The Pilot Money Guys

Questions From The Flight Deck:

Introducing: Andy Christopher – F18 Navy Fighter Pilot and Investment Advisor

• Background
  • How'd you get interested in flying?
  • Why the Navy?
  • Navy flight experience.
    • Ejection story – first flight!?!

Meat of the Mission – 529s

Common Questions:

• What if my kid gets a scholarship?
• Do I need to invest in my state's 529? No!
• What if I overfund the 529?
• Can I give my 529 to my child?
• How does the 529 affect financial aid?
• Can I use the 529 for United, Delta, SWA feeder schools – aka career development programs.
  • United Aviate
  • Delta Propel Program
  • SWA Destination 225
• Should I just use the Roth IRA? Roth 401k?
• The major difference between Roth IRA withdrawals and Roth 401k withdrawals:
  • There is one catch, though. Early withdrawals have to be prorated between (nontaxable) contributions and (taxable) earnings. To calculate the portion of the withdrawal attributable to earnings, simply multiply the withdrawal amount by the ratio of total account earnings to account balance. U.S. Department of Labor. "401(k) Plans for Small Businesses Supplement."
• Why save for college?
  • College Tuition Inflation Statistics | BestColleges
  • Tuition increases over time have traditionally outpaced inflation
  • Avoid student loan debt (for parents and children)
  • One of the most expensive "investments" in one's life
• 529 basics
  • Similar to Roth IRA: After-tax money in, tax-free money out when used for qualifying tuition expenses
  • FAFSA: Does a 529 plan affect financial aid? - Savingforcollege.com
    • Any parental assets beyond that amount ($10,000) will reduce a student's aid package by up to a maximum of 5.64% of the asset's value.
    • So, if a parent's 529 account exceeds the Asset Protection Allowance by $10,000, his child's financial aid award could be reduced by as much as $564.
• Which plan to pick?
  • What Is a 529 Plan? - Savingforcollege.com
  • Don't have to use your state's plan, but may be reasons to use in-house plan
  • Unique plan rules for transfer of ownership, total account value limits for contributions
  • State tax benefits (OH)
    • E.g., Virginia residents – tax deduction PER ACCOUNT, age 70 rule and tax deductions carry forward...
  • Low-cost plans (Utah my529, W VA, etc.)
• How much to save?
  • Vanguard Savings Calculator
  • Rule of thumb:
    • Public vs. Private
    • Scholarship
    • Other sources of funding: grandparents, GI Bill, etc.
  • "Superfunding": 10 Rules for Superfunding a 529 Plan - Savingforcollege.com
• How to invest the contributions?
  • Low-cost/index approach
  • Target-enrollment date (works like a 401(k) target-date fund)
• What if you don't use the funds?
  • Estate Planning Considerations: Dynasty 529 Plan For Multigenerational College Expenses (kitces.com)
  • Secure Act 2.0 Changes: The SECURE Act 2.0: The Most Impactful Provisions #10 — Moving 529 Assets to a Roth IRA - Fred Reish
  • Withdrawal Options: Penalty-free (not tax free) for service academies, scholarship, death/disability
  • Changing beneficiaries
• Veteran Benefits
  • GI Bill Transfer
  • State Specific Benefits (CalVets, etc.)
    • Hazlewood Act - Through the state's Hazlewood Act, originally approved in 1943, Texas promises its veterans or their survivors 150 free credit hours at any of the state's public universities or community colleges, once their federal benefits have been exhausted. And vets may transfer hours they don't use to their children.
      • Hazlewood benefits are available to veterans who currently reside in Texas and who lived in Texas or had Texas as their home of record at the time of enlistment, or who simply enlisted in Texas.

1. Vanguard college funding calculators

• https://vanguard.wealthmsi.com/csp.php

2. Leading Edge 529 video

• https://youtu.be/Br4ws8waxDQ

3. Morningstar College report, comparison.

• https://www.morningstar.com/personal-finance/best-529-plans-2023

Airline News:

• Pilot retirement age 67!!! Maybe...
  • https://www.usnews.com/news/us/articles/2023-06-14/u-s-house-panel-votes-to-raise-commercial-pilot-retirement-age-to-67#:~:text=%22While%20commercial%20airline%20pilots%20are,help%20address%20a%20pilot%20shortage
  • The pilot age proposal faces opposition from unions and an uncertain fate by a U.S. Senate committee, which will consider its version of the FAA measure on Thursday and does not currently include the pilot age hike.
  • The Air Line Pilots Association (ALPA) opposed raising the retirement age and says it could cause airline scheduling and pilot training issues and require reopening pilot contracts. Even if the proposal is approved, the union noted that international rules would still prevent pilots older than 65 from flying in most countries outside the U.S. ALPA called the proposal a "politically driven choice that betrays a fundamental understanding of airline industry operations, the pilot profession, and safety."
• American Airlines pilot sues over ESG funds in his 401k.
  • "The complaint by American Airlines pilot Bryan Spence was filed on June 2, 2023, in federal court in Fort Worth, Texas, against American Airlines, its employee benefits committee, Fidelity Investments Institutional, and Financial Engines Advisors."
  • "...the suit is significant because it concerns one of America's largest pensions, takes aim at new federal guidance involving retirement plans, and may affect the plan's self- directed brokerage account option, also known as the brokerage window. The brokerage window is the part of a plan that lets participants invest in funds and publicly traded securities outside the limited menu on offer. In 2021, the American Airlines plan brokerage window reportedly had 12% of the plan value."
    • "What's concerning about this lawsuit if it goes anywhere, is it suggests there is some sort of fiduciary obligation to vet individual funds and individual securities available through a brokerage window," Hadley says. Attorneys for the plaintiff didn't respond to requests for comment."

Questions From The Flight Deck:

1. What are the best wealth building habits we've seen and learned in our experience working with clients?
2. I've stopped investing...tired of throwing good money after bad.

Meat of the Mission:

• How to think about LTC...mindset.
  • Hard to plan for your 85-year-old self...
• Four options/basis types:
  • Standard LTC insurance – pay monthly, forever
    • Premiums increase, strict medical screening.
    • Use or lose...not totally true, always.
  • Annuity – increased payouts
    • Do you need an annuity?
    • Payout doubles for a few years...
  • Hybrid Life Insurance – 2nd to die...or individual policy.
    • Life insurance or LTC insurance.
  • Self-Funding...
    • Plan for it...
    • Set aside the funds and name it!
• Tax Considerations
• VA Benefits
  • https://www.va.gov/health-care/about-va-health-benefits/long-term-care/
  • Private Pay: Even though VA, Medicare, Medicaid and other funding sources cover the costs of some long-term care services and settings, depending on eligibility, many people need to use their own income or savings to pay part of the costs for long term care services or settings they need or prefer. For example, people often use their own resources to pay for:
    • Residing in an Assisted Living Facility or Adult Family Home
    • Paid caregiver assistance with personal care needs, chores, or meals in their home
• Medicaid Trusts?
  • Medicaid trusts are designed to help people qualify for Medicaid, the government health insurance program. Unlike Medicare, which is not means-tested, Medicaid is only available to people of limited financial means.
  • The program is administered by states, which determine their own Medicaid eligibility requirements in a variety of ways. In most, the annual income limit is $29,160 or less. This cap includes Social Security and pension benefits as well as wages and investment income. Financial resources such as bank accounts, investments, revocable trusts and real estate typically can't total more than $2,000. People who have more income and more assets may have to spend their own assets to pay for nursing home care until their assets have declined to the point, they meet the Medicaid caps.
  • An irrevocable Medicaid trust is designed to help someone qualify for Medicaid without having to deplete their own assets. After creating the trust, they can transfer in enough assets to bring them below Medicaid's caps. Once they have done that, assuming they have followed the rules, Medicaid will pay some or all of their nursing home costs. In this way, an irrevocable trust can protect assets from nursing home costs.

Sources

https://www.morningstar.com/sustainable-investing/pilot-sues-american-airlines-others-over-esg-funds-his-401k

https://www.morningstar.com/personal-finance/100-must-know-statistics-about-long-term-care-2023-edition

Yahoo Finance on Irrevocable Trusts for LTC

Is Long-Term Care Insurance Tax-Deductible? - SmartAsset

Do You Have to Pay a Long-Term Care Tax? - SmartAsset

https://www.va.gov/health-care/about-va-health-benefits/long-term-care/

https://www.aaltci.org/long-term-care-insurance/learning-center/long-term-care-insurance-partnership-plans.php

Airline News:

• American Airlines, FedEx Agreements in Principle: AIP...

How To Think About Your Health And Improve Your Quality Of Life Now And In Retirement

Sources:

1. Financial wellness can increase the quality of your physical health.
   1. High levels of financial stress manifest through physical symptoms like sleep loss, anxiety, headaches/migraines, compromised immune systems, digestive issues, high blood pressure, muscle tension, heart arrhythmia, depression and a feeling of being overwhelmed.
2. Can induce feelings of happiness.
3. Enhances the quality of your sleep.
4. Physical activity is often associated with reduced symptoms of depression and anxiety.
5. Exercising is critical for airline pilots due to the sedentary lifestyle of flying and traveling.

How:

1. You must be intentional.
   1. What's the best diet/eating habits?
   2. What's the best exercise routine?
      1. The one that you'll do!
      2. What you are able to make part of your lifestyle.
   3. Without a plan, you will drift... to bad nutrition and exercise habits.
2. Hire a fitness instructor. Also, develop an eating plan.
   1. Especially plan for days on the road.
   2. It's not your age that has you feeling the need to rest -- it's that you're not moving. Even older adults with serious health problems -- heart disease, diabetes, arthritis, and others -- can live better lives by getting up and moving.

Resources:

https://neurosciencenews.com/fitness-neuroscience-23228/

https://www.purdue.edu/hr/CHL/healthyboiler/news/newsletter/2020-01/finances-health.php

Questions From The Flight Deck:

What the heck is ChatGPT, and what jobs will most be impacted?

• What is it...? https://en.wikipedia.org/wiki/ChatGPT
• What jobs are at risk...? https://www.visualcapitalist.com/cp/which-jobs-artificial-intelligence-gptimpact/
• What about ChatGPT from an investing perspective? ETFs: AIQ, BOTZ, ROBT, AIEQ – see Kwanti.
• https://www.visualcapitalist.com/how-smart-is-chatgpt/

AI in the Cockpit? https://theaircurrent.com/technology/natural-language-processing-aviation-atccockpit/

Optimism – It's NOT cool!

Have we always been pessimistic? Or is it a new phenomenon?

"The preacher man says it's the end of time and the Mississippi river, she's goin dry...the interest is up and the stock market's down and you only get mugged if you go downtown..."

Great survival story...Hank Williams Jr.

If Everything is Getting Better, Why Are People So Pessimistic?

"...Those are three emotional biases toward pessimism. We also have cognitive biases that incline us that way, foremost among them being the "availability heuristic." This is a feature of the psychology of probability also documented by Tversky, in collaboration with the Nobel Prize–winning economist Daniel Kahneman. Forty years ago, Kahnemanm and Tversky argued that one of the ways the human brain estimates probability is by using a simple rule of thumb: the more easily you can recall an example of something, the more likely you estimate it to be. The result is that anything that makes an incident more memorable will also make it seem more probable. The quirks of the brain's ability to retain information will bleed into our estimates of a risk's likelihood."

"...The bad‐ dominates‐ good phenomenon is multiplied by a second source of bias, sometimes called the illusion of the good old days.

People always pine for a golden age. They're nostalgic about an era in which life was simpler and more predictable. The psychologist Roger Eibach has argued that this is because people confuse changes in themselves with changes in the times. As we get older, certain things inevitably happen to us. We take on more responsibilities, so we have a greater cognitive burden. We become more vigilant about threats, especially as we become parents.

...At the same time, we see our own capacities decline. As we get older, we become stupider in terms of the sheer ability to process and retain information.

There's a strong tendency to misattribute these changes in ourselves to changes in the world. A number of experimental manipulations bear this out. If you have people try to make some change in their lives — say, to eat less fat — often they become convinced that there are more and more advertisements for fatty foods."

Ten Reasons Clients Should Be Optimistic About The Future:

https://www.fa-mag.com/news/ten-reasons-clients-should-be-optimistic-about-the-future-72935.html?section=68&utm_source=FA+Subscribers&utm_campaign=d580b67712-FAN_IP_Next_Chapter_Parnassus_050422_COPY_01&utm_medium=email&utm_term=0_6bebc79291-d580b67712-240228216

1. The US is a net oil exporter.
2. Higher short-term interest rates.
3. Inflation is moderating
4. Companies are great at passing along costs.
5. Now is the time to seek out lower cost providers/products.
6. The Federal Reserve is not a bunch of dummies.
7. Companies know how to cut expenses to boost profits.
8. The stock market has been the best way to make money consistently for decades.
9. The US dollar is the world's reserve currency.
10. Riding High...

Some Alternatives:

• https://www.nbcnews.com/business/economy/how-is-the-economy-doing-right-now-inflationinterest-rate-hikes-rcna73613
• Inflation cooling – 4.9% in April – announced today – 10 May 2023.
• The Fed doesn't have as much control as you think. And no more, QE!
  • https://awealthofcommonsense.com/2023/05/some-things-the-fed-doesnt-control/
• US households are in excellent shape, the ratio of liabilities to net wealth has declined 50% since the 2008 financial crisis, and household leverage is currently at levels last seen in the early 1980s; see chart below. If the unemployment rate rises, consumer spending will slow down, but the starting point for US households is very strong.
  • Balance Sheets Are Barriers Against Contagion...Household, corporate and bank balance sheets are more resilient today than during past crises.

Factfullness: Ten Reasons We're Wrong About the World—And Why Things Are Better Than You Think.

https://www.amazon.com/Factfulness-Reasons-World-ThingsBetter/dp/1250123828/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=

Author Hans Rosling

Quotes

The first is from philosopher, historian, psychologist, William James: "Pessimism leads to weakness, optimism to power."

The second from the late former Chairman of the Joint Chiefs of Staff, Army General Colin Powell: "Perpetual optimism is a force multiplier."

Resources

• https://www.theatlantic.com/newsletters/archive/2022/09/bill-melinda-gatesfoundation-goalkeepers-report-poverty/671415/
• https://www.morningstar.com/articles/1103776/why-optimism-is-a-secret-weapon-ininvesting
• https://www.cbo.gov/publication/58612#:~:text=In%20CBO%E2%80%99s%20projections%2C%20the%20U.S.%20population%20increases%20from,accounts%20for%20all%20population%20growth%20beginning%20in%202042
• https://www.forbes.com/advisor/investing/is-inflation-good-or-bad/
• https://www.reference.com/world-view/inflation-good-bad-5bcd09b085e0a85d

Special Test Flight Edition – The Banking System: How Do Banks Operate And What Happens When They Take On Too Much Risk – Silicon Valley Bank? ~Exclusive Captain Rob "Rubber Mallet" Eklund

Where is the best cup of cappuccino in New York City, according to Rob's new friend Luciano Pavarotti?!?

• Actually, a friend of a friend of Pavarotti...Samir Sanbar. Previously served at the United Nations as International Communications and Media Consultant.

How do banking systems work? How do they benefit the consumer and make our money safer?

• In exchange for leaving your money with them, the banks pay you an interest on those dollars
• What does fractional banking system mean?
• What were some banking factors that led to the subprime mortgage crisis of 2008?
• What did long-term government bonds have to do with the failure of Silicon Valley Bank?
• What if your broker-dealer (aka custodian) goes bankrupt? What happens to your investments?

"Banking is a very good business. If you don't do anything dumb." ~Warren Buffett

"The good bankers, like good tea, can only be appreciated when they're in hot water." ~Jafar Hussein, a Malaysian banker.

Aviation News:

• Age 67 retirement? - https://www.lgraham.senate.gov/public/index.cfm/2023/3/graham-senators-reintroduce-bill-to-address-pilot-shortage#:~:text=The%20legislation%3A,be%20renewed%20every%20six%20months
• Bill reintroduces Let Experienced Pilots Fly Act….
• Pilot Incapacitation recent events, Southwest, Envoy, and others
  • https://www.youtube.com/watch?v=hPUbr6SPcy8

Questions From The Flight Deck:

• How to vote proxy if you're a stock owner.
• DFAS – Discontinue survivor benefit plan (SBP) for military retirement?
  • Pros/Cons
• Tax season lessons learned: DFAS withholding, Social Security withholding – defaults to 8%...spouse earning money – 68 cents versus 76 cents. Safe harbor – 100% of this year or 110% of last year is a safe harbor to prevent penalties.
• The stock market has been down – why not get 5% guaranteed T-bills.
  • Sell bonds? Sell stocks? What are your savings goals? What if rates drop?
• US Dollar World Reserve Currency: https://realeconomy.rsmus.com/why-the-dollar-remains-the-worlds-reserve-currency/
  • "Why the dollar remains the world's reserve currency, and will stay that way"...APR. 17, 2023 BY JOSEPH BRUSUELAS
  • We find the recent discussion around the end of the dollar dominance bereft of any linkage to the reality of international finance and understanding of the dollar's role as the anchor of the rules-based order that governs global economics.
  • Economies like China that run surpluses need dollar-based demand from the United States to make up for their own weak consumption and high savings rates.
  • Rather, the recent conversation is stoked by global grievances about the relative disparity of economic power and the dead end in which some economies find themselves.
  • Pilot Money Guys Flight #55: US Dollar as World Reserve Currency
  • Here's How Reserve Currencies Have Evolved Over 120 Years
    • https://www.visualcapitalist.com/cp/how-reserve-currencies-evolved-over-120- years/

• CDs (callable vs noncallable)
• When to sell I-bonds
  • The composite rate for I bonds issued from November 2022 through April 2023 is 6.89
  • New rates are 4.3% composite: 3.4% Inflation component and 0.9% fixed rate.
  • Kevin "The Professor" Gormley:
    • https://www.youtube.com/watch?v=v1SACB6S7kQ

Meat of The Mission:

Get up for health and wealth...

Should you own Gold?

Two things: Gold as an investment – diversification? Gold as a currency in times of economic collapse.

https://awealthofcommonsense.com/2015/07/a-history-of-gold-returns/

Why is gold attractive? Hot button issue...

• Gold standard...vs. Fiat currency – us versus them. Very political and ideological.

Three Options For Owning/Investing In Gold:

1. Physical gold in your home, safety deposit box.
   1. How could one use physical gold in an economic collapse
   2. https://atlantagoldandcoin.com/how-will-gold-silver-coins-be-used-following-a-monetary-collapse/
2. Gold and/or Gold Miners ETF in your portfolio. Is it a diversified?
   1. How has gold performed? What about bonds?
   2. https://awealthofcommonsense.com/2015/07/a-history-of-gold-returns/
   3. Ben Carlson's stance: "My stance on gold has always been that I have no idea what's going to happen with it in the future. No one else does either."
   4. As of 2015...Even after the most recent crash, gold is actually up around 10% per year over the past decade. But it's unlikely many individuals actually participated in this rise unless they held physical gold. The Gold ETF (GLD) only had around $3 billion in assets in 2005. It then grew to nearly $80 billion by the peak in 2011-12, before falling back down to less than $25 billion more recently. Unfortunately, that means many of the bandwagon investors got sucked in very late to the bull market and lost a lot of money in the ensuing crash.
3. Physical Gold in a Self-Directed IRA.
   1. Why?
   2. Can I own physical gold in my IRA?

• If you opt for the actual metal, certain criteria apply for it to be held in an IRA. "The precious metal coins or bars must meet IRS fineness standards and must be held by the IRA trustee instead of the IRA owner," says Moy. "The gold must be stored in an IRS-approved depository."
  • https://www.investopedia.com/articles/personal-finance/091814/analysis-should-you-get-gold-ira.asp

Tax Implications of Gold Coins...28%

• Physical gold (including the ETF – GLD) is tax as collectible.
• However, the IRS considers physical quantities of metal to be a "collectible." For collectibles, such as coins, art and bullion, the standard tax rate is 28%. As a result, owning physical gold, or owning funds that themselves own physical gold, means that you can pay a higher maximum capital gains rate of 28%.
• https://smartasset.com/taxes/avoid-capital-gains-tax-on-gold#:~:text=This%20is%20called%20the%20capital,a%20general%20rate%20of%2028%25

The Ascent of Money: A Financial History of the World - By Niall Ferguson

Questions from the Flight Deck:

What if the US Dollar is not the dominant world currency?

• https://www.visualcapitalist.com/cp/how-reserve-currencies-evolved-over-120-years/

Part 1:

How to know how much FDIC insurance you have?

• https://edie.fdic.gov/calculator.html?

Should we be nervous about the banking system?

• There is no safer place...

How much can I actually hold in my bank account, FDIC insured? See FCIC calculator.

Why are banks and brokerage firms different?

• Banks accept deposits onto their balance sheet. When you deposit money, it becomes a liability for the bank.

• Brokers are middlemen. They hold your money (custodial relationship) and then allow you to buy investments. These do NOT go onto the broker's balance sheet. They take a little to "broker the sales" but do not own anything. You own the underlying investments.

What would happen if Schwab went bankrupt? FDIC, SIPC.

• Rule 15c3-1, "Net Capital Rule" of the U.S. Securities and Exchange Commission (SEC), makes it mandatory for brokerages to maintain a minimum amount of prescribed capital in liquid form. Rule 15c3-3, "Customer Protection Rule," requires brokerage firms to keep client assets (both cash and securities) in a separate account from the firm's assets to avoid any confusion

• What does a broker (Schwab) do with our money versus what a bank does with our money?

  • Bank invests and loans your money

  • Schwab puts it in stocks that YOU own. Schwab doesn't hold them. Schwab can't do anything with your money. It's not even on their balance sheet.

    • However, Schwab does have a banking component. A subsidiary of Charles Schwab.

    • Schwab has several components, subsidiaries:

      • ETFs, Mutuals Funds

• • • • Custodian, Broker-Dealer

• • • • Banks

• • • Who controls money at ETFs, Mutual Funds...

• • • • Securities of underlying funds are not held at Schwab, Vanguard. They hire and pay a custodian to keep these securities separate...

• • • • • Who WAS the same – Bernie Madoff.

• • • https://international.schwab.com/account-protection

• • • Broker collapsing versus broker theft...

• • • • Protected up to US$600 million. The combined total of our SIPC coverage and our "excess SIPC" coverage means Schwab provides protection up to an aggregate of US$600 million, limited to a combined return of US$150 million per customer, up to US $1.15 million of which may be in cash. This protection becomes available in the event SIPC limits are exhausted.

• • • • SIPC covers shares, not $$$ amounts: For example, if an investor is holding 200 shares of ABC Inc. originally purchased through a failed stock broker, SIPC will work to replace or restore the same number of shares to the investor. However, if the stock price plummets during the time the stock broker goes bust to the time that the SIPC steps in, the SIPC will not reimburse the money the investor lost.

• Ron Berger: https://www.youtube.com/watch?v=wz64z1YuL0A&t=816s

Part 2:

https://www.businesstrialgroup.com/practice-areas/securities-litigation/oil-gas-partnerships/

Why do we go after these types of investments? Are they necessary to be successful? Do they add diversification?

• Private REITs

• Land Investments

• Mineral Rights

• Oil and Gas LPs

Why do they look so attractive? 10-12% annual Yield...

• Phoenix Capital Group...

• What does Yield mean?

Early bank run on Blackstone last December but it is NOT a bank. This guys says it is OK but if you wanted your money out of it- you cannot have it https://seekingalpha.com/article/4563565-the-truth-about-blackstone

How do you value something?

Are short sellers able to sell private securities easily.

How do we know if the price is right, close to right or downright wrong.

In public markets, is volatility a bug or a feature?

"Fox watching the hen house"

Fundrise claims that privately held outperform public markets but there are multiple issues with this kind of data:

https://fundrise.com/education/why-private-markets-outperform-traditional-publicly-traded

• Internal rate of return helps private equity firms but NOT always clients

• Are losers in private equity always captured in data? survivorship bias.

• What counts in private investment is the quality of people, trust, and the investments?

• How many private firms are zombies that still show value on balance sheets

• When the tide goes out... you see who swimming is nakedly.

• ..."But I get my 8%, 9% or 10% dividend : ) " Where does the dividend come from?

• Wall Street moved from banks & public markets (active mutual funds) to private- why? Because that is where the story, the reputation, the glitz, can be manufactured- with out all this "nobody can beat the market stuff" That is where the money is in the roaring 20s.!

• Craig Pieper Publisher & Founder of Aero Crew News

• Scott Rehn CEO of Aero Crew Solutions & Co-Founder of Aero Crew News

• Craig Pieper's Linkedin

• Scott Rehn's Linkedin

• Make sure to follow Aero Crew News on Facebook, Instagram, & Twitter

• Aero Crew Solutions Phone Number: 484-NEW-NEWS

Pilot News

https://www.reuters.com/business/aerospace-defense/european-regulator-rules-out-single-pilot-flying-by-2030-2023-02-06/

Question From The Flight Deck:

Q: Are all annuities Crap?

A: Annuities are NOT investments; they are Insurance income products, and most of them are sold as something they are not - again, not investments! People that hate annuities compare them to investments - life insurance is used when people die. Annuities can help people that live too long or need mortality credits to decrease anxiety or smooth out the journey.

LEFP is not licensed, nor makes commissions on annuities, but we do sometimes recommend them through third parties. Find someone who does NOT make commissions on annuities but believes that they are sometimes necessary and EVEN helpful as a part of a financial plan. 2022 was the number one year of annuities sales in history.

• Contingent Deferred Annuities: CDAs, Retire One - "Constance"
  • No changes in taxation – Roth IRA, Taxable brokerage account
  • Remain invested in Mutual Funds, ETFs
  • Turn off anytime...

A CDA acts as a sort of "risk wrapper" for your IRAs, Roth IRAs and taxable brokerage accounts, but the insurance portion is unbundled from the underlying accounts so that investments in ETFs and mutual funds may be covered. The amount of income you receive from the CDA (your coverage base) is calculated from the total of your initial investment, and will not drop below that amount, no matterwhat the markets do. In fact, your coverage base may go up, and those annual income payments can range from 3% to 6%. Keep in mind that excess withdrawals CAN impact your coverage base, however.

The CDA's income payments trigger when you need them and are paid by the insurance company for the rest of your life, even after your assets are depleted.

https://www.financial-planning.com/news/2022-was-the-best-annuity-sales-year-in-history

https://awealthofcommonsense.com/2023/03/talk-your-book-lifetime-income/

Q: Should I own bonds?

A: There are two reasons to own bonds.

1. Decrease recovery time in your portfolio: TYPICALLY, (not 2022) bonds act as ballast. During a recession, Treasury bonds act as a flight to safety, plus Fed may lower interest rates which may cause bond prices to increase. See JPMorgan Chase Charts.
   • It's all about the math...50% decline in your investment dollars requires a 100% increase to get back to even.
     • $100,000, 50% loss = $50,000. 100% gain = $100,000.
   • A 25% decline in stock prices requires
     • $100,000, 25% loss = $75,000. 33.3% gain required to get $100,000.
   • https://www.hughcalc.org/getback.php
   • Then why would anyone be 100% equity???
2. There is actually yield, interest now. T-Bills
   1. Annuities, higher
   2. CD, Money Market higher
   3. Long-term investors are better off after bond price declines and interest rate increases from 2022

Main Topic – Tax-Efficient Giving Strategies

• When to use a Donor Advised Fund - https://www.morningstar.com/articles/1039795/pros-andcons-of-donor-advised-funds
  • Pros:
    • The major benefit of donor-advised funds is the ability to take an immediate tax deduction on the amount contributed. Donors contributing cash can take a deduction of up to 60% of adjusted gross income...
    • Donors can also contribute a wide range of appreciated assets, including stocks, bonds, mutual funds, privately held business interests, restricted stock, and even bitcoin and other cryptocurrencies. Donors contributing securities or other assets can take a deduction of up to 30% of adjusted gross income.
  • Cons:
    • Donor-advised funds also come with an additional layer of annual administrative costs. Fidelity, Vanguard, and Schwab all charge a 0.6% administrative fee for accounts with balances up to $500,000. All three have tiered expense structures, so accounts with balances greater than $500,000 are subject to lower fees in percentage terms.
    • These charges are in addition to the fees on the underlying investments (operating expenses for mutual funds and exchange-traded funds, or trading commissions for individual stocks and bonds). All these fees come out of the amount donated, making donor-advised funds less cost-efficient than donating directly to a charity.

• Gifting highly appreciated stock

https://www.blackrock.com/us/financial-professionals/insights/donate-stock-to-charity-for-tax-savings

Gift your star performers. Maximize your savings on capital gains taxes by donating your strongest-performing stocks. They may be your favorite holdings, but this is not goodbye – replenish your portfolio by purchasing the same security (or a similar exposure). Because the stock has appreciated since your original purchase, your new cost basis will be higher, which creates the potential to harvest tax losses to offset gains in future years.

• When do you get to deduct your giving on your tax return?

https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/tax-deduction-wisdom-should-youitemize/L8Ln7K0Gp

"Add up all of these taxes, but remember the IRS limits your state and local tax deduction to $10,000.

Tip: Add your total state and local taxes (capped at $10,000) to the mortgage interest number you calculated above. If the total is larger than your standard deduction, you'll likely benefit from itemizing."

• Lump your giving?
• Other reasons to give?

The immediate effect on our physiology…Psychologytoday.com - Dr. Eva Ritvo - https://www.psychologytoday.com/us/blog/vitality/201404/the-neuroscience-giving

"Neuroscience has demonstrated that giving is a powerful pathway for creating more personal joy and improving overall health...Dopamine, serotonin, and oxytocin make up the Happiness Trifecta…benefits are better moods, sleep, digestion, memory, learning, and appetite, blood pressure decreases…Oxytocin is known as the "cuddle hormone." trust and empathy are enhanced. Oxytocin is also anti-inflammatory and reduces pain, and enhances wound healing. "So, if giving allows us to secrete all the chemicals at once, we owe it to ourselves to give as often as possible!

How to Be a Real Estate Professional & Save on Taxes with Gina Roth

• (4:30) How do you recommend selling your primary residence and ensure you don't pay taxes?

• • You have to live in it as your primary residence for two out of the trailing five years

  • Once you complete this, it is free capital gains

  • Married: $500,000 exclusion

  • Single: $250,000 exclusion

  • These can include any improvements to the property

• (7:15) Requirements to be a Real Estate Professional for tax purposes

  • You must spend 750 hours/year doing some sort of real estate duties (brokerage sales counts towards this)

  • Documentation of hours is a necessity

• (17:15) Real Estate & Taxes

  • Passive income from real estate can often be offset with income from your main source of income

• • Depreciation is your superhero in real estate!

  • You can make your money from your main source of income, all of that income gets taxed as ordinary, and the real estate can be used as depreciation to offset some of that main source of income

• (21:00) Gina's Advice

  • If someone has the ability & willingness to keep their first starter home, it can be a great tool to use as rental income in the future

  • It can be a huge wealth builder, great for diversification, & helps with cash flow in retirement because you won't have to touch your nest egg

• (26:30) Multiplex

  • They are very favorable because you have multiple tenants paying rent at the same time. If one person moves out, there is still some cash flows

  • Less maintenance typically on a multiplex

• (28:15) Other Real Estate Licenses

  • Active in Real Estate License: For people that make less than $150,000

• • Material Participation: Not having a rental unit, but a business

• (29:00) Short Term Rental Benefits

  • A short-term rentals are anything that can qualify for anything less than 30 days of occupation

  • You can classify any losses associated with the business as offset to your ordinary income (you must own a short-term rental, you have to be material participation, & documentation!)

  • There are many tools today that allow you to manage short term rentals (even out of state)

• • You have to be the one who is property manager and must document everything

• (40:26) Breckendrige, CO has made it very complicated by putting different zone/resort zones. So, to buy a short-term rental, you would need a very qualified agent right now

  • Some alternatives to Breckenridge could be Keystone and Grand County

• (46:20) Gina's Book Recommendations/Resources

  • Rich Dad Poor Dad by Robert T. Kiyosaki

• • Short-Term Rental, Long-Term Wealth by Joseph Bafia

• The Seven Tests of Participation (Material Participation Tests: Definition, IRS Rules, Vs. Passive (investopedia.com))

1. You participate in the activity at least 500 hours during the year.

1. Your participation constitutes substantially all the participation for the year by anyone, including nonowners.

1. You participate more than 100 hours and as much or more than any other person.

1. The activity is a "significant participation activity" — that is, you participate more than 100 hours — but you participate less than one or more other people yet your participation in all your significant participation activities for the year totals more than 500 hours.

1. You materially participated in the activity for any five of the preceding 10 tax years.

1. The activity is a personal service activity in which you materially participated in any three previous tax years.

1. Regardless of the number of hours, based on all the facts and circumstances, you participate in the activity on a regular, continuous, and substantial basis.