The Fiscal Blueprint: Retirement Built Right w/ Financial Coach Jeff Montgomery

Welcome to Round 4 of our Q & A series! What in world is going on with the markets lately?! Today we are going to discuss this and put this information in perspective. Additionally, we're going to discuss how to effectively stretch out a spousal IRA. This is our last episode of our 4 part Q & A series. Of course we will always answer listener questions (on future shows) so please keep-em coming!

(1:00) Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you're a client I can't give you advice because I don't know you. Think of this as helpful hints and education only! And please, before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser.

Practical planning segment:

(1:40) Lets Welcome Joani my co-host and sidekick on most of the shows. Joani has been a busy woman lately! She is our RMD Queen and because we are nearing the end of the year, we're going to talk about them on today's show.

(3:50) Market Volatility: What's going on with the crazy volatility lately? We get so many phone calls regarding this because people tend to get pretty nervous when this kind of extreme volatility occurs within the global markets.

It's important for investors to look at what's going on in a much broader context. Volatility is normal in global markets. When you are invested for the long-term, always keep in mind your time horizon and your original goals. Ask yourself if your goals have changed and look at where you are at in your personal time horizon.

(5:15) The market is up, but my portfolio isn't… why? The question is what is your definition of the market? This person is probably talking about the S&P 500 or the DJIA. The S&P includes 500 of the largest stocks, and the Dow includes only 30 stocks. So although these indices are widely publicized, they are hardly indicative of the entire market.

A globally diversified portfolio includes international stocks, large companies, small companies, microcap companies, value & growth stocks, emerging markets and fixed income. If you're comparing your globally diversified portfolio to the S&P or the Dow… then you are comparing Apples to Oranges!

(8:15) Fun Facts! If you go all the way back to 1970, The S&P was the best performing asset class in only ONE of those years. Guess how many times it was the WORST performing asset class... 14!!

From 1926 until 2017, after a drop of more than 10%, the following one-year average return of the S&P is 11.2%. The following 3-year average return is 10.2%, and the following 5-year return is 9.6%. After the S&P 500 has reached a new high, the subsequent one-year return has been 13.6%; 3-year has been 9.8%: 5-year 8.2%.

Maintaining discipline in the long-term will reward you! If investors want to achieve higher long-term returns in capital markets, then they have to be able to withstand market volatility. It's not for the faint of heart. If you're ever feeling nervous, talk to your coach. A good coach will explain this to you and help you manage your emotions and fears that are constantly being stoked by negative news and media on a daily basis. IF you haven't done so already, go back and listen to episodes 5-8 of our podcast. These episodes are part of the series "Mind Over Money" where we discuss the investors brain!

(14:40) Here is a listeners very specific question on "Understanding "stretch" options for surviving spouses"! What in the world is a "stretch" option?

This may be a subject worthy of an entire 4 part series! The reason I think its worthy of an entire 4 part series is because it can be very complicated subject and when you start to explain the options it tends to lead you down a rabbit hole.

Here is the listeners question: I turned 70 1/2 years old in March 2018 and am the beneficiary of my deceased wife's IRA who died in 2010. I never converted it to my own IRA but am still the spousal beneficiary. The custodian's IRA department told me I must take the RMD by December 31, 2018 by using the Single Life Expectancy Table which is double what the Uniform Lifetime Table would be. My wife would have been 70 ½ this year as well.

My CPA does not agree with the custodian. Who's right?

Here's the short answer: It depends on what this listener wants to accomplish.

If he wants to keep the deceased wife's IRA as an inherited IRA, he must take an RMD for 2018 calculated using the single life expectancy, just as the custodian is recommending. However, if he has decided that the time has come to treat this IRA as his own, then taking an RMD based on his age and the Uniform Lifetime Table (because he is also 70 ½ this year) will accomplish exactly that. This IRA will be treated like any other IRA of his and RMDs will be required, that are usually calculated using the Uniform Lifetime Table. This would be a good time to move the inherited IRA funds into his own IRA to avoid any confusion in the future.

I think you can attest to the fact that this is an area of great confusion and also an area where some very bad planning mistakes can be made by the spouse beneficiary and also by some advisors out there. We see misinformation in this area all the time simply due to lack of understanding the rules. And I don't blame them! It can be super confusing and complicated at times.

(17:50) Lets first give the audience some basic terminology in regards this subject. First what's a custodian?

A custodian is a company that has physical possession of your assets. You deposit money or own investments which are held in their capacity for convenience and MAINLY security. They hold the assets in "book form," meaning it is an electronic entry. Our recommendation is to always have a 3rd party custodian. No matter how much you trust or like your advisor, you should not let them have physical possession of your assets. (think: Bernie Madoff, Charles Ponzi)

Bonus Read: "Lessons From the Bernie Madoff Fraud, 10 years later. "If you're giving someone money to invest, insist that an independent, third-party custodian hold your money and send statements directly to you. If anyone asks to handle your accounts directly, run—don't walk—away."

In addition to holding securities for safekeeping, most custodians also perform other services, such as account administration, transaction settlements, collection of dividends and interest payments, tax support and reporting (MYTH: That's right, a consolidated 1099 form should be postmarked by February 15, according to the Internal Revenue Service (IRS). Actually, that's been the case for a while now—the 1099 mailing deadline changed starting with the 2008 tax year)

They also issue either monthly or quarterly statements that you can access online. Examples of popular custodian for IRA's and other types of accounts are: Charles Schwab, TCA, Fidelity, TD Ameritrade.

(20:30) The next term we need to define is ………. Inherited IRA and Beneficiary IRA: These terms are interchangeable. They are the exact same thing. Folks get really confused by the term "Inherited IRA". They think "OK my spouse just passed away so I Inherited their IRA"…………….so its an inherited IRA correct?

Well technically yes! You inherited the IRA but as a spouse you have some options on what to do at that point. It could remain TITLED as an Inherited IRA there are some very specific rules that may have to be followed. However, a SPOUSE and only a SPOUSE has another option to inherit their deceased spouses IRA!

YES, rolling it over into their own IRA.

Let's Review: A surviving spouse has an option to:

1. Title the account as an "INHERITED or BENEFICIARY IRA ………
2. ROLL IT OVER INTO THEIR OWN IRA. Very important here………only a spouse has this option. A non-spouse does not!
3. CASH IT OUT ENTIRELY. Why someone would do this I have no idea unless they really needed the money. Because there would be serious tax consequences depending on how large the IRA was. Tax as ordinary income and can trigger additional taxes on your SS.

Lets explore the 1st two options in a little more detail:

Option 1 : Titling the account as an Inherited IRA. This listener has the option to leave it and title it as an inherited IRA. The titling would go something like this.

Each custodian is a little different "Jane P Doe inherited IRA beneficiary of John H Doe IRA"

(23:50) Why would a spouse leave it as an inherited IRA?

One reason would be if there was a big age difference between spouses. Not the case in this question but for example what if the husband was 75 and the deceased wife was 65. If he does a direct rollover into his own IRA it would be subject to RMDs at his age of 75. If he leaves it as an INH IRA he can defer RMDs until his deceased spouse would have reached age 70 ½.

And guess what? He can, at that time, roll it over to his own IRA if he chooses.

What he would do if he wanted to take out the least amount possible, he would compare the two options at that time.

Now this brings in the subject of how the IRS calculates the RMDs for retirement accounts. If its your own IRA you would use what's called the Uniform Life Table. If its an inherited IRA you would use the Single Life table.

The advice in this situation would most likely be to have this individual roll the inherited IRA into his own. The reason being that the uniform life table has a much higher divisor, therefore less money has to be withdrawn to satisfy the RMD. Of course, this would depend on his goals i.e. whether or not he needs the money.

Alternatively, you can title it an inherited IRA, and keep deferring the RMD's until the decedent is 70 ½ and then roll it over into your own IRA.

(27:00) IMPORTANT: you cannot do it the other way! Lets say you moved it to your own IRA and then for some reason you thought you made a mistake and you wanted to move it back to an INH IRA. You cannot do that. Not allowed!!!! Additional side note, you cannot contribute to an inherited IRA.

Another side note, if you have an inherited IRA and you are under 59 ½ , then it might make sense to NOT roll it over into your own IRA because you would be allowed to take distributions without the 10% additional tax penalty.

Do you see how we can go down the rabbit hole on this subject? It's like each turn we take leads to more and more explanation. That's why I think this would be a good 4 part series!

(33:30) OK Let's do another example: Husband age 75 and deceased wife was 10 years younger.

Option #1; leaving it as inherited IRA (Titled that way) the RMD would be calculated using the Single Life table using the age of the deceased. In this case it would be the year in which she would have reached her age of 70 ½. The divisor at that age is 17. Example $1 million IRA you would have to take out $58,824 and pay taxes as ordinary income at that point.

Option #2; move it to his own IRA. If his deceased wife was 70 ½ at the time and he is 10 years older than he is 80 ½. His RMD would be calculated using the Uniform Life Table of a 80 year old which would be 18.7. If he does it this way a $1 million IRA would equate to $53,475. $5,000 less than the other way.

So that's one strategy... Leave it as an inherited IRA until the year before your deceased spouse would have reached age 70 ½ and then move it to your own!

So you can see how complicated it can get. So please folks ………. make sure you seek competent advice on this subject. We just really scratched the surface because there are other considerations based on which option you choose

Closing Segment: We appreciate you joining us today for this episode of The Fiscal Blueprint. Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

Remember it's not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

Final Disclaimer: "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

Episode 11: Questions, questions & more questions!

Welcome to Round 3 of our Q & A series! Today we are going to talk about the loans from retirement accounts, and of course, social security!

(1:00) Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you're a client I can't give you advice because I don't know you. Think of this as helpful hints and education only! And please, before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser.

Practical planning segment:

(1:40) Guess what? We have some more questions! I like this series because we get to cover a lot of different areas but as usual, we have some Social Security questions!

As of 2012, Social Security's Handbook had over 2700 separate rules governing its benefits. And it has thousands upon thousands of explanations of those rules in its Program Operating Manual System, called the POMS, which provides guidance on implementing the 2,700 rules. Talk about a user's nightmare! No wonder it's so confusing and folks have a lot of questions regarding Social Security.

This one comes from a listener via email. I did reply to the listener by email, but I thought this was a good topic to cover. It goes as follows:

Hi Jeff - during one of your social security info sessions I learned that once my husband filed for social security, if ½ of his benefit is greater than mine, I could collect up to ½ of his. I recently ran into another financial adviser, and in casual conversation he told me that only applied if you were born before 1953. Is that true?

This was my response: Sounds like the advisor is a bit confused about the changes that were made in 2015. They are most likely referring to what's called a "restricted application" for spousal benefits. That rule changed for people born on or after Jan 2nd, 1954.

You are still allowed regular spousal benefits under the new rules. You are entitled to your own benefit based on your own work history and an additional spousal benefit to equal no more than a maximum of 50% of your husband's total benefit. This would only apply if you waited until your full retirement age to collect and would require your husband to also be collecting his own benefit. If you collect early, prior to your full retirement age, then both your own benefit and your spousal benefit will be reduced.

(6:50) A quick rule of thumb: if you ever start collecting benefits early, whether spousal, survivor or your own, it will be reduced permanently. You may get cost of living increases/adjustments each year, but the starting point will be reduced permanently. FRA: for most folks and for this listener, the full retirement age is 66. (If you were born between 1943 and 1954) If you were born between 1955 and 1960 then you add two months per year after 1955 (i.e. if you were born in 1955 then your FRA is 66 & 2 months.) If you were born after 1960 then your full retirement age is 67. Your FRA is the age that you are entitled to 100% of your full retirement benefit.

I went on to give this listener an example:

Jeremy has a PIA at FRA of 66 of $2,200 and Samantha has a PIA at FRA 66 of $600

If Samantha collected her own benefit at FRA, she would receive $600. If she collected at age 62, that would be reduced by 25% to $450. If she waited until age 70, the $600 would increase by 32% to $792.

Now let's add spousal benefits to the equation, it becomes a little more complicated. It is important to note that your own benefit and spousal benefit are NOT aggregated, but rather coordinated.

Samantha's spousal benefit is worth $1,100 (50% of Jeremy's PIA of $2200).

That means if she collects her spousal benefits at FRA along with her own, she'll add an additional $500 of spousal benefits to her own $600 for a total of 1,100 (50% of Jeremy's benefit).

If she takes the spousal benefit at age 62, her $500 will be reduced by 30% to $350 for a benefit total of $800. On the other hand, if she waits until age 70 for both benefits, her spousal benefit will only be enough to get her $1,100 (her maximum spousal benefit). In this case she would add $308 to her own $792 for a total benefit of $1,100.

It is important to note that you cannot file for a spousal benefit unless your spouse has already filed for their individual benefit as well.

So in this case it makes absolutely no sense for Samantha to wait until 70. She's not gaining anything. She's only allowed a maximum of 50% of Jeremys which is 1100. Which she would receive at her FRA of 66 (600 own and 500 spousal). She's getting $1100 per month for 4 years from age 66 to 70 (that's $52,800 vs waiting to age 70 to receive the same amount 50% of $1100…50% of Jeremy's.

This is why having your SS analyzed is so important, so you don't leave any money on the table by not understanding the rules.

(16:30)*Shameless plug………. We do SS planning in combination with everything else! It's extremely important to have an advisor look at the full picture because having a withdraw plan or income plan. After retirement is crucial for success and your 401k, IRA, general savings, pensions, expenses, longevity, health coverage, all play a factor in when to take your SS.

(17:30) Dates and filing strategies… what changed in 2015? Congress changed the rules at the end of 2015 and they grandfathered in some folks that are able to file under the old rules. Those born on or after January 2nd 1954, then the new rules apply to you. You are still allowed spousal benefits, but you are no longer allowed to file a restricted application. They did not change anything for survivor benefits! You can take this as early as age 60, but it will be reduced. You can take it early and delay taking your own all the way up until age 70.

Hopefully this cleared things up, if you have any more questions please email us at [email protected], give us a call at (410)-208-1004, or voice record your question here.

If you are not currently a client and you want to schedule a 15 minute "fit meeting": go to our website at mfswealth.com and you'll see a tab to Schedule a Meeting. Simply fill out the quick form with you name, email, and phone number and Kristen from our office will schedule a 15 min call. It shouldn't take any more than 15 min. to see if there are areas where we can help you.

(21:20) Can you explain how to borrow from your retirement accounts and how it gets paid back?

Well this is kind of a vague question. What type of retirement accounts? 401k's 457b's IRA's, Roth??? That is the main question if specifically asking about loan provisions! What we'll do to answer this question is go over some general rules. Now whether this is a good idea or not is an entirely different question. I'm going to assume that this listener has no other choice but to do this. However, I really feel like this should be a last resort or a truly unique circumstance.

Basic rules: not all retirement accounts have loan provisions. Under Federal rules, IRA and IRA based plans (SEP & SIMPLE) do not allow plan loans.

So I am going to assume this person is talking about a 401k, 403b, 457b plan. Why? Because loans are allowed in these types of accounts if you are still an active employee. On some 403b and 457b plans if held as individual accounts with 3rd party custodian MAY allow loans to non-active employees. Make sure you check with your plan administrator!

Even though loans are allowed from your 401K, they are often limited to the pre-tax part of your account, not the Roth portion. Many times there are maximum amounts that can be borrowed. The maximum plan loan from a 401k, 457b or 403b is the greater of ½ of the employees vested account value or $10,000, or $50,000. Ex: if you have $100,000 in your 401k then your max loan amount would be $50,000. If you have $40,00 in your 401k then your max loan amount would be $20,000.

(26:45) Let's talk about the rules governing the terms of the loan. The loans must be re-paid within 5 years except for loans used to acquire a principle residence. What happens if you get terminated or change jobs during the loan term? Most plans treat this as an acceleration of the loan. You may find yourself in a position where you have to repay the loan immediately. IF you don't, then it will be treated as a taxable default of your 401k or 403b plan.

What if the loan participant passes away during the term of the loan? It will be treated as a taxable default to the estate of the decedent.

What if you miss a payment? The loan is considered delinquent. If the payment is not made by the end of the quarter in which the payment was due then the loan would be considered in default, and it would be taxable. You would receive a 1099R form for a taxable distribution from your retirement plan. AND if you are under 59 ½ you could also incur a 10% early distribution penalty.

If you don't default, follow all the rules, and repay according to the entire payment schedule, then you won't incur any taxes. You will only incur taxes if you terminate employment, miss a payment, or default on the loan.

Closing Segment: We appreciate you joining us today for this episode of The Fiscal Blueprint. Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

Remember it's not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

Final Disclaimer: "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

Welcome to our Q & A series where we are going to dive into some common questions we receive from listeners. As you can imagine, we receive all sorts of questions on a variety of topics; relating to both retirement and non-retirement topics.

Today we are going to talk about the economy, what's going on in the markets, what's the best spend down strategy: Roth or Traditional IRA, Precious Metals, Fees, and of course.. social security!

(1:15) Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you're a client I can't give you advice because I don't know you. Think of this as helpful hints and education only! And please, before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser.

Practical planning segment:

(2:50) What do you see as the next big thing affecting the economy?

Well, we don't have a crystal ball. But this is a very common question that we get from folks all of the time! First of all when we talk about our economy and the world economy, there is a vast amount of things that can affect either one, or both. This makes it extremely difficult to predict and that's why with our philosophy, we don't do it!

If you watch the news, the hot topics lately are tariffs and interest rates. Right now, the Fed is in the mode of raising interest rates and they are doing it for a couple of reasons. The number one reason that the Fed raises interest rates is to control the rate of inflation. They use forecasting models, and if they forecast higher rates of inflation, then they are going to raise the interest rates to combat that.

In one way, this helps investors if their money is in a savings account or if they purchase a CD (Certificate of Deposit), then the investor is getting a higher rate of return. On the other hand, if you are invested in stocks, sometimes when the Fed raises interest rates you'll notice that stocks will generally drop in price. The market participants tend to move towards safer investments over the short-term assuming they are going to get higher returns. However, this usually corrects itself over time when positive earnings come out.

If you are a long-term investor, you should not let interest rates drive your decision making on whether to invest in the market or invest in something like a CD or fixed income. When you're invested in the market there's always some risk involved; Stocks go up, they go down, and overall the market can seem extremely volatile if you look at a short time period. You might even have a negative year! However, if you look at historical rates of return, they exceed rates of inflation and usually exceeds returns from any type of fixed income. Remember, think about your long-term investing goals!

(8:30) Tariffs: Will the Trump administration and China come to some sort of agreement about tariffs?

We all know that President Trump is a negotiator and a business man, and he is using tariffs as a negotiating tool. He has gone on record saying that he doesn't want any tariffs and he would be happy with zero tariffs on either side. This negotiating tactic has worked on 3 occasions: Europe, Canada and Mexico. However, it's not currently working with China, which is our biggest trade deficit. Approximately $200-250 billion in tariffs are set to go in place at the beginning of 2019.

The question is, is that information already priced into the market? If you believe in the efficient market theory. Then yes, this information is already known, and the threat of tariffs is already factored into market pricing. On the other hand, some people believe that the implementation of these tariffs at the beginning of 2019 will have a significant impact on the markets.

Now, China and the U.S. are scheduled to meet at the G20 summit this weekend (Nov. 30th-Dec. 1st) So there could be some updates after that. Again, we don't have a crystal ball and we can only speculate what could happen.

To wrap things up with our first question, the two biggest things I see affecting the economy right now are interest rates and tariffs. I want to reiterate that if you are a long-term investor, think long-term! Don't worry about these short-term trade wars or short-term interest rate fluctuations. Keep your eyes on the long term!

(12:05) Are precious metals a good investment?

Someone must have watched William Devane's commercial about turning your IRA into Gold! In our humble opinion, gold and silver are great for jewelry! But not great for investments. We believe in building globally diversified portfolios and when you do that, you are participating in the precious metals market by owning different companies. For example, a globally diversified portfolio might include some mining companies or publicly traded jewelry companies in which you would profit from based on dividends or gains. However, if you simply buy the commodity of gold or silver, you have to buy low, sell high and time the market. Precious metals are actually a very volatile commodity!

Oddly enough, gold is typically marketed as a safe investment, as a hedge against inflation or a hedge against national debt. Those that are selling gold as a safe investment argue that due to the national debt, the dollar is worthless or eventually will become worthless. Think about this in a logical way: What are they taking in exchange for that Gold that people would buy from them? DOLLARS. If gold is such a safe haven and a dollar isn't worth anything based on their belief, then why are they taking your dollar? Hmm.

On a lighter note, we do love the Burl Ives song Silver & Gold to get us in the holiday spirit!

(17:00) What is the best 'spend down' strategy of 401k, Roth, Social Security… which first?

This enters the realm of proactive tax planning and this question can come down to an individual's unique circumstances, so we recommend that folks speak to their own personal CPA. We are not a CPA firm and cannot give tax advice. However, we're going to talk in general terms to give folks an idea of what they might want to discuss with their own CPA.

'If an individual needs income, where should they draw from first?' is somewhat of a loaded question and typically leads to several more factors such as age, employment status, personal financial situation, how much is in each account, social security, marital status, etc.

Let's use an example of a 62 year old, married, retiree that has a 401k that has yet to be rolled over into an IRA and also has a Roth. If this person is no longer working and they need the money as income, it may make sense to start social security early. If their sole income is just social security and it's enough to pay for general living expenses, the social security will have zero tax. Now let's say this person wants to draw from other taxable accounts, such as a 401K or a Traditional IRA, in addition to collecting social security. When money is withdrawn from these accounts, it could possibly incur ordinary income taxes. If the withdrawal is below the standard deduction, it may not incur income taxes. However, withdrawals from these taxable accounts could potentially trigger taxes on the social security being collected! You have to be careful about withdrawing from these accounts in combination with collecting social security.

The Roth has different rules, which we will get into at a later show. Let's assume you have had the Roth for at least 5 years, you are over 59 ½. Any money that comes out of the Roth that is a qualified distribution is tax free AND as a bonus, it is not counted as provisional income (which determines if Social Security is taxed). So this might be a good option depending on the situation, and an individual might want to take money out of each account.

When you contribute to a Roth, the money has already been taxed. So if you are over 59 1/2, even if the Roth hasn't been open for 5 years, you can always take out that original contribution without penalty. What you do have to be careful about is withdrawing the growth and earnings of your account. We usually don't have to worry about this however, because when money is withdrawn from a Roth, all custodians distribute your contributions first, not the interest earned.

(25:00) Do you think 401k to Roth IRA conversions are a good idea?

First of all, you cannot convert a 401k directly into a Roth IRA. What you would have to do first is rollover a 401k to a traditional IRA. There are some benefits to doing this. 401k's are notorious for the fees charged and people aren't typically aware of those fees. There is a very helpful website: Brightscope where you can put in the company plan name and it will list all the fees and assets within the plan. It is still somewhat difficult to really figure out what exactly you are paying because there are still other fees involved. So, one of the benefits of rolling over your 401k is that you have more control, more options and you get to clearly examine exactly what fees you're paying.

(27:30) Once the money is in a traditional IRA, does it make sense to convert it into a Roth? Another loaded question! So in general terms… any time you take money out of a traditional IRA, whatever amount you're converting you're paying income taxes on. You should consider whether it will push you into a higher tax bracket, will it trigger social security taxes? For this reason, most people don't convert the entire account but rather do several scheduled conversions.

You should also consider your age. Let's say you retired early, say age 60, and rolled over your 401k into an IRA. At age 60, you would have until age 70 ½ until you have to start taking distributions (RMD's) which means you have about ten years for that IRA to grow. During that time, you could have some type of schedule where you convert small amounts at a time into a Roth. If managed correctly this could be a great strategy because over that ten-year period, you have time to convert a good amount into the Roth, little by little. With a Roth, there are no required minimum distributions and if you do withdraw, it does not trigger taxes on social security.

Once again, there are so many moving parts to conversions and ultimately, we encourage you to speak with your CPA about your unique situation.

(31:00) How do I know how much I am paying in fees?

Unfortunately, in this industry, most people don't know the answer to this question. We just discussed the fees embedded in a 401k that are very difficult to see. One thing that you can do, is make sure you are working with a fiduciary. A fiduciary is going to disclose 100% fee transparency. Also consider your investment strategy: Passive vs. Active. With passive management, chances are, you are paying fees to an investment advisor. This is usually based on assets under management and could be anywhere from 1.5-3% depending on who you're working with. With active management, you have to be a little more careful with hidden fees. Let's say you're using an active manager who puts you in an XYZ mutual fund. The fund company charges an expense ratio. If the fund manager is actively buying and selling stocks within the fund, every transaction has fees such as the spread and commissions. With this strategy, you could have an advisory fee, the mutual fund expense ratio fee, transaction fees, and commissions.

We recommend having a true fiduciary analyze your portfolio for existing fees. Also, compare the portfolios risk and return to a passive portfolio, apples to apples.

Closing Segment: We appreciate you joining us today for this episode of The Fiscal Blueprint. Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

Remember it's not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

Final Disclaimer: "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

Welcome to our Q & A show where the next 4 episodes we are going to dive into some common questions we receive from listeners. As you can imagine, we receive all sorts of questions on a variety of topics; relating to both retirement and non-retirement topics.

So today, along with my co-host Joani Gursky, we are going to tackle some of the most frequent questions we receive. Social Security, Long Term Care, IRA's and RMD's… the list goes on!

Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you're a client I can't give you advice because I don't know you. Think of this as helpful hints and education only! And please, before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser.

Practical planning segment: Even though some of the questions are personal in nature and relating specifically to the listeners circumstance I think we can generalize the questions to where it pertains to the larger audience!

Let's start off with some social security questions…

When should we consider taking Social Security?

It is important to note that there is no one-size-fits-all solution to Social Security. Every individual's situation is unique and it's important to have your situation analyzed so you take the proper path!

Let's go over some specific rules:

• Your own benefit rules. Let's assume you qualify for social security based on your own work record. You have at least 40 quarters of earnings.
  • Full Retirement Age (FRA) is the age you are entitled to 100% of your PIA (ie your full benefit). Based on your date of birth, PIA is based on your highest 35 years of SS earnings
  • You could collect it early. As early as age 62 for a normal circumstance. But you could incur a permanent reduction of as much as 30%
    • Watch out if you are still working and take it early
    • You can also suspend it if you decided to take it early. You have 12 months to suspend and withdraw the application. IF you suspend and withdraw your application, all SS received must be paid back within 45 days.
  • You could also take it after your FRA and you can wait as long as age 70. What are the advantages of waiting until age 70 to collect? You will earn Delayed Retirement Credits of about 8% per year. However, consider your family history of longevity..
• Spousal benefit rules
  • Gets a little tricky since some rules changed in 2015 but generally speaking a lower earning spouse is entitled to their own benefit and an additional spousal benefit up to a maximum of 50% of the higher earning spouse.
• Survivor benefit rules
  • Can collect as early as age 60 but still subject to earning restrictions and it will be reduced because of the early collection, prior to FRA.
  • However, a survivor still has a choice to, at a later date, switch to their own benefit (based on their own work history), earning DRC
    • Can wait all the way to age 70 to collect

(14:00) What is the likelihood of Social Security collapsing?

Back in 2012, the SS administration put out a statement talking about when the SS trust funds would be depleted. The media headline was that it would be depleted around 2032 (three years earlier than previously reported) The media took this a ran with it, and it scared a lot of people. Rightly so. But the information was misconstrued as a headline grab.

What the media didn't mention was that at that time (2032) benefits would be reduced by 25% and that there would be enough payroll taxes coming in to pay 75% of the benefits. Now, if there are no changes or fixes within congress between now and that future date, then yes benefits would be reduced by 25%. Changes could include pushing the FRA up, increase the social security taxes, etc.

(18:00) Will my Social Security be taxed? Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, a pension, IRA withdrawals, interest, dividends and other taxable income that must be reported on your tax return).

If you:

• file a federal tax return as an "individual" and your combined income* is
• • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
• file a joint return, and you and your spouse have a combined income* that is
• • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $44,000, up to 85 percent of your benefits may be taxable.
• are married and file a separate tax return, you probably will pay taxes on your benefits.

Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits = Your "combined income"

By the way, these numbers are not adjusted for inflation! So you can imagine that at some point in the future as social security increases… everybody will pay taxes on their social security, assuming the there are no changes to these rules.

(21:00) Should I wait to take SS and draw from my 401K instead?

Again, the first question to ask is 'do you need the money?' IF you do need the money, then it may not make sense to wait to collect SS. Consider your age, whether you are still working as well. We know at age 70 ½ you have to start withdrawing from your retirement accounts… unless you are still working for that same company where your 401k is held. If you have an old 401k at a different company, you will be subject to required minimum distributions at age 70 ½ even if you are still working at that age.

A big part of answering this question has to do with your tax situation. Maybe, if you just take social security and you don't have any other income, you'll be in a zero percent tax bracket.

Also, consider if your 401k is in a diversified portfolio, then you may want to just leave it be so it can continue to grow!

(24:30) Required Minimum Distributions (RMD's) What are they and what are the factors that are considered when calculating your RMD?

Most people have some sort of a retirement account (IRA, 401K, SEP, 403B, etc.) The money that you've invested over time goes into these accounts pre-tax. One day, you're going to have to start taking this out because the government needs those taxes (age 70 ½ ). There is a provision where you can wait until April 1st of the year after you turn 70 ½. BUT if you do wait, then you are required to take TWO RMD's at that year, which could possibly put you into a higher tax bracket. For this reason, we don't typically recommend that people wait to take their RMD, we usually recommend that you go ahead and take it the year that you turn 70 ½ .

The amount that you have to take out is based on the account value as of December 31st of the year before you turn 70 ½ . Then there is a formula based on your age/life expectancy (PS the government assumes that you are going to live until about 98) and it turns out to be about 3.6% that first year. Each year, that percentage increases slightly. Here's a link to the RMD schedule:

You can take RMD's annually, semi-annually, quarterly, monthly. It's up to you and your preferences/needs. Some people take it annually right around the holidays for obvious reasons. And some people take it monthly because they like or need that monthly stream of income. Additionally, taking it out monthly might help out with something called reverse dollar cost averaging which acts like dollar-cost averaging in reverse to balance out the market highs and lows and avoid trying to time the market. In, simpler terms, if you take distributions on a monthly basis, sometimes the market might be up, sometimes it may be down. So, you are averaging your withdrawals and depending on the market fluctuations, you would limit your risk to market volatility over time.

Also, say you have multiple accounts... you don't have to take money out of each of these accounts. You just have to satisfy the total dollar amount required which may mean taking it out of just one account, which you have the option to choose which one. However, we typically recommend that our clients consolidate their retirement into one account in order to simplify your situation.

(33:00) What happens if you miss your RMD? You encounter a 50% penalty to the IRS due immediately upon missing that deadline. No Bueno.

(34:00) What if you don't need your RMD?

This depends on your goals. You could re-invest it into a personal, individual account. You could donate it. There is an option to do a qualified charitable distribution, where you never even touch the money. The custodian sends it directly to the charity of your choice, free of tax since you never actually touch the money!

Of course, you could spend it! We are big proponents of this option because we know that you worked hard for your money, so enjoy your retirement!

(36:20) What are the current and 2019 IRA contribution limits?

You must have earned income to fund an IRA or Roth IRA. If you are under the age of 50, you can fund up to $5,500 into your IRA (Assuming that you made at least that amount in 2018). By the way, you have until April 15th of 2019 to fund an IRA for 2018. There have been some positive changes for 2019. The number is increasing to $6,000.

(37:45) What if you are over 50? Earned income is still a requirement. Currently in 2018, you can put up to $6,500. In 2019, this will increase to $7,000. If you are married, you can contribute for your spouse even if they are not working! This is called a spousal IRA.

Closing Segment: We appreciate you joining us today for this episode of The Fiscal Blueprint. Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

Remember it's not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

Final Disclaimer: "Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

Welcome to our final episode of this series 'Mind Over Money' and why some folks worry so much about their money that never truly have Peace of Mind. With what's going in the market these days, this is a very timely discussion to have!

Last week we did some heavy lifting and we guided you toward a choice that must be made in order to have a chance of achieving true peace of mind when it comes to your money.

If you recall, I challenged you to pick a side and make a choice. This choice is black or white… no grey area in between. If you didn't catch last week's show, please go back and listen!

If you did and you made the choice, what's next? Before we jump right in we need to take care if some business:

Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you're a client I can't give you advice because I don't know you. Think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser. We are accepting clients so if you want to reach out, don't hesitate!

(3:15) Practical planning segment: For those of you that tuned in last week, we took a step by step journey through developing your very own Personal Investment Philosophy.

And in creating that Investment Philosophy you had to follow 3 simple steps and then choose what you believe in when it comes to managing your money.

1. Step 1: Developing a True Purpose for Money statement! This is a statement of the most important value that you want to express through the way that you use money; it is the thing that is more important to you than money itself. Here is a link to the True Purpose video in case you missed it: https://vimeo.com/292957538

1. Step 2: Develop a Market Belief by identifying what you believe about how markets work.

1. Step 3: Develop an Investment Strategy that is in alignment with your market belief

We challenged you to really think about how you believe the market works! Let's face it, most of us have our money in the market. It may be in 401ks, IRA, 457B , plans, etc.

(6:30) Really think at a very deep level what's makes sense to you!

Choice 1 was The Markets Work philosophy, which espouses the belief that the market is efficient and all known information is already priced in. Only new and unknowable information will change the direction of the market or an individual stock

Choice 2 was that the Market Fails, it doesn't work, which espouses the belief that the market sometimes gets it wrong and with the proper information or research that no one's else has, you can take advantage of those mispricing's unrelated to risk.

(7:30) If you chose #2 that's entirely up to you, but I want you think about a few more things. Let's say you're using a person (i.e. a broker, newsletter writer, journalist, hedge fund manager, Jim Cramer on CNBC) in making these important investment decisions such as what stocks to buy, what stocks to sell, when to get in or get out, etc.

They've typically based these stock recommendations or timing recommendations based on some type of research they say they have developed or discovered! Isn't that information already known? Could it be possible that the information is already public knowledge and has already been priced in?

Now let's say it really is new information that no one else knows in the entire world and they are going to take advantage of it before it's discovered by the masses. Are they really going to share it with you or put it in a newsletter for all their subscribers? Why would they?

(10:30) So today were going to explore choice number one: The Markets Work philosophy and how adopting a "markets work mindset" protects you from all the threats we've been discussing such as:

1. The wall street bullies taking advantage of you (con men, prognosticators, gurus)
2. Your own emotions and instincts causing you to make bad investment decisions
3. The media; your perceptions of what's really going on vs the illusion the media presents

It's like that invisible shield in Star Trek that protects the ship. When the Enterprise is under attack the 1st thing Capt. Kirk says is: SHIELDS UP!

(12:15) Let's look at the investment strategy that goes hand in hand with the 'Markets Work' philosophy. The idea that markets cannot be predicted or forecasted goes hand in hand with the strategy of Asset Class Investing!

Let's do a quick refresher… Asset Class Investing refers to a buy and hold approach to asset management. If you think markets work efficiently, then buying and selling securities to outperform the market is effectively viewed as a game of chance rather than skill. The Asset Class Investing is built on 3 important tenet:

Market Returns- Use structured or index-type funds to deliver market returns for the asset classes in the portfolio.

Asset Allocation- Expose the portfolio to multiple types of investments including: equities and fixed income instruments, domestic and international markets, and growth and "value" investments, to provide maximum diversification and correlation effects. The goal is to maximize returns for a given level of risk.

Lifelong Investing: A step beyond "long-term," investing is seen as a lifelong process. Instead of attempting to get in and out of the market at the "right time," staying in the market all the time is a fundamental part of success in Asset Class Investing.

(18:45) So how does this protect you from the 3 threats we just identified?

Threat #1: The Wall Street Bullies, Conmen like Madoff, stock pickers like Jim Cramer,

and prognosticators like Harry Dent.

The Smartest Portfolio You'll Ever Own by Daniel Solin https://danielsolin.com/books/

Here's a story about Daniel Solin and Eddie O'Neal and their 2006 visit to Fairfield Sentry Fund that had 6 billion of client funds with Madoff.

The story goes that this senior executive from Fairfield was trying to convince Daniel and Eddie to invest their client's funds with Madoff through Fairfield. The executive shared Madoff's returns with Eddie and Daniel and it showed a remarkable thing: Every single month no matter what was going on in the market, Madoff had a positive return.

Eddie asked one question before he left. He asked the executive, "How do you monitor Madoff's performance?" The executive said he had the most sophisticated software at the time monitoring Madoff's trades. When they left the office and got in the cab. Daniel turned to Eddie and said well…. what do you think? Eddie responded, "I don't believe the returns."

The markets work philosophy and asset class investing protects you from the Madoffs of the world because you aren't relying on an individual to stock pick or forecast the direction of the markets. You are simply capturing the returns of the entire asset class itself; and if you build it properly you are capturing the global market rates of return. Sometimes they are negative, but most of the time they are positive over the long term.

You're letting the power of the capital markets to work for you, and that's how this specific philosophy protects you from the wall street bullies! So, shields up!

(23:45) Threat #2: What about protection from yourself?? What about protection from your own instincts and emotions causing you to make bad investment decisions??

This is where your new-found investment philosophy really shines! Because whenever those thought's creep into your mind you can fall back on your philosophy, but the key here is that your belief (call it faith) has to be really strong… right down to the CORE!

"Yea I kind of believe markets work, it kind of makes sense to me but…" Does that sound like a strong belief? No.

Think about folks that have an extremely strong religious philosophy and maybe they go through a very bad period in their lives. Maybe the loss of a loved one spouse or child, maybe a very serious health scare, maybe the loss of a job or career, a divorce or some other financial devastation.

Folks that have a strong faith will rely on it to get them though the bad times. We hear it all the time: "If it wasn't for my faith I would have never been able to get through that!" or "My faith pulled me through."

That's how strongly to the core we must develop our investment philosophy. Trust me, I've seen it hundreds of times! When the markets are volatile and your portfolio drops in value, it really tests your faith! And if that philosophy is not strong you will capitulate and make a bad investment decision in the blink of eye that will destroy your long-term dreams that your investment portfolio was designed to make reality! Shields up!

(27:56) Threat #3: The media; your perceptions and the illusion the media presents vs. the reality!

Our investment philosophy protects us from the hype we see from the media by truly having awareness about how capital markets work. We no longer have to buy into the hype we see on the financial TV shows or the internet or the financial publications. We no longer have to buy into the fraudulent emails or phone calls we get about how we can make lots of money with no risk what so ever.

Understanding how the markets work and how asset class investing is simply capturing the power of the capital markets growing your wealth over time, will protect you from all this misinformation we are bombarded with on a daily basis! This is truly Shields up! Think of the media (financial cable shows, emails, social media, print publications) as constantly launching misinformation missiles at you all day, every day.

And NOW ……with your newly developed strongly held, to the core, investment philosophy, they are just bouncing off that shield into nothingness! Never even getting close to affecting your peace of mind! What a great way to live your life! One with the mindset of abundance. Always having enough and always being ok vs a mindset of scarcity and always thinking you're not going to make it and you don't have enough.

I know which way I would like to live! How about you?

Coachable Segment: I want you to continue to develop your knowledge and understanding of this markets work concept

Read the following books:

1. The Smartest Portfolio You'll Ever Own by Daniel Solin

https://danielsolin.com/books/

1. The Investment Answer by Dan Goldie and Gordan Murray http://www.theinvestmentanswerbook.com/

Sign up for the Saturday Blueprint email series and subscribe to the podcast. Share it with others!

www.fiscalblueprint.com and we will provide the links to the videos in the show notes but even better that that, sign up for our Saturday Blueprint email series.

Final Disclaimer: We appreciate you joining us today for this episode of The Fiscal Blueprint.

Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

Remember it's not about the money but about your life!

Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

"Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

Episode 7: Developing Your Investment Philosophy

Last week we discussed the 4 parts of the investors mind:

• Cognitive: What we know – facts, statistics, data.
• Perception: How we see things. Your way of understanding or interpreting information.
• Instincts: How we behave. How you are programmed as a human being to react.
• Emotion: How you feel.

And we gave you a formula for potential success in winning this war: The cognitive part (what we know) must override all the other parts. Much easier said than done!

On top of all that we have the financial media stoking the fear and fanning flames! And those emotions override what we know (cognitively) what we are supposed to do. Those emotions are too powerful for most folks to overcome without some help!

So what we need to do is FLIP THE SCRIPT and develop a CORE INVESTMENT PHILOSOPHY. On today's show were going to give you some steps that will really help with developing an overall investment philosophy.

Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you're a client, I can't give you advice because I don't know you. Think of this as helpful hints and education only and please, before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser.

(3:45) Practical Planning segment: Now some of you may be saying "Jeff what are talking about? What's an investment philosophy? I put my money in an account and the mutual fund manager or broker invest it for me. What's all this nonsense about philosophy?"

What is a philosophy? It's something that you wholeheartedly believe in right down to the CORE. Many of us have Core Beliefs in a variety of areas of our lives. For example; it can be religious, how you raise your children, or a core political philosophy.

1. The first part of choosing your investment philosophy is to develop a True Purpose for Money statement!

This is a statement of the most important value that you want to express through the way that you use money; it is the thing that is more important to you than money itself.

What fundamental value will drive both your investing decisions and your spending decisions going forward?

2.)The second part is to develop a Market Belief by identifying what you believe about how markets work.

3.) The third part is to develop an Investment Strategy which is a plan to create and maintain your investment portfolio.

When you combine these three principles—your True Purpose for Money, your Market Belief, and your Investment Strategy –you have outlined your Personal Investment Philosophy.

(7:00) Let's look at each one of these principles in a little more detail.

Your true purpose for money articulates the underlying values and priorities you want to address and the commitments that you wish to fulfill through the use of your money.

Most people are comfortable talking about goals or specific achievements that they want to accomplish with their money. But underlying these goals is a deeper and more meaningful value that drives your goals. Money itself does not bring happiness or financial peace of mind. One need only to follow the lives of many recent lottery winners to evidence the truth of this. We all need a foundation, a CORE VALUE!

Let me give you an example of what a True Purpose for Money might sound like. My personal True Purpose for Money is Security, Comfort, Freedom, Love, Faith!

(10:00) Check out this video for a full recording of our most recent coaching class: Discovering Your True Purpose For Money!

The second step in Choosing your Investment Philosophy involves examining your beliefs about the market.

Our beliefs, whether conscious or subconscious, are the root of action. Beliefs about the market and how it works are largely responsible for dictating decisions made regarding investments.

Formed for many reasons and based on numerous factors, beliefs may be changed instantaneously based on new information or a new understanding. For this reason, it is important to consciously examine your beliefs about the market. There are two diametrically opposite belief systems about how the market works, and the nature of markets:

• The first one is the efficient market (or "markets work") belief system says that free markets are random and unpredictable and that they will quickly reflect new information and knowledge as it becomes available.
• The second belief is the "markets fail" belief system which states that markets are inefficient and react slowly enough to new information to allow some investors and market analysts with access to more current information to take advantage of mispricing.

Most investors don't even know or realize that there's a choice to be made about how the market works, and what they believe. While there are investors in both camps, without an understanding of the fundamental differences in these approaches it's easy to be manipulated, particularly by popular media which encourages behavior consistent with the idea that markets fail. (prognosticators & gurus in the media) For you to make your own choice, let's look at both sides of the story.

(14:00) First, let's examine the efficient market belief. What does it mean? Well, the name efficient market refers to the underlying premise of the view that the market, left to its own devices is efficient. It's based on supply and demand. "The free market is the best determinant of market prices" ~Adam Smith, Wealth of Nations, 1776.

What this means is that all knowable and predictable information about future prices and movements is already factored into the current price. Therefore, only new and unknowable information and events change prices going forward.

In this context, the randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns that are unrelated to risk. In other words……..Markets that are overvalued, or underpriced, are not identifiable in advance.

(16:00) Now let's look at the other side of the story, otherwise known as the market failure belief. What does it mean? The basis for this belief is that free markets fail to price goods and services accurately. Because there are flaws in the systems, it is possible for some individuals to identify in advance which prices are incorrect, meaning that overvalued or underpriced markets can be predicted. By systematically finding mispricing, either in stocks or market sectors, it is possible under this belief, to both increase returns and avoid losses in investments.

Is there any proof? Empirical evidence supporting an inefficient market is poor.

Statistical studies show that professional money managers who attempt to take advantage of mispricing in the market are generally only able to provide higher returns than the market index at a level with what would be expected to occur by blind random luck.

On the other hand, there is a lot of anecdotal evidence to support this view, usually in the form of magazine covers and radio shows, TV talk shows or Internet chat rooms touting the latest individuals who have "beat the market." These anecdotes are alluring to basic human instincts we discussed previously!

Perhaps for the first time in your life, you know there is a choice to be made about how the market really works, and you have started to examine both belief systems.

Many investors live in a haze of confusion, never understanding that there is an important choice to be made here. They are trapped in the Investor's Dilemma, trying to rationalize beliefs on both sides of the continuum. The result is often portfolio chaos and confusion.

It is crucial that you take a stand regarding your market belief. This is where the rubber meets the road for the investor.

In order to develop your own Personal Investment Philosophy, you will need to choose between the belief systems of market efficiency or market failure.

Do you believe, as Adam Smith did, that free markets set prices better than any individual or group of people can? Or, do you believe that markets fail, and that there is an individual or group of individuals who can predict the "right" prices?

What do you believe? What makes most sense to you? If you need help with this step I have recorded a webinar to help you make the choice: https://vimeo.com/274730392/224785fb10

(20:00) The third part needed to help you develop your Investment Philosophy is your Investment Strategy.

There are two clearly defined strategies for investing; one associated with each of the specific market beliefs.

• The first strategy we will discuss is Asset Class Investing which employs an investment methodology that is consistent with the belief that markets work.
• The second strategy is known as Active Management. This approach is aligned with the belief that markets fail.

There are three tenets for each of these investment strategies.

(21:00) Asset Class Investing: The Asset Class Investing strategy is built on the tenets of Market Returns, Asset Allocation, and Lifelong Investing.

Asset Class Investing refers to a buy and hold approach to asset management. If you think markets work efficiently, then buying and selling securities in an attempt to outperform the market is effectively viewed as a game of chance rather than skill. This approach involves applying scientific, academically proven strategies of Modern Portfolio Theory. The three tenets of Asset Class Investing are:

• Market Returns: Use structured or index-type funds to deliver market returns for the asset classes in the portfolio.
• Asset Allocation: Expose the portfolio to multiple types of investments including: equities and fixed income instruments, domestic and international markets, and growth and "value" investments, to provide maximum diversification and correlation effects. The goal is to maximize returns for a given level of risk.
• Lifelong Investing: A step beyond "long-term," investing is seen as a lifelong process. Instead of attempting to get in and out of the market at the "right time," staying in the market all of the time is a fundamental part of success in Asset Class Investing.

(24:30) Active Management: On the other hand, the Active Management strategy is based on Stock Selection, Track-Record Investing, and Market Timing.

Active Management means actively buying and selling securities with the assumption that securities bought are worth more than the price paid, while securities sold are worth less than the selling price.

According to Webster's dictionary, "speculation" means buying and/or selling in the hope of taking advantage of an expected rise or fall in price. Given that active management is based on the belief that the manager expects market prices to rise or fall in line with his or her predictions, it can be viewed as a form of market speculation.

The three tenets of Active Management, which are commonly used and accepted by retail investors, are:

• Stock Selection: Pick stocks that will get high returns in the future and invest in them. This technique can be implemented in both individual stocks as well as within other investment vehicles, such as mutual funds.
• Track-Record Investing: Utilize an investment's previous performance to determine whether or not to invest in it for the future.
• Market Timing: Any attempt to alter or change a portfolio based on a prediction about the future.

(27:30) Summary: The entire premise of this series is Mind over Money and how do we win the war going on for our money and more importantly how do we win the war going on for our Peace of mind!

To win this war, it's critical to pick an investment strategy that aligns with your Market Belief.

When we have market beliefs that are inconsistent with our investment strategy, the result can be confusion, anxiety, and often despair. But when our investment strategy and our market belief lines up, then the result is internal confidence and Peace of Mind.

Many investors believe that free markets work, but find themselves stock picking and trying to utilize market timing or using a fund manager or broker that is doing those things. COMPLETELY INCONSISTENT WITH WHAT THEY BELIEVE TO BE TRUE.

Once this conflict is identified, they are able to bring their actions into alignment with their belief and get the upper hand in this battle.

Let's put this all together in a nice little package:

1. You have done the work to discover your True Purpose for Money,
2. You chose your Market Belief, and
3. identify your Investment Strategy that is consistent with that belief

Putting them all together, you have developed your Personal Investment Philosophy!

(29:30) Coachable Segment: How can you use your Investment Philosophy in support of ongoing decisions and actions related to your investment portfolio?

It's important to note that I am not making any judgements here. While I am personally in the "markets work" camp i.e. I believe that markets are efficient and that it is impossible to predict markets/stock prices in advance.

Go through the exercise and make your own choice!

If you believe that markets are efficient, and you support the asset class investing strategy, you should:

• Eliminate active management techniques (stock selection, track record investing, and market timing)
• Work with a financial professional who believes markets work, offers asset class investing, provides education, discipline and coaching
• Ignore media hype
• Set lifelong financial goals that are aligned with your True Purpose for Money
• Focus on seeking to capture market returns
• Utilize asset class or structured funds; not necessarily index funds.
• Diversify prudently
• Identify your risk tolerance

If, however, you believe that markets fail and support active management, your actions will be different. You should:

• Pursue active investing techniques to seek to capture inefficiencies in the market
• Work with a financial professional who believes in and implements active management strategies
• Stay connected to all sources of financial information (the Internet, magazines, talk shows, news, etc.)
• Read every article about stocks and options you can find or find a financial professional to do it for you

Either way, don't forget to watch these 2 videos mentioned previously!

• Discovering Your True Purpose for Money
• Choosing Your Investment Philosophy

Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows. Remember it's not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

"Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment."

This week we are going to continue our discussion on "Why are you worrying so much?!" Last week we set the stage for the idea that there is a war for your money but more importantly a war going on for your mind!

In order to protect ourselves and be prepared for this battle, we need to have a really good understanding of what it looks like and how this war is being waged. On today's show we are going to do exactly that! But first…

(1:28) Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you're a client, I can't give you advice because I don't know you. Think of this podcast as helpful hints and education only. And please, before implementing any information or ideas you hear on this show, always consult your legal adviser, your tax adviser, and your financial adviser.

(2:50) Practical Planning segment: Last week I spoke about how this battle is waged and how it starts at a very young age with The Stock Market Game as early as age 9 or 10 in Elementary and middle schools.

We talked about the wall street bullies and how the media stokes the fears of the everyday investor and can lead folks to make some very bad and painful financial decisions and steer them right into the grasp of these bullies.

Occasionally I meet with someone that has run into one of these bullies and fell victim to their tactics. A few years ago, we had someone walk into our office. Now we don't get a lot of walk-ins, but this gentleman wanted my opinion on the Iraqi Dinar currency. Of course, I have heard of this scam for years. It goes like this: After the War at some point in the future, Iraq was going to re-value its currency. So if the Dinar was currently valued at something like 1100 Dinar to 1 US dollar, after re-valuation, overnight, it was going to gain (at the low end of the false promise) 70,000 percent over night and at the high end over 100,000 percent gain.

Of course, this never happened. If you search Iraqi Dinar scam on google you'll see 461,000 results search results.

(5:00) Check this video out if you aren't familiar: https://www.youtube.com/watch?v=T4P-9pxKfm4. This is an example of outright conmen… the worst of the worst.

The other bullies are not so easy to spot because they disguise themselves as normal. As I said earlier, the financial media (of all types) are complicit in this because they often have these folks on their shows or on the front cover of the magazines touting some lofty prediction or claiming some type of expertise in picking the winners.

(5:00) These are the prognosticator's and the stock pickers we mentioned in last week's show. Listen this clip of Harry Dent, circa 2012. How many people listened to this clip and acted on the fears instigated by his words? He is a Harvard grad and well-known economist, but he's also a Wall Street bully.

(10:00) So let's dive into this a bit more & understand how our brain works and how these folks and the big wall street banks create the illusion that we need them. And without them we are doomed.

Last week I said the investor mind is made up of 4 parts:

• Cognitive: What we know – facts, statistics, data.
• Perception: How we see things. Your way of understanding or interpreting information.
• Instincts: How we behave. How you are programmed as a human being to react.
• Emotion: How you feel.

All of these play a factor in your decision making.

Here's a theoretical formula for being a successful investor: the cognitive part of your brain must take the lead over your instincts, emotions, and perceptions, multiplied by the media.

(12:00) The cognitive part of the brain has to be in charge and take priority over the other parts of your mind, which is a lot easier said than done! How many of you think what you know is the determining factor to the actions you take?

We have three simple rules for investing:

1. Own Equities
2. Diversify Globally
3. Rebalance

In our cognitive brain, these may make sense. But in practice there's more to the story.

Here is an example: Rules to losing weight are theoretically simple – what are they? Eat less & move more. How many of you have a commitment to good health? How many of you have put something in your body that was out of alignment with your commitment to good health in the last 30 days? 2 Weeks? Today?

Or how about this? Maybe you've been successful in the past with losing weight. You've followed the rules and gotten results!

Then you decide to "reward" yourself with some cheesecake. Right!? Following the rules long-term is hard. Knowing the rules does not guarantee good behavior – you're human.

In investing, no one's truly in agreement about what the rules are – so what are the chances that your behavior is going to be consistently productive?

(15:30) Instincts: As human beings, our behavior in most situations is rooted in our instincts. This comes down to 2 basic instincts: Pleasure and Pain. Things that are painful threaten our survival and things that are pleasurable add to our ability to survive.

Instincts can give you mixed messages that don't work. Can you think of an example of something that is painful that is good for you?

Working out/exercise is a clear one because it can be painful to some people, but it's good for your health. Now, can you think of something that is pleasurable but is bad for you?

Eating too much may be one… it tastes good but can cause health problems.

How does this play out in investing?

Let's say for example you are looking at an investment statement in 2008 and you are holding long term government bonds, and they did 25% gross of fees- pain or pleasure? You also held US Small stocks and they did -38% - pain or pleasure? So, what do you want to do instinctively – bonds toward or away? Bonds feel great. You probably want more!

US Small towards or away? Stocks are so painful. You probably want to get out of them!

So, what happens if we follow our instincts? We break all the rules of investing. We know we are supposed to buy low and sell high, but our instincts won't let us. In our experience, when the market has crashed in the past, people are not lining up and calling our office to ask us to buy more of what's down. Your instincts are your enemy when it comes to investing.

(19:30) Some people say, "Don't invest emotionally." We are all human. We cannot get rid of them. The goal is to understand your emotions and to manage them.

How many of you are married? How many of you did an un-emotional analysis of your future partner to determine if you should get married?

Isn't it true that we make that decision based on emotion? Of course it is. However, in investing that can be extremely harmful and cause serious long-term repercussions. Emotions such as Fear and Greed area extremely destructive when it comes to your money!

(21:40) Our perceptions are how we see things, how we interpret things. We cannot eliminate it – it's part of life. Sometimes, even if you look for it, your perception is the same. Think about the extremely skilled magician; David Copperfield. (Mis-direction, card tricks, sleight of hand.)

Some of these folks are so skilled that even if you are looking for deceiving tactics, you still can't identify it! Our perceptions won't let us. This is a huge problem when it comes to investing. Some of these wall street bullies are really good at manipulating our perceptions and ultimately what we want to believe. This is known as Wish Fulfillment!

All these pieces of the investors mind are multiplied by the effects of the financial media. The media wants to take advantage of this because they profit from it! The more shocking, the more sensational, the more we tune in creates higher ratings and increased magazine & newspaper sales!

(24:10) The biggest problem that you will face when investing is that your emotions, instincts, perceptions, and the media feed on each other to get you to do the wrong thing and make investing mistakes.

Those who are like this… they don't want to do the work, don't want to see where their behavior contributed to the results they've gotten this far. That's ok, you will keep getting the same kind of results that you've gotten.

But then, there are those who ARE willing to look at your behavior, willing to do the work to have the future you want, willing to stand up to the bullies that are working against you and your American Dream. Get in the game and fight back! Get mad that there are people out there preying on your American Dream! Bullies are cowards in disguise – once you stand up to them they back off.

The question is are you ready to fight? Are you ready to reclaim your American Dream? Because I want to fight with you.

Make it a study to learn the right way to invest. On our next episode we will go into what we consider the right way to invest.

Final Disclaimer: We appreciate you joining us today for this episode of The Fiscal Blueprint. Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

Remember it's not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment.

We have an extremely important topic to talk about this month and that topic is your mind! And your mind specifically in relation to your money! We're going to talk about how your mind works and how you think about money. Sometimes this is not an easy subject.

From my experience most people don't like to talk about money especially when it comes to some of the decisions and possibly mistakes they may have made in the past.

We're going to have you think about this in a different way and have you ask some tough questions of yourself including how you think about your future and what that future looks like.

In this series were going to understand the behavioral side of finance and why people make some of the decisions they do. We are going to dive into the mind and examine our instincts, our emotions, our perceptions and our cognitive abilities.

Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So unless you're a client I can't give you advice because I don't know you. So think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser , and your financial adviser………….right? that's just common sense

(2:40) Practical Planning Segment: There is war going on for your money, but even more importantly, there's a war going on for your mind!

This starts at a very young age with the Stock Market Game in elementary school as young as 10 years old. There brain isn't even developed enough to understand the difference between speculating/gambling vs prudent investing. On top of that, the adults teaching them this game don't understand this either.

That war is extremely important because I don't think it's too heavy to say that your future is going to depend on your ability to win that war and protect yourself from that mis-information.

Money is the fuel for life's journey, and that fuel should be in alignment with our core values. What I mean by that is that you're going to need money for your dreams. The CPA Ed Slott has a saying that you really don't want to settle for the government's retirement plan. (i.e. medicare, Social Security only.)

(6:00) Right or wrong, the government likely won't be able to support you if you mess it up.

Getting the investing part wrong can destroy a lifetime of saving and investing – your dreams destroyed.

There was a story about a doctor a while back, he thought that he truly understood investments and was set to retire. Well, he had over $3 million and lost about 85% of his portfolio in the .com crash. Why did this happen?

Everybody has fears: These fears come in different forms: maybe your income, health, saving for college, retirement. But essentially, they all boil down to a fear or this worry of not being able to make it! This is called survivorship stress. Most investors live in a state of doubt, fear, apprehension, anxiety, desperation, and suffering about what will happen.

(10:00) The media sensationalizes and that adds fuel to our fears. Lets face it! Many people think the media's job is to inform. But really, they are in the advertising business and the

directive is to increase ratings! Why?

(11:28) Types of Wall Street Bullies: The Con Man, The Prognosticators and The Gurus.

The media LOVES to highlight all of these people, but there is usually an underlying motive. (selling a book, advertising, hedge funds, etc.)

(15:00) Four areas we are going to explore when it comes to our minds and money: Cognitive: What we know. Perception: How we see things. Instincts: How we behave. Emotions: How we feel.

The biggest problem that you will face when investing is that your emotions, instincts, perceptions, and the media feed on each other to get you to do the wrong thing and make investing mistakes.

(18:00) Coachable Segment- Write down your 3 biggest fears when it comes to money. Think about the underlying premise when reading any publication or news outlet. Ask yourself, are they truly helping you? Or are they simply stoking the fears that you wrote down?

So the first 3 episodes on SS all lead us to this episode, number 4!

All the information about filing ages, primary insurance amounts (PIA), earning restrictions, taxes on social security…..........all of that information has to lead to some decision down the road, right?

This episode is really one big practical planning segment. So hopefully we can help you make an informed decision that is right for you and your personal circumstance. Maybe it makes sense to collect early……..then again maybe it doesn't!

This show is about asking the right questions! What questions should you be asking yourself before you make this major financial decision on when to start collecting social security.

Practical Planning segment:

Asking the right questions is absolutely critical! In many ways the direction we take and the decisions we make are all a result of the quality of questions we ask ourselves.

If we don't ask good questions we won't have good results!

Question from Chuck: "Hi guys, Enjoying your Podcasts on SS. I've heard rumors in the past that our illustrious leaders have dipped into our SS funds to bailout shortcomings in other areas. Has there been legislation passed to prevent this in the future ? Or,was this just a nasty rumor?"

Well Chuck that's a great question and I do hear this from time to time! So lets finally put that rumor to rest! Social Security is funded by FICA taxes (payroll taxes). From 1983 to 2010, Social Security collected more FICA taxes from workers than the amount of actual benefits paid to retirees. This excess helped build a trust fund of $2.8 trillion by the end of 2015.

The trust fund has to be invested in something right? It shouldn't just sit there in cash earning nothing. This surplus has been invested in U.S. government bonds that are legally obligated to pay the stated, market rate of interest, and then repay the principal when they mature.

Just like when you buy any investment, such as a stock or a bond, the entity that issues the stock or bond usually spends the money you paid for that investment. When you buy a corporate bond, for instance, the issuing company spends the money on any aspect of its business that needs funding, such as plants, equipment, computers, advertising or employees' salaries and benefits.

Now, you have a good argument that the federal govt doesn't spend the money it raises from issuing bonds with any semblance of frugality. That's a good argument to make.

But the short answer the surplus was invested in US bonds with an obligation to pay interest back to the trust fund and the principle when the bonds mature.

Great question Chuck!

What are some of the basic questions to ask yourself?

I think the most basic question is do you need it? Do you need the money to survive and pay your basic needs?

When it comes right down to it……............do you need the money for your basic living needs such as housing, food, electricity, etc. Social Security provides the majority of income to most elderly Americans. For about half of seniors, it provides at least 50 percent of their income, and for about 1 in 5 seniors, it provides at least 90 percent of income.

https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security

Many times the decision to start or not start comes down to this basic question.

Will you work, even part time, before your full retirement age? Will you be working and how much will you be earning?

Keep an eye on the earnings restrictions limits if you work and collect your benefits earlier than your full retirement age.

Earning restrictions

$17,040 for every $2 over that they will take away $1 which will be returned to you at your FRA but prorated into your payment. Not a lump sum all at once.

Word of caution…….........….Ive seen situation where people started collecting early because they fully retired and then received an offer for a new job that they couldn't refuse.

Are you Married? Single? Divorced?

Very important! Also, if you are married what is the age difference between spouses?

So this is important for a number of reasons:

• If you're married does your spouse qualify for his or her own benefit?
  • Many times one spouse does not qualify for benefits; homemaker. So in that case it may make sense to delay to earn a higher amount
• What's the age difference?
  • If the high earning spouse is older or does not have longevity it may make sense to delay the higher earning spouses SS, earn credits. Because when that spouse passes the surviving spouse will get that much more as a survivor benefit
• If you're single it's a little bit easier decision and it will come down to basic needs and longevity

How is your health and longevity? Ex; family history

If your basic needs are met with other sources (pensions, retirement funds, etc), so you don't need the money right away, and you have longevity where if you wait to collect (lets say all the way to age 70) vs collecting early; there's a break even age where the total accumulated benefit would be the same. Typically that age falls around 78 to 82 range!

Case Studies: To much to type....listen to the podcast

Thank you for listening to our month long series on social security. If you have question email to [email protected] or goto www.mfswealth.com contact link and click the orange record button and leave us a voice message.

Don't forget to sign up for our Saturday Email Series called "The Saturday Blueprint"

In our 3rd episode on discussing social security we are going to get into some numbers!

Important filing ages: Birth Year. Go to Link

1943 - 1954 66 1955 66 and 2 months 1956 66 and 4 months 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960 and later 67

Survivor Benefits

Most of us don't like to talk about death or even think about it. Social Security has survivors benefits to protect families who are affected by the death of a wage earner.

If you are working and paying into Social Security, some of those taxes you pay are for survivors insurance. Your spouse, children, and parents could be eligible for benefits based on your earnings.

You are also protected when your spouse, parent, or adult child dies.

*From the SSA web site below:

Your survivors benefit amount is based on the earnings of the person who died. The more they paid into Social Security, the higher your benefits would be.

The monthly amount you would get is a percentage of the deceased's basic Social Security benefit. It depends on your age and the type of benefit you are eligible to receive.

If the person who died was receiving reduced benefits, we base your survivors benefit on that amount.

These are examples of the benefits that survivors may receive:

• Widow or widower, full retirement age or older — 100 percent of the deceased worker's benefit amount;
• Widow or widower, age 60 — full retirement age — 71½ to 99 percent of the deceased worker's basic amount;
• Disabled widow or widower aged 50 through 59 — 71½ percent;
• Widow or widower, any age, caring for a child under age 16 — 75 percent;
• A child under age 18 (19 if still in elementary or secondary school) or disabled — 75 percent; and
• Dependent parent(s) of the deceased worker, age 62 or older:
  • One surviving parent — 82½ percent.
  • Two surviving parents — 75 percent to each parent.

Percentages for a surviving divorced spouse would be the same as above.

Will SS be taxed? *From the SSA web site

Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).

You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:

• file a federal tax return as an "individual" and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
• file a joint return, and you and your spouse have a combined income* that is
  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $44,000, up to 85 percent of your benefits may be taxable.
• are married and file a separate tax return, you probably will pay taxes on your benefits.

Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits = Your "combined income"

Practical Planning Segment:

Retirement means different things to different people. It's important to define what retirement means to you! Numbers are important but you may not want to get too focused on a number.

When we talk about retirement with our clients we focus on designing an ideal retirement life. We try not to focus so much on a number but on an idea!

Be as specific as you can. For example, instead of saying " I would like to travel more ". Say something like:

I would like to go on gondola in Venice!

Take a walking tour of Florence

Visit a winery in California's wine country

Coachable segment

Being coachable is having a "blank slate" mindset. Its accepting your flaws and admitting you may not know everything and really keeping an open mind to new ideas to possibly improve in whatever area it is you would like to improve.

Purchase a little notebook or journal! You can even use a scrap book where you can add pictures and ideas of what retirement "looks like" to you.

Open a Pinterest account which is really like an online scrapbook. www.pinterest.com

• Start writing down, in specific terms, what your ideal retirement looks like.
• If you see a picture in a travel magazine that really appeals to you, cut it out and put it in the scrap book
• Open a Pinterest account and create a pin called "My Ideal Retirement"

Don't be afraid to dream and dream big. Put everything down that you can possibly think of. Here are some categories to think about.

• Family
• Friends
• Travel
• Home
• Health
• Community
• Faith
• Work

Next to each item write a "value" word that you would associate with that item. Circle the "Value" word that most often appears. That's what we call "Your True Purpose For Money". That value is the main driving force in your life that affects most of your spending and investing decisions.

Value Words to think about

• Love
• Freedom
• Health
• Adventure
• Security
• Joy
• Generosity
• Faith
• Independence