Plan With The Tax Man

Want to grade your preparedness for retirement? Here are five key questions you need to ask yourself. Your answers will help determine how ready you are for retirement. Play along with us on this episode of the podcast.

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 this week's edition of Plan With the Tax Man with Tony Mauro and myself. We appreciate your time as we talk investing, finance and retirement here on the podcast. It is early November here. This is our day after the election by podcast and of course, we as expected, we don't have an idea. We have no clue who's the president. How you doing, my friend? You doing okay?

Is the place where you’d like to retire on the Top 15 list? On this episode, we’ll review the US News & World Report’s top 15 retirement locations and share stories of past clients who made the decision to move somewhere else for retirement and what went into those decisions from an emotional and financial standpoint.

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 this week's edition of Plan With the Tax Man with Tony Mauro and myself. We appreciate your time as we talk investing, finance and retirement here on the podcast. It is early November here. This is our day after the election by podcast and of course, we as expected, we don't have an idea. We have no clue who's the president. How you doing, my friend? You doing okay?

Tony Mauro: We're doing good. Fall's [crosstalk 00:00:24] upon us here in the Midwest and right now, this week, it's actually very warm, so it's almost golf weather, really.

Speaker 1: It's been wacky here in my neck of the woods. We've had some pretty big 30 and 40 degree swings, but it looks like we're going to be in the mid to upper 70s the rest of the week.

Tony Mauro: Same here. It's great.

Speaker 1: I'll take it. It's November. It's not hot, so it's comfortable. It's nice.

Tony Mauro: Exactly.

Speaker 1: So that's always good. Speaking of weather and niceness, that's actually our topic this week. We're actually going to talk about a review of the top places to retire as of the U.S. News & World Report's top 15 locations, just kind of fun here, do something a little bit different and kind of keep it light and airy, if you will, but we'll talk about a few of the metrics that went into it. If you see some things like that similarly in conversations you have with clients or potentially, so I don't know if we'll go through all 15 or just kind of lump it together here. So what I'll say is of the 15, let's see, one, two, three, four, five, six, seven, eight of the 15 are all in one state. Care to take a guess?

Tony Mauro: All in one state. It's fitting because when we're taping this the day after an election, everybody's kind of, well, probably had enough of that for a while. It's interesting when they have all the maps up the night before and you're paying attention to the states, sometimes you don't. But it's interesting in this report that out of the top 15, eight are in Florida and although Florida's always a popular spot, but there's some others in here as well, some in the Midwest that most people don't think of. Then, of course, some in the desert. But it's interesting, my client base, for the most part, doesn't really talk about Florida all that much, but probably nationally, that's the place. If you look at their demographics and how many retirees are down there, a lot of people migrate that way.

Speaker 1: Now Florida's always kind of that given, so again, it's not a surprise that people do that. So we'll hop around just on this topic. Do you have some folks that do the snowbird thing, that they split their time?

Tony Mauro: We have clients that split their time. A lot of our clients tend to want to go to Southern Texas down by the Mexican border and then of course out to Arizona, some Palm Springs. I'm of the same opinion, personally, is as much as I love Florida, I think down there, the snowbird thing could be hit and miss from year to year. It, depending on the weather and a lot of our clients want to go where they pretty much or know that it's going to be sunny and not a lot of rain.

Speaker 1: Right. Of course, there's different advantages to some states, obviously, when you think about income tax or I think weather and a few other things are why people consider Florida.

Tony Mauro: I think weather is the big one and I think the fact that probably for most parts of the country, it's easy to get to. It's interesting because a lot of people, if they really are going to start having serious conversations about retiring somewhere else or splitting time, I think they need to take a look at, not only the state tax rates, but just the affordability, the population and how easy it is or hard is it to get around, the quality of the health care and some other things that-

Speaker 1: Good point.

Tony Mauro: ... after weather, people should take a look at if they're going to spend meaningful time somewhere. I think sometimes after we get done with them, they hadn't thought about a lot of that.

Speaker 1: Right.

Tony Mauro: For example, a couple of spots in this list, just for the listeners, number seven's Ann Arbor, Michigan [crosstalk 00:04:17] North Carolina.

Speaker 1: Let's talk about some of the those. Yes. Ann Arbor, Michigan is seven, to your point, and Manchester, New Hampshire is 14. They seem like odd choices.

Tony Mauro: Odd choices and Nashville, but Nashville is becoming more popular [crosstalk 00:04:31] number 12. But a lot of people are taking a little bit alternative routes, if you will, and saying, "Well, weather it's not my number one goal, it's other things." It could be cost of living, which I'm assuming, and especially in Michigan, is more towards the Midwest. New Hampshire would seem to me a little higher cost of living, but maybe it's the East Coasters that are wanting to get out of the bigger cities and maybe that's lower for them.

Speaker 1: Like if people live in New York City or something like that. Actually number five is Lancaster, PA. [crosstalk 00:05:06] That's even weirder to me.

Tony Mauro: Yes.

Speaker 1: No offense, Lancasters.

Tony Mauro: That's right. Hopefully, you're not offending anybody by just listing it. Of course, Des Moines, Iowa is nowhere to be found, so we're out.

Speaker 1: We counted wrong. I think there's actually Miami didn't have the Florida next to it, so there's actually nine of the 15 are Florida. So basically just throw a dart at Florida and it's on this list more than likely.

Tony Mauro: It is. But I think with Florida, going back to it, it's a wonderful place. The weather is generally pretty good, but to me, when I've been down there, the cost of living is a little higher. Their tax rates are a little different, of course they get a ton of money from tourism and whatnot. But to me, I think Florida, it's a little too crowded for me. I'm not at retirement age, but I don't like all the traffic, especially down in Southern Florida around the Miami area and whatnot, but everybody's different. I think if people are seriously looking about splitting time, they should at least develop a list and kind of come up and look at some of these reports and some of what goes into them, its pros and cons of each location to make a well-informed decision.

Speaker 1: Yeah, no, definitely. So what financial or emotional considerations, maybe that's another thought to have a conversation around this on, Tony, is to consider if you're thinking about retiring in a different state or a different region. Sometimes it's kid-based, sometimes grandkid-based things of that nature, how do you go about advising that when people start having those conversations?

Tony Mauro: I advise them if they're actually physically going to pick up and move and plant the seed in a different state on a full-time basis. First thing we have them do, and we generally will help them on the tax side, is to let them know what the state's tax rates are, what income is taxed, how and from there, then we go to the sales tax rates, property tax rates, things like that, if they're going to own property there so they can kind of get some numbers without having to do a lot of digging to get some of that in their head. Then from there, basically, we get into more of the non-financial things, affordability, healthcare, things like that. But I think it's big, taxes are big. We're right after the election. We don't know anything on that, but state taxes are big in some states compared to others and I think that's got to be a consideration if you're on a fixed income, for sure.

Speaker 1: Well, at the time we're taping this podcast, it's so close you can't really call it. But one of the things that could be on the docket is higher taxes. Biden has made that conversation, so that might be the case. Obviously, we won't know anything until later on, but that's something to definitely consider and I think that's always been the case. People have always kind of looked to retirement as, "Well, let's retire someplace where there's no income tax or sales tax," or whatever. There are various different things kind of lead that charge. Now what about yourself? Do you have a dream retirement location? Is it right there where you're at? I know you're a big fan of the Napa area and all that kind of stuff, but living there and just visiting there are two different things.

Tony Mauro: Two different things, yes. I'll answer that, but the other thing's back on taxes. This is just, again, my own two cents. I have no basis for this, but if you think about it, with what we've gone through this year with the COVID and the pandemic and these states not collecting as much tax and whatnot, eventually they may have to come in and say, "We're low on money and the only thing we've got left is to raise taxes." Now it may not always be an income tax. They try to do it in kind of what I call sneaky ways, take this deduction away or that, so they don't call it that. But a lot of times, again, you go into a new state, you better find out not only what their rates are, but how they tax you, but...

Speaker 1: Change to a gas tax or property tax or [crosstalk 00:09:07]

Tony Mauro: They got to get it from somewhere. It's just not all free. But in answering the question, a couple of tops on my list, I would probably split time once I get to retirement. I don't see me just moving, but you never know with children and things like that, but one of my favorite places outside of Napa, that would be one. Although, again, looking at cost of living there and income taxes and stuff, that could be a detriment. But I love the Phoenix-Scottsdale area. I love Palm Springs. I'm a desert guy, even though I love the water, but I like to go to the water and have my visits-

Speaker 1: Now surprisingly enough, those aren't on there, which I found that kind of surprising. On that top 15, there's no place in Arizona.

Tony Mauro: No, No place in Arizona-

Speaker 1: Maybe too hot.

Tony Mauro: So but in the split time, with the true snowbirds, it's almost always sunny and in the 70s. Obviously, the Caribbean would be nice, but that's a little more of a jaunt every year if you were going to try to do something like that, but those would be my top spots to probably split time would be something like that. As I think now, and I think a lot of people do this too, is they think of their retirement spots kind of like they think of vacations right now, where you're going for an experience and excitement and what are we going to do? I think when you retire there or even split time it's more of daily life-

Speaker 1: Right. True.

Tony Mauro: I'm getting up. I'm doing my activities-

Speaker 1: Going to the donut shop [crosstalk 00:00:10:39].

Tony Mauro: ... grocery shopping. So it's not the same as when you're in your 30s, 40s, 50s on vacations. When you're retired there or spending at least six months there.

Speaker 1: Very true. As someone who's been doing this for 20 plus years, I'm sure you see a lot of different things. Sometimes when people want to do that split time, or they even want to relocate, it doesn't necessarily mean you have to stop working with your advisor, depending on the situation. If they're licensed, there'll be able to help you and no matter where you are, but you just have to check into all of that stuff as well. Correct?

Tony Mauro: I would check into it. I would visit with your financial advisor. I would solicit some other opinions as well and obviously friends, family and people that you know that may have already gone there, [crosstalk 00:11:22] that particular location, is always helpful. They can always give you the goods and bads and at least you've got the ammo to make a good decision from that.

Speaker 1: So factor some of those things in folks, if you're thinking about, as you get closer to retirement, factor in local resident stuff, the happiness there, tax rates, housing affordability, quality of health, healthcare, some of the things Tony mentioned already, the emotional side. Are you good being maybe away from family or friends that you've known? Things of that nature. Again, we were talking the top 15 places, in 2020 anyway, from U.S. News & World Report on retirement locations. It looks like nine of the 15 were in Florida, so again, pick a dart, you could throw them.

Speaker 1: But just the other ones, just to kind of catch you up, was Lancaster, PA, Ann Arbor, Michigan, Asheville, North Carolina, Myrtle beach, South Carolina, which we didn't talk about, which is way too touristy for me. I'm not that far from Myrtle Beach and [crosstalk 00:12:19] It's just way too touristy for me and Nashville, Tennessee and the same thing. I feel like Nashville, go on the outskirts, I suppose, like any town you go to the outskirts and you don't have to see the touristy stuff, but either way, so that's the 15, oh, and Manchester, New Hampshire. I almost forgot about that one.

Tony Mauro: That little crazy one there.

Speaker 1: A little odd. The PA and the Michigan, I just really surprised by the three colder weather states, really am. I've lived near Ann Arbor, Michigan, beautiful place, absolutely lovely there, but just surprised by the colder places because I know most of us like to run from the snow as we age.

Tony Mauro: We don't see any of the top ski resort places, even though that is cold [crosstalk 00:13:03] nobody, of course, older, it's probably designed a little bit more for younger, active [crosstalk 00:13:10] and all that, but-

Speaker 1: Well, I think [crosstalk 00:13:12] missing this of stuff in Arizona or even Texas, I think that kind of shows us that this report really was around things other than just weather. Florida is definitely on there, probably could become of the weather, but I think a lot of this really was about the affordability, the tax rates and things of that nature, so there you go. So that's something to ponder, for sure. All right. Well, I think that's going to do it this week. Pretty simple and easy, a simple conversation away from all the regular stuff that we've been inundated with and we'll get back to that, I'm sure, here pretty soon, but we thought we'd deviate just a little bit this week on Plan With the Tax Man. So there you go. Have a great week, stay safe and sane, folks. Take care of yourself and Tony, my friend, I will talk to you in a week or two.

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

Speaker 1: We'll see you next time, folks. Don't forget to subscribe to the podcast on whatever app you're using, Apple, Google, Spotify, iHeart, Stitcher, so on and so forth. You can simply type Plan With the Tax Man in the search box of any of those apps if they're on your phone already and you use one of those that you like in particular. Just type that in, you'll find it, or just go to yourplanningpros.com, Tony's website, a lot of good tools, tips and resources to be found there. You can also subscribe to the website and check us out,[email protected]. As always, if you need any help before you take action to always check with a qualified professional like Tony Mauro. He's an EA and a certified financial planner. Call him at 844-707-7381. Again, 844-707-7381 at Tax Doctor, Inc.. We'll see you next time here on the podcast.

On this episode, we present you with five commandments that are worth of being written on stone tablets in your retirement plan.

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 tuning into the podcast. We always appreciate your time, Tony and myself, and what is going on my friend, how you doing?

Tony: I'm doing well thank you. Just on my way out of town and going to take a little R&R on a vacation.

Speaker 1: You know we were chatting about that just before we got started and we'll let the folks in on it as well. It kind of tripped me out, I didn't even think that it might be open, but you're heading to the danger zone if you will, right?

Tony: We're heading to the danger zone, we're going to go out to Napa Valley, which I generally go out to once a year. And it seems like every time I go something crazy is going on out there and so of course recently with the fires that have been going on burning right through the Valley is... But they say that the places we're going to visit are open. And of course they're starving for tourism as most places are. But there's a lot of destruction out there. There's some wineries that have been destroyed and it's sad to see.

Speaker 1: It really is. It really is. It's kind of a weird spot to be in, right? Because these places, they need help, but at the same time people are kind of afraid to go and there's just all these different things going on. So kudos to you for going out and supporting them. And hopefully you guys will have a good time, but be safe for sure.

Tony: Yes. Yeah. It's weird too, though. I've talked to some of the wineries, I really kind of told them, I don't want to feel bad, I feel bad for you guys that I'm coming out to enjoy myself in the midst of all this misery. And I don't know how I feel about that, but they want tourists. If they can do it they're-

Speaker 1: Right. They're like, no, no, come on. They might want the welcome distraction too. So yeah, you never know. Well this week we're going to talk about something a little interesting. We're going to have a little fun here in hopefully a good way, but kind of following the financial commandments, if you will. We'll present you with five, for lack of a better term, really just commandments that are worth being a written in stone, if you will, from a financial or retirement standpoint and we'll let you dive into those and see what you can think of to do some sort of analogy or correlation for us. And so let's just jump in and get rolling. If you think about these in context it's kind of interesting. So you might see or read something on one of these tablets that might say thou shall not compare your investments to the stock market without the proper context. And that's a lot of it, we tend to look at things in a bubble we don't tend to look at it, I think, in the right frame. What do you think?

Tony: Exactly. I think that is exactly on point and I'll start out with an example. So my father, who is retired, and every day, he loves watching CNN, every day he comes in, "Oh, the market's up, the market's down. Why can't we look at what the market's doing? Am I invested in this?" And of course we do his planning and so he looks at that and he sees the Dow Jones jumping all over the place and I always have to remind him that for you in retirement, it is in the market. However, you don't have to be worried about that because you're not in it for growth, you're in it for the income and that we're not looking to get what the market's getting. We're conservatively invested and we have a lot less risk.

Tony: And so I think people just look at the news and compare their investments up or down. And even younger people, everybody always says, "I want to get what the S&P 500 is getting." Okay, well, so does everybody. And you certainly could do that with ETFs and all kinds of things, but if you're not willing to accept that risk and that volatility, maybe that's not for you. So I think you need to take a look at that.

Speaker 1: Yeah. It's all about understanding what your investments are supposed to be doing for you at that time. And that's a good point. So whether if you're 35 versus your dad there's a totally different set of parameters you're trying to accomplish with your exposure in the market. So again, proper context goes a long way. All right. Thou shall not give up on your strategy before it has enough time to play out. I think that's another one, right? The fast food world we've been living in for a number of years now, Tony, it's like everything's fast food, right? Relationships have gotten to be fast food. People toss those away like they're nothing. It's food, it's this, that, and the other, everything is just disposable it seems like. And so when things don't go as planned, we tend to just immediately want to swap it out for something else.

Tony: That's it. And it is amazing to me when I ask people what do you view as long term? And they'll say two years or something really in my mind short term.

Speaker 1: That's short term, right?

Tony: Yeah.

Speaker 1: Was it Warren Buffet, did he say, "If you're not prepared to be in the market for 10 years, don't be in it for 10 minutes."

Tony: Yeah. Don't be on for 10 minutes. And he's exactly right. And you know what, even when you talk to people about that and they say, "Okay, I get it. I can take a long term view." I think with our instant access, and we have access to things like you're talking about so fast, that people do tend to push the panic button a little quick and they allow that fear of, "Oh my God, I'm going to lose everything," to basically do the exact wrong thing and that's jumping in and out of the market based on current news. And those decisions mostly are emotional. And over the long term if you just stay put you're generally going to be much better off. And I got to give my own clients a lot of credit, during this crazy volatility since COVID started some of the younger, or not the younger, but the older people, we've moved a little bit to cash but for the most part we've been fully invested. And the market's gyrated around, but it really isn't that much far off from where it was in March.

Speaker 1: No, the S&P, you brought that up a minute ago, at the time we're taping this podcast it's higher than pre-COVID numbers and the Dow is experiencing a couple of good days here in a row at the time we're taping this. It's just, what, maybe about 1,000 points off the all-time high.

Tony: It looks like it. Yeah. It turned around there but yeah, I would say it's up 70 points as we speak right today and yeah, we're right near a high.

Speaker 1: Yeah, exactly. I think the Dow at the total peak was 29, I don't know, 400 and some change. And I think we're at 28, 300 and some change. So yeah. So again, at the time of this podcast, but that's, to your point, it's been obviously a super volatile year to be that high in February, take the 30 some percent plunge and then be gradually building its way back. But this gradual build back has also come with several days in a row of, or weeks in a row, of dropping and then weeks in a row of climbing. And I know that can be... it puts some stress on the ticker there if you don't feel like your strategy is correct, and you're nervous, you start making moves that maybe just cost you more money in the long run.

Speaker 1: So let that strategy play out. That's why you get a plan. The plan is going to evolve and it should evolve just like we are going to evolve through retirement, but you don't just make those knee jerk reactions. And of course if you're working with an advisor a great benefit to that is not only getting a good plan in place when you're working with Tony and you're talking with his great team, but it's also to be that sounding board, or maybe talk you off the ledge sometimes too. You guys got to sometimes go, "Calm down."

Tony: And we had that just recently with a client, she's an older woman and she really wants to, and this really didn't have anything to do with the market, but we kind of talked her down a little bit off the ledge. She wanted to pull a lot of money out of her retirement because she was really into remodeling her home. She's just got this passion for it.

Speaker 1: Sure, that's a big thing for people.

Tony: And we just had a good conversation about, well, I understand what you want to do and it's always nice to have a nice house, but at her age, and she's advanced in age, really do you really want to go all out on this? So maybe you just need to upgrade a little bit and get some nicer things. I think I at least provided a different perspective, she can at least think about it.

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

Tony: Maybe I can do a compromise of some kind.

Speaker 1: Yeah. I mean, at the end of the day it's her money, do what you want, but your role is to advise her, okay, here's some pros, here's some cons, this is some cons that I see that you might not. So exactly. All right. So kind of keeping with that theme of later in life, thou shall not chase big returns too late in life. I am getting close to 50. Next year in 2021, I will be 50 and I have to start, and I am already starting now at 49, I'm starting to think about things a little differently, not just from an investing standpoint, but lots of things in life. I think once we hit 50 and over we start to view things a bit different. And so I don't want to continue to look at my portfolio the way I did when I was 30.

Tony: Exactly. And that's a big point and I'm 53 so I've been thinking that way for a few years for sure and I don't know why we all of a sudden start thinking about, well, how long of time we have left maybe to work and earn money, but let alone live.

Speaker 1: Probably that 65 number that's just been ingrained. We go, "Oh man, that's only 15 years away."

Tony: Only 15 years. And so with the nest egg you have, wherever you're at, it's important that you don't get too, maybe greedy, especially if you're behind a little bit, and chase high returns for potential high risks.

Speaker 1: And that might be that panic button as well then. Right, Tony? You're panicking, "Oh, I don't have enough and so I'm chasing," and a lot of times, I know that you find this often, people come in for the first time and that's the thought, and you're like, "Let me do the review, let me do the process and you're actually in better shape than you think."

Tony: Exactly. And once we take a look at things and kind of lay it out and let them know they're really not in as bad of shape as they thought. That they don't have to get that aggressive that late in life and still be able to, if we can play it out and make some assumptions and some estimates, have a pretty good retirement. And so I definitely think people in their fifties and sixties really should make sure they're taking a look at that because you don't want to be overly aggressive, I guess I should say. Unless really that's just in your makeup and even then I wouldn't potentially recommend that.

Speaker 1: Yeah. Well, you're talking percentages, right?

Tony: Percentages, yeah.

Speaker 1: Yeah take some percentages. If that's your mindset and that's just really what kind of gets your blood flowing then have a plan in place that allows you to carve out a bit for that to kind of satisfy that itch if you will, but obviously we don't want to sacrifice your retirement. And again, that's the whole point. I mean, you can stress test this thing. That's the whole point of working with an advisor is you can stress test different scenarios and different types of situations where you can say, "Okay, this is what it might look like if you live to 85 and this is what it might look like if you live to 95 and this is what it might look like if there's a downturn," or whatever the case is.

Speaker 1: So there's ways to go through that, there's a risk analysis basically. And just that way you don't feel like you have to chase those big returns. So all good advice here, following these financial commandments. A couple more I think we can squeeze in for this podcast, thou shall not ignore the costs and fees, which we wind up doing. We all talk about wanting to save money on cost and fees, but a lot of times you're surprised and shocked exactly what you are paying.

Tony: Yeah, that's right. And this is one where most people know that no investment, no matter what, is totally free. Some people get kind of confused as well, I'm doing my own planning therefore I have no cost, and that's not true everything's got a cost.

Speaker 1: I think breathing even costs money if you break it down.

Tony: But it can vary and if you're working with an advisor, and we're no different, obviously it's just like your accountant or your attorney, we have to make money for our advice. However, it's important to know exactly how much you're paying for that advice. And/or if you're not using an advisor, it's important to know how much, say for mutual funds example, what their expenses are because that's a fee. And a lot of times, and you gave an example that, which is better, basically, I'm getting an eight and a half percent return and I'm paying a 1% fee or I'm getting a 10% return but I'm paying a 3% fee.

Tony: And everybody spouts off their gross percent returns, but nobody talks about the net. And that's what's important because that's what you get to keep and add to your portfolio. So I think you need to get all the information, you need to be able to understand how your fees or expenses are being calculated and know what percent they are so you can digest that. Because you take that out over 10, 20, 30 years, and the difference in fees can add up. And so obviously you want to try to keep them at a minimum, but you'll never escape them completely.

Speaker 1: Yeah. And there's no free lunches. Everything has a fee. And a lot of times folks will say, "Well, I'm only paying 1% to that point because that's what my advisor is charging me." And it's like, well, that's just the advisor's fee. Again, to your point there's mutual fund fees, there's all these little hidden things that are in there. And sometimes you might wind up adding this up and to that illustration, you might be saying, "Well, I'm getting 10%. That's awesome." But by the time you add everything up, you're paying almost four in fees, well then you're only making six.

Tony: You make six.

Speaker 1: Which still six is pretty good, but understand that. Just understand it so you're like, "Wait a minute, why am I not up 10%? Shouldn't I have 10% more money." No, you only have 6% more money.

Tony: And sometimes the lower number can be achieved with less risk and less fees. And so therefore it, for a lot of people, makes them feel a little more comfortable at night.

Speaker 1: Yeah. Well, again, it's a plan. What do you need? Like you specifically because everybody's different. What do you need to make things work for you? And a lot of times as Americans, as people, we always want more and there's nothing wrong with that. We want to try to get as much as we can in places but there comes a time, I think, in life, Tony, where, and talking retirement, where, hey, if you've got it in the bag, if you're pretty close to winning the game, then maybe stop playing or at least not playing as hard. There's no reason to risk it if you don't need to. If you're basically there, then hey, take the lower number but if it's the safer number, because then you know that you're cruising at this point. Now you're just enjoying, now you're jumping in the car and just taking a ride in the country because you can if that makes sense. All right. Well, good. You're taking a ride to Napa because you want to.

Tony: That's right. Because I want it. I enjoy it. And yeah, exactly.

Speaker 1: All right. Well, let's do one more here, thou shall not overlook the importance of rebalancing and diversifying. And boy 2020 has been a hello moment for balancing and diversifying, right? Because if you were diversified enough, you maybe didn't take a 30% hit in March.

Tony: Exactly. And with the people we work with we stress this and I think most advisors do these days because I think this is the importance and the value of having someone help you. And basically, I don't want to say explaining the value of the fee we charge, but maybe what we're worth so to speak. But if you just choose some investments and just say, I'm going to set them on a shelf for 20 years and never rebalance or never diversify you may or may not be okay. And the importance of diversifying and of course rebalancing it every year is some asset classes go up a lot more than others in a particular year and then you're over weighted in those. And then you start the new year kind of lopsided a little bit based on, again, your overall plan.

Tony: And you want to rebalance that and keep those asset classes, the exact percentages are very close to what your plan is. And then if your plan changes, you change those. But beyond that though, you want to make sure that whatever you're doing you want to be diversified over a lot of asset classes. Some people talk, no that's going to lower your return and that you can get better returns by just staying in one asset class, for example, pretty aggressive. But most people don't have the stomach for that and they just as soon re-diversify so at least you know when we do have these crazy fluctuations, something that you own is doing well. You may have a few that aren't, but that helps level out the volatility. So I just think you've got to make adjustments along the way and you've got to hopefully have somebody in your corner helping you with this because I think this is where more do it yourselfers don't pay attention.

Speaker 1: We were talking about fees as a second ago and then you mentioned the word value. There's nothing wrong with fees if you're getting value for the fee that you're paying. I use the cheeseburger analogy all the time. If you're hankering for a cheeseburger and you can go to McDonald's and get a cheap one, just understand that you're getting a cheap one. It's not costing you a lot and you're getting a cheap burger. Or you can go to your favorite mom and pop or something where they make this extravagant burger that maybe cost you $8 or $9 versus the $2 McDonald's one. Are you getting value for that $8 cheeseburger? If you are, then it's worth it to you, right?

Tony: Yes, exactly.

Speaker 1: So that's the same kind of idea when it comes to working with an advisor, are they bringing value to you? Is it helping you in the long run? Yes, there's costing you fees, but there's costing you fees in everything. So do the fees justify the value that you're getting, the advice that you're getting, the support that you're getting? And sometimes it's more than just picking a few things in the market, obviously. A complete planning review process like Tony goes through, all the things that he does, it's more than just as an EA and a CFP you're not just a stock broker, you're not just picking stocks. If you want that you can do that on your own. It's easy enough to do.

Tony: Yeah, in today's world.

Speaker 1: Especially, yeah. You're getting that holistic advice that's kind of the A to Z, if you will. And to your point, sometimes it's that sounding board advice like that story with the lady earlier. You're not going to be able to call up your robo advisor and ask, "Hey, should I remodel my kitchen?"

Tony: Yeah. And I tell prospective clients a lot when we sit down, because I take them through a series of interviews to determine if we're the right fit. But if I hear somebody saying, "Well, I expect to have returns at or better than the S&P every year." And what I tell them is, "You know what? You don't need me because I can tell you very easily how to go do that and you can just go buy a fund and you'll have that. You're going to have 500 stocks of which 20 will do very well, the others won't and you'll get whatever the S&P gets." But if you've got some things in your life and you want more than just that then I think that's where the value of an advisor is going to come into play.

Speaker 1: If you want some help with social security, the strategy that goes with that, how to do tax planning, not just tax prep, so that you're keeping as much as possible, how it's all going to work at legacy, all these kinds of things then yeah, that's what you're turning to an advisor for. Not just, like you just pointed out, to pick a fund and jump into the S&P. All right. Well, I think that's a good show. I appreciate your time as always. I think hopefully people learned something from that. And if you've got questions as always reach out to Tony at 844-707-7381 before you take any action. Again, you should always check with a qualified professional, like Tony, who is an EA and a CFP of over 20 years. So give him a call at 844-707-7381, or go to yourplanningpros.com and while you're there you can subscribe to the podcast Planning with the Tax Man. There's also a lot of good tools, tips, and resources to be found at yourplanningpros.com. And we'll finish it off with a fun little getting to know you. Tony, what's a habit that some people have that drives you nuts?

Tony: I'll tell you my real pet peeve, and maybe you can relate to this, maybe some of the audience can, is I think with all the technology we have, even on our phones, it amazes me in this day and age when you make an appointment with somebody and then they'll call you up or email you like 10 minutes before, "Hey, I can't make it. I forgot about it." Or I find it weird that people tend to... they can't commit. And I'm not talking in professional life at appointments with me, I'm actually talking personal. It drives me crazy when friends of mine they'll commit, "Hey, let's go play golf or something." And they'll call up 15 minutes before, "Hey, I forgot. I got to take my son to soccer league." You didn't know that two days ago? It's like, I just can't-

Speaker 1: It's more of a lame excuse to get out of that. I'd rather you call me and say, "Hey, man, I don't want to today. I'm sorry. I should have said something sooner, but I just don't want to." Don't give me a fake excuse.

Tony: When I was younger it never really bothered me but I notice it more now that we're all just kind of... sometimes we jump to the next best thing or maybe we committed when we were in the mood, now we're not in the mood. It's just kind of crazy, but I don't know-

Speaker 1: And life gets hectic. We get busy. It makes sense. But I think you're right, as we age I think our tolerance for, well our respect for our own time grows.

Tony: I think that's probably more it. It's respect for my time. And I try to respect everybody else's time as well. I try not to do that because I know I don't like it.

Speaker 1: I'm with you. It's almost like the doctor analogy with that, we get so frustrated, right? Your doctor's appointment's at 10:00, you get there, they ask you to get there 15 minutes early, you do, and you still wait an hour. And you're like, "Well can I bill you for the hour I waited? Because you know darn well if I didn't show up, you'd bill me."

Tony: I actually said that once. Because I was there for like an hour and a half and I told him, I have a good relationship with my doctor, but I said, "Doc, you're not valuing my time. I'm busy too." And I told him, I said, "As a business owner to a business owner, it sounds to me like you're overworked and you don't have the staff if you're constantly running an hour and a half behind," I said, "I know that this kind of stuff is different than mine. You might've had an emergency, who knows." But yeah, that is really frustrating.

Speaker 1: Yeah. And they're always, "Well we got busier today than we anticipated," or "So-and-so had an issue." And what are you supposed to say? Because it's health. But we all relate to it, we all go, "Oh man, I'm going to start billing my doctor for every time he makes me wait." All right, folks, well there you go. What pet peeve drives you crazy? We all have them, it's part of life, but we do our best to get to them and through them. And of course, if you need help getting to and through retirement, reach out to Tony. And we're going to wrap up here on Plan with the Tax Man, so have yourself a great week, stay safe and sane. Tony, enjoy your trip. And the next time we guys talk to you, we will probably still not know who the president is. Even though we're going to do our next session after the election, but got a feeling that this one might take a while.

Tony: This one might take a while and I'm sure there's going to be some good stories and some things to talk about.

Speaker 1: Some back and forth. Yeah. All right. Well stay safe and sane folks. We'll see you next time here on the program. Thanks so much for your time. We'll see you later on Plan with the Tax Man with Tony Morrow of Tax Doctor, Inc.

Let’s step into the classroom again to cover some financial buzzwords. Are these important to know? What are they? How do they impact you? We’ll answer those questions and more as we always look to educate you a little bit on the show.

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 with Tony Mauro. And welcome to October. This is our October edition of the podcast. We appreciate your time as always, as we talk investing, finance, and retirement with Tony. And this week on the docket, the financial dictionary, and maybe a couple emails if we have time. What is up, my friend? How are you?

Tony Mauro: I am good. Thank you. Just got back from a little vacation.

Speaker 1: Well, how'd it go with the crazy 2020? Okay?

Tony Mauro: Not too bad. Not too bad.

Speaker 1: Hey, that's that's pretty good in this year. I'll take not too bad.

Tony Mauro: I'll tell you it. It's so weird. And I traveled earlier this year out to Vail to visit my son. And it's weird not to see all the business travelers, and people are just kind of stepping back in, but the travel industry is definitely still hurting, so.

Speaker 1: Altered and strange.

Tony Mauro: Ooh, yeah.

Speaker 1: Yeah, for sure. Well, good. I'm glad you had a good time, a little mini or a little vacation there and enjoyed yourself a little getaway. That's always a good thing. And we are into October. So I don't know a lot of people are definitely fans of the fall, fans of the pumpkin spice and all those things that come in the fall along with Halloween and things of that nature. So if you're a fan of that, enjoy yourself as we get started this month. But for today, let's talk about the financial dictionary. Let's step into the classroom, so to speak and just cover some buzzwords. Are these things important to know? We'll let Tony tell us what are they? How might they impact us? Things like that. So, what is well, an EA, an enrolled agent, which is one of the things you are?

Tony Mauro: That is one of the things that I am. Near and dear to my heart and what an enrolled agent is, it kind of sounds weird because... I wish they would have came up with a better name than that sounds like some kind of CIA [crosstalk 00:01:45]

Speaker 1: Well, there you go. It's got a cool feel to it.

Tony Mauro: Yeah. But an enrolled agent is a tax specialist that is enrolled to practice before the US treasury in all 50 States. So it's a federal licensure and unlike the CPA, which is state driven, most people equate CPAs with accounting. EAs basically, I mean, we do accounting and payroll as well, but the EAs more are equated with tax specialists. That's really what we thrive on and what not in that area. So we not only help people with their tax returns and trying to tax plan and whatnot, but we also, at least with us, help people with IRS tax problems which is, we don't really talk about that too much, but there are a lot of people out there that have gotten for whatever reason, a little sideways with the IRS or their states, and they need help because they're not two of the most helpful agencies to work with.

Tony Mauro: And so trying to get them a little bit of peace of mind there and trying to get them back on track is something that a lot of our enrolled agents work in. It's kind of a little specialty niche there, but we want to, if you're looking somebody to help you with your taxes, that you're not doing them yourself or whatnot, you want to look for a CPA or an EA or some somebody like that rather than just Tom Smith is possibly doing them out of his garage, because they're not required to follow any type of rules, they're not held to high ethical standards things like that. And so it's important there, but [crosstalk 00:03:24] that's kind of it in a nutshell.

Speaker 1: That's an EA. Okay. And you've been in the industry now for 23 plus years. You're also, and it's not on our list, but we'll just do it real fast. You're also a CFP and a lot of people hear that and most of us might know what that is, but what's a CFP?

Tony Mauro: A CFP has done a better job of marketing. The [crosstalk 00:03:43].

Speaker 1: That's a good way of putting it. Yeah.

Tony Mauro: Yeah. And of course the King is the AICPA with the CPA because you ask anybody, everybody knows what a CPA is. But a CFP is a certified financial planner. So, again, it's a person that has gone through some rigorous, I would say is an understatement training, and of course exam and to earn that designation in the area of the six major points of a person's financial life or financial planning. And so again, someone that's held to a pretty high ethical standard we're supposed to follow the fiduciary rule and always put the client's interests first, a lot of people don't realize that they just think everybody's does that. It's not really the case.

Speaker 1: Which is kind of silly, right? It's one of those things where you think, why do we need a law to tell us not to whatever, and it's it's common sense then why do we need something to tell us we should be ethical, but yet we do, so.

Tony Mauro: Yeah, we do. And we still have problems. But the certified financial planner, really, most of the people in the profession are planners of some sorts. And are helping people through the various stages of their life and their personal financial plans.

Speaker 1: Well, and as you mentioned, it's quite rigorous as well. So typically a lot of folks, if you're working with somebody who is a CFP, they have definitely some might say gone the extra mile to get all those certifications and get all that extra education and training in there. So that's something that certainly, that some people really look for, so.

Tony Mauro: They really do. And the last thing on that and they're all great from, but having the designations for so long, I think what a lot of people don't realize is because these different governing bodies, what they impose upon us is the continuing ed requirements. That we're kind of subjected to now, obviously we enjoy what we do, and most of that is pretty good, but they also make you really stay current because stuff's changing so fast in, in both of those areas. If you're not doing that, then really you're giving your clients a disservice.

Speaker 1: No, absolutely. That's a great point. And unfortunately it is what it is, but a lot of times it's not like our government sometimes makes rules that make sense, and you've still got to learn them and you still got to work with them right? Within the parameter. So, and of course doing a lot of taxes and things of that nature, you are certainly well versed in some of the things, the goofy things that the government does from a rule standpoint, from time to time. All right. So, that's those two. So let's get into some other things, estate tax. I think most people can kind of figure this out, but they don't often understand what it really is, and how it might affect them.

Tony Mauro: They really don't. And we get a lot of tax clients asking well "When I die, I know I'm going to have to pay estate tax." And they're a little confused on it. This is a very technical area, but what it is, is it's a tax really designed for the government to kind of get their hands on the wealth of the truly wealthy these days. The estate tax threshold is very high right now. It's like 11 million and some change per person. So effectively when you're married, you basically have a $22 million exemption, meaning that if you're not worth more than that, you don't pay any estate tax. And you get out [crosstalk 00:07:01]

Speaker 1: Well, I'm safe, then.

Tony Mauro: It's weird because it used to be, in my lifetime it used to be weighed down around a million then two million, and then 5 million now it has gone up, but you look at some of the very wealthy in this country and you point out some big names and whatnot Warren Buffet, Bill Gates the list goes on and on. Those guys certainly have to plan, but even people, though even on the coasts that are making some money and even here in the Heartland some farmers with the way land has gone up over the years, there could be some big farms that potentially could have some estate tax due when they die, and it's very progressive. It gets up all at the 55% very quickly.

Tony Mauro: And so people with potential state tax issues need to definitely plan not only with the accountant, but with the state tax attorneys to make sure that you're not losing half your wealth to estate taxes for your heirs, if you have those kinds of issues. But for most of us, it doesn't really come into play the most average Joe's and even, I mean 22 million net worth is quite large.

Speaker 1: Oh yeah. Definitely.

Tony Mauro: ...by Midwestern standards. But it's something that it buzzes around and you never know that they could drop these things back down to some other levels to try to capture more.

Speaker 1: Yeah. And there's conversation [crosstalk 00:08:25] about that as well.

Tony Mauro: Exactly, the government's in trouble. In this virus days, you know that they're spending money. I think I just saw a stat last month. What was it? A national summit about the national debt is bigger than the economy now or something.

Speaker 1: Yeah, [crosstalk 00:08:40] it's pretty hefty. So yeah, there's lots of conversation, lots of things out there we see and hear on a regular about different ways they may be coming after different kinds of taxes and things of that nature. Of course, we've got the election coming up and just a couple of days over a month now from the time that we were doing this here. So, there's been conversation there, one side is may raise taxes. The other side may keep it the same. Who knows? Right. So won't know till it happens, but lots of stuff on the horizon. But anyway, for now, let's continue on with our financial dictionary. Support and resistance. This is something it's definitely a buzzword that I think we try to hear in a lot of avenues of customer service, but in this arena, what is support and resistance?

Tony Mauro: Well in this arena and people probably see it more today than they used to because there's so much on the news, especially if you turn on MSNBC or CNN, especially when the market is going, you see all these charts flying up in these colors and things like that. But this is a technical term, again, basically in an area of finance called technical analysis, that the technicians always... Their premonition was, that we can predict how the market's going, by the way that things behave. In other words, the way that the market's kind of go up and down and they plot lines and they do all this. So, in their world, the support line is kind of like a bottom line that a stock or bond might be trading that it doesn't break through. It kind of bounces around between its support at the bottom and it's resistance at the top.

Tony Mauro: And as they break through one of these, usually when it breaks through on the downside, on the support line, the technical people think, "Well, then that's a sign that this stock is probably going to drop further", and same way on the upside. Once it breaks through it keeps going up and they always point to these historical patterns. I never have been a huge believer in it, but in all my years, I've never spent enough time really trying to understand the way lines going to me that again, is trying to predict things that I have no control over. And I'm more of a planner that I know where we need to be over the longterm, and that's generally inequities.

Tony Mauro: And these little micro things I think more are for trying to maybe make money in the short term, which I don't advocate, but there are a lot of people out there trying it and there might be some even doing it, but I'm not a big believer in that, but that's kind of a buzzword. So, if you see it on one of the new shows, you can kind of follow along with the lines and at least have an idea of what it is.

Speaker 1: Right. Gotcha. And That's kind of why we're doing this because we do hear a lot of these terms and different words and things. Sometimes we maybe have a grasp on them, sometimes we don't. And then misinformation, obviously, it was rampant also in 2020. So we can certainly easily go down the wrong path if we're not checking it out. So, let's take a look at a couple of things or one more here, at least for sure. Maybe we can squeeze in another one, but JTWROS? What in the world is that?

Tony Mauro: So, this is a fancy acronym for joint tenants with rights of survivorship. All right. So generally that's a titling issue in property or in certain cases, investment accounts and whatnot. And what that means is that if you titled something like that, you are a joint tenant. And if you and I have something that we own together with this designation, that means if I die, it automatically comes to you with rights of survivorship. If you survive me and it doesn't have to pass through my will. So it's a good thing to have if you understand what it means. And that's your intention.

Tony Mauro: That way I don't have to include that in my will. And I know that the person that I've designated that's on this account with me, it goes right to them. But if you kind of just willy nilly, go into something like that and you get something titled like that, and that wasn't your intent. Then you need, again, talk to your accountant or your attorney and make sure that stuff is titled properly because when you start talking legal stuff, title, and all that, you're usually talking about stuff that matters, which is either larger investment accounts, retirement accounts, property, things like that. You want to make sure that what happens is what you intended to happen.

Speaker 1: Yeah, definitely. Yeah, because there's so many things out there that's for sure. And I'd definitely say if you hear a buzzword or if there's something you keep seeing kind of on repeat and you're not sure what it is, or you're being told about it specifically as it relates to your situation and not just maybe seeing it on the telly or something like that? I don't know why I went British all of a sudden and said telly, but either way, if you've seen something like that, always check with a qualified professional, reach out to Tony and his team, call them and say, "Hey, someone's talking to me about this. What is this buzzword, or whatever the case is." And that could be a lot of things. Sometimes people get confused and there's multiple kinds of annuities and they get all those kinds of jumbled together.

Speaker 1:

So there's so many buzzwords in any industry. It's always a good idea to have those conversations with someone who has a lot of experience in the coast, as we said earlier in the show, Tony is an EA, and a CFP with 23 plus years of experience. So just call him at (844) 707-7381. You can also stop by yourplanningpro's.com. There's a lot of good tools, tips, and resources there. You can subscribe and find the podcast as well. You can also just search out Plan With The Tax Man on whatever app you're using. But if you're at yourplanningpro's.com also send us an email. We'll be happy to try that, tackle those on the show from time to time. And we're going to do that right now. I'm going to switch gears, and see what Jake's got for you. He said, Tony, I'm getting a big tax refund this year, obviously with the delayed filings and everything. And actually I have for the last several years. So it is nice to get that refund, but am I better off just to keep more money throughout the year?

Tony Mauro: Yes. And from a tax perspective, we get this every year. And it's funny because most of our clients our tax clients that is generally receive refunds and they're happy with that because unfortunately they use it kind of as a forced savings. And that's the only way they can save. Now from the financial planning world, that's probably not the best way to save because the old adage is you're giving the government an interest free loan. And back in the day, when you could put it in a savings account and get five, seven, 8% on it it made a lot of sense not to let them do that, but in today's world with savings interest rates so low it kind of just depends on personal preference. I mean, some people just want that money.

Tony Mauro: They use it for vacations and to pay off their Christmas spending and whatnot. And that's okay, it's all your money. It's not magic here, and I think every year we have to remind some clients, this is still your money here. Do you want it a little bit in little chunks throughout the year? And they all say "No, because I can't save it. It just gets eaten up. I don't know where it went, and I'd rather have it now", others are more savvy saying, "No way. I'm not letting the government hold any more than I have to. I want to pay my fair share [crosstalk 00:15:42] I want my money."

Speaker 1: That's always how I heard it. I would have people say stuff like, "I'll tell you what, why don't you give me the money? I'll hold it for you, and then I'll give it back to you at the end of the year with no interest", that's what the government's doing, right?

Tony Mauro: That's what government's doing. Yeah. And when you put it like that to people if I did that with our many tax clients, well I could have a lot, and that's what they do. I can have a lot of money I could use for you, now with the caveat is I got to give it back. [crosstalk 00:16:10].

Speaker 1: ...to give it all back. Right. Yeah, sure.

Tony Mauro: If I go spend it. But the government is a unique position, because they go spend it as you know, and they spend more than they take in, but then they have the magic wand where they can of course print money [crosstalk 00:16:22].

Speaker 1: ...and send it back [crosstalk 00:16:23]

Speaker 1: Well, let me, let me ask you this, Tony. I was kind of always told, as an EA, tell me where you stand on this. I was always told to shoot for zero. Like the idea is you don't want to have to pay too much and you don't want to have to get back too much because if you do that means you're working your tax equation out correctly. And that's kind of like the ultimate goal is to shoot for as close to zero as possible.

Tony Mauro: Close to zero as possible. We go one more for the people that really want to do that because we say, look, if we can get you plus, or minus $500 around that zero mark, we have done really well. So, yeah, if you're okay with something happened and okay, I owe $400 here, no big deal, or a, we missed on the other side and you get back 400, you know that you're maximizing the money in your pocket, and making sure that you don't have a huge surprise at the end of the year, because the government wants its share and you got to pay it or you get behind the eight ball there. [crosstalk 00:17:25]

Speaker 1: That's how I was always told. So, yeah, same kind of thing. You say zero, but right. It's that like within a 500 bucks or so, because something that won't be too catastrophic either way, right?

Tony Mauro: No, exactly. And that's the way I feel. I don't like to let the government, I'll give you an example here, too, of the government, hold, in fact, it's going on right now with my brother, second year in a row. So, in 2018 he did not get his refund, and they owed him about 4,500 bucks. Okay. And they kept telling him that his W2 was wrong. This was the Feds. And we did not get this straightened out until November of 19. So he was supposed to get his refund back in April of 19. Didn't get it until November. Well, luckily he didn't necessarily need that money, but it kind of got to a point where like, "Wait a minute, this is my money. I didn't make a mistake here."

Speaker 1: And he didn't get any penalties and interest, had it been the other way.

Tony Mauro: Oh yeah. But the other way penalties, interest. So he had to finally get me involved and we had to contact the taxpayer advocate. The advocate agreed, said, "Let this guy have his money. You guys made a mistake", meaning the IRS, and they released his refund. So, if you were depending on that money and then you didn't get it like that, you're at the whim of a huge, huge organization that has a lot of bureaucracy, a lot of inefficiencies, why go through all that? And it happened just here in 19. So he filed this 2019 taxes here in March of 20. Still doesn't have his refund and we're fighting with the IRS again. We're going to have to go to the taxpayer advocate again.

Speaker 1: It sounds like he's stuck in sonar or some sort of rabbit hole there.

Tony Mauro: [inaudible 00:19:04] ...it's not an audit. It's just that they can't figure out why his withholding doesn't appear correct. And now what he's done though for 2020 is saying, all right, that's it, I'm not letting them hold my money anymore because I'm not going to have to fight with them and go through the aggravation just to get it. And so that's... And then same way with Iowa here, a couple of years ago, Iowa said, "Well, we're a little short, we're not going to issue refunds till April", basically when they had money coming in from estimates, and so I just have something, and I'm not knocking the government, don't get me wrong [crosstalk 00:19:35].

Speaker 1: ...it's a huge, huge entity, and there's definitely going to be some just mess in something that large.

Tony Mauro: So, I mean, what happens when you're, depending on your two, $3,000 refund to go on spring break vacation, something like what I just said happens. And then you can't go [crosstalk 00:19:51]

Speaker 1: ...fix your AC unit or.

Tony Mauro: Yeah. That's not good. I mean, you're eventually going to get your money, but then you just really get mad, and it's [crosstalk 00:19:59].

Speaker 1: Oh yeah, and again, to the point I had earlier, I think that's where people get really annoyed too. It's the same kind of thing with, and for any doctors out there listening, no offense, but it's the same thing kind of thing when it's like, if you happen to not call and tell them, sometimes you'll get hit with a charge for for missing your appointment. But yet we can go sit there for sometimes an hour or two hours past our appointment time. And yet we don't get any kind of recompense on that same thing with the government. It's frustrating when you're like, "Wait a minute, how can you hold onto my money for five months and not pay me anything extra? But if I owed you some money for five months, man, you'd certainly be after it."

Tony Mauro: Oh, they'd be after you. I'd get letters, probably some threatening letters [crosstalk 00:20:38]

Speaker 1: ...it's so funny about that. I sent something in one time and we were off like by, I don't know, $4 or something. And so you get the letter for $4. You send them the $4 and by the time they get it, they've already sent you another one saying that the $4 was late, and now you owe like a dollar 75. And so you said the dollar 75 and the same thing by the time you get it, it's down to like 40 cents. I'm like, "Oh, are you kidding me?"

Tony Mauro: Yeah, no, it is. And we always recommend getting everything paid. Don't don't send checks anymore. Let's let's pay it EFT. So it's, boom, it's right there [crosstalk 00:21:08] because even in today's world, right now, what's happening with COVID is people's money. Their tax clients call and say, "Well, I sent a check, it's not cashed. Hasn't been for three months." So, they forget that IRS has been [crosstalk 00:21:20]

Speaker 1: Now, that has not been the problem for me. So I do my [crosstalk 00:21:23] quarterly estimates, no, they actually were on it. They used to be actually slower. I sent my quarterly estimates in this year, as you mentioned, some of those earlier, and I wrote them on Monday. They were cashed by Thursday. Oh, that's good. I was surprised actually, because within three days, I was like, "Okay, well I guess that's going good." Or they're like, "We need the money to give it here."

Tony Mauro: That's right.

Speaker 1: All right. Well, there you go, folks. So, that's our financial dictionary conversation this week. You're on the podcast. Thank you so much as always for tuning into the show. We certainly appreciate it. And if you haven't done so yet, please consider giving us a subscribe on whatever platform you choose. Apple, Google, Spotify, maybe this was sent out to you in an email blast or something from Tony or whatever the case might be if you haven't done. So we'd certainly appreciate it. Just type in Plan With The Tax Man in whatever app you like using, or go to yourplanningpros.com. Again, that's yourplanningpros.com. You can find a wealth of information there as well. And of course, if you have any questions, always reach out first (844) 707-7381. And I will talk to you in a couple of weeks or probably just shortly before Halloween. So, you have yourself a good October and I will catch you soon.

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

Speaker 1: We'll see you next time folks right here on Plan With The Tax Man with Tony Mauro.

We get a lot of questions about how the house (or houses) fit into retirement plans. From downsizing to rental properties to interest rates, let’s explore some of the top retirement questions as it relates to all things housing.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

----more----

Transcript Of Today's Show:

Marc: Hey, everybody. Welcome into this edition of Plan With the Tax Man. Thanks so much for hanging out with Tony and myself as we talk investing, finance, and retirement. And this week, well it's on the house. We're going to actually talk about the house and how it fits into retirement plans. But first Tony, what's up my friend, how are you?

Tony: I am fantastic. Although it's getting cold here. It's in the fifties and raining.

Marc: Man, I'd say it's a crazy week. My in laws live in the Wyoming area. And of course, I don't know if you saw this or not, but obviously Colorado got in the corner there and they got eight inches of snow. They can see the fires and they got eight inches of snow. Crazy.

Tony: Yeah, yeah. It's definitely a weird weather pattern, we got going right now.

Marc: That 2020 Bingo card as you and I were talking before we started. No one could have guessed some of the things, we had dueling hurricanes this year, they call it a hurricane square dance. They might touch each other and spin around. And we had the weird thing that happened there in Iowa that no one has ever heard of before. So, just crazy. And then of course, obviously, all the other stuff that we don't need to get into, because everyone knows about it, but it's just been a wild, wild year.

Tony: Definitely.

Marc: So, we're going to simplify it and just talk about our house. How about that?

Tony: That sounds good.

Marc: We get tons of questions all the time.

Tony: I love talking about houses.

Marc: Well, we get tons of questions about them, right? So let's just talk about it a little bit, whether you're thinking about downsizing, or you're thinking about how does it fit into your legacy plans, or do you want to have rental properties, or whatever the case might be. Let's just explore some top questions that relate to the home. So Tony, where do you fall on the debate of pay it off, pay off the house as soon as possible going into or in retirement or leading up to it or whatever, or with all the interest rates that we've seen, really low this year, a lot of people re-fi'd, maybe keeping the mortgage and paying it off slowly. Where do you stand on that debate?

Tony: Yeah, I'm a big believer, and there is a debate, and I love to argue with clients about this and actually show them the math. But the old adage is, well, you have a house, you can't obviously pay it off, many can't, all at once, in cash. So you take out a mortgage and you, of course, you can write off the interest, for your taxes. And with today's low rates, that's even more attractive because obviously, it makes for the fact that people can maybe afford more or keep their payments low. But I'm a big believer, I'm a Dave Ramsey disciple on this, I always suggest trying to get out of all debt and staying out of all debt at all costs. And so if you're asking me, I have my own house paid off, it was such a great deal when that happened and I never want to have a mortgage again.

Tony: But that being said, you can't just do it all, in over the course of two to five years for most. So I definitely would work toward that goal. Maybe pay a little extra toward the mortgage to maybe get it paid off a little sooner than you had originally planned and take advantage of low rates while you can. But I always tell people, here's what I tell them, I said, I ask them, "How much is your house payment?" Somebody might blurt out, "A thousand dollars a month." And I say, "Okay, so that's $12,000 a year that's costing you, out of your pocket, for a tax deduction, if you can even take it. And let's say just round numbers, they're in the 20% tax bracket, for a $4,000 deduction. So which would you rather have at the end of the year, 12,000 or 4,000?" Of course they always say 12. I say, "Then you need to pay off your house and then you got an instant raise," but that's not possible, again, just being able to go out and do it over- [crosstalk 00:03:36].

Marc: Right. Well, and as we get closer to retirement, people do, definitely early on, but let's say you're anywhere from two to eight years out, sometimes people are in that position where they do wrestle with that classic debate. "Well, I got it sitting there. Do I go ahead and do it? And then what is it saying? I'm house rich and cash poor, or do I want to hang onto it as an additional emergency fund?" And certainly 2020 has probably made a lot of people go, "I want to hang on to it. Just in case something wonky comes out of the blue." So I don't guess there's a right or wrong answer a lot of times Tony, I know there's the math answer, but then as you pointed out, there's also what I call the tummy rule. If it just makes you feel better and helps you sleep at night and settles your stomach down to have it gone, then maybe that's the avenue you take, regardless of the math.

Tony: Yes. And it is. And, but boy, the tummy rule definitely feels good once you're going to be able to do it. My philosophy is, get all the other stuff paid off first. The house would be the last thing, because obviously the rates are low. You can still deduct it potentially. And then just work towards it. And then hopefully by, or a little bit before retirement, you maybe can have that paid off if everything else is going well.

Marc: Yeah. Okay. Well again, folks, so wherever you stand on that debate, and if you have that question on your own mind, "Hey, is it better to have it gone before we get into retirement, or as soon as we can in retirement, or to keep it?" Every situation is a little different. Always just talk with your advisor and see. But I guess if you have to have it, like you said, in order to not feel too beat up, and you shouldn't, that's for sure, it's what we call good debt. So it's much better than having some crazy credit card debt.

Tony: Yes. Absolutely.

Marc: All right. So let's go to the downsize question, Tony. Now this one also can be emotional because some people really want to stay in the home, but maybe they've been there 20, 30, 40 years, 50 years, they've raised the kids. They want to have all that, but there are lots of reasons, both math and economic, but also maybe health and other things to consider downsizing.

Tony: It is. Downsizing is tremendously emotional. And this is almost impossible to just say, other than my own personal opinion, but it's changed a lot since I'm getting a little older, back when I was young, I wanted a bigger house, in retirement, I wanted to be able to have all this room. Now that it's really starting to get a little closer, some things creep in and why do you need all that room, and whatnot? But the rationale sometimes there is well, maybe we should downsize. Maybe we have more home that we need-

Marc: Maintenance, maybe, right? [crosstalk 00:06:07]. Maybe there's a maintenance thing.

Tony: Yeah, maintenance is becoming an issue and just don't want to mess with it, with the time we have left, maybe we downsize a little bit and still get something comfortable. And some of it, sometimes, it has to do with money. Generally, the clients we work with, generally not, they just are looking for something a little smaller, less maintenance, less worry. And again, as we age, many of the clients are looking for everything on the same level.

Marc: Right.

Tony: Because they can't go up and down stairs.

Marc: Yeah. The knees can't take it anymore. Well, and I imagine that opens up some interesting, because we just talked about paying off the house, but if you're looking to downsize in retirement, there's some people listening saying, "Well, now I'm going to have a mortgage again." Now it depends on the situation you come out of if you sell the prior home, but it is a possibility, right?

Tony: It is a possibility. They may have a mortgage if you didn't have the other one paid off or still owed quite a bit on it because if you sell it and make a little bit of money, you're going to end up probably dumping that money into the new one and maybe taking out a mortgage. But if you own it or are close to the one you're selling, that really isn't an issue, but I'll share a story. I just had it with a client.

Marc: Sure.

Tony: He's relatively young. And his kids, who are relatively young. So he's in his fifties, his kids are in their late twenties, early thirties. And he decided he didn't want a home anymore. And he owned it. And he bought a condo. And a very nice condo, I would say luxury for sure. But you know what he didn't think about is, he didn't think about and he's already kicking himself, that what happens when my kids started having kids and my grandkids want to come over? I really don't have anywhere to even go play.

Marc: Right.

Tony: And so there's a lot of issues to think about there.

Marc: Absolutely.

Tony: I think about that. And so you just got to talk it out, see what's best for you and try to make the best decision there, but, no right or wrong answer there for sure.

Marc: Well, and I think a lot of times, if health is dictating it or whatever, again, have these conversations also not only with your partner, your spouse, but also with your advisor, because they might be able to shed some light on some tax situations or whatever the case might be when it comes to maybe switching from the home you used to have to the smaller one or whatever the case might be. So these are all good questions to think about when it comes to this component, which is also a pretty big component to your overall retirement plans. All right, so now some folks really like the idea of rental property. We've obviously had this fad for a while now, people wanting to get into flipping houses and all that stuff, but a lot of people think it's a good idea to have rental property as a source of creating income in retirement. How do you feel about that and what are some things to think about?

Tony: Well, I'm definitely biased here because we have owned rentals for probably 27 years. And we started out back in the day when I didn't have many clients and we basically had nothing to do. And so we learned it from our dad and we helped him with his rentals and then started acquiring our own. These days, now, we have multifamily housing. So we used to have single family dwellings. But our dream was always to own them until retirement and creating income in retirement. I think it's a good idea if you know what's involved, because people come to me during tax season and say, "Well, you guys have got a lot of rentals. Tell us about them. It sure looks easy."

Marc: Until you've had a rental.

Tony: It's not. Until you have them. It's definitely not out... Like you're owning a retail, brick and mortar business, but if you have say, a single family dwelling or a few of them, I think the biggest thing you got to understand is, there is some work involved. There is some time involved in how physically able, or how much time do you want to spend at it in retirement?

Marc: Right. Well, I think some- [crosstalk 00:09:54].

Tony: Generally... Oh, go ahead.

Marc: I think some people, Tony, I'm sorry, I think some people go into it thinking, A, it's good for income B, maybe they're handy and they think this is a good way to stay active because we can work on the house. But you do have to think about, as you continue to age, do you want to be on a roof? Or do you want those 2:00 AM toilet calls? Or whatever that case might be, right?

Tony: Or worse, when you get the call or you have to basically kick somebody out or they're moving out and they've destroyed the place. And the biggest thing that I tell people that want to know about it is, I tell them, you have to understand and come up with an amount of net profit you need every single month. And then eventually, things happen. And you have to put a little money aside because every once in awhile, something's going to go out and you don't want to have to constantly dip in your own pocket to repair a furnace or worse.

Marc: Sure.

Tony: And what we used to do is we used to go in, and back in our rookie days, I call it. You buy a house, you think, "Well, we're going to net $200 a month on this." We were ecstatic.

Marc: That's great, yeah.

Tony: Yeah. 12 months go by and that's only $2,400 and that's after everything, but you have one major repair or you have one person that destroys your property. You just destroyed your net income for maybe two to three years. And then, now you're behind the eight ball. And so you got to think about those kind of things and you got to make sure you buy it right, you rent it right. And so there's a little bit of work to it, but it can create a nice income of semi passive, I guess I should say.

Marc: Well, and maybe you want to go the route of a property manager, just again, factor that into the budget, right? Because that's going to come out of what you're expecting to get for that rental income to pay someone else to manage all that for you.

Tony: True. And most of the time though, we found, as clients and perspective clients want to talk to us about this. If you're only going to have one or two rentals, especially single families, property managers, although they're good, they're going to eat so much of your profit up, then you're back down to, there's not enough there, but as you acquire more, they're definitely worthwhile. We manage our own now, we're our own property management company, but back in the day, we were like that, we were the handyman, we were everything.

Marc: Oh yeah, no.

Tony: It was great.

Marc: And again, and it could be something you enjoy doing. There's a lot of people that like that kind of stuff, but just be prepared to deal with some of the negatives and unfortunately, it just is what it is. Typically, not all renters, but I would say more than half probably, if you were going to weigh this out, they're just not going to treat it as though it's their own place, right? That's the whole... So you do run into snags where you're going to have some bad tenants from time to time and it's going to cost you. So just make sure you're prepared for all that.

Tony: Yes.

Marc: All right, so then final one here to wrap this up, then. What complications have you seen, Tony, in your many years? 23 plus years of doing stuff in handling real estate when it comes to the estate or legacy side? Now, whether it's just the family home, whether it's a family that had multiple properties, it doesn't really matter. Just some bullet points to consider when dealing with real estate and legacy.

Tony: Yes. And even with mainly your principal residence, what we see a lot of is everybody comes in, especially as they start aging and they immediately hear or see things and they come in and say something like, "Well, I want to get the property out of my name. I just want to title it in my kid's name." And we of course say, "Why?" And they have no answers. They just hear it. And most of the time they're concerned with potentially having, and this is just one bullet point and there's many, that they're concerned with, "Well, if I have to in a nursing home, I want them to have something," and they don't understand all the rules behind that. And there are a lot of rules behind being able to do that. But, so that's one thing.

Tony: Generally, people want to do that. Other people want to make sure that if they pass, everything passes directly to their spouse via ownership, contract rules versus the rules of the will.

Marc: Right.

Tony: And so there's some issues there. And then of course, when you get into legacies, if you have more than one home, maybe a vacation home or something, and you want to leave it to somebody outside of your spouse, I would definitely talk to your advisor. And of course, if I'm your advisor, I'm going to ask you, let's talk to your attorney as well, because you want to make sure that you do this stuff right, because you're talking big numbers here and a mistake trying to maybe do it yourself, or listening to somebody on Google that you don't know what kind of background they have, could be disastrous.

Marc: Well, let me pose a question for you, because I think a lot of times people assume that their kids are going to be good, for lack of a better term, about things when mom and dad are gone and let's just be honest, unfortunately, sometimes money and things make people get a little goofy. So planning things out ahead of time and sharing all those thoughts certainly, certainly advisable. But what do you do maybe in scenarios, and maybe you've come across this, Tony, where I haven't, but you have multiple kids and maybe one's out of state and you're talking just maybe the single family home here or whatever. And one person wants it, one person doesn't want it. Now that seems like that could be easy but I would imagine that also dividing things up or making sure that both children feel that they got equal amounts of the complete estate, maybe if one got the home or one didn't. There just seems like there could be a lot of moving parts that it's better off to iron those things out earlier on, I would assume.

Tony: Definitely so. And we see it in these parts, even though we're in the capital city, but we have a lot of clients that own farmland and what happens when somebody passes is one of the kids is sometimes, "Well, I'm out here, I'm farming right now. So I want all this. I want to keep doing what mom and dad have done for all these years." The other kids are in the cities or in different states saying-

Marc: Could care less, right?

Tony: Yeah. "Well, we just want our cut, because we're not there." And the person back here saying, "Well, I don't have the cut to give you because I still want to do it."

Marc: Right.

Tony: So that's an issue, but yes, there's a lot of second and third marriages, we have problems with, too.

Marc: True, yeah.

Tony: Kids from the original marriage don't want dad to give the house that they grew up in to the second wife and just all kinds of issues.

Marc: Yeah.

Tony: So definitely, you got to do some talking through. It starts though with, I think, an honest sit down with your attorney and possibly your other advisors to iron out what you really want, just to make sure that everything's all very cut and dry.

Marc: And depending on the situation, Tony, I imagine then that's when you get this team together, you sit down with your financial advisor, like yourself, you bring in an estate attorney or an elder law attorney, something like that. And you go through and figure out what your wishes are and do you need a trust to make that happen? Or do you need a will? And make sure your BDs are correct. Whatever the case is and just go through all those steps. And then as an EA and a CFP, you're also able to say, "Okay, from a tax standpoint and things like that, let's look at this or that or the other, as well."

Tony: Correct. Yeah. Because there are some tax ramifications in there that as you pass this property around, there are some cost basis and gain considerations. And so you just got to think it through, and then you got to be able to go back to the team as needs change because, just because you set up something today, doesn't mean 10 years from now you can't change it.

Marc: Sure.

Tony: In fact, I'm going out with our own attorney at the end of this month. And we're making a slight change to our buy/sell agreement. It's always could be changed, but you just got to get started and make sure you're doing it properly.

Marc: Right. Absolutely. And that's the key, getting started. So we're going to wrap it up this week, here. So that was our conversation about the house. If you are already a client of Tony's and you've already addressed these things, you're thinking, "Well, that doesn't apply to me." Well, maybe you know somebody who does, maybe you've got a friend or a family member that could use the message as well, share the podcast with them and you could do so at yourplanningpros.com. That's yourplanningpros.com. If you haven't subscribed to us yet, go ahead and do so or let whomever you share that with know the same thing. There's lots of easy ways to do it on whatever platform you like, Apple, Google, Spotify, although Google is changing. I think it's going to be Google Podcasts now.

Tony: I heard, yeah.

Marc: I think they're switching as well. So I think we'll be coming to Amazon Audible soon as well. So just lots of ways for you to get playing with the tax man and get some content from us. And we certainly hope that you enjoy it and appreciate it. But if you do have questions, you do need some help or know someone does and is in a situation where they need to make a move, before you take any action, you should always check with a qualified professional, like Tony and his team. So reach out to them at (844) 707-7381. That's (844) 707-7381, he's right here in the central Iowa area at Tax Doctor, inc. So give him a call and check him out.

Marc: And Tony, my friend, thank you so much for your time. I hope you have a wonderful couple of weeks and I'll talk to you soon.

Tony: All right. Thank you, Mark.

Marc: We'll catch you next time here, folks, on Plan With the Tax Man. Don't forget, subscribe to us at yourplanningpros.com.

The retirement world is full of retirement rules. Are these rules legit or full of bull?

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

----more----

Transcript Of Today's Show:

Marc Killian: What's going on, everybody. Welcome in to another edition of the podcast Plan with the Tax Man. I'm your cohost Marc Killian alongside Tony Mauro. What is going on? Tony, how are you buddy?

Tony Mauro: I am fantastic. Getting ready to head into fall here. So, everything is good.

Marc Killian: Yes. Labor day weekend is upon us. So this is coming out a few days before labor day. So happy. Let me, what was the old Chris Berman thing on ESPN? Let me be the first to wish you a happy labor day. So I'll recycle that for Chris. Got any plans for labor day bud?

Tony Mauro: For us it's pretty low key. If the weather's good, play some golf and just relax.

Marc Killian: Okay, nothing wrong with that.

Tony Mauro: Yeah.

Marc Killian: It's a day off from labor.

Tony Mauro: It's a day off from labor. Yeah. And so I always tell my wife that too, I don't want to do anything around the house.

Marc Killian: Right. Hey, let's do this, this and wait a minute, wait, Hey, it's a day off from labor. So yeah, we finally got our deck done. My wife and I about a week or so ago, so we plan on, if the weather cooperates, which it should, being in the pool a little bit, hanging out on the deck, maybe having some burgers or something on the grill, keeping it pretty simple. So we hope all of our listeners enjoy their labor day as well.

Marc Killian: Don't forget to subscribe to the show on yourplanningpros.com. That is yourplanningpros.com, that's Tony's website. Just click on the podcast. You can listen to past episodes. You can get notified about future ones simply by subscribing. And you'll just get notifications when they come out. And we're going to have a fun episode this week. We're going to talk about some rules of thumb, Tony. So I want to know if these things are legit or full of it. Full of bull, if you will, I'll just leave out the other parts. All right. So let's dive into this, the 10% rule, maybe folks have heard this going through your life, right? He's like, "Oh, just save 10%." That's the 10% rule, right. Am I correct on that?

Tony Mauro: That is, yes. Save 10% of your income and you'll be set for it [crosstalk 00:01:50].

Marc Killian: And all will be fine. Yeah. How do you feel about that? What's your thoughts on that?

Tony Mauro: Well, my thoughts on all of these because we're going to go over a lot of numbers here and me being a numbers guy, I have to preface it with the traditional accountant disclosure. But I do think there's both sides to a lot of these, but I'll give you my two cents worth on where I feel. But there could be some arguments as, if I think something's bull or it's legit where someone else is going to maybe disagree and they may have valid points there. But the 10% rule, so I'll try to explain both, I think for the most part, it is legitimate, but I think it depends a lot on when you start that.

Marc Killian: When you start, yeah.

Tony Mauro: If you're 20 years old and you can do 10% of your income and you can do that for 50 years and you're set, you will be fine, unless you really mismanaged the heck out of it. Now take the same person starts out when they're 50 or 55, you're not going to be anywhere close depending on what your goals are. So one for you and your advisor to probably discuss. And because that number depending on when you start may need to be more than 10%, but that's a general good rule.

Marc Killian: Okay. All right. Because then again a lot of that depends on when you actually started it. How about the 4% rule? Now we hear about this all the time. We've talked about it numerous times. I think this is a late eighties, early nineties rule if I'm not mistaken, what is it? And is it legit or full of it?

Tony Mauro: So the 4% rule really originated with advisors saying, "Well you can basically safely withdraw 4% of your investment portfolio when you're retired and you should never run out of money." And I'm going to say right now, I'm leaning more towards the bull on that one only because that back in the day the 4% rule did work and it still can work today. I think even the 5% rule can work. But again, it depends on really what you're invested in and how much your nest egg starts out with. The problem with the 4% rule is on the safe side of the line, which I always call that's FDIC insured, your CDs, your savings accounts, things like that, all retirees and everybody knows those don't pay anything now. And so that would never work if you want to stay on that side of the line.

Tony Mauro: If you want to cross over and get into some more traditional types of income paying investments, you certainly could do the 4% rule and make it work. It's just that in some years, when the market isn't earning 4% or even going backwards, your principal will go down a little bit and you've got to be prepared for that to make that work. So, but 4% I think is a conservative figure. It's still used today. I use it a lot and we try to go for five depending on what the client can tolerate for risk, but-

Marc Killian: And it is a kind of a rule of thumb as well.

Tony Mauro: It's a rule of thumb yeah.

Marc Killian: So these first couple of ones we've done are definitely rules of thumb. And I think this next one, I'm not too familiar with this, but what do you think about the 25x Rule? What is that?

Tony Mauro: 25x Rule is basically you take your annual income, you multiply it by 25 and that's the nest egg you're shooting for in retirement. And I like that as again, just as a general ballpark, because for example, you make a hundred thousand dollars times 25, that's 2.5 million. If you take that 2.5 million, assuming that you can get that and you use the 4% rule, it's about a hundred thousand a year before taxes. You're right where you were when you were making a salary. So that's not a bad thing. I think the drawbacks to that is, well, what if I want more than that obviously then that that number becomes larger. And then for some but not many, they certainly could survive on less. But I think again, if you're starting out young, if you just got that big picture view, that's not a bad thing to at least start out as a goal. Obviously it's going to need to be adjusted, but I like that.

Marc Killian: All right. So that was a 25x Rule. So 25, multiply your annual income by 25 to see how much you might need. Okay, the 80% rule, we've talked about this before in the past, on the show. This is basically that rule of thumb that you'll need about 80% of what you were making when you were working in retirement. And some of these rules, clearly, if you [inaudible 00:06:20] and say, "Well, some of these sound contradictory." And again, that's why they're rules of thumb, right?

Tony Mauro: Right.

Marc Killian: What do you think on the 80%?

Tony Mauro: Well, the 80% rule I tell you I don't say it's bull, but I'm going to lean that way. I take it back, I am going to say it's bull. I think that all my retirees say that they're spending as much or more-

Marc Killian: Or more, yeah, exactly.

Tony Mauro: Than they did pre-retirement. Now it may not all be on fun and glamor. Some of it is, they have some health problems, their insurance is higher. They're traveling more, that's a little bit of fun and glam, but their needs don't seem to go down. And of course, prices last time I looked, never go down. Everything goes up. So you could get that done, but that is going to be hard to do. And I wouldn't shoot for that, my client's portfolios or in their overall picture, I'm shooting for a hundred percent.

Marc Killian: Yeah, no I'm with you on that. And the Gogo years, as they say, we spend more in retirement early on those for those first few years, pre COVID anyway, and hopefully post COVID. But at some point we want to get out and do things and have a good time. And then the medical side may be starts to catch up. So yeah, I'm with you. I don't think the 80%'s a good way to go on that. Now those are generally rules of thumb. Now I've heard other advisors say these next couple I've got for you Tony, are more mathematical and they're not really rules of thumb and that these actually have a bit more legitimacy to them, but I'm going to see what you think. The rule of 72, what is it and what's your thoughts?

Tony Mauro: So the rule of 72 is basically a, I don't know how this came about, but it's been around for a long time and it is legitimate. It's basically saying that your money doubles every, depending on how much you earn. So it's the rule of 72. So let's say you're earning 8% on your money. You basically take your earnings or the rate of return divide it by 72 and that's how long it takes your money to double. So in this case, I made an easy example, your money should double every nine years.

Marc Killian: Okay.

Tony Mauro: And the key word is should.

Marc Killian: Should, right.

Tony Mauro: Because the only way that that's going to work is if that 8% is consistent or unlike the stock market some years you're not going to get that, some years you're going to get more than that. So that's kind of an average. In the old days, basically say, "Well, if the market's longterm rate of return is 10%, my money's going to double every 7.2 years." But again, that's over long periods of time. If you take 2000 through 2010, for example, that your money didn't double in those seven years, it was a weird time, right? So that's got to be over longer periods of time. But I do like that rule and I still use it in my head very quickly with clients, even if we're doing the 4%, 5% withdrawal rate, how long is our money going to take to possibly double using more conservative figures? So it's a good one.

Marc Killian: Okay. All right. And that's the rule of 72. Now this one is the rule of 2.67, and I'm guessing this is inflation based. You tell me.

Tony Mauro: It is inflation based, yeah. It really is basically taking your income and basically adjusting it or multiplying it by 2.67 to get your adjusted dollars it's going to take for the same amount of living 20, 25 years in the future. And our inflation rates, hovering between 2 and 3%, I think that that's legitimate. Most advisors are going to tell you it and like us, they're going to use inflation adjusted dollars because things do go up and a 100,000 today is not going to be quite worth a $100,000 30 years from now. You're still going to have that 100,000, it's just not going to buy as much. So you've got to take that into account.

Marc Killian: Okay. Yeah. And so a lot of these, and for folks listening, we're talking about rules of thumb or financial rules and are they legitimate? Are they just full of it? Do they have some merit? And in some of these, again, if you use them as a quick get started math in your head, they're not too bad, but some of these are definitely not something you want to hang your hat on. And this last one gets a lot of attention. And again, I feel like this one to me, has turned into more of a rule of thumb than an actual good guideline. I mean, it's great for quick math, but it's the rule of a hundred. Tell us what it is and what's your thoughts on it.

Tony Mauro: So the rule of a hundred generally is you take a hundred minus your age, and that's your percentage that you should have invested in the stock market.

Marc Killian: So if you're 60, right, you have 40% at risk?

Tony Mauro: At risk in the market. And again, big picture general rule of thumb. That's not a bad way to go. Just kind of-

Marc Killian: Just quick dirty math, right?

Tony Mauro: Yeah. Quick math. However, and we have many 60 year olds and we advocate having more than 40% of your nest egg in the market, it may be conservatively invested in the market. It may not be in global type of investments or tech stocks. But I think for most people you got to have a little more exposure to the market rates of returns because the alternatives aren't very good as far as rates of return. So again, I think this with all of these, as you said, Mark, you really need to talk to your advisor about, because this is a good starting point. This is just some fun little trivia here we're going through, but you really need to hone it in that fits your situation based on whatever goals you guys decide on, because and you can use these as little quick benchmarks.

Marc Killian: Exactly.

Tony Mauro: But by no means, this should be the cornerstone of your financial plan.

Marc Killian: Right. And like anything, right? Anything you hear in our show or any other type of financial show, you always want to check that information based upon your specific situation with your advisor. If you're working with one, great. If you're not reach out to Tony, let him know, he'll be happy to help you. But the idea is that a lot of folks do hear these. So for example, the rule of a hundred, right? We were just talking about that. If you're sitting there thinking about maybe target date funds in a way that's how they work, right? That's the idea, as you get closer to that date for retirement, it's supposed to be kicking you down in terms of less risk each year you get closer.

Tony Mauro: That's exactly it. And that's what target funds are set out to do. And I think with the rule of 100, again, if you're just sitting there by yourself and wondering, well, how much money based on my age should I theoretically have in the market? And that's a good starting point now. If you're 40 years old and you have a hundred percent of your money in let's say I always pick on CDs, but that's probably not going to get you to where you're going longterm, but maybe your appetite for risk is just so conservative that you just don't feel comfortable with anything, is that wrong? No, as long as you know where that's going to get you.

Marc Killian: Yeah. And to that point with the rule of a hundred, if you're 40, you may feel comfortable taking more risks than that general rule would say, it would say, okay, well, 60% is what you should have at risk in the market. And that's pretty high. It might be considered high to some folks, but you may need to do more than that to get to your goals. But again, you have to talk with your advisor on that to make sure that you're on the same page with what those goals are and how to best achieve those.

Marc Killian: All right. Well, that was kind of a fun one, something simple, short and sweet and have a little fun with some of these rules of thumb and just kind of general things. So if you've got questions about anything we talked about on today's show, you want to talk, you want to say, "Hey, this rule of 72, how can I apply that?" Or whatever the case might be, or you just need a little bit of help with your financial plan, reach out to Tony about taxes as well because they're Tax Doctor Inc. So give them a jingle at (844) 707-7381. That's the number you call (844) 707-7381 for Des Moines professional alternative at Tax Doctor Inc. serving you here in the central Iowa area. Don't forget to hit the subscribe button for Plan with the Tax Man podcast on whatever app you use, Apple, Google, Spotify, whatever the case might be. You can find it all at Tony's website, yourplanningpros.com as well as a lot of good tools, tips and resources at yourplanningpros.com.

Marc Killian: All right, my friend, I'm going to let you go so you can get ready to enjoy, this is a Thursday here we're dropping this podcast. So the labor day weekend is upon us. Have yourself a great time, be safe and sane and I'll see you soon.

Tony Mauro: All right, sounds good. Take care.

Marc Killian: Take care folks. And we'll talk to you a little bit later here on Plan with the Tax Man with Tony Mauro.

For some people, the idea of putting together a financial plan doesn’t sound like much fun. But the idea of building a home sounds like a lot of fun. So let’s find the similarities in building a strong financial plan and a dream home.

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 Taxman. Thanks for tuning into this edition of the podcast with Tony Mauro and myself. Tony, what's going on, buddy? How are you?

Tony Mauro: We're surviving right now-

Speaker 1: Still standing?

Tony Mauro: We're still standing. We had a weird series of events last week and we had one of these things blow through here that I'd never heard of.

Speaker 1: I think most people had. Yeah, we were just talking about that before we started. The time where we're taping this podcast you're just a few days removed of the Derecho, I don't know what they call it.

Tony Mauro: Something like that, some kind of hurricane-

Speaker 1: Yeah, it's like a hurricane with no hurricane [crosstalk 00:00:32].

Tony Mauro: Yeah, there's no spinning, it's not like a tornado where we're familiar with here in the Midwest. And I happened to be out of town and I had a brother call me and said he had this weird thing going. And I said, "Well, did we have a tornado?" And he said, "No, it's just this weird thing nobody's ever heard of."

Speaker 1: We don't know how to explain it.

Tony Mauro: The people here, if anybody's listening in the Des Moines area or even in Iowa, I mean, they know the devastation it left. We were without power for a while and we've got a whole city up in kind of Northwest Iowa, Cedar Rapids that just... Much of the city's without power, a lot of damage up there just-

Speaker 1: Yeah, I saw that.

Tony Mauro: ... it's weird because it flattened crops and unrooted trees in one section of the street-

Speaker 1: Snapped trees I saw, yeah.

Tony Mauro: Yeah, it's crazy.

Speaker 1: Well more 2020 for us, right?

Tony Mauro: Exactly, yeah.

Speaker 1: It's like, "What else have you got?" I don't know if we should say that or not we'll jinx it. Well, we hope everybody was okay, and I know you said your business, you were without power for a few days, but obviously you're back up and rolling and all that good jazz. So I'm glad everybody's okay. And yeah, just strange, every now and again mother nature likes to remind us that she's a little tougher than we are. She's a little-

Tony Mauro: She's the boss.

Speaker 1: She's the boss, that's right. Well, we were going to actually talk... And we were planning today's topic to be around how to build a financial house, and that was actually on the docket before this even happened last week because we kind of send out some things for us to think about to talk about Tony, you and I.

Speaker 1: And so I think we'll still go ahead and do that, because a lot of folks right now, obviously we're not trying to make light of anything, but a lot of folks are maybe having to rebuild. And of course that's obviously terrible, but we were initially thinking about this from more of the standpoint of, for a lot of people they think, "Oh, it'd be neat to build our own home." Right? You kind of want to go through the designing process and picking out everything that you want to make it yours, right? And have you ever done that before by the way, have you ever built a home from scratch?

Tony Mauro: We have, the home we live in now we built it-

Speaker 1: If you do it once-

Tony Mauro: ... and it was a lot of fun and a lot of work.

Speaker 1: I was going to say, if you do it once I've heard you'll never want to do it again.

Tony Mauro: Yeah, yeah, it's interesting. I mean, for us in our younger days... I mean, we still have some rentals and we've built some rentals. We had a little background in it because my dad was in the business and so we had a little help, a little inside track. But yeah, for most people even building their own custom home, it's a lot of work, a lot of stress.

Speaker 1: Yeah. Well, and people sometimes equate that same thing to building a financial house or a plan, right? If you will, a financial strategy. And sometimes at least building a home sounds a little cooler, it sounds a little sexier maybe than building a financial plan. So we thought we'd have a little fun and just do a little correlation between the two. Now we're not going to kind of get all super into the weeds, we'll keep this kind of short and sweet. I've got it broken down to basically four tiers, if you will, the four major components of building a house as well as a financial house, and we'll roll with that. We won't get into all the permits and wiring and architecture and all that kind of stuff, we'll keep it pretty simple.

Speaker 1: So let's start it off with the foundation, need a good strong house, need a good strong foundation. Different parts of the country you're allowed to do different things depending on the soil and all that kind of stuff. But for the most part, people think of a foundation as the concrete slab, so to speak that you're going to build the house on. What would be the financial equivalent?

Tony Mauro: Well, before I jump into that with the events that happened last week, I want to add one.

Speaker 1: Okay, sure, yeah.

Tony Mauro: That basically, I would say before the foundation, I don't know, what you call it? The soil test, the groundbreaking, whatever, but that's the emergency plan because-

Speaker 1: [crosstalk 00:04:02], there you go.

Tony Mauro: As business owners, and I feel like we have a pretty good emergency backup plan, but we're questioning some things and, "Hey, we need this, we need that. Here's what happened here." And I think people need to do that in their financial aspect as well is getting and developing an emergency fund or funds in case things happen.

Tony Mauro: But moving on from that, I mean the foundation really is, I think, especially if you're talking about saving money for the future, and most of us equate that with some sort of retirement goal is to, you've got to have some sort of plan for income in this foundation. Meaning that at some point, if you are not going to work anymore you've got to... Obviously, you're still kicking, you got to pay your bills, you want to do some fun things, you've got to have a plan on how you're going to replace that income. And that can come from a lot of sources. It could come from of course, social security, your investments, your pension or 401k at work, and maybe even a rental income, passive types of income, things like that. But you've got to think about it because basically you have to start there, which is why I equate it to foundation and build from that, because if you don't have that everything else it doesn't really matter.

Speaker 1: Well, you got to have paycheck. Yeah, I mean you got to have a paycheck in retirement just the same as you did when you were working, you got to still pay for food and lights and all that kind of stuff, so definitely got to have a paycheck. So income plan would kind of be that foundation. Next you're going to put up some walls because you don't want to just be sitting out there on just a concrete slab, hopefully. So you're going to want some walls and what would be the financial equivalent of the wall?

Tony Mauro: I think the walls, in my opinion are basically the root of the whole plan, which is whatever you choose to invest your money in, so your investments. It's different for everybody, and I would preface all of this by saying you need to talk an advisor about some of this because obviously starting at the bottom, which is where I like to start is how much income do you want? And then you got to try to figure out, am I going to have enough? And what types of investments do I need to get my income plan in place? And that's where it's going to be different for everybody, a lot of things at stake there, we don't want to get too far way out in left field on that one. But that's really what it comes down to, you got to have the investments, it's going to get you to your goal.

Speaker 1: Definitely, no, you want to get to the goal for sure. Okay, so if the walls are kind of the investment plan and that's kind of how you're funding the income plan and so on and so forth, then we'll turn our attention to the roof. Now I've mentioned on the podcast before I'm finally getting around to getting my deck done and I'm putting a roof on it. The old deck we had one of those SunSetter things, you just crank out the awning type of deal, but I'm putting the actual roof on this one. Because it gets really hot, we get a lot of sun in our backyard and it just beats down on you. So you need some protection from the sun. I would imagine the roof has got to be that kind of insurance equivalent or maybe even the emergency fund you talked about, what do you think?

Tony Mauro: Well, I think the roof's the most important part as well because how many of us would build a house without a roof, right?

Speaker 1: Well, you never know.

Tony Mauro: Nobody would do it.

Speaker 1: Hopefully not.

Tony Mauro: And so many people in our investment world they don't take the time to talk about, in my case and what I believe the roof should be is, your insurance to protect you from disasters. And so many people we talk to, whether it's in the tax arena and the financial arena, we get to these questions and you just get a blank look, whether they...

Tony Mauro: And most people will do the insurance on their house and their car because that's what they know, yet many, many don't necessarily have enough or any life insurance. They don't have need longterm disability insurance, even though there's a much greater chance of that happening than your house burning down. Many, many, have never thought about longterm care insurance, so there's a lot of things there that I think you need to protect yourself because as you're trying to make this plan and build this egg, if you will, or house, if you will, I guess we're talking about-

Speaker 1: Talking about houses right now.

Tony Mauro: ... you got to protect it from disasters.

Speaker 1: Absolutely.

Tony Mauro: We don't know when they're going to come around and we got to be prepared for them.

Speaker 1: Well, okay, so if we're keeping this kind of simple, like I said, kind of a four step process, you've got one, you've got the foundation, your income plan. What streams of income of revenue do you have coming in to pay the kind of life you want to have in retirement? Number two is the walls. That's the investment plan. That's the strategy, outpacing, inflation, all the different kinds of things you may have inside your investment plan. Three's the roof, that's insurance protections. Four would be the finishing touches, we're going to kind of bundle this all together.

Speaker 1: Now for a lot of people tell me when they build the house, and I'm sure you went through this, they look forward to this part the most. They work with the architect, they design the layout, how many bedrooms, yada, yada. But really the finishing touches is where you put your stamp on it, right? Crown molding, not crown molding, this kind of tile versus that kind of tile, so on and so forth. What would be that same kind of thing, the finishing touch in a retirement plan?

Tony Mauro: Well, for most, it's really the end of the line type of thing or maybe you're estate plan. And for most of us when we get to that point, and if we're lucky enough to enjoy a good retirement and whatnot, you have to start thinking about the end and the fact that none of us are going to get out of here alive, as they say. And you want to make sure all of the loose ends are tied up, whether that be if you have over the amount, which is a large amount today, but there are still a lot of Americans that have over the amount that they may owe a state tax. But for most of us, under current law, we're going to be under that. But nevertheless, you still need to have an estate plan. You need to have a will. You need to have some medical directives and some advanced care directives. Even maybe some financial POAs, if you can't make decisions.

Tony Mauro: And most of us don't want to be a burden to either our kids or other family members if something happens to us. And for most of us, we want to make sure that when we pass on that you can go out, I guess, feeling at ease that your plan or your legacy has been cemented in place. And I think this is an area, these last two, people don't take advantage of thinking about or at least acting upon enough of. We have many clients, no wills, no advanced directives, and I've seen a lot of clients as they age, at least the ones that are in the tax arena ending up with one of the spouses getting dementia, and it never gets better, it just kind of progressively gets worse. So it's tough to see.

Speaker 1: Sure, yeah. No, definitely tough to think about and do, but it's one of those things where... And somebody might be listening saying, "Well, you know what? We don't plan on leaving anything to the kids, we want to use it all up." And that's okay, or some may say, "I don't have children or whatever." An estate plan is more than just what you're leaving here and there and you can't take it with you, there's not a Brinks truck following the hearse, so you're going to have to do something with it. So some form or fashion of an estate plan is a great final piece, if you will, to building a financial house.

Speaker 1: And that was today's topic here on the podcast. So obviously there's been a lot going on here in the area lately, so hopefully, again, everybody's safe and all those kinds of things, and we'll keep plugging along. But if you have any questions about today's topic, if you're just in general want to learn more about how to get your financial plan put together, maybe this analogy hit home for you, maybe it didn't, but either way you know you need to take some action and get some pieces together. Maybe you need to work on the income side, or maybe it's the investments, or maybe it's just the estate, or maybe it's the whole thing. Tony and the team can help, reach out to him at Tax Doctor Inc at 844-707-7381, that's 844-707-7381 in the central Iowa area, his offices there in Des Moines.

Speaker 1: Check him out online at yourplanningpros.com, that is yourplanningpros.com. While you're there, subscribe to the podcast and whatever platforming app you like to use. Plan With The Taxman, you can search it out in the app or just find it on the website, yourplanningpros.com. Tony has got more than 23 years of experience. So a great resource for you to tap into here in the area and Tony, my friend, well, did you have at least a good vacation before you came back and found out about the craziness?

Tony Mauro: I'll tell you what it was very relaxing. We went out to Vail, Colorado, we stayed up on the mountain.

Speaker 1: Oh, nice.

Tony Mauro: Yeah, there wasn't wasn't a ton of people up there, which is-

Speaker 1: I'm sure.

Tony Mauro: ... bad for biz, but good for the vacationer. But yeah, very enjoyable.

Speaker 1: Well good, I'm glad to hear that. And then he came back and went, "What in the world?"

Tony Mauro: Yeah, what did I leave?

Speaker 1: So, mother nature. All right, folks, we'll take care, stay safe and sane. And we'll see you next time here on Plan With The Taxman with Tony Mauro.

Today it can be rather uncommon to find people working at the same company for several decades. However in the past, this was more of a common trend and many people would retire with the same company they first started with. Tony has worked with clients that fell into each of these categories and will share some of his stories.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript Of Today's Show:

Host: Welcome in to another edition of Plan with the Tax Man. Thanks for tuning into our podcast, Tony, what's going on, bud? How are you?

Tony: I am good. How about you?

Host: I'm hanging in there, still surviving the heat. It started to cool off just a hair.

Tony: Yeah, [crosstalk 00:00:00:14].

Host: I think we've shared with our listeners before. Obviously, we've been doing our social distancing long before it was fashionable or required, whatever term you want to use. But I'm in North Carolina, and it's been really hot for the month of July. June was really, really kind of mild for us, but July has been pretty brutal. How are you guys doing?

Tony: Yeah, about the same weather pattern. June was pleasant. July has been pretty hot. August is generally the hottest around here-

Host: Yeah, I know.

Tony: ... and the most humidity. Then all of a sudden, it changes, almost just like that.

Host: Yeah. You guys definitely get a better reprieve than we do. Man, we've been at 100% humidity for like three weeks, which is just sticky, sticky, brutal. In a way, it turns it into a ... We thought it was going to be a short summer. When June was kind of mild, we were like, "Oh, it's going to be a short summer," but it looks like it's going to wind up being ... What do they call that? Indian summer, right? Where it's longer. So yes, it may wind up being a hotter one, kind of a long summer. Speaking of long, we're going to talk about a little something different this week. We're going to talk about long careers here on the podcast. Are you a basketball guy? Do you enjoy basketball, Tony?

Tony: I do enjoy basketball. Yes.

Host: Okay. Are you familiar with Vince Carter? Played in the NBA for a really long time, played for 22 seasons.

Tony: Yep.

Host: Okay. Yeah. As they used to call him, Vinsanity. He was still playing ... Oh my goodness. He was playing in the late '90s, early '90s, mid '90s. There we go, mid '90s, and when he came out, he did the dunk challenge. I mean, everybody was like, "Wow." Jordan was still playing. It was like, "He's going to be the next Jordan," and all that kind of stuff. He's had a good career, played for a lot of teams at this point. Obviously, over 22 seasons, he's bounced around a bit. But I think he was in Toronto for ... That was where he was at for a long time. But anyway-

Tony: Yeah, the Raptors. Yeah.

Host: Yeah. Oh, the Raptors. Exactly. Yeah. So that's a long career, 22 years, especially in sports.

Tony: Certainly in the NBA.

Host: Yeah, yeah, running up and down that hardwood.

Tony: Yeah. Day in and day out in that game, at that level, that's a long career to be able to do that.

Host: Yeah. The knees get a little sore, I'm sure.

Tony: Yeah. Yes.

Host: Well, now so we're talking about that being a long career. 22 years in the scheme of maybe ... What's the term? Joe Lunchbox, the average person, right, who maybe has worked at a factory or a plant or something, that might not be that long. You might be there 30 or 40 years, or at least that used to be the case. 22 years could be a long time in today's era. It seems as though people aren't staying at companies for as long. Obviously, again, COVID has caused a lot of issues there. But when people come in and talk with you, do you still see that person that comes in that's a new prospective client that says, "Yeah, I've been at X company for 30 years."

Tony: I don't see it very much. No.

Host: Really? Okay.

Tony: We see a lot more of people that have bounced around over the number of years than the old-fashioned person, and I'm going to pick on my wife.

Host: Okay.

Tony: So hopefully she won't listen in, but she is in the first camp. So I consider her the oddball today. So she's been at her place and she's now ... She's going to be 54, and she has been there 35 years.

Host: Wow.

Tony: Probably unless they downsize or something ... Of course, she's in part of the county government, so a very stable type of thing. She's probably going to be there until she retires, but she's the type of person that will go to work every day, do whatever they tell her, and does her work and doesn't really have ... Of course, she's been here so long she's not like me, who I've been in my own business for 25 years. But when I was working for somebody, I was always wanting to bounce around. I always was wanting to, "Well, maybe I can advance a little bit. Maybe this company is a little better work or a better culture," whatever-

Host: Right.

Tony: ... and, of course, certainly to try to make more money.

Host: Right. Chasing a little something more.

Tony: Yeah, you're always chasing. I think that's what we see much, much more than the first camp these days, unless you're either with one of the big, big companies or with the government.

Host: Interesting. Yeah, no, that's a great point. I didn't think about that.

Tony: So I tend to see that a lot in the taxes, because we'll gather a little history on people, and you can look back and say, "Boy, they had four W2s from this year, and now they've got two other ones." Over the years, it's not uncommon for people to work for 10, 12 employers over their careers.

Host: It's interesting, too. I saw a stat the other day, and, of course, I guess you could say whatever you want about stats, right? Because what is it, something like 50% of all stats are made up? But anyway, and it said Millennials, the younger generation, the 20 somethings, even in the early 30 somethings, will have between 25 and 30 jobs-

Tony: Wow.

Host: ... over the course of their lifetime, whereas just a generation before, to your point, it might've been 10 or less.

Tony: Yes. I think the important point here is no matter what camp you're in, going back to the camps a minute, so I've got a young son. He's in his first job out of college, working for Transamerica out in Denver. Big, big company. But chances of him staying there his entire career probably are not good. But I think it's important and I like this topic because I think no matter what, especially the people that are bouncing around, you've got to keep an eye on your finances, because you're in and out of 401ks. You've got different benefits at different jobs. Real easy to just kind of not pay attention, and then, all of a sudden, 20 years, 30 years goes by and you've got five or six different 401ks that are dormant all over the place. You're not even paying attention to the statements and haven't made any plans.

Host: That's your money out there.

Tony: Yeah. It's your money. So you've got to pay attention.

Host: Yeah. I was doing a podcast with a client in Michigan, and obviously automotive, right, a lot of times, people will work there for a very long time. He had a client not too long ago that had been ... I guess he had been at the automotive place for probably 20-plus years, and they were going through, doing the work, trying to work on putting a plan together. They actually found an old account from a prior job before he worked at the automotive industry there that he completely forgot about. It'd been sitting there, growing for 30 years and had a sizable chunk of money in it. The guy was like, "You guys are amazing." He's like, "No, you did this. We just found it."

Tony: How about all the ones, and we see this, is they'll have multiple 401ks, and then we'll just ask them, "Well, who's the beneficiaries on those?"

Host: Oh, yeah.

Tony: They can't tell you.

Host: Because it was 25 years ago.

Tony: Yeah, it was 20 years ago or something, and maybe they weren't even married then.

Host: Yeah, might have been their mom or dad. Yeah.

Tony: Yeah. So it's important to keep even that kind of stuff up if you are going to ... I don't recommend having that many all over the place. Too hard to keep track of. But if you do or even if you don't, you've got to get a handle on them and get the legal stuff, the beneficiaries and things like that ironed out.

Host: Right.

Tony: Then you've got to work on making sure that they're still meeting your needs. What if you started one at 18 and you were ultra aggressive and now you're 40 or 45 or 50, and you kind of forgot about that? You get a little closer, you may not want to keep that like that as you get a little older. So there's all kinds of things to think about there.

Host: Yeah. I like the way you kind of put that. Whatever camp you're in, so whether you've worked just a couple of jobs through the bulk of your working years or you've bounced around quite a bit, nothing wrong with either pattern. Just make sure that you're doing, the due diligence, if you will, for those situations. I guess when you think about something like that stat I was saying, where younger folks might have upwards of 25 to 30 jobs, I wonder what the criteria is for that, because we all start out with a simple job, right? Well, for the most part, right? Most of us start out maybe at a gas station while we're still in high school or at a retail store like Walmart or Burger King or something like that when we were all younger. So when you're at 16, 17, 18, are they counting that? Because typically you're not getting any kind of...

Tony: Right.

Host: I guess nowadays they do offer different kinds of plans and things, but back then, for you and I, Tony, I know when I had my first little retail job at the local Hills Department Store, which I think is long gone, there wasn't anything like 401k or any kind of retirement plan.

Tony: No. Yeah, same here. I did a little mail run. Yeah, you just wanted the check. There was no benefits or anything. But I think, too, along those lines, you want to make sure if you have a lot of things a lot of places, if you are working with an advisor, if there's a piece of advice I would give is make sure your advisor knows about everything and where everything's at, even if they're not helping manage that part of it, because that way you've got somebody else that's got a list of everything you have, because many times even your spouses don't know-

Host: Right. Good point.

Tony: ... where things are and what's going on. Then that makes it even harder, especially if something happens to you.

Host: Yeah. If the proverbial bus comes out of nowhere, no matter what that might be, and you're no longer here, people are going to be behind the eight ball, trying to figure out what was what and where's stuff at and so on and so forth. That's a great point. To your point though, I would think ... I did the same thing recently myself, Tony. I had two prior accounts from past jobs that I just kept for whatever, and I do this. I talk every day about this. So folks, if you've listened to our show for a bit, I definitely talk about procrastination, and I don't do it to pick on folks. I do it because I'm one of you. I'm a procrastinator, too, and so I talk about this stuff pretty regularly. I kept forgetting to move an old account. We call them an orphaned 401k, right?

Tony: Right, right.

Host: So I finally got off my you-know-what and got it switched, and I felt a big ... I felt like I really accomplished something that day, even though I did very, very little. I just made a phone call and had two conversations, and I was done. It's kind of silly, isn't it?

Tony: It is. But it's a good feeling when you can get that accomplished.

Host: Oh, no, it's a great feeling, but it's kind of silly that we shirk away from it, because I think we feel it's going to be super complicated and really annoying.

Tony: Yes. Most of us these days, unlike the old days where you had to move a bunch of paper, it's very, very simple.

Host: Yeah. Yeah, true, true. With the COVID alterations to how things have happened, there's the Secure Act and the Cares Act, and that changed some things. So this may be a good time this year in 2020 to get some things moved or done again within the parameters of whatever you're working with with an advisor or having a plan, and if you don't have any of that, make sure you're talking with someone who understands that, because there have been rule changes due to COVID and the Secure Act and, again, the Cares Act, as I mentioned earlier. We've covered those on the show. Feel free to go back and check out some of those podcasts with those. As a matter of fact, I think within the last 30 days, they've just made another change to some of that stuff as well. So we'll get the information, and we'll do a show on that coming up.

Host: So make sure you reach out, folks, and do that. As I say a million times, I always say it on every single show, before you take any action, you should always check with a qualified professional about your specific situation and how whatever advice you might be hearing or interested in may affect your plan and your decision, or lack thereof. So reach out to Tony if you've got those questions. He's here to help in the Des Moines area, Central Iowa area, (844) 707-7380, (844) 707-7381. You can also go to yourplanningpros.com. That is yourplanningpros.com.

Host:

All right. So let's take an email question, as a matter of fact, and we'll wrap up the podcast this week with that. If you'd like to submit one, again, go to the website, yourplanningpros.com. We've got one from Cheryl for you. She says, "Tony, my husband wants to pay off either our house or our rental property just so that we have something paid off. We have enough money in the money market account to pay off one of them. However, I prefer seeing a lot of money sitting in that account. It makes me feel better in case we need it for an emergency." Oh, boy, Tony. She says, "Who's right?"

Tony: Yeah. Right, and she wants me to pick sides.

Host: Put your marriage counselor hat on.

Tony: Yeah. So I'm going to take the easy way out and say I think you're both right. However, I think you have a slight problem of ... because I'm a big believer in being debt-free. I always have been as a planner and even in my personal life. So I think if you have the money to get something paid off, I say do it and do it now. But then I would say for Cheryl, since she likes to have money in the account, the way to build that back up is the cashflow saved from having that paid off builds your money market account back up. Don't spend a dime of it. Build it back up, and you'll be amazed at how quickly you're probably going to get that built back up. Then you have the best of both worlds.

Host: Yeah. True.

Tony: Now, if you can't and don't want to do that, well, then what I would do is maybe try to pay off the house as quick as possible. Cheryl, if you're not going to bend and let him do it, I would pay it off as quick as possible and make some sacrifices there. I think the problem, though, is you're using that money market kind of as your emergency fund, and you don't want to spend it on anything. So I think what you need to do maybe is get with your advisor and talk about, "Hey, should we use this as our emergency fund and never spend it unless there's a true emergency?" and then start developing some funds for some other things.

Host: Okay.

Tony: A lot of people will just say, "I've got a savings account. It's for everything." Then they don't want to spend it on anything. So I think if you divide it up to different purposes, then when that purpose comes up and rears its head, that money's spent on that.

Host: True. Yeah.

Tony: That's one way to do it. But I don't think there's any right or wrong by doing either one, other than I don't like being in debt and I would try to work very hard to get that paid off, even if it's from current cashflow. Then you're going to be in great shape.

Host: Well, I think that's a great point. So check with your advisor on what's going to be the best overall decision for your specific situation, of course, because, I mean, it's interesting, too, when you have something like this how you think about it. As you're talking, you're saying, "Well, maybe you could pay off the house, and then the money you were sending to the mortgage, you could now use to replenish the money market." I was going the other way, saying, "Well, you pay off the rental property, and as the rent comes in, you use that to build up your money."

Host: So there's lots of options, right? So it's interesting how everybody sees it differently. I saw it a little differently than you. You saw a little differently than Cheryl. Cheryl sees it differently than her husband, right?

Tony: Oh, yeah.

Host: At the end of the day, though, the math should be the one that kind of helps lead you down to the answer.

Tony: It's always the math.

Host: Yeah, it's always the math. All right. Well, there you go. Well, great question, Cheryl. Thank you so much, and sorry we're just not going to pick specific sides. But come on in talk to Tony if you guys would like. Have a conversation with him. Give him a call at (844) 707-7381. That's (844) 707-7381, or go to yourplanningpros.com. Don't forget to subscribe to the show while you're there, and that's going to do it for us, my friend. Thank you so much for your time.

Tony: All right.

Host: I appreciate you.

Tony: All right. Take care.

Host: Have you been able to ... I know you love golf. Have you been able to golf any?

Tony: I have golfed. Yes.

Host: Okay.

Tony: We started out slow this year, because they wouldn't let us use carts.

Host: Right.

Tony: But now we are back to golfing and just doing some social distancing.

Host: Sure.

Tony: But yeah, pretty much everything here is open. A lot of people golfing. I think it's because many of them are working from home and have been laid off.

Host: Right.

Tony: They've got nothing to do.

Host: We're still in phase two here, unfortunately, in a lot of ways, and it's just been so hot that yeah, if you're golfing, you're there at seven AM. If you're not done by 11, you're crazy-

Tony: Yeah, it's going to be hot.

Host: ... because you're going out there, you better take like five gallons of water to stay hydrated. Otherwise, you might pass out. Well, I just wanted to just check and see if you're getting some golfing in, so that's good. Well, we'll talk about that in the future, I'm sure. All right, folks. We'll see you next time. Don't forget to subscribe to us. We'd appreciate it, and thanks for your time here on Plan with the Tax Man with Tony Mauro.

We often find that people are clinging to certain ideas or beliefs that end up giving them a sense of false hope about their retirement. It’s a dangerous position to be in. Let’s explore some of the faulty thinking that ultimately leaves people underprepared for retirement.

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. Thanks for tuning into the podcast by Tony and myself, talking about investing, finance and retirement. What's going on, Tony? How you doing bud?

Tony Mauro: I'm doing pretty good in the throes of summer and it's hot here as well as what you're telling me there and things are going good.

Speaker 1: Well, so we are back doing the podcast here. We're just after the middle point of July, and obviously tax season was a little different this year. And as a lot of what you guys do, so July 15th ended up being delayed due to COVID thing. How'd you guys a fair those last couple of weeks?

Tony Mauro: Last couple of weeks really weren't much different than the normal last couple of weeks of the tax season that generally happens in April, which surprised me that that many people decided to postpone filing until then. And we even have some extensions still going on that we just thought, well, we're just going to put it on extension and we'll deal with it here in the next two to three weeks. But definitely, this whole thing has had an impact on our tax clients as well, and many, many at work and we're reduced work.

Speaker 1: Definitely.

Tony Mauro: So they're concerned about their financial future.

Speaker 1: It's an interesting catch 22. I had some friends in the same boat. They were like, "Oh, I'm going to wait till the last second." And I was like, "Yeah." But I mean, it's only do in April, why don't you just go ahead and deal with it, and then you don't have to worry about it and don't put yourself up to the wire. But like a lot of things, we tend to procrastinate humans. It is definitely one of our character traits that shows its head fairly often is procrastination.

Speaker 1: Another one, Tony, is hope. Now, hope is a good thing. I think, in any walk of life and certainly 2020 has been challenging and it's good to have hope that things are going to be better and we're going to have a better year next year and all that kind of stuff. But when it comes to retirement planning, sometimes what happens is we tend to cling a little bit to maybe some false hope instead of putting our mind in the right spot, we tend to go to some of these things here that I have on our show for today, this leads us down possibly the wrong path, and just gives us that false sense of hope. So I got a couple here for you. We'll go through them. Maybe you can explain some potentially faulty thinking in some of these ideas, or just your viewpoint.

Speaker 1: So mindset. I mentioned that. So let's talk about the mindset that we'll be ready to retire when we hit that certain number. We've talked about that before. I don't know how much that's changed in 2020, but typically, for the last several years, people have had that, well, if I don't have a million I'm not ready, or whatever your number is.

Tony Mauro: And I think that in 2020, so far, whether it's been for us either, talking with tax clients or even out golfing, believe it or not, talking to some colleagues and our friends that are basically just golf buddies. Retirement and calling it quits is on a lot of people's minds, especially mid age and older, depending on their work situation and what they're going to go back to, they are definitely thinking about it.

Tony Mauro: And I just had a conversation yesterday, as a matter of fact, with an accounting client, he's 55-years old and he is selling the business and he's got this magic number in his mind of the million dollars and he's about halfway there, but I tried to tell him to try to get off of that a little bit, depending, because his question, point blank was, "What do you think I need to retire?" He wanted a number. Is it a million, is two million?

Tony Mauro: Of course, it's such a moving target, and of course, I took the accountant answer, "Well, it depends." And it does, but I think when people get fixated, and I try to dispel it very quickly on the million dollar mark, and I say, well, based on what you're earning now, let's take a look at that million, with longevity the way it is generally, even if you're using the principal there, you're going to be out of money by this time. And even if you're just parking it and living off the interest, well, maybe you could get 40 to 50,000 a year interest or earnings on that, but certainly, in a savings account, you're going to have to cross the magical line and get into a little bit of risk. So there's a lot of things at play there, and the million, all of a sudden, and I do it every time they walk out and say, "Boy, you're right, that may not be enough." So I think that people have to take the mindset of maybe it's not a certain number, but what kind of income do you want-

Speaker 1: Exactly.

Tony Mauro: ... and then see if we can get to that number. And it might be a combination of a lot of things, might be a combination of savings, social security, retirement plans, and even maybe a little work in there.

Speaker 1: And I mean, it may be a million, maybe two, maybe four, maybe 500,000, maybe 400,000.

Tony Mauro: It could be.

Speaker 1: I mean, everybody's needs in retirement, and again, to your point, the income needs really is the more determining factor in that. So again, that's that idea there, you can get yourself hung up on some false hope, if you will, by having your mindset maybe in the wrong spot. And other places, talking about the income, the belief that the income needs will reduce once we retire.

Speaker 1: Now, again, everything is changing in light of 2020 and Covid, and so on and so forth. But typically, this has been the thought that your income needs drop once you hit retirement. And I think that's always been a bit of a misnomer, because if you are set up for... No one wants to go backwards in retirement, they want to have a less of a lifestyle in retirement than they had when they were working. But you tend to actually do more, at least early on anyway, but then it seems like I would think that the health costs would ramp up in the later years, even though you're not doing as much. So I don't feel like it's going to drop that much. What do you see?

Tony Mauro: We see that as well, is that in the early years, your income needs do go up because you're trying to make up for all the things you didn't do when you were working all the time-

Speaker 1: Right, you're having fun.

Tony Mauro: ... assuming the body can take it. And then, you get into your mid 70s, whatnot, you might slow down there a little bit, but then you've got, like you say, healthcare costs start going up and it does cut into that income. And then all of a sudden, what you thought, you didn't need as much, you need just as much because you're spending it on something else and it's not real sexy, and you have a lot of fun with it, but you got to have it to keep you going.

Speaker 1: Exactly.

Tony Mauro: So I think, again, it depends on what type of lifestyle you want to lead in retirement. And everybody always saves for this and always talks about it as the end goal, but nobody really sits down and it seems to think about, "Okay, what do I want out of this last part of my life?" And I think you've got to start there.

Speaker 1: No, that's a great point. And so, those two are the initial kind of things. I mean, again, those are all around mindset, it's all around the dollars or the numbers, if you will, having that sense of, I have to have a certain number and or thinking that our income needs will drop into retirement is typically a bit of false hope there.

Speaker 1: Another place is inheritance. Here recently in 2020, I've been encountering some folks who have come into a windfall in whatever shape or form and I know that sounds weird given everything that's happened in 2020, but I've met several this year that have been that... And they've looked at it as the makeup ground, Tony, for their own lack of planning for retirement. And there are people out there who do that. Maybe their parents have a little bit of something, and they know when their parents pass away, it's going to be left to them. And they bank on that versus getting their own stuff together and planning securely. And then if they get it, great, it's just extra icing on the cake kind of thing.

Tony Mauro: Exactly. I mean, you hit it right on the head. We have a lot of people that do do this, and when we start asking them, "Well, how much do you think you'll stand to inherit?" They blurt out a figure and then we go right down the thing just like we did with the million dollar saying, "Well, let's take a look at this." If it's 500,000, let's say, it's a big number, but when you really start breaking it down over a number of years that you're going to need this money, how long will it really last you? And is that really what you want? And if so, that's great. But most of the time they're, again, scratching their heads saying, "You know what? I better save in addition to that." Again, somebody who's receiving 5 million or more, you're pretty much, I would think you're not going to have a whole lot of worries, but-

Speaker 1: True. But what if their parents or grandparents or whoever they might be expecting this from got hit towards the end of their life with a longterm disability that really started to eat away at that?

Tony Mauro: I would think that you've got to pay attention to that as well, because that's inevitably what tends to happen is people think they're going to inherit something and then the parents may need it for longterm care costs or something else. I've had one client that this happened to that he thought he was going to inherit a million bucks. And lo and behold, the parents were healthy, they lived into their 90s, but they actually ended up spending most of it because they went out and enjoyed themselves. So I don't think it's a good financial move to bank on that. I think, [crosstalk 00:09:14].

Speaker 1: No, definitely not. And luckily, I don't think too many people do it, but I definitely know that it happens. And it's almost the same analogy, Tony, as the lottery. I mean, it's staggering and terrifying that 27% of people feel that hitting the lottery, in some shape or form, will take care of their retirement needs, which is pretty terrifying. 27% of people polled say, "I play the lottery and that'll take care of it." It's like, wow, you got a better chance of getting hit by lightening like twice.

Tony Mauro: Yes.

Speaker 1: Okay. So anyway, moving along, got just a couple more here. And this is another one that happens too, for those folks, it's terrifying. And I get it, it's really... Before I started hosting these shows and talking about this stuff for the last several years, it was definitely one of those things like math and finance, not my strong suit. I don't know how my daughter's so smart in that arena, but she is, thankfully, but it's that "Well, I'll figure it out when I get there." I've always been one of those kinds of people. "I'll cross that bridge when I come to it." I'm working on my deck outside and probably some pre-planning would get me in better shape than what I'm in right now, but I didn't. So I'm crossing that bridge when I come to it.

Tony Mauro: And this, I see a lot in our retail tax clients, because we only see many of these people once a year. And my client base is aging, obviously, as we all are, and we start to talk to them about that, and they'll say things like this, while you can do it, you can figure out how to make it work. But in the big picture, I ask them one question. I said, "Well, is that what you want after basically sacrificing 40 plus years of your life? Is that what you want to end with? And if so, then I guess you can just continue down the same path." And we'll get a little bit of resistance to that. They'll say, "Well, I'm too old," Or "I'm too close." While you can always do a little bit to improve-

Speaker 1: Sure.

Tony Mauro: ... I think, and at least make it a little bit better. Now, could you go from zero to a big number in five years? No, but you could make yourself a little bit better, or even if you're not wanting to do that, at least know, figure it out before it happens to make it as smooth and painless as possible, so you can get as much enjoyment as you can out of it.

Speaker 1: Well, it seems like the trend for Americans, at least over the last probably 20 years, Tony, has been 50. I'll be 49 next month. It's it seems like 50 tends to be that, "Oh, shoot, I better do something."

Tony Mauro: It does seem to be. And it was for me. I mean, I've been saving and planning since about 18, but 50 hit me and said, "All right, well I've only got this much time left. Am I on track?" And it's funny, my brother just turned 50 last year, and he's not much of a saver. And all of a sudden, he went from didn't really care to actually right now, today, he is maxing out his 401k at 19,000 a year, plus the catch-up. He's all of a sudden figured out, in 20 years or less-

Speaker 1: Yeah, something [crosstalk 00:12:29] or less.

Tony Mauro: I'm done, at least in the workforce. And so, 50 does seem to turn on a bowl, but you start thinking a little different.

Speaker 1: 15 years, from 50 to 65, you can do a lot of damage. And by damage, I mean, positive.

Tony Mauro: Positive damage.

Speaker 1: You can do a lot improvement to your situation in 15 years. So to his point, your brother's point, there's the ketchup provision area when you get over 50, where you can put more in than you could prior to 50, you're probably making the most you've ever made in life-

Tony Mauro: Exactly.

Speaker 1: ... kids more than likely are off the payroll, unless something crazy has happened with COVID. Of course, that's certainly possible as well. But typically, those three rivers come together at the same time there when we get to that pretty retiree age, which is kind of conservative. I think it were pre-retirees probably considered 55, but I think we just started calling it 50 from their own status.

Tony Mauro: I think so, and I know for me-

Speaker 1:

Maybe it's the pre-pre.

Tony Mauro: ... In my own situation, 50, and I only have one son, but he was out of college and he's on his own, and we had things paid off and we wanted to take these next 15 years, not only to ramp up savings, but also to do things we wanted to do, which is a good balance. You can do a lot of damage. Now, if you didn't start early, you may have to make a little more sacrifice depending on how much money you're making. But it can be done over 15 years.

Speaker 1: Absolutely. And so, definitely, don't put yourself in that false hope category, folks. I think that's a couple of good places for us to think about, work our way through when it comes to that. And what we're going to do is in an interest to keeping our time, Laurie [inaudible 00:14:06] we're going to go ahead and go into our next section, which is an email question. But if you've got questions about some false hope or some things, if you're one of those number of people, "I need a million dollars," Or "I'm not sure if my income needs are going to be met," Or whatever the case might be, if you've heard something on the podcast today that's got you intrigued, you need to learn more, always check with a qualified professional before you take action.

Speaker 1: Call Tony at (844) 707-7381, at (844) 707-7381, or just go to yourplanningpros.com, that's yourplanningpros.com, and you can submit a question to the show if you'd like, while you're there, you can subscribe to the podcast on Apple, Google, or Spotify. It's Plan with the Tax Man. Tony's got more than 23 years of experience, so a great resource for you. And as I mentioned, you can send an email question in to the podcast. We take those from time to time. So let's do that to wrap up this week's show. We've got Rorke... That's a cool name. I haven't heard that in a long time. Rourke says, "Tony, my financial advisor seems to do a good job of managing my assets and my investments, at least as far as I can tell, but we never really talk about some other things like social security, life insurance or legacy planning, which I feel are things I should be getting some advice on. Is this typical?"

Tony Mauro: I think it is more so than not. I think that some advisors get wrapped up a little bit, maybe too much on the growth and investment side. But all you've got to do is just let them know, depending on where you're at in your situation work, just start bringing some of these topics up to date. "I've been seeing some of this and I feel like I need to be here at this time. How can we plan for this?" And then hopefully, they will take some of that information, and if they have never done a plan for you, do a plan and at least provide you with where you're at now.

Speaker 1: Tony, when I read something like that, if an advisor is not bringing these things up to you, this is just my opinion, I'll get yours on this, it may not be something that they're that comfortable with or that they do that often. And maybe you're really working with a different type of advisor, then you're going to be needing as you're transitioning, to our point earlier, 50 plus, right?

Tony Mauro: Yeah. Well, it's possible. Yeah. Depending on what they're doing, not to bash them-

Speaker 1: We don't know who they are.

Tony Mauro: Because we don't know. It's just that that may not be their area of preference or expertise and maybe they have somebody else in the firm that has that. If not, maybe they're willing to help. If not, then you've got to maybe take a look around-

Speaker 1: Get a second opinion.

Tony Mauro: ... and see what else is out there.

Speaker 1: And that tends to be the case that I seem to come across a lot of times when you see situations like that. They may be more of a broker, they may be more commission-based, where it's the investment side is where they're making their money. It could be a number of things. And to Tony's point, he's being nicer than I am. It could be one of those things where they do have those things available, they just, for whatever reason, it's not being brought up. But Rorke, it's good that you're thinking of it, for sure, because obviously it's your finances and it's your retirement.

Speaker 1: So as Tony mentioned, ask the questions to your advisor, "Hey, what about these pieces?" And if you're not getting some satisfactory conversation started, definitely get a second opinion, reach out and look around, there's nothing wrong with that at all. Because Tony, I mean, you do that. I mean, if someone comes in and you're working with them, you start going through the multiple puzzle pieces that make up financial planning.

Tony Mauro: That's what we do. And in fact, you can't work with us unless we do a plan for you. Because some people will come to us and say, "Well, here's what I've got, and I just want you to help manage it." And I back up and say, "Listen, here's the way we work." Because we may not be the right fit for you.

Speaker 1: Sure.

Tony Mauro: We've got to do a plan for you, because that's almost like going to your doctor and getting a prescription and he doesn't even know what's wrong with you.

Speaker 1: Just take this.

Tony Mauro: Just take this and you'll be okay. And so, I don't like to do that, but that's just personal preference, that's the way we work. But I feel like that way, we get the best picture of the client and where they want to go. So we obviously try to help them.

Speaker 1: Well, and you think about it in the name, I mean, you guys are Plan with the Tax Doctor Inc. So people might think, "Well, okay, it's just taxes." So certainly an understandable conversation, but when you come in and you find out, this is a holistic, complete approach, maybe it's something similar like that in Rourke's case, maybe the name made him feel as though it was just investments, but he's definitely interested in these other things. And so, ask the questions, bring it up with your advisor. And for anybody, it never hurts to get a second opinion. It doesn't mean you're doing anything nefarious or mean behind somebody's back. It's your money, it's your retirement, get a second opinion, if you need one, get a third opinion, if you need one. I mean, you would on your health, to your point with the doctor, so why not on your wealth?

Tony Mauro: People have asked me too, they'll come in and want a second opinion, and they're almost troubled when I say, "Well, based on what you've told me, I think, they're doing a good job for you." Because sometimes that's the way it is, and it's almost like they want you to find something. And sometimes, again, if they're really truly doing something, not in your best interest or it's just not going to help you meet your goals, then yes. But I don't think any adviser worth what they're doing would have any problem telling you, hey, I think, him or her doing well for you.

Speaker 1: There you go. All right. Well, that's going to do it for our show this week folks. Thanks for listening to Plan with the Tax Man with Tony Mauro. Don't forget to subscribe to us on Apple, Google, Spotify, or whatever platform you choose. How you can just click on the, I think it's the heart button on Apple and it's different things for different sites. Go to yourplanningpros.com for more information and to find out more, and we will see you next time here on the show. Tony, thanks for your time, my friend, I appreciate you.

Tony Mauro: All right, take care.

Speaker 1: We'll talk to you soon. And right here on the podcast, this has been Plan with the Tax Man with Tony Mauro of Tax Doctor Inc.

Most people don't have a clear picture about these two financial vehicles and which might be most beneficial to them. So let's discuss ways to determine what might be right for you.

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 to Plan with the Tax Man. Thanks for tuning into the podcast. This is Tony and I talk investing finance and retirement. Of course, Tony Mauro is an EA and a CFP with 23 years of experience in the industry. Well, probably closing in on 24 now, right?

Tony: It is, yeah.

Speaker 1: How you doing?

Tony: Not too bad.

Speaker 1: Hanging in there?

Tony: Mid-summer, yeah. It's nice, things are starting to open back up. So yeah, it's good.

Speaker 1: Well, good. I'm glad to hear that. Well, this week, I've got a pretty straightforward topic for us to hit, but it's one that gets a lot of questions, Tony. So I thought you could maybe break some things down for us. IRAs. We're going to talk traditional versus Roth, because it still confuses people. There's still folks out there who don't have a real clear picture, and that's okay, nothing wrong with that, on which they should be contributing to. So there's other things we could discuss, there's conversions and stuff like that. But for right now, let's just start with talking about the traditional IRA versus the Roth. Give us a quick breakdown of just the simple differences between the two types of accounts.

Tony: Sure. And before I do, what I want to disclose is both are useful, which we'll get to in just a moment.

Speaker 1: Okay.

Tony: But there's pros and cons of each, and one or both may or may not be right for everybody. So, it's a good topic. The reason I chose this topic today, I'm going to throw in a shameless promotion here, is I actually with another adviser, authored a little short book called Seven Steps to Protecting Your 401k/IRA from a Ticking Tax Time Bomb. It's just a little hundred-page read. If you want a copy, you can contact me. I'll give you one. But it goes into a lot of things in more depth than what we'll cover here. But the differences between the two accounts in essence, because people get confused about this at tax time, especially when we ask them, because they'll come in and say, "Well, I contributed to my IRA this year," and we have to ask, "Well, which one?" And I get this blank look, and then we have to go into that. And then they don't know, and they ask their advisor.

Tony: But the traditional IRA has been around a long time. That is where you're sticking money aside for retirement. And if you're not covered by an employer-sponsored plan, it comes out, and you can deduct it off your tax return. So it's a tax deduction, much like a 401k pretax contribution. And they came up with this Roth IRA, not that long ago in real terms, saying that, well, you can forgo, you can still put money into your IRA, but the trade off or the benefit of not taking a tax deduction now is we won't tax you ever on any of the earnings. You can pull it out. There's no tax on the earnings in the future. And so that's the main difference. I mean, there's some subtle differences as well, but we don't have time to get into those. But that's the trade off there, is the government's handing you a deal, now taking a tax deduction versus no tax deduction, I still put money in and I escape taxes forever.

Speaker 1: Okay. All right. So there's a couple of just the simple basics between the traditional versus the Roth. Why do you think so many people are contributing or have contributed more towards the traditional over the Roth, over the course of their investing lifetimes? Well, to be fair, the Roth's only been around since what the mid-nineties, I think.

Tony: Mid-nineties, yeah.

Speaker 1: But is it just because it's kind of been the norm, and that's kind of what's been beat into our head or what else is out there?

Tony: I think that that's been the norm, the traditional has been around longer, and then the normal, traditional advice has always been to take a tax deduction right now while you can, and you'll lower your income, lower your taxes. And since the money is growing tax-deferred, the old adage is, well, we'll pay taxes later, but you'll be in a lower bracket, theoretically, when you retire. Therefore, if you're in the 25, 30% bracket now, that you'll be lower than that when you retire. So that made sense to a lot of people, and still does for some.

Speaker 1: Well with the Roth being so powerful. Well, first of all, I guess maybe explain to us why the Roth can be so powerful. How about that?

Tony: Yeah. Well, the Roth can be powerful, because especially if you're young, but even for conversions and things like that, is taking and paying the tax now, when you know what your tax rate is, and then not having to worry about paying taxes on earnings ever in the future. And the reason we wrote the book is because we feel like in 401ks and traditional IRAs that this ticking time bomb, Uncle Sam, the government, they have a claim to everything that you have in those accounts.

Tony: You're not thinking about it right now, and what I mean by that is you're going to owe tax, or somebody is going to owe tax on those large balances. And that could be quite large if you have had a 401k or an IRA that you've contributed to for years and has really expanded. And I think when people start to sit down, we start running some numbers, especially when they say, well, I'm not going to be a lower tax bracket when I retire. I might be even at a higher tax bracket. And showing them how they can maybe convert some of that now into a Roth, or even start a Roth, and not worry about it, and having to pay tax on it. The differences can be enormous over time.

Speaker 1: Okay, very true. Very true. Now with the Roth being as I said, because it is so powerful, can you maybe give us an example to kind of illustrate, should we be looking at one. Is there any kind of way of looking at this and saying, okay, anybody from in this kind of demographic generally should definitely use a Roth or definitely not use a Roth? Because sometimes I think people also get a little confused that, and a lot of our demographic and listening audience is probably going to be 40 plus or so, in that range. So it gets a little confusing as to, well, should I convert and put everything into a Roth, or should I start doing one now, or just kind of give us some breakdowns of someone who maybe should contribute or should be contributing to a Roth.

Tony: It comes down, I think, a lot to personal preference. However, at the end of the day, when you run the numbers, they don't lie. I always like to say, as I put on my accountant hat. And really I think a Roth is going to be ideally suited for anybody young that's starting out investing's, got a long time. But even people 40 plus I think should be looking at Roths. And if they're still throwing money into an IRA, is using a Roth, and then maybe over time converting traditional IRAs over to a Roth so that you're basically taking the tax hit now, within limits. And then having that income later that is tax-free.

Tony: Because when we get to sit down with people, we try to show them in a financial planning meeting when we get going, is we try to divvy up their money into three pots. And that is money that's taxable now, which is generally income that they're making. Money that's taxable in the future, which is going to be these traditional IRAs, 401ks, other benefit plans. And then money that's never taxed. And there is not many things that go into that last pot, but the Roth IRA would be one. I always try to play with them and say, what else could go in that pot? And very few can even give me any other answers. And there's not many things that could go in there. And when they start seeing that, that you can build this pot of money that's going to be never taxed, they tend to like that. And then when you can show them some numbers based on what they're doing currently and how much that could add up to, that really turns the light on for them.

Tony: So I would say in answer to the question, basically anybody. Of course the next question is probably going to be well, what about traditionals? Who should go there?

Speaker 1: Right, basically, yeah.

Tony: You know, sometimes though when you run the numbers, depending on a person's situation and their appetite for, if they're just tax deduction hounds, the traditional might be better for, especially if they're already basically using say the Roth in their 401k, because there are Roth portions there. They may want to take a traditional IRA and defer some taxes to just stuff more money into something. That would be one, another one would be somebody that may want to just take the tax deduction now, and say again, they don't run any numbers, they just say, I want the tax deduction now. But if the numbers truly work out and they would actually pay less tax in retirement, that might be another option.

Tony: And what I'm pointing to on all of these is in this area, I think it's important that you get some professional help and run numbers on both types of scenarios so you could see what would benefit you most. Because it's going to be different for everybody. But generally everybody's opinion is always well, I'll stuff as much as I can in my 401k or my traditional IRA, and that everything is going to be set. And what we go over in the book and show some real life examples is, you can see by doing that, what a person would pay over their remaining life expectancy in taxes versus if they've done the same thing in a Roth. And generally the Roth wins.

Speaker 1: With so many people interested I guess, Tony, lately with conversions. And this has been going on since the tax reform, the current one that went into play in '17. There has been a big topic about, there has been a lot of conversation about converting over, because of the lower tax rates. Because with the traditional, as you've pointed out, at the end Uncle Sam is waiting. They're standing there going hello.

Tony: We're hand out.

Speaker 1: That's right. So is it beneficial to consider a conversion? It wasn't really on our topic list, but let's just kind of address it real fast, because it is such a big animal out there. That's a pretty powerful tool, should you choose to implement it correctly within your plan?

Tony: Yes. Well, and I think the conversions, what we do with clients is if they are thinking about converting, basically talking about the benefits, the pay Uncle Sam later, pay him now. The fact that it's never going to be taxed. At death that the income beneficiaries are going to get it tax-free, versus the traditional where there's going to be taxes due. There's no lifetime minimum distributions, things like that. And then another one that a lot of people forget about, is in a Roth you can definitely still make contributions after 70 and a half. A lot of people still want to do that. And in traditional you can't.

Tony: But after we go over that with them and say, all right, you're in this tax bracket, and you've got this much room before you jump into the next tax bracket. Maybe it would be a good idea to convert just that much this year and do that much every year. So you don't jump tax brackets and cost yourself more. But that way over a period of X, you'll have it converted over into a Roth. And then you're where you want to be, while we're taking advantage of these lower tax rates right now. Versus if you say you had $500,000 in a traditional IRA and you just went out and converted all of this to a Roth this year on your own not thinking. And the next thing you know, you got a tremendously large tax bill, because now you're in the top tax bracket for this year. So that's what you don't want to have happen.

Speaker 1: Gotcha. Okay. Well, when it comes to traditional IRAs versus Roth IRAs, as you mentioned earlier, Tony, sometimes it's a personal preference. But there is a lot of strategy that can be looked at, especially for retirees and pre-retirees, more so pre-retirees, I'd imagine. But there's still a lot of strategy that can be put into place with these, and they're a very powerful tool for your retirement savings. So it's best to really be working and talking through with an advisor in how it's going to fit within a plan that works well for your situation.

Tony: I would agree. I mean, there's a ton of strategy in them with the Roths from a tax standpoint, even though again, you'd get no tax deduction right now. And by utilizing some of that, like you said, I mean, it can make a world of difference over 10, 20, 30 years. So don't just go out and convert for sure. And if you just want to go start one and start contributing that's one thing, but definitely seek some advice before you convert a big balance.

Speaker 1: Well, I was going to ask you, since with you being a tax doctor, so to speak, when you mentioned, you don't get the tax benefit, obviously if you do the Roth. Is it much like with the houses now too as well? Where since we don't really with the 12,000 for, 24,000 for a married couple, is it really something you can even take an advantage of?

Tony: What's that, the IRA deduction?

Speaker 1: Yeah. I mean, is it kind of like the mortgage where it's probably not enough to matter, because you're not going to get over that 24,000. Let's say if you're married.

Tony: Well, with the standard deduction versus itemized, those are itemized deductions, the traditional IRA still ends up on the front page of the tax return. So you'll get that whether you itemize or not. So you still get that. But a lot of times though, people are already in their 401k in some form or fashion, or they'll make too much, and they can't contribute to the traditional. So it kind of phases them out that way.

Speaker 1: Gotcha. Okay. And again, that's why I ask the questions and you provide me the feedback, because sometimes it can be a little unclear for folks. And I know a lot of times ever since, especially with this new tax program that we've been on, your CPA or whatever may have said things like that to you. Well, you make too much, or it's not going to, whatever it is, it's not going to matter, because you're not going to get up over that 24,000 or so on and so forth. So if you're not working with somebody who is a CPA and a financial advisor, or has a CPA on the team, or whatever the case is, it's certainly a good idea to have kind of that complete team talking and working together. Because they do different animals, different things there. So the CPA is going to really help you with that portion of it, while the financial advisor is going to be able to help you with theirs, and so on and so forth.

Tony: Yeah. And I would throw out this stat out there, out of our many, many retail tax clients that we prepare tax returns for. So these are people that come in, we generally see once a year, they're kind of what I call, I mean, we know everything about them. So I always say, you're getting undressed financially in front of us, because it's all on there, what you're doing.

Tony: And it amazes me still that in today's age, we have as many people as we do that A. are either not participating in their 401ks, or if their company doesn't have a 401k they're doing zero for retirement. I mean, not even a Roth or a traditional, and these can be started for so little money, 50 bucks a month, and very little cost as well. And you need to get something going.

Speaker 1: Yeah.

Tony: We can't do it for people, but we advise them, it's something I look at when every tax return I check over and visit with people is, if they're not doing anything they need to get started. If they are, they get a little raise or if they can afford to throw five, 10 more bucks a month, it's only going to help them in the long run.

Speaker 1: Well, and then the long run is a lot of what we have conversations about, because we are talking about investing, finance, and retirement, and a lot of cases you're talking about for retirement as well. So if you have some questions about IRAs versus Roth IRAs, if you have questions about conversions or some of the topics we've covered today on the show, make sure you reach out and talk with Tony before you take any action. Give him a call at (844) 707-7381. That's (844) 707-7381. Don't forget you can also go to yourplanningpros.com to learn more. That's yourplanningpros.com. That's Tony's website, lot of good tools, tips and resources can be found there as well. And as always, we suggest, we ask nicely, I suppose, if you would be so kind as to subscribe to the podcast. We would certainly appreciate it. It's Playing with the Tax Man at whatever podcasting app you find most enjoyable, Apple, Spotify, Google, whatever platform you like.

Speaker 1: All right, my friend. Well, I'm going to let you go for this week. Thank you for breaking down a little bit for us the traditional versus the Roth IRA. I hope you have a great week and we will talk soon.

Tony: All right, take care.

Speaker 1: We'll see you next time here, folks, on Plan with the Tax Man with Tony Mauro of Tax Doctor, Inc. And we'll see you next time. Take care.