yeah. Yeah. I mean, unless you're retiring at 78.

Tony: Yes.

Speaker 1: 75.

Tony: Unless you're doing that. But any of these Midwestern cities, if you can get by, let's call it $50,000 to $60,000 annual expenses, it's going to last you a long time in these Midwestern cities and the last one on the list here, which kind of surprises me, this Memphis.

Speaker 1: Yeah.

Tony: $38,000 in annual expenses [crosstalk 00:11:00].

Speaker 1: Ma, that's low.

Tony: I always thought Memphis... Yeah. Yeah. That's low. You're talking a 45 plus years, it would last you.

Speaker 1: Right.

Tony: And so I think just by looking at these, you take someone like my son, who's only 25. If you put this list up in front of him and ask him where he'd want to retire, it would be one of those California cities. But once you get a little closer, depending on where you're at, you might want to think about things a little bit before you just rush off and possibly move to one of those cities, obviously.

Speaker 1: Sure.

Tony: I mean, all great cities, but I think people living in those cities though, they have to have a different outlook with their planners than somebody living in Omaha or Des Moines or case a year.

Speaker 1: Right. And that's exactly the point, right? And so even in your backyard, Tony, here in the Des Moines area, you're going to see people who... Okay, so this study says $46,000 annual for Iowans, but let's say that might be fine for, I don't know, Cedar Rapids or something like that, but maybe it's more like 55 or 60 in Des Moines, right?

Tony: Yeah.

Speaker 1: So a little bit of ebb and flow there. And so talking to this million dollar, this arbitrary number that we assign...And that's why if you're doing rules of thumb, and in a way this is kind of rules of thumb... If you're doing general guidelines, this gives you a ballpark but then you really got to sit down and get into the minutia because this, again, we don't know for sure, but this is not taking into account taxes, it's not taking into account... It may or may not be taking into account property taxes, things of that nature. I mean, there's just a lot of other little unknowns. And of course there's no fun money involved in this. This is all just basic needs. So you're going to have to tick that number up a little bit. But I started off by saying, you might not need a million. We have people who are totally comfortable in retirement for $500,000. But what is it that they have, right? It's their lifestyle, maybe a pension, there's other things that factor in.

Tony: A lot of the things that factor in, and I could say from doing a lot of tax returns on the individual level over the years, that I would venture to guess that just off the top of my head, at least 50% of our clients will never have anything more, this is just their own savings, that the rates are going that I see, more than $250,000. If you take a number that low, even in Des Moines, you got a little bit of social security, maybe a little bit of pension, that's not going to last you very long. So I think people got to look at that too and say, "I need to at least shoot for a million or shoot for some higher number."

Speaker 1: Right, right.

Tony: Because these lower numbers aren't going to work when you really start putting the pencil to it and they could see it in front of them.

Speaker 1: And I don't imagine too many people come in and... You're a CFP, you're an EA, you've been doing this 20, almost 25 years, right? So how much people come in and say, "Hey, I want to go backwards in retirement."

Tony: No, they all, they don't talk about it until we bring it up and we'll ask them. Especially if they're in their forties and fifties is when you're thinking about retiring, and they say, "Well, I don't know. I don't think I'll have the money. I'll just work until I can't work anymore." That's a plan, but not a very good one.

Speaker 1: Yeah.

Tony: I feel for them because to me, it gets a little personal in the fact that we toil away for 40, 50 years and then many of us don't have a whole lot left to show for it.

Speaker 1: Very true.

Tony: We're lucky enough to be healthy. I would think most people want something better. It's just sometimes that life gets in the way and they don't plan.

Speaker 1: Right, yeah.

Tony: That's what happens.

Speaker 1: Indeed. And nobody wants to hopefully reduce their lifestyle in retirement, as I was saying, because you want to keep the one you've got, ideally, at least at that. And a lot of times we actually want to raise that up a bit, at least in the early parts of retirement. And that's the other thing that's not really talked about or factored in here is that we're going to have those earlier years of wanting to do more and so on and so forth. And so when people come in to see you for the first time, perspective clients, Tony, do they ask sometimes for hard numbers, do they say, "Okay, you've got all my data. You know what I have? How long is it going to last me?" Is that what they're looking for often?

Tony: A lot of times they are. Yeah. I mean, they want to know that based on where they're at now, and if they continue on their path, where will they be at? And we can generally kind of at least start putting some ballpark figures together. Of course, the software is very good at this these days and then try to meet with them and discuss from there. Does this look okay to you? And if not, then, how can you get to [crosstalk 00:15:22] want to be.

Speaker 1: How do we adjust?

Tony: Yeah.

Speaker 1: Yeah. And that's when we start looking at how you're utilizing the various investments that you have. Are you being as tax efficient as possible? And so again, when you're talking to rules of thumb, Tony, it's great to give you an outline, but until you really sit down with an advisor, you can't start dialing in the minutia of what's going to make your plan tick and happen for you. And that's why an advisor is such a great resource to tap into.

Tony: And I think too, for the young people listening, especially in their twenties, it's really, if you can just get yourself in the discipline of putting money away, in other words, saving for retirement. It's a long way away for you. But if you can do that, time is on your side.

Speaker 1: Oh yeah.

Tony: You'll be amazed when you get to my age, then what you've got versus somebody coming in their fifties and saying, "Well, I'm really behind the game." Their amount to get to where they want to be is so high, they'd really have to change their lifestyle in a lot of times.

Speaker 1: Yeah. And the key is you got to take action at some point because continuing... Even if you are 50, I'm turning 50 this year and I often, I mean, I talk about this stuff every day. And sometimes I'm like, "Hmm, have I done enough?" And it's natural to have that feeling, but if you've got a good plan in place, you're working with somebody that's going to alleviate that, and then you're going to know where you need to add, where you need to take away, some shortfalls, or some whatever the case is. And often many people come in, even 50 plus, even just turning 50, and they're not as in bad shape as they realize, Tony. So that's something to kind of keep in mind. It doesn't mean it's the end of the world because you didn't start as sooner. It's certainly helpful if you can it start sooner, but if you don't do it, then come in and find out how you're going to know.

Tony: Yeah. You won't know, and it's better to start late than not start all. Shouldn't never want to give up just because you're a little further a long.

Speaker 1: Yep.

Tony: It just, you know, it's going to be a different for you than if you were sitting, talking to me when you were 28, [crosstalk 00:17:18].

Speaker 1: Right.

Tony: We'll have different conversations.

Speaker 1: Exactly.

Tony: You can get to close to where you want to be, and then who knows, maybe, like I say, once you have some of these numbers and you're again in the Midwest, in Des Moines, you may not need a million dollars, depending on what else you have.

Speaker 1: And what kind of lifestyle do you want? I mean, if you want to just hang out on the front porch and around the homestead, and you're not a busy body and liking to do a lot of things, well, then that's going to be a little different than someone who's constantly wanting to travel or constantly adding on to the house or doing... There's just a myriad of things that goes into changing those little aspects of the retirement. So that was our podcast this week. A million bucks, how long will it last you in some of these areas? Is it that fantasy number that we should all be shooting for? Is it not? It's probably not the worst idea to shoot for it. And like I said, to kick this off, it certainly sounds sexy and to be able to say, "Hey, we're a millionaire." It has a nice ring to it, but there is some data to kind of let you know if that's not going to be enough or maybe it will be.

Speaker 1: And again, anything we talk about on the show, we're usually talking in generality. So you always want to make sure that you check that for your situation with a financial professional, like Tony, as I mentioned earlier, he's an EA and a CFP with almost 25 years of experience. So reach out to him if you've got questions at 844-707-7381. 844-707-7381. And don't forget to subscribe to the podcast at yourplanningpros.com. That's your planning pros.com. There's also a lot of good tools, tips, and resources. You can book some time with Tony. And you can subscribe to us on Apple, Google, Spotify, iHeart, Stitcher, just type in Plan With The Tax Man in those apps or just go to the website, yourplanningpros.com, and find it that way.

Speaker 1: All right, my friend, I will let you go this week. Thanks so much for hanging out with me. And this is kind of cool. It was interesting to see how this played out.

Tony: That's right. All right. Well, we'll talk to you next time.

Speaker 1: And continue to feel better. I'm glad you got your shot and over it. So we'll see how you're doing in a couple of weeks.

Tony: That's right. All right. Thanks.

Speaker 1: Sounds like a plan. We'll talk to you next time here on Plan With the Tax Man with Tony Mauro.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

Let’s look at some of the richest people in the music industry and see what lessons we can learn from them that we can apply to our own retirement planning.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Hey, everybody. Welcome into this edition of Plan With The Tax Man. Thanks for hanging out with Tony Mauro and myself as we talk investing, finance, and retirement. In this go round on the podcast, going to have some more fun with some interesting analogies. We're talking money lessons we can take from rich musicians. Maybe bring that down to a level of number that resonates with us, not some of these crazy numbers I've got before me. But we'll have a little bit of fun with this and let Tony give us a couple of lessons here and there. And Tony, this is podcast number 43. I guess our podcast is, what, middle-aged now?

Tony Mauro: Well, I guess so. And with some of these musicians in here, it's going to date me.

Speaker 1: Oh yeah.

Tony Mauro: Because a couple of my favorites, and I love music.

Speaker 1: Okay, well, good.

Tony Mauro: I always have loved music.

Speaker 1: Well, fantastic. Well, then, we'll have some fun with this and I'm going to let you take, like I said, distill this down to a level that'll make sense for us that don't quite have some of these numbers in our bank accounts, but we'll have some fun. All right. So let's take a look at these rich folks and see what we can take from it.

Speaker 1: Andrew Lloyd Webber. Are you familiar with who that is? Our listeners as well, do you know who that is?

Tony Mauro: I do know who that is. Yes.

Speaker 1: Okay. And that-

Tony Mauro: Yes. But probably not all the listeners don't, but yeah.

Speaker 1: Okay. Go for it. I'll let you tell.

Tony Mauro: Well, I mean, he created The Phantom of the Opera.

Speaker 1: Right. Big playwright.

Tony Mauro: Yeah, which I think everybody knows that one.

Speaker 1: Phantom, what, Cats?

Tony Mauro: Cats, Jesus Christ Superstar.

Speaker 1: Yup. Some biggies.

Tony Mauro: I mean, those are the big ones that I'm familiar with.

Speaker 1: Okay. I got a couple of tidbits for you on Andrew there. He's technically listed as the richest musician in history.

Tony Mauro: [crosstalk 00:01:36]

Speaker 1: I would've thought it would've been McCartney or something, or-

Tony Mauro: I would have thought it would have been McCartney or Elvis. Yeah.

Speaker 1: Yeah, but no. Now they have a range. It apparently ebbs and flows, right, like anything, but somewhere between 900 million and 1.2 billion.

Tony Mauro: Really?

Speaker 1: ... is his net worth, and so, yeah, he's not hurting. He's doing all right.

Tony Mauro: No, he is. I mean, and some of these other names on here, yeah, the numbers are staggering with what they've amassed, and we've only done four or five of them here. I mean, you got The Rolling Stones, you got [crosstalk 00:02:10]

Speaker 1: Oh yeah, we could go on. Yeah.

Tony Mauro: You'd go on and on with these bands, and the massive amounts of money that they've made over their lifetimes. A lot of them, and perfect example is KISS, one of the bands from my era, they've really done a job of, they are their own market, you know?

Speaker 1: Sure. Oh, for sure. They are marketing kings. Yes.

Tony Mauro: They're a brand. I just read it on sign. I think I'm going to get it. It's from Success Prints. And it was from Jay Z and he said, so it's a quote, he said, "I'm not a businessman," he said, "I'm a business ... man," which is true. He is a business. He's a brand.

Speaker 1: There you go. Yeah. Well, that's, that's kind of how we pick these folks. A lot of these folks are kind of brands, right? And so, let me give you one more tidbit about Andrew Lloyd Webber, and then I'll have you give us a little lesson for you.

Speaker 1:

What he did, very smartly, not only has he made a lot of money off of creating these things, but the way he's licensed them. He set up a company back in 1977 that ensures that he gets a share of the profits of his work in any form. So, movie, play, Broadway performance, soundtrack, including even the ticketing agencies and the venues, the doors themselves, so pretty interesting. Where would you kind of look at that if you were saying, "Okay, I've got this guy as a client. What's his focal point?" Where would you go with that?

Tony Mauro: Well, he's a classic example of somebody that has created multiple income streams to make sure that he's got money coming in from all kinds of places.

Speaker 1: Nice. Okay.

Tony Mauro: And I'd probably say, I don't know what the stat is, but I would say it was probably high. Most Americans don't have any clue of even how to do this, let alone actually doing it.

Speaker 1: Great point, yeah.

Tony Mauro: Most people go to work for somebody for 30, 40 years and their paycheck is their income and they don't have any other sources of income. For those that are really, I guess, I don't want to say go-getters, because everybody's always looking for more income, it seems. But you know, you need to, if you're going to tie it to the investment world a little bit, besides saving for the big goals, retirement and whatnot, it might be possible that you use some of your investments to produce another stream of income for you before retirement.

Tony Mauro: Now, most people are going to say to that, "Well, I don't have the money. Everything goes out and I'm barely able to save maybe for retirement." So maybe that's not the case for you. Maybe it's something else. Maybe it's a side hustle. Maybe it's, I don't know, a different job, a second job maybe. So you just got to kind of put on your entrepreneur hat a little bit and think about things, and a great book about it is Rich Dad, Poor Dad, the cashflow quadrant, and trying to get yourself to the truly wealthy. Because the truly wealthy have money coming in and they're not even working, and I'm not talking about Jeff Bezos and Bill Gates. I mean, those are those guys, but-

Speaker 1: Yeah, folks who we've never heard of, but yeah.

Tony Mauro: Yeah, that you never heard of, and they're making money while they're sleeping, so to speak, and that's harder to do than it is to say, but it's worth pursuing.

Speaker 1: No, that's a great point. Because again, it's all about the income streams. "Income is the outcome," I heard someone say that. I thought that was pretty good when you're talking about your retirement plans and your retirement journey, the income is the outcome. So, whatever you want the outcome of your retirement to be, it's going to be based around the income. If you don't have very much, well, your retirement may be suffering because of that. So, income stream is certainly key. Great lesson there from Andrew Lloyd Webber and Tony on that.

Speaker 1: Let's move to our next rich musician here, and we'll go with Bono. I can't remember what his real name is, Paul something or another, but anyway, Bono from U2, obviously. Are you familiar with that?

Tony Mauro: Right. Oh, yeah. Know him well. I love the band. They've been around forever, just [crosstalk 00:06:05] money and earning money.

Speaker 1: A long time. Oh, yeah. He's worth roughly around 600 or 700 million, and he's made, Tony, his foray is not just for music. This is pretty interesting. Back in the day, about 15 years ago, he was a major investment ... investor, excuse me, in Facebook's IPO when that launched. Of course, they've had many a tour where they've made a lot of money, about 800 million estimated from their last tour a number of years ago, the 360° Tour, at the time making it one of the biggest musical tours in history. And so, he's just got a lot of other investments. He got a clothing line, he's got a five-star hotel. He's got multiple things going on. Kind of to your point earlier, he doesn't necessarily have to play music.

Tony Mauro: No. And you know, like Andrew Lloyd Weber, I mean, not only does he have multiple income streams, it goes to the next thing of he's got that and he's diversified. If the music ... because, I mean, some day he's not going to be ... he's just going to get ... Some of these aging musicians, they can't [crosstalk 00:07:03] do, yeah.

Speaker 1: You mentioned The Stones, right, except for The Stones. I don't know how they do it, but other than that, yeah.

Tony Mauro: I don't either. But you know, these guys, and Lord knows some of them have lived a harder lifestyle than others back in the day. But you know, I mean, age catches up with everybody, even if you're taking care of yourself. And he's diversified himself to a point where he's got income streams coming in. So like you said, if he doesn't or can't do any more music, he's still going to be able to make a lot of money. And you know, of course, all of these people are set for life, assuming that they manage it correctly, but-

Speaker 1: Right. Well, for every Bono there's a Prince or an Aretha Franklin, right?

Tony Mauro: Well, yeah, good point, good point.

Speaker 1: You know, he didn't have a will, didn't have a trust.

Tony Mauro: Nope.

Speaker 1: So then everything gets contested and fought over, so yeah.

Tony Mauro: Yeah. So, I think the big lesson here really, besides multiple income streams, is diversifying out of your main income stream, something unrelated to that. But even for me, I have a tax and accounting/financial planning business, but I also own some apartments, and I am a minority owner in my brother's insurance business.

Speaker 1: Oh, okay, yeah.

Tony Mauro: So unrelated, but yet other income streams. It helps if one is, just like investments, one's kind of doing poorly, the other one's generally doing okay, and they flip-flop around lot.

Speaker 1: That's a great way of looking at that. It's kind of like the different buckets, right, when you're talking about your investment strategy. And yeah, to your point earlier, Tony, I mean, you don't have to be a celebrity or a rock star to have multiple income streams and to diversify where your money's going to be coming in from as we get closer to retirement. And I think you had it really right on the head with people just don't know how, or they think that's only for those kinds of people, and it's just not. I mean, you can be a tax doctor in Iowa.

Tony Mauro: Yeah. You know, a lot of people ... I think the biggest thing that most people have as a barrier when we're talking about this is one, they don't think they have any talent to do anything else.

Speaker 1: Yeah, great point.

Tony Mauro: And they're afraid because there is a little bit of a risk. And two, it's actually ... And these people have worked tremendously hard to get to where they were at.

Speaker 1: Sure.

Tony Mauro: Plus they have God-given talent, but it's a little extra work. And even if you're doing a little side hustle where, let's say, you're just selling ... I don't know. I use the old Tupperware. That dates me a little bit, but you know, if you're going to go out and sell that and there's all kinds of things that are being sold at those kinds of parties anymore, but you know, it's work. It's extra time out of your schedule. It's extra stress. It's extra, I've got to pay for this or that before I make any money, and I think that scares people too.

Speaker 1: Yeah. I think fear is a great way of looking at that. That affects us in any kind of walk in life when it comes to money. And a lot of folks are okay taking chances. I mean, small business owners take a chance every day. And so, it's a different breed sometimes to want to be a small business owner or an entrepreneur, even if it's not an active business, to your point about maybe just investing in a friend's or family's business of that nature. And of course, as always, you want to make sure that you're checking that against your financial plan and retirement plan if you're considering doing something like that-

Tony Mauro: Yes.

Speaker 1: ... to make sure that it's the right move for you. And like anything you never want to invest more than you can afford to lose because that's just the nature of business in general. Well, good. Some good stuff here on these lessons.

Speaker 1: I'm going to jump to the last one just for a minute, but if we have time we'll circle back around, because I think a lot of our listeners are going to be a bit more familiar with this one, and that is Miss Dolly. I don't even have to give her last name. Everybody knows who Dolly is. She's worth about 400 to 500 million, and obviously she's known for her massive hits. You know, the song that Whitney Houston covered, I Will Always Love You, 9 to 5, her acting, movies, so on and so forth. Just tons. And Jolene, Coat of Many Colors, goes on and on and on.

Speaker 1: And she's made a lot of money from just really being a shrewd businesswoman, to your point with the Jay Z quote earlier, in marketing her strengths, which was this kind of simple country girl persona, and a few other things. We all know Dolly's assets there. But really, this is like a long haul. I don't know if a lot of people know, but she bought Dollywood, which was actually a theme park that was not doing well back in 1986. It was actually an already existing theme park and she rebranded it, and it took it a while, Tony, to get it really rolling to where it was doing really well through the '90s and the 2000s.

Tony Mauro: Yeah. And I would love to, if you ever had a chance to meet any of these people, because I'm sure their stories are similar, but just to sit down and ask them, "All right, tell us about all your failures." And they probably could go on for hours and hours and hours about-

Speaker 1: Yeah, great point.

Tony Mauro: [crosstalk 00:11:49] things they did and didn't do well. And I think before I get into Dolly's stuff here, I think everybody wants to be ... This is another one from his success, Prince, is everybody wants to be successful until they see what it takes. And these people, when you ask, pry them about the sacrifices they've made and the patience they've had to have to get to where they are, you'd probably be blown away.

Tony Mauro: But I think in her case, I mean, she's been around a long time. She has always been relevant, especially in the country music scene. And she is another one that's taken money and diversified, invested, been very patient and let time kind of be on her side, tying it back to financial planning is you've got to be patient. You got to work at it.

Speaker 1: I think that's a great point.

Tony Mauro: You've got to save, you got to do all that. It's not just going to appear. And you know, especially if you're close to retirement, don't have any magic wands, you know? And so I'm on the sayings today, so I'll give you one more. I just bought a print, so there's this guy standing at the top of the mountain, and the quote is, "He didn't just fall there," and that's it. I mean, and if you just think about it, you're right. He had to climb there.

Speaker 1: He had to climb there, yeah.

Tony Mauro: These people have to climb to where they get to, and just like us, we may not get to that level of money and fame, but we got to climb to our goal, and it's going to take time.

Speaker 1: Sure.

Tony Mauro: It's going to take good plans. It's going to take working the plan.

Speaker 1: Well, we could say from $400 million for Dolly down to just a million dollars, or maybe 500,000, or whatever it is that you need for retirement. I mean, again, you're not going to just ... Most of us are not just going to land in that pile of money.

Tony Mauro: No.

Speaker 1: We're not going to Scrooge McDuck it and find that we've got just this vault full of coins we can go swimming in. So, it's one of those things we've got to build it over time. I think patience is a great way of looking at that. That's the trick to investing and also retirement planning is over time, we're going to get there. But even for folks who start a bit late, Tony, a lot of us don't really get serious until we're 50, or 50 plus, but there's still a good amount of time to get things done.

Tony Mauro: There is still a good amount of time at 50 plus. It's, take a little bit different approach, and I think if you're 50 plus it would definitely behoove you to visit with an advisor to talk about the end game and here's what I want to do, and here's what I want to retire. And kind of give them an idea of what you want to retire with, in other words, in monthly income. And they're going to be able to tell you whether that's feasible or not, or at least what you have to sacrifice in order to get there. And maybe you have to readjust the goal a little bit, or work a little bit in retirement. There's all kinds of ways to get there. But you know, at least you have a plan.

Speaker 1: Well, I mean, you mentioned aging rock stars earlier. A lot of these bands, they call them the dinosaur bands sometimes, so why are they still out touring? I mean, you mentioned KISS. I think they're on their fifth ... this is the year tour, right?

Tony Mauro: Yeah. Fifth world tour, yeah.

Speaker 1: Because they are a business.

Tony Mauro: Yes.

Speaker 1: Sometimes, I think it was one of the guys from AC/DC years ago said, "Look, we," and this is of course, obviously before COVID changed all of that stuff, but said, "It's not just us that we're going out, and people say, 'Oh, you're hitting the road again. You must need money. You must not have handled your investments very well.' It's like, that's not necessarily the case. Sure, that's the case with some artists, but not all, because there's a lot of people that we employ that depend on us to actually go out. We are a business."

Tony Mauro: Yes. Yeah.

Speaker 1: "We go out and do our thing, and it's hiring the T-shirt people and the road crew and the marketing folks and the ticketing sales."

Speaker 1: And then they have their own office. Most of these celebrities or these musicians have a corporate office to a degree, right? They have a lot of folks. They have staff, they have personal assistants, they have accountants, right? They have CPAs and CFPs and all that stuff.

Tony Mauro: I think the other thing too, with the aging musicians from the '70 and '80s, out on the road, because I think that for one, like you said, they've got a lot of things and a lot of people that are dependent upon them. But two, as you know, with the way that the industry is today versus back when I bought albums-

Speaker 1: Oh yeah. They didn't make anything, yeah.

Tony Mauro: ... I don't know what the setup is, but I think they make the most money touring. And then a lot of these bands now, they're selling out marketing because people like me, that's the music we grew up with. We want to go listen to that before they're gone, and we've got more money than the young guys we used to be and can buy more.

Speaker 1: True. Yeah. That's a great point. You know, it was a drummer, Alex Van Halen, who is the drummer for the legendary band Van Halen, was just recently talking after his brother passed away and said, "The industry is just in such a bad state. We used to make a dollar a record," he said. "When we would sell an album, we'd get a dollar off of that, whatever that was." And you think, let's say, 10 bucks, right? They're selling it for $10, a dollar's going to the band, and he's like, "We had to split that dollar four ways."

Tony Mauro: Right.

Speaker 1: But nowadays, you have to get 10,000 streams just to make six bucks, because they're paying 0.001 or whatever the case is. And there's always something going on, there's always a way we have to ebb and flow, Tony, and I think that brings us back to just having a plan, diversification, all really the principles of kind of life in general, fall right into financial planning and retirement planning. Really, it's the same story.

Tony Mauro: It really is. As we've done, just draw all kinds of similarities to it, for sure. But I think at the end of the day, of course, I always say this, is that you've got to develop some kind of plan and you got to be able to work that plan, otherwise you're really leaving it all to chance, and you don't want to do that.

Speaker 1: Yeah. That's a great point. I mean, our whole lives, we think about, we try to plan for things. We plan to eventually have kids and raise them and all that kind of stuff, and where we're going to live and we're going to work, and how they're going to go to school, and yada, yada. I mean, all that stuff is about planning, and so that's why we do this show, Plan With The Tax Man.

Tony Mauro: Right.

Speaker 1: So if you've got some questions, if you need some help, if you want to tweak your plan or see if your plan needs a tweaking or two, or just don't have one at all, and you're not already currently working with Tony and his team, give him a jingle at 844-707-7381. Subscribe to the podcast on Apple, Google, Spotify, and the various platforms, or stop by the website, yourplanningpros.com. You can find it all there. You can book time with Tony. A lot of good tools, tips, and resources at yourplanningpros.com. He's been doing this for over 20 years as a CFP and an EA, and a great resource for you to tap into here in the Iowa area. So Tony, my friend, I'm going to let you go. Thanks for hanging out with me this week and talking music. Now, I'm going to have to go listen to some rock and roll.

Tony Mauro: Me too. I'm going to listen to it as soon as I get off. We'll see you later.

Speaker 1: All right. We'll talk to you next time here on the podcast, Plan With The Tax Man. Hit that subscribe button. We'll see you next time.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

It’s an annual tradition! Well, except for 2020 when the tournament was cancelled. But it’s time to look at the NCAA tournament and see what kind of financial planning lessons we can learn from it.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Hey, everybody. Welcome into this edition of Plan With the Tax Man. Thanks for hanging out with Tony Mauro and myself, as we talk investing finance and retirement. And on the show this week, March Madness. It's an annual tradition so we're going to talk a little bit about March Madness and the big tourney and see if we can find some financial lessons in some of these things we've got for you today. So, hang out with us and talk about this fun stuff with Tony and myself. Tony, what's going on my friend? How are you?

Tony Mauro: I am good. The spring is here. I'm ready for March Madness. I think maybe we just talk about who's going to win this thing and forget about all the other stuff.

Speaker 1: Well, we could do that too. So, I guess, are you a basketball fan? Do you like to fill out the brackets and so on and so forth?

Tony Mauro: Yeah, I'm a big basketball fan. I'll do the brackets just with my son.

Speaker 1: Sure yeah.

Tony Mauro: And my family. I'm not into it like some. So I do follow it and I enjoy it. We've got two teams in it from Iowa. One's a play-in game, which might be today or tomorrow, Drake.

Speaker 1: Yeah. We're taping this actually the day it kicks off officially, on the 18th. Yeah, so.

Tony Mauro: So yeah, it's always fun to watch and whatnot. My wife's got a little pool in her office so you pick out a bracket.

Speaker 1: Yep. I was going to say, offices. It's an annual thing we love to do. Obviously, last year was messed up like a lot of sports was. But so a lot of people look forward to it. There's office pools. Maybe you win a gift card or something like that, or lunch or something. Whatever the case is. Lot of people do things. Of course, you remember a couple of years ago, Warren Buffett actually offered a million dollars if you had a perfect bracket from beginning to end.

Tony Mauro: I remember that.

Speaker 1: But the odds of it are crazy. It's something like 900 million to one or something.

Tony Mauro: Mm-hmm (affirmative).

Speaker 1: It's pretty staggering. So I guess he felt pretty comfortable. And it's like, he's not hurting for the million bucks if it happened.

Tony Mauro: No, no, absolutely not.

Speaker 1: So anyway, let's talk about some analogies here I've got for you, Tony. Turn some of these things from March Madness into a financial lesson for us, if you will. Predicting outcomes, let's start there. And if you're like most people, you like to finish filling out your bracket, you feel pretty confident going into it. I've made some good picks. I watched some of the experts on ESPN. I really think I know what I'm talking about. And most of the time after the first weekend, your brackets' blown apart. Right?

Tony Mauro: That's it.

Speaker 1: So I don't know, experts? I mean, there's a lot of ways you could go with this. Sometimes you got to be careful of the experts or just be careful not to get too wrapped up maybe in thinking it's all going to go one certain way. Just be, I guess, maybe adaptable. Is that the lesson here?

Tony Mauro: I think that's the lesson. Whether it's retirement planning, educational planning, or just saving for the rainy day, obviously you got to try to predict the outcome because that's...

Speaker 1: To a degree sure.

Tony Mauro: Goal, and trying to shoot for it, but just like anything else in the planning world, there's job loss, there's bad markets, there's all kinds of things that tend to force us to change our plans. And we have to be able to adapt to that. Unfortunately in the brackets, once you pick your teams, that's it, you're done, but in life and with planning, you can adapt and you can make sure that if things start to go off the rails, so to speak, that you can pivot and do something else to at least hopefully get to that predicted outcome. Obviously in the brackets it's to win the things. You win your pool or whatever. In life, it's much more important of course, because you want to get to that end goal, whatever that may be. So.

Speaker 1: Right. I think that's a good way of looking at that. We got to be flexible to got to be adaptable. Things are going to happen and you can do your homework and you can get kind of a plan together, which obviously we talk about all the time. You want to plan with a tax man. You want to have that plan, but again, you want to just be a little flexible because life is going to happen. And so sometimes people, I think they go to see an advisor or a financial professional, Tony, and they think, "Okay, here's my collection of stuff, make me a plan." And then they kind of think, "Well, that's a set it and forget it." And that's just not the case.

Tony Mauro: That's definitely not the case. I mean, if you do that you could be okay. I think you have a better chance of being okay at the end, if you are actively monitoring and working on it and changing as your needs change and things around you that you can't control.

Speaker 1: Yeah. And of course, that's what you hired an adviser for, to help you with that. But it's still yours, right? I mean I've heard many advisors say I can't care about, or I shouldn't care more about your financial plan than you do. Meaning the person. It's their money. Right?

Tony Mauro: It's their money. I still have a lot of accounting clients that when they kind of mess up and say, "Well, I didn't get my stuff to you. I didn't do this. I didn't do that. You should have done that for me." Well, I care a lot about it, but I tell them that I can't care more than you do. I mean it's your business, it's your life.

Speaker 1: At least I shouldn't anyway. Right?

Tony Mauro: Yeah. I shouldn't. I mean, there's a problem if I got more worried than you. But definitely yes, that's the case.

Speaker 1: Okay. All right. Well, let's keep moving along here with some of my points I've got from March Madness and financial lessons. Upsets. Everybody loves a good upset, or maybe even a Cinderella story, right? Maybe a team that just, it wasn't expected to do very well. They come in, they knock off the number one seed, or they wind up making it all the way to the final four and nobody predicted it. Everybody kind of enjoys that kind of thing. It makes it more interesting and exciting. And I would imagine, well I don't have to imagine, I know there is. There's definitely upsets in the financial world or even some Cinderella stories, but you got to be a little careful too. I mean, again, that's the importance of maybe diversification so that if you have a Cinderella story, great, but if you have an upset, you're not hurting either.

Tony Mauro: That's exactly right as well, because a lot of people come to us and they want that Cinderella story. Just like in the brackets you want that team that isn't supposed to win, to win and go all the way. And same way in the financial planning world, you want to, a lot of people anyway, I guess, well, I want to pick that stock or that...

Speaker 1: You want to buy Amazon before it became Amazon.

Tony Mauro: Yeah, before it became anything. And you see things on Facebook and you see everybody talking about this or that, and you want to believe that that's going to be your Cinderella story. And you put $2,000 away or $5,000 away. In 20 years you're set, but...

Speaker 1: Right.

Tony Mauro: More than likely, that's not the case. Builds the case for, you need to diversify. You need to have more than one type of investment and you need to monitor them, of course. And I think too, everything has, just like the tournament, it's winners and losers.

Speaker 1: Sure.

Tony Mauro: What's good for some is bad for others.

Speaker 1: Fair point.

Tony Mauro: And they're talking a lot right now, at this time, about changing the tax laws again, raising taxes. That's going to benefit some people and it's definitely going to hurt others. And if it's the case that they want it's going to hurt higher income earners with people over 400,000 and it's going to help people with lower incomes. So there's always both sides of it.

Speaker 1: Yeah.

Tony Mauro: I think that in the investment world that needs to equate to you got to have diversification and you got to be ready to adapt and move around a little bit.

Speaker 1: I think it's a fair point. I think the fed, didn't they just say here recently telling at the time we're taping this, that they, I don't feel like they're going to move the needle on interest rates. They're going to probably hold that solid for a while. And so that has winners and losers based on that ramification too.

Speaker 1: So there's always some way to look at that.

Tony Mauro: Yes.

Speaker 1: Yes. I mean, there's definitely ways. There's always pros and cons and again, a good plan, a good balanced plan, a good strategy, really, if you're thinking about basketball, just a good coaching plan, right? You got the coaches doing strategizing, Tony, as they're making it through the different tournament rounds, if they're going from one round to the next, they're also having to adapt a little bit, because they're looking at game footage from the prior game, right? The teams are going to scalp them and so on and so forth.

Speaker 1: So I think a lot of what you guys do is kind of that same type of thing. You can have that good plan, you can have that good strategy, but we've got to regain plan from time to time as we move through. And that could be due to some of those upsets or one of those cases like that.

Speaker 1: How about the hometown thing? You mentioned that you guys got a couple of teams there locally in the tournament. If you want to look at it from this standpoint, everybody loves a good homer story as well, right? It's like, "Yeah my team made it in. They're not really good, but I'm going to pull for them and we're going to see how far we can ride this thing." And sometimes we do that with various products or industries or companies. When you think about financial stuff, Tony. Sometimes you're really loyal to a brand or maybe even the company you work for.

Tony Mauro: That's it. And going back to the tournament, of course we're here in Des Moines, Iowa, and of course, Iowa University's in the tournament. I think maybe number two or three seed. I think number two in their bracket. I watched them play all year and they're a good team. And so you want to pick your bracket with your heart and you have them going all the way and you look like a hero if...

Speaker 1: Right.

Tony Mauro: You happen to do it. But I don't know...

Speaker 1: Yeah, at the time we're taping this, I think Drake, which is there as well, right? They're playing,

Tony Mauro: They're playing the play-in gaming. And they're the Cinderella story because I mean, they were 25-4, but they're in the Missouri Valley and nobody expects much of them, but they let them in on the play-in game, because the record probably is convincing enough.

Speaker 1: Yeah. I think they're playing today at the time we're taping this on the 18th, I think around six or seven, something like that against Wichita, if I'm not mistaken, Wichita state. Yeah.

Tony Mauro: But reeling it back in the investment world.

Speaker 1: Mm-hmm (affirmative).

Tony Mauro: A lot of times people want to pick one fund or one stock or whatever, or one strategy and just say that this is all I want and they end up with two heavy awaiting and something or a strategy that doesn't work as things change in their life, which we just talked about.

Speaker 1: Right.

Tony Mauro: And now all of a sudden again, they're not going to meet their goals because of that. And so you still, again, it goes back to the case of you need to work on it. You need to, in my opinion, work with somebody to help you with that. So you're not just setting it and forgetting it and hoping for the best type of strategy, but it is something that I do see a lot of. And I they don't even pay attention to it.

Speaker 1: Yeah, you get too weighted in one category. Right? Is that what we're kind of talking about here? It's like having too much of one thing.

Tony Mauro: Yeah. Yeah. I mean that exactly. Just too much of one thing. They don't pay attention. We talk about it at Tax Time and they just, "Oh yeah, that sounds good." And they don't do anything about it. I mean, that's probably not the best route to go if you're really seriously talking about making it to your goal.

Speaker 1: True. Yeah. I mean you think about the company you work for, maybe it's a great company you're really into. They're giving you maybe some stock options or maybe you have the ability to buy. You're buying into it. But how much of your financial life is tied up in that one entity? And it's great to a degree. Right? But I guess with anything, Tony, even if it's your own company and a lot. the trajectory's looking good. I mean, do you really want to have more than a certain percentage of anything in any one investment just to be safe? Because if you could go back all the way to Enron, or you could talk to the folks from GE or there's a number of stories where you could say, "Hey, being a little too weighted in your own company, could spell some issues later on."

Tony Mauro: Yeah. I mean, it definitely does. I mean, even we have some larger companies here in town, mostly insurance companies, but Wells Fargo is a big player here, and of course they always reward, especially higher up employees, with stock options and whatnot. And some of these people end up with a lot of stock, like you said, in their own company. And as the company goes through goods and bad times, with Wells Fargo it's kind of like a dirty word around here. And I'm not knocking anybody that works there. We have a lot of tax clients, but they've kind of been through some issues and they've taken a few hits and ultimately that affects the stock. And then if you've got your entire retirement portfolio, let's say in one stock, boy, you hate to have some bad things come out, right when you need this money and then all of a sudden you don't have what you thought.

Speaker 1: Yeah, that's a great point. So just be careful, again. So we're having this analogy here with March Madness. It's one thing to certainly want to root for the home team, if you will, but just like any investment, make sure that you don't have too much tied up into one thing. Five, 10% is usually kind of the idea for just about any one type of investment. And then let's talk about risky picks on this last bit here, Tony. You mentioned the home teams. Okay. So we'll kind of tie these two pieces together. Iowa is actually second. They're going into it ranked number two and they're playing their first game against a 15th ranked seed, Grand Canyon.

Tony Mauro: Yeah Grand Canyon.

Speaker 1: Yeah. So, okay. So, let's say you want to buck the trend, right? And you think, "Hey, Grand Canyon is going to upset Iowa, and I'm going to put some money on it" or whatever the case is. Right? So you're taking that riskier pick, if you will.

Tony Mauro: And I've done that before in my brackets, where you try to be funny and you pick all these low seeds.

Speaker 1: Right. To win the whole lane. Yeah.

Tony Mauro: Yeah. To win the whole thing and see how far they go just for the fun of it. And every once in a while, I mean, you go back to some of the center ELLs that made it all the way there. It's great. It's great for the game of basketball and whatnot, but in the financial planning world, when you're investing, I mean, again, you don't want to just all of a sudden go out and find some speculative newsletter, let's say, because they're all over the place and say, "Well, I'm going to do this." It looks like the potential returns are very large and you ignore the risks and that kind of thing. And next thing you know, again, you've got all the eggs in one basket and that didn't really work out or you didn't pay attention enough to get in and out when you needed to. And again, that's a recipe for a definite disaster.

Speaker 1: Well there's taken some chances, right, Tony, but then there's also taken chances with your retirement money that, honestly, if you're being truthful to yourself, you just can't really afford to take, right?

Tony Mauro: No, no, you definitely can't. I mean, especially with retirement money and whatnot, you've got to have a good diversified strategy and manage that strategy. If you want to say use the basketball analogy, pick some number 15 seeds and you just want to kind of quote, play around.

Speaker 1: Sure.

Tony Mauro: Nothing wrong with that but I don't think that should be part of your overall, serious investment strategy by any means.

Speaker 1: Yeah. It's just like going to Vegas, right?

Tony Mauro: Yeah.

Speaker 1: There was a...

Tony Mauro: You might as well do that.

Speaker 1: Quote from, what was that gentleman's name? An economist. Paul Samuelson, I believe, yeah. He said investing should be like watching paint dry or maybe grass grow. It's not very interesting but it's nice and stable and steady. If you want excitement, take your money and go to Vegas. I'm paraphrasing, but...

Tony Mauro: Right, right. But you might as well do that and throw it on black or red or do whatever.

Speaker 1: Let it rip. Right. Exactly. Yep.

Tony Mauro: But I don't know for whatever reason, I think it's the creation and the popularity of the very, very low priced discount brokerages that have popped up all over and made it so. And the availability of information where we didn't have that 10, 15, 20 years ago at our fingertips that kind of feed some of that. And I've seen a lot of tax clients this year, thus far, bringing in investment statements from Robin Hood.

Speaker 1: Okay.

Tony Mauro: And that's a whole different conversation. But they kind of get on these kicks and they start playing around. And if that's what they're doing, and that's all they're doing, that's fine. But when you start seeing serious large, when we're doing a tax return, I don't want to say gains and losses, but proceeds, in other words, they're selling and buying large amounts. And then when you look at the gain loss and it's usually a loss or a very, very small gain, it's like, well, what are you really accomplishing here? You're having fun and just trying to hit something big or is this part of your overall strategy?

Speaker 1: That's a great point. And obviously what we've seen lately with Robin Hood and the game stop situation. We did that podcast and had the conversation about that. We get wrapped up in, I guess, the trend or the hot thing or the whatever, right? And that comes back to maybe bite us in the tush a little bit. So at the end of the day, folks, it comes down to having a good plan in place for you. Now we can simply sit here and talk about the March Madness thing and have a good time with the analogy and so on and so forth. But as I mentioned with the coaching, at the end of the day, Tony, it doesn't matter. If you put together a great plan and then your players don't execute it, right? It didn't really make much of a difference, same thing with the game.

Tony Mauro: Yep. For me, in basketball you got to have a great plan. You got to have players that can execute it. But at the end of the day, at least in basketball, if the ball doesn't go in the hoop you're going to probably lose, but you've got to have that plan. You can't just go out, otherwise you're basically playing pickup basketball.

Speaker 1: True. Yeah.

Tony Mauro: You don't want to pin your hopes on that kind of thing. But I agree with that. You got to have a plan.

Speaker 1: Yep. And while the stakes are high in the March Madness, they may be not quite as high as it is for somebody going into retirement. So get a plan in place if you don't or get working with somebody who can help you tweak the plan you've got to make some adjustments if you need to. Get that good coaching strategy going on, because life will throw us curve balls. Life will change things up a little bit. And so you want to make sure you've got a plan in place. And if you need some help, Tony's around. All you got to do is reach out to him. They are certainly very busy this time of the year, but you can still have your questions answered. Get on the calendar, whatever that might look like by calling (844) 707-7381 or stopping by the website, yourplanningpros.com. Don't forget to subscribe to the podcast. That way you can catch up on future episodes. Check out past episodes. As we talk about things, that'll hopefully spark some synopsis for you to get going on your own retirement journey or making some tweaks or changes along the way as you need to.

Speaker 1: This has been Plan With the Tax Man hit that subscribe button on Apple, Google, Spotify. iHeart, Stitcher, whatever platform you like to use. And again, you can find it [email protected], or you can just search it now on those apps.

Speaker 1: Tony, thanks for your time. Hanging out with me. Good luck to the hometown teams. And I'll talk to you soon.

Tony Mauro: All right, sounds good. See you later.

Speaker 1: We'll catch you next time here on Plan With the Tax Man with Tony Mauro from Tax Doctor Inc.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

Business owners are particularly vulnerable to some misconceptions and false assumptions about their retirement. Let’s address a few of these issues.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Welcome into another edition of Plan With the Tax Man with Tony Mauro, from Tax Doctor, Inc., and myself, as we talk investing, finance and retirement. And, this week retirement planning for business owners. Tony, you've been getting more and more questions about some things. Obviously it's tax season as well. But just in general, I think that sometimes there's an underutilized conversation point at least from a podcasting standpoint. So, let's spend a little bit of time this week talking about business owners and how to get ready for retirement, or even just kind of keep it in your mind. Because often as business owners, we tend to push some of those things off. And so, I think it'd be a good topic. But, how are you doing this week first of all?

Tony Mauro: Yeah, we're doing good. Right in the middle of the thrills of tax season so getting busy there.

Speaker 1: Wall-to-wall huh?

Tony Mauro: Yeah. It's starting definitely, but I mean, we've been doing it a while. We're fairly used to it. We have some new processes in place with this whole virtual stuff. But other than that, yeah, we're hanging in.

Speaker 1: Well, if you didn't check out our last podcast folks, we were talking about some tax tips. So on the prior one, you can go check that out and go to yourplanningpros.com, and you can check out our past podcasts and subscribe to the show if you'd like to as well. Usually a couple of useful nuggets here and there on each show that might benefit you. So, go check that out at yourplanningpros.com, or just subscribe at Plan With the Tax Man on whatever app you like to use, Apple, Google, Spotify. You can just type that into the search box of each app and find it that way, Plan With the Tax Man. All right. So, let's talk about some business stuff. Business plan in general, I think Tony, is there a misconception or just kind of that premise that, hey, if I execute my business plan to the best of my ability and that the retirement portion will kind of take care of itself.

Speaker 1: I think that's maybe easy to fall into that because we're pumping so much of our heart and soul into this thing, but often I think most business owners, I've done this myself as a small business owner a couple of times, is you forget to pay yourself or even your future self, because you're so worried about keeping the business. Especially for small businesses.

Tony Mauro: This topic, I mean, we could talk about for hours really. I love talking with my accounting clients because we service a lot of business owners, and do their monthly accounting. And, we also serve as their financial advisors. So, it kind of crosses over. But you're right. A lot of people get into business and they do, they live it and breathe it and they want to make it not only go well because they have to do that to make a living to pay their own bills, but they often forget. And, many, many never think about putting any money away for retirement. And, we try to help them. We try to get them to pay themselves first and use the profit first methods and try to really make sure that they're... Even if we just start out very small sticking some money aside and not only for retirement, but for everyday stuff. And, it's amazing.

Tony Mauro: Their eyes light up as soon as you start talking tax deductions for potentially putting money away.

Speaker 1: Right.

Tony Mauro: But, we try to help them through that because what we try to tell them is that unlike somebody working for somebody else, nobody's looking out for us. If you don't do this, you will have nothing but some Social Security and that's it.

Speaker 1: And, that's going to be lower than a lot of times than it might be if you were working for somebody else as a regular W2 employee, because if you're not paying yourself to my point earlier, or not paying yourself as much as you should be, well, your Social Security is going to be lower.

Tony Mauro: Social Security is going to be lower. And, we try to get them out of that mindset that you need to be paying something into Social Security.

Speaker 1: Right.

Tony Mauro: I mean, when a lot of people come to us, they say, well, I want to do my accounting, but here's what they'll say. I don't want to pay tax.

Speaker 1: Yeah, right.

Tony Mauro: And oh, by the way, I want a great retirement. Well, first of all, I mean, everybody's supposed to pay tax on their net income, their legal net income.

Speaker 1: Right.

Tony Mauro: And, you don't want to be afraid of that. You want to be able to make money. You want to be able to pay your share into Social Security, but that's not going to be enough. And, that's why we have to try to show them in some real numbers that, if you don't do anything, you're going to pour all these years into this and only have this much, and is that worth it?

Speaker 1: Well, and that's really where the topic of conversation this week comes in, because what is the value of it? What is your plan for retirement if you're not paying yourself properly or paying your future self? Again, that's a really important way of thinking about this. We put our heart and soul into our own small business, Tony, and we might think it's worth a lot more than it may be actually is. Or is the thing even sellable?

Tony Mauro: Yes.

Speaker 1: People will sometimes get into that situation where they're like, well, I've done all this, this, this, and this, and you know what you've sunk into it, but is there another person out there who's willing to take that on when you choose to retire? And, what does that look like in the process of selling that business? I think that's another underserved under talked about point of being a small business owner.

Tony Mauro: Yeah. It really is. Especially when you get into, if you're in your 50's and running the business and it's... Many business owners, I think, believe that, well, I'll either just run this until I die or if they want out, they think that it's worth much, much more than it really is. I mean, in almost all cases, they think somebody's going to come in and just buy them out and give them this big multiple of their revenue or net income. And, that's not the case. Especially in service businesses.

Speaker 1: Yeah. And that's all been changed too.

Tony Mauro: It's all been changed.

Speaker 1: Yeah.

Tony Mauro: And, it really is. Even if you take my business, I mean, I don't really have any assets. My asset is really my clients. And anybody that was going to come in and buy my business, they would be foolish to come in and cash me out.

Tony Mauro: And, I know that. They're going to want to pay over time based on how much business they can retain. And, I think that a lot of owners just think somebody's going to come and write them a big fat check and that's not going to happen. And I think my business, but we're always working on it, is much more systematized and able to run without me the key player than most.

Speaker 1: That's a great point. Yeah.

Tony Mauro: Yeah. Most businesses, owners, you take them out of the equation and the business just folds. Most people that want to come in and buy a business, they're looking to make money at it. They may or may not want to be you and work 12, 15 hours a day, weekends, things like that. They may want to hire this out. And if they do that, there may not be the money there that you take.

Speaker 1: Yeah.

Tony Mauro: And so, there's a lot of things to take into consideration.

Speaker 1: I really like that thought too, Tony, because often, we're talking small business here of course, and this can change as the business grows to a certain size and it kind of moves itself into a small, medium, or even a medium-sized business. But for a lot of small businesses, a lot of mom and pops if you will, if you want to use that kind of terminology, are you building a business or is the business you, right?

Tony Mauro: Right.

Speaker 1: So, if you're really the key thing and everyone knows you, and they enjoy coming to the place because of you and you retire, how does that make that viable for the next owner or for even let's say your children? Many people who have a small business think, hey, my kids are going to take it over. They're going to run it for me.

Speaker 1: Maybe one of your kids already works with you, or maybe they don't. I mean, there's so many questions there. They might not want it. They might not want anything to do with it. They want to have their own. I mean, there's just so many variables when you're talking about how to step away and transition into retirement, especially if you have not been paying yourself, which was kind of our key and most important point really.

Tony Mauro: Exactly.

Speaker 1: What do we do there, right? I mean, how do we go about rationalizing that when you're talking with people, do people think that far ahead? Are they kind of not really visualizing that?

Tony Mauro: Yeah. On the business side with the people we talk to that are our accounting clients, they never give it a thought. In fact, I'm going through right now as our first couple of Zoom meetings with these clients in 2021 and updating our communications. Because I ask them every year. Some of these questions that they don't think about is, and then I write it down so we can go over it next year saying, are we any closer to here's what you said last year, a year ago, because I took notes.

Speaker 1: Right.

Tony Mauro: And, what are we going to do here? Because, it doesn't make a lot of sense to keep going and going and going if you're not thinking about these. Because, there is going to be an end. I mean, it's inevitable.

Speaker 1: Yeah. Father Time catches everybody that's for sure.

Tony Mauro: Yeah. Yeah. I don't think enough business owners pay attention to it or like I say, they overvalue what the business is truly worth to outsiders.

Speaker 1: Well, let's circle back real quick to the family bit just in case. Because again, I know a lot of small businesses feel as though it's going to be a family affair. We kind of start it, especially if it starts to become successful. We think, hey, this is something a part of my legacy, right? That I can leave to family members. Some good thoughts to maybe ponder there. I had a business with some family members myself a couple of years ago. We did not think through the end point transition very well. And, it got a little ugly. And, it got a little unfortunate because we had some animosity between family members, and that's certainly not something that you want. Any tidbits or tips for us to ponder in that respect?

Tony Mauro: From what I see, and I haven't had to deal with that personally yet. Although I do have a younger son, who's now 25, but absolutely has no interest at this point in coming into the business. I wish he did.

Speaker 1: Right.

Tony Mauro: But, he's got to go out and live his own life and do what he can.

Speaker 1: That's true.

Tony Mauro: And, I think there's a couple things at play here. If you're going to have family involved, I think you really need to think it through. You need to sit down and decide. Let's say you have a son or a daughter that wants to come in the business is, how are they going to make a living while you still may need to make a living while you're teaching them the business?

Speaker 1: Mm-hmm (affirmative).

Tony Mauro: Because, you can't many times just step out and say, I'm not going to take anything because you're not quite ready to retire.

Speaker 1: Right.

Tony Mauro: And, they don't know the business and could run it right into the ground for you just because. And, I think that's one thing I would say, to get them in, start them slow, start them at the bottom and see if they like it, and see if they have the acumen to possibly grow into running a business. Many don't.

Speaker 1: That's a good point.

Tony Mauro: And then you end up fighting and you have a lot of say bad feelings about it and whatnot. But I think what most business owners do, what I see, is they'll have a son or daughter helping them kind of in the business and they think it's going to be just, okay, this person's going to take over. Many of the times that son or daughter says, you know what? I don't like this. I want out.

Speaker 1: Yeah.

Tony Mauro: And so, it doesn't work like that sometimes. A lot of times maybe they don't have the same work ethic you do as a father or mother. And, you want to kill them half the time when you're working with them. So, I think there's a lot on the emotional side. There's a lot on the financial side. I mean, if it ever gets to that. That you have to think through and get some advice on. It can work. And, I think all of us business owners would love nothing more to than to just, like you said, pass on, have a legacy, get your kids involved.

Speaker 1: Right, right.

Tony Mauro: And do that. But I think goes back to the first point though, you got to save for this retirement because you can't count on them running it and helping take care of you.

Speaker 1: Right. Or selling it or any of the other pieces we covered, right?

Tony Mauro: Yeah.

Speaker 1: And I would say on the family aspect, one other piece just from personal experience is, maybe treat it as though, especially if you plan to step away. If you plan to step away and have family, whether it's kids or siblings or whatever, go ahead and treat it like the sale that you would to any other person.

Tony Mauro: Right.

Speaker 1: And, I know that might be difficult. But if you can't do that, then maybe it's not the right situation. Because have some documentation in place clearly spelling out who's going to what, and what's going to happen. And, that can avoid some of those hurt family feelings down the pike. If you do it ahead of time going into it and everybody signs contracts or documents or whatever, then it's clear, right?

Speaker 1: There's clearly defined and it's not just kind of word of mouth. And unfortunately for many family-owned businesses, word of mouth is what happens, and I think that's where a lot of failures also pop up. Because, well, I never said that, and we never agreed to this, or come on dad or mom can't you cut me a break or whatever that might look like. And, you got to think about it in terms of what kind of pressure are you putting back on your own family if you go to retire and can't, and you've sold them or given them the business, and to your point, Tony, they're not able to quite run it the same way, now you've got to lean on them personally. In your personal retirement aspect, you need help in that reign. So it just can be very cyclical. And so, you've got to be really careful. And I think documentation, clarification, being slow, some of the tips that you brought up today, really good points.

Tony Mauro: Yeah. I mean, the legal stuff I think has to be in place for sure. But I think another thing, the thing that I thought of with my own business...

Speaker 1: Uh-huh (affirmative).

Tony Mauro: I think people got to think of is, the business has been good for me, per se. What's the model going to look like in 15, 20 years from now? And, if my son were to take it over, let's say. You know how fast things are changing these days.

Speaker 1: Yeah.

Tony Mauro: Is it still a viable business?

Speaker 1: Yeah.

Tony Mauro: When he's in his 40's. And boy I'd hate to have him just have, as any parent would, maybe not be able to run it just because of that. And then the next thing you know, he's got nothing and he's mid 40's, 50's and now what?

Speaker 1: Very true. Yeah. If you had a video rental business, right, you might've thought that was going to go on forever.

Tony Mauro: Right. So, I mean, I think all of us, whatever business we're in, always have to be thinking of that because stuff changes so quickly.

Speaker 1: Yeah.

Tony Mauro: With technology and whatnot.

Speaker 1: Well, it's the staples, right? I mean, one would think that, well, you know what? Bars and restaurants, people always will want to eat and drink. So we're pretty good there. Now, granted, there's a lot of them, so it's a fairly cutthroat business.

Tony Mauro: Right. Right.

Speaker 1: You've got to have a good product and so on and so forth. But then, we have something like the pandemic happen.

Tony Mauro: Yes.

Speaker 1: And how many wind up having to suffer through that, and maybe don't come back at all. So like anything, I mean, having a small business is tough. It's hard work. And sometimes it's a bit of luck, as well as a bit of that business plan and planning. There's a lot of components in there. And one of those things you can't forget to do is from the get-go, as we said with the first piece of this, pay yourself, pay your future self as well. Work it into the budget of the business so that no matter what happens, you are setting yourself up to be able to hopefully retire. Whether it's successful and you sell it off, or give it to the family or whatever the case is, whatever the end game is, that way you know you're set for your own retirement. Because, the concept of just working until we can no longer work, it sounds great.

Speaker 1: It doesn't always fall out the way we want it to. There's a number of things that can happen.

Tony Mauro: Yep.

Speaker 1: So, hopefully people picked up a couple of useful nuggets from today's show.

Tony Mauro: Yeah.

Speaker 1: Okay. All right. Anything else that we need to add to that, that I might've missed?

Tony Mauro: I would say in this area, my last tidbit is definitely reach out to whoever you use as an advisor, whether it's an attorney, an accountant, somebody to help work through these things, because there are a lot of issues at play here.

Speaker 1: Yeah.

Tony Mauro: And, I would seek a lot of advice.

Speaker 1: Oh, you know what? I did have a thought. So if you are paying yourself, or going to say, hey, you know what? I got a small business. This is good advice. I need to start doing this. We're not doing the traditional. Many of small businesses can't afford to set up plans for themselves or their employees. What's an avenue for them to maybe pursue putting some money away, Tony? Just a standard, just a simple IRA, some sort of a SEP? What's some thoughts there?

Tony Mauro: Yeah. Some easy stuff. If you're out on your own or only have a few employees, I mean, 401K's are great, but they have a lot of rules. And, you can't discriminate against employees and whatnot. And so, I mean, at its simplest form, just start a regular, traditional or Roth IRA, just on your own.

Speaker 1: Mm-hmm (affirmative).

Tony Mauro: Try to max it out. If you want to go a little further and you want to say, well, I want to be able to contribute more, than I would suggest a simple IRA and/or a SEP. And, ask your advisor about those plans because you can stick more in them. And, of course it helps you tax wise too. So it's a double-edge good thing or double whammy.

Speaker 1: Double whammy, there you go.

Tony Mauro: Yeah. Double whammy.

Speaker 1: Yeah. So, there's some avenues out there. And again, it is tough for small businesses to set things up for themselves and their staff. And so, it may just be something where you're doing just a simple retirement account for yourself. And that's why I kind of keep stressing that point of paying your future self. If you're 45 or 50 and you've got a small business that's doing pretty good, don't forget about the 65 year old version of yourself, right? So, it's a coming.

Tony Mauro:

It's coming.

Speaker 1:

So, give them some money to work with as well. All right. Well, that's going to do it this week for us here on Plan With the Tax Man. So if you've got a small business, hopefully this helped you out. If you need some help as Tony mentioned, reach out to someone, a qualified professional, to help set up a retirement account for yourself and whatever that might look like or even the business.

Speaker 1: And, of course Tony can help by simply giving him a call at (844) 707-7381. That's how you reach out to him at (844) 707-7381. Or you can always stop by the website, yourplanningpros.com. That's yourplanningpros.com. And, don't forget to subscribe to the podcast on Apple, Google, Spotify, whatever platform you use. Tony's been doing this for 23 plus years. He's a CFP and an EA, so a great resource for you to tap into. And, that's going to do it, my friend. I'm going to let you get out of here this week. Thank you so much. I'll let you get back into those tax documents.

Tony Mauro: [Oh boy 00:17:50].

Speaker 1: Hope you have a great week and I'll see you soon.

Tony Mauro: All right. Sounds good. Take care.

Speaker 1: Thanks for your time. And Tony, we'll catch you later here on Plan With the Tax Man with Tony Mauro.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

As you get ready to file 2020 taxes and look ahead to the rest of this year’s tax implications, let’s cover some of the changes you need to be aware of and answer some important tax questions.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Marc Killian: Hey, everybody. Welcome in to Plan With The Tax Man. Thanks for hanging out with Tony and I as we talk investing, finance, and retirement here on the podcast.

Marc Killian: This week, 2021 tax tips. A little recap, if you will. We'll go through some of this stuff. Since Tony is a tax man, we should go through some of these tips, because well, tax season is upon us. What's going on, my friend? How are you?

Tony Mauro: I'm hanging in. Very cold here, but we're digging in for a different tax season. Pretty much all virtual slash drop-off, trying to pivot a little bit and keep... I hate to say keep clients out. We're still doing the tax returns for them, but we've kind of halted all the in-person appointments.

Marc Killian: Yeah, kind of keep going with the social distancing as best we can and all that good stuff. But yeah, you can do the virtual thing, which is a nice help, right? I mean, sometimes technology can be our friend, until it's not.

Tony Mauro: Yeah, that's right.

Marc Killian: Until it doesn't work right, or something like that. Or until it's so cold that the internet servers don't want to work or something like that. So yeah, you guys are getting some brutalness right now-

Tony Mauro: Brutalness and-

Marc Killian: ... with those tips.

Tony Mauro: Our clients though, for tax, ironically, we installed a drop box through the side of the building this year, just to kind of make it a little more convenient, I should say. And they're braving it. I mean, they come out and they're dropping off their packets. It is cold.

Marc Killian: Okay. Well, good. Well, good. Well, listen, since you mentioned obviously some of the changes that last year and this year have brought in that respect, it actually may affect some things from a tax standpoint. So let's talk about a couple of them. We'll just dive right in.

Marc Killian: Stimulus packets, stimulus payments, whatever you want to look at it, however you want to view that. How does that affect anything? Are these things taxable? Anything we should know on some of this stuff, Tony?

Tony Mauro: Yeah, the stimulus payments are getting a lot of questions on it. Of course, the IRS and Congress kind of making it up as they go here with these things as they've been doling these out. But the fact of the matter is is the stimulus payments are not taxable. And what a lot of people don't know, and we're having to kind of go back to them and say, "Well, what did you receive for the second stimulus payment?" Which was actually, for most, received in 2021. They all say-

Marc Killian: Mm-hmm (affirmative). The $600 one, right?

Tony Mauro: Yeah. Yeah, they all say the same thing, "Well, that's for next year." It's actually not. It's actually for 2020. And what a lot of people don't realize is that this whole thing is a credit against your 2020 taxes. So if you've got the full amount of the stimulus payments, both of them, then you don't get any credit on your tax return. If you didn't, if you were limited by income or some other reason, then we get to stick it on your tax return as a credit and you get it now. So that's why we have to ask.

Marc Killian: Okay, okay. So any impact to the returns? I guess time-wise, they haven't changed anything, right? We're still holding for normal time this year, unlike last year.

Tony Mauro: We're still holding for normal time. Right now, at the time we're recording this, there's a little bit of chatter that if the new stimulus package goes through, that the IRS may have to pivot again and deal with stimulus payments to individuals and they may have to push back the season. But definitely not anything official, so you can't go by my word. That's just kind of what we're hearing. But-

Marc Killian: Right. Yeah. As of right now, it's normal.

Tony Mauro: It's on. Yeah, it's on.

Marc Killian: It's on. There you go. I like that.

Tony Mauro: We only got 62 days left, because it kind of started late because they had such a-

Marc Killian: Yeah, that's right.

Tony Mauro: ... bad year in 2020. And of course, all these tax law changes and everything else.

Marc Killian: Yeah, it might be a bit compacted this year. I didn't think about that.

Tony Mauro: Yeah, yeah.

Marc Killian: Yeah. Okay. Tax brackets. Any change to the brackets for 2020 filings? Which I guess would be different from '19, correct?

Tony Mauro: Correct. There was one little change in one of the upper brackets, but for the most part, the brackets are pretty much the same as they were in 2019. That remains to be seen with the new administration, but definitely not anything going to affect 2020.

Marc Killian: Yeah. I mean, obviously, that's a topic of conversation as to whether we'll get a new tax code. But as of for now, no. Right.

Tony Mauro: No.

Marc Killian: So it's kind of the same old, same old, unless you're really raking it in.

Tony Mauro: Yeah, that's right.

Marc Killian: Okay. Part of the CARES Act allowed us to do some contributions, Tony, or to deduct up to $300 in donations, I should say. Anything there from a charity standpoint to be aware of? Or just in general, I suppose, for tax tips.

Tony Mauro: I would say a lot of people don't think they need to keep track of their charitable contributions because they don't think they have enough to itemize, especially with some of the newer laws and the higher limits. But the new CARES Act did add this paltry little deduction whether you itemize or not. If you did give some money away to a charity, they're allowing what they call above the line deduction, meaning that you don't have to itemize to get this. You've just got to tell your tax preparer that you gave some money, and it takes $300 off your income at... If you're in the 15% bracket, you're looking at a whopping tax savings of 45 bucks, but every buck helps. So it's not a-

Marc Killian: Hey, $45. There you go.

Tony Mauro: Yeah, not a make or break, but it is there. We always tell people, "You don't want to leave any tax deductions that the government's giving on the table if you actually incurred them." So yeah, I would just encourage people to make sure they tell their preparers. Or if they're doing it themselves, make sure they answer the right question that, "I did give money away," if indeed you really did, and take that little deduction.

Marc Killian: Well, hey, $45, that might be a nice meal from Uber Eats or something delivered, or Grubhub or something. I don't know.

Marc Killian: Okay, RMDs. Since we were just talking about the CARES Act and obviously with everything that happened last year, RMDs were suspended. Still up in the air or going kind of status quo, kind of the normal is back on for 2021?

Tony Mauro: Well, they were suspended in 2020. Right now, they're supposed to be back on. Of course, that could change as well. But what that means for 2020, and even all the way up through the due date of the tax return, is if you're over 72, you don't have to take the required minimum in 2020. So for people that are just taking it because they had to, definitely postpone some tax. And right now it looks that they're going to be back on for 2021. But there's some talk about it that maybe they'll do the same thing again.

Marc Killian: Kind of the same as the dates for if they're going to move the tax deadline or not. Kind of like they did in 2020. It's still a little bit up in the air.

Marc Killian: So basically, Tony, if you turned 72 in 2020, you get the reprieve. You didn't have to do it last year. But obviously, you'd have to do it this year. You'd be turning 73 this year. And the deadline is the end of the year, right?

Tony Mauro: Yeah, that's right.

Marc Killian: So you just have to do your RMDs by the end of December of 2021.

Tony Mauro: By the end of December, yeah. A lot of people don't know what the penalty is for that. It's big.

Marc Killian: It's hefty.

Tony Mauro: It's a big one. I mean, you probably could... If they assessed it... I've actually had a couple clients where the advisors forgot to do it. It was just an error and they assessed them the penalty. We got them out of it. I mean, it was just an innocent error. Wasn't like it was deliberate. But the IRS doesn't have to abate those. So you really don't want to be in that position if you can help it, to have to fight with that.

Tony Mauro: I think another one though in the retirement area that we're seeing it already is a lot of people below retirement age have been forced to take money out of the retirement plans early to supplement income because of loss of job or something. The IRS and Congress have been very generous with this, because in 2020, early distributions, these are early ones, not subject to a penalty. And Congress is saying to the IRS, "We'll allow them to spread it out and they can be taxed on it over three years if they want to, versus all in one." So pretty good deal. And normally, people come in when they pull money out of retirement plans early, they're looking at big penalty, the tax, and they usually owe a lot.

Marc Killian: Got you. Okay.

Tony Mauro: I think that's helpful. People have just got to realize that.

Marc Killian: Yeah, no, definitely. For sure. That's one of the reasons we're doing the show, right? Hopefully to share a couple of useful nuggets of information, especially when it comes to tax time.

Marc Killian: Now I've got an interesting one here for you, Tony. I've heard people talking about the whole work from home thing last year. Obviously, doing taxes, right? It's a look at what's already happened, right? So we talk often because you do retirement planning as well, but there's tax planning, which is all throughout the year, and then there's tax prep, which is really just recording and putting down what happened the prior year. So many people are asking about the whole work from home and home office thing. How does that go about affecting our taxes, filing our taxes?

Marc Killian: My understanding is this only works if you are a contractor or own your own small business, right? Just because your company said, "Hey, you have to work from home," or the government said you had to work from home, you don't get to claim a home office, do you?

Tony Mauro: Not anymore. Not under the new tax law that President Trump changed is... It used to be that even if you were a W-2 employee and you had some business use of home, you were working at home and whatnot, some of the expenses you could write off in small percentages. Now though they changed it. They basically did away with that completely and just said, "If you're not self-employed," which means subcontractor or totally on your own, "you can't do it even though you've been working from home."

Tony Mauro: I believe that it was probably a trade-off. I think it was a trade-off when Congress changed some of the tax laws, lowered the tax rates. I don't think that the IRS has the ability to audit this very well-

Marc Killian: Got you.

Tony Mauro: ... and they know too many people are dishonest in this area and they just said, "You know what? We're just going to cut the whole thing out, and that solves the problem."

Marc Killian: They'll just make it easy on themselves, right?

Tony Mauro: Yeah.

Marc Killian: Yeah. Okay. So just to kind of reiterate, so in 2020, if you did work from home as a contractor, or which basically was a 1099, right?

Tony Mauro: Right.

Marc Killian: Or you have your own small business, yes, you could still do the write-off of the home office. Although with the deductions being what they are, do people even get enough to get to that point?

Tony Mauro: For the self-employed, see, it goes on their Schedule C, so-

Marc Killian: Correct.

Tony Mauro: ... there's no limit to get over. And it really helps them reduce their self-employment tax, which is Social Security. So it is a good deduction for them still.

Marc Killian: Got you. Okay. Good to know. Good to know. But if you're a W-2 employee, no, you can't, unfortunately, write it off because you had to work from home. But hey, the perk is you've got to work from home. So I guess that's one way to look at it.

Tony Mauro: Got to work from home. And I would say to people too, I would check with your tax advisor, because some states may still be allowing that. They didn't follow-

Marc Killian: That's a good point, yeah.

Tony Mauro: ... the Fed law when they changed. So they might be able to write that off as an itemized deduction on their state. So it never hurts to check in with your-

Marc Killian: That's a great point, because I was going to ask you, obviously you've got clients all over the place. Is there any state specific information that we should discuss, or because the podcast reaches a wide audience, is it really just check state by state? Or any thoughts there?

Tony Mauro: Unfortunately, you've got to check state by state because everybody is different. Nobody has any consistency there. But most states have pretty good info on their website. Especially if you go to... Looking at some of the tax forms and the Schedule A, they'll tell you right on there.

Marc Killian: And of course, if you're working with an advisory, working with a CPA, somebody like Tony, he's going to cover that stuff for you and help you know all the ins and outs.

Tony Mauro: Yeah, we'll research that for you. Yeah, that's right.

Marc Killian: Right. Exactly, yeah. Yeah, he's a CFP and an EA. So he's been doing this for quite a while, over 20 plus years. So a good resource for you.

Marc Killian: With that in mind, Tony, just final question. Just any filing advice or any kind of last little tidbits you want to share? I think we covered some pretty good ones here on tax tips. Any way you advise clients, whether it's something as simple as the do it as soon as you can or wait as long as possible? Whatever you think.

Tony Mauro: Yeah, I would say in this year for sure, I would file as soon as you can, simply because of the such backlogs that the IRS and the states due to COVID, and they don't have the staff. They're already behind from 2020. I think that's probably going to be better. I definitely see that if you do run into some problems, let's say you're expecting a refund, doesn't come, that there's going to be a lot longer time to deal with that problem required than normal, because we can't just call them like we normally do. And you're just going to have to be patient in that area. I think that's the other thing.

Tony Mauro: I would say too, I'm a big believer in not letting either one of them hold a lot of your money, simply because of the fact that in times like this, something happens, you've got to wait until they give it to you. So I don't like to ever be in that spot, and it's not bad to get a little bit of a refund, but I wouldn't use it as a forced savings for sure.

Tony Mauro: The other thing too is I would just... It's going to be a very difficult year, I think. For any of those people that are normally out doing it on their own, there's a lot of new things. This might not be a good year for you. And of course, I'm biased. I've got to throw that in there.

Marc Killian: That's okay.

Tony Mauro: But to try to do it on your own, if you've got anything other than maybe one or two W-2s, because there's the rebate credits you might be missing, there could be a lot of things that are missing. One thing about both of them, they generally don't send you a nice letter saying, "Hey, you missed this. Here's some more money." They only do it the other way.

Marc Killian: True. Yeah, very true. Well, that's a good point too, because for a lot of our podcasts, our listening audience, it's going to be typically folks that are pre-retirees and retirees anyway. So the odds are they're going to have a bit more complication anyhow.

Marc Killian: But for folks that might be listening that have a pretty simple W-2 or whatever, I was going to ask you, with all the extra stuff, I imagine those boxed services or software-based services probably have some of that stuff taken into account. But again, for our target demographic, it's probably a good idea to sit down and talk with somebody because there's a lot of little nuance.

Tony Mauro: There is. And the software itself, doesn't matter which one you pick. And even on the IRS, and the IRS does offer it for low income people, the free E-file. The software is dead on. It's just can people pick the right answer-

Marc Killian: Great point. Yeah.

Tony Mauro: ... to the questions? That's where they tend to get themselves into trouble is that they pick one or the other and for whatever reason, you just think, "Well, it must be all right." But the software is only going to do what you tell it to do. And most of us aren't willing to do the research to figure out if it's right or wrong. Now, some of them... It's kind of interesting. That's a whole topic for another show is some of them now offer paid advice and things like that. And then before you know it, your tax prep bill is up there [crosstalk 00:15:21].

Marc Killian: Yeah, you might as well go with a local CPA and just get it done. Yeah. Go to a local service. Exactly. Well, and-

Tony Mauro: But...

Marc Killian: Go ahead.

Tony Mauro: It does have its purpose. People with a couple of W-2s, something like that, pretty simple returns, it probably doesn't make sense to spend a couple hundred dollars plus or wherever you're at in the country to pay to have it done. Especially if you're young and kind of techie. It's pretty straightforward.

Marc Killian: Yeah, yeah. I'd probably agree with that. But as we age, we start to have a few more things or we have some more complications in there. I switched to having a professional handle it for me a couple of years ago as well. There's definitely some benefits, right? So you've got to weigh that out. But certainly, coming off the year we had last year, there's a lot of little nuances that you might want to check. And hopefully, the podcast here helped you with a few of those things you might've been thinking about.

Marc Killian: If you have some other questions or some more detailed questions you need some advice on, go to yourplanningpros.com, drop them an email. Yourplanningpros.com. Or get on the calendar, schedule some time to go through your situation. Obviously, it's tax season, so they're filling up pretty quickly. So reach out to them if you need some help, and they'll find a way to get you some help that you need. 844-707-7381 to talk with Tony and his team at Tax Doctor, Inc., serving you here in the Central Iowa area. 844-707-7381. Of course, they serve other places outside of that. But you can find them online, that's the easiest way to do it, yourplanningpros.com. And don't forget to subscribe to the podcast on Apple, Google, Spotify, whatever platform you like to use at Plan With The Tax Man.

Marc Killian: Tony, that's going to do it this week, my friend. Thank you so much. If we covered everything. We get it all?

Tony Mauro: I think we got it all. All I would say is now in this environment and with technology the way it is, don't be afraid to use a lot of the virtual stuff, the uploads. And especially if you're working with your advisor, you can upload your docs electronically. You could do a Zoom call at the end-

Marc Killian: True.

Tony Mauro: ... to get your questions answered. And we're trying to do the same thing. We're trying to make it as easy as possible and help the client not only get a great tax return, but value their time. Because I know in this day and age in these stages, they've got a lot of other things going on.

Marc Killian: Yeah, we kind of have to embrace that a little bit too, just because of everything we've been pushed into. I realize for some people, it's a little nerve-racking sometimes to want to think you've got to share your documents online or through some sort of portal. But typically, those things are pretty secure. They're always set up with security and things in place. And if you really think about it, our data's out there anyway, so be smart, be protective, but don't limit yourself under the fact, thinking, "I've got to physically walk in and see somebody," because there's just changed a lot, obviously due to COVID. So embrace some of the technology. That's good advice as well.

Marc Killian: All right, folks, that's going to do it for us this week. Don't forget, subscribe to the podcast or reach out to Tony at yourplanningpros.com. And we will see you next time here on Plan With The Tax Man with Tony Mauro.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

No industry is without its flaws, and the financial industry is no exception. Let’s explore some times where we’ve encountered annoying or frustrating elements of the financial world.

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Transcript Of Today's Show:

Speaker 1: Hey, everybody. Welcome in to Plan With the Tax Man. Thanks for tuning into the podcast, as Tony and myself talk about investing, finance and retirement. In this go round, we are talking about where my financial knowledge comes from. Now, I don't mean me specifically or even Tony specifically, but in general, if you ever thought about that, where do we learn the things we've learned, especially, usually it's our parents, money, finances, whatever the case might be, what shape your financial views? And of course, we are going to get Tony's input from that. Not only for himself, but also when he sees in his practice. What's going on, my friend, how you doing?

Tony Mauro: Doing good. Back from the holidays and getting ready to get busy.

Speaker 1: Yeah, you're going to be a busy over the next coming weeks and stuff as well. We assume, right? We assume that tax times will be normal this year.

Tony Mauro: They're already starting to change it a little bit with the push back of the start or acceptance date, but it seems like that's more the norm now. These last couple of years have been extremely unnormal as far as tax season goes. They've been playing with the start and end date, well, the start date for sure, for a lot of years now. The end date, last year was the first time I've seen it extended ever in my career.

Speaker 1: It's definitely interesting times for sure. We have no word yet as to whether or not that'll transpire, but that could, I imagine we could see that happening before too long. Well, we're taping this just before we put this out. This is the 20th of January. So actually this I guess would be, this is inauguration date. No, this is the 19th. No, we're on the 19th. I'm sorry, I'm one day off, it's tomorrow. We're taping this on the 19th, we'll put it out on the 21st.

Speaker 1: Anyway, let's jump into the topics and see what happens. Who knows what's going to come down the pike from the new administration, but we'll see here real quick I'm sure. But let's get into our topic today for where does your financial knowledge come from. For our listeners or you yourself, Tony, are there any of these I guess talking heads, celebrity financial folks that you find interesting? Anybody that you listen to from time to time, be it Ramsey or Orman or somebody like that?

Tony Mauro: I don't have a long list there, but I do and have read a lot of Dave Ramsey's stuff. I like what he says, and I can resonate with it. I always tell clients, and I've never met him personally or been in any of his seminars, but here's a guy that basically took a lot of very basic financial advice, turned it into something that people can really understand and follow, and has made a lot of money at it. I always tell him, I'm kind of jealous because I was doing that for myself way before. I just didn't know how to make money off of it. He does have a lot of good insights and whatnot. I love his stuff on staying out of debt, living below your means, and saving a lot of money.

Tony Mauro: One of the lines that I still use today with every client, my own son as well is, and this is a quote from him, he says, you know, "Live like no other so someday you can live like no other." And when you really start thinking about that, you'll understand what he means by that. You got to sacrifice a little bit, you got to save, you got to stay out of debt, and then someday you can live like no other.

Speaker 1: True.

Tony Mauro: I like that. Outside of that, I don't follow a lot of the guys on CNN and everybody talking, everybody's got their own opinion.

Speaker 1: Oh yeah, for sure.

Tony Mauro: About that kind of stuff. So I like to stick to more of things of planning and staying with the plan.

Speaker 1: Gotcha. Okay. Best financial books that you've read or something that's really kind of shaped your financial views? Is there something maybe that you refer to clients from time to time? Say, hey, if you'd like to read something, this is a really good read?

Tony Mauro: Yeah. A lot of times clients, when they become a client of ours, I'll send them either the Total Money Makeover by Dave Ramsey, which is one of the best easy financial books ever. I like to send some of them Rich Dad Poor Dad, which is a great book on building wealth. And then I helped co-author a little book on IRAs and how to keep money as much tax-free. So I'll send them some of those. There's tons of financial books out there. And a lot of them are good reads. They're going to give you a lot of different opinions. Just got to kind of formulate your own opinion, and not everybody's going to be right.

Speaker 1: There's no shortage of opinion points in the world today about whatever. But it's always good to kind of get someone who's in the industry like yourself who does this day in and day out, to say, this is a pretty good read< these are something I enjoy or that you might find useful. So, a couple of good recommendations there. Like you said, you send those out to clients often, so that's pretty cool.

Speaker 1: What about our parents? I mentioned that in the opener there. A lot of times we do, we are influenced about many things in life from our parents. Yours specifically, did anybody have a real knack for money or investing? Did you get anything from there?

Tony Mauro: My parents were pretty conservative. Conservative meaning they grew up right after the generation after the depression. They didn't come from money, they didn't invest a lot and didn't know anything about it. It wasn't really till I graduated from college that I started in with them and helping them save for their own retirement. They're now retired and doing well. Whether they would have done that or not, I don't know, I like to think I had a part in that. They never blew a lot of money, but I do think most of us, our views and how we think about money comes from our family, whether they sit down with you and physically have conversations and educational things with you or not.

Tony Mauro: But most of us don't and we're not getting it in school, which seems to me like a real tragedy. I mean, nobody would go to school for all these years, it's a big pet peeve of mine, and nobody teaches anybody even how to manage their own finances. And then we wonder why we've got people out that are fairly well-educated that have a disaster going on on the personal side with their finances. A lot of times it does come down to the parents because that's who you're with all the time.

Speaker 1: That's a great point because we definitely have, and it's been that way a long time. I mean, I was in high school in the 80s and I think it was literally one short class. I'm not sure if it was an economics or what it was, but it was like, here's how you write a check, and it was the basics of it. And that was it. I don't think there was really much else to it. So, as far as personal finance and economics, they really seem to be more about economics from a global standpoint really back then than it was about your own personal. So yeah, we definitely don't do< and that's maybe one of the reasons why Dave's stuff, as you mentioned, it resonates pretty well because it keeps it nice and simple for people to really kind of relate to and digest.

Speaker 1: Professional relationships. We talk a lot about athletes and you enjoy playing golf and all that kind of stuff. Even the best, even Tiger and Phil and all those guys, they have coaches. So, in your relationships, do you have kind of a coach or a mentor or something like that, someone that you maybe still turn to or used to turn to?

Tony Mauro: Yeah, I still am on the financial side still do a lot of stuff with Dan Cuprill, he's a financial advisor out of Indiana. He lives at breathes it. I love talking to him about things, been in the business a long time.

Speaker 1: Gotcha.

Tony Mauro: From a business side of things. But anybody that's been around it a lot on the financial side, most of us always looked at, well, we want to emulate somebody that appears that they either have it all figured out, wealthy, with money. But sometimes that's not always the case. In my professional relationships, it would be him, it would be some associations I'm in, and some little subgroups that we get together, and not only brainstorm on the business end of things, but where the industry's going and how to work with clients better.

Speaker 1: I mean, continuing education is always a good idea in any profession really, to continue to learn stuff and have somebody to kind of inspire you or share best practices and all that stuff. And it all kind of equates back to, helps you be better at your, well, what's the saying, how do you get to Carnegie Hall? Practice, practice, practice. Well, no matter what your industry is, you can always practice and get better.

Speaker 1: As you've gotten older, Tony, have you changed your views on money matters? Anything that's kind of, that you've learned along the way where you've been like, this is really a good stable principal that I've kept the entire, time or some things you've been like, Oh wow, I can't believe how much I've changed?

Tony Mauro: I definitely as I've gotten older been fortunate enough, I guess the few things I've learned is, and most advisors will tell you this, but it is true, you ask somebody where the market's going and if they tell you, here's what I think, they're probably wrong, they have no idea. Nor do I, nor does almost anybody. But the one thing I've learned is, and I've always done this and I try to preach this to clients is, you need to invest through thick and thin, meaning put money away based on your goals, of course, and some other things. And you can't try to time markets. I've never seen anybody able to do it long-term and consistently beat the best of the best or the S&P and things like that.

Tony Mauro: In fact, I just had a client, and he's a fairly large client. Not to bring politics into all of this, but he emailed me over the weekend and was saying, you know what, now that the inauguration's going to happen, I want to pull all my money to the sidelines. In fact, he put it in bold in the email. I know that we're going to have a correction in 2021, and here's why, and it was basically because the Biden Administration may be raising taxes and all this COVID relief and whatnot. He may be right. But as I pointed out to him, you may be wrong.

Speaker 1: Well, that seems to be the case in the country.

Tony Mauro: When president Trump, a lot of people thought the markets were just going to go right down the tank, and they've done nothing but go the other way. I'm not going to get into whether that was because of him or the economy itself and all that. But point is, it's funny how people listen to stuff on the news, and then all of a sudden, now they're making predictions. That's something that I try to preach to clients when you asked, I try not to get clients to time markets. I try to show them what missing the 10, 15, 50 best days in the next, or the last 10 years would have cost them. And it just seems like, you're always waiting for that maybe not to happen as soon as you say it, is, over the longterm, the stock market is still one of the best bets. I love real estate too, but just talking smaller amounts, the market is the best place to be, and I don't think you can time it.

Speaker 1: And that's always the case just about with any item when we have new administrations, it's always one half says this is going to happen and the other half says that's going to happen. And nobody really knows until things go into play. You can have your indicators and your predictors, but if 2020 taught us anything, I mean, seriously, has never happened, who would have thought you'd see a 30% decline in the beginning first quarter during a global crisis and then end with all time highs in the same calendar year.

Tony Mauro: Same calendar year, yeah. And really going back to your last question about who I listen to, really, for us now as advisors, we're kind of almost, I like to think of the word coach, trying to coach the clients into or out of doing some things just based on just a knee jerk reaction. Like you said, when COVID hit, I for one thought, we all saw the markets going down, it's like, man, this is going to be a prolonged downturn. And of course, my always view is, I love it with respect to that I don't need the money right now that I'm investing, so I'm like that vulture, I'm always investing, so I'm buying more when things are low, so it doesn't bother me like it bothers other people. But if you're a retiree, obviously you wouldn't want to be in the market to the extent that someone that's a little younger is.

Speaker 1: Exactly.

Tony Mauro: Well, my father for being one, his portfolio, even though he's now 80, and knows nothing really about investing, he always says, yeah, I don't want to take a lot of risk, I don't want to take a lot of risk. And we go over his portfolio, but he is in blue chip stocks that pay him a lot of dividends and he loves that income. He's on the other side of the line, and people sitting in CDs and things getting a half a percent, they're starving. But for that, he's got to put up with some volatility, but he understands that now. He's not searching for that nest egg, he just wants return of his principal and a good income on it.

Speaker 1: Right, right. As we age, that tends to be kind of the norm, how we start to kind of view things. When we're talking about our financial knowledge and just our growth patterns, that's going to make a lot of sense. And I'll finish off with one final question for you on this, when we're talking about where financial knowledge comes from. With the advance of technology, you can have all kinds of philosophical arguments. It seems the smarter we're getting tech-wise, the dumber we're also getting about a lot of other things. You could go wherever you want to go with this conversation.

Speaker 1: But from a financial standpoint, is it a double-edged sword the technology, Tony, because in some ways, to your comment earlier, we'd never really learned enough, it wasn't enough in school for that. Now you can find the answer to any question in seconds on Google. You can invest your entire life savings if you want to with a click of a button from your phone. But is that a double-edged sword because there's so much information, you're not able to really discern what's accurate or correct for you?

Tony Mauro: I would definitely agree with that. And I'll answer that with a question. And then we can kind of just digest it. If the advancements in technology were helping us so much, why do we have so many people that aren't prepared for retirement or worse?

Speaker 1: Good point.

Tony Mauro: And just let somebody try to explain that to me. So I think it helps and hurts. I mean, on one hand, obviously, even for us, we've got information at our fingertips that we could only dreamed of even 10 years ago.

Speaker 1: Oh yeah. It's amazing.

Tony Mauro: 20, 25. But I think now that it's out there, that there's so many different opinions and information, you don't really know if it's authoritative or not. Most of it is. I think sometimes people get information overload and they really can't make any decisions. And the same gentleman who sent me the email I just mentioned, he's one of those guys that really, he wants to get into it, he wants to research, wants to do, do, do, do. But he never says he has the time. And then he'll go on a binge and look at a bunch of things and formulate opinions. It's like, why do you torture yourself like that? Just follow the plan. The plan will work. You don't need to really subscribe to all of that. There's a fine line from telling people don't pay attention to anything and just stick your head in the sand to being crazy the other way.

Speaker 1: Yeah, I'm with you. I think it's a great resource to get some basic knowledge or to maybe kind of look up some specific things that you're contemplating. But then you really need to take that to someone who can get to know you. I mean, that's one of the points of an advisor, where you can go and you have this working relationship so you can say, all right, so how does this, what about this concept? Does this work for me in the things that I already have, because that's a lot of times where, I mean, even with our show, and I say that many times on the podcast, and I host shows all across the country, and I always say, anything you hear on this show or any other, Dave or anybody else that's out there, always take that information to your specific advisor who knows you and see how it will work in your scenario because it's generalities. We're talking in general kind of concepts because it may relate to you and it may relate to the next person and not everybody's the same.

Speaker 1: So, you got to really digest it and see what's going to be the best fit with any financial knowledge, whatever you've learned, whatever you've learned coming up, whatever you learn from somebody else, whatever it might be. I think that's just a great philosophy to have, is take it, wrap it around a little bit and see how it's going to play out, but then bounce it off a qualified professional like yourself, Tony, who does this every day. And that way, you know for sure if it's going to really work in your scenario.

Tony Mauro: I agree, totally. Absolutely.

Speaker 1: And so, when it comes to the financial knowledge, folks, it's always good to have a little bit, what was it, Ben Franklin that said education, I think he said education pays the best benefits, or knowledge pays the best benefits, there we go. Get some knowledge, get some education. If you've got questions or concerns, reach out to Tony here on the podcast. He's an EA and a CFP, he's a certified financial planner of over 20 years, approaching 25 years in the industry. So give him a jingle. 844-707-7381. That's 844-707-7381. Don't forget to subscribe to the podcast plan with the tax man. You can find all the information really, it's just kind of simple for you to just go to yourplanningpros.com, that's your planningpros.com, and check us out there as well. And you can find all the subscriptions if you want to on Apple, Google, Spotify, all that good kind of stuff. No cost or obligation for any of it.

Speaker 1: We certainly appreciate your time as always on the podcast. Tony, my friend, thank you so much, I hope you have a great week in, and you don't get too busy too quick.

Tony Mauro: All right. Sounds good. We'll see you on the next episode.

Speaker 1: Yeah, we'll see you the next time right here on Plan With the Tax Man with Tony Mauro.

Disclaimer: Securities offered through Avantax Investment Services.  Member FINRA, SIPC, Investment advisory services offered through Avantax Advisory Services.  Insurance services offered through Avantax Insurance Agency.

No industry is without its flaws, and the financial industry is no exception. Let’s explore some times where we’ve encountered annoying or frustrating elements of the financial world.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Hey, everybody welcome into Plan with the Tax Man, and this is our final podcast of 2020. We have made it all the way to the end of this kooky year, well, almost any way. Tony and I are doing this about two weeks before the year actually ends, but with the holiday season and all that kind of stuff, this will be our final podcast. And we are going to talk about some things that drives advisors crazy on this show, and actually some of these probably drive clients crazy, as well. We'll get into that in just a second, but Tony welcome in my friend. How are you?

Tony: I am good. I'm getting ready for the holidays, looking forward to it. It's going to be a little different this year.

Speaker 1: Little different. Yeah. We've made it, though. We're here, right? End of the year. Any major plans are probably not right? Trying to keep it subdued, I guess.

Tony: We are this year. We're actually still going to get together a small family, but it's not going to be the big shindig that it normally is, which I think is probably the case for most, but we're fortunate because all of us are in the same city, so we're able to easily do that.

Speaker 1: Gotcha. Well, this is our 36th podcast. So I've had a good year with you. It's been a lot of fun. Hopefully, we've shared some useful nuggets of information with folks, and expectations, Tony, are often really important when working with an advisor and an advisor working with a client. Those relationships, that back and forth, setting expectations is a good thing, and I think we should do that for ourselves going into 2021, as well. So many of us are so ready to see this year end, but I don't want us to go into it thinking, as soon as that ball drops, that somehow everything gets better, right? It's a lovely notion, but we're going to be contending with this for a while in 2021, as well. So setting some good expectations, I think, is good in that respect is also when it comes to our retirement dreams and our retirement goals, expectations are always good.

Speaker 1: So with that said, let's talk about... Let's have a little fun. Let's finish up the year here with some things that drive you guys crazy in the industry, and there's no industry without flaws, right? And financial services is certainly no exception. So I got a couple of ones here that folks might find interesting that it drives you guys just as much as nuts as it drives us on the other side of the desk. So for example, hidden fees, we don't like them. We know we don't like finding out that there's fees we're paying that we didn't really know about, and I'm sure you guys don't really enjoy having to explain why they're ... It's almost like cell phone charges. Sometimes some of those fees that we can't ... There's nothing that can be done about them.

Tony: Yeah. Sometimes there's not, depending on what type of investment.

Speaker 1: What it is.

Tony: Yeah, and what it is. In insurance products a policy, long-term care policies, they're just not sold without that, but I think it's a good question clients ask for us. It's a no problem because we're fee only. So we're just advisory fees. So the way we describe it is there are no hidden fees. The fee is just like you pay us for a tax return or us for advice or your attorney for advice. It's usually set, and you either decide is that acceptable or it isn't, and you find value in that or not, but it is hard for clients when they find out later, and I don't think clients ask enough on fees.

Tony: I think they're kind of scared to maybe insult us and it's not an insult. It's not an insult. I think that's a fair question. It's no different than asking what you're buying your groceries for. You're looking at the price, but the thing with hidden fees, I'll give you a quick example. I had an older lady just call me yesterday. She's a tax client, not a financial client. And she says her advisor, and she's 87 years old, advising her. She's got a single premium deferred annuity. It's coming due, and he wanted to give her another one for seven years, and I said, "Well..." She didn't know what that meant. I said, "What that means is you're going into another annuity. You've got new surrender charges. If that's okay with you at your age, it's fine. You're not going to see anything, but if you needed more liquidity than it had, you're going to be paying a penalty."

Tony: Again, those are some of the things, that's kind of a hidden fee that it sounds to me like he didn't really explain to her, and you want to get that. Sometimes again, we all deserve to be paid for what we're doing. I'm not trying to say that, but you want to make sure that you understand the fees you're paying and why you're paying them. It's really what it comes down to.

Speaker 1: Yeah, absolutely. And so going through the conversation, sometimes it's not the most fun and it certainly drives advisors crazy as well, but has to be done whether it's the mutual fund fees or whatever the case is, go through and kind of talk about some of those. Okay. How about advisors, well, maybe sort of to that conversation that you just brought up, who put their own goals ahead of clients? Now, I don't know if advisors is the right word here, Tony. Maybe this is really more broker-based and again, not trying to bash anything, but there is suitability versus fiduciary. And fiduciaries have to put their client's needs ahead where a suitability does not.

Tony: It does not. And I think that that's the troubling part that I think clients struggle with is that sometimes they assume that all advisors are going to have their best interest at heart. Generally they do. I mean...

Speaker 1: I'd say 90%. Yeah.

Tony: Yeah. I mean, generally that happens. However, along with the hidden fees, I don't like it. It drives me crazy because I like to be very transparent because I don't want the client thinking that, number one, there's some sort of fees. I have to be held to the fiduciary duty, being a CFP.

Speaker 1: Right.

Tony: And so you would just think that everybody ethically would always do that, but...

Speaker 1: We assume that in all walks of life, right?

Tony: We really do.

Speaker 1: It is what it is. Yeah.

Tony: It does drive you crazy, especially if you see something that somebody brings in front of you and it's really just kind of, you're just saying, "Wow, that's really not in your best interest. It really isn't." I don't like to bash other advisors or brokers, any salespeople. As long as they've explained it and there's a need for the product, it might very well be worth the money. it does drive you crazy when you see somebody really trying to take advantage of someone.

Speaker 1: Yeah, I think nine times out of 10, that is typically the case. Most folks are hard working just trying to do a good job for their clients, but there's always that bad apple or even that person that just really didn't realize that it's just not communicating well. We'll get to that one in just a second, actually.

Speaker 1: I'm going to lump three and four here together because I think they could really just kind of go hand-in-hand and for the interest of time, that'll work well. Basically I've got cookie cutter, one-size-fits-all plans and big companies who push products, and I think those two, to me, kind of go together because you often will see that a big box outlets, no matter what it is, whether it's retail, electronics or clothing or even financial products, sometimes the powers that be say, "Hey, product X is what I really want us moving for this quarter." So often people will get jammed into a one-size-fits-all plan that really maybe doesn't take all the things that they truly need into account because they're trying to meet quotas.

Tony: Yeah. I mean, the big companies do it, and you've got a lump some of the investment companies in there, as well, and they do. They make it sound like, "Well, if you just do this, you'll be okay."

Speaker 1: Right.

Tony: And most of the time you might be, especially if you've got a long-term timeframe, but doesn't take into account the nuances of you specifically and especially... I think that what drives us crazy, advisors, on this is that bigger companies and some people in the profession think, "Well, the one-size-fits-all, if you just do this..." And we're out there saying, "Well, not necessarily." You want some personal advice and handholding and help through this journey rather than just a cookie cutter type of thing and hoping that it works.

Tony: I think the other thing, what they don't realize is even if you have something that's not working, you got to have somebody in there saying, "All right, this isn't working. We got to pivot a little bit. We got to change, and we've got to make... If your goals have changed, then this may not be suitable anymore for you."

Speaker 1: Well, it's like anything, too. Sometimes people... There are certain industries, I still feel like me personally, certain businesses and certain types of things that you're dealing with in your own life, where you want a bit more of that personal touch, where you want to be looked at as more, well, more of a person versus a number, right? Client number 3,212 type of thing. And so sometimes I think there's different industries where that smaller...

Speaker 1: If you go into a place to cut your hair, and it's one of these chain places, yeah, you might get to know the person's name, that you might pick a person that you see on the fairly regular, but often it's anyone who's available is going to take you and cut your hair versus having that one person that, going to the "barber" who you're jaw jacking with, and they know your life, and they're asking you about your kids and all those kinds of things. We can get doses of that. I'm not saying that some of these big boxes places don't do some of that, but I think, for me anyway, there's a personal aspect and a personal touch sometimes with not that cookie cutter, big box thing, but more of that individualized, specific treatment for my unique situation.

Tony: Exactly.

Speaker 1: Okay. Now, I said before I was going to tie this one back out to the advisors who maybe put their own goals ahead of clients. And I said most of the time people are trying to do a good job, but maybe in the instance when that doesn't happen is because of buzzwords or jargon. Often, I think any industry, no matter what it is, you guys have sayings and words and things that you use on the regular, and you talk about them, and you maybe say those with clients sometimes not realizing that we're just not keeping up because you're so used to doing it. You're not trying to talk down or over someone's head, but it just is par for the course in what you do on a daily basis, and so there's some disconnect there sometimes, and it also can be frustrating for those advisors, unfortunately, who do take that and kind of make it, "Hey, look how smart I am."

Tony: Exactly. Yeah. And it does drive us crazy. I know for most advisors, they really try to, and so do I, pay attention to making what we talk about so that the average person can understand. People don't want to hear... I always say it's really all about the client. Everybody cares about themselves.

Speaker 1: Right.

Tony: They don't want to hear from us how much we know. They want to hear from us how much we can help them and how to help them in a way that they can understand and feel good with, and I think it goes to the next topic on our list here which is plans that consist of 25 pages of very detailed charts and graphs and things like that that after about the fourth or fifth page, the client really doesn't understand and probably just saying, "I don't know if this is going to help me or not."

Speaker 1: So you mean a financial plan doesn't have to be like War and peace?

Tony: I try not to make them that way.

Speaker 1: This massive book.

Tony: I try to limit it to four pages, and here's our major goals. Here's what we're going to do, and of course, we can get more elaborate as we get going, but at least the start, very basic. Most of our clients are at or near retirement, and the ones that are younger, we start with the very simple plan. Here's your goal, and we're going to work backwards, and here's how we're going to do it, but to get all that research and some of those charts and goals and most of it's handled by software now, anyway. So even us, we can't explain half of it half the time. I think it's overkill, and I don't think it does anything to help the relationship and the average person at all.

Speaker 1: Yeah. That's a great point. I was talking with somebody about that and I mentioned the War and Peace comment. Tolstoy's War and Peace is 1200 pages, or your mortgage. Right? At some point when we're doing a mortgage, they've gotten definitely smaller for sure, but years ago, you think back, the eighties or nineties, you go to do your mortgage, and it was like it seemed like you were there for hours signing papers. It wasn't that long, but it certainly felt like it. So many pages.I think that's a great point, whether it's buzz words or jargon, or just overly complex plans, at some point that the lay person just is going to fuzz out.

Tony: They do.

Speaker 1: That's why we're turning to you guys as professionals to say, "Okay." I like to use the car analogy. I don't need to know how to take the combustion engine apart. I know enough to know how the car works. Right?

Tony: Yeah. Right.

Speaker 1: I know to put the oil in it. I know to put gas in it. I know to check my tires. I know the basics. The nuts and bolts and the really dissecting the problems, the diagnostics of my car, I'm going to leave to you.

Tony: Yeah.

Speaker 1: Same kind of [inaudible 00:12:26].

Tony: It's the same logic. Exactly. At the end of the day, you've got to be the driver of the car or the captain of the ship even with your plan because in the day, it's your plan. You got to make sure that you're on track, but you're leaning on other people to fill in the gaps, the stuff that you don't want to know and you don't care to know. I think sometimes we in the industry get a little too enamored with, look at our software, look at all these things we can do. And like you said, if they wanted to go do all that, there's plenty of resources out there nowadays that you can do all that on your own. They're they're not coming to us to wow them like that.

Speaker 1: Yeah, yeah, absolutely. Well, that's going to do it. That's going to wrap up our things that drive advisors crazy, and some of those drive us crazy, as well. Maybe the final one would be something as simple as, "Hey, what do you think is going to happen with the market? Do you think..." It's like, again, who knows? It's so fickle. There's indicators, but at the end of the day, it is what it is. So advisors are folks, too. They're just doing their job. They're just trying to do the best they can, and I think often that's the case for many people, and it's certainly an industry where you can still definitely get a lot of value, and that's really, I think when it comes down to, Tony, is what is the value that you're receiving for the fees or whatever it is that you're putting into it for the services that you're getting? Right?

Tony: That's it. I mean, at the end of the day, that's what it's about. If you can't find value in it, it doesn't matter what the fee is because you're not going to be happy with it.

Speaker 1: Right.

Tony: I think with today and the technology that we have, I think advisors still can provide value and get people to their goals either on a tax advantage basis or on a risk basis, and you just got to keep that in mind when you're talking to advisors.

Speaker 1: Well, you sometimes say things like, "Let me put my tax hat on for this one," and I think, yes, the technology that's there for a lot of different things, but we're, to me anyway, and this is my opinion where advisors really come through is the sounding board of the other person. You guys have seen so many different things and you wear so many hats, whether it's a counselor, whether it's tax advice, whether it's just an ear to listen to, to say, "Here's what I'm thinking about. Is this a good or bad idea?" And having that sounding board to relay back to the client why what they're thinking is a great idea or not a great idea. You're just not going to get that from the technology. I know a robo advisor is... You put it in, and it's just going to execute.

Speaker 1: There's no real give and take in that. So I think that's a great place for us to finish up this week on the podcast. It's a great way for us to finish up the year here in 2020. Again, we'll be back with more episodes starting in 2021. So if you have not yet subscribed to the podcast, consider doing so. We'd certainly appreciate it. You can find it in Apple, Google, Spotify, iHeart, Stitcher, so on and so forth. Many platforms. Most phones, smartphones nowadays already have a lot of these podcasting apps pre-installed.

Speaker 1: So for example, if you're an Apple user, you probably have Apple podcasts already right there on your phone, just tap the app, open it up type in in the search box Plan with the Tax Man. You'll find the app that way, and you can subscribe to it. I believe it's the heart button or whatever it is that does that, and that'll give you a future episodes as they come out.

Speaker 1: You can also find all of it at Tony's website and make it pretty simple for you. Plus there's a lot of good tools, tips, and resources there as well at yourplanningpros.com. That is yourplanningpros.com to talk with Tony Mauro and his team. And Tony, thank you so much, my friend, for your time, and I've enjoyed chatting with you this year, had a lot of fun and learn quite a bit and hopefully we'll do more of that next.

Tony: Absolutely. Everybody have a great holiday and stay safe.

Speaker 1: Absolutely. Stay safe and sane. That's been my motto all this year.

Tony: That's right.

Speaker 1: So we'll keep at it. You folks have a wonderful holiday season. Tony and I will see you in 2021 here on Plan with the Tax Man.

Let’s explore some of the things you should be thinking about and checking on as we wrap up 2020 and begin 2021.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Speaker 1: Hey everybody, welcome in to Plan With the Tax Man. Thanks for tuning into the podcast. We appreciate your time as always, as Tony and I talk investing, finance and retirement and this week on the podcast, end of year planning tasks. It might be a little bit late in the season for some of these, but these could also be some items to look at at the beginning of 2021, or as we get into that. And of course, yay. 2021 is almost here, so excitement there as well. But let's say hey to Tony first before we get into this topic. What's going on my friend, how are you?

Tony: I'm doing good. I'm hanging in, weather's good here in this part of the state. In fact it's actually 60s.

Speaker 1: Nice.

Tony: But winter weather is around the corner for us. This weekend is supposed to be quite snowy.

Speaker 1: Oh okay, yeah. Yeah. We are into December, this will be our December 10th edition of the podcast. Yeah, as we've shared before, I'm down in North Carolina. You're there in Iowa. It was 23 yesterday morning. It was pretty chilly for us to be that cold down here. But yeah, we're going to be I think 70 tomorrow or something like that at the time we're taping this. Can't complain too much. I'll take it. We don't typically ... we actually had a couple of flurries when it was 23, just a few, literally just saw a couple flurries. But that was it. We don't typically get a whole lot. But when we do, everybody loses their mind.

Tony: I'll bet.

Speaker 1: For sure. Well, let's talk about these end-of-year planning tasks, Tony, that I mentioned earlier. I've got a couple items here. Again, some of these may or may not be too late. I'll let you tell us, but maybe these are things we can also think about as the New Year rolls on to us here. Let's start with, again, if you can, and if you're still working, depending on what's happened, obviously with Corona and so on and so forth and your job situation, but should we be maxing out retirement contribution if possible?

Tony: I think you can. This has always been my favorite number one every year go-to for tax advice and of course saving for retirement. I'm putting back on my tax hat here in this podcast a little bit. Because you know what? The retirement plan contributions, whether you've got a 401k or you're just in a Roth on your own or a traditional on your own is still one of the best deals around, especially when you couple, if you're going to do something on a tax-deferred basis, you've got a great tax deduction. You feel like you're saving taxes, you're saving for retirement, which you need to be doing anyway? So yes, if you can and you've got a 401k at work, I would try to stuff as much in as you can. Obviously we've only got a month left.

Speaker 1: That's usually payroll based, right, Tony?

Tony: Yes.

Speaker 1: You would probably need to notify or do whatever pretty quickly here.

Tony: You have to notify them. But this is something that carries over into '21, is you certainly can ramp it up over the next year. You always want to be ramping it up. It isn't something that has to be done this month. But if you can and are working, that would be good.

Tony: If you don't have a 401k, you've got a Roth or a traditional IRA, even though you don't get the tax deduction with the Roth, I would try to stuff as much money into it as you can. Again, going back to the financial planning aspect of it. We always need to be doing this. I see a lot of people that have them available, especially through work, and are not taking advantage of it. I think that's a real mistake.

Speaker 1: Yeah. Typically this is what? December 31st timeline based for these?

Tony: Most of the time it is. If you've got Roth or traditional IRA, and you can go all the way out to April 15th of next year and count it for this year. Same way with SEPs and some of the other little self-employed programs as well. You want to check with your advisor on that. But in 401ks, most of the time you can just ... unless they've got only certain times you can add to them, go in and tell your HR that I want to up my contribution.

Speaker 1: Okay. Right. Exactly. All right. Well good. That's a good little tip here for the end of year planning. Should we revisit or review some of the things, especially if we are a retiree or actually really even a ... well, yeah, definitely a retiree more so maybe than a pre-retiree. But that's even possible as well. Some of the things that they gave to us, I suppose, with the CARES Act earlier this year, obviously at this point, you've hopefully had a conversation about your RMDs not being required, what you may or may not want to do with it should you have chosen to take it or whether or not you decided to do pull any money out without the penalty? Basically some of the things that we've talked about here on the show with the CARES Act.

Tony: Yeah, exactly. This, once again, a little bit of a tax issue, a little bit of a planning issue, that if you haven't got any advice on this from your tax person, maybe ask them about it. We generally send out ... we already sent ours out to our existing clients about what's in the CARES Act and what relief is out there.

Tony: You could Google it and get some information there. But a couple of things, especially for the retirees, if it's been a tough year or maybe you just don't need the money and you don't want to take the RMD out of your retirement plan, that you can postpone that. There's going to be no penalties like they're normally. That might be helpful for some people.

Tony: Most people that have been devastated by the COVID basically are going to get some tax deductions that they don't normally get there's an array of them. So it may or may not fit your situation. They're not going to be an end all where it's just going to magically reduce your tax bill to zero. But you do want to take advantage of, and one is a very small one, but I think most of us will qualify for this, is that in this year, you can actually take a very small, it's only 300 bucks deduction, of what they call above-the-line, meaning that even if you don't itemize your deductions for charitable contributions, most of us give $300 away in some form or fashion. But under this new tax law, a lot of us aren't itemizing like we used to because the limits are so high. There's some little quirky things in there. You want to make sure that your tax person is going to ask you. Or if you're doing them on your own, you want to take advantage of, for sure.

Speaker 1: Well, I'm going to jump to that one because that was on my list. Maybe you could expand upon that. You covered a bit of it already. I was going to ask you, should we evaluate some tax deductible charitable contributions? Because look, we all know industries, lots of industries have suffered greatly through the pandemic. Charities are no exception. Now don't get me wrong. If you want to donate, or you donate to charities because that's what you feel is the right thing for you to do a tax deductible in this situation shouldn't really dictate whether you're going to do it. But if you can help yourself a little bit along the way, I don't think there's anything wrong with that. Anything we need to notice from our timeline-wise, that might be pertinent aside from some of the things you've already mentioned, like those date of deductions and so on and so forth?

Tony: I think the big thing to realize and what a lot of people didn't do last year was they thought about not giving as much because of the tax deduction or lack thereof. What they forget, though, is in your state, obviously most States have a tax and you still can ... the state standard deduction limits are much lower than the federal is right now. You can still feel like you get some bang for your buck because on the tax side, on the state level. I wouldn't let the ... well, like you said, we should be giving because we want to give, not just for the tax deduction. But in reality, a lot of people tie it to that. But I wouldn't forego giving just because you might be limited on the federal side, because you will get a good bang still out of the state. You don't never know when they're going to change this back. The current tax law is supposed to expire in '25. But you know how that goes. We don't know what's going to happen.

Speaker 1: Yeah. We can't even resolve a Presidential election on time, let alone what's going to happen in the future.

Tony: Exactly. I tell people on charitables, again, depending on where you're at, well, just give more and get yourself over that a standard deduction. But you got to be able to balance it out [crosstalk 00:07:46]

Speaker 1: Well, that's a great point. I'm glad you brought that up. Because a lot of times we have gotten so used to the way we were doing things and that new change in the tax law with the standard deduction does kind of offset that for some folks. Certainly worth having a conversation with your advisor and your CPA as to how that relates. Really, any of this that we're talking about, double-check that information with them. Of course, if you're not working with one yet, and you're just reaching this podcast through one of Tony's email blasts or something along those lines, or you found us on Facebook or somebody shared it with you, give him a call if you have any questions at 844-707-7381 before you take any action, 844-707-7381 or stop by yourplanningpros.com. That's yourplanningpros.com. Tony has got 23 years plus in the industry. He's an EA and a CFP.

Speaker 1: Okay. Since we asked you about the tax deductible, I'll go back to another one in just a second, but let me continue on with the tax conversation. Probably too late for this Tony, and I'm not even really sure what some of this would be other than solar, maybe. But should we consider purchases that would give us a tax credit, like home improvements of some ... again, probably too late to get this done. But if you did do these, should you be bringing that up to your CPA?

Tony: Yeah. You definitely got to bring it up. Like you said, just on all of these topics, definitely check. Because the bad part about the tax code is it's not one size fits all. In other words, there's so many little nuances and it doesn't apply to everybody. You got to check that out. But the main big tax credits for individuals right now are solar. In other words, you install solar panels on your house. They have those residential windmills that you can put up that look like the big ones you see. They hook into your electrical grid and of course lower your electric bill, just like the solar. There's some huge tax credits for those.

Tony: Now that isn't something you just go out and buy at home Depot. They're pretty expensive. You know what I mean? They're $10, $15,000. But for some people that want that large tax credit and have the means and like the fact that they're contributing.

Tony: The last one is the geothermal. Again, not a small expense, but there's some big credits there. But like you say, this isn't something you can run out and get done in two weeks. That may have to be a 2021 issue. But it's something to think about.

Speaker 1: I know that, and again, with itemizing and standard deduction, maybe that's changed Tony. Obviously, this is not my forte. It's more yours. But if we put new windows in the house this year, things of that nature, do some of those things still work as far as when we're doing our 20 ... our next year's tax planning or tax prep? Because I know there used to be some tax credits for home modifications that helped reduce energy efficiency.

Tony: They did do that. Unfortunately, the credits for windows and furnaces and some of that stuff have expired.

Speaker 1: Roofs and stuff. Oh, okay.

Tony: Yeah. It's no longer on the books. Keep in mind, a lot of people confuse a credit with a deduction. A tax credit is much, much better than a deduction because it comes right off the bottom line of your tax. The deduction only reduces your income-

Speaker 1: Gotcha.

Tony: And figures the tax. These credits are valuable if you have a need for them. But yeah, they did have one, if you remember a few years back, for electric cars. That's off the books now, too.

Speaker 1: Oh, okay. Yeah. See? That's why we do the show, Plan with the Tax Man. Because you got to plan and you got to have that tax component. Always thinking about the taxes is certainly a key component into retirement planning anyway. It's one, sometimes, we often overlook. One of the good things about having both of those wheelhouses, if you will, in Tony Mauro.

Speaker 1: All right, let's keep moving along here. Another tax conversation, tax loss harvesting, explore those possibilities, Tony. Too late? Well, A, what is it? And is it too late for 2020? Or what should we be looking at there?

Tony: Tax loss harvesting basically is for people that have some ... obviously they've got a portfolio. They may have some gains. They can use anything in their portfolio that maybe they have a loss on to maybe dump that or even if they're not going to sell anything at a gain, tax loss harvesting means basically taking your dogs and selling them and you can write off your losses. Now the good news in the tax code is that you can write off your losses all the way up to the extent of your gains, plus an extra $3,000 every single year. Then you can carry forward the loss, if you just have losses and you've got too many. You can only write off 3000 a year, but you can use the rest of them next year. The tax loss harvesting is more for, "Okay, what have I made money in? Maybe I should sell some of that. I'm worried about the taxes, but I'll get rid of some of the things that just haven't done well, and I can offset that and use that money to reinvest possibly."

Speaker 1: Shake off some of the dogs, if you will. Right?

Tony: Yeah. Most of the time, that you're talking more for, I think, people that trade a lot. That's really not mostly our client makeup. But there are a lot of people out there doing that, trading frequently, and worried about that. I mean, for us, I don't recommend trading a lot. But that's going to go to contrary to what maybe what some people listening saying, oh, that, "I like it and I'm still going to do it." But I think over the long run, what you end up with is more losses than gains. So that kind of goes against traditional planning advice.

Speaker 1: Okay. All right. A lot of good options here. There are a lot of things to consider for our planning task list, whether it's the end of 2020 or starting into 2021. Let's finish off with the final one here, Tony, and that is the Roth conversion conversation. Determine whether or not this makes sense for you. This has been a hot topic for obviously a number of years. Now you, as a professional, has been doing this for a long time, have obviously known about conversions for a long time. But I think a lot of us, it's become a hot button issue for standard folks. Right now we're learning more about it. We're hearing more about it on the regular. People have been very intrigued about reducing their future tax bill through doing conversions. It's not for everybody, but it's certainly worth a conversation and will probably continue to be so while we know what the tax rates are versus what they may or may not go to down the line.

Tony: That's correct. I'll put in my one shameless plug, if somebody is listening, because I did write a short book on it. If they want a copy, certainly can just shoot me an email or give us a call. But really what it's about is as the Roth becomes more and more known, there is a conversion feature that the government allows you to basically take money out of a tax deferred plan, which is the ticking time bomb, because Uncle Sam has got a right to that money later. You can convert that to a Roth, without penalty, and you just pay the tax that's due on whatever you convert.

Tony: Now, the key is trying to ... this is a little bit of planning and tax moves at the same time ... is trying to fill up or convert just enough to keep you in the same tax bracket, so you don't pay more taxes than you need to. You know you're going to pay some, but there's no penalty. You just keep converting chunks while you're in the bracket you're in. That way, eventually you've got it all converted and now Uncle Sam has no right to any earnings in the future.

Speaker 1: We don't want to go in and just wholesale switch it all over because we'll bump ourselves up. Just kind of chip away at that ice block a little bit at a time.

Tony: A little bit at a time. It makes a lot of sense, especially if you've got a big balance in a 401k, a traditional 401k, possibly an IRA type of thing, is getting the tax ... the tax rates are very low now. We don't know, like I said, what's it going to be in 10 years from now? I always look at it from the tax side is our government, whoever's in power, we spend more than we take in. Nobody politically wants to just say, "Hey, we're raising taxes," but eventually they got to get it somehow.

Speaker 1: Well, I mean, our President elect has already talked about doing it. So I mean...

Tony: They're talking about it. From a business standpoint, personal standpoint, nobody likes to pay taxes. But if you're running the business of the government, they're short of money now. They try to get-

Speaker 1: They don't make anything. They don't sell anything, a product. They got to tax us.

Tony: They get it from us. So if you've got these big balances in, that's a scary position to be in. If you've really have got a lot and you've got estate tax problems, then that just adds to it.

Speaker 1: Yeah. Great point.

Tony: There's definitely a conversation to have with your advisor.

Speaker 1: Well and regardless of how you feel about whatever politically, you can just look at it from this standpoint: whether anything happens or changes, these tax rates are going to sunset in 2025.

Tony: Supposedly, yeah.

Speaker 1: Yeah. So whether nothing gets done, we've got for about four years or so to continue chipping away, as Tony mentioned, at this tax time bomb. But again, something could ... taxes could be changed. Of course, it's got to go through Congress and all those kinds of stuff. But that's still possible coming up as well, sooner than that. Either way you slice it, have the conversation to see if it's the right thing for you. Again, every scenario is different. But it could be very beneficial to chat with Tony about how to reduce your future tax liability or future tax bombs. Not what you make, as the saying goes, it's what you keep.

Speaker 1: That's some end-of-year planning tasks, some ideas to think about, or some tweaks to make as you go into 2021. Of course, one tweak you should make is if you're not working with an advisor, get on it, have a conversation. Usually there's no cost or obligation to start the initial process and chit chat with somebody and see how it stands for you. We talk in generalities, we try to share some ideas and things on the podcast or other shows you may listen to. But at the end of the day, it really comes down to your unique situation. Reach out to Tony, do yourself and your retirement a favor. Have those conversations. If not this year, definitely start in the first quarter of next year.

Speaker 1: You can call Tony, as he mentioned, if you'd like to get a copy of his book, (844) 707-7381. that's (844) 707-7381. Or you can stop the website, yourplanningpros.com and shoot them an email. That's yourplanningpros.com. Don't forget to subscribe to the podcast as well, Plan with the Tax Man, on Apple, Google, Spotify, iHeart, Stitcher, whatever platform you choose.

Speaker 1: That's going to do it this week. Thanks for your time as always. We appreciate it. Tony, my friend have yourself a wonderful first part of December. I'll talk to you in a couple of weeks.

Tony: All right. Sounds good. Take care.

Speaker 1: Thank you, sir. We'll see you next time here on plan with the tax man with Tony Mauro from Tax Doctor Inc, here in the central Iowa area. We'll see you next time folks. Bye bye.