Leibel on FIRE: Recent Episodes
Leibel Sternbach, EA & Freddie Bell
The Financial Independence and Retirement show dedicated to helping you build the life of your dreams, as fast as possible, with as little stress as possible
One of our long time readers submitted a great question..."How do you differentiate between gambling and investing?" I love this question for some many reasons...it really gets to the heart of investing and financial security.
Lady Luck is a Brutal Mistress You see, my dad was a bit of a card shark. He was all about finding the perfect strategy to beat the house at blackjack. He'd buy systems, software, and even trained himself to count cards. He was convinced that with the right system he could beat the house...Now, I'm not saying this is the right way to go about things, but it does bring up an interesting comparison to investing.
See both gamblers and investors ride a roller coaster. Both will talk about "paper losses" and the whims of lady luck aka the "market." And on the surface, there are folks out there who make their living gambling. They've got their systems, their strategies, and they seem to consistently bring in winnings. Heck, the IRS even has a box on your tax return for gambling winnings. But does that make it a solid financial strategy? Well, not necessarily.
The thing about gambling is that it inherently involves a certain amount of chance. And that's where the difference lies. Is your investment strategy based on chance, or is it based on statistics, probability, and a certain amount of financial savvy? Take a second a think about it. Often the first question I ask investors is, "what is your strategy?"
When you're investing, you want to be sure that your strategy isn't based on the whims of the market. It should be based on facts, logic, statistics, and probability. Without a sound strategy that is designed to win in both the good and bad times...you might as well be gambling.
Investing Does Not Involve Chance When it comes to investing, I don't see the stock market as a lottery ticket. It's not a game of chance where I might make money, or I might not. When I put my money into the stock market, I know I have a near certainty of making money. In fact, over the long run, it's pretty much guaranteed.
But folks, that certainty doesn't come from luck.
It comes from understanding the stock market, understanding what drives its growth and value. It's easy to go in there and pull the lever, buying this stock or that stock without any rhyme or reason. But if you do that, you could end up buying losers every single time. You could lose all your money. You could go bankrupt.
But if you're smart about it, if you play the odds in your favor, you can win over the long run. And that's the advantage you have in the stock market that you don't have in a casino. In a casino, the games are rigged against you, given enough time the house will always win. But in the stock market, you can be the house...in fact, everyone can be the house...because the stock market isn't a zero sum game. The stock market does not require winners and losers.
Isn't The Stock Market Over Priced? Often times, I get the question, "But, Leibel, Isn't the stock market overpriced? Isn't it going to come crashing down?" And here's the answer I always give...and it's really one of personal time horizons.
Over the long run, as long as the United States is a growing concern, as long as we have a functioning economy and people are having babies, I know the stock market is going to continue to grow. It's a product of our society, of our world.
When people have babies, those babies consume products and goods created by companies. Those companies raise money from those same people. Hence the price goes up, the value goes up, and the stock market grows. It's a beautiful cycle, and it drives the growth of the stock market. In fact, indirectly, this overall growth is the primary job of the Federal Reserve. Their number one job is to ensure that our economy grows at a sustainable rate...which is great.
Of course, if we zoom in and try to pick the next Uber, the next Tesla, the next Facebook, that's gambling. Statistically speaking, you're not likely to get that right. Instead, we need to be betting on people. We need to be betting on the human race as a whole, not on individual companies.
When you start looking at the broader strokes of how economies work, that's when investing stops being gambling. That's when it becomes a strategic, calculated move to secure your financial future. And folks, that's a bet I'm willing to make every single time.
A Failure to Plan is Planning to Fail Another key difference between gambling and investing, is in the plan. Investors have pre-written plans that tell them exactly when to hit it and when to stay. Or investor speak, they have an Investment Policy Statement. A policy that says, what they are doing, why they are doing it, when they will harvest their gains, and when they will take their losses.
Don't mistake your investment policy for a gamblers plan. Gambler's have plans to...the difference is that your investment policy needs to be rooted in reality. It needs to be based on a probable outcome for the future. You need to have that statistical probability that guides your vision of what the future will look like. Your investment policy statement should outline what you need your money to do, how you're going to make it do that, and the statistical probability of it happening.
But here's the kicker, folks. Your policy also needs to tell you when you're wrong. Because let's face it, there are going to be times when we're wrong. When interest rates start increasing for the first time in 20 years, when a global pandemic makes every developed nation rethink their reliance on third-world countries, or when a major world power decides to go to war with a smaller country. These are all events that can make us reconsider our investment outlook.
So, your investment policy needs to account for these potential changes. It needs to be a part of your plan, and that plan needs to be based on probable outcomes for the future. Because at the end of the day, investing isn't about predicting the future. It's about preparing for it. And having a solid, reality-based investment policy is a crucial part of that preparation.
Your Guide To Success Now folks, there are a couple of common mistakes I see when it comes to investing.
1. Have a Plan (Investment Policy)
The first one is not having a plan at all. That's a big no-no. You wouldn't set off on a road trip without a map, would you?
2. Define Your Needs and Comfort Zone
The second mistake is being too simplistic with your plan. I've seen people who say, "I've got my 401k, I'll just pick a target date fund and that's it." Now, there's nothing inherently wrong with that. As long as you're saving for retirement, you're on the right track. But what you're really doing is outsourcing your responsibilities to someone else who doesn't know you, doesn't care about you, and won't be impacted if their strategy doesn't work for you.
When you're creating your investment policy statement, you want it to be a reflection of you and your needs. And I'm not just talking about your financial needs. I'm talking about your emotional needs too. What makes you feel safe? What will make you feel like your retirement is worthwhile? These are questions your investment policy needs to answer.
3. What Will Trigger a Revaluation?
And here's the thing, folks. Your plan needs to be personalized for you. It needs to outline the things that will cause you to reconsider your strategy. And it needs to be something you're comfortable with. Because if something unexpected happens, you need to know what to do. You need to have a process to follow.
That's what's going to keep you from gambling with your money. It's what's going to help you make smart decisions. Because at the end of the day, investing isn't just about making money. It's about making the best decisions for yourself and your loved ones. And having a solid, personalized investment plan is a crucial part of that.
In Summary
So folks, as we wrap up our chat today, remember that investing isn't a game of chance. It's a strategic, calculated move to secure your financial future. It's about making the best decisions for yourself and your loved ones. And to do that, you need a solid, personalized investment plan.
Don't make the mistake of not having a plan or oversimplifying it. Your plan should reflect your needs, both financial and emotional. It should guide you when unexpected events occur and help you stay on track. Because, at the end of the day, investing is about preparing for the future, not predicting it.
Remember, folks, the key to successful investing isn't about beating the house or picking the next big winner. It's about understanding the market and using it to create the lifestyle you deserve.
Until next time, happy investing!
Communication is key. It is key to a good marriage, it is the key to a good work-life balance. It can even be said that communication is one of the essential skills in life.
Today, we are going to talk about one of the darker corners of finance. One of those areas that we don't often talk about, but is just as crucial for our happiness...living wills.
What is a Living Will? A living will, often referred to as an advance directive, is a legal document that outlines your wishes regarding medical treatment in the event that you become incapacitated and cannot communicate your preferences yourself. Unlike a last will and testament, which provides instructions about the distribution of your assets after your death, a living will focuses on healthcare decisions while you're still alive but unable to make those decisions.
In the unpredictable journey of life, unexpected events can render us unable to voice our choices, especially concerning medical interventions. This is where a living will steps in, acting as your voice when you might not have one. It can specify whether you want life-sustaining treatments, resuscitation, tube feeding, and other critical interventions.
Having a living will is about taking control.
It's about ensuring that your wishes are respected and that your loved ones are spared the agonizing uncertainty of making life-altering decisions on your behalf without clear guidance. It's a conversation that might be uncomfortable now but can provide immense clarity and peace of mind in the future. Just as we communicate our needs and desires in relationships and work, it's vital to communicate our wishes for our own health and well-being. In the realm of personal finance and life planning, a living will is a testament to the power of proactive communication.
Living Wills Are Different In Each State Indeed, when we talk about any legal documents, especially in the context of end-of-life decisions and healthcare directives, we're referring to a complex framework that encompasses a range of legal documents and provisions. Each state has its own set of statutes that govern these matters, and while there are similarities, the nuances can be significant.
In the context of Living Wills, there are really a number of documents and directives that we'd want to get in place. Speaking with an Elder Law Attorney is a great place to start. Depending on your state, you may need to create one or more of the following:
1. Living Wills: As previously discussed, this is a directive that outlines your wishes regarding medical treatment if you're unable to communicate them. It can specify treatments you do or do not want.
2. Durable Power of Attorney for Health Care (DPOA-HC): This document allows you to appoint someone (an "agent" or "proxy") to make medical decisions on your behalf if you're incapacitated. The appointed person's authority can be as broad or as limited as you specify.
3. Do Not Resuscitate (DNR) Orders: This is a request not to have cardiopulmonary resuscitation (CPR) if your heart stops or if you stop breathing. Some states have specific forms and procedures for DNR orders.
4. Physician Orders for Life-Sustaining Treatment (POLST): This is a more detailed directive than a DNR and can include instructions about CPR, ventilators, antibiotics, feeding tubes, and more. It's meant to guide emergency personnel and is often used by people with serious illnesses. Some states or hospital systems require these forms to be on file in addition to any living wills. Often times, each institution will have their own forms that need to be filed in order for living wishes to be honored.
5. Anatomical Gifts/Organ Donation: Many states allow you to specify organ and tissue donation preferences in your advance directives or on your driver's license.
6. Mental Health Directives: Some states allow for directives that specifically address mental health treatments, including preferences about medications, admissions to facilities, and other interventions.
7. Guardianship/Conservatorship: If a person becomes incapacitated without a DPOA-HC, the court might appoint a guardian or conservator to make decisions on their behalf.
8. Recognition of Out-of-State Directives: While each state has its own laws, many will recognize the validity of directives created in another state as long as they were created in compliance with that state's laws or are in compliance with the new state's laws.
9. Digital Access: Some states have provisions that allow you to grant your healthcare proxy or another designated person access to your digital assets, like your electronic medical records.
Given the complexity and the stakes involved, it's essential to approach these documents with care. It's not just about having the paperwork in place but ensuring that they truly reflect your wishes and values. Regular reviews and updates, especially after major life events or health changes, are crucial. And, as always, consulting with professionals, whether they be legal experts, doctors, or spiritual advisors, can provide invaluable guidance in navigating this intricate framework.
What Is a Health Proxy A health proxy, often referred to as a "healthcare proxy" or "medical proxy," is a legal document that allows you to designate another person (called an "agent" or "proxy") to make medical decisions on your behalf in the event that you become incapacitated or are otherwise unable to make these decisions for yourself. The person you designate as your health proxy will have the authority to speak with doctors and other healthcare providers, review your medical records, and make decisions about tests, procedures, and treatments.
Here are some key points about a health proxy:
1. Scope of Authority: The authority granted to the health proxy can be broad or limited, depending on how the document is drafted. You can specify which decisions the proxy can make and under what circumstances.
2. Difference from Living Will: While both a health proxy and a living will pertain to medical decisions, they serve different purposes. A living will outlines your specific wishes regarding medical treatments, whereas a health proxy designates a person to make these decisions on your behalf. It's possible to have both, and in many cases, it's advisable to do so.
3. Choosing a Proxy: It's crucial to choose someone you trust, who understands your values and wishes. This person should be willing and able to advocate for your preferences, even if they face opposition from medical professionals or family members.
4. Alternate Proxy: It's a good idea to designate an alternate proxy in case your primary choice is unavailable or unwilling to act when needed.
5. Duration: The health proxy remains in effect as long as you are incapacitated, unless you specify a particular time frame or revoke it.
6. Revocation: You can revoke or change your health proxy at any time as long as you are mentally competent. The revocation process typically involves notifying your healthcare provider and proxy in writing.
7. State Laws: The requirements for creating a valid health proxy vary by state. Some states require witnesses or notarization, while others have specific forms.
8. Communication: It's essential to discuss your medical preferences with your designated proxy. This ensures they are well-informed and can confidently make decisions that align with your wishes.
Having a health proxy is an integral part of advance care planning. It ensures that someone familiar with your values and desires is in a position to make crucial decisions during moments when emotions run high and clarity is paramount.
Wills vs Living Wills I think it's important to understand that there's a big division between documents that give people authority while we're alive, and documents that give people authority when we're no longer around.
Generally speaking, the same document cannot be used for both circumstances.
I could have a Will that says that when I pass, my wife can make all financial decisions.That document only applies when I'm no longer around. While I am still alive that document doesn't come into play. It's just a piece of paper. It's not even worth the ink that it's printed on.
Let's delve deeper into this division:
1. Authority During Life:
- Living Will: This document outlines your medical preferences should you become incapacitated. It speaks for you when you can't but only concerns medical decisions.
- Durable Power of Attorney (DPOA): This grants someone the authority to make financial and other decisions on your behalf if you're incapacitated. It's active during your lifetime and becomes void upon your death.
- Healthcare Proxy: This designates someone to make medical decisions on your behalf if you're unable to do so. Like the DPOA, it's only valid during your lifetime.
2. Authority After Death:
- Last Will and Testament: This comes into play only after your death. It outlines how your assets should be distributed and can appoint an executor to manage this process. The executor's authority begins after your passing.
- Trusts: These can be structured to distribute assets before or after death, depending on the type of trust and its specific provisions.
What Is a Power of Attorney (POA) A Power of Attorney (POA) is a legal document that allows one person (the "principal") to grant authority to another person (the "agent" or "attorney-in-fact") to act on their behalf in specific matters. This can include making financial decisions, handling real estate transactions, or making healthcare decisions, among other responsibilities.
In the eyes of the law, a person with a POA is no different than the actual person. This can be extremely helpful for a spouse, or children that is handling matters for an incapacitated spouse or parent. This can be critical in helping ensure that bills continue to get paid or legal proceedings are handled in a timely fashion.
The Different Types of POAs 1. General Power of Attorney: Grants the agent broad powers to act on behalf of the principal. This can include handling financial transactions, entering into contracts, buying or selling real estate, and more.
2. Limited or Special Power of Attorney: Grants the agent authority to act on the principal's behalf for a specific purpose or during a specific time frame. For example, a person might use a limited POA to give someone the authority to sell a particular piece of property on their behalf.
3. Durable Power of Attorney: Remains in effect even if the principal becomes incapacitated. Unless a POA is specifically designated as "durable," it will automatically end if the principal becomes mentally incapacitated.
4. Springing Power of Attorney: Only becomes effective upon the occurrence of a specific event, usually the incapacity of the principal. It "springs" into action when the specified event occurs.
5. Medical or Healthcare Power of Attorney****: Allows the agent to make healthcare decisions on behalf of the principal if they become incapacitated. This is different from a living will, which specifies the principal's wishes regarding end-of-life care.
6. Financial Power of Attorney: Specifically grants the agent authority to manage the principal's financial affairs, including banking, investments, taxes, and other financial matters.
Important Considerations When Creating a Power of Attorney
- Trust: Because the agent will have the authority to make important decisions on the principal's behalf, it's crucial to choose someone trustworthy, responsible, and aligned with the principal's values and wishes.
- Revocation: A POA can be revoked by the principal at any time, as long as they are mentally competent. The revocation should be done in writing and communicated to the agent and any relevant third parties.
- State Laws: The requirements for creating a valid POA vary by state. Some states may require the document to be notarized or witnessed.
- Duration: Unless specified otherwise, a POA generally remains in effect until it's revoked, the principal dies, or, in the case of non-durable POAs, the principal becomes incapacitated.
In summary, a Power of Attorney is a powerful legal tool that allows individuals to ensure their affairs are managed according to their wishes, even if they are unable to handle them personally. Given its significance, it's advisable to consult with a legal professional when drafting or updating a POA.
Trusts and Medicaid No discussion about living wills would be complete without talking about asset protection trusts in the context of medical bills, specifically medicaid.
*Asset Protection Trusts*:
An asset protection trust is a type of irrevocable trust designed to hold a person's assets to protect them from creditors. When structured correctly, these trusts can help individuals qualify for Medicaid while preserving their assets for their heirs.
*Medicaid and Asset Limits*:
Medicaid is a means-tested program, meaning eligibility is determined based on income and assets. Each state has its own thresholds, but in general, to qualify for Medicaid's long-term care benefits, an individual must have limited assets.
*How Asset Protection Trusts Work in Medicaid Planning*:
1. Irrevocable Trusts: For Medicaid planning purposes, the trust must typically be irrevocable, meaning once assets are transferred into the trust, the individual no longer has control over them and cannot easily change the trust terms or dissolve the trust.
2. Look-Back Period: Medicaid has a look-back period (typically 60 months or 5 years) where they examine asset transfers. If assets were transferred to a trust or another individual during this period, it could result in a penalty or disqualification period for Medicaid benefits. It's crucial to plan early.
3. Protection from Creditors: Assets in the trust are generally protected from creditors, including Medicaid, ensuring they aren't used to pay for medical bills and can be passed on to heirs.
4. Income and Principal: While the principal of the trust is protected and not counted as an asset for Medicaid eligibility, any income generated by the trust's assets might be considered available for medical expenses.
5. Trustee: The individual cannot be the trustee of their own asset protection trust for Medicaid purposes. A trusted family member, friend, or professional can be appointed as the trustee.
*Other Considerations*:
Medicaid rules are complex and vary by state. It's essential to consult with an elder law attorney or estate planning professional familiar with Medicaid planning to ensure compliance and maximize asset protection.
- Holistic Approach: When considering an asset protection trust, it's essential to look at the broader financial and estate plan. Consider factors like tax implications, potential future needs, and the desires of heirs.
In conclusion, while living wills address an individual's medical wishes, asset protection trusts play a crucial role in ensuring that an individual's assets are preserved in the face of mounting medical bills and potential long-term care needs. Proper planning can provide peace of mind that both healthcare wishes and financial assets are protected.
I strongly suggest consulting with Medicaid attorneys, especially if Medicaid is a potential consideration for your future.
Incorporating powers of attorney is essential for your estate planning. Your financial advisor should lead this discussion and link you with local professionals in your state. These experts will assist in drafting the necessary documents to ensure they align with your wishes.
It's crucial to note that regulations vary not only by state but also by individual hospital networks. While a state might have specific guidelines, a hospital might have its own set of rules. Therefore, it's beneficial to work with someone who is familiar with these intricacies and handles them regularly to guarantee everything is done correctly. As always, stay safe, and if you have any questions don't hesitate to reach out.
In the world of finance, we often talk about various kinds of risks: market risk, credit risk, operational risk, and so forth. However, today I'd like to take a moment to discuss a risk that's less spoken about in our circles but has grave financial implications: the Romance Scam.
According to the Federal Trade Commission, scams cost Americans over $8.8 billion dollars. What do you need to know and what are the simple steps that you can do to protect yourself?
How are people falling for these scams at such an alarming rate?
Well folks, I sure hope you're buckled up because we're diving deep into this today. Firstly, let me tell ya, we should never underestimate the power of scams. See, scam artists are a cunning bunch. Their craft is ancient, and they've honed their skills to certain perfection.
Take my mother-in-law, for example - she's a retired CPA, her specialty was being an auditor...ie her job was to catch the people stealing. She lives and breathes numbers...But even she fell victim for a romance scam!
What is a Romance Scam A romance scam is a deceptive practice where fraudsters feign romantic intentions towards a victim, gaining their affection and trust, only to exploit them financially. It's like buying a bond that promises great returns, but instead of yielding profits, it erodes your principal.
How does it work?
The Introduction: Just as you'd be introduced to a new investment opportunity, the scam often begins on dating websites or social networking platforms. The scammer creates a fake profile, akin to a glossy investment brochure full of misleading information.
Building Trust: Once contact is made, they'll work diligently to earn your trust. It's akin to those investment seminars where they wine and dine you, presenting rosy projections. Only, in this case, they're selling a fake future, not stocks.
The Ask: Once they believe they've got your trust, the scammer will concoct a financial emergency. It might be a sudden medical bill, a business opportunity, or even a chance to meet in person. The stories are as varied as they are heartbreaking.
The Loss: Victims, believing they are helping a loved one or a future partner, transfer the money. Sadly, this "investment" will never yield returns, and often, the scammer disappears, leaving the victim both heartbroken and financially damaged.
Why People Fall Prey to Scammers We gotta rewire our thinking here. These ain't your average Joe con artists, you know. This isn't the old Sting movie we're talking about. Gone are the days when scams were conducted by individual con artists. Today, scams are backed by organized syndicates, some with hundreds of employees and vast resources. It's almost like a formalized industry, and they're incredibly good at what they do.
These scammers are full-on illicit corporations, hundreds of people, and would you believe it...even governments, like North Korea, raking in money by the truckload from scams. Their sole mission: to make you part ways with your hard-earned cash.
See these scammers, they are smart and sophisticated, they’re not running up to you and saying, "Hey, hand me a hundred bucks, and it's gonna magically turn into two hundred!". Nope, they’re subtler than that. They got their ways, their tricks to make everything look legit, to make you feel like you're making a rational choice. That’s the catch right there!
These scammers, they know our brains better than we do, quite literally. Over time, our brains are hardwired to function a certain way. We've been taught to trust, to make connections, to believe in the good. The scam artists, they leverage this predisposition to their advantage. They manipulate us into a place where we believe that we are not being scammed. Clever, right?
How to Spot a Scammer So, I hear you asking, Leibel, how do we spot these scams? My friend, there are two ways these vultures operate.
The first one, they come at you with something that looks familiar. Might even look like it belongs to your daily grind. You’re minding your own business, then bam! An email from your company's head honcho asking to foot a bill lands in your inbox. Feels legit, right? Until your money ends up lining their pockets instead of your vendor's.
They’ll make you believe that it isn't a scam. For example, the latest scam is to send an email from your bank or saying there's been a fraudulent transaction and they want to refund you money, or confirm. You hit the link and bam...they have instant access to your accounts. Or worse yet, they install malware and connect to your computer after-hours, logging in to your saved accounts, banks and stealing all your valuable information.
So folks, here's the one thing you’ve got to remember - always be skeptical. Get an unrecognizable charge on your credit card? Dispute it! An email that rubs you the wrong way? Ignore it! Always remember, if you call the number in that email, you're falling right into their trap.
The point is, these scams bank on us letting our guards down. They look just like something we'd expect, and we end up taking actions that under normal conditions seem perfectly fine...but when initiated by them cause us a world of pain.
How Your Advisor Can Protect You A good financial advisor is really the first line of defense, we're like your friendly neighborhood watch, keeping an eagle eye on your hard-earned bucks. Now, I'm not one to toot my own horn, but we've got the experience, we've got the know-how. We don't just sit around crunching numbers and planning budgets all day. No, no. We're all about building that trust, becoming your go-to confidants. We'll be there, playing the devil's advocate if we ever sense you’re walking into what could be a bad situation.
And folks, trust me when I say, you want us in your corner. You'd be surprised how quickly these scams can suck you in faster than a whirlpool. And the scary part? They'll do it right under your nose, right when you think you’ve got full control.
So, you got a phone call from a prince promising you millions? Or maybe a new investment scheme with unbelievable returns? Or a lover who need help buying a plane ticket..or a pen-pal that's found themselves in a financial pinch. Look, before you shell out a single dime, do us both a favor, pick up that phone and give your trusty advisor a call. Let's make sure that aroma of get-rich-quick doesn't turn into the stench of a scam, huh?
Remember, my friends, even the smartest, most tech-savvy folks can get roped in by these vultures. So, let's stay vigilant, let's stay sharp, and above all, let's keep that hard-earned money where it belongs – funding your dreams, not a scammer's.
So sit back, relax, and let your financial advisor do the worrying for you. After all, we're here to make sure your journey to financial freedom doesn't get derailed by some low-down dirty scam.
If you think you've been a victim of a financial scam call your local PD, call the FBI, and visit AARP's Fraud Watch Network. https://www.aarp.org/money/scams-fraud/about-fraud-watch-network/
Me and my wife have a deal...she gets to die first. Or at least that's her deal. See, my wife doesn't know what she would do without me...(or with me on some days :) I guess that is one of the disadvantageous of being married to a Nurse Midwife, she sees life and death on a daily basis, so the worry of what happens when one of us is gone is ever present in our lives.
So, let's dive right into the importance of having a financial continuity plan or estate plan, regardless of your wealth. You see, the main concern for most individuals, including myself, is ensuring that our loved ones are taken care of when we're no longer around. It's a natural worry that resonates with many of us.
When we talk about taking care of our loved ones, it typically boils down to a few key things. We want to make sure that their bills are paid, that they won't run out of money, and that they know where all the finances are. It's all about providing a sense of security for our loved ones. None of us want the thought of our spouse being left in financial ruin or chaos if something were to happen to us.
How to Create an Effective Estate Plan So, let's talk about what you need to have in order to create an effective estate plan.
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Have a List of All Your Accounts First and foremost, you need a document or a central repository that both spouses can access. This should include a comprehensive list of all your accounts, who they are with, and how you can access them. It's all about having a clear understanding of your financial standing and knowing where your resources are located. Consider this step number one. (P.S. We have a free app you can use to help with this, you can signup here: Get The Free Yields4U Elements Financial Wellness App)
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Ensure Continued Access to Fund (Setup Beneficiaries) Next, it's crucial to ensure that the surviving spouse will have access to all the necessary funds in the event of one spouse passing away. For bank accounts, this means having a joint account or, if you have separate accounts, designating each other as pay-on-death or transfer-on-death beneficiaries. This way, the surviving spouse can walk into the bank and easily access the funds without any unnecessary delays. This is extremely important to avoid disruptions in paying for essential expenses such as gas and electric bills, car payments, rent, or mortgage. You want to provide assurance that the necessary resources will be readily available. So, joint accounts or pay-on-death designations are key here.
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Document Your Important Expenses Additionally, it's essential to have a clear listing of your expenses. Both spouses should be on the same page regarding this information. Let me tell you a personal story - when my dad passed away, it was a challenging process to figure out all of their expenses. You see, he had married his wife just a few years prior, and they were both in their sixties at the time. Adjusting to a new marriage, merging finances, and battling cancer made it difficult for them to organize everything properly. It was a time-consuming task to piece together all the essential information during a period when we were least mentally prepared to deal with it. This is why having a detailed document and ensuring that someone knows about it and can take care of those essential matters is so critical.
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Have a Written Plan Having a written plan of action is a crucial step in organizing your estate plan. So, where can you find such a resource? Well, let me tell you! You can visit our website, where we offer a free guide called "The Five Minute Estate Plan." I highly recommend starting there.In addition, you'll find a list of other websites and resources that can guide you through the process.
One great option is to search for a "Memorial Plan" template online. There are several websites that offer free templates you can use. Another fantastic resource is freewill.com, which provides valuable guidance and tools for creating your estate plan.
Once you have the template, it's time to start listing everything out. Begin with your accounts - note down the account numbers, how to access them, and any usernames and passwords required. It's essential to include all the necessary information so that anyone who needs access can do so without any trouble. We have a free app you can use to help with this, you can signup here: Get The Free Yields4U Elements Financial Wellness App)
Next, think about the important people in your life who should have access to this information. Consider family members, close friends, or even your attorney. Choose individuals who you trust and who will act in your best interests.
Don't Forget The "Non-Financial" Aspects But it doesn't stop at the financial aspect, folks. Estate planning also involves addressing non-financial matters, such as your burial wishes and end-of-life arrangements. Don't shy away from these topics. Engage in conversations with your loved ones, so they know exactly what you desire.
Don't be like my dad! It was literally only on the morning that my dad passed, that in a moment of lucidity, I was able to ask him about his final wishes. If I hadn't taken those few precious minutes to talk to him, we would have been left guessing. As it turned out, none of us had any idea what he actually wanted, and luckily we were able to make it happen.
Don't leave these conversations to the last minute. These are conversations me and my wife have on a regular basis. Where do you want to be buried, what is important to you..and if you don't have any preferences, that's something to say as well. Don't leave your loved ones in limbo, wondering if they did right by you.
Remember, estate planning may not be the most exciting topic, but it's a one-time action that will provide peace of mind for years to come. So, take the initiative to create your plan, document your wishes, and empower your loved ones with the information they need to carry out your estate plan smoothly. Once it's done, you can enjoy life knowing that you have taken care of the future.
Resources: 1. The Five Minute Estate Plan. 2. The Free Estate Planning Min-Course 3. freewill.com 4. search for a "Memorial Plan" template online 5. Get The Free Yields4U Elements Financial Wellness App 6. If you have estate planning questions, don't hesitate to email us at hello@yields4u.com 7. Or book a free, no-obligation 15-minute consultation. https://www.yields4u.com/pages/book
If you've been hearing that you should get a trust, or you've been wondering what the heck they are...let's dive in to it. Awhile back, I had a client, let's call him Joe. Joe was a hard-working guy who had spent his life not just earning his wealth, but managing it well. When Joe finally decided it was time to think about wealth transfer, he was surrounded by numerous friends and family saying, "Joe, you need a trust!"
Being a wise man, Joe decided to reach out and discuss it with me. I asked him why he felt he needed a trust, and he wasn't sure. It’s just what he had been told. The first thing I pointed out to him was what I'm sharing with you folks today. A trust, as it's a legal entity, could introduce numerous complications if not structured and managed properly.
Sure, using a trust, Joe could dictate how his wealth was managed and distributed after he was gone, but did he really need it? After a deep dive, it turned out that his financial goals and estate planning needs could be met with much simpler tools. In the end, Joe was grateful for the discussion, and I was relieved we could prevent the unnecessary complications a trust could've introduced.
What is a Trust Now, a trust, in simple terms, is like a safe box where you place your assets. This box can be customized according to your wishes and instructed to operate under certain rules, which you would've set. It can be tied to you whilst you're alive or can operate independently, like a corporation. This sounds appealing to many, as it provides an opportunity for them to control the fate of their assets even after they passed.
However, much like our friend Joe, folks end up overlooking the fact that a trust is essentially a legal entity. As such it's subject to a plethora of rules, regulations, and potential legal obligations. And contrary to what some might believe, there are no trust police are not going to swoop in and help if things go awry.
You see, a trust is not like having your own personal bodyguard or a government agency that's keeping tabs on your financial affairs. It's simply a legal entity that operates under a set of rules outlined in a trust document.
Think of it as giving someone a power of attorney, but instead of granting them authority over your personal matters, you're granting them authority over the trust. The trustee, who is appointed in the trust document, is the one who carries out the instructions you've outlined. They're responsible for managing the trust assets and distributing them according to your wishes.
But here's the catch, folks: just because you have a trust doesn't mean everything magically falls into place. The trustee still needs to understand the rules and responsibilities that come with being in charge of the trust. It's not a task to be taken lightly.
So remember, when you set up a trust, it's not a guarantee of smooth sailing. It's important to select the right trustee and ensure they have the knowledge and expertise to handle the job proficiently. Otherwise, the trust could end up being nothing more than stacks of paper gathering dust instead of a useful tool for accomplishing your financial goals.
The Different Kinds of Trust Let’s break this down some more, folks. You see, setting up a trust is a lot like deciding on a new suit. There are lots of styles and materials to choose from, but what's most important is finding the right fit for you. Now, there are various kinds of trusts, each with its own unique purpose and set of guidelines.
Revocable Trusts Starting off with what we call a revocable trust. Think of this type as your trial run into trusts. You can put assets into the trust, and if you decide it's not for you, you can take those assets back out. It's like trying on the suit before you pay for it. This trust doesn't need to file a separate tax return and it can open accounts in its name, much like you creating your own company.
Now, you may be wondering, "Leibel, why go through this rigamarole?" Well folks, just like having your company gives you liability protection, a trust can offer a shield against creditors. This simply means if somebody has a beef against you, they can't come gunning for your trust assets.
But do hold your horses before you jump headfirst into this thinking it's the ultimate legal shield. Every state has its own set of rules, and there could be better ways to protect yourself from lawsuits. So, a trust is just one of many tools in your toolbox.
Irrevocable Trusts Moving onwards, we have the polar opposite - an irrevocable trust. This, dear friends, is a one-way street. Once you set it up and put your money into it, there's no taking it back. With great power, comes great responsibility, as they say. An irrevocable trust has to file its own tax returns and it’s taxed at the highest bracket, so it's definitely not a decision to be taken lightly. For some, the benefits may outweigh the complications, but for the majority, it might not be worth the additional paperwork and tax implications.
Lifetime Interest Trusts & Remainder Trusts Alright, folks. Let's chat about something interesting now - Lifetime Interest Trusts and Remainder Trusts. Quite a mouthful, isn't it? Well, don't worry. We're going to unpack that in a way that makes sense, just like we always do.
Lifetime Interest Trusts, also known as Life Interest Trusts, are a little bit like renting your favorite beach house for life. Let's say you're the beneficiary of a Life Interest Trust. You'd have the right to enjoy the benefits from the assets in the trust for your entire lifetime - just like enjoying that beachfront view and absorbing those sunsets.
But here's the catch: you don’t own the 'house’ – or in this case, the assets. You can use them, benefit from them, but you can't sell the assets or give them away. When you pass away, the assets in the trust will be passed on to the remainder beneficiaries.
Which brings us to Remainder Trusts, the 'final owners' in our beach house metaphor. These guys are like the people who buy the beach house after your lifetime lease is up. They come into play once the life tenant (that's you in this scenario) passes away. That's why they're called 'remainder' – they get what remains. This can take the form of Charitable and non-charitable, where the proceeds go to charity, this allows the grantor to get a tax deduction, while still retaining use of their property. This can be really powerful when combined with an annuity provision that allows the grantor to get a paycheck for life, get an upfront tax benefit, while providing a great donation to charity upon their passing.
Testamentary Last but definitely not least, there's a testamentary trust. This is born out of a will or life insurance policy upon a person's death. It goes from nonexistent to fully functioning the moment you shuffle off the mortal coil.
The Best Trust For You You may be wondering right about now, which trust is right for you? Here's the thing to remember, trusts are like different tools in a toolbox. Each one has a unique purpose and is used for specific scenarios. Like an ETF, or an Exchange-Traded Fund, which is technically a trust. They're all like different tools designed for different jobs, and for the right person in the right situation, they can be incredibly handy.
But here's the key thing to remember. Just because there are a bunch of shiny tools available, doesn't mean you need them all. For many people, if you're considering a trust as a substitute for a Will, or in addition to a Will, there are often simpler and potentially more efficient avenues to achieve the same goals.
At the end of the day folks, a trust is just a tool. And like any tool, it's only useful if it's being used correctly and for the right purpose. What’s important is ensuring that your assets transfer to your loved ones exactly as you intend, and sometimes that means opting for a simpler, more straightforward solution.
Better Than a Trust In an ideal world, your assets should be transferred while you're still around and not after you've passed away. You might be raising an eyebrow and saying, "Hold on, I don't want my children to have my house or money before I kick the bucket. That's my hard-earned cash."
Well, when we talk about transferring assets, I'm not suggesting you hand over the entire keychain to your kin. What I'm recommending is that you set up a plan with whomever is holding your assets - whether it's a bank, broker, or even retirement accounts - and ensure there's a clear, legally-binding agreement on what happens to your assets when you're no longer around.
Having beneficiaries specified on these accounts means the transfer of assets upon your death supersedes any wills or trusts. In fact, the Supreme Court has held this up multiple times. This type of transfer can happen almost immediately as it's a private agreement between you and your bank or insurance company. It's like having an "In case of emergency, break glass" sticker on your assets.
Instead of setting up a complicated will or trust, you can simplify things with these beneficiary forms. Because let's talk straight here, folks - in a perfect world, none of us would need a will or a trust, right? When someone passes away, the most seamless transition would be for their loved ones to carry on, paying bills and managing finances, as though there were no interruption. Because financial hiccups can throw things into chaos, and we certainly don't want that.
Instead of jumping through the hoops of courts and lawyers, or even the IRS, what we really want is for our bank accounts, properties, and other assets to automatically transfer to our loved ones. And by setting up beneficiaries, we can accomplish that without getting tangled in red tape.
But hey, life can throw curveballs. If you're worried about protecting your children, especially in a scenario where both parents may pass, or you want to ensure assets are handled according to specific wishes, then you might consider setting up a will or trust.
But remember, keep your will focused on your final wishes rather than who gets what money. As for who gets the house and the bank accounts? Those should have already been sorted out before the will is even read. The will should direct loved ones on your burial plans, location, and who you trust to settle your affairs.
So just remember, always consider the big picture and don't get too caught up on a single tool or technique - it's the overall strategy and goals that truly count. Work with your financial and legal advisors to understand your options and make the decision that best suits your unique situation and objectives. As always, if you have any questions or would like help getting your financial transition plan in order, don't hesitate to reach out.
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Are you feeling a bit lost amidst all the recent market news? Don't worry, you're not alone. The markets have been quite volatile lately, causing some alarm and confusion. But fear not, because today we're going to tackle this topic head-on and help you understand what's going on and, more importantly, what you can do about it.
Understanding Market Volatility: When it comes to understanding market volatility, it's important to remember that behind all those numbers and jargon, it's ultimately people who are making the decisions. And people, well, we can be rational or irrational in our decision-making. So, what's been happening in the markets lately can be attributed to a variety of factors, including the COVID pandemic.
When COVID hit, the markets took a nosedive. It was chaos! But over time, people started to adjust and adapt to the new normal. However, everyone had their own ideas about how things would unfold. The future was uncertain, and this uncertainty led to a lot of expectations. Now, as those expectations collide with reality, we're seeing a lot of changes in the markets.
The Changing Landscape of Wealth
The Covid-19 pandemic has fundamentally altered the financial landscape, leaving many individuals experiencing shifts in their wealth. Some have seen remarkable financial success, while others have faced significant losses. It's a time of reckoning, and you may find yourself questioning how to weather the storm and hold onto your wealth amidst this volatility.
Understanding the Impulse to React
When uncertainties arise, it's natural to feel the urge to take action. The reasons behind these impulses vary from person to person. Perhaps you feel the need to sell or move to safer investments because you believe you made a previous mistake in your financial decisions. Or maybe you are considering investing more aggressively to take advantage of the market upswing. It's important to address these underlying concerns.
The Importance of Allocation and Sound Investments
To navigate this shifting landscape and make informed decisions, we must first evaluate our asset allocation. Are our investments properly allocated to match our goals and risk tolerance? And does the new reality we face alter our outlook for investment strategies? It's worth noting that even major fund companies, like Vanguard and BlackRock, have made significant changes in their investment recommendations over the years. However, upon closer examination, their actual investment practices have not changed accordingly.
Questioning the Status Quo
This contradiction seems perplexing. It's clear that the future will be different from the past. The Federal Reserve itself recently stated that interest rates will remain steady for the next few years and may even increase. This departure from previous policy signals a recognition that our economy is changing, and the investments that worked before may not be suitable for the future. As we enter retirement and shift from wealth accumulation to wealth distribution, our investment strategies must adapt to this new reality.
A Shift in Investment Opportunities The available investment options today differ significantly from what they were just a few years ago. Looking ahead, it's likely that the investment landscape will continue to evolve. We must work with the world we have and anticipate what the future may hold. When investors approached me two years ago seeking retirement portfolio options, the choices were entirely different from what we have today. It's important to recognize that the same options may not be available in the coming years.
Aligning with the Future
To safeguard our wealth, it's vital to ensure our investment allocation aligns with the future, rather than relying on past performance. The next 20 years will not resemble the last two decades. As we transition into this new era, we need to make investment decisions that reflect the changing economic landscape. By staying informed and seeking advice from professionals, we can position ourselves for financial success in the years to come.
Keep Learning and Stay Savvy
Remember, the world of finance is complex and ever-changing. To make the most informed decisions, it's essential to remain curious and continuously educate yourself about the shifting dynamics of the financial world. Dive into the wealth of information available and seek guidance when needed. By adopting a proactive approach and staying financially savvy, you can confidently navigate the changing tides of wealth and position yourself for long-term success.
Hey folks, remember when we last chatted about real estate a few episodes ago? I know, I know, taxes weren’t on the agenda then, but let’s delve into it now. Trust me, even some seasoned advisors seem to overlook this crucial aspect. So, sit tight and let's unravel this tax maze.
First off, let's dust off our tax code understanding. You might ask, "What makes my house qualify for capital gains exclusions, Leibel?" Well, you need to have lived in it as your primary residence for at least two of the past five years. Let me walk you through how it works.
Understanding Capital Gains Suppose you bought a charming little place for $100,000 and eventually sold it for a neat $200,000. Your capital gain? That's the difference between your buying and selling prices, making it $100,000 in this case. Now, many folks would think they'd have to pay tax on that full $100,000, but that's where the tax code becomes your friend. It provides a sort of safe harbor, an exclusion that allows you to not count a certain sum as taxable income if you sell your primary residence (given that you meet the living criteria, of course).
If you're a lone ranger, this exclusion limit is $250,000. If you're hitched, it's even better - you can exclude up to $500,000. So, all that capital gain from selling your home up to these limits? They're safe from Uncle Sam.
Now, here's where the forward-thinking you comes into play. Keep an eye on how much your home has appreciated, and what taxes you might be liable for when you sell it. Sure, that $500,000 exclusion sounds like a truckload of money now, but 20 or 30 years down the road, it might be a different story.
Track Your Cost Basis! The other player in this game is your property's cost basis, typically what you initially paid for your home. But, my friends, you can be smart and adjust this cost basis with capital improvements made to the property. Major renovations, new additions, floor replacements, boiler installations, and other considerable improvements can increase your cost basis. And higher cost basis equals lower recognized profit and hence, lesser tax. So, be diligent about tracking and documenting these improvements over your ownership period.
Selling an Investment Property Investment properties, now, these beasts are a completely different game, aren't they?
Investment properties, unlike personal homes, are businesses, and just like any business, they have income, expenses, and yes, that pesky thing called depreciation. Assuming your tax preparer has been on the ball, they started depreciating your investment property from year one.
Let's use our favorite $100,000 property for this example. You can depreciate that value over approximately 27 years. During this period, the depreciation counts as a loss, an 'deduction' in tax parlance, even though no real money exits your pocket. This faux-expense can offset your revenue, reducing your taxable income.
Racking Up Paper Losses This is another way the tax code encourages us to become landlords and real estate investors. The tax code, ladies and gentlemen, isn't some grueling document designed to make our lives harder - it's a playbook. It nudges us towards certain behaviors, like buying investment properties for that sweet, sweet depreciation benefit.
Now, let's dive a little deeper into the practicalities. Imagine your investment property rakes in $1,000 a month in rent, but you spend $500 on its maintenance. With depreciation in the picture, you might, on paper, end up showing a loss, even if you're earning real income.
Don't Let Depreciation Bite You On The Way Out... But here's the catch. When you sell your investment property, the IRS will want you to recapture that depreciation. Every dollar of depreciation you claimed will need to be added back into your income, and guess what, it's taxable. And don't forget about those capital gains. Using our $100,000 property example, if you sell it for $200,000, you've got another $100,000 in capital gains to deal with.
Now, you may be thinking, "Hold on, Leibel, that sounds like a hefty tax bill!" You're right! It's like the IRS planted seeds, helped you grow a money tree, but now they want their share of the fruit. The moment you take your investment back, the government wants their incentive back.
Tips From The Tax Savvy So, what do savvy investors do to avoid this hefty tax bill? They usually roll their investment into another piece of real estate, a strategy known as a 1031 exchange. This method allows them to avoid recognizing their gains as taxable income.
You might wonder why they don't just exit real estate, but the huge potential capital gains tax bill often dissuades them. Therefore, they continue to roll over their investments into new properties. Plus, banks are often willing to provide a mortgage on the new property, enabling a $200,000 investment to balloon into a $2 million one, and so forth.
Instead of selling, these investors borrow against their properties, utilizing the equity without triggering a taxable event. And here's the kicker - there are no taxes on debt. So yes, at some point, you're going to have to pay the taxman, but with a strategic approach, it might not be today.
Making the Most of Your Situation Now, let's get to some practical advice for everyday folks like you and me.
When we talk about retirement, for many of us, our home is our biggest investment. As retirement nears, we might sell our home, downsize, and turn that into an asset that we live off of. But remember, this could potentially have tax consequences. How do we offset those, you might wonder?
Tax Loss Harvesting Here's a strategy we've discussed a few times before - ordinary tax loss harvesting. If you have investments in a brokerage account and face a temporary loss, don't panic. Instead, "harvest" these losses. These paper losses can help offset the very real gains you get from your property sale, ultimately softening the blow on your tax return.
The key here is to figure out how to use your situation to your advantage. Let's call it the "lemonade from lemons" approach. Often, the difference between the wealthy and everyone else lies not in stepping over others, but in knowing how to use every situation to their advantage. Think about what tools and levers you have in your life that can be utilized in your favor.
Now, it's perfectly normal to not know everything about taxes, real estate, and investment strategies. Heck, if it wasn't for my 15-plus years of experience and exposure to knowledgeable individuals, I wouldn't know half of these things. But that's the beauty of our interconnected world.
These days, there are countless experts sharing their wisdom on social media. And it's free! Younger generations are using platforms like TikTok as search engines for knowledge. Whether you want to learn directly from these platforms, or you prefer folks like me to digest that information and relay it to you in a simpler format, the point is to stay curious.
You need to consistently ask yourself how to maximize your current situation. What you might think is a disadvantage could potentially be turned into an advantage with the right knowledge. So, dive into the wealth of information out there, connect with experts, and ask the right questions. You never know how a simple trick or tip could change your financial game.
Until next time, stay financially savvy, my friends. And remember, even when you're dealing with lemons, there's always a way to whip up some tasty lemonade.
Navigating the tax world feels a lot like solving a crazy complex maze. But get this, wrapping your head around tax strategies is a must if you want a top-notch retirement.
Alright, we all know it's our duty as good citizens to chip in to the big pot of public money. But don't forget, it's totally okay to aim to pay the minimum tax you can. Good ol' Ben Franklin said it best: we all have to pay our fair share of taxes...and not a penny more.
Less Tax? Yep, That's Patriotic Too
Paying Less Taxes is Patriotic See, the way the tax code is set up isn't just random. It's designed to encourage certain behaviors that make our country tick. This sneaky trick has kept our economy chugging along nicely. It's one of the reasons why we've got 24% of the global economy even though we make up less than 5% of the world's population!
Think about the IRS Tax Code like a money-moving machine, shuffling cash to places where it can do a world of good for our economy. Congress makes this happen using a cocktail of tax incentives, deductions, credits, you name it...and the fat cats, they've got this down to a fine art.
As retirees living on a fixed income, we need to be just as crafty when it comes to our own retirement. It's all about hunting down ways to be tax-efficient with our money.
Ways To Pay Less Taxes in Retirement Strategic Roth Conversions The moment we say bye-bye to our regular jobs all the way until we hit 75, there's a golden window that opens up. You might spot it somewhere in your sixties, maybe when you're slowing down to part-time, or even when you've ditched work altogether to embrace retirement.
This golden window, my friend, is when you can dictate your income, and more importantly, the part of your income that the taxman gets his hands on. Yep, you heard it right! There's a 0% tax bracket where you earn and yet pay nada. Then there's the 10% and the 12% tax brackets. They might not be zero, but they're low enough to not leave a hole in your pocket.
Here's the kicker. If you're smart and you opt for Roth conversions, you pull out your money and pay your taxes right then and there. But here's the beauty of it - you're paying on your own terms, not on the whims and fancies of Congress. You see, if you don't get this done, the moment you blow out the candles on your 75th birthday, you're gonna have to start emptying that account, and at a rate and time not chosen by you, but them. And this system, my friend, is designed to milk your account dry within your lifetime.
Imagine being in your eighties or nineties and having to yank out 25, 30, 40% of your account value! Ouch, right? And the worst part, you're gonna end up bumping yourself into one of the highest tax brackets, possibly the highest you've ever been in your whole life. So, you do want to cough up taxes, but you wanna do it on your terms, savvy?
Oh, and don't forget about capital gains, another nice way to keep your hard-earned cash away from the taxman.
Harvesting Your Losses When the market takes a nosedive, that's when you jump on tax loss harvesting. Shift that dough from your retirement account into your brokerage account or a Roth account. And sure, you gotta pay taxes, but here's the trick - you're doing it when the market is low, so you're paying on a smaller chunk. Or, if you've got a brokerage account that's not tied up with retirement, you can use those losses to balance out your gains.
Let's be honest, there's a ton of tiny details in the tax code. And it's always changing, like some kind of shapeshifter. But trust me, if you get your thinking cap on, you can absolutely shrink your taxable income, and the tax bill that comes with it, down to the bare minimum. It might not hit zero, but you can get darn close.
What Is Tax Loss Harvesting Let's break down tax loss harvesting a bit, 'cause it's a nifty trick and I want to make sure we're all on the same page.
So, you know how the market's basically a rollercoaster, right? There's gonna be epic highs and terrifying lows. But remember, when the market's down, that's just relative to when you bought in. So when the market takes a dip and you spot, let's say, a $10,000 loss in your account, guess what, I'm stoked!
Why? Because I know the market's bound to bounce back and my star will rise again. But here's the genius part - I can sell that loss, invest the money in something different that has the same potential to grow. It's like a clever game of switcheroo.
Beware of The Wash Sale Rule But here's the catch, it can't be what the IRS labels as "substantially similar". For example, say I've got shares in the S&P 500 with Vanguard, I can't just jump ship to iShares S&P 500. But I can mix things up, like switching from an S&P 500 value to an S&P 500 growth. Trust me, it makes a huge difference.
Or, how about going from having an S&P 500 to the individual sectors, right? I'm still riding the S&P 500 wave, but now I've split it into 10 different rides instead of one. By doing this, I'm setting myself up for that sweet recovery when the market bounces back. That $10,000 loss? It's just a paper cut.
But here's where it gets interesting. By harvesting it, selling and realizing that loss, it pops up on my tax return. And having it on my tax return means $3,000 of it can offset my ordinary income. Doesn't matter if it's social security, required minimum distributions, Roth conversions or my salary, it can offset $3,000 of it.
And here's another thing, when I've got gains in my account and I'm selling them off to live on, or I'm selling off that property we chatted about a few episodes ago, those capital gains can be offset by these capital losses I'm reaping.
But hold up, here's a heads up. Tax loss harvesting isn't a free-for-all. You gotta make sure you're playing by the rules Congress and the IRS laid out. But when you do it right, it's a dynamite strategy for chopping down your taxable income, no matter what your tax bill looks like.
So, seriously, give it a shot. And start looking for ways to tweak your lifestyle and decisions so they're tax efficient. There are a ton of ways to do the same thing, just better.
Which Account You Use Matters Take dividend income, for example. A lot of people are into buying dividend stocks or dividend ETFs.
You probably think you've got it sorted in your brokerage account. Nope, you're better off having those in your retirement account to avoid paying extra taxes on it. It's pretty shocking how often I see folks shelling out thousands in taxes just because they're storing it in the wrong place.
So, your aim should be to make everything as tax-efficient as possible. Your portfolio, your lifestyle, your financial decisions, all of it. Make every penny count!
Hire a Tax Planner! Most accountants and tax-prepares are not doctors. They are basically coroners, conducting an autopsy on the past year's financial mess. But here's the thing - it's too late to change anything now. Tax loss harvesting? It's a moot point. You can't do anything about it now. This is why you just can't drop off your taxes somewhere and expect miracles.
What you need is a bit of teamwork. Your financial advisor should be working hand-in-hand with a tax planner or tax advisor, someone who can look at your situation and make recommendations.
Now here's the thing, not every financial advisor can give you tax advice.
It's crucial to ask your advisor a couple of key questions.
First, can they give you tax advice?
Second, are they always acting as a fiduciary in your best interest? If the answer is no to either, then it might be time to look for a new financial advisor.
Think about it. If your advisor can't give tax advice, you're potentially leaving money on the table. In fact, many people can make more money saving on taxes than they can investing in the market, especially when they're in retirement.
And on the fiduciary front, if they're not always acting in your best interest, then there are times when they're putting their interest first. Sure, their interest might line up with yours, but sometimes they can switch hats, and they're not obligated to let you know which hat they're wearing.
Now back to your tax preparer. Their job is to look at what you've done in the past and find all the possible tax savings. But they're not going to be the ones to tell you how to adjust your behavior to save more money next year. That's my job.
As a financial planner who specializes in taxes, and as an enrolled agent with the IRS, I'm always looking at how we can modify behaviors to save more money down the line. So, the point here is - get your team together, and make sure they're working in sync. That's how you keep more of your hard-earned money in your pocket.
The goal is to make your portfolio, your lifestyle, and the financial decisions you make as tax efficient as possible.
Paying taxes is a civic duty, but it doesn't mean you can't take steps to ethically reduce your tax bill. By understanding and applying the tax code's incentives, you can maximize your wealth while contributing to economic growth. Make a plan, explore tax-efficient behaviors, and work with trusted professionals to ensure long-term financial success. Remember, tax planning is not a seasonal affair, but a year-round commitment to optimizing your finances.
In today's episode of "Leibel On Fire," I decided to delve into the intriguing concept of 'No Loss Market Accounts.' This term has been making rounds in the marketing sphere of financial products, creating a buzz due to its promise of a risk-free experience. But is it all that it promises to be? Let's find out.
The Concept of 'No Loss Market Accounts' 'No Loss Market Accounts'—the term alone creates an image of a financial safe haven, doesn't it? Unfortunately, as I discovered and shared in the podcast, this catchy phrase is often used to market insurance products and can be incredibly misleading.
In theory, these accounts promise to offer gains when markets are on the rise and protection when they fall. But, like with most things that sound too good to be true, there's more than meets the eye.
Insurance Products vs. Investments Here's where understanding the distinction between insurance products and investments becomes crucial. Insurance products are meant to manage risk and provide a sense of security, whereas investments are vehicles to grow your capital and accumulate wealth.
It's also essential to remember that the insurance market doesn't operate the same way as the investment market. The terms and conditions, not to mention the underlying mechanics, can be drastically different, leading to varied risk and return potentials.
The Intricacies of Insurance Contracts When it comes to insurance contracts, especially those tied to 'No Loss Market Accounts,' things can get complicated. As I discussed in the podcast, potential costs might include substantial fees and surrender charges. Moreover, guarantees that appear stable might be subject to changes in terms and conditions over time.
One critical point to remember is that returns on these accounts often come with caps and participation rates, so even in a booming market, the gains you see will be restricted.
Section 4: Regulatory Oversight in Financial Services The current state of regulatory oversight in financial services leaves something to be desired. As I noted in the episode, we need stronger regulations to prevent the misleading marketing of financial products like 'No Loss Market Accounts.' it really is unfair to expect the average consumer to be able to distinguish between the "good" insurance contracts and the bad.
Sadly, with the increasingly blurred lines distinguishing various financial products, it's easy for consumers to fall into traps, beguiled by the allure of guaranteed returns with no market loss. Or the believe that millions of investors can't be wrong. After all, didn't the Rothchild's or Babe Ruth build their fortune on these products? (P.S. That was sarcasm, the products those people purchased are long gone...the insurance companies and the IRS have wised up to all the loopholes in the system...)
Conclusion The financial world is intricate and constantly evolving. The emergence of 'No Loss Market Accounts' serves as a stark reminder of the importance of critical thinking and thorough research when considering financial products. As consumers, we must see beyond the flashy marketing terms and understand what we're genuinely getting ourselves into.
As I noted in the podcast, there's no such thing as a free lunch. Every financial product comes with its balance of risks and rewards. So let's stay vigilant, informed, and make the best decisions for our selves and our loved ones.
Hello, folks! It's Leibel here, and I'm fired up about a topic that's been a cornerstone of American wealth building for centuries – real estate. We're going to dive deep into what makes real estate tick as an investment and the role it's played in creating wealth over the years. But the big question we're addressing is this: is real estate truly your golden ticket to financial freedom? Let's find out!
The Siren Song of Real Estate as an Investment Many folks are lured by the siren song of real estate investment, and for good reason! In the past, the options for growing your wealth were limited, and land – a tangible, finite asset – was considered a prized possession. It was a solid fortress against the storms of inflation, a tangible testament to prosperity that seemed to only appreciate in value. And there lies the allure, my friends.
The Other Side of the Coin However, it's essential to look at the other side of the coin. Buying and selling properties isn't as easy as shaking a magic money tree. There are costs and commissions nibbling away at your returns. And what about liquidity? Unlike stocks, you can't sell a house at a click of a button. Plus, turning a profit from your primary residence often means packing up and moving. That's a significant hurdle, both emotionally and practically.
Now, this is where the waters get a bit murky. Friends, owning a home is not the same as investing in real estate. It's a common misconception and one that we need to address. A home comes with ongoing expenses and responsibilities that can chip away at your bottom line. Even successful real estate investors have come forward saying they prefer renting over owning – it offers them more flexibility and keeps their wealth accessible.
The Power and Peril of Leverage in Real Estate
One of the thrilling aspects of real estate investing is leverage – using borrowed money to potentially supercharge your returns. It's like a turbo boost for your investment. But remember, folks, leverage is a double-edged sword. It can skyrocket your gains, but it can also deepen your losses.
Investing in real estate is not a walk in the park. It's filled with twists, turns, and sometimes, sinkholes. Everyday folks are often the target of real estate investment pitches without fully grasping what they're signing up for. There's a grand canyon between what people think they know and what they actually understand about real estate investing. It's critical to weigh it against other investment options, based on your financial goals and risk tolerance.
Folks, the world is evolving, and so is the concept of homeownership and real estate investment. Owning a home isn't the only path to wealth accumulation, and it may not be the best choice for everyone. Today, making informed decisions is more important than ever. No investment is universally good or bad – it depends on your circumstances, your financial dreams, and your comfort with risk. So, when it comes to real estate, let's put the myths aside, unmask the realities, and make decisions that align with your financial goals.
This week we're going to dive into the age old question of buy and hold versus tactical investing. Which is right for you in retirement? We'll find out on this episode of Label On Fire.
What is Tactical Investing At the heart of our discussion, we must understand what tactical investing involves. It spans an array of strategies, including market timing, purchasing specific stocks at opportune moments, and selling when they seem to decline. The term "tactical" denotes a dynamic, hands-on approach, contrary to passive investing.
A common reference point here is the legendary Warren Buffet, a purported champion of buy and hold investing. He is known for buying companies and keeping them for what seems like an eternity. However, it's crucial to recognize that his strategy isn't as passive as it might seem. He actively selects what to buy, challenging the common conception of this investment philosophy.
When we speak of tactical and buy and hold, we essentially refer to the difference between purchasing an index fund and individually selecting stocks to buy or sell.
Buy & Hold Investing On the other side of the equation, we have the buy and hold strategy. The premise here is based on uncertainty. The average investor is not Warren Buffet; we don't necessarily know which companies will prove to be the next Apple or Uber. So, rather than attempting to identify the future stars, the buy and hold strategy involves buying a range of stocks, betting on the likelihood of some being successful or seeking to profit from the sector or economy's growth. Through diversification, we are able to crowd source our stock selection and win over the long run.
Which is Better for Retirement Now, you might wonder which of these strategies, tactical or buy and hold, is right for you. This depends greatly on your individual circumstances and personal preferences.
Key to this decision is self-questioning. Your investment strategy will look different if you're working versus when you're retired. As we've discussed previously, your strategy should ensure you're making the best decisions for yourself and your loved ones while minimizing the impact of stock market and political fluctuations.
Given that most people will have a significant portion of their wealth tied to the stock market, it's important to find a way to grow your assets and ensure you can withdraw your money when necessary without suffering from a market downturn.
Despite the common debate framing buy and hold and tactical investing as diametrically opposed strategies, it's not a matter of right and wrong. There are situations where one may be more suitable than the other, and the most effective strategy may well incorporate elements of both.
For instance, using a tactical approach can help you avoid withdrawing your funds at an all-time low, but timing the market is not a foolproof tactic. Similarly, buy and hold may be beneficial in that we can't always accurately time the market, but it's crucial to hold on to capture growth over time.
The Real Question... The real question to ask ourselves is not "buy and hold or tactical?" but "how can I implement elements of both strategies in my retirement plan to ensure a sustainable lifestyle?" Ultimately, none of us want to suffer the market's lowest lows, and none of us want the anxiety that comes with wondering if we've executed a tactical strategy poorly. Thus, it becomes crucial to understand the balance and how best to blend these strategies to fund our lifestyle.
Which Strategy Does the 321 Plan Use At Yields4U, our 321 plan does incorporate specific triggers, or checkpoints, that initiate particular actions based on what happens in the markets, the economy, or our life.
The aim is to exploit advantageous circumstances or shield ourselves from potential pitfalls through per-determined action, hence providing a strategic safety net.
Moreover, the idea of "time banding," or segregating money into different "buckets" based on when you will need it, automatically layers in an element of both protection and a blend of buy and hold and tactical strategies.
Does The Strategy Change In Retirement In our working years, a simple strategy would be to buy the S&P 500 and hold it for the next 20 years. In the long run, this approach will likely generate substantial returns. However, this approach doesn't work in retirement when you need immediate access to our money.
But if we segment the funds? Say we set aside a portion of money that we are certain we won't need for at least five to ten years. That money can be invested in the stock market and held without worry, using the buy and hold strategy.
Conversely, if there's a portion of money that will be required for the coming year's expenses, it's unwise to invest that in something as volatile as the S&P 500. After all, needing to sell it regularly to cover living costs essentially equates to market timing.
In such instances, a tactical approach that takes on less risk becomes necessary. Perhaps we look at short-term Certificates of Deposit (CDs), treasuries, or money market accounts. We require an asset class that won't plummet to zero, something that won't potentially drop 20% on the very day you need to liquidate it. Herein lies the value of tactical investing. This blend of strategies is not just sound, it's necessary for long-term financial stability in retirement.
It Isn't All About The Money! As I've often emphasized, it's vital to recognize the emotional aspect of financial planning, particularly for retirees. When a carefully devised plan veers off course, which can certainly happen, it's my role to be both a counselor and a guide, realigning the retiree's strategy while providing emotional support and reassurance.
The key to this process often involves refocusing on the fundamental purpose of money. Money, in and of itself, isn't the end goal. Most people don't strive for a particular numeric figure in their accounts. What they genuinely desire is to maintain a certain lifestyle, one that allows them to live their retirement years in comfort, without worrying about every purchase they make or every price tag they see. They envision a lifestyle where they can provide for their grandchildren generously, or take vacations without financial stress.
I strive to keep this vision in focus, mapping out their financial strategies to facilitate their desired lifestyle. A client might express a need for $70,000 a year for a comfortable living. My approach would be to plan for $70,000, while simultaneously examining the possibilities for an even better lifestyle with a $90,000 or $100,000 annual budget.
The ultimate outcome of the planning process can be quite binary: either they have enough money to sustain their preferred lifestyle, or they don't. But there's also a gray area in between where they might have to embrace more risk for the desired lifestyle, and that's where the emotional aspect comes in.
Some people recoil at the idea of taking on more risk, fearing sleepless nights worrying about their investments. They would rather curtail their spending than invite such anxiety. Others, however, are more accepting of risk. They trust my management skills and are content to let me handle the nitty-gritty of their financial management, as long as they can continue to enjoy their lifestyle. The human element, with all its complexities, is what makes my job as a retirement planner both challenging and incredibly rewarding.
Get A Free Retirement & Tax SWOT Analysis Let us help you take control of your financial future and ensure that you are making the strongest possible decisions today, tomorrow, and long into the future. We'll take a look at your retirement plan and identify we'll look for what you're doing, great, what your weaknesses are, what your opportunities are.
Do you have opportunities to reduce your taxes in retirement, maximize your income? What are the things that if we were your advisor, would kick us up at night? Whether it's market risks, whether it's future tax acts, whether it's market volatility, whether it's inflation, we're gonna look at it all as part of our analysis.
We'll go through it and we'll discuss all the questions that you've had as part of this class. We'll figure it out. We'll help you figure out how to apply this information into your life.
Step 1: 15-Minute Meet & Greet In our first meeting, we will get to know each other. We will briefly discuss your financial situation and goals and see if the Yields4U team is the right fit for your financial needs.
Step 2: Upload Your Files You upload all the documents we need into our secure cloud storage, and then we will get on a quick call to make sure that we have everything we need in order to do our analysis. (Feel free to blank out any personal information.)
Step #3: Review Your Personal Action Plan Your plan is going to include looking at your income and projecting it out over the next 20, 30, 40 years in retirement and forecasting what your income and taxes are going to be. Included in the plan will be:
- Ways for you to minimize taxes in retirement through Roth conversions, Tax-Loss Harvesting, Tax-Timing, and other methods.
- How To DE-RISK your portfolio WITHOUT locking in losses
- Your Retirement & SWOT analysis: we will identify your Strengths, Weaknesses, Opportunities, and Threats to your financial security!
- Your Personalized Action Plan!
At the end of the process, you will have a written action plan you can use to help you save money on taxes, protect your retirement, and ensure you don't run out of money in retirement.
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This week we continue our deep dive in to the 321 Retirement Plan. The 321 Retirement Plan is an integrated approach to retirement planning designed to amplify income, minimize taxes, and safeguard life savings against market volatility and inflation. This approach seeks to navigate the unpredictable twists and turns of life that often threaten to disrupt our retirement plans.
A Decision Making Process The 321 Retirement Plan is essentially a decision-making process for the multitude of choices we face in retirement. The objective is to make these decisions beneficial for the investor, rather than for the market, the IRS, or Congress. The ultimate goal is to ensure retirees can lead a fulfilling life without being constantly at the mercy of the market's whims.
One critical aspect is knowing when to start drawing on Social Security or a pension, and which retirement accounts to draw down first. The crux of the issue is having a method to evaluate these decisions. This involves facing numerous questions, some of which we might not even be aware of initially, and making choices that best serve us, our loved ones, and our retirement plans.
The 5 Major Risks To Investor's In Retirement There are five significant risks in retirement, the greatest of which is anything that depreciates our portfolio's value. The 321 Retirement Plan aims to maximize portfolio value and minimize factors that could reduce it. One significant threat to portfolio value is the stock market, so having a plan to address this is essential. Similarly, taxes are another factor that can substantially reduce the value of a retirement portfolio if not properly managed.
Tax Planning: A penny saved is a penny earned
Another critical aspect of the 321 Retirement Plan is tax planning. The old adage "A penny saved is a penny earned" is particularly relevant when it comes to retirement and taxes. There's a rule known as required minimum distributions, or RMDs for short. Simply stated, RMDs are a mechanism Congress uses to drain retirement accounts at a pace of their choosing. If not managed effectively, this could land retirees in the highest tax bracket, resulting in more money going to Congress than towards their own retirement.
Addressing this issue involves ensuring the money spent in retirement is tax efficient. This includes deciding which accounts to draw down first, in a way that provides the most substantial tax benefit. The aim is to stretch retirement dollars as far as possible.
The Past, Future and Present Having a comprehensive plan is vital for success. This involves mapping out current and future taxes and income, identifying where the income will be drawn from, and outlining potential life events that could necessitate a reevaluation of the plan. For instance, the impending expiry of the Tax Cut and Jobs Act in 2026 is a significant event to monitor.
It's advisable to reassess the retirement plan at least once a year, ideally around November or December, once the current year's taxes are known. This allows for adjustments based on current tax brackets and any distributions that need to be taken.
A 321 Plan Can Protect Against Market Volatility Properly implemented, the 321 Retirement Plan can insulate investors from most market fluctuations, eliminating the need for constant market monitoring, which often leads to anxiety. The plan should be built for current market conditions, with built-in flexibility to adjust as those conditions change.
Preemptive action is the cornerstone of this approach. If, for instance, we know Congress is considering changing the tax code or that the Tax Cut and Jobs Act will expire in a few years, it's better to take advantage now rather than react after the fact.
A comprehensive retirement plan is not a static document but a living, breathing plan designed to adapt to all market conditions and provide a secure path through retirement. The 321 Retirement Plan encompasses this adaptive, preemptive approach, reducing the likelihood of being caught by surprise.
To learn more about the 321 retirement plan, and how it can help you, click here.
We were talking about the 60 40 portfolio. If it was dead or not what do you do during the retirement years? How do you make adjustments and changes as the economy continues to shift and change? When we were together last week, we were talking about the 60 40 portfolio. We're wondering if it was dead or not, and as a thumbnail, what is a 60 40 portfolio and where does it stand right now?
What is the 60/40 portfolio? So the 60 40 portfolio is this ideal portfolio that has been held up as if you had an allocation and you allocated your money, 60% of it to, stocks and equities and things that had ownership in a company. And then you allocated the remainder of your money, 40% to. Things that were safer, right? That didn't have as much volatility as stocks like bonds.
Then in theory have a very stable portfolio that would produce the returns that you need over the lifetime of your retirement.
What does the 60/40 portfolio have to do with the 4% rule? And this goes along with that 4% rule that in theory, you shouldn't run outta money in retirement or you'll have enough money to live off of and not really worry about a change in lifestyle.
And so it's heralded as the, word looked upon as the ideal middle of the road portfolio for retirees.
Bonds or Bond Funds? I see. And when we were also talking, we got into the discussion about bonds as stocks and bonds, and one could come away with the impression that you're not in favor of individual bonds.
So I actually am I love individual bonds.
I just think that very few people know how to buy them or actually are invested in them. And let's talk about that, right? So an individual bond, I'm loaning an individual company money. And when I do that there's the terms of the loan. Just like when you got a mortgage on your house, right?
That you got it for 30 years, right? Or 15 years. And there was a certain amount of interest and hopefully it was a fixed rate of. And so you had this payment that you were making on a regular basis to the bank, and everyone, all parties involved, knew what the terms were. Right? And if you didn't pay them, the bank had the right to foreclose on you and collect from your assets and in this case that your house, but they could also come after other stuff that they wanted to and they could repay that loan. And that's fundamentally how loans work, right?
And bonds are just the same thing, but to corporation.
Now here's the interesting thing about bonds, is that if I get a mortgage from the bank I can't, then sell that.That's not assignable to my friend, right? My friend wants to buy my house. I can't have him just take over my mortgage most of the time. The bank doesn't allow that.
However, with a bond, right? I can just sell that to anybody. Anybody can come up to me and say, I wanna buy your bond, and then we can negotiate a price and I can sell it.
What happens to bonds when interest rates change? So here's the interesting thing that happens is when interest rates start changing, people start negotiating. And, you usually end up having to give up. You sell it for a lower price than you paid for in order to get that return, right? Now here is where it gets. It gets really crazy, right?
Is that's fine and good. You loan a company money, you get your principal at the end, you get your interest while they hold onto your money. You're good. You're golden, right? I think that's great. There's, there are individual risks, but those can be managed if you go out and buy and do your research.
But most people were like we don't wanna do that. We don't have the time, we don't have the resources. We don't have the connections. We don't wanna research a million different companies to find who's got the best bond.
The Dark Side of Bond Funds... Instead, we outsourced it to companies, and you got these ETF companies and mutual fund companies, and these bond companies, these bond funds, where they aggregate all this together and they say, You can't pick the best bond, so we're gonna get, 30 of them or a hundred of them, and we're gonna pick it from all these companies and we're gonna do that selection for you.
We're gonna deal with the buy, buying and selling of them. . And we're gonna target a certain return.
Now here's the problem, right?
The best thing about a bond, the thing that makes it less risky than equities is that you get your principle. But you only get your principal back if you hold onto the loan until maturity, until the loan terms come due.
And the person who you loan the money back, your money too, gives you your money back until that day comes. You could, all you could do is sell it to someone else. And that's what these bonds bond fund do do. Very rarely are they, holding them until maturity. Most of the time they're just buying and selling them to try to get a, a certain return.
So in that regard, it's no different than equities, right? It's no different than day trading stocks to try to get a return. You're just doing it with a different instrument and you're calling it less risky because it's something that has characteristics that would be less risky if you used it the way it's supposed to be.
But the truth is a bond fund should be treated no differently than an equity fund, really no differently. In fact, it probably has more risk than equity cause less people are trading it.
Is there an alternative to Bonds? So is there an alternative to the classic mainstay equity, if you will, a fixed income mix? We've been used to for eons I'll just say since the nineties, as you mentioned in our last episode.
Is there an alternative to that?
So I'm gonna answer your question in two parts. So first I'm gonna say the first question is, are there alternatives to, bonds and bond funds? Is there something else that you can do that has that same safety that we've been told? Bonds are that they very clearly are not right or that they're very hard to access.
And the truth is that yes, there are alternatives, there are other ways of getting that same safety of. A guaranteed return or getting a, a more, less, a less volatile return with principal protection. Cause that's the primary reason why we go into bonds is that we don't wanna lose money.
Or we don't wanna risk all of our money in order to get that return. And so there are very much alternatives to that. Some examples. You probably heard, because I'm sure that everyone listening has gotten pitch this is some kind of insurance or annuity contract. Yes, those are the big, alternatives.
Bank CDs You also have bank CDs. Bank CDs for a long time couldn't give good returns. There's equity link CDs, but with interest rates on the rise, those are now a possibility. There are also all kinds of contracts like options. Exchange trade in notes and structured products, and there's all kinds of things that you can do where you can simulate that same kind of behavior.
The behavior of, I want to participate in the market, but I don't want to take on full equity risk. I don't wanna risk losing all my money. And there are, for every scenario that you can think of, there is someone on the other side who's willing to take that contract. So for instance, right now my firm is doing a lot of business with something.
Buffer notes and UITS, which are essentially what they'll do is this other company, like an insurance company, like an investment bank, they will say, okay, we will give you up to 20%. We will give you up to 20% of the upside of the market, but on the downside, we are going to eat the first 10% or the first 20%.
So you, it mimics that same kind of behavior that you. Not to the same degree that a bond is, not to the same degree that an annuity has, but it gives you that similar type of ability without having to put the same kind of risks or the same kind of limitations that you have with annuity contracts or that you have with bonds.
Is There an Alternative to the 60/40 Portfolio? So there are definitely alternatives. Now, to answer your question of, 60 40, is there an alternative of 60 40? I would argue you should have never done the 60 40. That the 60 40 was just a hypothetical concept that we came up with that basically said, take one asset class that, will, that's a long term asset class that will go up over time and then take another one that has less volatility and more secure.
Combine them together, right? So that we have the type of stability and the type of risk that we want for our. And I think that it's a job of every financial advisor, every money manager. Our job is to make sure that we can read the tea leaves, that we look at the data and we create for you a portfolio that does what you want it to do.
And you have different building blocks that you can build with equities and fixed income are just two of the building blocks. But you should use the different building blocks to create the experience that your clients want, that the people wanna have, right? And every person is individual in what they want that experience to be.
Both subjectively and objectively, right? Subjectively, I don't wanna wake up and see that, I've lost you 20, $30,000 or whatever that number is, right? My wife has a different concept of what conservative to her means to her, and we want to create an experience that works, right? And so for every person, that should be something unique.
And then you have the objective, right? Objectively, I need to have a certain amount of money to maintain my lifestyle. I need to have enough. I need to make my assets grow a certain amount so that I don't run outta money in retirement. And we need to find a balance between those two so that we have the retirement, that we have, the investments in the portfolio that we can live with, that we can sleep with at night.
That doesn't keep us up or, like the sleep mattress thing that, if I'm comfortable, my wife is also comfortable. Not that she's, it's at her expense that, okay, I get to sleep at night, but she's, up at night all all night because she's worried about the risks that we're taking on.
I think, that is my take on the 60 40 and how I think you should address it. So
what do you do during the retirement years? How do you make adjustments and changes as the economy continues to shift and
change?
Create Layers of Protection So I think that there are two fundamental concepts that I really like employing.
The first is what I call layers of protection, right? So we can't predict the future. I, I spend my life, looking at the data to try to predict the future. But ultimately at the end of the day, we don't have a crystal ball. It's gonna be a hundred percent correct. We don't have a crystal ball that was gonna tell us, that Russia was gonna invade Ukraine or that Ukraine would be able to withstand it.
No one thought that would happen, but yet that's the world that we live in. The consequences of that, with the, Russia cutting off gas to Europe and now Europe actually looking at the potential that they may have people going cold during the winter and they're trying to figure out to survive.
That's something that no one could have predicted, right? These events will happen and they happen on a fairly regular basis. So what we need is layers of protection, and that's number one. So we need to have things that aren't really correlated with each other, that will provide us protection so that if one of our layers of protection fail, the other one will work for us.
People, a lot of people think that the 60 40 provided that layer of protection, that you had equities and you had bonds and they don't work together. So therefore they're their same protection. They offer protection, but that's not the case when you know that they're gonna both have things happening at the same time.
We knew interest rates were gonna go up and we know that the Fed is trying to, rig on a correct. Because there's been basically too much money in the economy which is inflation. So we have those things that we knew they were gonna come. So that's another thing that's part two is you gotta read the tea leaves and say, okay, the longstanding beliefs that we had are changing the future is not gonna look like the past.
The Future Will Not Look Like the Past And so we need to make sure that the assumptions we have in our portfolio and the investments that we're doing are forward looking, not backwards looking. Lots of advisors will give you these reports and these analysis and they'll say look at how I did over the last 20 years. Great. How will you do over the next 20 years?
That's my question. I don't care about the last 20 years. I know what happened, right? I lived it. Now what's gonna happen in the future? That is the real question. We need to be able to survive what's coming tomorrow. And don't tell me that tomorrow's gonna look like the best. 20 years ago I didn't have an iPhone.
I didn't have a computer that I can put in my pocket. I didn't even dream that I would be able to have something that powerful. But that's the reality we live in, that we have kids who can't put down their damn phones. And that they don't like talking to people. You told me that 20 years ago, I wouldn't have believe.
That's the truth. That's our reality today. And you're telling this is a great case for living with financial anxiety. How can we get more information?
So if you go to my website, yields for you.com, I've got classes, I've got guides, I've got resources. And of course if you want, attend one of our upcoming classes or if you just wanna talk to me or one of my team members, go ahead, book an appointment.
We're more than happy to take a look at what you have going on, answer any questions you have. This is just something that we do for the community to help you guys retire and stay retired and live the life of your dreams.
It's interesting you said something about reading the tea leaves and in closing.
Do you think it'll snow tomorrow in new?
If we go with the accuracy of the of the weather for forecasters, right? It's what they're right. Less than 50% of the time. Listen, I think I'd do a better job than that, but there, I have no idea. ,
Hello libel. How you feeling today, sir? I'm doing pretty good. How about you? I'm doing well, and I'm really excited to talk about today's topic because we've talked about it on the edges before. I'll say it that way. Uh, I'm looking at, uh, the idea that.
Investing. In my opinion, investing strategies really don't get more classic than the so-called 60 40 allocation, holding 60% of your portfolio in stocks and 40% in bonds. And the thinking goes that you can get the best of both worlds, high growth potential from your riskier stocks and protection from your more.
Conservative bonds, but I was also seeing a report libel that this could be the worst year ever for the 60 40 portfolio. How do you stand on that? Well, , I say, Well, where I stand doesn't really matter. You know what matters is reality, right? ? Yes. And, and the reality is, uh, is that, you know, this is gonna be one of the worst years for bonds and.
Here's the thing, right? It's like, you know, people are acting surprised like that bonds are having a really volatile year and that they're all over the place and they've lost more than you know they've ever had in the last like 20 years. But here's the thing, right? We knew this was coming. Anyone who understands how bonds work, Fundamentally understood that this is what's gonna happen, that that bonds were going to take.
Now does that mean that people lost their money? It depends how you're invested. It depends how you have your 60 40. Um, and so when we think about these rules that we have about investing, about retirement and what we should do, And especially if you start looking online, right? It's, you know, we, we like to think that, you know, knowledge has been there for forever and that the internet's been there for forever.
But the fact is, is that the internet only really came into, into its, um, you know, into being, into being something that had had a lot of resources in the late nineties. Right, And so for most of the life of the internet, bonds have acted a very specific way because interest rates have been really, really low, artificially low.
And so all the people who are writing articles online and all the content that you can find online are based on this environment. That we've had for the last 20 years, which is not what we're existing right now. It's not what we're experiencing right now. And anyone who was invested, you know, at any period of time where interest rates were on the rise, where interest rates were being volatile and there was uncertainty about the future or inflation.
Would know that this is what was gonna happen. And unfortunately, uh, there's, you know, a lot of advisors haven't experienced that themselves, or they didn't understand what it meant that, you know, when interest rates go up and when inflation goes up and. They just stuck with the 60 40 because, you know, nobody ever got fired for, you know, purchasing an ibm.
Right. I'm sure you've heard that saying, . It's, it's the safe thing, right? If the SCC comes in, if an auditor comes in and says, Why did you allocate your client this way? You say, Well, 60 40, there's, you know, a whole lot of academic research. Everyone says it. 60 40 is a good thing to have for a retiree. You know, when you think about it, is it really a good thing to have?
Does it actually make sense? It really depends on what's gonna happen now and in the near future. And that changes, right? Especially when we have the Fed raising interest rates and central banks across the world raising interest rates. What do you think that does to loans? Right? So our mortgage rates go up, Well, bonds are just loans to companies.
Wow. Everybody libel sternbach with us this weekend and we're talking. The 60 40 portfolio, and I'm just so based on what you've just shared in response to my first question. In your opinion, do you think bonds are no longer safe in this regard? So I think that they were never sa, you know, quote unquote safe.
I, I don't think that you could treat any asset class or any investment, right as being safe. The only reason why they are technically safer than stocks is because if a company goes into bankruptcy, You have priority over the majority of shareholders, right? Because you are a debt and debts get paid before the owners of the company.
The owners are the last in line when there's a bankruptcy, so that's why people talk about it being safe. The other reason why they happen to tend to be like, you know, less volatile, I'm not gonna say the word safe, I'm gonna say less volatile, that they don't move as much as stocks. Mm-hmm. is because, They don't move as much as stocks because their value is derived by the fact that they're a loan, that you loan them, the company money, and the company is guaranteeing you a certain interest rate.
So the only time that their value is gonna change, right? Everyone knows how much that interest rate that you're gonna get on that is you loan a thousand dollars and let's say it's a 10% interest rate, you're gonna get. You know, a hundred dollars, that's, that's what your payment is for giving this loan.
Everyone knows it, so it gets priced in. Now, the only time that that price moves around is when people either fear that the company is gonna go bankrupt and they can't pay their creditors. Right. or if all of a sudden people can start using their money and get more, a higher interest rate, if you know all of a sudden companies are paying, you know, 15% interest and you're holding a 10% loan, right?
And you're only paying 10%, well you got one of two choices. You can either hold that to maturity, right, get your principal back, or you can try to sell it to someone else and buy something that pays more, right? And that's really where that volatility comes in. If you need to sell this, if you need to convince someone else to buy something that is below market value, right?
That everyone else is paying more and you have something that's, you know, pays less well, you're gonna have to take a hit so that the new investor can receive the same amount of profit as everyone else, right? And you're in a, in a bad situation, right? If you're, if you're forced to have to sell this, At, at, you know, a lower rate, at a discount.
Um, so people are taking advantage of that and that's what happens. So it's not that it's less, you know, it's not that it's more safe than, than equities or that it's, you know, there's something inherently safer about it. No, it's just that it tends to move less when interest rates move less when the bond market moves less When.
Loan prices are loo are are moving less. When the outlook for the future is stable, then yeah, they tend not to move. But when people don't know what company is gonna survive, right? When we're worried about a recession and they're trying to figure out, okay, who has good balance sheets, Who's gonna be able to pay off their debt, Who's gonna be able to survive?
And we have interest rates are moving. So people can go move their money elsewhere, make more money. Right. So you lose, you lose your buyers and you have to incentivize 'em to buy from you. Then yeah, it's gonna become very volatile and it can become even riskier than stocks. The only thing that you have with a, with a bond that you don't have with stocks is that if you hold it to maturity, you can get your principal back, assuming the company remains solvent.
So it sounds like, Go ahead. But there, But there's a catch here, right? Yes. Okay. How it used to be that people bought individual bonds, the vast majority of people don't buy individual bonds anymore, right? We're now buying bond ETFs and all these packaged products, so we don't get to control whether we get to hold it until, until maturity, and that makes it extremely risky.
And in fact, I think it makes it even more risky than equities because you know that they're buying and selling things at the wrong time because they. Well, interesting everybody. We're talking with libel stern box. So does that mean that does a fundamental, uh, a way that we manage our money when we're talking about saving for retirement?
Mean that if we're investing that in order to come out, uh, the wave that we would like to on the back end, that we do have to ride the wave the wave and accept the ups and downs of the market and the bond. So I think that you shouldn't ever ride the wave, right? Listen, unless, unless you're really young and you've got a long time ahead of you, right?
Then you can afford to ride the wave and the law of averages is gonna work in your favor. Um, but when you're nearing retirement or you're in retirement and you're taking money out of your portfolio, then you don't have the time to ride the wave. But not only that, but every time you have. And you take money out of your portfolio, you're, you're going further down than everyone else, which means it's gonna be harder for you to come back up.
So when everyone else, right? And when in your working years you rode it down, okay, You tightened your belt a little bit, but you also got the benefit from that dip by investing more during buying more stocks or more shares because they were at a discount. When you're contributing to your 401k or your retire, Come retirement when you're taking money out, that starts to work against you, right?
So I think very much as we transition into retirement, our mindset needs to not be, let's ride the wave. It needs to be, how can we smooth out the wave? How can we not be on the same rollercoaster ride that everyone else is? Right? Um, you know, you don't wanna be, you know, well, you know, I'm very brave and I'm, you know, I'll go, go on the big roller coaster, right?
No, you know, you wanna be on the kid roller coaster. When you're in retirement, you wanna have just enough bumps. That your money grows at the pace that you need it to grow in order for you not to have to change your lifestyle in retirement. Mm-hmm. . But you don't want any more volatility than you have to.
You don't wanna be holding on for dear life and wondering whether you're gonna puke your guts out. Right. And whether you're gonna still be around at the end of this ride. I love your analogies in life, but we're talking with libel Sternbach about the 60 40 portfolio and I, I get a. That, uh, with, even with the, the basic questions that are out there in the marketplace today, that there are many investors, either new investors or even ones who have been with, uh, with different companies for a long time, don't have a fundamental basic on what a bond actually is.
Can you level set for a lot of folks who are listening today, Yeah, the best analogy that I have for a bond, and forget about what it actually is, right? It, it's, you're loan money to a company. So think about, you know, your worst relative who comes up to you on the holidays and, you know, they're always, you know, drunk and they're always, you know, losing their money and they're asking you for money.
That's how you should treat a bond and what you should think about it is, right? So you're loaning money to somebody who you don't, you're not really sure whether they're gonna be able to turn it into something or not, right? The price of the bond, right? If you just waited it out until they paid you back, and maybe they'll pay you back.
Maybe they'll pay you back in a year when they said they would. Maybe they paid you back in 10 years, right? Then eventually they'll pay you back. That's fundamentally a bond. But how it works in your retirement, how it works in your portfolio, and especially these bond funds, I want you to think of a seesaw.
Right. Kids playing in a playground, they got a seesaw, right? One kid goes up, one kid goes down. On one side of that seesaw, you have your return, right? So that's the interest that's being paid to you on the other side, right? You have interest rates, right? And so as sorry, the price of your bond, right? So as interest rates rise, the price of your bond has to go down one side of your seesaw.
One kid has to go down in order for your bond to produce a. That's equivalent to the higher interest rate when interest rates go down, right? Your bond that's paying a higher interest rate goes up, right? And the other person on the seesaw is down in Europe, right? It's a seesaw, right? People think about it and you're like, Well, it's safer because usually it's flat, right?
Usually you have two kids who weigh the same amount and you know, words. One kid's just slightly heavier than the other, and everyone knows and they don't move and they don't jump up and down, and if they don't play around, But what happens when the kids start being kids again, Right? And one of them starts gaining weight and the other one is, you know, becomes antsy.
All of a sudden you're gotta, you gotta ride and it's going up and down, up and down, and you're losing your shirt. , what a great analogy. And we're talking about the 60 40 portfolio in different aspects of it. Do you have information on yields for you.com that we can access about the 60 40 portfolio? Yes, absolutely.
So if you go to my website, yields for you.com, you go on there, go to classes, we've got classes on investing, we've got resources under resources, we've got guides, we've got checklists, we've got on the blogs, we've got blogs on how to do it. But if you have any questions about your portfolio, if you want us to take a look at a second opinion, just hit that book appointment and we'll be more than happy to answer any questions you have.
This is just something that we do for the. All right. Libel Sternbach definitely is on fire this weekend. Be sure to join us next week when we'll continue this conversation on the 60 40 portfolio.
So what exactly is happening now in the world of crypto? I've seen some bankruptcies go across and people losing money.
Yeah. As Warren Buffet likes to say, and I love quoting this, a rising tide lifts all ships, but it's only when the tide goes out that you see who is swimming without trunks.
Right. . And that's never been truer than the last few months. People are calling in like the crypto winter or whatever, but basically what happened is you know, they. You have highs and you have lows, and everything has to at some point come down. Everything that goes up, comes down.
And as things came down, what ended up happening is we got to see who was operating. On the level who was taking appropriate risk management, who was being fiscally responsible with the trust that their customers had placed with them and who just didn't understand what they were doing and were taking on excessive risk.
And what I think is important to understand for our listeners who may not know what crypto is or how it all works, This analogy from from the guy who, who just Ftx that just crashed. He describes it as this. Imagine you have a box and you decide that this box has value and you give it value, and people see that you give it value.
So they put in more money in it. Now people are buying and selling this box that may or may not actually, do anything, but they give it value. That's what cryptocurrency is based on. It's that people collectively come together and decided that something had value. Now, Ordinarily if you wanted to buy and sell this box and trade it among each other, right?
It's a complicated technical thing. And so these companies have come along over the last few years to facilitate these transactions. They facilitate people buying the boxes and people selling the boxes. Like when you go to, TD Ameritrade or the New York Stock Exchange, or you go to your bank, right?
All these people are part. And the financial system, and they serve a purpose, right? Either they hold your money or they help you buy, and they help you sell. In the US right? In our normal, traditional financial system, everything is regulated. Everyone's got, their role to play and people oversee and make sure that they do what they're supposed to be doing.
Crypto is non-regulated, right? It's the wild west. And so what you end up having is you end up having people who are mixing and matching what they. Some people are taking on the job of TD Ameritrade and some people are taking on the job of traders and some people are taking on the job of, banks and they start, it starts becoming a mingle of what exactly they're doing and how they're doing it, but, All the average investor knows is they're giving me 16% return on my money
They're giving me like these outrageous returns, so I wanna keep getting it right. And nobody really was looking under the hood of how these things were working and. As the assumptions underlying their business model kind of, changed because, it's not always sunshine and rainbows.
They companies that weren't built to withstand the volatility they started crashing. What happened in the eighties with the stock market in the nineties when the.com bust, right? In 2000 where you had even more and you had the housing cr crash. All of that was people made outsize bets on the market based on false assumptions.
And when those assumptions came to be realized that they were false and the market pulled their money or wouldn't take the other side of their transactions, they went bust. Except we're dealing with a. A very small economy here. We're not dealing with a huge, international, dozens of countries on, trillions of dollars.
We're dealing with, billions of dollars. It is billions, but it's a very small segment of the economy.
We're talking with libel, sternbach, and we're talking about crypto. So how is it possible that all of these crypto exchanges are going bankrupt at roughly the same time?
, it's what happened with the financial crisis?
Or maybe a better analogy would be, the market crash of the 1920s, where what happened was, you had the stock market. People were buying companies and they were investing in them, but nobody had any real insight into what these companies were doing or whether they were valuable.
So much so to the point that like a whole bunch of companies that were listed on the New York Stocks Exchange were fictitious. They were just scams set up to take investors money and kind of in the crypto world, what you have is, you have a lot of that going. Where you don't have any transparency, you don't really know what it is that's out there.
And then you have companies being built upon this kind of these companies that may or may not exist, these tokens that may or may not exist, and they're trading them and they're making money, and money is changing hands, or this virtual money is changing hands. That at some point translates to real money and.
What ends up happening is there's inter-party interrelated risk. So one company takes an outsize bet, but five other companies are part of that bet. And so that first company goes bankrupt. The second company, you know the other five companies, they take a hit on their balance sheet. One of them, one of those next five companies may not be able to withstand the hit and they go bankrupt, and then the next one goes bankrupt, and it becomes a domino, except there was something else that also happened.
It wasn't just financial insolvency, it wasn't just risky trading. What you also have are mismanagement and misappropriation of client funds. Everyday average investor, they think of traditional finance and they try to translate that to the crypto market. They the crypto world, right?
They say I have a bank. And the equivalent of that in the crypto market is, the wallets and exchanges. And they try to act as if those things are the same thing as they are in the regular market, but they're not regulated. And so what you have is, Institutions, companies that are holding themselves out to be banks, they're holding themselves out to be trading firms or to be exchanges, and to have the same kind of protections and safeguards that traditional banks and traditional stock exchanges have.
But they didn't put the infrastructure in place to actually have those protections. And in the, in this case ftx, which just collapsed, it collapsed because they loaned out money to a related party to accompany the owner of ftx, the majority shareholder. Owned a trading company and then he made a loan to that trading company cuz that trading company should have gone bust.
But he made a loan to them of 10 billion. Oh my goodness. Yeah. 10 billion to his own company. But he, Where did that money come from? It came from customer deposits, which is not something that could have happened. It can happen. It just, it's, the laws and the regulations are against doing that in the financial markets, and there's oversight and audited financials, none of which exists in crypto.
So the way this got discovered was because somebody leaked the balance sheet that was actually months old. and somebody started asking questions. Questions that would've been asked in the traditional market, that never would've come up because everyone was, would be looking for it. You know what, what happened?
Why are these going, bust, it's. The analogy I like to lose use is, number one, taking on too much risk. Number two, you're dealing with something that fundamentally is based, it doesn't have any intrinsic value, right? The US dollar is tied to the US economy. It's based on the faith of the United States government, on the people that live in the United States of our manufacturing capacity, right?
People believe in our country as a whole. And our government as in a whole, and part of, and that's, very materialistic. There, there are actual things that you can point to, whereas, let's say Iran right? They their currency, right? Nobody cares about their currency. Nobody wants their currency or, some pod North Korea, right?
You're not, you can't use North Korean dollars to do anything or whatever it is that they use there, right? Nobody cares about it. But in the crypto world there's, hundreds, thousands of these tokens, of these currencies that come into existence and people give them value. So you had that going on.
And then when you add into it the fact that there's just this, this kind of incestuous in no insight, it's literally you're letting the fox into the he house and then you're wondering why your money goes missing, right? Why your chickens aren't there the next day. In there. And that's what happens.
So does this mean that crypto is dying? Will the patient survive? I'll put
it. Yes. So I think and this is something that I've been saying for a long time, that crypto, that at some point somebody was, something was gonna happen. Either was gonna be a government was gonna be threatened enough by crypto, or there was gonna be a fiasco like this, that, in that, that caused enough people to lose money that would cause governments to start regulating it.
So in this case, we have literal. It's thousands, tens of thousands of average Americans. People can own this in their 401K accounts, right? So average Americans, average investors just lost billions of dollars of what should have been secure, right? It should have been low risk. It's things that. Nobody in their right mind would've thought the, this is what would've happened to their money.
They thought it was safe. They thought it was just in the custody of, FTX or in these, high yield savings accounts and they didn't read the fine print. And as a result, they lost all their money, which this is what causes regulation to occur, right? The stock market crash, 1929 1929, right?
Stock market crashed. The s e c got created as a result of that cuz Congress ordered a probe and said a commission, and they investigated and said, Come back with what caused the market crash. They came back with a report that said, the, these were the underlying causes. Our recommendation is to create a commission, an agency that will, protect the public and we'll make sure that these things can happen.
Same thing's gonna happen in crypto. The, there's going to be something, especially when you have so many large investors, institutional investors, people like, Kevin O'Leary, BlackRock, Sequoia, right? These are the. These are, kind of pillars of the financial community when they got taken in these scams.
And it is a scam, right? It was embezzlement, it was every bad word that you can use in finance. Oh my. That's what happened, right? They're gonna call for regulation because or it won't get regulated and there just won't be any more money put into it. But yeah, it this is what's gonna happen and I think it's going to.
Unfortunately what, when? Once it starts regulating, it means that everything that has come beforehand, it's probably gonna get destroyed. And it's gonna be something new moving forward. And this is why you, It's very hard to pick the winners in the beginning, right? Everything looks like a winner until the winter comes.
We're just about out of time. Less than a minute or so. But do you have a report or more information that we can get once this program
is. So if you go on our website I'm actually putting together a detailed article on, if you wanna get the basics of, hey, this is what happened, this is what my outlook is for the future, and this, just so you can understand.
So when your grandkids come home for the holidays and they're talking about you knowd, and sbf and all these guys, right? You know what these words are, you know what's going on and you. You know how to protect yourself from, when they say, Oh, you should go buy, Luna or Dogecoin or whatever.
You'll have some basic understanding. So go again on the, on our website that article's coming out. So subscribe to our email list and you'll get that website
There are many ways to participate in the market without having to ride the Wall Street Roller coaster.
It is important first to identify what "safe" means to the individual and then create a strategy that allows for participation in the market without risking one's financial future.
One can also contractually limit losses through the use of options, contracts, buffers, structured products, and insurance policies. The key is to have a strategy that is designed to help you protect your savings while growing them during times of opportunity.
Q: What was the impetus for living with financial anxiety? Many people's biggest stumbling block to success is that they act out of fear.
When it comes to financial planning, this manifests as the fear of not having enough money.
The key to overcoming this is to find an investment strategy that allows you to enjoy life and make sound decisions without being ruled by fear.
We can't completely conquer our fears, but we can learn to live with them and make them work for us instead of against us.
Q: How do you deal with what the market is doing right now? When money no longer has a hold on an individual because their essentials are covered, they can view everything as an opportunity.
The goal is to have stable finances so that one can laugh at market fluctuations and view them as opportunities.
Q: Can you make money in the market without taking on risk? You can never eliminate your risk, but you can change what type of risk you have.
When we talk about the risk of running out of money in retirement or not being able to put food on the table, we need to make sure that's not a risk when we invest in the market.
If the risks we're taking on are risks that we're okay with, then we'll be able to sleep at night.
There are lots and lots of ways to manage your downside, including getting contracts and contractual obligations so that if the market goes down, you have a buyer who will lock in your downside and limit your losses or absorb your losses or transfer your risk.
Q: How do you limit your downside as an individual advisor? There are two basic ways to do it as an individual investor.
The number one is you find someone else who's willing to take on the risk, and you can do that using something called a buffered product or structured note or options.
And so these are essentially people who are willing to take the other side of that risk.
And so you say I don't want the first 10% of losses in the market. I don't want the first 20% of losses, right, which is where the vast majority of losses occur, right?
So you. Whatever that number is, I want you to absorb that first percentage of losses, and there are people who will take the opposite side of that bet any day, and in exchange, they'll say you don't get all the upside, right?
If the market goes up more than, let's say 10% or 15%, or 30%, whatever that number is.We want the upside on that. And you say, Okay, that's a deal I'm willing to take.
And it's constantly changing what those numbers are. But you find numbers that are comfortable with you, and you find a willing participant, and that's it.
Insurance companies have made a living out of doing that exchange over and over again.
Banks, right? CDs used to be the way to do that. They've become harder and harder because interest rates were really low. . now that they're coming. CDs are another way of doing that.
Structured notes, which is they're exchange-traded products. So I like to think of them as private annuities with more volatility that you can buy and sell. You can buy them. And there's lots of providers who, who have different versions of them. So it's just a matter of finding what you're comfortable.
Q: How do you stay disciplined? So this goes back to the initial discussion of living with financial anxiety. It is something that we have to accept – the highs and lows are part of participating in the stock market.
The only way to not be beholden to the stock market is to make sure that our livelihood and enjoyment of life are not tied to it. We need to be confident that our essentials will be taken care of no matter what happens in the market.
Once we realize that our future isn't tied to the stock market, we can see it as a game or a casino and something for us to win.
Q: Is there a safe way to invest in the stock market right now?
Absolutely.
There is a safe way to invest in the stock market, and safe is relative. You're giving up either upside or time or you're accepting a certain amount of risk. But what is safe for me and what is safe for you is a different thing.
The Key is to find the strategy and the numbers that work for you. And we have a process for doing that for our clients. If you're interested, reach out to us. I'm more than happy to walk you through that process. But there are lots of ways to participate in the market and feel safe.
Q: Any recommendations on how to learn more? 1. My book Living with Financial Anxiety 2. My blog and Articles 3. Classes that I teach
If you have any questions feel free to book an appointment or email us at leibel@yields4u.com
Q: What type of advisor should I hire?
A: The answer is, is the advisor who can help you, The advisor that you connect with..coming from the marketing side of this business, I have dealt with the full spectrum of advisors out there, from people who were completely unlicensed and were real estate investors, and other types of people who help people out of financial situations that just they weren't financial planners. They didn't have designations, they weren't licensed, but they did a job that was better. Or as good as most financial planners.
I've dealt with and I've experienced all of them, and I will tell you this right off the bat, and I tell this to everyone who I work with, each model has its own pros and cons and its own lens that they look through the world. But that doesn't mean that any one of them can't help you?
You could have a financial coach who is incapable of managing your investments but will guide you and steer you better than a person who can do sophisticated investments.
The real question you gotta ask yourself is:
Can this person help me? Do I connect with them? is there a basis for me to assume that they are going to be able to produce the results that I want?
Q: Should you only work with a Fiduciary advisor?
A: I don't think it's a fair statement. Let's talk about what a Fiduciary is, and let you jude for yourself.
The term fiduciary is hundreds of years old. It's probably thousands of years old. It is not something new to financial services, and it doesn't define a single type of financial advisor. And in fact, if you ask a lawyer, if you ask an insurance agent, and you ask a stock broker, are you a fiduciary? They all will feel or say that they're a fiduciary.
The question is, is really what capacity are they acting as a fiduciary?
In what instances are they acting as a salesperson in what they are asking? Or are they acting just as your friend? Or a planner?
And the truth is, is that very few of them know where that line is.
Their compliance department might tell them where the line is, but they may not know.
At the end of the day, I, I think I can count on one hand the number of advisors who have met, and I have met, you know, hundreds of advisors, gotten to know them really, really well. I can count on one hand the number of truly malicious advisors. The vast majority of advisors really have their client's best interests in mind.
Now, whether they're capable of delivering on that value, on that desire to help people, that's a separate question. But they all wanted the best for their clients.
So, the term fiduciary means I'm going to treat your money like mine, and I have a legal responsibility to do that. Obviously, there's gonna be limits on where that responsibility begins and ends, and that's a real question, but, at this point, the word "fiduciary" is more of a marketing term that very few people understand well.
Q: If you have some type of retirement plan at work, do you think it's important to have that retirement plan, uh, before working with an advisor or if you've got one at work, do you even need an advisor?
A: Great Question! If you work for a fortune 500 company, chances are you can access a certified financial planner or some other type of planner through your work benefits. A a lot of them, as part of the 401K package, will provide some kind of planning services. So you may be able to tap into that before you have to hire an advisor.
Having said that right, the retirement plan that you have at work is kind of limited to work, right? It's designed to help you save for retirement. They'll help you. Some of them are salespeople, and they'll sell you other types of policies. Some of them are working for the plan administrator, so. You know, this fiduciary word coming in. Again, the fiduciary of your retirement plan, of your work plan has a responsibility to you as the, you know, participant in the plan. And one of those is to educate you on the decisions that you make of what investments to choose and things like that. So they will provide resources for you.
Having said that, those resources are gonna be limited. They're not going to do in-depth planning for you, so you may want to engage a financial advisor.
Q: When Should You Hire a Financial Advisor?
A: When you start asking yourself those questions, "when should I retire?" or "Do I have enough?" that's the point where you wanna start talking to financial. And potentially engage with them to start managing your money or to help you plan.
The question of how are you're gonna transition from working into retirement? Because the dangerous part is really that transition period, the five years, five to 10 years before retirement, and then the first five to 10 years of retirement are, we're a mistake that gets made, whether it's you retired a little too early, or you invested it, you know, and you took out money in a down market.
There's all kinds of like little hidden gotchas, but that's where mistakes are very hard to recover.
Q: What Should I look for in an advisor?
A: The attributes you wanna look for right, is you wanna know what is their knowledge base? Most states don't regulate the term, and it's not regulated on a federal level, So anyone can technically call themselves a financial advisor.
So you wanna know first what makes you a financial advisor?
And they may tell you, Oh, I have an insurance license, or I, you know, I passed this, this designation from this college, or from this, you know, uh, governing body, right? Or they may say, I've got this license from this other governing body. You wanna know what makes 'em an advisor?
The next question is, what makes you an expert in retirement?
Right? Maybe this person is just really good at. Maybe this person's just really good at stock picking. So you look at, you know, what, what makes you a financial advisor? What's your education? What's your experience? And then ask them, what is your philosophy, right? What is your approach? How are you gonna solve this problem for me?
And you should get that. All of that should be, you know, they should communicate that to you before you sign an agreement. Right. And, and this is something that I teach all the financial advisors I've ever worked with, right, is really before the first meeting or if the first meeting, you know, between the first and second meeting that all those questions need to be answered.
Because if you, as the consumers, you, as the person who's hiring this person has any question as to what that experience will look like, what, what it'll be like to work with this financial. Then you shouldn't work with them. You should not sign on the dotted line. You need to know what you're buying because getting out of an advisory relationship is usually pretty difficult. You may think like, Oh, well I'll just go down the street and hire another advisor. But we both know that that involves signing lots of paperwork and waiting for things to transfer. And, and the real problem is, is when those assets are transferring, What? It depends what's happening in the market because you may lock in losses, you may miss out on returns, You may, who knows what's gonna happen.
So you want to try to find someone who can really work with you long term, uh, rather than, you know, shopping around. But you wanna shop around beforehand, right? So if you don't get a good vibe from the first advisor, go down the block to the second advisor, right? You there? There's no reason not to shop.
What is the 4% Rule? A: It seems like even the people who seem to think that they know what the 4% rule is, and once they start talking, you kind of realize that everyone has a different impression of what the 4% rule is. And when you start actually digging into it, you discover that it isn't quite what anybody thinks.
What People Think The 4% Rule Is The media and people have this idea that the 4% rule is, if I only took. 4% of my portfolio every single year. I would never run out of money in retirement. People have latched onto that idea from different studies, and when you start diving into it, you might start to question whether it's something you actually want to rely on.
Want to Learn More? Attend an Upcoming Class or Watch a Replay of a Previous Class Here. What the 4% rule is really trying to do is predict the future. And we both know, right? You can't predict the future. So then we start looking in the past, and we go, Okay, historically, things have happened. So if historically, if things continue to happen as they have and the future. Is like the past, then therefore this would be a safe number.
Right? And now we're starting to read into the tea leaves. And so if you don't even know what the assumptions are behind the tea leaves that you're reading, then before you know it, right? You're, who knows what you're building on.
The 4% Rule Says You Need 25x to 30x Your Annual Expenses Saved So when we think about the 4% rule, right? Another, another way of phrasing that is you've probably heard, you know, uh, save 25 to 30 times your annual expenses, right? That you should have, that your retirement number, that the amount that you should have saved should be 25 to 30 times what you spend in a year.
Mm-hmm. . If you think about it 25 times, right? So if you took one and you divide by four, it becomes 25. Ah, yeah. So the 25 rule, 25 x rule, right, of 25 years or 30 years is essentially saying the 4% rule, right? It's a mirror image of that. Um, but it's for different reason. Um, and that's kind of where people come up with this number of how much money should you have saved up for retirement.
It's based on this 4% concept that if you somehow took out only 4% a year, that you would be okay. Right? And. It's, you know, is it based on something? Well, let's talk about that. But that, that is what it's based on. It's based on this idea that if you somehow only took 4% a year, you would never run outta money in retirement.
And let's just, you know, between the two of us, let's be honest, right? Realistically speaking, there's a lot of people who may not even have that much money in savings, right? They might not have 25 times their annual expenses save. So are we telling all of these people that they can't retire? Right. And if we're telling these people that they can't retire, Right?
Well, reality has a different outlook. Right? Reality is, well, these people can't work anymore or they, they're not getting a job anymore. They get fired. Right? Or they're forced into retirement. Mm-hmm. . But now, right? So there's this whole world of people. Just, you know, they got to 65 or they got to 70 or whatever that year was, or they had an injury at work and it forced 'em to retire and they don't have 25 times their annual expenses saved.
They don't have, you know, enough that they can take out 4% every year and be okay. So are we telling these people they're not safe, that they're gonna run outta money in retire? Um, and I think when we start diving into, you know, what, where the 4% rule came from and you start looking into it, you might question and say, Well, okay, maybe I don't actually need that much money saved in retirement.
Maybe I could take out more than 4% and still be okay.
Is the 4% Rule Something You Can Live By? I think that as a rule of thumb, right, if you are, if you're trying to gauge whether you have enough money for retirement. if we only took 4% out of our portfolio, out of our life savings and that covered our expense needs in retirement, then we are doing awesome, right? Because I, we can definitely create a retirement plan around 4%.
if 4% is not enough, right, and you still have a shortfall, I don't think that you should at that point give up and say, Well, I have to work longer, or I have to cut my expenses. I think it just means you gotta be a little more creative in how you structure your retirement because that just means that this rule of thumb doesn't apply to you and you're gonna need to use other factors to fund your retirement.
What is the Trinity Study and How Does it Apply to the 4% Rule? So the Trinity study, which everyone kind of like looks to and calls, you know, the 4% rule or the Trinity, you know, the Trinity study, which was, you know, Trinity University, which is where these professors were, actually came on the backs of another study that was done by a retired financial advisor, Uh, John Big, um, if I'm pronouncing his name right, I, and he's, you know, both them and the people who created that Trinity study have come out multiple times over the years.
Updating their rule. Um, but let's let, let's talk, take a look at the fundamentals, right? Both be and the Trinity guys, right? What they looked at was, they said, Let's start with the question of how mu, how, how, how can we structure a portfolio so that someone would not run out of retirement money during retirement, right?
So that they would not deplete all of their savings by the time that they died. That was the question that they asked themselves right now. They said, Okay, how are we gonna structure this? They, this was, you know, 1998 was the first study that was done by the Trinity University, right? These guys. So they went back historically and they looked 1925 to 1995.
And they looked at different periods of the stock market and the bond market, and then they looked at the returns and they were like, Okay, what percentage could we take out of a portfolio over a 15 year period or a 25 year period that if we took that percentage would consistently allow the person retiring to still have money when they died? Or at the end of that 15 or 25 year period.
Assumptions That No Longer Hold True About the 4% Rule let's look at some of the assumptions of this study. Okay.
Assumption number one is that the past is gonna look like the future
We starting in 19, right? 1925 to 1995. Right. Let's talk about all the changes that underwent the world, right? We're, we're talking about, you know, coming off of World War I, right? World War I. Right. Um, we have, we have Cold War, we have the space race, We have hyper inflation, right of the seventies. We had Soviet Union in 87, right?
Defaulting on their sovereign debt for the first time. Collapse of the Soviet Union, right? And then we have the.com boom. So this was literally in the height of the.com boom, was where the study ended. Um, and the first study in 1995, during that period, also, by the way, right? We went off the gold standard.
So in 1925, a dollar was worth a dollar of gold. You can go and exchange that dollar bill for a dollar of physical gold that you can buy things with by, you know, 1970, you couldn't do that anymore. And that completely, that's part of what drove inflation and that completely changed economics. We had globalization, we have technology, right?
The world did not look the same. The stock market did not look the same. 1925, you wanted to buy stocks. You literally went down to Wall Street. But nowadays, right? You wanna buy a stock, you go online on Robin Hood, and you can have that within a few seconds.
What validity does the 4% rule still have for us today? I think that concept that you should look to the past and then say based on that what I can expect the future to look like, let's use some statistical analysis to say what we can take out of our retirement each year. I think that was the innovation that they did, that they introduced this concept to the finance world.
Like, Hey, don't just guess at this. Do you some analysis. But beyond that, the numbers change. They literally change, you know, every few years. Because the stock market, depending on whether we're in, in a beer market or a bull market, will determine what the future expectations are for the return on the market now over a long enough period.
Yeah. Those numbers will kind of even out. But I, I, I mean, I, I think everyone will agree that the bond market has changed significantly from 1925 to 1995 or even to, you know, 2015, um, or 2022. Right. Exactly. And, and what's gonna happen in the future, right? It's not going to mimic what happened in the last 20 or 40 or 50 years.
How Do You Use The 4% Rule In Your Retirement Planning? So first of all, the further away you are from retirement, the more the 4% rule is a good rule of thumb. Ah, uh, it's when you actually get to the point where you're like, Well, I need to start taking money out of my account, right?
I actually need to retire. Do I have enough money that the 4% rule becomes a, a problematic? Now, here's, I do use the 4% rule in my planning, but I use it in the way of saying, are we, do you know, do we have a thumbs up of like, we have enough money or do we need to do additional work? To see, do we actually have enough money to retire?
Because if we have 4%, the way I look at it, right, it, the, the stock market, when we look at the historical returns of just the s and p 500, so you're just invested in the top 500 companies and the United States. When we look at the historical return that that has had over the last 200 years, that has averaged 6.7%.
After inflation. So that means no matter whether inflation was like 10% right, or inflation was, you know, 1% after inflation, statistically that has returned an average of 6.7%. So if I only take 4% from that, that still leaves me with 2.7% to put towards next year's retirement and my future, right? So I'm still accumulating wealth over the long run.
Probably end up hurting you as any financial planner will tell you, but as a rule of thumb, do you have enough or not? Or do we need to figure out how to cut expenses or increase our income? I think is a good rule of thumb because worst case scenario, You know, a hundred percent invested in the stock market, which everyone says not to do, right?
But if you had to, you could be a hundred percent invested in the stock market and you would be okay. Right. So I see it as kind of a green light, red light thing of are we, are we safe to proceed with our retirement planning or do we have more work to do?
What if I don't Have Enough Money? So you're not in trouble, Right? I, I would say that right off the bat, right? Just because you're gonna run outta money, just because it says you're gonna run outta money doesn't mean you're gonna run outta money, right?
Because it is trying to project into the future. It's trying to look at it crystal ball, It's making assumptions that may not be. Right. So what we wanna do, right when it says, when it starts fr uh, flashing red lights, all that says is one, we gotta be super careful about the decisions we make because every decision that we make is gonna have more of an impact on us than it will have on regular people, right?
So that's number one. Number two, it means we probably will have to get creative. Like, something that I didn't mention about the Trinity study is they found that that 4%, it went along with a portfolio that was 50% equities, 50% bonds, which right now anyone would tell you would be nuts. So the, you know, they, over time that changes and it's all based on, you know, what historical returns and what the projected future returns are.
Mm-hmm. . So we may need to take on more risk or we may need to say, you know, we need to. Prepay some of your expenses to bring those expenses down, right? There are things that you can do. All it does is it says where you need to focus your planning. It does not tell you whether you can retire or not.
Q: What type of financial advisor have you found to be the most helpful for those on the verge of retirement? (2:11)
A: This is a little bit of a trick question of, you know, when we're thinking about financial advisors and retirement, there's a broad spectrum of people who can help us.
It's important to understand where each of them is coming from so that we can understand the type of advice that they're giving us. Each person has their own perspective and their training that will influence the solutions that they find.
Financial Advisors are Like Hammers!
When we think about financial advisors, I need you to think of this analogy, "to a hammer, everything is a nail." And that has never been truer than financial services in financial services. We have a whole bunch of really amazing people who are super passionate about what they do. And they're super passionate about helping people. And they learn some amazing tools and how it can be used in lots of amazing ways. And then they go out, and they try to apply it to every situation.
The thing is, these tools can be used in every single situation. Now, does that make it the best tool for that situation? No, but it is an amazing tool for that situation, and it can be used that way. And it has been used successfully by lots of people, but that doesn't make it the best tool.
And unfortunately, the financial services industry is. Still, I would say a little immature when you compare it to some other industries in that we don't have standardization. What we call things and what the different roles are of people in our industry.
When you go to, you know, get your taxes done, there's basically two people that you're gonna deal with. You're gonna deal with a tax preparer, or you're gonna deal with a CPA. And in order to become either one of those, there's a set process to become a financial advisor, to call yourself a financial advisor. It doesn't take anything. In fact, in a lot of areas, it's not even a regulated term.
So when you're looking at finding somebody to help you in retirement, you are going to find a huge spectrum.You will find on the one side, people who are like financial coaches, and then on the other end of the spectrum, you will have, you know, these full-service boutique financial advisors, wealth firms that have people working in their office that specialize in all the different specialties, such as retirement planning and the entire gamut in between.
What to look for in an advisor:
So when we're looking for a financial advisor to help us with retirement there, what we're really looking for is:
- somebody who we can work with,
- who is experienced in helping people transition into retirement.
And then we need to go shopping because we need to know what it is that we're looking. and we need to find somebody or maybe multiple people who can provide that solution.
Q: Do you need a financial advisor?
A: I think that it's very doable to do it yourself, but I think also if you wanted to. Hire someone, you need to have a basic set of knowledge so that you know who you are hiring and what they're gonna do. And oftentimes, it means hiring multiple people. So how do you find, a good financial advisor?
How to Find a Good Financial Advisor:
Compensation:So the first thing that you wanna do when you're looking for a financial advisor is you wanna understand how they're compensated is going to be the biggest bias in terms of what they're gonna recommend.
so going back to that hammer analogy, if you are talking to an advisor who all they, the way they get compensated is by selling mutual funds, and they exist. They are always going to find a mutual fund solution. So you need to know that going in that this person, this recommendation you're getting is gonna be mutual funds.
It's kind of like going to a, uh, you know, an ENT and saying my throat hurts. Well, they're gonna tell you that your problem is your throat. And if you go to an allergist, they're gonna tell you, you're probably having an allergic reaction to the pollen. Right.
So, Financial advisors, find out how they're compensated, right?
EducationFind out what their education is because each of them will have different levels of education.
Some are only licensed, and if they only have a license, that literally means that they just passed a hundred-question test. So that doesn't mean that they actually have any formal training in, in your area that you need in retirement. It generally means that they understand somewhat about products.
Values
and then you wanna find out what their values are, what's their outlook in life. What, what's the world view that they view the world as what's that lens? Because maybe they view the world differently than you.
I've worked with a lot of advisors who do not understand how the markets work and they view it as gambling and. Maybe that aligns with you, or maybe that's really against everything that you believe in. So you need to find an advisor whose philosophy and their approach to life match what you want.
Ability To Deliver Results
And that has the technical capability. and then the actual ability to deliver, right? So you may have an advisor who you philosophically, you believe the same thing and you want, you know, what they say? And they, they, they have the education of being able to create a great retirement plan and great tax plan and great investment plan.
They may have all the credentials, but they're working at a firm that doesn't allow them to implement it. For instance, if someone works at Morgan Stanley or an Edward Jones or a primemerica, or, you know, any one of these companies, they're called captive companies, and they restrict what solutions their advisors can sell.
They only let them provide solutions within their fund family, within their toolbox of solutions. And so it may be very possible that there's a better solution with a different company, but they're not allowed to recommend it. And so you want to know that that bias exists. That doesn't mean that they can't build you a great plan. But they may not be able to build you the best plan, or they may not be able to tell you that it's not the best plan. So you need to understand where those biases are. Um, and, and there are people who are completely independent, but that doesn't mean that they're not biased, right. They may be completely biased against captive people who have restrictions on them.
As an Investor, You Should Be Able to Hold Your Advisor Accountable
So you just wanna, you want to go with your eyes. And I think I've come to the belief that you, as an investor, you, as the person who's hiring these people, you need to have a basic set of knowledge to be able to hire them because you need to hold them accountable. You need to know how to ask the right questions so that, you know, are you, are you being sold something or are you being advised with, you know, with your best interest in mind?
To learn more about how to hire a great financial advisor, check out our free course "How to Hire a Great Financial Advisor."
Or book a call with a Yields for You affiliated advisor.
Q: Is there such a thing as "winning" when it comes to investing? (1:58)
Q: What should we be thinking about when it comes to investing for retirement right now? (3:20)
Q: Can you talk about what people mean when we hear that you should be diversified? (6:30)
Q: Is there ever a time when diversification is not a smart thing to do?
Q: how do you determine then what's the right investment for you? (10:26)
Q: Is there a right time for investing for retirement? (12:00)
Q: I wanna make money, but Leibel, I don't wanna lose it all too. Do I have any options? (16:18)
Q: What mistakes do you see most often when people are investing for retirement? (20:48)
Q: So to avoid those types of mistakes, what kind of mindset do you need to have in addition to that plan, to make it easier for you to be really successful in investing and especially for retirement? (23:08)
Q: At what point should we start, uh, looking at the road signs or reviewing our investment, so to speak? (25:52)
Q: My last question, how do you feel about having to rely on investments solely for retirement income and that's all you have? (27:41)
Q: Is there such a thing as "winning" when it comes to investing? (1:58)
A: I think when it comes to retirement, we need to not think about winning. What we should be thinking about is; achieving our goals!, I think that when we focus on winning or losing, it can be easy to get caught. In the hype of the market and we can get caught up in all the noise that's out there that's just screaming for our attention. When what we need to really focus on is what is going to help us achieve our goals, or is it going to hurt us or impede us from achieving our goals.
As long as we are moving in the right direction, as long as we've got a plan, then who cares what's happening in the market, right? Who cares whether somebody is winning or losing, what matters is, you know, what we're looking to accomplish and whether we will have a roof over our head, food on the table, or being able to splurge on the grandkids.
Q: What should we be thinking about when it comes to investing for retirement right now? (3:20)
A: Just to recap, and I'm gonna keep repeating this over and over again. There are really, there are two things that we can control when it comes to investments, and those two things will affect everything.
And, and it really is this simple, anyone who tries to make it more complicated. That is the biggest red flag to you, telling you that they don't understand how the markets work, that they don't understand what they're doing and that they're buying into the hype in one form or another.
And there's hype on both sides.
There are some people who are very against investing in the markets, and there are people who are all for it. And you really shouldn't be on either side of those. But we should be on the side of the two factors that we can control; how much risk we have of losing our money or of our money going to zero. So we can control that.
And then we can control how much time we are giving up access to our money? Right.
And the more that we give up access to our money, that's also referred to as time horizon. So the longer we can wait for the return on our investment, the greater our chances of return, and the more risk we take on the greater our chances of return.
And those are the only two factors, right?
So if somebody shows you something and they say, and it looks like it has really great returns on really low risk. Then either you're giving up time, or it's pretend. And that's just how it is.
So when we talk about factors. It's how much risk, how much am I risking giving going to zero and how much time am I giving up?
And then there's another factor that we need to look at. And this is a non-financial non-numerical number, and that's our personal peace of mind, right?
Because you could have an investment that does everything that you wanted to do, but if it's, you know, going all over the place and it, it looks like, you know, a heart tracing on Grey's Anatomy or something you're, you're not gonna be able to sleep at night.
I don't care who you are unless you're a psychopath. You, aren't going to be able to sleep with those ups and downs. And so you need to create for yourself a consistent system that produces the returns that you need with risk and volatility (volatility, being the ups and downs) that is something you can live with.
And there are no right or wrong answers of what that should look like or what that, what it takes to do, there is only the math of, you know, risk and time horizon.
Q: Can you talk about what people mean when we hear that you should be diversified? (6:30)
A: So diversification is this idea that, and, and it's mathematics, right? We're talking about math and statistics. So if I am, if I own an apple orchard, and all of my work and effort and money is tied up in apples, and something were to happen, right. It rains too much. There's a storm, right? My entire net worth can be wiped.
So, what I would want to do is I would want to split my money between, let's say, you know, apples and something that would be the complete opposite of apples, some other type of thing. So let's say real estate, right? If something were to happen to an apple orchard, it probably would not affect the prices of real estate.
So now I'm gonna split my money, 50% I'm gonna put in apples. And 50% I'm gonna put in owning apartment buildings. And so if something were to happen to one of those investments, I still have half my money. And what ends up happening is one of my investments is up by 10%, and one is down by let's say 5%.
Well, I'm still up 5%, right? Because of the math, that's involved in there. if I'm up 10% on one and down 10% on the other, well, they neutralize each other. And I, now I have a 0% loss and that in its simplest form is diversification. It's spreading your risk around so that no one thing. Can hurt you, right?
Diversification is the embodiment of that adage of don't keep all your eggs in one basket.
That is what we wanna do with diversification. We wanna spread our risks out so that if something happens to our one basket, we do not get killed. We do not have to start from zero.
Q: Is there ever a time when diversification is not a smart thing to do?
So there's something called Deworsification. And I talk about this in-depth in my course. but Deworsification is when you do things that you think are diversifying you, but in reality, you're just concentrating your risk. And so you think that, I have five different types of eggs. And five different types of baskets.
So therefore, I'm protected. But in reality, because of the baskets you've chosen, they actually have a compounding effect, and you really only have two different types of baskets and two types of eggs, or maybe you even only just have one type of basket and one type of egg, but they're different colors.
So you think you're diversified and protected - but you aren't.
And the crazy thing about this is that it happens all the time because there is a lack of transparency in the industry. And, and it's not that the information isn't out there for you to find it's just not easily accessible. Something I say over and over again is the definition of a profession is that there is a barrier to entry, that a Joe Schmo off of the street, can't just become an advisor. So what are the barriers to entry, what do we do? We have a hundred question exam to stop them, but it's just a hundred questions. Anyone can pass that. So what do we do? We call things by a million different names. so that it becomes confusing. And it becomes difficult for the average investor to really tell what they're owning.
And so you gotta be able to know where to look and how to look so that, you know, am I actually diversified or do I have something that is actually increasing my risk?
Q: how do you determine then what's the right investment for you? (10:26)
A: There isn't really a "determining the right investment." What there is, is a balancing of the factors, right? You need to start with the end in mind.
What do I need as a return on my money? Because you should have a retirement plan. You should have an idea of what you need your money for. And then, and, and the answer could be as fast as possible, but you want an answer to that question, and then you work backward and and ask what can I invest in that will give me that kind of return?
And those are easy numbers to find out, right?
We can see what something has historically done. And then you kind of just combine it, right? You combine high-risk things with low-risk things, and you, you just balance it out. So that you're the risk that you're taking. Is a risk level that you're comfortable with, and it has a high chance of giving you the results that you want.
Now here's the great thing. Right? 10 years ago, 15 years ago, you probably needed, you know, advanced training to be able to pull something like that off nowadays, you can buy a single mutual fund or buy two or three mutual funds, and they will do all the work. You just need to know when you go shopping that this is what I'm looking for...
Q: Is there a right time for investing for retirement? (12:00)
A: Yesterday is always a great time.
Freddie: thanks a lot. Live. Well, I feel better.
Leible: Yeah. Um, I, I actually stole that one. who was it? I think it was Merrill Lynch who was running an ad that's what it is, though. The best time to invest is yesterday. but, but that really is the truth, right? It's whenever you invest, right, you want to invest as often as possible and as, as frequently as possible, when it comes to retirement, what we need to be aware of Is not the "are we invested or not?" It's are we taking on appropriate investments?
Do we have a plan for how we're gonna turn our investments into an income stream when we're working, and we're earning money, and we can replenish our savings, and when the market goes down 20%. That's a sale for us, right? When we are working, we can invest more money. We're buying it at a lower price. or we can take on a side job. We can take on extra hours at work. We can come cut back expenses to be able to, you know, whether that 20% correction or that 40% correction, when we get into retirement or as we get closer to retirement, and we start to liquidate our assets and live off of them, all of a sudden, we need to make sure that we have a plan for how we're selling those assets.
Right. And so the question isn't, when's the best time to invest? The best time to invest is always now. The question is, how do we make sure that when we are divesting, when we're, selling our assets, that we're selling it in a way that doesn't hurt us long term, right? Sequence of return, which we've talked about in previous shows, Google it on my website.
https://www.yields4u.com/blog/search?q=sequence
We've got multiple guides about this. Multiple articles. The sequence of return is real right now when the market is down, you do not wanna lock in those losses. Accelerate them by taking out money simultaneously because now you're making your money and have to work even harder.
It's like being in a car going downhill, right? And if you're going downhill and you go slowly, downhill, your car is gonna have to work even harder to go back up the hill. Whereas if you accelerate, when you're going down, you're gonna be able to use that momentum to go back up. And that's really what the stock market is. Right. Everyone gets scared when the market is going down, and they start putting on the breaks.
And you hear people going, "oh, I don't wanna take on the risk." Right. And it's scary if you've ever written a bicycle down a hill, right? You know, the faster you're going, you start to feel out of control, but. Anyone who has ridden and not hurt themselves knows that the secret to going downhill is to make sure that you maintain a speed where you maintain control, but maintain that speed so that you can go back up that hill. Because if you don't maintain that speed, now, all of a sudden, you're working a million times harder to, to go back up and. Unfortunately, in retirement, we may not have the ability. We may not have the stamina. We may not have the strength to make it back up the hill.
Q: I wanna make money, but Leibel, I don't wanna lose it all too. Do I have any options? (16:18)
A: Yes, you want to invest in the market, and you don't wanna lose it, all right, you have two factors that you can control, right? Think of these as levers or knobs, and by dialing these in, you will be able to determine how much risk or how much potential loss you're comfortable with and be able to dial in the return that you want. And the first one is risk of loss, right? So you can choose to Invest in things with a higher risk of loss versus lower risk of loss.
And then the spectrum on that is anywhere from people, contractually obligated to give you your principal back. So simplest form, Bank CDs, you will always get your initial money. Bonds, right? You give a bond, you buy a bond. And at the end of the bond, whether it's five years, 10 years, whenever it matures, you are gonna get your principal back.
With a bank. If the bank goes bankrupt, you'll get, you know, insurance payouts, FDIC, with a bond, you'll be able to participate in the bankruptcy proceedings and get the money from the company. When it liquidates itself, you won't get all your money back, but you will get some of your money back.
How much of your money is at risk, and how much you'll be able to get back? What are the chances of losing your money? That's really a spectrum, right?
Just like we have, you know, what's it like 90% of startups fail within the first two years? Well, when we're thinking about, companies that we can invest in or that we can loan our money to, you have a spectrum of risk. You can invest it in brand new companies that are startups and have a huge amount of risk of failure. Or you can invest it in companies like IBM that have been around for over a hundred years and probably are not going anywhere. They're not going to make, you know, massive profits. They're not going to, you're not gonna get huge returns, but at the same. They're not going to go bankrupt overnight. And even if they do go bankrupt, the chances of your money going to zero are kind of mill, right? Because, because they own so many physical assets because they have so many investors because they're so integrated into so many aspects of society that if they were to go bankrupt, it would hurt so many people.
There's going to be protections around them, right? So you can very much dial it in. The other thing that you can dial in is how long you are willing to give up your money for right. The longer you're willing to get to wait for your return, the greater of a return you can get. And that's a spectrum as well, right?
Let's take day traders, right? Day traders. They don't give up their money for any period of time. Right. It's literally the, for a few hours, they'll give up their money and if they wanna make any kind of significant return, right? Cause for the vast majority of days, the market doesn't move very far in a single day, right? I think it's the average movement in a single day is under 3%, a 3% return on your investment. And in a single day, isn't a lot of. It's not a lot of money. So in order for a day trader to make any kind of money, they, they have to invest either millions and tens of millions of dollars, or they need to take on a huge amount of risk, and they need to turn $1 into $20 or $50.
And they do that by borrowing. They do that by using risky products that have leverage built into them. So that they're no longer investing in the company, they're investing in a thing of the company or a bet of a bet, of a bet, on the company so much so that the speculation that the traders take on is actually codified in law is not being gambling because by its very definition of what they do, It meets the definition of gambling and would be illegal.
Q: What is the "market?" (1:30)
A: Generally speaking, when we talk about the market in general terms, we're talking about the stock exchange and the ability to buy and sell pieces of a company or pieces of a loan to a company. The stock market allows me to own a fraction of a percent of the company and participate in its profits.
Now, there are lots of different things that we call the market I can own equity in that [company or] that stock, it's no different than going into a business partnership with your friend...other than it's regulated. Now that's one reference to the markets.
Another reference to the markets, and this is what you hear on TV a lot when they say, the market was up 5%, or the market was down 5%. What they are referring to is usually a basket of companies.
There's a company called standards and poor, and they've been around for over a hundred years. And what they do is they compile lists of companies and group them together. And so one of the most common ones is what's called S & P 500.
The S&P 500: is the top 500 companies in the United States. And when [the price for those companies] move, when people are buying and selling them, and willing to pay a higher price for them, then the market overall moves, and it can be an indication of how the overall stock market is behaving.
So when we talk about the market, we're referring to lots of different things, but in general, what we're referring to is the fact that you can own pieces of this company, of these companies kind of move together.
Q: So is the S&P 500, aka the "market" like a barometer of our stock financial health? Or of the country's financial health?
A: So in the United States, the S&P 500 is the top 500 companies, but there are thousands and thousands of companies in the United States.
And when we look at the S&P 500 itself, there are times, such as now, where that list is dominated by just a few names, you know, Over the last few years, you may have heard the term FANG, which stands for, Facebook, Amazon, Netflix, and Google.
These companies make up the vast majority of the S&P 500's networth. They're not the bulk of the United States economy, right? Not by a wide margin. They, they are significant. They have lots of money, but when you look at the S&P 500, what you're really talking about is these tech companies. You're not talking about the mom-and-pop shop, that's selling, bagels and danishes around the corner. You're not talking about the pizzeria. They are too small even to be noticed, and what affects Microsoft doesn't really affect them. So it's, it's an indication of the overall health...but it can easily be distorted by these large companies.
So it's important not to equate economic our economic health with market success. Right? What happens in the market is not related to what happens in the economy.
Q: So is that what causes stock prices to go up and down?
A: Stock prices go up when people's expectation of the future is rosy. And everyone's like, oh, the world is great, and everything's gonna be good. And then what happens...some news comes out, or something comes out that makes people reconsider reality. And all of a sudden, people get pessimistic. It's not like they go like, oh, okay, well, you know, I'll readjust my expectations a little bit.
They usually swing wildly. They're a little bipolar.
When people are optimistic about the future, the price goes up.
When people are pessimistic about the future, the price goes down.
What people are trying to do is price out what the future will be.
Now, what also happens is you have institutional investors like the New York state fire department association, the police unions, etc.... And they've got billions of dollars that they have to invest for their pensions. And when they're investing billions of dollars, they have to follow strict rules. And in following those strict rules, sometimes what will happen is the market will go down because people get overly pessimistic about something and it, it could be completely unfounded, but it's enough that people are willing to sell at really low prices. And by doing that, they devalued the company enough that it triggers these institutional investment rules. And all of a sudden these major institutional investors. And I think it's worth pointing out that the vast majority of money in the stock market is from institutional investors. (ie. local governments, pensions unions, etc...)
In fact, billions, and billions of dollars, trillions of dollars are being controlled by essentially committees that have to follow rules, very strict rules. And. When, these selloffs happen, their rules get triggered, and they have to move their money.
So they have to either move to something that is less risky, or they have to move into something that's more opportunistic, whatever the rules say they have to do and that can further a sell off.
]And so people kind of learned what the rules were of these institutions, and they were able to manage around it. And you can develop your own set of rules as a regular investor that profited off of those institutional rules.
Q: How can retirees make the most of their money WITHOUT paying too much in taxes? (1:48)
Q: So the tax codes are actually written in favor of his citizens? (3:54)
Q: Where do we, how do we start making our money more efficient to benefit? Not only us, but our nation? (7:38)
Q: Talk about the aspect of social security being taxed in retirement. (9:09)
Q: So your guide, does your guide talk about this? (11:29)
Q: Where do you start to avoid paying taxes in retirement? Where do we begin? (15:30)
Q: How can retirees make the most of their money WITHOUT paying too much in taxes? (1:48)
A: Before we dive in, we need to clear up a common misconception and that is: "you do not have an ethical obligation to pay as cent more in taxes than what is owed."
In fact, you have a responsibility to make sure that you are paying the least amount of taxes possible. When we look at how taxes work in our country, Taxes are designed to be part of our economic engine. It's really is an extension of our economic policy. Taxes is how we make America Great!
Our tax engine is designed to move money around our economy and incentives behaviors that we as a country want and penalize behavior that is not helpful to our economy.
So when you think about "do rich people don't pay their fair share in taxes?"
It's not that they're not paying their fair share in taxes. It's their contributing so much to our economy that they're being rewarded with not having to pay taxes...huge amounts of taxes.
Now, if we, as a society, decide that we are over-incentivizing that behavior, we will adjust the tax code accordingly. So when you think about "how do I pay the least amount in taxes," you're not cheating on taxes. What you are doing is you are repositioning your money so that it is being efficiently used, in the ways our nation wants...so that it helps America be Great!
Q: So the tax codes are actually written in favor of his citizens? (3:54)
A: it is written in favor of our nation. Our nation as a whole, not as an individual.
Because as, as a person, we are just a number,
We're a nation of 330 million people, plus a whole bunch of territories and allies. So we as a nation, we are statistics, and we as an individual have desires, and we have needs, and we have wants, and we want to continue to grow. And right now our economy makes up about 24% of the world's economy. That didn't happen by accident. That happened because we are very, intentional about how we use our money, and how we use our influence. And the tax code is just an extension of that.
Q: How do taxes change in retirement? (4:57)
A: in our working years, the tax code is set up to incentivize behaviors that we want. So it's set up to incentivize us to get married. We get a tax break. If we get married...to buy a house, we get a tax break for that giving to charity. We get a tax break for those behaviors. Having kids, the government will actually give us money for having kids. Saving for retirement, getting a college education. All of these things are incentivized in our tax code.
When we move into retirement, a lot of that those incentives go away.
When it comes to having kids, we're probably not having kids in retirement...or at least I hope not. Things like saving for retirement. Those things kind of fall off in retirement. And so what we're left with is we now have all this money without any of the tax savings.
In fact, you could argue that we have negative incentives in retirement. Because all of a sudden, we have to start taking money out of our retirement accounts, and we have to start living off of that money.
And so all those incentives that we got to save our retirement, they start working against us, and before we were able to take those savings off of our tax return and not pay money in taxes.
Well, now we have to pay taxes, but we have to pay taxes at the highest rate possible.
We're paying it as income tax, not as investment tax.
And so this shift happens in retirement, and it now shifts in favor of the government.
And the governing factors in the taxes from your retirement income into their budget, they'll spend money and say, "It's only gonna cost us, you know, $10 trillion over 20 years, part of how they do that is they're factoring in all this tax revenue that they're gonna get off of us in these later years in retirement."...Because they control how much money we have to take out in retirement, and they control what the tax rate is that that money is gonna be taxed.
So our goal in retirement is to try to do everything that we can to make our money as tax efficient as possible, which means shifting our income, shifting our retirement savings from being taxed as income to being taxed as something else. And that means finding ways of using it in retirement that is more efficient to our nation and more advantageous to us as a country.
Q: Where do we, how do we start making our money more efficient to benefit? Not only us, but our nation? (7:38)
A: So the first thing that we gotta do, is we got to look at what our future tax liability is. And so we need to look at what our money is in our retirement accounts because that's not money we control, that's money that Congress controls.
And well, I, I shouldn't say that...We have this window, this opportunity zone, where we have the ability to control our income and retirement. And that is from Age 60 till when we have to start taking required minimum distributions. During that time period, we control how much money we take out of our accounts retirement accounts.
At that point, after we're required to take those required minimum distributions, then Congress becomes in control of the taxes and those accounts. So we need to use that window of opportunity strategically. We need to decide when and how to use that money so that we pay the least amount of taxes.
And that might mean the least amount of taxes now or in the future. And we gotta decide which one is more advantageous to us. Then we need to figure out how we keep from paying more taxes on it, now or later on? And that means investing it in ways that are beneficial to our country as a whole.
Q: Talk about the aspect of social security being taxed in retirement. (9:09)
And I know that you have a guide that speaks really directly to that, and our listeners can access that, but let's talk about social security tax in retirement. (https://register.yields4u.com/social-security-maximization/)
A: I absolutely hate the fact that they're taxing social security! And this is one of those things that is a default action that they've created to reduce the liability of the social security program because Congress kept tapping into it, the social security trust fund.
We keep paying premiums for this insurance policy. And instead of it getting invested for our future, Congress has been using it to fund wars, to fund, you know, pet projects. In fact, they require that the trust fund buys US treasuries.in fact, they require that the trust fund be invested, I think is like 70% or 80% is invested in federal bonds.
So they're just saying that of the money that we're paying on social security taxes, it is actually going to fund other government programs. Mm-hmm , which is kind of ridiculous. So the result is, is that the social security administration doesn't have enough money to pay out all of its obligations.
And it says it right there on your social security statement, right? It says there's a year. It keeps moving. But that they will only be able to pay, you know, 80% of their anticipated liabilities, and this number keeps changing.
And, one of the ways that they keep stretching out the limited social security revenue is by reducing the amount of benefits they have to pay out.
Q: So your guide, does your guide talk about this? (11:29)
Yes, my guide talks about this. And one of the things that you wanna do in retirement, Is so when you're looking at your income, and you're looking at, what's my cash flow gonna be in retirement one of the questions you wanna know is what percentage of your social security is gonna be taxed? Because it's very possible that 50% or 85% of your social security income is automatically gonna be considered taxable income.
Now here's the thing because of how this tax works in practice and because we have that individual deduction that we can take off our return, it's possible that even though 85% is taxable, you won't actually pay taxes on it. However, if you take too much money out of your retirement accounts, right? And you go beyond that exclusion, all of a sudden. You're gonna be paying taxes on a whole lot more money than you thought you would have to.
And you may not need that money to actually to live on!
You may be good just with social security plus, you know, maybe $500 a month or a thousand dollars a month. Mm-hmm . But if Congress requires that you take out from your retirement accounts, you know, $2,000 or $3,000, that extra money can easily push you into a higher tax bracket, and can easily cost you years, or lifestyle changes in retirement, because it's gonna erode your growth...because all of a sudden you're paying, you know, 15, 20% effective taxes on money that really should be growing and continuing to invest.
In retirement, our goal needs to be to pay as little in taxes as possible because that is easily one of the biggest costs in retirement we can control. After all, market losses you can theoretically recover, taxes once owed is forever gone. We're probably not going to get that money back.
The second thing is we have to control what our income is in retirement. We have to be an active participant in deciding how much money we're taking in retirement and not letting Congress dictate that. Because the second they dictate what our income is a retirement that allows them to dictate what our taxes are in retirement. And we've lost control of our future.
Q: Where do you start to avoid paying taxes in retirement? Where do we begin? (15:30)
A: So the first thing that we need to know is what is our future tax liability is..And so the first thing that I like to do whenever I'm doing a retirement plan is, I just list out every single monies that a person has. Right. Every single account, every single asset, I put it on a spreadsheet, and I mark on there Is this a future tax liability?
Is this something that Congress controls?
So that's your 401k account. That's your traditional IRA accounts. It could be your non-qualified annuities. You wanna look at these things, and you wanna see if I use this money in retirement, will it result in a tax liability? And can I control that tax liability? If the answer is "no," it goes on that list.
Once you have that list right now, we are, we're gonna have a number. It can be a hundred thousand, it can be a million, whatever it is, right? You have your number. We can now go and look on the IRS's website. And what we're looking for is the uniform life expectancy table. This is the table that the IRS uses to determine what your required minimum distributions are, and there's a few other tables out there, there are options. But for most people it's gonna be this table. You're gonna look at that. And that's gonna tell you what percentage of your assets are gonna be required for us to take out as income in retirement.
If you look at the number in the first few years, it's generally about 4%, and if you look at your retirement needs, you look at what you're getting from social security. And if you add social security and 4% of your taxable income and retirement, you add that together. If that is more than the amount that you need in retirement, or if it's a significant amount and it will push you, let's say, beyond the 10% tax bracket, that is something that you want to address, right?
And ideally, you want to be in that 0% tax bracket, but it's not always realistic for everyone.
if you're beyond that first tax bracket, that 0% tax bracket, now you really start, you gotta start asking yourself questions of how can I reduce my taxable income in retirement?
How can I reduce the balance that I have in those retirement accounts? So that. If Congress came along and changed what the tax rates are, if they came along and they changed how much I have to take out of my retirement accounts, it wouldn't throw off my entire retirement plan.
And that's where we start getting strategic about how do we convert our taxable retirement accounts into what people like to call tax-free retirement.
And I don't like to call it tax-free retirement.
What I like to call it is the tax me when I choose because that's really what it is.
Now let's talk about how you use this, right? How do you move your money from the tax me later to the tax? Me, when I choose, you wanna choose it at times and places that are advantageous to you. And, before we were talking about this window of opportunity that you have in retirement, this window. Age 60, you know, really is 59 and a half till you have to take that first RMD. That window is when you have to choose when to take your money out of your traditional retirement accounts and can pay taxes on them and then put them in a Roth account or wherever you wanna put them.
You may even just use it. Because during those years, you get to control your income. You get to control your tax rates, you get to control your tax bracket. And so what you wanna look at is in these years. Your income during those early years in retirement is zero. You have to decide how you're going to pay your living expense. Well guess what? This is a tax opportunity because you have that first tax bracket, that's 0% tax bracket!
And so if you took money from the tax me later buckets, and you either used it for it to live on, or you put it into a Roth account, so now it's tax free. When you pull the money out in retirement, you've saved yourself a huge amount of future tax liability. You now gain control on that money in retirement, and you didn't have to pay taxes. And guess what you have, you have a decade plus to make those decisions. Wow.
Q: What do I need to know in order to retire? (1:48)
A: There are a lot of things that you need to know as we go into retirement. Unfortunately, there really isn't a handbook out there. HR doesn't give you your gold watch and a handbook that says welcome to retirement! Here's what you have to do first:
You can see more in my guide: 5 Questions to Ask Before you Retire
You need to create a process for managing your finances. The old rule of managing money that has gotten you this far starts to work against you in retirement. During our working years, a lot of "default" decisions are setup for our benefit. In retirement, the default action can be detrimental to our lifestyle. So having a proactive process is essential for success.
Some of the decisions you will need to make in retirement:
- How to Allocate Your 401k
- Should You Take Over Your 401k?
- Where you hold investments (in your brokerage account vs tax-deferred accounts.)
- Social Security? Take Early? Take Late. Mix and Match? Survivorship Planning
(see here for my SS guide) - Are we protected from market losses?
- Excess Taxation?
- When do you want to retire?
it sounds weird. Right. But, I don't know how many people I talk to, who haven't made the decision to retire, and they come to me, and they're not sure if they can retire or they want to know when they can retire. And I've said this before in the show...make the decision to retire and then let's figure out how to make it happen.
There's almost always a way to make it happen.
It may not be the way that you want it to be. This may make you say, well, you know what? I really want to take that extra cruise every year. So I'm gonna work another year to save, or you might look at the numbers and say, I can work another ten years, and it won't impact my lifestyle in retirement.
Q: How much money ou actually need is based on your expenses and cash flow, correct? (16:20)
A: That's what cash flow is. Money in, money out.
So how much money is going out, right?
What are you paying for the mortgage? What are you paying for? Gas? What are you paying for hobbies for food? Um, so until you know what your expenses are and then what. Or potential income you can get from social security. We can't begin to address any other questions in retirement.
Now, the next question to answer, once we have the idea of how much we're our cash flow is, is our assets are, and what we can potentially tap into for retirement. And we know how much we need for retirement, and we know how much we're getting from social security, right? Or at least the range of possible options are?
The next question is, how do we fill that gap? How do we go from what we're getting from social security to meet our anticipated needs in our retirement? And hopefully with some kind of cash cushion.
And we have to invest our money, so the question is how? How do we do it in a way that grows faster than inflation but doesn't put our retirement at risk? (18:18)
Q: What are some of the hidden mistakes that people make in retirement? (26:00)
A: Aside from the fact that you have to have your money invested, making sure that the money that you have in retirement is tax efficient because in retirement, the rules about taxes and money change.
So in retirement, all of a sudden, we lost all of our ability to reduce our taxes, and all of our savings can get taxed at much higher rates. So we need to make sure that the decisions we're making are designed. To reduce our taxable income and stretch out our retirement savings as long as possible.
And that means that the decisions we make are not automatic.
It doesn't automatically mean converting all of our money to tax-free and having a huge tax bill upfront. And it doesn't mean automatically that we wanna spend money out of our retirement savings. What it does mean is we gotta be strategic about things and think about how every decision will affect us.
How will this affect me two years from now, five years from now, 10 20, right?
Look to the future, look to our crystal ball so that we're making smart decisions for ourselves and our loved ones.
See more in the guide: How to Pay Zero in Taxes in Retirement
Or, for a full class on how to transition into retirement, check out The Simple Path to a Golden Retirement!
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What should you do with the 401k, when you're ready to retire? Which forms do I need to fill out in order to do a "rollover?" When should you start planning your rollover?
What should you do with the 401k, when you're ready to retire? Now that you are retired or have left your job, you have two choices for your 401k.
Option one is to keep your money with your employer. This option lets you keep your money invested, but you might not have as much control over it and might not have as much access to it.
Option two is to take the money over and manage it yourself. This option gives you more control over your money. You can use a rollover to transfer your 401k into an individual retirement account. With the individual retirement account or IRA, you will be able to manage it yourself, just like you do with other accounts like a brokerage account or bank account.
When you take over your 401k accounts, there are some things you need to remember.
First of all, it is very easy to transfer your money to a bank or brokerage firm. They will make it very easy for you. So don't worry about the paperwork you have to fill out. There are even firms that specialize in transferring the accounts for you,.
Second, when you transfer your 401k to a new bank, you need to make sure that the money is sent directly from the old bank to the new bank. This is called a custodian to custodian transfer.
You don't want the check to come to you, and then you deposit it in the new bank because if it's done directly from bank to bank, there are no tax withholdings. There is no potential tax penalty. However, if it comes to you and you get a check, and then you deposit that check, there is an opportunity for it to intentionally be considered a distribution and not a transfer. In fact, you have 60-days to complete the transfer, and the IRS requires your 401k company to withhold 20% of the distribution when you request your funds this way. So, always request a custodian to custodian transfer whenever possible.
Any financial advisor, any firm that's working with you to do this rollover will probably make sure and be on top of it to make sure it's done right.
Which forms do I need to fill out in order to do a "rollover?" Every bank you're transferring money to will have its own forms. Your 401k company will also have its own set of forms. Each 401k company is different because they can make their own rules. So your friend may do it one way and you may have to do it a completely different way because your plan is administered differently and has different rules under the department of labor guidelines.
What you need to know is that when you leave your job, you have the right to move your 401k money into a traditional IRA or Roth IRA account. The new bank that you move the funds to will help you transfer the money.
Pre-Tax and After-Tax Retirement Funds... And if you've got a mixture of pre-tax and after-tax money in your 401k, work with an accountant to do that rollover because it can get a little complicated.
When should you start planning your rollover? If I know that I'm going to retire and separate from my company on X date, when should we start making plans for the rollovers, and how to make sure our proceeds are managed properly?
Ideally, you would want to start planning this before you actually separate from your company.
If you've already talked to your employer, And, and you're both on friendly terms of when you're gonna be retiring, then probably, six months before you wanna start talking to HR, you wanna start talking to your 401k provider, find out the information you need to know in order to make it happen because 401ks, they move very slowly.
HR moves very slowly. The amount of time it's going to take to figure out what you need to do in order to make it happen. It'll be a lot easier if you're a current employee than a former employee.
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