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Hi everyone and welcome to another Wealthy and Wise Wednesday. We're pushing right up to Christmas. It's getting kind of exciting, seems like every time I go out on the streets, it gets more and more and more crowded. How is it in your part of the country? 00:00:18 So you could get really frustrated with trafficking. I grew up outside of the bay area in California and before my wife and I moved out to California, we lived in the East Bay of San Francisco area and man, it was traffic and nightmare. This has been quite a while. I can only imagine how much worse it is now. But I used to get so frustrated. 00:00:46 But come Christmas time, we're all supposed to be happy and joyous and forgiving. So hopefully when you're out there you're not seeing too much road rage and certainly, hopefully, you're not the one with the road rage. So if you're listening to this podcast while you're driving, I can calm you down, a little bit of hum…..and relax. The Christmas Holiday season will be over before you know it. So enjoy it. Hope again you have a lot of family time and can really spend some time helping others that may not be so fortunate as you. 00:01:34 Okay. So we've had some really interesting things happening these past few weeks. I don't necessarily want to talk too much about politics and all that good stuff but there are some things that are potentially coming down that pipe that's going to either help or hurt you come 2018. And one of them is the tax plan that's been at least halfway through the whole process to this point. 00:02:04 And I happen to pick up, sorry, if I look at the computer a little too much today but I happened to pick up a calculator that was put out by one of the congressmen to just kind of, it's nothing scientific to the tee but it does give us some indication of what this tax plan might mean to you. So I thought it would be kind of fun just to put in a few different scenarios and see how that might look in your situation. 00:02:34 So the first one I'm going to put in is a couple and I just picked this state because it was about mid-country. I picked Illinois. For the next one, we'll pick another state. But here we got a couple in Illinois, married filing jointly making $50,000 a year and they've got three kids. Statistically, we have 2.3 kids in the United States per couple. It was hard to put in that point three so we'll see what the difference is between two and three kids. 00:03:10 So what would happen if the plan passed in one of two ways? So you've got the House Plan and we've got the Senate Plan. And each of them has a little bit different nuances and we'll see what they do. So the results are these. In the current House Plan, this couple would save $953 a year and in the Senate Plan, they would save $1,886, almost twice as much money as the House Plan. So if you're married filing jointly living in Illinois and have $50,000 a year income, you might just be voting for the Senate Plan and put a few more bucks in your pocket. 00:03:57 Okay. So let's double this income. Let's look for somebody making $100,000 a year. And this time instead of Illinois let's choose, how about we choose Mississippi. Okay little southern state in there, still the 2.3 kids and let's see what happens with them. Well, in the current House Plan, they would save $2,313 in the 2018 tax bill, and in the Senate Plan, they would save $3,246. So are you getting a little theme here? The Senate Plan seems to be much more aggressive for tax breaks at least up to the hundred thousand dollar mark. 00:04:41 What we want to do is see where this doesn't really help or affect anybody. So let's bump that up to $150,000 and now we've got, now they're getting a little bit closer in parity. So the House Plan you'd save $5,070 and in the Senate Plan, you'd save $5,771. So about $700 more in the Senate Plan over the House Plan. 00:05:07 Alright. So now let's bump this up to 200,000. See what happens. And wow still saving some money. So in the House Plan, you save $6,373 and in the Senate Plan, wow, you start to save even more, $7,854. So it seems right there that $150,000 mark, they were really close but then the Senate Plan starts to get a little better as you creep up that wage or that earning a wage. 00:05:41 At $250,000, voila! House Plan you're saving $6800. Senate Plan now you're saving $9800. That's pushing ten thousand bucks. There's a lot you can do in this world with $10,000 at least, at the very least that you might get this amazing vacation, right? 00:06:06 So let's see at $300,000 in income, married filing jointly. Still saving money. House Plan $5700. Senate Plan over $13,000. So far, if you're all for tax breaks and saving a little bit more in taxes, the Senate Plan seems to be having the advantage. 00:06:30 Let's jump all the way up to a half million dollars a year because I'm really curious to see where we don't save any money. And we're still saving money even at a half million a year. The House Plan saves you $8200 a year. But get this, that's backward. So the House Plan is kind of going backward at this but the Senate Plan now you're saving $25,000, $24,917 to be exact on a half million dollar income. 00:07:00 Well, we talk about the one percent. I shouldn't say we as a podcast as a company does. But the country talks about the one percent and how they are getting all the tax breaks and so on and so forth. Let's just see. Definitely, at half million dollars, you're in the 1% tax bracket. But you're still paying, what do we get here, you're still, oh it's all broken down into three different…four, so 20, 40, 60, they're still paying over a hundred and some odd thousand. Oh total federal tax bill, there it is, $112,000 in taxes. So that's a pretty good amount of money. 00:07:44 Interestingly enough in the House Plan, you'd pay $128,000 in taxes. Right now, you're paying $136,000 in taxes if you're making a half million dollars a year. So let's bump this up again to $750,000 in income. And everybody still making money, right now, or saving money I should say, not making money when. Give when you pay. When you lose money when it goes out of your pocket you not making money. When you give, when you pay, when you lose money, when it goes out of your pocket, you're not making money. You're just paying less. 00:08:15 So right now, you're paying 235,000 in taxes. In the House Bill, you'd pay 216,00 and in the Senate Bill, you'd be paying 205,000, which means you would save in the Senate Plan 30,000 and in the House Plan you save 19,000. 00:08:34 Alright, how about those evil millionaires who make way too much money, right? Let's see what happens to them. Well, they get to save a little bit still. So right now, they'd pay 335,000 in taxes. But they're going to save 31,000 in the House Plan. They're going to save 41,000 in the Senate Plan. 00:08:59 So sorry for going, to tell all those. If I bring that back down to what I see a lot, it's about $150,000, husband and wife both working filing jointly, couple kids, 2 or 3 kids, living in just about every state across the country. Well, let's see what happens if they happen to be living in North Carolina at the time. This could be significant to a lot of people because, in the House Plan, you save $5,000 and in the Senate Plan you save $5,700. 00:09:34 So that's probably where the two plans have the most parity in getting really close to each other, about what middle to upper America is earning out there. So anyway that's the new tax plan coming along. I don't know if it's going to be in place and ready to go. A lot of times when plans are enacted in a given year say in 2018, they'll at least go retroactive for that year. So with any kind of luck, depending on how you're looking at this. We may see some tax savings next year for our 2018 taxes. And hopefully, if you're wise what will you do with that savings? 00:10:25 Test, test, test. Yes, hopefully, you're going to save it, invest it and make it become a whole lot more than it is today. And so yeah, that's it. So any questions that you have? I'm not an expert on this tax plan. It's certainly on what to do with tax savings. 00:10:49 Send those questions to [email protected]. Try to answer them just as fast as I can. And also if you'd like to have a strategy session, talk about some of the ideas and things that we're doing, really helping people across the country. If you want a copy of my book and how we use tax advantage investments to help you accumulate wealth even faster, feel free to reach out. 00:11:17 And in the meantime, just to have a great holiday. Enjoy it. Have fun. Eat a lot. Hope you get everything that you're asking to Santa Claus or that you're a really good Santa Claus to others. Well, that's it for today. For another Wealthy and Wise Wednesday, we hope you have a great one. Talk to you next week. Until then, take care.

Hi everyone and welcome to another Wealthy and Wise Wednesday. Glad you could join us for our podcast. 00:00:07 We're pushing into the Christmas season. We're just a…gee...we're just a few weeks away. Always excited for the Christmas season especially with family coming home and all that good stuff. Our youngest daughter is away at college and she'll be home with us for a few weeks and I'm definitely looking forward to that. Looking forward to hanging around with the grandkids and watching all those innocent and surprised looks when it comes to Christmas time. 00:00:39 So pushing the end of 2017. I hope it's been a good 2017 for you. I hope it's been prosperous. And I hope more than that, I hope 2018 looks really good for you and that you're making some good steps, good financial stabs to make it the best 2018 ever. 00:00:59 And we were under a lot of pressure right now with what's going on in our economy and everything. We've got the Dow is, man, near its all-time high over 24,100. I mean, it's just crazy. I remember, gosh, when I first started, I think the Dow is about 500 or 600. I don't know. You see, it's crazy what's happened over these years. And now over 24,000. Nasdaq at 6700 in the S&P 500 at 2600, which brings us to the conversation of today and that is—is this thing going to crash? 00:01:48 I wish I had a little crystal ball here and I could look out into the future, but sad to say, I'm maybe not a very good barometer. I've been thinking this thing was going to crash for the last two maybe even three years. It's been really hard to get money active in the stock market because everything's been so overvalued. And unfortunately, reminds me of the late 90s when I went through all this with the internet stocks and how fun that was. I had to watch portfolios just go crazy and then decimated within no time at all. 00:02:26 Just used to be so easy. You really thought you were smart too that you, "Oh I bought this stock or I bought this stock back in the 90s," when basically anything you bought went up and went crazy. I happened to be on vacation one day. Well, for about a week and I would wake up in the morning and trade a few stocks. And there were days where I was making 10, 20, $30,000 in a day while I'm on vacation. And thinking, "Holy smoke! If this thing keeps going, this is going to be a great life." And everybody thought it was going to keep going. 00:03:07 Keep in mind that the market has a way of proving the most number of people wrong. And so, as you see more and more people get comfort out of this market, maybe less worry, maybe even putting more money in, you can almost rest assured that that's probably coming to its tipping point. 00:03:30 So speaking of tipping point, that's kind of what I want to talk about today, what are some things that you can look at to get at least an assessment of where the market is now and what that might mean in the near future. And I don't look at a ton of indicators. I'm not a guy who just studies and analyzes everything that happens in the market but there are a few indicators that I've watched for decades now that are always to me worth watching because they give us some hint as to at least where we are and some hint to where we may be going. 00:04:12 The first one I want to talk about, and by the way, if you're watching us on this on video, I'll be able to show the graphs. If this is a podcast, I'll describe them or if you're listening to us on a podcast, I'll describe in the best I can. But I also want to put them in our show notes so just go to wisemoneytools.com/24 and that will get you to this podcast and then you can see the show notes and these graphs and charts. And really, we are going to talk about a couple of them. Most of them you can probably just imagine in your mind. But for those of you who are watching us on video, I'll pop them up there. 00:04:55 Well, the first one that I want to talk to you about is called the Shiller PE. For those of you who don't know what PE stands for, that means Price Earnings Ratio. And essentially, what they do is just it's the price and the earnings divided so that they get some sort of a ratio, the price of the stock versus the earnings of the stock is what it boils down to. And PE Ratios are used commonly in fundamental analysis. This is when people are trying to figure out if a stock is worth buying at its current price or if it should be valued higher or lower. 00:05:30 So the Shiller PE is unique in the way it does things and basically, here's a couple of numbers to be aware of. So the median, meaning the average. But the median Shiller PE price since like 1890 has been right around 16, 17, somewhere in there. Little higher in some decades, little lower in others, depending on what's going on. 00:05:58 But if we go back to the Crash of 29. So 1929 where was that Shiller PE? Well, it was right at 30. So again, as a comparison, the median is about sixteen. So it's about double the median and right at 30 when here comes the Crash of 29. And for years, it just took forever to make that money back. If we look then at, let's see, the next time frame where things are just really bad, we went from about 1940 to almost 1960 where the markets just really didn't do a whole lot. And finally Black Monday. I shouldn't say finally but our next stop will be Black Monday. 00:06:54 For those of you who are a little bit older as 1987, October of 1987, when the stock market took the biggest one-day crash ever, I think it's still one of the largest one-day drop in history. But then our Shiller PE was right at about 19. Okay. But, then it went crazy. And going back to our conversation about the internet boom, the Shiller PE before the internet bust got to an all-time high, historical, never has been hit again at about 44. 00:07:37 So when that internet just ballooned, ballooned, ballooned and ballooned and when that finally busted, the Shiller PE was at 44. So the only way that makes any sense is to see where we're at today. So remember the Stock Market Crash of 29 at 30, the Black Monday Crash in 87, we were pushing about 19 and today, we set at almost 32. So we're significantly almost double what it was in 87, we're just about a little bit higher than the Crash of 29. And that just gives you a little perspective that from a price-earnings relationship, we are way, way overvalued. 00:08:28 And just if you could see this chart, those of you who are looking at it, you can see that we bounced against 20 and 25 regularly and then we drop back down to that median and then we bounce up to that 1825 again and then we drop back down, just normal ebb and flows and cycles of the market. So anytime we have a run where we're getting up into the 30 range, we've been on quite a terror. And it's been great. Don't get me wrong. I think a lot of people have enjoyed this but the question is how many people will end up holding on to any significant gains if this market were to make a correction back to the median, back down to 16. 00:09:12 Basically, we need 40 to50% drop to get there. And what's that going to look like to all these people over the last seven, eight, nine years that have done really well and have seen their portfolios grow, those that went through the crash of 2008 or at least back ahead and moving forward. But what would happen if this thing goes back down to the median? Okay. So that's one indicator. 00:09:39 The other indicator is kind of interesting to me because it's what's commonly referred to as the Buffett Indicator and basically, it's Warren Buffett's favorite indicator or so they say. I haven't talked to him personally so I don't really know but yeah it is published that it's one of his favorite indicators. And what it does is it takes the total value of the stock market, all the equities combined and then it divides it by the GDP, the Gross Domestic Products. So if you take the value of the entire stock market and divide it by the gross domestic product of the United States, you come up with this ratio. 00:10:24 And this ratio is supposed to give us some indication if we're overvalued or undervalued. And so you can kind of see how this works. Again if I go back to, oh this one doesn't even go back to the Crash of 29, but there are sometimes along the way that we can look at 87. This indicator was at 32. Okay. Excuse me, 87, 85, 86, sorry it was at 60. So right at 87, when the Crash of 87 took place, this indicator was at 60 and it's 60%. Basically, GDP is 60% or the equities are… numerator, denominator. 00:11:14 Yes, so 60% is where it was in 87. If we go back to the crash of the internet boom, the internet bust, I should say, we were at 151%. So quite a bit higher than the 87 crash. And today, we're at 133% back at the crash or in 2010 when we started moving up, the indicator dropped all the way down to 58. So what happened is from 151 at the internet peak, it had kind of worked its way all the way down to 58 before it started moving up again to today's value of 133. 00:12:05 Now, what does that mean? Okay, again, so perspective. What this ratio supposed to mean is this—any time the ratio is below 50%, that means that stocks or equities are significantly undervalued. In other words, they're probably a good buy. Everything is way undervalued and maybe a good time to get your feet wet. If the ratio is between 50% and 75%, it indicates that the market is mostly undervalued. Still, probably a good time to be getting involved. When the ratio is 75% to 90%, it's considered fair value, which means, you may or you may not move very quickly from that position but it's fairly valued and you should be okay. Alright? 00:13:02 When it's from 90 to 115%, it's considered modestly overvalued and that's when you got to kind of hunt and find those stocks or those companies that may be undervalued. Anything over 115% is considered significantly overvalued. So here we are, basically right now at 139 and some change. So we are significantly overvalued. 00:13:38 This might be the reason why Warren Buffett is sitting with over a hundred billion dollars in cash as of August. And that that might tell you that he's not too impressed and not putting money into this market because of its current valuations. And of course, he's considered the value investor of all times. It's probably not very accurate description because value investing means different things to different investors but he certainly knows how to buy into companies when they're undervalued and that's what he's done his whole life and why he's been probably deemed as the greatest investor ever. 00:14:23 So he sees this market as significantly overvalued. Shiller PE puts it at one of the highest points in history in terms of when other markets took significant corrections. So again, we don't have a crystal ball and certainly not trying to tell you what you should be doing but at least maybe give you an indication and a sense of where we're at so that you can make some good sound financial decisions as to where you think your money should be and if it's time to maybe take a little bit off the table or maybe you just feel lucky and you want to get more money involved. Who knows? But it's just good to have a good idea and a sense of where things are. 00:15:11 Well, that's about it for this podcast on our market analytics and I hope it was worthwhile. And again if you'd want to see these charts and graphs, either watch this on video or jump on to our website and go to our podcast, podcast 24 and there you'll see the charts and graphs. 00:15:34 As always, if you have any questions, shoot them two [email protected]. I'll answer them just as quickly as we can. And in the meantime, if you ever want to just have a moment where you can have a strategy session, you can also request that too at the same email, [email protected]. And we're going to have a quick little strategy session just to see how you're doing or how is it working and some of the ideas and strategies that we work with that have been very helpful and fruitful for many, many of our clients across the country. 00:16:13 In the meantime, I hope you just have a great holiday season. I know we're going to catch up another couple times before Christmas but it's always good to have a few days during Christmas where you can reflect and think and maybe help someone else out along the way and give off yourself this time of year. And then prepare both financially, mentally, physically, spiritually for 2018 and what that might bring to you and your family. 00:16:48 So glad to have you here on our podcast and look forward to talking to you next week. Hope you had a great Wealthy and Wise Wednesday and a great rest of the week. Until next week. Take care.

Hi everyone and welcome to another wealthy and wise Wednesday. Hope you're doing great? Got a little background music going for you here. Maybe that will trigger a lot of memories for some of you with a little gray like I do and for others I just want you to know that the greatest music ever in the history of America was pretty much the seventies. So check it out. Anyway, I love those that era. Well, today we're going to talk about financing and this is going to be a concept that you may have heard of. For the most part, most people haven't and this is an undiscussed concept especially by many financial advisors and even some of the really famous ones that are on the radio. They just don't talk about this and here's the concept, we finance everything we buy even when we pay cash. OK Now there are some things that we pay cash for every month and that's perfectly fine, that's the little stuff, the food, the gas, the clothes, things like that that we have to have, we're going to pay for cash for those things and unfortunately it just costs money to live and it costs money to have a roof over your head and that's why we work. But when it comes to saving and major purchases this is what I mean by we finance everything even when we pay cash. So let's use some of the reasoning here so first let's define a major purchase. A major purchase would be something that I could not pay for with the discretionary income that I have at the end of the month. So I make X number of dollars and I spin for gas and groceries and all that good stuff and utilities and at the end of the month, I've got this much more the left over. Well, if what I need to purchase is more than what I have left over we'll consider that a major purchase. Might be oh a washer or a dryer where I have to say for a few months to build up enough capital to make that purchase. It might be a car, a vacation, you want to remodel your house or remodel just the kitchen. You get the idea. Any major expense we have to determine am I going to save and pay cash for this or am I going to finance it. So to make this simple list just use a car. And I don't have enough money at the end of the month to buy that car so now I got to come to the conclusion my going to save my money up and pay cash or am I going to use financing? And my argument of what I want to show you today is that you if you actually finance it either way even when you pay cash. Now financing might not be that actual terminology but let me explain what I mean. If I have money in an account that I've been saving and let's just say for sake of argument that accounts getting five percent return and it will continue to get five percent for the next fifteen, twenty, or thirty years, well if I take the money out of that account, what am I doing? I'm giving up interest that I could earn for the next ten twenty thirty years, that's called Opportunity cost, but in our terminology for today that's actually financing because we're giving up interest that we could have earned had we not taken the money out of the account and paid cash, right. Now when I do traditional financing so I go to the bank and I borrow the money for the car and they're going to charge me five percent interest let's say. Now I'm paying interest and of course, that is a cost and we can see it we, understand that we've been taught don't pay interest. What we haven't been taught is don't give up interest. Right because that interest could have grown in and built my capital and my poor folio for years and years and years and decades into the future. So, in reality, we are financing everything that we buy even when we pay cash. One's actual financing or in paying interest one is losing interest and opportunity cost on that money. So do we have a third choice? Have you ever been presented a third choice? That's some of the things that we like to talk about because there are places that you can store your money and then what you can do is take loans against your money so your money still grows and compounds at that let's say five percent rate that we've been using as in our example as if you never touched it. But you can take a loan against it use that money to pay for your major purchases and then what do you do? You make payments back to make that two to refill that bucket if you will, to have that capital back in there for your next major purchase. We call this kind of a wealth creation process because you never give up interest and the interest that you paid in a roundabout way ends up back into your account as you pay those payments back. It is quite a unique system and it can be {05:55} very beneficial especially if you have two or foresee yourself using the money over your lifetime and buying these major purchases in a way where you can actually continue to build and grow your wealth instead of losing it. You know we've talked in the past that on some podcast about the saver and the debtor, right? Well the saver is supposedly in better shape than the debtor, but if I'm a saver and I build up this pile of money and then go spend it then I build up this pile of money and go spend it, build of this pile of money go spend it, well in the end I'm pretty much at ground zero,, I just I never really get anywhere because all I do is save my money to spend. Well if I'm a debtor what happens is I kind of dig myself a hole and then when I get out of the hole I'm back at ground zero and then I dig another hole for another purchase then a back to Ground Zero. Well in the end both the saver and the debtor are back to ground zero. Sure the saver has you know maybe save some interest which is good, not saying that that's not good but there are no they're not that much better off financially in the end. So we've got to figure out a structure to where when we have to make these major purchases that it's in our best interest and works best for us financially. And right now this just being pain cash isn't necessarily the best alternative and I should back up and say this especially when it comes to a car. OK, folks listen a car is a horrible investment, it's really one of the worst places you can put money. And who one of the first things we ought to assess is do I need the car? Do I have to buy the car? Can I get a less expensive car? Because the least amount of money you can put in cars in your lifetime is going to be to your advantage. Now I'm kind of guilty some of this because I like cars and I've been, I've probably bought a few too many, but it's an enjoyment in life and I always make sure that I still have plenty to save and invest even when I'm maybe not being too wise with my car purchase, let's just put it that way. And look life is meant to be enjoyed. We're not trying to you know hamper you into this corner so that you can never enjoy life and some of the things that life has to offer, but let's do it in a practical manner and certainly let's do it after we've built up a nice pile of money and then just use it wisely to help create and build our wealth even more so. So really just getting back to this concept that's really talked about is that we finance everything even when we pay cash. Cash has a cost, cash has a future cost. Cash can be used for so many opportunities down the road that sometimes we give up because we've put our money into a major expense and we think about this. Think about going and putting you know a good chunk of your capital into a car because you were told to pay cash and then some opportunity comes along were had you been able to invest that money it might have doubled and tripled and quadrupled in the next ten or fifteen or twenty or thirty years and it could have been a nice capital base for retirement or for other things that you may want or need down the road. So we give up a lot of opportunities when we take that cash and throw it into, especially depreciating assets. So think about that next time you're looking for a major purchase. Am I going to be a debtor? Am I going to be a saver or my going to be a wealth creator and if you'd like to learn more about this strategy and how you can build up your capital and use it as well for your major purchases and still continue to grow in compound happy to talk to you about that. You can also go to our website wise money tool dot com And there you can get a copy of my book in the banking effect which talks a lot about this and talks about how to literally become your own banking system, which is what a lot of very wealthy people have been doing for decades and decades and generations, so learn about it there. In the meantime if you have any questions feel free to shoot me an e-mail to questions at wisemanytools.com. Happy to answer them as quick as I can. If you want to strategy session where we can talk about this further see how it might fit into your situation, we can do that as well. Otherwise, I hope this was just some really good information for you and understand how money works and you might blow away your financial advisor when you explain to him one day that you finance everything you buy even when you pay cash. So that's it for today, for another wealthy and wise Wednesday. Thanks for joining us and until next week, take care.

Well, hi everyone! And welcome to another Wealthy and Wise Wednesday. Glad you could join us on our video and podcast today! So how was last week for you? Last week was Thanksgiving. I hope you had a great one, ate a lot of Turkey and pie and maybe had a good nap too.

00:00:30

At the risk of dating myself, I'm going to tell you one of my favorite things as far as music is concerned, I love the old 70s music and I was just listening to one of my favorite bands back in the high school days. It is The Doobie Brothers and one of my favorite songs from them is called Long Train Running. But they redid that. I don't know maybe a year or two ago. They took some other music artist and revamped them and redid them. And I really like this one. I'm going to just for a second, I'm going to play it for you so you can see what song I'm talking about.

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Anyway, you get the idea. It's a fun song, really like it. But all that old 70s stuff I love those to bands like Kansas, Styx, Aerosmith, Rush and Doobie Brothers. I mean those were good fun times. So maybe every once in a while as we go through these podcasts and videos, I'll throw out a tidbit or two of some of the music that is timeless in my opinion.

00:02:17

Alright. So here we go. Today, I wanted to talk to you about what's called the 4% Rule. Now, what the 4% Rule is, it's kind of developed back in the 90s. And basically, what it was, was a kind of a way to determine how much money you should take out or spend each year during retirement and they came up with what was called the 4% Rule.

00:02:48

If we dial that back a few more years, back into the 80s, that rule might have been a 6 or a 7% rule. See, it is kind of based on what is going on in the economy at that time. And interest rates obviously have a lot to do with it because what happens to most people when they retire is they begin to take money that was more aggressively invested and they put it into more safer conservative investments that are again a little safer, guaranteed, typically your fix type investments. This might be kind of annuities, it might be bonds, it might be a very conservative real estate, but the idea was to come up with this rule that if you took x percent out every year, it should last you as long as your life expectancy would be.

00:03:45

Well, the 4% Rule then, was kind of put together in the 90s again and it became pretty mainstream with the financial planning community. So they would take all your assets, bundle them all together, figure about 4% withdrawal rate and there you have it. But the problem is several things and let's just cut right to the chase.

00:04:11

By the way, I got asked from a few people on my video why I keep looking at my computer. Well, I want you to know that I'm not necessarily scripted but I definitely have some notes that I want to make sure that I hit and stay on track because otherwise as we get talking we could get way off track or I may miss something that's really important. So for those of you who are watching the video, I will try as much as I can not to look at the computer but that's what's on there. It's just a few notes just to make sure that I hit the highlights.

00:04:51

But, so back to this 4% Rule and the problem and why it's no longer applicable in our current environment. It's a number of things. One is life expectancy. Just even since the 90s, life expectancy has gone another year or two. Not exactly sure where it is this year but last year they were estimating men at I want to say 79 and women at 82. So that again has been expanded and increased over the years, which means that's another year or two or 3 or 5 of income that we've got to produce during our normal life expectancy.

00:05:37

The other is the nest egg that we used to rely on or used to use as a rule of thumb needs now to be much larger. So in other words, if you could get 6% off of your nest egg, or maybe a million dollars would be enough, that produce about $60,000 a year and for a lot of people that would be fine. But now that nest egg needs to be approached in 2 and a half million dollars or more because of where the low-interest rates are.

00:06:14

And that again is the big problem. Interest rates are so low that it's hard to find fixed instruments where you can get a reasonable rate of return that you can rely on that would be around for a while and that can produce the income that you need off of your nest egg. So between the lower interest rates, it requires a higher amount of capital that we need, and then, of course, the lower return.

00:06:42

So what's happening is the 4% Rule is turning more into the 2 or 3% rule. 2 being very safe. 3 probably going to make it. But 4 is definitely pushing it unless somehow someway you have a way to build your capital for a few years during retirement or just wait longer until you start taking distributions.

00:07:13

So if you look at a million dollars at a 2 or let us just say a 3% withdrawal rate, that's going to produce about $30,000 in income. Now, that might be taxable if it's coming from a 401(k) or an IRA. Depending on your tax bracket that could take a pretty good chunk out. If you take too much out of your 401(ks) and IRAs then your social security gets taxed as well. So all that can help reduce some of your income, which is brutal again based on the fact that you're trying to get your money to last you as long as you do. Right?

00:07:55

The idea is to have enough money to last at least as long as you're lifetime if not longer and if you want to leave a legacy for family, kids, definitely want to protect the spouse potentially, those things have to be factored in as well.

00:08:13

Well, there's this stress test as what I call them but they are technically called Monte Carlo simulations. And what they do is they go back, that's far back as you want, 30 or 40 years, and they plug in your portfolio and what they do is the Monte Carlo simulations then test or stress test what's going on in that portfolio and they run it through several different environments like what happens if the markets go up, what happens if the markets go down, what happens if interest rates go up, what happens if interest rates go down, what happens if we have a stock market crush, what happens if we have a real estate crush, depending on the assets that you have, everything works a little bit differently and can be affected differently as well.

00:09:08

So these Monte Carlo simulations basically say that if you have x number of dollars and you're taking out 4% out each year, well, you have a 90% success rate, which means, 9 out of 10 people, let's just say, will survive the stresses of economic environments changing and that they will survive at 4% withdrawal rate.

00:09:36

So 90%. You think, "Okay. Well, that's pretty good. I might take those odds. Because if 9 out of 10 are going to be okay, statistically speaking I might be one of those 9." But here's the problem, and this gets a little bit deep into the weeds so sorry I don't mean to be too complicated. But if you look at the 10% that failed, in other words, 90% made it, right? But 10% that didn't make it during the stress test or during those simulations, that 10 %, the majority of them occur in environments just like we're in right now.

00:10:18

In other words, low interest, market soaring, the economy looks pretty good. And those are when the simulations started. That's where we're at right now. Low interest, markets are soaring, the economy looks pretty good. What happens to those 10% failures is that the markets went against them, interest rates might have gone up, down or sideways and the economy didn't necessarily continue to perform as it is right now.

00:10:50

In other words, there were some corrections, some significant corrections that changed all those parameters. And those corrections occurred for the majority of the people who failed the simulations were in that 10% area, that 10% area where all people just like us going through this particular economy. So essentially these Monte Carlo simulations you can just toss them out the window. They're almost useless for us because of the fact that the 10% that failed is in the exact environment that we're in right now. They just didn't continue to last the rest of your lifetime.

00:11:32

You think about it right now, in America, you can plan about a 30-year retirement. You retire at 65. There's a lot of people who had need their money to last them at least 30 years. And that's a long time. And it's a long time for money to have to last especially when it's been pulled back into very conservative positions. So as a result, you probably ought to be thinking in terms of 2 to 3 percent withdrawal rate to be safe to make sure your money is going to last and hey, if the markets change and things get really good and your nest egg actually continues to grow even after you start taking withdrawals, you might be able to have a little more fun in life or increase your income.

00:12:23

So here are the solutions. If we believe that the markets might have some corrections, if we do need to be more conservative, if we can't rely on the 4% Rule any longer, then some of the solutions are just to save more, right? Get a bigger nest egg, which is certainly recommended, and again, approaching that 2 to 2 and a half million dollar range is more of a cautious way to approach retirement when back in the 90s, million dollars might be able to do it.

00:12:58

The other thing we can do is spend less. So instead of thinking that we're going to need 50 or 60 or 70,000 a year in retirement maybe we dial that back 5 or $10,000 a year so that we can stretch our money out that much further. The other thing we can do is get higher investment returns. What does that typically mean? I don't really buy into this philosophy of risk, take a greater risk or greater reward. And we're going to go over that in future podcast and videos but the reality is just because you accept higher risk does not necessarily mean you are going to get a higher reward. But you may need to be looking for ways to get a higher return on money to again build greater capital and have a better retirement income stream.

00:13:52

So save more. Spend less. Get a higher return. Those are some ways to offset these low-interest environments and offset the 4% Rule that is no longer really valid and we got to be looking at 2 or 3 percent to be realistic.

00:14:13

And one of the things you can do especially if you are watching this video and you are still in your 30s, 40s, and the 50s, there is a lot of ways that you can control the outflows of your money and control debt and those kinds of things can help build wealth certainly the way that we like to talk about how to handle your cash and your cash flow and where to put your money in a tax-free environment can help tremendously.

00:14:40

In fact, right now, in the tax-free environments that we like to use, get this if someone were to retire today in this environment, they could take about 5 and a half or 6% off of their tax-free investments. Never paid tax as well. So again, using the million dollars, we're talking about 55 to 60,000 dollars a year tax-free and does not go against your social security.

00:15:10

So those are things you definitely want to talk about and put into place as early as possible because that is going to help prepare for a very nice retirement income stream in the future. So those are just a few things to be aware of on the 4% Rule just really doesn't apply anymore. So if you are talking to a financial advisor and that's what they are showing you, make sure either they understand, well they need to understand but you need to understand that that's just not going to be applicable.

00:15:40

And if they start showing you Monte Carlo simulations, showing that 90% of the people who went through this was successful at the 4% level, the reality is they forgot to look at what was the environment in that caused the 10% failure. And then decide, do I want to save more, spend less, have a higher return. And then finally, where can I put money to give me the greatest tax-free income that I can get and maybe even higher than the 4% Rule in a safe, conservative environment.

00:16:19

If you want to talk about this more and have a strategy session with us, hey, just feel free to shoot me an email, set up a time, spend 10 or 15 minutes on a call together, and we can at least discuss some of these ideas. In the meantime with any other questions, feel free to shoot me an email at [email protected]. Happy to answer them just as quick as we can.

00:16:47

And by the way, it's going to be kind of fun in here in the next few weeks. We're going to have a podcast that just answers questions coz we get a lot of questions and a lot of duplicate questions. We thought it would be nice to give you a whole realm of Q & A on an upcoming podcast so watch out for that.

00:17:10

In the meantime, always subscribe to the podcast. You never miss one. Subscribe to the video channel if you prefer the videos and we'll keep these things coming every Wednesday on our Wealthy and Wise Wednesday. And as always, just be as empowered and educated about money and finance as you can be so you can make the best financial decisions. Until next week! Take care.

Check out my book at https://wisemoneytools.com/infinite-banking

00:00:32 Hi everyone! Glad you could join us today. We've got kind of a podcast/videocast thing going on and glad to have you with me. This podcast is going to come out on Wealthy and Wise Wednesday, the day before Thanksgiving. So tomorrow is Thanksgiving. I hope you have a really good one. I hope you've got a lot to be thankful for and I hope you have family and friends around you to enjoy the day. So happy Thanksgiving to you. 00:01:12 Now, on a depressing thought, no just kidding. I am going to talk a little bit about why I think the IRS will likely win. Just from the title alone, you probably agree with me. Have you ever played a game where you just knew the odds were stacked against you? 00:01:33 One of the first things that comes to mind is the slot machines in Vegas. Every once in a while there's a winner, right? But for the rest of those who try, they can just watch their money go bye-bye as they pull on that lever. But do you think that Vegas set out to say, "Hey! Let's set up some slot machines and let's rig it so that we lose. And that all those who pull down that one-armed bandit is going to win." Well, I don't think so, and I'm sure you don't either. 00:02:07 So I often wonder if the IRS sets up systems where they rig it in order for them to lose. Do you think that's going to happen? Yeah, I don't think that's going to happen either. They know the odds. They know what's going on. They have the statistics. They have the data backing up. And they know what's in their favor. And so, I want to talk a little bit about this when it comes to retirement plans. 00:02:38 Retirement plans do this really unique thing called defer your taxes. Another word for defer that I like to use is called postpone. That's a little bit more realistic visually. Deferred, I don't know, it just seems like that's not quite as impactful. But when you just postpone your tax, it gives you the feeling that you're going to be paying that at some point. 00:03:06 And when it comes to a 401(k) in particular, I will quote the 401(k) retirement gain, you always have a silent partner. And you know who that silent partner is? Yes. It's Uncle Sam Johnny IRS, right? They are always your partner. Anytime you postpone or defer taxes, what you've done is take in the amount of money that you would normally send to the IRS that year and you mingle it or commingle it with your money in the same account. 00:03:41 Oftentimes, you see somebody with… let's just say they got a million dollars in their retirement account and I'll say, "Wow! You've got about $700,000 in your retirement account." And they'll say, "No! I've got a million dollars." I say, "Well, actually you don't because you've got a silent partner in there. And at some point, that silent partner is going to want their share. And in your case, at a 30% tax bracket, that means you're going to give up $300,000 at some point some time when you start taking distributions." 00:04:17 So really the only way to win in a retirement plan is this…are you ready? Here's the secret. The only way to win—you have to put your money in or defer or postpone your tax at a higher tax bracket than when you take it out. That's it. That's the only way to win. 00:04:43 If I put my money in at a 30% tax bracket and take it out at a 25% tax bracket, I'm going to win because I normally would have paid it at 30, I'm going to end up paying it 25. I get that spread of 5% and that comes back to me so I won. I've pulled the lever and I won. 00:05:10 However, if I put that money in at a 20% tax bracket and then take that out at a 25% or 30% tax bracket, guess what? I lose. I just pulled the one-armed bandit and watch my money go bye-bye. I would have been better off paying the tax earlier when I was in a 20% tax bracket than taking it out at a higher tax bracket. 00:05:41 So it's pretty simple, pretty straightforward. There's only one way to win. I have to take out my money at a lower tax bracket than I put it in. If I take my money out at a higher or equal tax bracket, it really did me no good to defer or postpone those taxes. 00:06:00 And see, my point is that I think the IRS, well, I know the IRS realizes this, they also realize that there's probably going to be a few who win just like in Vegas but they have a pretty good idea that you're not going to be in lower tax bracket. In fact, you might be in a higher one. 00:06:22 And here is what's interesting. You take a young couple just out of college, they're going to go get their first jobs, it's their first career position if you will. And one of the first things they do is run them into HR department and get them signed up for the 401(k) and talk about deferring tax and all the money that they're going to build up and wealth on and on and on. 00:06:44 The problem is they may be in the lowest tax bracket that they're ever going to be in or certainly might be in for years and years and years. It might be much better for them to just go ahead and get rid of the tax now and get it out of the way than to defer it or postpone it for 10 or 20 or 30 years and come out in a higher tax bracket. So the real dilemma if you will to a 401(k) and IRA or anything where you defer the taxes upfront is—am I going to be in a lower or higher tax bracket when I take it out. 00:07:23 While back, we asked a lot of CPAs. We brought them into our office. We did a little interview with them. We were asking these CPAs. Tell me about retirees that you work with? Are they really in lower tax brackets when they retire than they were when they were working? And sadly, they said that if there was any amount of success in the family, they weren't. In fact, most of them were at least in equal tax bracket if not even a little bit higher one. 00:07:55 And the reason why they say that it might go up...well, there are several things that could put you in a higher tax bracket when you retire. One is just this government's insatiable appetite to spend and spend and spend and spend and print money and print money. And that of course, is ultimately going to be affecting our tax brackets. And overall, we're going to have to figure out a way to get that debt and that spending either under control and paid off or it's eventually going to require tax brackets to go up. 00:08:29 But there are a few additional reasons why you may not be in a lower tax bracket. When you're young and when you're working, which one of the things that they're typically happening is that you have more deductions and expenses that reduce your taxable income that can keep you kind of in a lower tax bracket. 00:08:50 One of those ways is just having children, just they are a deduction. Actually, they're a huge expense, right? But they're technically a deduction on taxes. Another is your home mortgage. While you're paying off that mortgage, you're going to have some deductions and some expenses and all that kind of stuff that you get to write off. 00:09:10 But eventually, you're going to own that home or at least that's the dream of most people. By the time they retire, they may no longer have that home deduction. And some owned businesses and during that time, while they're owning the businesses, they again have expenses and deductions that they can work with but finally when they retire with no kids, no mortgage, business is gone. 00:09:37 Now it's time to pull money out of that 401(k) or IRA and 100% of that money is going to be taxed because you've lost all the deductions. They're long gone. So if you're fortunate enough to have a pension, that pension is also going to be taxed. If you take distributions from a 401(k) or an IRA, other retirement plans, that income is going to be taxed. 00:10:01 And what matters even worse is if you have too much income, this is just incredible, that this is even an issue, but if you have too much income, then part or all of your social security can be taxed as well. So it's really going to be hard to get out of taxes when you're retired with no mortgage, no children, no business, and no deductions. And if you think municipal bonds are going to save you because they're tax-free, did you know that the income on municipal bonds is added back in to calculate whether or not your social security should be taxed or not. 00:10:46 Yes, it seems like Uncle Sam has you covered. No matter how you do this. So now, you can see why it's not unusual for someone who's retiring to be in about the same tax bracket that they were when they were working and again, in some cases, even higher. Do you remember, if you're a little bit older, there used to be a Fram oil commercials? It said that…and the mechanic all greasy, he says, "You can basically pay me now or pay me later." And the message was it's cheaper to pay me now because while your car is just in a maintenance phase than to wait for a big repair to come along and to pay later. 00:11:32 So the idea was change your oil often and do good maintenance and you won't have to pay me later. Well, when I think where tax rates were back in the day, with lots of deductions, maybe it was better or cheaper I should say to pay them back then. And we have to assess right now, is it cheaper to pay my taxes now as I fast forward, what I think my wealth is going to be by the time I retire, what my 401(k) is going to be worth, what deductions I may or may not have. It might be a good idea to see if it is a good time to just go ahead and get rid of the taxes now. 00:12:18 A lot of CPAs now are recommending what's called a balanced tax plan and that means you're going to have some tax deferred money, some IRA 401(k) all that, you're going to have some money that's already been taxed and growing over here. And then one of my favorite ones is to have money that's already been taxed but in a tax-free environment that if handled properly, you'll never be taxed again. And that can produce a tax-free income that by the way, does not go against your social security like municipal bonds do. 00:12:53 So there are some different buckets that you can put money in that might make sense and again, have a tax plan before you retire. It's good to check out all your options. It's good to look at this far and ahead as possible, 10, 15, 20 years ahead. And build that tax plan because some things take time to build and to grow and to get just into that perfect situation for retirement. 00:13:24 So just because it's tax-deferred does not necessarily mean that's a good thing for you. It's postponed until someday in the future and that someday in the future is when you pay that tax. So one thing to keep in mind that not only is the tax postponed, but the tax calculation. So in other words, today we would calculate it at today's tax brackets and today's rates. 10, 15 or 20 years from now, the calculation is going to be performed on the then tax bracket and the then deductions or expenses that you may or may not have. 00:14:05 So again, just like the slot machine, some people are going to win. I hope you do. I hope you're in a situation where you're going to win that game. But in a sense, winning the game is kind of losing the game too because I hope your wealth is growing to such an extent that you're going to have an enjoyable retirement, plenty of money to live off of, plenty of income and typically that also means you're going to be paying plenty of taxes. 00:14:37 So, to build a strategy, and again, the sooner the better for some tax-deferred, some taxable and some tax-free money, that's going to help supplement your retirement such a way that hopefully your tax bracket overall will have come down. 00:14:56 I know that's a lot to take in but that's it for today. That's all we'll talk about. So you're good to go. If you have any questions, always reach out to me at [email protected]. Make sure you subscribe to our videos. Make sure you subscribe to our podcast. Keep you informed and empowered so that you can make wise financial decisions. 00:15:19 Well, until next week on our Wealthy and Wise Wednesday. I look forward to talking to you then - take care.

00:00:47 Hi everyone! This is Dan Thompson. And I want to welcome you again to another Wise Money Tools podcast. We're also going to shoot a video on this as well. 00:00:56 Today, I thought it would be good to talk about what we'll call Debt Discipline. 00:01:00 Now, don't get too worried about it. We're not going to talk about debt and get you all depressed and all that stuff. We're really wanting to give you a lot of good reason why you should be confident and excited if you do have that debt issue, that you can do this. You can get yourself out of this situation and get yourself on that path to financial freedom. 00:01:24 I go way back to when I first read the book Richest Man in Babylon. By the way, if you haven't read that book, I highly encourage you to read it. It just gives a very good philosophy about money, debt, saving, investing and so forth. 00:01:47 And one of the first things he talks about is paying yourself and getting yourself at the top of that list so that all your money that you go and work so hard for every week in and week out isn't just gone. I really know you can do this. It's not that difficult when you put your mind to it and sadly, we get ourselves into these situations. 00:02:13 And quite honestly, I was there myself too. I remember when my wife and I first got married. Oh my goodness! I hadn't figured out what I was going to do for a career. We were literally broke and we wanted this VCR. And this VCR believe or not… You're going to laugh at this. This VCR costs $999. I don't know. That might as well have been 10,000 or 100,000 to me. 00:02:47 I didn't have a thousand dollars so what we ended up doing is we convinced ourselves that we needed it and wanted it so bad. So we decided to put it on payments and pay for it through credit. And the payments I think we're 18 or 20 bucks a month for 20 years. Now I don't know how long it was but yes, it seemed like forever, and we paid for this thing. What's funny, not funny ha-ha, but funny sad, is we probably refinanced it a couple of times during that period too. So it was just a horrible situation. 00:03:27 But the reason why we got that particular one is because my dad had won a video camera but you needed to plug it into some sort of a video source to record. The thing was monstrosity as it is but this particular VCR, you could split it apart and part of it came off and you could actually plug in a video camera and then we could go around the house and video anything with the family and our newborn son and all that stuff All the justification in the world to buy this video camera that hung like a new surround in our neck for years and years, and it was really frustrating. 00:04:18 But the reason why I tell you that is because I'm not sure I ever went through any kind of… I don't want to say a lesson or…I don't even remember my parents sitting me down and talking to me about money, debt, and saving. It just wasn't talked about. Partly because I don't think my parents, well I know my parents weren't in a position to really save or invest. My dad worked really hard but pretty much just paycheck to paycheck and I guess I thought that's just how life was. 00:04:56 But as I've obviously been in this business now for 32+ years, going on to 33 years. Yes, you see the gray hair. It's crazy what I wish I would have known as a young kid and we're definitely going to be talking a little bit more about this and maybe even creating some financial courses for parents and kids to take so that the parents can really teach their kids to save money because it's a really good thing obviously. 00:05:35 Well, there was something that came on the radio the other day. No, actually it was a video. I was watching a video of one of this really famous talk show host. His daughters getting into speaking and all that good stuff. I don't want to say anything. It was really good video. Don't get me wrong. It was about teaching your kids how to save. I thought that was awesome. The problem is I think they kind of miss the mark a little bit. They said something like you need to teach your kids to save and then depending on the things that they want to buy, it might take them a little while to save. 00:06:18 But it was all about saving to buy something and I got to thinking, "Wow, this is a problem." We shouldn't be teaching our kids to save so they can buy stuff. We need to teach them so that they can actually become investors and actually build their wealth. There's plenty of consumers out there and we don't necessarily need to teach our kids how to become consumers. 00:06:49 But what the problem is, if we teach our kids to save and build this pile of cash and then go buy something, what happens? We're literally starting over. So you go and you save, you save, and you go spend that cash. Really nothing to show for it and you start over. And it's really hard to get anywhere in life, whether its toys, cars, boats or whatever. If all you're doing is saving so that you can buy stuff, it really doesn't end up creating much wealth. 00:07:27 And of course, we know the theory, right? If you borrow money on credit to buy stuff, well then you're going to not only owe the bank what you borrowed but you've also got to pay interest. So the idea with buying cash is so you can avoid paying interest and that's obviously a good thing. But let's see what happens to a guy who saves and a guy who uses credit, a debtor we'll call him. 00:08:00 So what's a debtor do? He hasn't saved any money. He has not taken the time or the discipline to save the money and they kind of just dug themselves a hole, right? And then they slowly climb out payment after payment, finally get back to ground zero and what do they do? "Oh, I need something else." So they dig another hole. They climb out, they climb out, they climb out, back to ground zero, and they do that year in and year out and decade after decade. And you've fast forward 20 or 30 years from now, and if you look back there's a lot of holes and a lot of holes that they filled but there's nothing to show for it except for maybe a few items that they still have, that they haven't thrown away by now that they bought on credit. But nevertheless, they're still at ground zero. 00:08:52 So what would happen if we saved and we paid cash? Well, so what we do? Now we at least have some discipline and we save and save and save, and now, we build up a little pile so we're above ground zero, right? And then we go spend it and were back to ground zero and so we save and save and save. "Oh I can't wait to but that new bike or that new Game Boy or whatever" and we spend it. And we say, "Hey kids! Go be productive or here's an allowance or whatever, go make some money somehow." So they go mow lawns or they wash windows or whatever. And so, they build, build, build, build and they save and they, "Oh! I can go buy something." They spend it. 00:09:43 And that was what the message was of this video from this gal, and again, not that there was a bad message but the problem was they were basically saying, "Parents, don't just give your kids stuff. Don't just give your kids money so they can buy stuff. Have them learn how to be productive and to save and save and save so that they can go buy the things that they want. Don't just buy it for them." 00:10:16 This is a little bit off the subject but I remember when we were kids, my dad somehow would pull enough money together that we could go to Disneyland. And I grew up in Central California so it wasn't that too far to go. But we'd go down to Disneyland and as we walked in, he would hand each one of me and my brothers and sisters $10. And so, okay here's your food for the day so spend it wisely so to speak. We'd go through the day and it's so funny how things just seem to work but my brothers and sisters were just they would see something, they'd buy it. They'd see something they want, they'd buy it, and by the time it was late afternoon and going into dinner, they were totally out of money and not knowing what they were going to eat the rest of the day. Obviously, they'd go back to mom and dad, "Hey! We spend our money." 00:11:20 Somehow I don't know what would happen. I guess my dad would end up buying them something. But for whatever reason, I was just the opposite. I would come home from Disneyland with at least 5 bucks in my pocket. I would just eat the minimal amount that I had to survive and end up coming home with cash. For some reason, I just thought it would be a good idea to save this money. That was just something natural. I guess you can say, I was just born with this cheap gene in me to want to save. My brothers and sisters had no problems spending it and spend it way too fast. It was very easy for them. Obviously, my dad is just giving them the money, easy to spend. That's the same thing with our kids. If we're just going to hand them money, it's very easy for kids to go spend it. There are a thousand things they want or want to be able to do. 00:12:25 Anyway, getting back to the story, this gal is telling the parents, don't just hand your kids money, make them earn it, save it and when they save it then they can go buy something. Then they save more and they go buy something. But they kind of miss the whole boat here. What we should be teaching our kids is to save their money but maybe spend a little but invest or really save it because saving it means you saved it. It's not saving money to pile it up for 3, 4 or 5 weeks or months and then go spend it. That's not saving. That's not investing. That's just putting it on the side until you're ready to go buy something. And so, we're really not doing our kids a very good service if we don't teach them that holding on to that money to save it, to invest it for the long haul is really what saving is all about. 00:13:25 Again, if we go back to the debtor and the saver, they both end up at the same place. The debtor digs holes, gets out; digs holes; gets out; digs holes; gets out. The saver builds up, goes down; builds up, spends it; builds up, spends it. But they're both at the end back at ground zero. They never got anywhere. We need that saver to save and to invest and to put some money away so that they got something to show for it other than like I say that one or two items that they might have left, as everything else has depreciated, become worthless and been replaced. So it just really doesn't make sense. 00:14:12 So what if we taught our kids to, "Hey! When you go out and you earned some money, how about you save 10 or 20 or 50% of that? Earn 10 bucks. Save half of it. Invest half of it. Earn 20 bucks, save 10. Whatever that percentage is that you feel comfortable with your child but then let him actually see what's going on out there with their investments as they save it and they build it and they grow it and maybe, we can change a little of what America probably struggles with most, and that is money, saving and investing. We tend to save the least amount even in our 401(k)s. It's really interesting. There's a study done that people save the least that they have to and they go for the greatest amount of return so that they can actually save less. And unfortunately, those great of returns have not necessarily panned out over a 2 or 3 decade period of time. 00:15:20 But let me just ran a couple of numbers pass to you. Let's say, we'll just take, little Johnny is 12 years old and he has a way to go out and earn some money or again maybe it is an allowance, maybe it's working around the house, making his bed, cleaning his room, helping with the dishes, taking the garbage out, mowing the lawn, whatever that might be, so that they can get an allowance and have a little responsibility with his money. As they get older, again they might be able to go mow the neighbors' lawn or to go wash the neighbors' windows and you never know. 00:15:54 But let's just say that Johnny is 12 years old now. Old enough to maybe make $40 or $50 a month. I don't know. Somewhere in there. But let's just say he could save $25 a month from ages 12-18. Okay, so just those short 6 years and then from 18-23, he got little bit better job. Maybe he's working fulltime as well as going to school and now he can save 50 bucks a month. So he saves 25 bucks a month for a while and now he's been able to save 50 bucks a month. And let's just say he can do that through, I don't know, age 22 or 23. And then after age 23, he's starting to get into a little more gainful employment and now he can save $250 a month and he does that for the next 20 years. 00:16:49 And then at age 43, he's really entrenched in his career, he's had some raises along the way and now he can save $500 a month. So never in his history has he saved more than $500 a month. He started with 25, grew that to 50, grew that to 250, grew that to 500. But at age 65, if he just has a minimal return, I just use the average market return to 7% and if you had that kind of return, he'd have $1.7 million. Can you believe that? Being almost worth $2 million and never save more than $500 a month. 00:17:26 And I know a lot of you who are watching this video, especially if you're in your 40's and 50's. There's a good chance your saving $5, $6, $7,000, $10,000 a year or more just in your 401 (ks). You might have been even maxing those out and then you're saving more on top of that. So it's not uncommon in your 40's and 50's to be able to save $20, $30,000 dollars a year. And so, you can imagine what that would obviously grow into as well. 00:18:00 So now, let's compare this to—Johnny's got a buddy name Dag and Dag just spends everything and he's got some toys around and some things to play with but he never saves. And then at age 30, he finally realizes, "Oh-oh I've got nothing. I better start saving some money." So at age 30, he starts saving $500 a month and he does that until age 65. So for 35 years, he saves $500 a month. Do you know how much money he has? He only has $475,000. He's got $1.3 million less than Johnny does because Johnny saved a few bucks while he was young and there's nothing like compounding interest. There's nothing like the time value of money. 00:18:55 Einstein says something like "Compound interest is the 8th wonder of the world because it truly does do some wonderful things with money if you give it time and let it grow." So here's little Johnny, doesn't save a whole lot of money while his young, never saves more than $500 a month, ends up with just under $2 million in net worth in wealth that he can enjoy a little bit, better retirement, right? And Dag doesn't do anything until he's 30, he saves $500 a month till he's 65 and still only ends with $475,000. 00:19:36 So moral of the story, again, is let's not just teach our kids to save so they can spend and buy some kind of toy that's going to be worthless. Although those things, I'm not suggesting those things aren't fun and they shouldn't have a few. Don't get me wrong there but you want to do is also give them that desire, if you will, to save a few bucks, to really see it grow and compound and to really do everything you can not to spend it and let the magic of compounding interest do its thing. 00:20:14 So that's it for this podcast. I hope it was good. I hope it's at least something to think about. Main thing is just be very cautious of how we spend, save or spend. And just because we're paying cash is not a way to wealth. We really got to save and invest to build that wealth. 00:20:35 Well, as always, if you have any questions, email them to [email protected]. If you're ever interested in a strategy session where we can get together and get together online and talk about some of the objectives and goals that you have and maybe some easier ways to get there, happy to do that as well. In the meantime, subscribe to the podcast. Subscribe to the videos. Make sure you don't miss any and we're trying to hit this every Wednesday for our Wealthy and Wise Wednesday. So until next Wednesday. Hope you have a great week. Take care.

This is Dan Thompson and welcome again to our Wise Money Tools podcast. I want to ask you a question here. So if you could go back in time and see yourself, let's give ourselves, 15 or 20 years—what advice would you give yourself? Sometimes I think, if I could go see myself 20 years ago, what advice would I give myself? You remember that show Back to the Future II? This is where Biff, since he goes forward in time, and he gets this almanac of every sport winners, the winners of every sport. Then when he goes back to his normal time, he's able to bet the winners for the next decade and becomes a cagillionaire. So, barring being able to go back and tell yourself that hey, buy Google when it first comes out or Yahoo or Amazon or something like that, nothing really financially striking as that. But just what kind of advice would you give yourself? Maybe something on as far as marriage, be a better person. I don't know. Take out the trash, whatever that is, or maybe something like cash. You buy a lot of cars, maybe cut down on your cards and save some money or buy a smaller house or invest and save more. Ok, now, here you are at your particular stage in life. Are there some things you wish you would have done differently? Did you over commit to debt? Did you under commit to investments? Were you too risky with your investments? Did you not take advantage of opportunities as they came along? So, what would that look like if you could go back in time and give yourself some advice? What would you do differently? Well, sadly, none of us can go back in time. All we can really do is start from here. Doing what we wish we would have done maybe years ago, but we can at least get started at this point. Let's not get too discouraged over some of the mistakes that we might have made, but let's be encouraged that we live in a country, we live in a time where we're able to make those changes and do better. I always find it interesting when I meet people. One of the things that seems to plague everybody at some point in their life is that darn debt—whether it's a house forever, too many cars, credit cards which are a killer. But that seems to be something that I think if people could go back and change and do differently, they would. Maybe they would have to do without something for another year or two while they save or got their finances in order, who knows. But that debt just seems to be a burden that a lot of people just get tired of carrying around. Here's my challenge to you for this week. Go back and think about some of the things that you would have done differently, some of the mistakes that you might have made, and write them down. And then just see if there are ways that you can combat that for the future. Make sure that before you go into debt or buy that next car or before you decide how much you want to invest and where to invest it. That you're really thinking it through and making a good strategy and a game plan. Because again, we don't have that winners' almanac where we can go back and do everything perfectly but we can tell our self, right now, right today, what we want to do differently going forward. So this is a short podcast, I know, but it kind of struck me. It's something that might be useful to everybody out there to think about what they can do going forward a little bit differently. Well, that's about it. I will talk to you on our next podcast. Until then, take care.

What is Sequence of Return? Does it matter? Find out what happens when it's time to retire and withdrawal money for income. You may be surprised at how the markets can either give or take away years of income. Be prepared by understanding the risks, and the gamble of sequence of returns.

I wish I kept some kind of count as to how many people I've talked to over the past nearly 33 years. I know it's in the thousands for sure. What is interesting is that even though there are some common themes, frustrations, goals and objectives, that run through people's financial situations, everyone is just a bit different. I realized early on that there is no such thing as cookie cutter financial planning. Because I work all over the country it's even more interesting to hear about how people live in different states, different environments, different weather conditions, different careers, different incomes, different family sizes, age, health, interests, hobbies, and the list goes on. So, let me tell you a story about a Cherry Tree. There was a real estate agent who had been showing a particular home several times. It was a nice home, but no one seemed to want to pull the trigger on buying it. After showing for what seemed to be the 100th time he was talking on the phone with a couple who were interested in looking at it as well. In getting to know them a bit better before they met, the wife had mentioned how she was going to miss her old home with the mature trees and beautiful spring as her trees blossomed. She really loved her yard, but it was getting too much for them which is why they were moving. The real estate agent hadn't really thought much about this before, but after she mentioned that he remembered that this home had this strikingly beautiful tree in the backyard. It was a Japanese Cherry Blossom Tree. Have you ever seen one? Japan gave 3,020 cherry blossom trees as a gift to the United States in 1912 to celebrate the nations' then-growing friendship. They are beautiful tree when in full blossom. So, the agent met this couple at the home. But this time, instead of going inside right away, the agent had the couple look through the front door glass which looked all the way through the home and out the back window where stood this beautiful blossoming tree. The wife practically gasped at the site. Oh, look at that tree, she said to her husband, it's simply gorgeous. As they toured the home the agent pointed out several locations where the tree could be enjoyed. One from the kitchen window, one from the office, and one from a large window over the bathtub in the master bedroom. That was it, the house was fine for its size, and location, but the tree took them over the edge and they bought the home. Now you might be thinking, why is Dan telling us this story about Japanese Cherry Blossom trees? Well, for a couple of reasons. Often times it's what something does for us that is more important than its name or it's features. As you look at investments, you should look at that investment from the perspective of what an investment can do for you, not so much what the investment is. I can't tell you how many times I've heard something to the effect of, "Oh, we can't look at _______ we heard those are bad." Fill in the blank…. Or "that ___________ investment isn't for us; our friends have one and they say to stay away from those." That may be true. You see, often times advisor sells something and have no idea if that's your cherry tree or not. It may be a great investment, for some, but if it doesn't fit you or your objectives, that can be a miserable place to put your money. In this case, the Cherry Tree is what made them happy, not so much the layout of the garage (which may have been a selling point for the husband right?) or the color of the paint. I find that some people want a particular investment because they think that's what they are supposed to have and avoid another particular investment because they heard or read something negative about it. I can assure you this. In the technology and information world we live in, you'll find both good and bad about every investment you can think of. What we all have to do is find our Cherry Tree. That takes whatever investment we end up with, a good fit. What makes you really happy with an investment? Will it be because it has growth potential? Will it be because it is safe and you can't lose money? Will it be because it has tax-advantages? Will it be because it provides a lifetime of income that you can't outlive? Will it be because you want to have access to it, so you can buy a business or invest in an opportunity? Will it be because you simply want to retire, never worry about money again, and know it's going to last you the rest of your life? See everyone has a different cherry tree…..what may be great for one, may not be so much for another. So, what's your Cherry Tree? If you could design a product or investment that you think would work best for your situation, what would that look like? Would you put the emphasis on safety, growth, income, tax-advantages, liquidity? It's my job to talk to you, to find out what your cherry tree is and then to match up the most appropriate savings or investments that fit. You know, what is interesting is, after all these decades in the business, there really is no such thing as the perfect investment. I mean everything has a give and take to it. What makes it close to perfect for you is when the investment meets as many of your objectives as possible – no matter what it's called. That means we found your Cherry Tree. And by the way, you can have a few Cherry Trees, each with different objectives, and that's fine too. Some money for this tree and some for that tree….if that's what works – great! The main thing is quit thinking this investment is good or this investment is bad because you know someone who said it was bad or you heard someone at work rave about it. Well, that's it for this podcast. This was a great topic and I hope you caught a glimpse of what you really need to do to be a happy camper with your investments. Find what matches you best, and you found your Cherry Tree. As always, if you have any question, shoot me an email to [email protected] And if you'd like to take advantage of our free strategy session where you can ask questions and get a better feel for how we do things, maybe even find you a Cherry Tree or two, feel free to request that in your email as well. I'll try to answer your questions as quick as I can and maybe even use them on a future episode if it's a question that a lot of people are wondering about…. Well, until next time….take care!

A few years ago, I was talking with a couple who were about 2 years away from retiring. They had no idea how they were going to live. Don't get me wrong, they had a pile of money and lots of assets, but no plan as to how or where the income they needed would come from. As we looked at their investments and assets literally everything except about $50,000 was invested in the markets, all at risk, and really nothing that would produce a consistent income. The $ 50,000 in cash was a small percentage of their overall net worth. They had done well over the years, he had a good job, above average pay, but now, if they had a major market set back, it could negatively impact their retirement – massively. I asked them what their most important objective was and they said, to have an income they could rely on. They wanted to find a safe place to invest and get income from that they wouldn't have to worry about. They wanted to travel and enjoy retirement without worrying about income and how long it would last. He didn't have a pension through his work, the company had opted for a 401k instead. At that point, it was all invested in the mutual funds chosen by the 401k. Most were about average, nothing stellar, and none of them were protected in case of a market decline. Then he made a very interesting comment – he said, we'd rather take our money from an ATM rather than a slot machine. I loved it, what a great visual - I thought that was a perfect analogy of what so many people face when planning for retirement. You may get lucky, and the slot machine might pay off, or you could find yourself pulling your pockets out, wondering where'd your money go? On the other hand, there are ways, that you can assure your income will come from an ATM instead. Of course, I'm not necessarily encouraging you to put your money in a CD and literally take it from an ATM, but you can have the safety and predictability of an ATM. I often talk about what I call the danger zone. This is the 5-7 years before you retire and the first 5-7 years after you retire. If you've got a pile of money, and this money needs to last as long as you do, then you need to be aware of the danger zone. It's during the danger zone period that you simply can't lose money! If half your pile of money goes poof due to a market decline, it's more than just a setback, it could be devastating and implode your retirement plans. We saw it in 2008. Many who wanted to retire had to put it off as their 401k turned into a 201k when they lost half their retirement funds. It's during that danger zone period where you can redirect where your assets are, and protect them. You can also set up guaranteed income for life – if that's something that's important to you. The earlier you get these plans going, the better. There are several ways to do this, and because not every situation is exactly alike, don't presume that because so and so did this or that, that the same strategy will work for you. The other thing I'll caution you on is not to be biased against a particular product or investment. Often times we hear other opinions or experiences and then assume if it did or did not work for them, it will or won't work for us. That may be true, but as an example, if everyone fit in the same box, then there would be just a few investment's or products to choose from. However, products and investments vary because every situation varies as well. I can tell you that with EVERY product or investment – there is one truth. It can be the best or the worst – depending on the situation. If it works, fits, and accomplishes an objective – then great, I really don't care what it's called – it makes sense for your situation. If that same exact investment, makes no sense and puts you in a worse situation – then that same investment is a horrible investment for you. See, often times advisors don't understand then they try to make a square peg fit in a round hole. They are more interested in a product fitting you, rather than you fitting a product. Now, there are some bad investments, some that I'd run from like the plague and never touch. However, there are others that are great investments for some, but terrible for others. There is no such thing as the perfect investment. What you have to do is understand the pros and cons, and find the investments that give you the most pros! Use investments that accomplish the majority of your objectives – then you've got a good fit. What's hard for me to watch is when advisors don't understand the best fit and sell you something that simply won't work for you long term. I can't tell you how many times I've had to tell people, you know what, this particular product or investment strategy really doesn't work well for your situation and then list the reasons why. When you have the wrong investment or if the investment is way too risky, well that's slot machine investing. When it works, when it fits, when the income is solid and predictable the money is safe, then that's taking money from the ATM. So, how do you know if you are taking money from a slot machine or an ATM? Would it be kind of nice to know? Oh, and the sooner you can plan, the longer you have, the more money can come from the ATM. Way too many people, whether on purpose or not, take the slot machine route. They don't have to. With just a bit of knowledge, coaching, and having someone who helps them assess their best route they can live off the ATM too. And that makes for a happy and stress-free retirement! Well, that's about it for this video. As always you can email your questions in. I get a high volume of questions, which is great, so don't hesitate to ask. Send them to [email protected]. Till next time, Take Care!