Retire Smarter with Kevin Kroskey, CFP® & Tyler Emrick, CFA® CFP®

Paying a lower tax rate today vs. what you would otherwise pay in the future on pre-tax IRA/401k dollars is a good move. They way you can do so is by converting money to a Roth IRA and paying tax in the year of the conversion.

The 2017 Tax Cuts and Jobs Act (TCJA) lowered tax rates and significantly widened tax brackets on individuals. Current law has the tax rates under the TCJA in effect through the 2025 tax year and increasing to pre-TCJA rates and brackets in 2026.

Yet, tax rates may go higher sooner. Many election models are currently forecasting Biden to win and for the Senate to flip blue. Assuming these come to fruition, the Biden Tax Plan calls for tax increases to occur before 2026. Then there are the trillions of dollars in unprecedented fiscal stimulus added to the government’s books to deal with the COVID crisis. At some point, the mounting debt has to be paid for, and various taxes are the way it must be paid.

Thus 2020 may be the last best year for conversions. Hear Kevin discuss these considerations in detail to empower you to take action to reduce your tax risk and improve your after-tax, spendable wealth.

Timestamps:

4:16 - Why Roth Conversions Should Be Considered Right Now

12:34 - Current Law 

16:09 - What Could Be Potentially Coming Down The Road

20:15 - Items To Consider When Tax Planning

25:55 - Sense Of Urgency

Some 24% of those 56 and older say the pandemic has caused them to push back their planned retirement date, according to a survey conducted by The Harris Poll on behalf of The Nationwide Retirement Institute. Hear Kevin discuss key variables you should consider as you plan through the COVID-induced uncertainty, including items that may nudge you to retire now and others that result in waiting.

Timestamps:

6:45 - Kevin's First Impressions On Postponing Retirement Due To Pandemic

10:35 - Case Study (Mark And Linda Consider Pros And Cons Of Retiring)

16:28 - It All Starts With A Plan

18:04 - Unemployment Considerations

20:47 - Healthcare Considerations

21:56 - Further Considerations In Delaying Retirement

65% of Institutional Investors surveyed in late June believe the market is factoring in the long-term impact of the coronavirus "too little" while only 5% said "too much," implying the market is overvalued. Yet, the market has continued to go up. Has it come too far too fast?

Hear Kevin discuss the topic in detail and explain why our brain function predisposes us to make investing mistakes, including blindly chasing investment returns and firmly entering the world of speculation (while abandoning principled and process-based investing). He even attempts to work in stories about Homer Simpson, Halloween, Thanksgiving, and pre-modern man to illustrate his points. Quite a feat to attempt. You won't be disappointed. 

Timestamps:

5:34 - Are Markets Factoring In The Impact Of The Coronavirus Appropriately?

9:54 - How Do We Define The Term “Market?”

15:34 - Too Big, Too Fast?

19:19 - An Important Lesson From The Simpsons

25:00 - Breaking The Herd Mentality

Investing should be scientific and process-based. Speculating is more akin to gambling and lacking fundamental support. At extremes, it is easier to discern the two but can be shades of grey in between.

Hear Kevin discuss the forward-looking nature of the stock market and times why it can make investing sense (not speculating) to look through bad economic news.

And be sure to listen to the end where Kevin discuss process-based portfolio changes made in March, as a result of changing inputs, and why Vanguard's DIY investors' portfolio inaction was the wrong thing to do.

Timestamps:

2:30 - Assumptions That Need To Be Made

9:20 - Looking Back On The Pandemic

13:29 - Looking Forward To The New Normal

22:30 - Rapid Changes

Like your work but hate your job? Bad boss. Terrible commute. Whatever the reason.

Hear Kevin share a story of a client who retired in her late 50s. She loved her work and taking care of her customers but hated other aspects of her job. She worked long hours and had a long commute. Taking care of her household on the weekend and trying to have a bit of fun left little space and time to seriously consider her retirement and life after work.

Perhaps this is why she was in a state of disbelief after her retirement plan showed she could retire in her 50s. The sheer thought of retiring was new and a bit scary.

And be sure to pay attention to the end to hear how things are going for her now four years retired and how she has defined phases and varied strategies to her retirement distribution planning.

Timestamps:

4:47 - About The Client

8:58 - The Realization Of Being Able To Retire

14:12 - Padding The Expenses 

19:44 - Healthcare When Retiring In Your 50’s

25:59 - Present-Day Planning

You cut the paycheck cord and enter retirement. Then a spending goal unexpectedly increases...significantly. You can't simply continue to work longer, so what do you do?

Hear Kevin discuss real-life cases where clients had to provide financial support to their daughter going through a messy divorce and another situation where a client desired to buy a 2nd home. Though the situations were starkly different, the process to rework the retirement plan and evaluate tradeoffs was similar.

Life throws curveballs. Best to have a plan and process in place in advance on how to deal with them.

Timestamps:

4:18 - Client Story: Life Happens, Things Change

8:07 - Reworking The Plan For A Second Home

14:26 - Picking Up New Spending Goals

17:09 - Potentially Downsizing

18:12 - Taking A Second Look At Travel Expenses

20:14 - Providing Clarity

22:21 - Helping Clients Make Informed Decisions

You live below your means and invest for your future ... similar to your parents. Now your parents are getting older, and it seems fairly clear they'll be leaving you an inheritance at some point. Meanwhile you're still working. Should you include the potential inheritance in your retirement plan?

Banking on an expected inheritance for your retirement plan involves risk. Hear Kevin discuss real-life cases where it was appropriate and another where it was too risky.

Timestamps:

6:25 - Market Update: We Are Not Out Of The Woods Yet

17:57 - Lean Towards The Conservative Side When Incorporating An Inheritance In Your Financial Plan

24:25 - 1st Client Case - Open Communication About Finances

30:03 - 2nd Client Case - Less Certainty About What The Future Holds

36:51 - 3rd Client Case - An Awkward Conversation Can Make A Great Impact On A Financial Plan

The five biggest tech stocks -- Amazon, Apple, Facebook, Google, and Microsoft -- are great businesses. They've been so successful over the last decade that they comprise about 20% of the total S&P 500 market capitalization -- a level of concentration not seen since the late 1990s. They also command higher prices (valuation) than the market as a whole.

While these companies have provided outsized growth rates and returns to investors over the last decade, there is no logical reason you should expect similar outsized growth rates and returns over the coming decade. Whether it is due to the magnitude of their success, capitalism or regulation, it will be nearly impossible to repeat their growth and success moving forward.

Listen to Kevin describe a simple thought experiment illustrating why it's mathematically impossible for past to be prologue for these tech darlings. Eventually, the music will run out. Investors will again learn the lesson that price matters ... just as they learned the same at the end of the Tech Bubble.

Timestamps:

6:24 - Why Do Tech Stocks Get So Much Attention?

9:46 - Looking Back At Tech Stock Growth From 2010-2019

14:57 - Why Growth Will Be Much More Difficult Going Forward

25:00 - Why Prices Matter

Interesting parallels can be seen in modeling retirement projections and the Coronavirus pandemic. Small changes to inputs -- such as the rate of return or infection spread rates -- can have magnified effects on outputs -- such as ending wealth or total infections (and ultimately deaths), given similar exponential growth traits.

What is important to understand in both are the concepts of risk and uncertainty. Risk can be modeled. Uncertainty cannot yet must be planned for. Misunderstand either and things can quickly go wrong.

Hear Kevin discuss these two critical concepts. He also gives his opinion on why Ohio Governor Mike Dewine was prudent in the aggressive economic shut down in face of Coronavirus uncertainty. However, Ohio, and the U.S. at large, now need to transition back to economic functioning in light of Coronavirus risks being better understood, significantly less than what was initially believed, and to avoid second-order effects becoming more severe than those from the virus itself.

Timestamps:

3:45 - How Risk And Uncertainty Affect Investing

14:37 - What Is Non-Linear Modeling?

17:32 - An Example Of Non-Linear Modeling

21:33 - The Math And Science Of The Coronavirus

35:09 - Known Unknowns

Control risk? Buy low and sell high? Higher returns? Who doesn't all of these in their portfolio! And that's what portfolio rebalancing can do.

While rebalancing sounds simple in theory it quickly gets complex in practice. Hear Kevin describe rebalancing from the simple to complex and the emotional hurdles to overcome as well. Be sure you or your advisor is taking advantage of the high-probability benefits rebalancing is expected to add to your net investment returns when done right.

Have questions? Need help making sure your investments and retirement plan are on track?

Use this link to schedule a free 15-minute call with one of True Wealth's CFP® Professionals.

http://bit.ly/calltruewealth

Timestamps:

4:32 - What Is Rebalancing And Why Is It Important?

7:37 - Historical Data

9:47 - Problems With Rebalancing

16:43 - Examples Of Complications