Leibel on FIRE

Navigating Market Volatility in an Election Year

As the election looms on the horizon and market volatility hits unprecedented levels, many of us standing at the cusp of retirement or already embracing it are left pondering: What does this pivotal year mean for our financial futures? Let's demystify the situation and explore strategies for weathering the storm.

The Current Market Dynamics

The financial landscape we're navigating today is characterized by a unique dichotomy, driven by two predominant forces in the market. On one side, we have the optimists, buoyed by the prospect of continued growth. On the other, pessimists warn of an impending recession, fueled by concerns that the Federal Reserve may have retracted its support too soon. This tug-of-war creates a market environment ripe with volatility, seemingly caught in an endless cycle of highs and lows.

A notable shift in the market's composition has been the increase in individual investors, a trend accelerated by the COVID-19 pandemic. Unlike institutional investors, who traditionally dominated the market with disciplined strategies, many of these new entrants operate on instinct, amplifying volatility through speculative trades. This dynamic, where vast sums of money can be maneuvered with minimal capital via options trading, poses new challenges and opportunities.

The Impact of Elections on Market Sentiment

Election years inherently bring uncertainty, which can exacerbate market volatility. With key legislative decisions on the horizon, including the fate of the Tax Cuts and Jobs Act, the direction of future economic policy hangs in the balance. The outcome of the election could significantly influence tax structures, spending priorities, and regulatory frameworks, further fueling market fluctuations.

Essential Focus Areas for Retirement Planning in Uncertain Times

In the whirlwind of market fluctuations and political uncertainties, individuals near or in retirement face unique challenges. Understanding what to focus on during these times is crucial for safeguarding one’s financial future. Let’s delve into the critical areas that demand attention and how they could impact retirement planning.

Inflation and Asset Growth

Inflation is the silent thief that can erode the purchasing power of your retirement savings. Ensuring that your assets are growing at a rate that outpaces inflation is paramount. In times of low interest rates and economic instability, finding investments that offer real growth becomes more challenging yet increasingly important.

Navigating the Tax Landscape

The tax code is another significant factor that retirees and those nearing retirement must monitor closely. Changes in tax legislation can have profound effects on retirement planning strategies. Whether it's potential increases in taxes, adjustments to survivorship rules, or the taxation of unrealized gains in retirement accounts, staying informed on congressional discussions regarding tax policy is essential.

Economic Policy and Social Security

The sustainability of Social Security is a pressing concern. With an aging population and a shrinking workforce contributing to the system, adjustments to benefits or taxes seem inevitable. Understanding the potential changes and planning for different scenarios is vital for those relying on Social Security as a part of their retirement income.

The Economy's Direction

The broader economic environment plays a crucial role in retirement planning. Interest rates, market performance, and economic policies can all influence the growth of retirement assets and the ability to maintain a desired lifestyle in retirement.

Strategies for Balancing Growth and Stability

Achieving a balance between growth and stability in your investment portfolio is more critical than ever. Here are a few strategies to consider:

• Hedging Positions: Diversify your investments to protect against market volatility. This may involve a mix of stocks, bonds, and alternative investments that can provide returns in various market conditions.

• Esoteric Investments: Look into niche investments that offer payouts regardless of whether the market is up or down. These might include structured products or certain types of hedged growth strategies.

• Strategic Stock Selection: In volatile markets, strategies focusing on undervalued stocks or those beaten down more than the market overall can provide opportunities for growth.

• Principal Protection: Ensuring the protection of the principal amount needed for essential expenses is crucial. Investments should be structured to at least keep pace with inflation, if not exceed it, without risking the core of your retirement savings.

Keeping an Eye on the Political Landscape

While it's not advisable to focus on specific lawmakers, paying attention to the overall trends and policy discussions among presidential candidates and Congress can provide insights into potential changes that could affect retirees. This includes listening to the rhetoric for hints about possible shifts in social security, tax policies, and economic policies that could impact retirement planning.

Conclusion

For those near or in retirement, the current landscape demands a proactive approach to retirement planning. By focusing on key areas such as inflation, tax policies, social security sustainability, and the broader economy, and by employing strategies to balance growth and stability, retirees can navigate these uncertain times more effectively. Engaging in discussions with a knowledgeable financial advisor can provide the guidance needed to make informed decisions and adapt strategies to meet changing conditions.

Your Checklist for Success

Evaluate Your Portfolio: Regularly review your investment mix to ensure it aligns with your risk tolerance and retirement goals. Diversification remains a cornerstone strategy, helping to mitigate risk across various asset classes.

Seek Professional Guidance: The importance of having a skilled financial advisor cannot be overstated. A professional can offer disciplined, strategic advice to navigate market volatility, ensuring your retirement plan remains on track.

Stay Informed: Understanding the broader economic and political landscape can help you anticipate market movements and adjust your strategy accordingly. However, avoid making impulsive decisions based on short-term market fluctuations.

Focus on Long-Term Goals: While the market's day-to-day movements can be unsettling, it's crucial to maintain a long-term perspective. Historical trends have shown that markets have the resilience to recover over time.

Embracing the Uncertainty

In essence, the key to navigating an election year's market volatility lies in understanding the forces at play, adopting a disciplined investment approach, and preparing for various outcomes. By doing so, you can not only safeguard your retirement savings but also seize opportunities that arise from the market's ebbs and flows. If you would like help shoring up your portfolio, book a free no-obligation call and we'd be more than happy to discuss how the Yields for You investment strategy can help you safeguard your assets in these turbulent times (sans annuities.)

Have you heard about these bank CDs offering a whopping 10% return? Sounds like a financial unicorn, right? Well, grab a seat, and let's chat about this.

Today, we're diving into the world of banking and investments, specifically the resurgence of good ol' bank CDs (Certificates of Deposit). You know, they used to be the bread and butter of retirement plans. Picture this: back in my early days of retirement planning, folks were eyeing those 5% CD rates like a kid in a candy store.

The Zero-Interest Era and Its Impact

But then, wham! We hit a two-decade stretch of near-zero interest rates. That dream of easy 5% returns? Poof! Gone. This forced many to scout for returns in new, often unfamiliar territories. A world we are likely to find ourselves back in as the Fed reduces interest rates. As the saying goes, experience is the thing you get after you need it, so let's learn from the past and not repeat the mistakes of the 2000s that left many in financial ruin. But before we get too far ahead of ourselves, let's take a little refresh, what exactly is a Bank CD and where does it fit in to my retirement plan?

Unpacking the Basics of Bank CDs

A bank CD is like a handshake deal with your bank. You give them your cash to hold onto for a set time, and they promise a fixed interest rate in return. The cherry on top? At the end of the term, you get your principal back, no questions asked. Plus, with FDIC insurance covering up to $250,000, it's as snug as a bug in a rug for your principal.

The Interest Rate Guarantee and Early Withdrawal Nuances

Your interest rate is safe and sound as long as the bank stays afloat. And if you need to bail out early? Sure, you can, but you'll forfeit a chunk of that interest and possibly pay an early redemption fee - a small price to pay compared to the hefty surrender fees and market adjustments you'd face with some insurance products.

The New-Age CDs: More than Just Fixed Rates

Now, here's where it gets spicy. CDs aren't just about fixed rates anymore. They've evolved, taking a leaf out of annuities' book. You can find CDs with interest rates tied to the stock market or other indexes. Imagine a scenario where the market zooms up by 20%, and you pocket half of that, with zero risk to your principal, so if the market goes down by 20%...you still get your principal back. Not bad.

Innovative CD Variants: Dual Direction and Beyond

There's more! Ever heard of dual-direction CDs? These bad boys give you a positive return whether the market goes up or down. So, if the market goes down by 10%...you get a 10% positive return, market goes up by 10% you get your 10% return. Of course, there will be caps and floors on these types of products and lots of specifics...but talk about having your cake and eating it too! Plus, with time horizons ranging from a year to much longer, you can tailor them to your needs while still enjoying the safety net of FDIC insurance.

The Safety Net: FDIC vs. Annuity Companies

This safety net of FDIC insurance is arguably better than what some annuity products offer. With an annuity, you're crossing your fingers that the company stays solvent. But with FDIC-insured CDs, even if the bank goes belly up, your investment up to $250,000 is protected. In a nutshell, bank CDs have made a remarkable comeback, offering more flexibility and security than ever before. In today's volatile market, locking in those high-yield returns with a Market Linked Bank CD might just be the smart move you're looking for.

Cautionary Advice: Understand Before You Commit

The key with these products? Understand what you're getting into. Don't just get dazzled by high participation rates. What's crucial is the nature of the market they're linked to. Sometimes, what seems too good to be true, well, you know how that goes.

Short-Term Commitments: The Safer Bet

If you're eyeing these products, consider shorter commitment periods - think two or three years max. Predicting the market is tough, and betting on what it'll look like in a decade is like trying to hit a bullseye in a hurricane.

Structured Products: Another Flavor

Know that the there is an entire universe of products that are designed to help you control the Wall Street Roller Coaster. These are like the cousins of market-linked CDs, offering similar benefits but without FDIC insurance. Choosing the right bank for these is crucial - it's like picking a dance partner, you don't want one that steps on your toes! It is why the insurance companies have rolled out there own version of these products.

Registered Index-Linked Annuities (RILAs): A Middle Ground

Enter the world of Registered Index-Linked Annuities (RILAs). These products sit somewhere between principal-protected notes and market-linked CDs. They're designed to offer a balance of protection and market exposure, but again, understanding the terms is key. Like a Structured Note or Market Linked CD, your returns are tied to the performance of an index.

RILAs are also point-to-point performance, so you don't get any of the market's dividends, and your locked in to two days. So, if the market has a really bad day on maturity..you are screwed. Doesn't matter than the market recovered the next day. With CDs and Structured products you can ladder your investments, reducing the impact that any single period can have on your portfolio. Laddering RILAs are generally a lot more difficult.

Know Your Exit Strategy

One of the biggest differences between Annuities and these other products is their exit strategy. Say you need to sell your investment. With a Market Linked CD or Structured Note there is a secondary market that will purchase your position. Allowing you to potentially profit and/or soften the impact of your exit. With RILAs and Annuities the only person who will redeem your investment is the issuer, aka the insurance company, and they are very particular about the valuation they use. So, while you won't lose money if held to maturity, redeeming early will often involve a "market value adjustment" which could be a substantial fee.

The Importance of Shopping Around for Financial Advice

Thinking about diving in? This isn't a stroll into your local credit union kind of deal. We're talking specialized products that need a bit of financial muscle to wrangle. You'll need a broker-dealer or a registered investment advisor. But here's the kicker – not all advisors have the keys to this kingdom. And even if they do, understanding these intricate products is another ball game.

Final Thoughts: Financial Planning as a Comprehensive Package

Remember, with investments like these, it's not just about the product. It's about the holistic service - financial planning, tax strategies, and more. It's like getting a car; you're not just buying the vehicle, you're getting the whole driving experience.

Wrapping Up: A World of Opportunities with Expert Guidance

So there you have it, folks. The world of high-yield investments is vast and varied. Whether it's CDs, annuities, or structured products, the key is understanding what you're getting into and finding the right financial guide to lead the way. Stay savvy and keep exploring! If you would like to see if one of these products are right for you, reach out to the Yields for You team.

The Ripple Effects of War on Your Wallet

War, as distant as it may seem, has a way of sneaking into our everyday lives, especially when it comes to financial security. We all cherish that comforting routine: wake up, grab coffee, go about our day, and get that paycheck. It's this predictability that keeps the cogs of our lives and the markets turning smoothly. But when war erupts, particularly in a region as pivotal as the Middle East, it tosses a wrench into this well-oiled machine, leaving us grappling with uncertainty.

The High Cost of Conflict

First off, let's talk brass tacks - war is expensive. Imagine every rocket, every piece of military equipment, each costing a small fortune. These aren't just numbers on a page; they're significant investments, and when tens of thousands are used, the costs skyrocket. This financial burden doesn't end there. The soldiers on the ground, their movements, and their livelihoods, all add up to a hefty price tag.

Global Trade in the Crosshairs

Now, let's zoom out to the bigger picture. Our world is more interconnected than ever. The food in our pantry, the gadgets in our hands - many of them travel across the globe to reach us. A significant chunk of this global trade, including a whopping 30% of the world's oil, passes through the Middle East. Even a hint of instability in this region can ripple across oceans, affecting everything from the cost of your morning cereal to the price at the pump.

The Domino Effect of War

When conflicts like these flare up, we see immediate impacts - energy prices soar as nations scramble to secure their reserves. Food prices follow suit, given the intricate web of global supply chains. This isn't just about shortages or increased demand; it's about the sheer unpredictability of what tomorrow might bring. Companies face disruptions as critical supply lines are severed or delayed.

 Inflation: The Hidden Enemy

War is inherently inflationary. It's not just about the direct costs of military operations; it's also about the indirect expenses like aid and economic support to allies. These expenditures mean more money flooding into the system, which can send inflation soaring. And let's not forget, with the Federal Reserve already battling inflation, any additional pressure could send shockwaves through the economy.

What This Means for Retirees

So, where does this leave retirees? It's time for a close examination of your expenses and investments. How exposed are you to global instability? How well are you protected against inflation? Remember, if your money isn't growing at least as fast as inflation, you could find yourself on the losing end of retirement security.

Reevaluating Asset Allocation

Should retirees stand pat or rethink their investment strategies? If recent events haven't prompted a review of your asset allocation, now is the time. With potential confrontations involving major global players like China, Russia, and Iran, we're looking at an economic landscape that could see significant inflationary pressures. It might be wise to consider reallocating your investments to sectors that are likely to weather these storms better, such as essential commodities over high-tech industries.

Steering Through the Storm

So, what can you do? First, don't panic. Remember, while these events can cause short-term upheaval, the markets have weathered storms before. It's essential to look at your retirement strategy with a critical eye. Consider diversifying your portfolio, perhaps looking into more stable investments or sectors less impacted by geopolitical unrest. Revisit your budget, factoring in potential increases in daily expenses. And most importantly, stay informed. Keeping a pulse on global events helps you anticipate and adapt to these financial ebbs and flows.

In times of uncertainty, it's more important than ever to be proactive about your financial future. Whether it's re-evaluating your investment strategy or tightening the belt on daily expenses, small steps can make a big difference in weathering the financial impacts of international conflicts. Stay vigilant, stay informed, and most importantly, stay focused on your long-term financial goals.

The Crucial Question: Early or Delayed Social Security Filing?

Hey there! Today, let's unravel another critical puzzle about Social Security. Should you file early or delay your benefits? It's a decision that weighs heavily on many retirees, so let's get into the nitty-gritty.

One Size Does Not Fit All

First things first – there's no universal answer that fits everyone. If someone tells you there's a one-size-fits-all solution for Social Security, take it as a red flag. Everyone's financial situation is unique, making personalized strategies crucial for success. Just as you wouldn't borrow your friend's toothbrush, you shouldn't borrow their financial plan. The filing strategy for your friend is unlikely to be right for you and vice versa.

What Really Matters: Your Retirement Lifestyle

The reason why using a one-size-fits-all approach doesn't really works, is because Social Security is just one piece of the puzzle. I encourage the folks I work with to look at their finances as a holistic picture.

Rather than focusing solely on maximizing your Social Security benefits, the key question should be about your retirement lifestyle. What will give you the best lifestyle possible? The decision of when to file should be based on the impact to your overall financial health and retirement savings, not just about squeezing every penny from Social Security.

Different Strokes for Different Folks

For some, filing early is the golden ticket, enabling an earlier and more enjoyable retirement. For others, delaying is the way to go, especially if they need a larger check later in life or a significant survivor benefit. It's about playing the long game, thinking about how your Social Security decision affects your retirement accounts, assets, future growth, and required minimum distributions.

Deciding When to Claim Social Security: A Strategic Approach

Figuring Out the Right Time for Social Security Benefits

So, when should you file for benefits? This decision can be a head-scratcher, but don't fret – we've got a step-by-step approach to help you out.

Step 1: Assess Your Income Needs

First up, you need to figure out your income needs in retirement. Look at your Social Security statement at various ages – 62, 65, 66, or 70 – to understand what you'd receive. It's not just about you; consider your spouse's benefits too. There are handy tools out there that can help. The Social Security Administration has a bunch on their website, we even have a calculator that we built specifically to help you figure out your ideal strategy.

Check it out here >> Find Your Ideal Social Security Strategy

Step 2: Lifestyle and Savings Intersection

Once you have the numbers, the next big question is: how do these figures align with your retirement lifestyle and savings? Social Security is just one part of your retirement plan. You need to think about how it intersects with other aspects, like retirement savings and required minimum distributions.

At Yields for You, we provide a FREE Retirement & Tax SWOT analysis where we will help you figure out the answer to these questions. We will run the numbers, and show you how filing early versus filing late will impact your finances.

>> Book Your FREE Retirement & Tax SWOT analysis <<

The Future of Social Security

As more people become aware of the various ways to maximize Social Security benefits, concerns about the system's solvency arise. Though the Social Security Trust Fund is projected to deplete in the next decade, it's unlikely that benefits will see drastic cuts. Why? Because retirees and future beneficiaries make up a significant portion of the voting population. Political realities make it improbable that Congress would allow substantial benefit reductions to current Social Security recipients...however, for those that haven't filed yet, it is all fair game.

The Changing Landscape of Spousal Benefits

For example, a few years back Congress closed what was sold to the public as a loophole in the Social Security Rules. The reality was it reduced the amount of money retirees were entitled to under the Social Security program. Under the old rules, your benefits were your own and your spouses were theirs, and you could file for yours independent of when they claimed their benefit.

Under the current rules, you can't just cherry-pick which benefits to file for. Now, when you file for benefits, you are "deemed" to have filed for ALL your benefits. Additionally, you can only claim spousal benefits once your spouse has filed for theirs. This changes the ball game and makes it more important than ever to to consider the collective benefit for your family, especially in scenarios where one spouse was the primary earner.

What's Next?

For personalized assistance in navigating these complex waters, book a free Retirement & Tax SWOT analysis. Let us help you MAXIMIZE your income, and PROTECT your savings from taxes, inflation, and Market Volatility.

>> Book Your FREE Retirement & Tax SWOT analysis <<

A Time-Tested Strategy with a Twist

Hey there, friends! Today, let's chat about something that's been a bit of a Holy Grail in retirement investing – the famous 60/40 portfolio. Now, this isn't your grandma's knitting pattern; it's a strategy that in theory will stand the test of time, aiming to keep your retirement funds safer than a squirrel's stash of acorns.

The 60/40 Portfolio: A Quick Rundown

Imagine you're making a sandwich. Instead of peanut butter and jelly, you've got stocks and bonds. In a 60/40 portfolio, 60% of your investment sandwich is stocks (the peanut butter), and 40% is bonds (the jelly). Historically, this mix has been like the classic PB&J – reliable and satisfying. Stocks offer growth, while bonds bring stability, especially when the market throws a tantrum.

Why Has It Been a Go-To for So Long?

Picture this: stocks and bonds in a dance-off. When stocks take a step up, bonds might step back, and vice versa. This dance creates a balance that can help your investments stay steady when things get rocky. And let's face it, over the past 40 years, this portfolio has been like a trusty old tractor, plowing through market storms and keeping things running smoothly.

But Wait, There's a Twist!

Now, hold your horses! This strategy isn't flawless. Sometimes, stocks and bonds decide to dance together in the same direction, which can throw things off balance. Remember, just because something worked in the past doesn't mean it's a surefire win for the future. It's like expecting a sunny day forever just because it's been nice out for a while.

Adapting to Today's Economic Weather

We're now facing a new economic climate where the Federal Reserve is changing interest rates, and this changes the whole ballgame. When interest rates rise, bond values can drop like a hot potato and vice versta. So, what's an investor to do?

Reassessing the 60/40 Strategy

It's time to put on your thinking cap and reassess. Consider a portfolio that balances growth potential with capital preservation. Think about investments that are poised to do well in the current and future economic landscape. For instance, the U.S. economy is like a sturdy oak tree – it's got a good chance of thriving, no matter the weather.

The New Investment Recipe

Instead of sticking to the old 60/40 formula, consider mixing things up. Look at alternatives like preferred shares, which are kind of like a hybrid car – part stock, part bond, offering stability with potential growth. And don't forget to consider the impact of inflation. It's like making sure your winter coat is ready for a surprise snowstorm.

Wrapping It Up with a Bow

To sum it up, folks, navigating the investment world is like steering a boat through both calm and choppy waters. The 60/40 portfolio has been a trusted compass, but the winds are changing. It's crucial to reassess your strategy, keep an eye on economic trends, and make sure your investments align with your goals, risk tolerance, and the ever-changing economic landscape.

When considering strategies for navigating market volatility and protecting your retirement portfolio, the focus is on stability, inflation protection, and strategic growth. Here's a breakdown of how to approach this:

Investment Strategies for 2024

At Yields for You, here are some of the strategies we are taking to protect our clients. Remember that every strategy needs to be part of a greater plan. So, keeping that in mind...

1. Protect Your Base of Stability

• Market Volatility Management: Recognize that market fluctuations are a part of investing. With recent declines, it's vital to have a strategy that allows you to endure these downturns without jeopardizing your retirement plans. This means having a sound Income Plan. Where are you going to take your income from? How will you invest it to ensure that you won't risk taking your money out in a market decline? Money Market and 1-2 year CDs are great for this right now. 

2. Inflation Protection

• Inflation-Proof Investments: Incorporate assets that historically outpace or keep up with inflation. These might include treasury inflation-protected securities (TIPS), money market funds, and certificates of deposit (CDs).
• Balanced Returns: Aim for returns that exceed inflation rates while minimizing risk to your principal investment. Remember, the key to our lower-risk buckets is Capital Preservation...not growth. We want and need a steady source of Income!

4. Growth Strategy

• Diversification: Ensure your portfolio is diversified across different asset classes, sectors, and geographies to spread risk.
• Downside Protection: In retirement, the goal isn't necessarily high returns, but rather consistent, reliable growth that keeps pace with inflation and preserves lifestyle.
• Value Investing: Consider dividend-paying stocks or value companies as they often provide steady income and may be less volatile.
• Buffered Products: Explore buffered ETFs and Unit Investment Trusts (UITs), which can offer a mix of potential returns with some downside protection.
• Structured Notes: Investigate structured notes for a more complex investment that can offer market participation with limited downside risk. They can also do things like provide returns regardless of the direction of the market. So, you get paid if the market goes up or goes down!
• Market Linked CDs: As the name implies these are Bank CDs with a twist. In addition to the 100% principal protection. In addition to the FDIC insurance, you also get returns that can be greater than traditional CDs. The returns can be linked to one or more indices. This allows you to participate in the growth of the market...without risking your principal. Kind of the best of both worlds. It's the promise of annuities...without any of the costs or heavy surrender charges!

5. Mindful Risk Management

• Avoid Overreach: In retirement, it’s not about chasing the highest returns but ensuring sustainable growth. Avoid the temptation to pursue overly aggressive strategies in hopes of outsized gains.
• Regular Reviews: Periodically reassess your investment strategy to align it with current market conditions, your financial situation, and retirement goals. If you haven't updated your investment plan yet...you definitely will need to, the Fed is going to start cutting interest rates, which is going to reverse the trends of the last two years. Last year's winners could be tomorrow's losers. Are you positioned properly? Don't forget that we have an important Election this year and a lot rides on who will will be in office next year.

Key Takeaway

Your investment approach should balance the need to protect against market downturns and inflation while ensuring your portfolio can grow sustainably. This balance is crucial for maintaining a comfortable retirement lifestyle without taking unnecessary risks. Remember, the goal is steady, reliable growth, not chasing the next big investment windfall.

If you're looking to dive deeper into this topic and explore more strategies for a secure retirement, check out our upcoming classes or book a free call. We're here to help you sail smoothly in to the future.

Welcome to another dive into the complex world of retirement planning! Today, we're unraveling the "killer" Roth conversion strategy and its interplay with Required Minimum Distributions (RMDs). Strap in for a journey that's not just about numbers but about maintaining your lifestyle and financial freedom in your golden years.

Understanding RMDs: The Retirement Puzzle Piece

First things first, let's clarify what RMDs are. In essence, these are amounts that the government mandates you withdraw annually from your retirement accounts post-retirement. The idea is to ensure these accounts are drained during your lifetime. But here's the catch – if you're not strategic, these withdrawals can land you in a higher tax bracket, unnecessarily boosting your tax bill.

The Strategy: Aligning RMDs with Lifestyle Needs

The crux of the killer Roth conversion strategy hinges on a crucial question: Will your RMDs exceed your required income in retirement? Here's the thing – your lifestyle, expenses, and the taxes you're accustomed to paying play pivotal roles in this equation. The goal is not just to save taxes but to ensure a consistent and comfortable living standard post-retirement.

Scenario Analysis: When to Convert?

• High RMDs, High Taxes: If projections show RMDs pushing you into a higher tax bracket, converting to a Roth IRA makes sense. Why? Because Roth IRAs don't have RMDs and withdrawals are tax-free.
• Balanced RMDs, Comfortable Living: If your RMDs align with your lifestyle needs, you might already be in a sweet spot. Here, the Roth conversion may not be as beneficial.

The Tax Angle: Effective vs. Marginal Rates

Keep an eye on tax rates – in retirement, your effective tax rate could be lower than the marginal rate you'd pay during a Roth conversion. So, the strategy should be tailored to exploit this difference for maximum benefit.

Spending Down Retirement Accounts: An Alternative to Roth Conversion

Here's an interesting twist – instead of converting, consider spending down your retirement accounts first. This approach reduces RMDs and maintains tax efficiency, especially if your retirement spending aligns with the withdrawals.

The Bigger Picture: Stress-Testing and Future Planning

• Stress Test Your Strategy: Use financial tools to simulate different scenarios and see what saves you the most in taxes and secures your financial future.
• Consider Beneficiaries: If leaving a legacy is important, factor in how Roth conversions or other strategies impact inheritance taxes.

The Decision-Making Process: Clarity and Confidence

When it comes to deciding how much to convert to a Roth, clarity comes from understanding your unique financial situation. Most people find the decision obvious once they see the numbers and understand the implications on their lifestyle and legacy.

Tools to Simplify Your Retirement and Tax Planning

Your Path to a Smarter Retirement Plan

To get a clearer picture of how RMDs and Roth conversions could impact your retirement and tax planning, we've got some handy tools for you.

>> Check out our RMD Calculator to understand how RMDs will affect you over time.

>> Roth Conversion Calculator to see how converting assets could reduce your taxes and RMDs.

And for a quick overview of your retirement and tax-saving strategies, try our 60-second retirement & tax-saving planning tool. It's a straightforward way to start aligning your financial strategies with your retirement goals.

Final Thoughts: Beyond the Numbers

Retirement planning is more than just playing with numbers – it's about securing a lifestyle, understanding the tax implications, and making informed decisions that align with your long-term goals. Whether it's Roth conversions, spending strategies, or a mix of both, the key is to tailor the approach to your specific needs and aspirations.

And there you have it! The "killer" Roth conversion strategy is all about aligning RMDs with your retirement needs and navigating the tax landscape smartly. Remember, it's not just about saving on taxes; it's about ensuring a stable, enjoyable retirement life. Need more insights or personalized advice? Book a free call and let's chat, don't let the taxman take more than his fair share of your retirement pie! 🥧📈👵🏼👴🏼💰

>> Book Your Free Call Today <<

Hey there, folks! Today, we're diving into one of those fun government acronyms – IRMAA. No, it's not a new character in a sitcom, but something from the Social Security Administration related to Medicare. IRMAA stands for Income Related Monthly Adjustment Amount, and let me tell you, it's quite the mouthful!

So, what's IRMAA all about? It's essentially a surcharge added to your Medicare Part B and D premiums if your income is, let's say, on the higher end. Think of it like a sliding scale discount on Medicare costs – the more you earn, the less discount you get.

The IRMA Effect on High Earners

Calculating IRMA: Not a Walk in the Park

Calculating IRMAA isn't straightforward. It involves looking at your taxable income over the past few years and, because we're dealing with the government here, they throw in some extras. This means they add back certain non-taxable incomes into the mix for the calculation.

Roth Conversions and IRMAA

The Impact of Roth Conversions

When you convert from a traditional retirement account to a Roth account, it counts as taxable income, which can affect your IRMAA. Many people worry about triggering IRMAA with these conversions, trying to find that sweet spot where they can optimize conversions without incurring higher Medicare premiums.

IRMAA: A Financial Planning Perspective

Is Worrying About IRMAA Overrated?

In the grand scheme of things, IRMAA might be receiving more attention than it deserves in financial planning. If you're able to consider Roth conversions, a temporary increase in Medicare premiums shouldn't drastically alter your strategy. After all, if such a change significantly impacts your decision-making, it might be a sign that your finances aren't as robust as they should be for such moves.

Who Really Needs to Be Mindful of IRMAA?

IRMAA's Impact on Different Income Brackets

For those on a tighter budget, an increase in Medicare premiums due to IRMAA can be more significant. If an extra $100 a month is going to strain your budget, it's crucial to consider IRMAA in your financial planning.

You can find a list of the current IRMAA numbers here: https://secure.ssa.gov/poms.nsf/lnx/0601101020

RMDs and Their Influence on IRMAA Costs

Another crucial factor to consider is how Required Minimum Distributions (RMDs) from retirement accounts can bump up your IRMAA costs. As you reach a certain age, RMDs come into play, mandating withdrawals from your retirement accounts. These mandatory distributions increase your taxable income, which can, in turn, increase your IRMAA surcharges. It's a bit of a double whammy – not only are you paying taxes on these distributions, but they could also lead to higher Medicare Part B and D costs.

The Vital Role of Roth Conversions

In light of this, evaluating the potential benefits of Roth conversions becomes even more crucial. By converting a portion of your traditional retirement accounts to Roth accounts, you could potentially reduce future RMDs, thereby managing your taxable income in retirement more effectively. This strategy could help keep your IRMAA costs in check, making it an essential consideration in any comprehensive retirement planning.

Tools to Simplify Your Retirement and Tax Planning

Your Path to a Smarter Retirement Plan

To get a clearer picture of how RMDs and Roth conversions could impact your retirement and tax planning, we've got some handy tools for you.

>> Check out our RMD Calculator to understand how RMDs will affect you over time.

>> Roth Conversion Calculator to see how converting assets could reduce your taxes and RMDs.

And for a quick overview of your retirement and tax-saving strategies, try our 60-second retirement & tax-saving planning tool. It's a straightforward way to start aligning your financial strategies with your retirement goals.

Personalized Guidance at Your Fingertips

Talk to a Certified Advisor

Of course, every financial situation is unique. If you'd like personalized advice tailored to your specific circumstances, our certified advisors are more than happy to help. Book an appointment with us for a one-on-one consultation. We're here to guide you through the intricacies of retirement planning, ensuring that you make the most informed decisions for a secure and enjoyable retirement.

The Takeaway

Don't Let IRMAA Overshadow the Essentials

Remember, the key to a successful retirement is proactive planning and informed decision-making. With the right tools and guidance, you can navigate the complexities of RMDs, Roth conversions, and IRMAA, setting yourself up for a worry-free retirement. Reach out to us, and let's make your golden years truly golden!

Welcome back to our journey through the intricate world of Roth conversions. Last week, we unpacked the basics – figuring out if a Roth conversion makes sense for you. Today, we're rolling up our sleeves to tackle a meatier topic: How much should you convert? It might feel like we need a magic wand to navigate this, but fear not – I've got some insights that'll light up the path for you.

Understanding the Long-Term Impact:
It's a Marathon, Not a Sprint

Picture yourself at two crucial checkpoints in your retirement journey: the next decade and the stretch between ages 80 to 90. Why these milestones? They are pivotal in understanding how your decisions today affect your golden years, especially with those sneaky RMDs lurking around the corner. It's all about strategizing to ensure a smooth ride throughout your retirement years.

Playing Smart with Tax Brackets:
The Delicate Balancing Act

Now, let's get into the nitty-gritty. If you're lounging in the lower tax brackets, say 12%, maxing out Roth conversions is usually a slam dunk. But as you climb higher, the decision gets weightier. For instance, crossing over to a 22% tax bracket means a heftier tax hit now, which demands a significant return to break even. It's a delicate balancing act between immediate tax costs and potential future savings.

The Higher Tax Bracket Dilemma:
To Leap or Not to Leap?

Jumping into a higher tax bracket during conversion can be like stepping onto a high wire. Sure, a 2% increase might seem trivial, but it’s essential to weigh the pros and cons. The goal is to optimize your tax situation without jeopardizing your current financial stability. Remember, a penny saved today could be a dollar earned tomorrow – but only if it doesn't disrupt your peace of mind today.

Life Beyond Numbers:
Your Lifestyle in the Equation

Diving into Roth conversions isn't just about the numbers. It's about how these financial maneuvers dance with your day-to-day life and dreams for the future. You don't want to be caught in a scenario where you're feeding the taxman more than necessary, sacrificing your current comfort for a future that's not guaranteed.

A Peek into the Future:
Balancing Today with Tomorrow

The art of Roth conversions is essentially a balancing act between your present needs and future security. It’s about ensuring that you're not just saving taxes but also paving the way for a retirement filled with the joys and comforts you've worked so hard for. You've got to keep one eye on the tax bill and the other on your beach-side retirement dreams.

The Personal Touch:
Tailoring Your Strategy

Every individual’s financial landscape is unique, sculpted by their earnings, savings, and retirement aspirations. Your Roth conversion strategy should be a custom-fit suit, tailored to your specific financial silhouette. It's not just about following a formula; it's about writing your own financial story. What is right for you will almost certainly be wrong for your friend. It is critical to create and use a personalized plan when it comes to taxes in retirement.

The Final Takeaway: Seek Balance, Embrace Wisdom

In wrapping up, the key takeaway from our Roth conversion escapade is this: balance is king. It's about making informed, wise choices that align with your financial portrait, both now and in the future. Don’t hesitate to seek advice from a financial advisor to help chart your course through this complex terrain.

Yields for You:
A Resource for Navigating Roth Conversions

You don't have to solve this question on your own. We have a number of free resources to help you, including:

• How to Pay Zero in Taxes in Retirement Class - Every Wednesday for the Month of December
• Free Guides and Resources Here
• Get a Free Retirement & Tax Analysis

Autumn brings more than just turnkeys and pumpkins – it's also a prime season for Roth conversions and other End of The Year Tax Moves. For many tax-saving moves, Congress requires they be completed within the fiscal year, meaning we are in the crunch time leading up to the end of the year. So, while others are wondering about what new presents to buy for Christmas or Chanukah, you my savvy financial friends are diving into the intricacies of Roth conversions looking for last-minute savings. So, over the next few weeks, we are going to explore the depths of Roth Conversions and how to implement them properly.

Understanding the Basics of Roth Conversions

At the heart of the matter, the question isn't just "how much should I convert?" but "should I convert at all?" It's a critical distinction. For some, a Roth conversion is a clear-cut decision. For others, it could do more harm than good. And for many, the answer lies in a complex grey area that requires careful calculation and consideration.

Ideal Candidates for Roth Conversions

1. The Future Tax Bracket Concern:
If your required minimum distributions (RMDs) in retirement will significantly exceed your income needs and potentially push you into a higher tax bracket, a Roth conversion can be a strategic move. Helping you not only reduce your RMDs, but stretching your savings over a longer period of time.

2. Planning for the Surviving Spouse:
Married couples often overlook the financial impact on the surviving spouse. The loss of one partner can result in a substantial increase in tax liabilities due to reduced tax brackets and Social Security benefits. Converting to a Roth IRA could mitigate this "survivor tax bomb."

Navigating the Grey Area

For those not fitting neatly into these categories, a Roth conversion's benefits will depend on various factors, including projected RMDs, anticipated returns on retirement accounts, and anticipated future taxes. It's not about hitting a specific account balance but about assessing your unique financial landscape. There really are no hard and fast rules about who should convert or how much to convert. Anyone telling you otherwise is either naive or a salesperson utterly convinced that Roth Conversions are the best thing since sliced bread.

A Holistic Approach to Roth Conversions

As I am often fond of saying, Roth Conversions is like trying to do calculus. Simple arithmetic and back-of-the-napkin math, will often lead to poor outcomes. In my experience, the key to deciding on a Roth conversion lies in taking a holistic view. You need to analyze your income sources in retirement, project your growth, and estimate future taxes. Often the deciding factor is seeing how Roth Conversions affect your income or savings under a variety of what/if scenarios. Consider:

- Your tax bracket now and in the future.
- The potential growth of the money used to pay conversion taxes.
- The long-term financial security implications.
- The lost growth from paying taxes now
- The probability of taxes increasing for YOU in the future (we know that taxes will probably increase..but that doesn't mean the increase will be spread evenly across the board. In all likelihood, it will be the middle-income wage earners who get taxed the most. Will that be you in retirement?)

Yields for You: A Resource for Navigating Roth Conversions

You don't have to solve this question on your own. We have a number of free resources to help you, including:

• How to Pay Zero in Taxes in Retirement Class - Every Wednesday for the Month of December
• Free Guides and Resources Here
• *New* Roth Conversion Calculator - Signup For FREE Beta Access

We are also developing software to help map out different conversion scenarios, ensuring you make informed decisions about your Roth conversions. You can signup for FREE Beta Access here: https://leibelsternbach.typeform.com/to/mMzGSNnH

Next Week: How Much To Convert?

Join us next week as we delve deeper into how much to convert to Roth this year. We'll tackle questions like whether to max out your current tax bracket, consider the next one, or go all out. We'll also discuss the implications of IRMMA and how it affects your conversion strategy.

In Conclusion

Roth conversions are a nuanced, highly individualized decision in financial planning. By understanding your unique financial picture and potential future scenarios, you can make a decision that enhances your retirement security and overall financial well-being. Remember, the journey to a secure retirement is not just about numbers; it's about making choices that align with your life goals and provide peace of mind.

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.

According to the Federal Trade Commission, financial scams cost Americans over $8.8 billion dollars! Scammers are getting more sophisticated and it's getting harder and harder to differentiate between legitimate callers and fraudulent ones. Today, we are going to dive in to the dark world of Elder Romance scams, and discuss what do you need to know, and the simple steps that you can do to protect yourself and those you love.

How are people falling for these scams at such an alarming rate?

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, often going to great lengths to gain their affection and trust, only to exploit them financially.

How does it work?

The Introduction: The scam often begins on dating websites or social networking platforms. The scammer creates a fake profile, often stealing the identity of real people. The one commonality is that their work is secret and requires them to travel a lot.

Building Trust: Once contact is made, they'll work diligently to earn your trust. They will spend a lot o time getting to know you. They will wine and dine you with lots of emails, text and voice calls. They will also seek to drive wedges in your life between you and your loved ones. If you have a family member who is always a pain, they will take your side. They will encourage you to keep the relationship secret...because your family wouldn't understand.

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: Believing they are helping a loved one or a future partner, transfer the money. Sadly, this "investment" will never yield returns, and often, the scammers woes will only escalate. If you try to call them on their BS, or cut of your emotional and financial support, they will retaliate. First with emotional blackmail, though they will quickly escalate to real blackmail, threatening to spread all the intimate secrets you've spilled to them...often complete with naughty pictures.

Why People Fall Prey to Scams

The Sting, is one of my favorite movies. For those of you unfamiliar, "The Sting" is a 1973 caper film set in the 1930s where two grifters, played by Paul Newman and Robert Redford, team up to con a mob boss out of a large sum of money as revenge for a murdered friend. Using an elaborate scheme involving fake betting parlors and staged scenarios, the duo engages in a high-stakes game of deception, pulling off one of the most intricate cons in film history.

Today's scams are not like "The Sting", or "Catch me if you can." We gotta rewire our thinking here. Today, scammers are part of organized syndicates, sometimes even government sanctioned, some with hundreds of employees and vast resources. It's almost like a formalized industry, and they're incredibly good at what they do and 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?

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! A date that won't video chat or always has a reason why they can't meet in person...probably not legit. 

Here are some quick ways to spot these would be romance scam artists:

Professing Love Quickly: Beware of anyone who quickly declares their love for you before meeting in person. True connections take time to develop.

Model-Like Photos: If their profile picture looks like it's straight out of a fashion magazine, it might be. Scammers often use stolen photos of models or attractive individuals. Use reverse image search to see if the photo appears elsewhere.

Avoiding Face-to-Face Interaction: Constantly making excuses to avoid video chats or meetings is a significant red flag.

Stories That Don't Add Up: They might claim to be traveling or working abroad and have elaborate tales of tragedy or mishap that prevent them from returning home. Always be cautious if their stories seem too dramatic or inconsistent.

Asking for Money: A big red flag is when they start asking for financial help due to an 'emergency,' whether it's for a sick relative, to pay for a visa to visit you, or any other plausible reason.

Vague Profile: Their online profile might be notably sparse, with few friends or interactions, and might have been created recently.

Hesitant to Share Personal Information: While it's wise to be cautious about sharing details online, someone overly evasive about their life, work, or background may have something to hide.

Manipulative Emotions: They might use guilt trips, pressure, or other manipulative tactics to make you do something you're uncomfortable with.

Too Many Sob Stories: Constantly being in the midst of a crisis or personal drama is a tactic used to elicit sympathy and lower defenses.

Isolating Behavior: They may try to pull you away from friends or family, suggesting that "others won’t understand" your special connection.

Stay vigilant, trust your instincts, and remember that it's always okay to seek advice or a second opinion if something feels off. Protect your heart and your wallet, folks!

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.

1. 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)

2. 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.

3. 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.

4. 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:

The Five Minute Estate Plan.

The Free Estate Planning Min-Course

freewill.com

search for a "Memorial Plan" template online

Get The Free Yields4U Elements Financial Wellness App

If you have estate planning questions, don't hesitate to email us at hello@yields4u.com

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.

Download our 5-Minute DIY Estate Planning Guide (Click Here)

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.

As odd as it may seem, there are moments in the realm of finance when a sense of novel curiosity overtakes me. One such moment revolves around this nifty little arrangement I've devised, known as the 3 21 Plan. If you find yourself scratching your head, wondering about the relevance of these numerals, worry not! This is no complex mathematical theorem or a secret code to unlock some mysterious treasure.

You see, the 321 Plan is a concept, an idea, birthed from my own experiences and observations over the last decade and a half. It's a retirement strategy I've tailored over the years, aimed at providing layered safeguards for your golden years.

You might question, why this sudden emphasis on protection? And to that, I respond: Uncertainty. Our world teems with unpredictability. We stand clueless on what tomorrow holds - be it the future actions of the Federal Reserve, the legislative decisions of Congress, or the identity of our next President. In the face of such ambiguity, one thing that we can and should control is our retirement plan.

Having been fortunate enough to spend the last 15 years immersed in the world of retirees and financial advisors, my life's work, I've gleaned invaluable insights. These interactions have crystallized certain truths about retirement, consistent patterns that guide the decision-making process towards fruitful results.

A Foolproof Formula

Now, this isn't to say there's a foolproof formula that guarantees an ideal retirement. What it means, though, is that a structured approach, coupled with some fundamental principles, can significantly enhance the likelihood of better outcomes.

In this context, I've taken the liberty to distill my experiences, my observations, my insights into a comprehensive process – the 3 21 Retirement Plan. This is not merely a financial strategy; it is a philosophy that encapsulates the wisdom gleaned from countless conversations, experiences, and observations. It’s my way of ensuring that we are all able to navigate our financial futures with a bit more certainty, no matter the unexpected turns the world might throw at us.

What Is The 321 Plan

Indeed, you've hit the nail right on the head! The numbers in the '3 21 Plan' aren't just arbitrary; each digit signifies a core component of the plan.

Let's start with '3', shall we? The '3' in our plan symbolizes the need for three tiers of diversification. But before you jump to the conventional understanding of diversification - a balanced mix of stocks and bonds, allow me to elucidate a slightly different perspective.

Yes, diversifying your assets is undoubtedly essential. However, in the 3 21 Plan, we consider a far more temporal dimension: time. To be precise, we emphasize dividing your retirement corpus into three distinct time-based categories or buckets, if you will.

You might have come across similar bucketing theories offered by other financial advisors. Our version is a nuanced interpretation of this bucket approach.

Here's how it works: Envision your retirement savings in three distinct buckets. The first bucket is for the near term, which would comprise money you'll need for the next three to five years. The second bucket holds the funds you'll rely on for the subsequent three to five years. Finally, the third bucket is reserved for long-term use, extending well into the future.

This temporal stratification of your retirement savings offers a myriad of benefits. For starters, it simplifies your decision-making process by categorizing your retirement fund based on their respective time horizons. Such a structured division inherently builds in a layer of protection for your retirement plan by enabling easier and more informed decision-making.

For instance, the manner in which you'd invest the money you'll need for the next few years will naturally differ from the approach you'd take for funds you won't touch for the next two decades. This initial step in the 3 21 Plan lays a robust foundation by providing you with a clearly delineated structure for your retirement savings.

So, the '3' in our 3 21 Plan, ladies and gentlemen, encapsulates the philosophy of a three-tiered, time-based diversification of your retirement corpus. It's all about safeguarding your future, all while keeping the present well within sight.

Two Layers of Diversification

The magic number '2' in our plan is the next layer of our retirement strategy. It stands for the indispensable need to embed at least two forms of protection in your plan, a dual shield, if you will. Now, before we dive deeper into what this means, let's take a quick detour into the world of investments.

When you think of investments, you probably imagine a chessboard with two major pieces - stocks and bonds. Why these two, you might ask? Diversification is the answer. When stocks plummet, bonds often serve as a safety net, preventing your portfolio from taking a free fall. Conversely, when the bond market suffers, your stock holdings can cushion the blow. This mix, in theory, smooths your ride through the volatility of the market.

However, life isn't as straightforward as theory, is it? There are times when the protective cocoon of diversification doesn't quite hold up. And that's where the essence of '2' in our 3 21 Plan comes into play.

This '2' prompts us to take a step back and question every financial decision we make. It implores us to challenge our assumptions, to question our choices, and to envisage the scenario where we might be wrong. For instance, say you invest in treasuries or CDs or even dividend income. But what if your perception of the future doesn't align with reality? What's your backup plan? What's your safety net?

In the construction of our 3 21 Plan, for each of these three time-layered buckets, we advocate building in at least two layers of protective measures. This dual shield ensures a diversified approach in decision making. It keeps us on our toes, forcing us to think of contingencies and prepare for eventualities.

One Written Plan

Finally, we arrive at the linchpin of our 3 21 Plan, the number '1'. This single digit stands for an unshakeable tenet – you need to have one comprehensive, written plan for your retirement. And it's not a static document, rather it should be revisited and updated at least annually.

A well-drafted plan serves as a blueprint of your retirement journey. It should succinctly detail what you're doing, why you're doing it, and most importantly, where your money is at any given time. The plan should shine a light on which portion of your savings you plan to spend first, and which follows.

This roadmap should also spell out your strategy for entering and exiting the market. It should guide you on when to harvest your gains, when to transition your funds from one bucket to the next. Above all, your plan should offer crystal-clear clarity. A lack of this clarity might push you to make impulsive decisions based on convenience rather than careful consideration.

It's these hastily made decisions, when compounded over time, that end up wreaking havoc on your retirement plan, often leading to a scarcity of funds in retirement. The tiny missteps that appear insignificant can indeed morph into massive pitfalls.

To make sense of this, let's consider an individual - let's call him 'Client A' - who is fifteen years away from pulling the retirement trigger. Client A has been toying with the idea of retirement but still has a decade and a half to finalize his decision.

Guiding him through the 3 21 Plan, we'll first address the '3' - the three distinct time-based categories for his savings. We'll explain the '2' - ensuring that we have at least two forms of protection in place for every financial decision he makes. And finally, we'll draft the '1' - his one comprehensive written plan that outlines his financial journey leading to and through his retirement.

Remember, my dear friends, the essence of the 3 21 Plan is not only about managing your finances. It's about orchestrating a harmonious symphony between your life's aspirations and financial realities, ensuring you stride into your golden years with confidence and tranquility.

Implementing Your 321 Plan

At YieldsForYou.com, we've tailored our resources to accommodate different learning preferences and help you thoroughly understand and implement the 321 Retirement Plan. If you prefer reading, there's a comprehensive guide that walks you through every step of incorporating this plan into your life. If you're more visually inclined, we've created a series of concise videos, each no longer than five minutes, which explain the process in a step-by-step format. For those of you seeking a more automated approach, we offer an online guided wizard that will assist you in creating your personal 3 21 retirement plan. Our aim is to ensure this information is accessible and easily understood, no matter your learning preference.

As a financial advisor with years of experience navigating the unpredictable terrain of the economy, I am often asked whether the worst is truly over. It is a question that weighs heavy on the minds of investors and business leaders alike. While I am cautiously optimistic, I believe we are still grappling with the underlying issues that have plagued our economy in recent times.

Fundamental Issues Persist

One fundamental problem that persists is the failure of both Wall Street and the Federal Reserve to fully acknowledge the true state of our economy. Until there is a collective recognition of the challenges we face, the volatility in the stock markets will continue to plague us. It is essential that we confront these challenges head-on in order to stabilize and strengthen our financial systems.

Inflation, another looming concern, remains difficult to predict. There are numerous factors at play, along with competing agendas that contribute to its rise. Therefore, I do not believe that inflation is a problem that will be resolved anytime soon. Furthermore, the stock market volatility that has become a recurring theme is likely to persist for the foreseeable future.

However, it is important to note that our economy has experienced a significant transformation in the wake of the COVID-19 pandemic. COVID revealed the weaknesses and vulnerabilities of our economic infrastructure. We have become overly reliant on a global supply chain for essential goods, exposing us to potential disruptions.

The issue lies not in supporting other nations or aiding their growth but rather in the fact that our critical manufacturing is concentrated in regions that can jeopardize our national security. China, a powerful nation with a centralized system of governance, holds significant control over our manufacturing sector. This presents a serious threat if they were to perceive us as an enemy and disrupt the supply chain.

Additionally, the proximity of Taiwan, where the majority of our high-tech chips are produced, to mainland China compounds this vulnerability. China's increasing assertiveness only amplifies the potential risks to our military infrastructure and overall economy. We cannot afford to be held hostage by a socialist dictatorship.

Re-shoring Is Real!

In response to these challenges, Western nations, including the United States, have implemented laws and incentives to encourage the return of manufacturing to our own shores. The United States has been particularly proactive, surpassing the efforts of the European Union and the United Kingdom. We have provided extensive incentives, potentially straining our trade relationships with other nations.

Manufacturing jobs are returning home, and high-tech sectors are following suit. This shift is creating new jobs, some of which are not yet reflected in official reports. While the data from the Federal Reserve and stock market performance may not fully capture this transformation, it is crucial for investors to recognize the profound impact it will have on our economy in the long run.

Therefore, until these developments are more visibly reflected in economic indicators, we will continue to experience a tug of war between positive and negative forces. It is imperative for investors to be patient, remain vigilant, and adapt their strategies accordingly. As we navigate these uncharted waters, a comprehensive understanding of the evolving economic landscape will be essential for successful decision-making.

So, while I believe the worst may be behind us, we must not underestimate the lingering challenges our economy faces. It is imperative that both Wall Street and the Federal Reserve acknowledge and address these issues. By doing so, we can work towards a more stable and resilient economic future for all.

Balancing Retirement Concerns
in an Evolving Economic Landscape

In the ever-changing economic landscape, it is crucial to address the concerns of individuals who are currently retired or planning to retire in the near future.

As a financial advisor, my primary focus is ensuring that retirees have a clear understanding of their financial situation and the sources from which they will draw their income. However, as we move into 2023 and look ahead to 2024, there are factors that warrant careful consideration.

One of my major concerns pertains to retirees who have their retirement savings solely invested in the stock market. While the market offers potential for growth, relying solely on these investments without separating funds earmarked for short-term living expenses can pose risks. Retirees may find themselves in a vulnerable position, if they need to tap into their investments during a market downturn. In such situations, they might be forced to sell their assets at a loss, which can have lasting consequences for their financial stability.

To mitigate this risk, it is crucial for retirees to have a well-thought-out plan in place. Separating funds based on different time horizons can provide stability. By designating specific accounts for short-term expenses and ensuring they are adequately funded, retirees can safeguard their immediate financial needs without relying on volatile investments.

In addition, it is essential to evaluate long-term investment strategies. While retirees seek stability in their day-to-day finances, they also need to ensure their investments for the future are aligned with their risk tolerance and financial goals. Some retirees may be comfortable with the natural fluctuations of the stock market, while others may prefer more conservative options. Aligning investment strategies with individual preferences is crucial to maintaining peace of mind and long-term financial well-being.

Furthermore, it is important to acknowledge the shifting dynamics of the global economy. The ongoing decoupling of the global supply chain, driven in part by geopolitical factors, has significant implications. While it is not prudent to publicly declare our concerns about China's actions, behind closed doors, decision-makers recognize the need to address the vulnerabilities associated with concentrated critical manufacturing in certain regions.

The repercussions of this transformation are far-reaching, and retirees must be cognizant of the potential impacts on their investments. By diversifying their portfolios and considering investment opportunities that align with the changing economic landscape, retirees can navigate the evolving global dynamics more effectively.

How Do I Invest My Money?

A question I often get asked is, "How do you invest your money?"

When it comes to investing money, it's important to have a well-thought-out strategy that aligns with your financial goals and risk tolerance. As mentioned earlier, my investment approach depends on different time horizons and objectives.

For short-term needs and emergencies, I maintain a portion of my funds in a checking and high-yield savings account. This provides me with easy access to cash and helps cover expenses for several months. High-yield savings accounts, often in the form of money market funds, can offer a modest return on investment, typically around 4 to 5%.

However, for my long-term investments, I am comfortable with bearing market risk and embracing full market volatility. I employ a contrarian investment strategy, similar to the approach adopted by legendary investor Warren Buffett. When the stock market experiences significant downturns and fear grips the investors, I leverage the expertise of money managers who seek out fundamentally strong companies that have been beaten down by the market sentiment.

These contrarian strategies involve buying these undervalued companies and holding them for a shorter period until they recover and reach their peak potential. By identifying companies with solid fundamentals, even during turbulent times, there is an opportunity to capitalize on their future growth and profitability. It's important to note that these strategies require careful analysis and monitoring to ensure optimal timing for buying and selling.

In the current unpredictable economic landscape, characterized by heightened uncertainty, such contrarian investment strategies have proven to be successful. The market volatility presents ample opportunities for those who have a well-defined investment approach and the ability to capitalize on temporary market fluctuations.

However, it's essential to emphasize that investing involves risks, and each individual's financial situation and risk tolerance should be taken into consideration. For those who prefer a more passive approach, a long-term buy-and-hold strategy, while periodically reviewing and rebalancing their portfolio, can also be a prudent choice.

Ultimately, the key is to have a solid investment plan that aligns with your financial goals, time horizon, and risk tolerance. Consulting with a financial advisor or investment professional can provide valuable guidance and help tailor a strategy that suits your specific needs and objectives.

In conclusion, as we approach 2023 and beyond, retirees and those planning for retirement must pay careful attention to their financial strategies. It is crucial to separate short-term living expenses from long-term investments, ensuring stability in day-to-day finances while positioning for future growth. Additionally, acknowledging the changing global economic landscape and diversifying investments can provide retirees with a sense of security amidst uncertainties. By working closely with financial advisors, retirees can navigate these challenges and achieve their retirement goals with confidence.

As we find ourselves in the middle of 2023, the landscape of retirement investing has seen a seismic shift. We've watched the traditional 60-40 portfolio model — 60% in stocks and 40% in bonds or other low-risk assets — struggle to keep pace with current financial realities. It is not an overstatement to say that the dynamics of investing for retirement have changed fundamentally.

In the past, advisors suggested one of two approaches. Either they chased high-risk "bond-like" assets to compensate for the lackluster returns of traditional bonds, or they adhered to the 60-40 model, knowing full well that their clients' assets were not growing as fast as they should have. Neither approach is sufficient in the present climate.

2023 - The Year Everything Changed Forever

Enter 2023: we're looking at interest rates that have not only gone beyond the historical average for the Federal Reserve rate, but are also slated to rise further. Bonds, which have been a stable investment for the last decade, are not so stable anymore. Their prices are fluctuating greatly, making the goal of a low-volatility retirement portfolio more elusive.

Until a couple of years ago, many financial advisors, myself included, were perfectly content with having clients invest in target date funds, the asset allocation of which typically adheres to a 60-40 or 70-30 risk profile. But with the current upheaval in interest rates, I now advise clients to separate their investments. I recommend that they directly invest in equities for a portion of their portfolios and then directly in treasuries or another safe asset.

Indeed, many target date funds we have seen are taking on excessive risk. If we look at their growth charts over the past two years, they've experienced significant declines and have not fully participated in the recovery. It’s a bitter pill to swallow: if they didn't protect investors on the downside, they should at least help them capitalize on the upside. Unfortunately, across major firms, very few managed mutual funds are adequately managing risk, and almost all of them are failing to provide substantial returns.

The time for a more hands-on approach to retirement investing is now. Bonds, often considered a staple of a balanced portfolio, require a new perspective. Buying one-year or three-year treasuries is a common move among professional investors, but I encourage a much shorter-term approach.

In addition, it is crucial to consider the broader economic context. What if inflation remains at four or five percent for the next few years? What if four percent becomes the new normal for the next decade? These are questions that investors must seriously ponder, as the answers will significantly impact the bond and stock markets. Venture capitalists are already feeling the effects of changing interest rates, which are reshaping the dynamics of startup funding in Silicon Valley and beyond.

The realities of 2023 call for a forward-thinking approach to retirement investing. A buy-and-hold, set-it-and-forget-it mindset no longer suffices. Instead, investors must anticipate future economic conditions and adjust their portfolios accordingly. After all, it's not about what performed well in the past, but about what is poised to thrive in the future.

To that end, it is crucial to take control of your investment strategy, make informed decisions, and ensure that your retirement portfolio is not just surviving, but thriving in this new financial landscape. Only then can you rest easy knowing you are prepared for the future, whatever it may bring.

A Dangerous Time for Retirees

The current financial landscape can be seen as both precarious and advantageous for retirees, depending on the level of involvement they're willing to take in managing their investments.

Indeed, the situation is precarious in that passive participation in retirement plans, which has been the norm for many investors over the past few decades, is no longer sufficient. With the changing market dynamics, increasing taxes, and a lack of adaptability among professional advisors, it is essential for retirees to take a more active role in managing their retirement portfolios.

For years, the "by the book" approach to investing has served investors well. However, the financial environment we find ourselves in today is unlike anything we've experienced in the past. As the Wall Street Journal noted, the market has not experienced a bear market lasting this long since 1973. The traditional methods and statistics that have informed investment decisions for decades are now outdated, and investors must adapt.

This need for adaptation can also be seen as an advantage for retirees willing to take a more active role in managing their portfolios. By becoming active participants in their investments, retirees can make more informed decisions that are better suited to the unique challenges of today's financial climate. This allows them to protect their retirement savings and potentially capitalize on new opportunities.

What's The Solution

In these uncertain times, I recommend that clients approach their investments with a time horizon-based perspective rather than adhering to the traditional 60/40 rule.

First, divide your investments into three main buckets: immediate, intermediate, and long-term.

The immediate bucket should contain the funds you plan to use within the next couple of years. Given the current financial landscape, it's crucial to locate accounts that offer interest rates near or above the inflation rate, such as checking or money market accounts with an interest rate around 5%. This way, you can maintain your purchasing power for everyday essentials, despite rising costs.

The intermediate bucket should consist of investments you plan to utilize within three to five years. Here, you can afford a bit more volatility, but the focus should still be on stability. This could mean looking for CDs offering 6-7% returns or including some equities.

For the long-term bucket—funds you don't intend to touch for at least ten years—you have the luxury of time on your side. Over a ten-year period, the market's current fluctuations will likely become a blip in the grand scheme of things. In this bucket, you can afford to take on more risk, and you should aim for investments that not only recover but also grow over time.

In essence, the current financial climate requires us to shift away from the traditional investment wisdom of the 60/40 rule and towards a time horizon-focused approach. This allows us to adapt to the current market realities while still planning responsibly for our retirement years. It's important to realize that every investment decision should be based on individual circumstances and risk tolerance. Please consult with a financial advisor before making any significant changes to your retirement portfolio.

In my early days as a financial advisor, I remember meeting a retired couple, anxious and confused about their retirement savings. As we sat in my office one spring afternoon, they looked at me earnestly and asked, "Leibel, where should we start spending our money first in retirement?" This question has stuck with me through the years, and I've realized how complex the answer can be.

You see, when it comes to managing finances, especially for retirement, there are two kinds of people. Some folks see the big picture, while others excel in the nitty-gritty details. But in retirement, you really need to be a bit of both. It's like playing a chess game where you're thinking several moves ahead while also focusing on the intricate play-by-play.

Let's say you've got a 401K and an IRA. Your 401K is just sitting there, safely tucked away in cash or cash equivalents. But your IRA? It's a wild stallion, aggressively investing and growing at an exponential rate. So, which do you touch first? Well, it's not always about the specific account. It's more about what you're trying to achieve.

Let's circle back to that couple in my office. They had a substantial 401k, but it was mostly in cash. Their IRA, on the other hand, was considerably smaller but invested aggressively. In their case, the IRA was growing rapidly, while their 401K was essentially idle. So, we decided to spend from the 401K first, allowing the IRA to continue its growth trajectory.

RMDs Are The Real Enemy

The government has a say in all this, too. You see, Uncle Sam is pretty hands-off with your 401K and traditional IRA until you hit a certain age. Then, they want their cut, and you have to start taking required minimum distributions (RMDs). It's like a ticking tax time bomb.

Say you've been diligently saving, and now you're sitting on a significant retirement account balance. By the time you're in your eighties, the RMDs could be 20, 30, even 40% of your account balance. That could mean shelling out hundreds of thousands just in taxes. You might find yourself in a higher tax bracket in retirement than you ever were while working, with the largest beneficiary of your hard-earned savings being Congress, not your family.

So, what's the best way to avoid this? Keep a close eye on your retirement account balance and your potential RMDs. If you project your RMDs to be significantly higher than your annual income in retirement, you might need to spend down your retirement accounts or consider Roth conversions.

What Are RMDs?

Required Minimum Distributions, or RMDs, are essentially the tax bill coming due on the money you've saved in your retirement accounts. You see, when you were working, you got a tax break for contributing to these accounts. This allowed you to save more and pay less in taxes at the time. But the government wants its share eventually, and that's where RMDs come in.

Once you hit 73 or 75, depending on when you were born, Congress insists you start withdrawing a specified amount from these accounts each year. It's like they're saying, "Hey, we know you've been saving diligently, and maybe you feel comfortable with your Social Security and pension. But we want our share, and we're going to make sure you pay up."

And if you're thinking, "Well, I'll just leave it to my kids when I pass," think again. The government will require your beneficiaries to drain the account within ten years of inheriting it, often bumping them into a higher tax bracket.

So, how do they calculate your RMD? The IRS gives you a number based on your account balance as of December 31st. You multiply your balance by this number, and that's your RMD. If you don't take it out, you'll face a tax penalty, which could be as high as 25% with the new Secure 2.0 Act.

Generally, there's no reason not to take out your RMDs unless it would push you into an unusually high tax bracket. In the end, Congress wants you to start drawing down that money. For a clearer idea of what your RMD might look like, you can look up the Uniform Life Expectancy Table or use an online RMD calculator. Just remember, Uncle Sam is waiting for his share!

As a rule of thumb, I usually suggest prioritizing retirement accounts first, then taxable accounts, and finally Roth accounts for distributions. But remember, your situation might call for a different strategy. So, just like that couple in my office years ago, don't be afraid to ask questions and seek advice tailored to your needs.

Where Does Social Security Fit In?

For the majority of retirees, Social Security forms a vital part of their income. Even if your annual expenses go beyond what you receive from Social Security, it's a safety net. It ensures you've got a roof over your head, food on your plate, and gas in your car.

But the question that often stirs up a debate is - when should you start taking Social Security? At 62, because life is unpredictable? Or wait until 70 to receive a larger check? The answer is not one-size-fits-all. It depends on your lifestyle and your retirement accounts.

I recall a couple who came to me without much in terms of retirement savings. Their Social Security check wasn't large either. But taking a reduced check at 62, though it might seem counterintuitive, allowed their retirement savings to grow, and it significantly impacted their retirement lifestyle. That early, smaller check was the difference between them running out of money and being able to live comfortably and leave something for their beneficiaries.

On the flip side, for some people, delaying Social Security until 70 is essential. Imagine a scenario where a large chunk of your income comes from Social Security, and then the higher-earning spouse passes away. The surviving spouse only receives the higher-earning spouse's benefits, leaving a deficit of 30-40% of their income. If they don't have the savings to cover that difference, it's a precarious situation.

So, when considering Social Security, Roth conversions, RMDs, or which accounts to spend down first, remember - these pieces interlock. Adjusting when you take Social Security can significantly impact other aspects of your retirement plan.

Here's my advice: plot these numbers out side by side. Run a few scenarios. What if you delay Social Security by a year? What if you take it a year earlier? Or what if the first year or two of your retirement, you have a negative balance instead of a positive one? Visualize what these changes do to your retirement account balance over 20, 30, or even 40 years.

Yes, it may feel like looking too far into the future, but here's a sobering fact - about 10% of Social Security beneficiaries are over 100. While you or your spouse may not live that long, you don't want to risk ending up in a low-cost Medicaid nursing home because you didn't plan well. It's about doing the hard work and asking the difficult questions now so that you can reap the benefits later. Trust me, future you will thank you for it.

 

Inflation, taxes, and unpredictable markets may seem like insurmountable challenges to a secure retirement. As a financial advisor and retirement specialist on a personal mission to help one million people retire with financial security, I often encounter investors seeking a magic bullet to protect their retirement nest egg. While there is no one-size-fits-all solution, the secret to weathering the financial storms lies in mastering the fundamentals and adapting them to your unique situation.

Having a Process is Key

Every investor's journey is different, but the principles of sound financial decision-making remain the same for everyone. Having a solid process in place is the key to avoiding blind guesses and the perils of gambling with your financial future.

Investors often ask me: what they should invest in or which specific assets to buy, but the truth is that every person's answer will differ based on their individual needs and life stage. The secret sauce, if you will, lies in understanding and applying the fundamentals to your own situation.

A prime example of this is the current debate surrounding the 60-40 portfolio, which has been a mainstay of retirement planning for decades. With the bond market and interest-bearing investments undergoing significant changes in recent years, it's crucial for investors to reevaluate their strategies.

The question you need to ask yourself; are you investing for today, or are you clinging to outdated methods that served you well in the past?

The key to navigating these turbulent financial waters is having a process in place that allows you to identify and adapt to fundamental shifts in the market. Investors must be prepared to adjust their strategies in response to changing economic conditions to ensure that their portfolios remain well-positioned for the years to come.

So, while there is no magic bullet for guaranteeing a secure retirement, the secret sauce lies in mastering the fundamentals of sound financial decision-making and tailoring them to your unique needs and circumstances. By doing so, you can create layers of protection for your retirement, ensuring that no matter what happens in the world, your lifestyle remains unaffected.

Creating Layers of Protection

Creating multiple layers of protection ensures that even if one barrier is breached, there are still others in place to safeguard our finances. The key is to give ourselves enough time and flexibility to make decisions on our terms rather than being at the mercy of the market, the Federal Reserve, or Congress.

Operating on someone else's timeline often leads to poor decision-making, as very few of us can make consistently accurate choices under immense pressure. Creating layers of insulation against external factors, and being open to taking on calculated risks. By adopting these strategies, we can build a robust foundation for a financially secure retirement, regardless of the challenges the world may present.

Emergency Funds and Credit Lines Are Essential

Credit cards and short-term loans can serve as essential components of the layers of protection we've been discussing. They provide a valuable cushion in the form of an emergency fund, credit card, or securities loan – a lesser-known option that allows you to borrow against your non-retirement investments, often at better interest rates than 401k loans.

These financial tools offer insulation during emergencies, such as when the stock market is down, and you need to cover living expenses or meet required minimum distribution obligations. As a savvy investor, you understand that locking in market losses can harm your long-term financial prospects. Having access to credit cards, short-term loans, or emergency funds helps bridge the gap between your investments' current state and their eventual recovery.

The stock market is highly likely to recover due to the effects of inflation, which causes asset values to rise over time. Consequently, having a loan or credit card in place to cover short-term needs is advantageous. However, it is crucial to weigh the pros and cons of the interest rates on these loans against the long-term impact of locking in losses.

Incorporating these layers of protection into every financial plan ensures that you have funds to live on for the short term, as well as in two or three years, without having to dip into your long-term investments. By utilizing these protective layers, you can safeguard your long-term financial success and maintain a secure retirement, even in the face of market fluctuations and economic challenges.

Protecting Against Inflation

To protect against inflation, some may believe that holding investments like certificates of deposit (CDs) or other interest-bearing assets is the solution. However, here's a little secret: banks will never pay you enough to outpace inflation. They always pay less because they need to profit from the difference. To truly shield our money from inflation, we must be willing to take on some degree of risk.

The only way to outpace inflation is to assume some form of equity risk or, alternatively, excessive debt risk. We need investments that yield returns higher than the current inflation rate, and typically, banks won't offer such rates because that's how they generate revenue. As a result, investing in the stock market becomes essential. Alternatively, some may consider the bond market, specifically the segment with comparable risk levels to equities.

Protecting Against Higher Taxes

Protecting our money from higher taxes in the future is a more complex challenge, as it requires peering into our metaphorical crystal ball to predict the tax landscape. While it's impossible to know exactly what taxes will look like in the coming years, we can create layers of protection and a multi-step plan to prepare for various scenarios, ranging from the worst-case to the best-case situation.

For example, with current historically low tax rates and the Tax Cuts and Jobs Act set to expire in 2026, many people are contemplating Roth conversions. Deciding whether to take advantage of the current tax climate depends on individual circumstances, and the answer will vary for each person. Factors to consider include the potential impact of a worst-case tax increase scenario, the benefits of leveraging current tax rates, and how these decisions will affect your lifestyle.

When discussing tax-saving strategies, it's crucial to examine your motivations and the underlying purpose of your money. Are you aiming to maximize your wealth for your beneficiaries, donate to a cause, or enjoy it during your lifetime? Answering these questions will help guide your decision-making process and enable you to use your money most effectively.

Balancing present and future tax burdens is often a delicate exercise, requiring careful consideration of the probabilities of different outcomes. Taking measured steps to mitigate potential tax increases, without going overboard, is essential to avoid catastrophic mistakes. As deadlines for legislative action on tax policies approach, it's crucial to be prepared to act promptly.

Having a well-defined plan in place, ready to be executed based on the unfolding news and developments, will help ensure you're not exchanging a potential disaster for an actual one.

Next Steps

We talked about how the overall concept of creating layers of protecting in your retirement plan, so you can withstand any financial challenges that life throws your way. The process is all about creating those layers of protection and diversification, ensuring that even if one part of the market goes down, you have something to counteract that.

In my guide The 321 Retirement Plan, I outline the step-by-step approach we take to do this for our clients. You can download the free guide here:

>> Download the 321 Retirement Plan <<

If you have any questions, don't hesitate to shoot us an email. My team and I are more than happy to help. So, take control of your financial future and start building those layers of protection for a more secure and worry-free retirement.

As uncertainty and volatility continue to plague the market, many Americans are wondering how to protect their retirement savings from the whims of day traders and overzealous politicians. With multiple competing opinions on the state of the economy, it's essential to understand these shifting dynamics in order to make informed decisions about your financial future.

At present, there are three primary perspectives influencing the economy: the Federal Reserve, who believes that the economy is overheating; the stock market, which desires a return to the free-flowing money of the past 15 years; and politicians, who seek to win votes by maintaining the status quo. These divergent views contribute to a seesaw effect in the market, resulting in unpredictable fluctuations.

The root of this discord lies in the fact that the economy is in a state of transition, driven by events like the COVID-19 pandemic and geopolitical tensions. As a result, essential manufacturing is being brought back to Western countries, leading to changes in employment and the emergence of new industries. Both the Federal Reserve and Wall Street are attempting to interpret the same data points, yet they continue to second-guess each other.

For those planning to retire in the near future, this uncertainty poses a significant challenge. Traditional investment strategies, such as buying and holding low index funds, may no longer be sufficient to ensure a comfortable retirement. Instead, investors should consider adapting their approach by exploring alternative strategies designed for sideways markets, such as certain exchange-traded funds (ETFs).

In a time of market volatility, it's crucial to recognize that change can also bring opportunity. By staying informed and adapting to the evolving economic landscape, it's possible to retire with confidence, despite the unpredictable nature of the market. As we await further clarity on the economy's direction, keep an eye on legislation, which could have significant implications for Social Security and retirement planning.

Ultimately, the key to navigating this shifting economy lies in flexibility and a willingness to adapt to new market conditions. By doing so, you can safeguard your retirement and build the life of your dreams, even in the face of uncertainty.

When Will The Market Recover

Predicting whether the market will recover back to where it was before the recent correction is a challenging task. In the past, when people asked similar questions, the general answer was that recovery would typically take about 18 months. This estimate was based on the analysis of market corrections since 1900, which often resulted from microeconomic factors, such as a particular company or sector experiencing difficulties.

However, the current situation is more akin to the significant changes in manufacturing seen in the 1980s and 1990s. During these periods, manufacturing shifted in a way that did not simply recover but instead led to long-lasting changes. Presently, uncertainties surrounding inflation and the lasting impact of recent geopolitical events make it difficult to predict when or if the market will fully recover.

While it is possible that the market may slowly return to levels seen 18 months ago, the timeline for this recovery remains uncertain. It could take until the end of the year or even several years before we see a consistent upward trajectory. Until there is greater clarity on inflation and other economic factors, the market is likely to continue moving sideways, with the potential for some companies to go bust in the process.

Should People Delay Their Retirement

While traditional investment strategies like buy-and-hold may not work as effectively in a sideways or down market, retirees planning to go out this year don't necessarily have to wait another two to three years. Instead, they should consider adapting their investment approach to better suit the current market conditions.

There are various investment strategies and financial instruments designed for different market cycles. Recently, there has been a rise in ETFs specifically tailored for sideways markets. Adapting to these newer strategies could help retirees navigate the current market situation without having to delay their retirement plans.

Volatility in the market can be seen as an opportunity rather than a deterrent. It provides a chance to invest in sectors that are poised for growth and exit those that are declining. By adjusting your investment approach and embracing the potential opportunities that come with volatility, you may be able to retire as planned or even with more money than initially anticipated.

How to make the most of your Roth conversion and squeeze every penny out of it. We're going to be talking about insider tips and tricks that they just don't tell you about.

What is a "Roth Conversion?"

As a financial advisor and enrolled agent with the IRS, I've witnessed firsthand the power of Roth conversions in securing a sound financial future for retirees. To understand its importance and how it works, let's first revisit the concept of a Roth conversion and the steps necessary to make it happen.

At its core, a Roth conversion is a two-step process that involves transferring funds from a traditional retirement account, such as a traditional IRA or 401(k), to a Roth IRA or Roth 401(k). While the actual mechanics are often handled by the financial institution where your assets are held, it's crucial to understand the tax implications associated with each step.

First, the distribution from the traditional retirement account is treated as taxable income, which means you'll pay ordinary income tax on the amount withdrawn. Next, the funds are deposited into a Roth account as a conversion, which differs from a contribution and carries distinct rules. Once in the Roth account, the money can grow tax-free and is not taxed when withdrawn, unlike in a traditional brokerage account.

This tax-advantaged growth and distribution make Roth conversions an attractive option for those looking to maximize their retirement savings. However, there are two key caveats to keep in mind. Firstly, you must pay taxes upon conversion, and secondly, the funds must remain in the Roth account for at least five years.

These stipulations are in place to ensure that Roth conversions serve their intended purpose:to save more for retirement and ultimately lessen the burden on the public purse.

Common Roth Conversion Pitfalls

As a Tax Professional and financial advisor, people often come to me I've encountered numerous individuals attempting to navigate the complexities of Roth conversions without fully understanding the nuances involved.This lack of knowledge often results in lost opportunities and, in some cases, financial hardship. To make the most of your Roth conversion, it's crucial to be aware of the common mistakes and the best practices that can maximize your long-term gains.

Mistake #1 - Underestimating The Tax Consequences of a Roth Conversion

A significant issue arises when people, especially do-it-yourselfers or financial advisors with limited tax expertise, underestimating the tax consequences of Roth conversions. While most financial advisors possess a basic understanding of taxes, true mastery of the tax system can mean the difference between a comfortable retirement and financial struggle. This is why the wealthy invest in expert accountants rather than relying on tax software like TurboTax.

Mistake #2 - Losing Out on Market Gains During The Conversion!

One critical detail often overlooked is the taxation of the fair market value of the assets transferred during a Roth conversion. Many people take the easy route and convert cash after liquidating their assets in the traditional IRA, but this is not the most tax-efficient method. Instead, examine your account for positions that have lost value, and convert only those positions into your Roth account. By doing so, you'll pay taxes on the fair market value of the position at the time of conversion, capturing any losses and potentially saving a significant amount on your Roth conversion.

Moreover, it's essential to remain invested in the market to maximize your long-term returns.

Traditional methods of Roth conversion involving cash transfers can take days or even weeks to complete, during which time you may miss out on crucial market gains. Not to mention the value lost just by buying and selling your assets. Your brokerage firm is making money on each trade, either in trading fees, or more common in the spread between the bid/ask. Brokers bury a small fee one each transaction in the form of a reduced sales price, or a greater buying than the true market value. To avoid this pitfall, transfer the actual stock, bond, or ETF, ensuring that you remain invested in the market regardless of the transfer's duration.

While these strategies may be more complicated and require additional effort from your accountant or financial advisor, they can lead to substantial savings and increased returns over time. By understanding the intricacies of Roth conversions, you can better position yourself for a secure and prosperous retirement.

Understanding the Tax Implications of Roth Conversions

When navigating the complexities of the tax system, it is crucial to understand the implications of a Roth conversion.

A Roth conversion has two immediate impacts on your taxes. First, the amount you convert will be taxed as ordinary income. For example, if you had $50,000 of income and converted $100,000, you would be taxed as if you earned $150,000. This could potentially push you into a higher tax bracket.

Second, many taxpayers overlook the fact that they don't pay taxes on their entire income, thanks to deductions, exclusions, and credits. These reduce the amount of taxes paid, making your effective tax rate lower than your tax bracket. When conducting a Roth conversion, it is crucial to account for these factors to avoid paying more taxes than necessary.

To maximize tax efficiency, it is essential to work with a professional who understands the nuances of the tax code. They can help you make the most of deductions, exclusions, and credits while minimizing the amount you pay in taxes.

When it comes to using your IRA funds to pay for the taxes incurred by a Roth conversion, the traditional advice is to avoid doing so. This is because using your IRA funds compounds your losses – not only are you paying taxes on the conversion, but you are also reducing your savings. However, there are situations where the long-term tax benefits of a Roth conversion outweigh the immediate costs.

For instance, if you experience a low tax rate year, like losing a job or having a significant drop in income, it might be advantageous to conduct a Roth conversion. In such cases, it may not matter where the money comes from, as the long-term tax-free benefits outweigh the initial losses. Additionally, individuals with substantial wealth concentrated in their IRA accounts may benefit from upfront conversions to avoid steep taxes and required minimum distributions later on.

When Is The Right Time To Do a Roth Conversion?

You've probably heard the old adage that you can't time the market. Personally, I've found that properly timing the market from a tax perspective can significantly enhance an investor's long-term returns. While this may seem counterintuitive, striking the right balance between investment and tax strategies can pay substantial dividends in the long run.

When considering market timing, it's essential to differentiate between investment and tax perspectives. From a tax standpoint, timing the market involves making informed decisions about distributions, harvesting gains and losses, and strategically de-risking your portfolio. This approach is fundamentally different from attempting to predict market movements to maximize investment returns.

To maximize tax efficiency, investors should consider implementing automated strategies or establish regular intervals to assess their portfolios and take advantage of available opportunities.

For instance, setting aside time each quarter or year to review your investment positions and make necessary adjustments can help ensure you're consistently capitalizing on tax-saving opportunities.

While daily adjustments might seem ideal, evidence suggests that this level of micromanagement may not yield optimal results. Instead, a more measured approach – such as quarterly or annual reviews – can strike the right balance between staying engaged with your portfolio and avoiding excessive tinkering.

If managing these strategies proves too complex or time-consuming, enlisting the help of a qualified financial advisor can be invaluable. When selecting an advisor, ensure that tax-efficient strategies are a key component of their service offering, as this expertise can make a significant difference in the long run.

If you would like to dive deeper, schedule a free consult, or access the mini-course here: https://www.yields4u.com/roth-conversion-mini-course

 

Wanna get off that Wall Street roller coaster? This new investment from a leading ETF provider might be your ticket. Join us this week as we explore the new world of Annuity Alternatives.

In the world of cutting-edge technology, ChatGBT and AI have been making waves, but these innovations are nothing new. Guess what? I've been using the thing behind Chat EBT for almost a year and a half now. And we've been using AI in our firm for, I don't know, 10, 12, 15 years.

While AI has been around for some time, it wasn't until the advent of publicly available tools like ChatGBT that it became easily accessible to the masses. It's not that it was something really that new, the ability to have an AI that was able to write texts. Yeah, they did a really good job of it. But if you look at your phone, you had autocomplete. You had these little pieces of that built into tools all over the place. It just took somebody to come along and use it in a way that nobody had done before and make it a commercial success.

Up until very recently, the annuity world, the insurance companies had a lock on their ability to create this investment vehicle, but what's happening right now is something that I think is similar to what happened with ChatGBT. Someone came along and used a technology that was already available and made it a commercial success in a new way.

As someone who has worked in the financial industry for many years, I have always believed that insurance is an important tool. For a long time it was one of the few good options for conservative investors looking to protect their downside while still participating in the market's upside.

Annuities Are No Longer The Only Game In Town!

Annuities and other insurance products have been around for decades, and they have served their purpose well. But over the past few years, there has been a shift in the industry. New companies have emerged that are offering similar products, but with access to a broader range of investments, better upside participation, less fees and hassles than what traditional insurance companies could offer. These new players are disrupting the industry and forcing insurance companies to adapt.

In the world of AI, ChatGBT took technology originally developed by Google, packaged it up in an easy-to-use way for everyday people. Overnight, they had a hundred million users, making them the fastest company to reach that milestone in history. The reason for their success is simple – they offered something that people wanted. It was innovative, useful, and cool. And now, other companies are following suit, trying to get a piece of the action.

This competition is good for investors. It means they have more options to choose from and can find a product that best suits their needs.

In the investment world, It also means that insurance companies have to up their game and create better products to compete.

What is an Annuity

At its core, an annuity functions much like a bank CD, with the added benefit of market-based returns. You give the insurance company a certain amount of money, and in return, they promise to grow that amount by a fixed rate or by a percentage of any market gains. But what sets annuities apart is their unique offering of downside protection.

Unlike CDs or exchange traded investments, annuities guarantee that you will not lose your principal. This protection is invaluable for those looking to safeguard their hard-earned money.

How Do Annuities Provide Guarantees

The big question that any investor should have when hearing about a guarantee, is to question the mechanism of the guarantee. Anybody can spout promises, it is the ability to deliver that really carries weight.

Insurance companies deliver on their promise by entering in to massive contracts with investment banks. The insurance company takes ones side, the investment bank takes the other. One bets that the market will go up, the other that it will go down. Buy enough of these contracts and you can effectively create a hedge. This allows insurance companies to participate in the market's upside without accepting too much downside risk. They then pass on some of the returns to consumers, who can benefit from growth potential without worrying about losing their entire investment.

And like a good hedge fund, the insurance companies take a hefty fee for their services. In addition to your life insurance and administrative fees, they also take a performance based managed fee, usually called a spread. In many ways this is similar to the 2/20 arrangement of hedge funds, where the fund takes a 2% management fee, and the 20% of all growth above a specified amount. The insurance companies have a bit of a richer arrangement, since they also cap your max growth, whereas a hedge fund does not.

Everything Carries Risk

Of course, like any investment, there are risks involved.

Even seemingly safe investments like annuities and bank CDs can carry risk. If the insurance company offering the annuity goes bankrupt, the investor may not receive their full investment back. Similarly, if a bank experiences a run and the investor is not protected by FDIC insurance or SIPC protection, they may lose a portion of their investment.

Brokers are often limited by regulations from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) in what they can say about the risk associated with different investment vehicles. Annuities are regulated by the Department of Insurance and they have lobbied hard to be excluded as investments.Allowing them to market and make promises that ordinary investments cannot make.

This has allowed Annuities and Bank CDs to attract investors with their promise of downside protection. However, annuities come with lots of drawbacks, including lock ups, surrender charges, limited growth, and potentially high fees.

An Alternative to Annuities & Bank CDs

Enter Shielded Growth products. These innovative financial instruments offer a compelling alternative to annuities, providing downside protection while still allowing for growth potential. Rather than locking up your money in a fixed annuity, Shielded Growth products offer exposure to the stock market while limiting your risk of loss.

While Shielded Growth products may not provide the same level of guaranteed income as annuities, they offer greater flexibility and the potential for higher returns. Investors can benefit from market growth without worrying about catastrophic losses, making Shielded Growth products a compelling option for those seeking downside protection.

Of course, as with any financial product, it's important to carefully consider your options and work with a trusted financial advisor to determine what's right for your individual needs and goals. But for those seeking an alternative to annuities, Shielded Growth products may offer the best of both worlds - protection and growth potential.

How Annuity Alternatives Work

But how do they work? Like annuities, Shielded Growth products use similar contracts to insurance companies. They make big, individual contracts with other institutional investors. Providing for per-defined, market upside participation and downside protection. These contract are then sliced and diced in to smaller shares and sold directly to investors. Ideally you would purchase these in something like a Unit Investment Trust, or directly in your account, though there are less efficient investment vehicles in use. Since you own these individually, you can see them at any time in your account. And since the are actual contracts on the market, they can be sold at any time. Most of the time the issuer will offer to purchase it back at the current market value.

Where Can You Purchase a Annuity Alternative

In the past, such investments were only available to large institutional investors due to the high cost and complexity of the contracts involved. Now, with the emergence of exchange-traded funds (ETFs) and similar products, investors can purchase these annuity alternatives in small increments, making them more accessible to the average investor.

Currently there are only a limited number of advisors who are offering these, but that world is growing. At Yields for You we launched a website to help people get direct access to these investments at low prices, that site is: myAnnuityAlternative.com, 

Unlike traditional annuities, these products allow for greater participation in market gains while providing downside protection. They also offer greater flexibility, allowing investors to move in and out of the investment as they please, unlike the long lock-up periods required by annuities. Additionally, these annuity alternatives are guaranteed by the exchanges on which they are traded, reducing the risk of single-company failure.

While these annuity alternatives may not be suitable for all investors, they provide an interesting option for those seeking annuity-like benefits without the drawbacks. As these products become more widely available and better understood, they may provide a valuable addition to the investment landscape.

Read the full buyers guide on myAnnuityAlternative.com

 

 

 

 

 

What's Up With The Volatility?

The big question on everyone's mind today is what's up with the volatility, will it get worse? Are we nearing a turning point...how much longer can it all continue? Here are my quick takes and some tips on what you can do protect yourself.

First, let's get the big question out of the way, the current volatility is likely to continue! This is due to several unresolved issues. The first is this ongoing tug of war between the Federal Reserve and Wall Street. Second, we have the recent developments in Silicon Valley Bank and Signature Bank, and the activity in the banking sector as a whole. This has helped to solidify the markets messaging, but the direction in which the market will ultimately move remains uncertain. While there may be a reduction in volatility, many experts still predicts a bumpy road ahead.

Unforeseen events such as bank failures or fallout from the crypto market could still have a significant impact on the market. In addition, there are many unknowns in the data, as highlighted in a recent Wall Street Journal article about the challenges faced by the Federal Reserve in collecting accurate data.

Due to the flawed nature of the data being used to make decisions about the economy, uncertainty about the future is likely to persist. This creates opportunities for savvy investors to make gains in a volatile market.

Volatility Likely to Continue for The Next 6-Months

At Yields for You, we believe that the current volatility will remain for at least the next six months. . However, even once the market quiets, we do not believe that the market will return to the historic bull market of the last 14 years. Instead, the market is likely to move sideways or experience a downward trend for an extended period of time.

Many analysts are predicting a modest return of only three to five percent over the next decade. This forecast has serious implications for those who have been relying on the market's historical average of nine percent return to fund their retirement.

While some sectors, such as defense spending, may outperform, a broad-based buy-and-hold strategy is unlikely to yield significant returns in the coming years. This presents an opportunity for investors to reevaluate their portfolio, rebalance, and take advantage of market volatility.

Beware of Buying The Dip

However, for retirees, simply buying the dip is not a viable option. Rather, it is essential to create an income plan that minimizes the risk of taking money out of the market at the wrong time. In addition, retirees must ensure that their investments are growing and will be available when needed.

Traditional strategies such as dollar cost averaging and buying the dip are unlikely to work in the current market environment. Retirees need to develop new skills and adopt new strategies that are specifically designed for retirement.

Furthermore, retirees must be mindful of inflation, which disproportionately affects them due to their unique expenses. Bank CDs and IBonds, while providing risk-free growth, may not keep pace with inflation and can result in retirees losing money.

In summary, the current market conditions call for a proactive approach to retirement planning. Retirees must adapt to the new reality of lower returns and higher inflation, and develop income plans and investment strategies that are specifically tailored to their needs.

How to Combat Inflation

Retirees must confront the unrelenting force of inflation, which shows no signs of capping any time soon. While individuals may exercise some control over inflation through their spending habits, it remains largely beyond their sphere of influence.

Rather than attempting to control inflation, retirees should focus on investing aggressively to beat it, without risking their financial security. This means devising an investment strategy suited to the current market conditions, rather than relying on a one-size-fits-all approach like buy and hold. It also means implementing a plan to mitigate losses and ensure that paper losses are not translated into real losses during retirement.

New Investment Options Available to Savvy Investors

Fortunately, the market now offers a range of investment strategies that were previously unavailable to individual investors.

One such strategy involves institutional-grade options that offer 100% principle protection, allowing investors to participate in market growth while safeguarding their assets against downside risk.

This new approach, which was once cost-prohibitive for individuals, is now accessible thanks to the economy's digitization and economies of scale. These options are fully liquid, with no commissions or surrender charges, and can be sold at any time. They provide a viable alternative to annuities and can help retirees preserve their assets against inflation.

In addition to adopting an investment strategy that capitalizes on market growth and devising a spending plan that ensures financial security during retirement, retirees must have an income plan that protects them against market volatility. Ensuring that they have a plan for taking money out of the market will help prevent locking in losses and allow them to maintain their financial security.

For more information on investment strategies and income plans, book a call with our team today!

What happened with Silicon Valley Bank and Signature Bank, and what does it mean for our retirement?

What happened with Silicon Valley Bank?

Silicon Valley Bank, a niche bank that focuses on the tech sector and funds startups in Silicon Valley, found itself in an unexpected situation. They were so successful at helping the startup community and that people were just throwing money at them left and right, that they, the traditional business model for banks of, loaning money out and making money that way was something that just wasn't really viable for them because, As much money as they wanted to loan out, they had more deposits.

As a result, the bank found themselves in a bit of a pickle.

As a bank, their primary job was to make money, and they began looking for alternative ways to do so. And they went with the most conservative investment they could find...United States Treasuries. A lot like many retirees today. Rates are attractive and if held to maturity they won't lose value.

Of course, the key word is held to maturity!

Banks like retirees are not in full control of their assets.

Due to regulations the bank was forced to sell some of their conservative investments at a loss, even though they would have been fine if they had held onto them. And so the real tragedy is that they were forced to sell by the government to sell their investments at the wrong time, at a price that was disadvantageous for them.

Required Minimum Distributions Are The SVB of Retirement

 I find the parallels between what happened with Silicon Valley Bank and what happens with so many retirees, what I believe to be the biggest risk in retirement, which.

Being forced to sell our assets at the wrong time. I find the parallels uncanny in their similarities. Silicon Valley Bank they had these assets, they had really low risk. They were investing in treasuries, right? Really low risk. It was basically the equivalent of a bank CD except from the United States government.

And it's right, it's princip that you pro protected. You're not gonna lose your money and you're gonna get interest, right? What's not to like about it? Other than the fact that if you need to sell it before it reaches maturity, then you are subject to interest rate risk, right? You are subject to the whims of the market, and that's what happens at the Silicon Valley Bank.

They had. They had investments that were too conservative for the market, and the market was like we can get better rates elsewhere, so you're gonna sell it at a loss. And the same thing could happen to us in retirement. In retirement, the IRS comes along and says we've got required minimum distributions, right?

You have to take money out of your retirement accounts, and we decide how much you have to take out and when you have to. Like the banking regulations for Silicon Valley Bank that said, you need to have liquidity on hand to cover your depositors, and if you don't, you're going to have to sell assets to raise the cash.

I see that as being, the same. And so what happened was, Just like the IRS comes to of retiree and says you gotta pay taxes. You gotta take money on your retirement account and pay taxes.  Doesn't matter that the market's down, doesn't matter that it's the wrong time.

Doesn't matter that if you just held on six more months, you would be fine. And you'd be able to pay it and you'd be, your retirement would be fine. No, you have to sell it today. You have to pay those taxes today. And if you don't, we're gonna penalize you. In the case of Silicon Valley Bank they took them over.

They forced them to sell it at a loss, and then they took them over and put them out of business. In retirement, we don't want to be put out of business, and so we need to make sure that we're never in a position where the I R S comes to us and says, you have to take this money out of your account and liquidate it and pay taxes on it even though it will hurt your retirement.

And I think that they're like, the parallels are uncanny and the lesson is the same. Just like the bank needs to manage and hurt it's cash, right? It's cash reserves and make sure that it always has enough money on hand and that it can always sell its assets, it has enough cash flow to cover its depositors.

In retirement, we need to make sure we have enough cash flow right, and we have our assets invested in the right way so that when we need to take our money out, we're not taking it out at the wrong time. We're not compounding those losses that are in the market and we don't turn those paper losses into real losses. And that's why I go through in the article that I just published, you can read about it here: https://www.yields4u.com/blog/the-silicon-valley-bank-failure-a-hard-lesson-for-retirees

The Role That Fear Played in SVB Collapse

 I think a fear played a small role in what happened. I think it, it exacerbated the issue, we had this issue that Silicon Valley Bank, all of a sudden had to write off a bunch of investments. A bunch of loans, and so that all of a sudden made its balance sheet lower. And so they knew they need to raise cash. And they were looking for ways to raise. Now here's what happened; the analysts who were watching Wall Street, the analysts who were watching the banks, they saw this coming along and they were like, is this just the start of something else? Is there more to this than what meets the eye?

Their fear, their, pondering of, is there something else, their trading of what they were doing of signaled other people that this bank may be in distress, which caused people to start taking their money out. So the people who were in the know started taking their money out.

Now Silicon Valley Bank, unlike other banks because they cater to the tech sector because they cater to startups, right? And the very nature of startups is you, especially Silicon Valley startups, is that you get a huge chunk of change.

From venture capitalists and then you spend it over the course of the next few years. So the vast majority of the depositors in this bank had millions, tens of millions of dollars sitting in their accounts. Whereas your average, typical bank, you think Bank of America, you think, you think, any of your, hometown banks those banks are, pre primarily catering to people who come to deposit their paychecks. So they don't have tens of millions of dollars and they're, they, it's not like you have 3000 fines that. Hundred billion, right? Or 200 billion. In the case of Silicon Valley Bank, it was just only 3000 depositors.

That's a lot of money concentrated in a very small number of people, and so it doesn't take very many of them getting scared to drive up that capital requirement and go from it being like we needed 2 billion to, we need, 10 billion or whatever that number was because their cash started flee.

And so there was essentially a run on the bank by a small number of people who were big enough to make movement and. Honestly again, right? The, their balance sheet, they probably could have done everything right. They probably could have shored up their finances if they had been given time. But the state of California said, we're not risking it.

We're not giving you the ability to try to recover this. We're taking you over, right? You're, you are the 16th largest bank in the country. We're not risking that you're going to go under and take the rest of the financial sector with you.

The Big Lesson for Retirees

the

biggest lesson that I want you to take away is that it has that success or failure. Success or failure in retirement in life really has nothing to do with how big your bank account balance is, right? This Bengal failed and it failed for one simple reason.

It did not have access to the cash when it needed it, right? Cash flow. Is more important than how much money you have, right? That income stream that you have in retirement, how do you get that income stream in a dependable, predictable manner that is sustainable throughout retirement? Because that's the key word over there, sustainable, right?

The state of California looked at Silicon Valley Bank and. We don't know that you're sustainable. Even though you have all this money on your balance sheet, we're taking you over in retirement. The federal government doesn't look at us and say, we think you're managing your finances bad. We're taking you over.

No, they wait until you're at zero and then you're lucky if the, if you got city resources, that will help you out. This is the challenge of retirement. The challenge of retirement is that we need to be good shepherds of our money. We have to be good stewards, and we have to make sure that we turn our finite sum of money into a essentially infinite stream in retirement.

And the way we do that is by making sure that we don't take our money out at the wrong time. And that sounds simple. But as we see with Silicon Valley Bank, we're not always in control of when we have to take our money out in retirement. The i r S dictates when we have to take it out for required minimum distributions.

Life dictates when we have to take it out because we have an sudden unexpected expense. The biggest fear that I have for my clients is that they will have a sudden. An unexpected medical expense or home expense. Their basement gets flooded and all of a sudden they have to pay for, $10,000, $15,000 to fix something.

And it's not a large sum of money, but they take it from the wrong place at the wrong time, which is why having a plan is so important, right? It's not about what you have, but how do you access it in a sustainable and predictable fashion? How do you ensure that a single bad year, a single unexpected expenses doesn't upset your retirement? That's the biggest concern for retirees.

As Warren Buffett is fond of saying, the lesson learned from The Silicon Valley Bank is that it's only when the tide goes out that we realize who is swimming without protection.

What is your plan? How will you ensure that when you take money out of your savings that you aren't selling at the wrong time? That you aren't hurting your long term financial prospects?

At Yields for You, this is what we do, all day, every day. It starts with an investment strategy that is both Low Risk AND Low Volatility, because one without the other is meaningless. Next, we create an income plan that tells us WHEN and HOW to take our income in retirement, so that we don't take it out at the wrong time...and a tax minimization plan to ensure that we play the least in taxes...and finally, if we have done everything right, we are able to have an estate plan that leaves a living legacy.

To learn more about how we help investors NOT run out of money in retirement, register for our upcoming webinar, "How to Not Run Out of Money in Retirement!"

 

 

 

 

One of the big questions we all have in retirement is, do we have enough money to retire? And how do we ensure that it lasts? Join us as we walk through how to answer these important questions in this week's episode of Leibel on FIRE!

Why is it that it seems like every advisor has a different answer?

Shouldn't there just be. One answer one size fits most isn't retirement planning, isn't it just math? How is it that every advisor can seem to give a different answer?

Hmm...

When, you go to school to become an accountant, you'd like to think that every CPA learns the same material and that they have the same abilities, but anyone who has worked with multiple accountants can tell you...that simply isn't the case. Some are better than others. Often by wide margins.

Some are more creative than others. Some are more knowledgeable than others. And when it comes to financial planning, where there are infinity more moving pieces than a tax return...isn't it a wonder that there is so much variance in ability.

Compounding the issue, we have an unknowable future! Will inflation continue? Will inflation be high? Will inflation be low? Will the stock market, return the same, nine 10% that it has historically done, at least in the United States, or is it gonna reduce, will you know? You got all kinds of questions. And the thing is, when it comes to financial planning, the answers to those questions are extremely important.

And so everyone has their own perception. They've got their own filter, their own lens that they look through the world at. And when it comes to the question of, should you take social security early or late? What's happening in the market? What should you do? What should you know? Do you have even enough money saved for retirement? Those questions require a little bit of an art artist touch in answer.

Since we don't know what the future holds. Because there is no magical formula that we can plug-in and know the future. If there was a way to know the future, we would all be really wealthy. Oh but the future is unknown.

And because it's unknown, we have to do the best that we can to protect ourselves and create a plan that, a plan really to, hope for the best, but plan for the worst. Every financial advisor has their own approach, they have their own take, they have their own solutions. Some are better at different stages in life than others. So it is no wonder why every financial advisor, every media outlet, every article you read seems to have a different answer, it is because there are lots of different answers and everyone's trying to figure out what the answer is and only time will tell time. Time and some good planning to help protect against being wrong.

How to Have Confidence In Your Financial Strategy

All this doubt and uncertainty of the future begs the question, "how do you have confidence?" How do you create a plan that doesn't keep you up at night, tossing and turning, wondering if you will run out of money in retirement?

The way I like to approach this problem of confidence, is through overwhelming firepower! I am a firm believer that no matter the financial decision, the choice needs to be obvious! It needs to be so overwhelmingly obvious that you feel like there is no other answer. And that's when you know that you have the right answer. That's when you have confidence in your financial decisions.

The way we achieve this nirvana, is by sitting down and creating a plan. The plan needs to say, this is what we have a reasonable belief that our expenses are gonna be, what we're gonna do, and what the results of that are gonna be.

Your plan needs to anticipate, what if we're wrong! How do we protect ourselves? Think of your plan like an onion. You want to have layers of protection, so that no matter how wrong you are or how many things you missed, that your plan is still going to protect you.

Protect The Essentials

You need to know that you're still gonna have a roof over your head, you're gonna have food on the table and the essentials that you need in order to feel like life is worth. And whether that means being able to take a vacation every year, whether that means giving the grandkids presence every year, whatever it is to you that makes, life worth living, you need to make sure that's part of your plan and you need to protect it at all costs. And then you need to reevaluate that all the time.

Create Checkpoints

Create signposts for yourself. Decide what your check-in points are. What is going to tell us if we're right, this is gonna tell us if we're wrong, and this is what we're gonna do if we're wrong. And it's hard work. You can't just blindly trust that your advisor is doing this for you because, it's human nature to take the easiest route possible. And if you're not asking these questions, your financial advisor might not be asking them either! This is why having a written plan is so important!

Have a Written Plan!

You want to have in writing, this is what our plan is, this is what we're gonna do and this is how we're gonna reevaluate it. And you want to feel comfortable with it. You want to feel comfortable that no matter what happens you're gonna be protected. Because if you don't feel confident in it, then you're gonna be up on night tossing and turning, wondering what's gonna happen every time there's some headline that you didn't expect.

What Happens When Life Goes Off The Rails?

Yes, you can do everything right, and still go wrong! This is one of those things that change during retirement. During our working years, we were able to create a plan, set it and forget it! We checked a box on a form that said how much of our paycheck we wanted to go into our 401k. We told our 401k one time, how we wanted invested. And it didn't really matter what we put down on that form. Because we had enough time for it to work for us.  In retirement, we don't have that luxury.

We have to be on top of our finances. Now that doesn't mean checking your account balance every single day, because that will drive us insane. But, you do need is a systematic approach to making decisions. You need a way to ensure that you're always making the best decision for yourself and your loved ones. You need a context for looking through things and those signposts that you're looking for, that says oh, "the Fed is saying that they're gonna increase interest rates, this is going to affect my plan."

How many financial advisors move their clients out of fixed income, before the bond market tanked in the last 18 months? We knew that interest rates were gonna go up. The Federal Reserve communicated that, like to the nth degree. They were telling people that they were gonna raise interest rates. Yet how many advisors were still allocating their clients to Interest sensitive investments, things that had nowhere to go but down?

We need to be forward looking.

We need a plan that tells us when the Fed says they're gonna raise interest rates, this is what you do! This the assumptions that we have in our plan are based on and if they change, our plan needs to change with them!

What happens if the market goes down? What happens if it goes sideways? What happens if inflation keeps going? Something that, that most people just like gloss over. Five years ago, if you came to me and we did a financial plan, the assumed interest rate in our plan would've been two and a half percent or 3%. Now, if we do a financial plan, the planned interest rate is three and a half to 4%. Why? Because. the average in interest rate over the last 20 years was 2.5%.

In fact, excluding the last few years, over the last a hundred years was an average of 3%. Now, just because of the last year and a half, the average inflation is 4%. It jumped an entire percentage point over a hundred year period because of two years. That's amazing.

When it comes to our retirement, we need to plan for these scenarios. What if inflation stays persistently high? What if the stock market doesn't, continue to return 10% a year? What if, fixed income isn't a viable investment option, right? What if the market changes direction? What if...and so in retirement, we find ourselves keeping our ear to the ground, because that is the only way that we're gonna have a plan that really works over time.

The Yields for You Process for Retirement

The Yields4U Process is designed to 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.

Step 1: Getting To Know Each Other

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.

Typically the first meeting is scheduled for about 15-minutes.

Step 2: Building Your Financial Plan

In our next meeting, we'll work on building your financial strategy, which includes:

• Income Planning
• Social Security Timing
• Advance Tax Planning & SWOT Analysis
• And Investment & Risk Management Review

We'll cover Social Security, Pensions, 401k's, and Medicare, as well as your lifestyle and other aspects of your life that can affect your retirement income. We will also discuss how to protect your financial future from unexpected expenses and life events.

By the end of our meeting, you'll have a solid understanding of your current financial standing and actionable steps you can take to help you improve your finances and achieve your long-term financial goals with confidence.

Step 3: Implementation

If you decide to work with us, we'll help you implement the action plan we've created for you. We'll work with you to take control of your finances, reduce risk, protect your life savings, pay less in taxes, and live the life of your dreams.

Step 4: Ongoing & Proactive Management

As life changes, so should your plans.

We will meet on a regular basis and re-evaluate your financial plan, make adjustments as necessary, and always ensure that you are on target to achieve your objectives.

In addition to our regular reviews, our team will be actively managing your accounts to help protect and preserve your hard-earned assets.

Our strategies are chosen based on their ability to protect our client's assets during times of market volatility while still capturing market upswings during times of growth.

As your financial advisor, we will work hard to protect, preserve, and grow your hard-earned assets.

Step 4: Legacy Planning

As your investments grow and your wealth accumulates. We will help you turn your savings into a living legacy for your spouse and future generations.

We'll help you create a private wealth management team consisting of attorneys, accountants, estate planners, bankers, and other financial professionals. As your advisor, we will help you build and coordinate your team to help you manage your wealth and leave the legacy you deserve.

Our Commitment To You As Fee-Only Fiduciaries

Our commitment is to be transparent, honest, put your interests first, and help you make the best financial decision for yourself and your loved ones.

As fee-only fiduciaries, we do not accept commissions or kickbacks for any products or services we recommend, and we are committed to treating and protecting our clients like family.

Rediscover what it means to have Confidence and Peace of Mind again.

Click here to book your free, no-obligation strategy session, or check out our Frequently Asked Questions for more helpful information about how Yields4U can help serve you.

More In The Bank or Bigger Social Security Check?

When planning for retirement, one of the biggest concerns is having enough money to support oneself during the golden years. People often wonder whether it's better to have a large bank account or rely on a guaranteed income, such as a social security check, for a secure retirement.

However, in my option, the real question you should be asking is not which option is better, but rather which one will give you the life you want.

Having a large bank account can give you a sense of control over your finances, while a guaranteed income can provide peace of mind knowing that you will receive a set amount of money each month.

Ultimately, both options will need to be converted into an income stream in retirement. Whether you trust the government to provide inflation-adjusted social security benefits or prefer to rely on a private insurance company, the important thing is to consider how you will turn your savings into a reliable income source.

Of course, the answer to this question will vary depending on each individual's unique circumstances and preferences. Some people may prefer the security of a guaranteed income, while others may prefer the flexibility and control that comes with having a large bank account.

In the end, the most important thing is to carefully consider your options and make a decision that aligns with your personal goals and values. Whether you choose to rely on a guaranteed income, build up your savings, or some combination of both, the key is to have a plan in place that will help you enjoy a happy and fulfilling retirement.

File Early or File Late? Which Is The Right Option?

The first step is to determine what you want to accomplish and how much money they need to achieve those goals. I work with each client to determine their concerns and aspirations, and then we create a plan to make those dreams a reality. I have enough tools in my toolbox to help most people achieve their retirement goals, regardless of their financial resources.

I always tell my clients that I don't have all the answers, but I have the experience and expertise to run the numbers and analyze their financial situation. Together, we go through the analysis from start to finish, which will tell us what decisions we need to make.

The goal is to make the decisions so simple that they smack you in the face as being the right choice. We will determine when to file for social security, which accounts to use, and where to take the money from, so the client can retire with peace of mind.

Is The Filing Decision Always Obvious?

Most people are very aware, but what's interesting is that as people have more money the decision actually gets harder. Let me explain. When you stop working? You have time on your hands and you want to do things with We need more money in retirement than we anticipate.

Now, most people know the areas that they don't know...and that's why they seek out a financial advisor, to help them address those questions. In answering those questions though, we may uncover false assumptions or myths and misconceptions that may actually be holding us back from maximizing our retirement resources.

Let me give you an example,

One client I worked with had two million dollars in his accounts, but was paying tens of thousands of dollars in unnecessary taxes because he was trading in the wrong accounts. By making some simple adjustments, he could have saved a significant amount of money. These kinds of financial considerations can also impact decisions about filing for social security.

As a financial advisor, it is my job to help people understand and address these fundamental questions and considerations in order to make informed decisions about their financial futures. By doing so, we can uncover new opportunities and ensure financial stability and success throughout retirement.

Which Accounts Should You Spend Down First?

 In planning for retirement, there are various strategies and decisions to consider. One important factor is social security and when to begin taking it. Another key aspect is how much to withdraw from retirement accounts, such as taxable traditional accounts, non-taxable Roth accounts, and taxable brokerage accounts.

The order and timing of these withdrawals can impact the amount of taxes paid in retirement. Therefore, a distribution strategy is crucial in maximizing the amount of money kept in retirement. This is often more important than focusing solely on accumulating the most money possible.Some rules of thumb;

Spend Down Your Retirement Accounts First!

Reduce your traditional retirement accounts as much as possible, because those are gonna have required minimum distributions. The way required minimum distributions are set up is that it is a escalating amount. It's designed to deplete your account. By time you reach, it's 110 or 115, It's supposed to be zero at that point, which means that every year the amount that Congress requires that you take increases.

The Key To Success

You need to have a decision making process for how you make these decisions. Because whether it's to buying a new car, whether it's where to take your income in retirement, whether it is doing a Roth conversion or not, you need to have a process for making those decisions.

And you need a way of knowing how it'll impact you today, tomorrow, and long into the future. And that is something that we help our clients do. I really highly recommend take a advantage of our Retirement & Tax SWOT analysis. We'll go through. We'll show you our process for doing that and help you make those decisions.

 

Should you delay filing for Social Security or claim early, discover the surprising answer that trips most retirees up and can get you up to 175% more in benefits.

Can You Really Increase Your Social Security Benefits by 175%?

Yes! You absolutely can. In fact, if you don't believe me go to the social security website, pull up your statement and look on the bottom left of it. It has a whole list of all the people who can get benefits under your work history. And on there it says the maximum family benefit, which is 175%. Of your social security. So there are all these people, which includes your spouse, your surviving spouse, children, parents. There's a long list of people who can get paid on your work history.

Once you start factoring in those other "family" benefits, it can really start adding up. And no, you don't have to be dead in order for most of them to claim these benefits!

Isn't Delaying The Only Way to Increase Social Security Benefits?

If you read any financial magazine or newspaper it would be easy to believe that delaying benefits is the only way to increase your social security check...but that simply isn't the case. And while simple statement sound great, and they make for great click bait headlines...the truth is that maximizing your social security check is about so much more.

It isn't about "delaying as long as possible," or your "break-even" point, or auntie IRMMA. All those thing make great headlines, but they have nothing to do with your reality. This is what I tell every single person. Unless you're single, unmarried, and don't have kids, delaying social security benefits is probably not your best option. And even if you're single unmarried it still might not be your best option.

In fact, I just told a couple this morning to both file early, even though it reduce their benefits by a significant amount. I told them to take early because it would take the pressure off of their portfolio, and would make their retirement last so much longer.

And in fact, it added something like a million dollars to their retirement savings over the next 20 years just by taking social Security early. So the answer is really different for everyone, and you really, you gotta map it out to find out what is the ideal filing age for both you and your spouse.

What About "File & Suspend?"

It used to be you had your social security benefits, and you also could get benefits under someone else's benefits, such as your spouse. You were also able to tell Social Security, Hey, listen, I'm gonna claim my spousal benefits, but I want my personal benefits to continue to delay and accrue deferral credits. Allowing both spouses to max out their benefits.

...But congress took this benefit away in what I call a "stealth tax."  Congress created a rule called the "deemed filing" rule.This rule, ostensibly was to close the loophole of all these people who are taking advantage of the social security system and doing things like this file and suspend. When in reality what they did was take away benefits that you earned.

Now, the only way they can get those spousal benefits is if both you and your spouse file for social security. So now, the breadwinner needs to figure out when do they file, and then the secondary spouse, the one who was, staying at home with the kids who didn't have that big grade income. They really need to figure out whether to file, file early or file late. And so this becomes a huge calculus that you gotta think about is not just, my benefits when I'm living, but my benefits when I die. And the benefits of my children, or my dependent parents who can also claim on my social security. And oftentimes, claiming a little bit early will end up actually getting you more lifetime money than if you delay and get a a bigger personal check.

The Simple Solution to Social Security

Creating a successful retirement plan is not as simple as plugging numbers into a computer program. While there are tools available that claim to do just that, they fail to take important contextual information into account. To truly create the retirement experience we desire, we must consider all of the factors at play.

This is where a process comes in. When working with clients, I follow a specific process that takes into account their income needs during retirement, social security options, and other assets that will need to be converted into retirement income. By analyzing these factors together, we can determine the best course of action for each individual's unique situation.

It's important to note that the hard work of determining what makes the most sense cannot be avoided.

It's necessary to go over everything and see what will give us the most amount of money both in the short and long-term future while also considering surviving spouses or beneficiaries.

I've found that even when I thought I knew the answer before talking with someone, I was often surprised by the results once we went through this process together. For example, delaying Social Security benefits or finding ways to increase income by $15,000 per year can have a huge impact on someone's ability to stay retired.

However, there is no one-size-fits-all solution when it comes to retirement planning. Each person's calculus is different and requires careful consideration of all relevant factors. By doing this hard math together though, we can create a plan that truly meets our individual goals and desires for retirement.

My 3 Step Process for Maxing Out Your Social Security Benefits

So the question becomes what are the question to ask? And this is the process that I do for everyone. I do it for free, for anyone who takes the time to actually book some time on my calendar and go through this process.

Step #1: Define Your Income Needs in Retirement

First, we take a look at what is your income needs in retirement. What do you need to live on? What are you expenses?

Step #2: What Are Your Income Sources in Retirement

Number two, we take a look, social security, claiming early, claiming late. What is the ideal filing strategy? What will get you the theoretical most amount of money? And then we run some analyses and we see based on the amount of money that we need in retirement, based on what assets we have, what can we convert in to income in retirement. How do we bring those three things together so that we create the best experience for ourselves? What gives us the most amount of money in the immediate future? What gives us the most amount of money in the long-term future? What is best for our surviving spouse? And for our children or the people who we want to leave money to when we pass? Those are the questions that we need to ask. There is no way around doing the hard work to figure it out.

Step #3: Stress Test Our Decision

How does our decision hold up over time? Often the obvious decision for today is not so attractive when looked through the light of the future. We need to project our our decisions, run the numbers, and see how they impact us today, tomorrow, and long in to the future.

If you would like help with your retirement planning, book a free Retirement & Tax SWOT Analysis (Strengths, Weakness, Opportunities and Threats.) Click here to book today.

 

Are you a homeowner who's ever wondered if you should be putting extra money toward paying down your mortgage? Well, you're in luck because, in this article, we're diving into the world of mortgages.

As a homeowner, the question of whether to pay off your mortgage is a common one. And in today's economic climate, it's more important than ever to make an informed decision.

But the truth is, there's no one-size-fits-all answer to this question. In fact, the answer that might have been right for the last 20 years may not be the right one for you now. The math behind paying off your mortgage is complex, and it's highly dependent on a variety of factors such as your interest rate, your personal financial situation, and your long-term goals.

So in this article, we're going to dive into the details of paying off your mortgage. We'll explore the pros and cons of making extra payments, discuss the impact of interest rates, and offer some tips on how to make the most of your mortgage payments. By the end of this article, you'll have a better understanding of your options and be equipped to make an informed decision about how to manage your mortgage. So let's get started!

Reasons To Pay Off Your Mortgage Early

There are two reasons for paying off your mortgage early. The first reason is simply the peace of mind that comes with owning your home outright, and the second reason is to pay less interest on your mortgage.

By paying extra principal on your mortgage, you can pay off your mortgage ahead of schedule.

A Better Option...

However, before you jump head-first into paying off your mortgage early, you should consider something called arbitrage. Arbitrage is taking advantage of a mismatch in pricing.

In this case, it might mean instead of paying off your principal, investing that extra money in the market and using the returns to pay off your mortgage. This can be a good strategy if your mortgage interest rate is low, as you can potentially earn a higher return in the market. However, if your interest rate is high, investing in the market may not make sense. It's important to consider the math and the long-term trends of the market before deciding whether to pay off your mortgage early or invest in the market.

The Simple Answer...

When it comes to the question of whether or not to pay off your mortgage early, the answer is not a simple one. Personal finance is just that, personal, and what works for one individual may not work for another. The decision to pay off a mortgage early or not should be made on a case-by-case basis, considering both financial and non-financial factors.

First and foremost, it's important to consider the non-financial aspect of the decision. As financial expert Dave Ramsey suggests, ask yourself, "Does it make you sleep better at night? Does it give you a certain amount of satisfaction?" If the answer is yes, then the decision to pay off your mortgage early may be worth it, even if it may not be the most financially beneficial option.

For some people, the peace of mind that comes with not having a mortgage payment can be invaluable. Knowing that they own their home outright and no longer owe monthly payments to the bank can be a significant relief. It's a personal decision that can provide a sense of accomplishment and pride, as well as the added benefit of freeing up cash flow for other financial goals.

However, it's important to note that the decision should not be based solely on non-financial factors. The financial implications of paying off a mortgage early can be significant and should also be considered. In some cases, it may not make sense to pay off a mortgage early if the interest rate is low, and the funds could be better invested elsewhere.

Ultimately, the decision to pay off a mortgage early or not should be made after careful consideration of both financial and non-financial factors. It's important to weigh the potential benefits and drawbacks and make a decision that aligns with your personal goals and values. It's also essential to seek advice from a financial professional who can provide insights and guidance tailored to your specific situation.

What About Being Debt Free?

Dave Ramsey is a well-known personal finance expert who advocates for living debt-free. While this approach has helped many people get their finances in order, it's not always the right choice for everyone. In fact, according to financial advisor Ramit Sethi, the decision to pay off debt should be approached from a psychological, rather than financial, perspective.

Sethi believes that you cannot make sound financial decisions if you constantly worry about your financial situation. If you find yourself constantly worrying about losing your job, your home, or your car, then paying off debt may be the best option for you. By freeing yourself from the burden of debt, you can start to make better long-term financial decisions and build a more secure future for yourself and your family.

The psychological benefits of being debt-free are also important to consider. For many people, the peace of mind that comes with being debt-free is worth more than any financial benefits. Knowing that you don't owe anyone anything can be a huge relief and can give you the confidence and security you need to pursue your dreams and achieve your goals.

However, it's important to note that paying off debt isn't always the best choice for everyone. If you have a low-interest rate on your mortgage or student loans, for example, it may make more sense to invest your money elsewhere rather than paying off the debt early. It's important to weigh the pros and cons of each option and make the choice that's right for your unique situation.

In conclusion, the decision to pay off debt should be approached from both a financial and psychological perspective. While being debt-free can provide many benefits, it's not always the right choice for everyone. By considering your personal situation and priorities, you can make the best decision for your financial future.

Nobody likes to pay taxes, least of all the wealthy. Today we're going to talk about five ways you can save on your tax bill and keep more of your hard earned money.

Why do the 1% pay the least in taxes?

The tax code in the United States is a system designed to incentivize economic behaviors that benefit our country as a whole. So, yes, while percentage wise the 1% pay the least in taxes, dollar-wise they are the bulk of the tax revenue.

The reason why the affluent pay LESS taxes, is because those with money, they have more discretion with their income than those who struggle to make ends meet and are living paycheck to paycheck.

When someone has extra money, they have a choice in how they earn it. It's widely known among the wealthy that earning a paycheck is the most expensive and least efficient way to make money, as it is taxed at the highest rate and requires the most physical labor.

See, the tax code is designed to encourage individuals to invest in our economy by starting businesses that hire others, building and selling products to other countries, and transferring wealth from other nations into the US economy. This movement of money stimulates growth in the industries and sectors that congress wants to develop.

So why do the top 1% pay the least amount in taxes?

Simply put, they use the tax code to their advantage by earning their money in the most tax-efficient ways possible and spending it in areas where the country wants to see growth. The tax code is an integral part of the US economic engine, facilitating the transfer of wealth and supporting the growth of the country.

So, while the tax code may seem unfair to some, it is designed to incentivize behavior that is beneficial to the US economy and encourage the transfer of wealth. The top 1% are able to take advantage of this system to their advantage, paying the least amount in taxes while contributing to the growth of the country.

Taxes are a Treasure Map to Wealth!

This is where Elon Musk, the CEO of Tesla, comes in. For the year 2020, Tesla made 5 billion from selling cars and 50 billion from selling tax credits, a significant portion of their revenue. The rich go into industries that offer tax incentives, such as green energy and real estate because they are tax advantageous. They also give to charity as it is incentivized in the tax code.

The tax code is like a treasure map that changes every few years according to what Congress wants. The 1% understand that taxes are a game and look to the treasure map to minimize their tax liabilities. Investors and individuals should also look to the treasure map and make decisions on how to accumulate wealth and turn it into income in the most tax-efficient way. Failing to do so would mean that Congress will make the decision for them, and the decision will not be in their best interest.

The Wealthy Avoid Taxes By Being Active Participants!

So, the reason why the 1% pay less in taxes is that they actively participate in the tax code, deciding how they earn money and how they pay taxes. Everyone has the ability to do the same, given that their necessities are met.

For The Rest of Us, There's The Tax Efficiency Ladder...

So for the rest of us, those of us who don't have businesses and can't be masters of industries, there are still things we can do to reduce our taxes. One of my favorite ways of explaining this is by using the analogy of a ladder. we'll take a closer look at how to think of taxes as a ladder and the different rungs of this ladder.

At the bottom rung of the ladder, you have the least tax-efficient money, which is your wages. They don't do much for the economy and you pay the highest amount of taxes on them. This is why it's essential to find ways to increase your retirement income that are more tax-efficient.

The next rung on the ladder is tax-deferred money, such as your retirement accounts. Here, you don't pay taxes on the money immediately, but you get an immediate tax break, which reduces your taxable income. This is a great way to save money for retirement, as it increases your retirement account balance and reduces your tax liability today.

The middle rung is the level of tax efficiency. This includes various options, such as tax-deferred or tax-free savings, and the choice between the two depends on your individual financial situation.

The final and most tax-efficient rung is what the author calls the "tax me when I choose" bucket. This refers to the ability to choose when and how you get taxed, which can result in paying zero taxes on that money. This is a common strategy used by the wealthiest individuals, who borrow against their assets instead of selling them to generate income. This is because debt in the U.S. is not taxed. The wealthy can defer paying taxes on this income for a long time and potentially offset their tax liability both now and in the future by investing and managing their finances effectively.

Regular people also have the ability to adopt similar strategies, such as investing in tax-efficient investments or doing Roth conversions during years when their tax liability is low. However, it's important to be proactive and find these opportunities, as the IRS won't come to you and tell you about them. You need to find them yourself or hire a financial advisor who is aware of these opportunities. Not all financial advisors are familiar with these tax-saving strategies, so it's important to do your research and find someone knowledgeable in this area.

In retirement, it's important to understand the tax implications of your income and take advantage of tax-efficient strategies to ensure that you have a comfortable retirement. By thinking of taxes as a ladder and climbing the rungs to the most tax-efficient rung, you can potentially save a significant amount of money on your taxes and increase your overall financial health.

>> GET A FREE TAX ANALYSIS TODAY <<

Secure 2.0 Act made massive changes to retirement planning. Today we're going to explore its impact on Roth conversions and tax planning in retirement.

Secure 2.0 Act Recap

The Secure 2.0 Act brings about several changes in the realm of retirement planning. One of the most significant changes is the increase in the age at which required minimum distributions must be taken. Previously, the age was 72, but it has now been increased to 73, and in ten years' time, it will be further increased to 75.

Additionally, the penalty for not taking the required minimum distributions has been reduced from 50% to 25%, making it easier for retirees to make informed decisions about their retirement planning. This change in penalties, combined with the increased age for taking distributions, will have a significant impact on retirement planning.

The Act also increases the contribution limits for 401k and other retirement accounts, and provides an additional catch-up contribution. This allows individuals to save more money for retirement in a tax-deferred way, although it should be noted that there is less time for the money to grow.

How The Secure 2.0 Act Impact Roth Conversions

The Secure 2.0 ACT has changed the math of doing a Roth conversion in a significant way.

Prior to the Secure 2.0 ACT, individuals had a limited window from retirement to the age of 70 and a half or 72 to perform a Roth conversion and control their income. However, now that the age for required minimum distributions has been extended to 75, individuals have a full 15 years, from age 60 to 75, to perform Roth conversions and control their income.

The extended window of time and the reduction of the tax penalty from 50% to 25% provides individuals with greater flexibility and more opportunities to optimize their retirement income.

With the potential to retire earlier and spend down retirement accounts, individuals may find that they can take social security earlier or use it to increase their social security check.

The Secure 2.0 ACT opens up a world of possibilities and offers individuals a greater degree of control over their retirement income.

The Tax Implications of the Secure 2.0 Act

There are many impacts that the secure 2.0 act has on tax planning. One area that you might not consider is Social Security taxation. Social Security benefits can be taxed anywhere from 0% to 85%, based on ones income. When you take money out of your traditional retirement accounts, it gets taxed as ordinary income. Doing Roth conversions can eliminate that money from the equation.

Between quitting your job and reaching the age of 73 or 75, when required minimum distributions must begin, you have a window of opportunity to control your income. During this time, it's important to consider where you're getting your money from and which accounts you're withdrawing it from, as well as whether you're paying taxes now or later. Additionally, utilizing tax losses to offset taxable income and maximizing exclusions and deductions can help defer or even eliminate tax liability.

The calculations surrounding your tax situation can change based on factors such as your age, health, and amount of money you will receive from Social Security. It's also important to consider diversifying your assets, even if you don't plan to retire until age 67 when you can take your full Social Security benefit.

You may also have the opportunity, if your plan permits it, to contribute to a 401k and then roll it over into a Roth, paying taxes in those lower income/tax years.

Alternatively, managing your investments and pursuing strategies that generate tax-free income in retirement are also options. It's crucial to consider your tax income and liability in retirement when making these decisions.

Diversifying your income sources from a tax perspective is crucial, as not all income is treated equally.

By minimizing taxes and playing the tax game, you can maximize the value you receive while minimizing the cost. Taxes can be thought of as a game, where the objective is to get the most value for the least cost.

Other Ways The Secure 2.0 Act Impacts Retirement Planning

One area that has been impacted is retirement savings. The secure 2.0 has provisions such as such as changes in catch-up contributions, taxes, and Required Minimum Distributions (RMDs). For those in their high-earning years before retirement, catch-up contributions can decrease taxable income, allowing for more savings.

Additionally, RMDs are not required from 401k Roth accounts, making retirement easier.

The Secure Act also allows the rollover of funds from a 529 plan into a Roth IRA, providing more peace of mind for long-term savings. This also allows you to setup your kids and grandkids for success. This is an interesting consolation prize from congress for taking away the Stretch IRA in the original Secure Act.

Updating Your Plans for the Secure 2.0 Act

As a retiree, it's important to stay up to date with these changes in order to ensure that your retirement plan aligns with your financial goals and current circumstances. Here's a list of steps you can take to make sure that your plan is up to date:

• Review your current retirement plan
• Avoid using online tools that may not be updated for the Secure 2.0 Act
• If you used online tools to create your retirement plan. Revisit them to see if they are still valid.
• Ask yourself if your current Roth Conversion strategy is still valid
• If you have not filed for Social Security - Reconsider your Filing Strategy. It may have changed in light of the new rules.
• Reevaluate your plan based on the new context of having more control over your income in retirement

Don't miss out on maximizing your retirement savings with the Secure 2.0 Act!

Download our secure 2.0 act checklists now to ensure that your retirement plan is up to date and taking advantage of all the new opportunities and benefits. Stay ahead of the game and plan for a secure financial future. Click here to download your checklists today!

In today's episode, we dive into the newly passed Secure 2.0 Act and its impact on retirement calculations, from changes to contribution limits, RMDs, and new rules for 401k. This legislation has the potential to shake up the way we plan for retirement. So join us as we break down the details and help you understand how the Secure 2.0 ACT might affect your retirement.

Secure Act 2.0 Increases RMD Age Requirement to 73 and 75 in 2023 and 2033

The Secure Act 2.0, which was recently passed, includes changes to the age at which individuals are required to take distributions from their retirement accounts, also known as Required Minimum Distributions (RMDs). Historically, the age at which RMDs were required was 70 and a half, but the original Secure Act raised that age to 72.

The latest version of the Secure Act, however, has made another change to the RMD age requirement. Starting in 2023, individuals will not be required to take RMDs until age 73. In 2033, the age requirement will increase further to 75.

Many financial experts have been discussing the possibility of this change for some time, and it is seen as a positive development for investors. This change allows for individuals to keep their retirement savings invested for longer and potentially grow their nest egg.

However, it is important to note that the 2033 implementation date for the age 75 RMD requirement means that some retirees will miss out on this change and may be required to take early RMDs. Despite this, the change to the RMD age requirement is still seen as a win for investors as it changes the considerations and planning for retirement. Additionally, the Secure Act includes other changes that will impact retirement planning.

What is a Required Minimum Distribution or RMD?

For those who may not be familiar with the term, a Required Minimum Distribution (RMD) is a requirement set by Congress for individuals to withdraw a certain amount of money from their retirement accounts. The purpose of this requirement is to prevent individuals from using their retirement accounts as a personal piggy bank and to ensure that taxes are paid on the money in these accounts.

RMDs are required for a variety of retirement accounts, including 401ks, traditional IRAs, and even some annuities. The amount that must be withdrawn is determined by the IRS and increases over time. The purpose of RMDs is to make sure that the money in these accounts is eventually depleted, and taxes are paid on the withdrawals.

However, this requirement can be a burden on retirees. For example, if an individual only needs to withdraw $20,000 or $30,000 a year to supplement their income, but the IRS requires them to withdraw a much larger amount, it can bump them up into a higher tax bracket and affect their other sources of income such as social security.

The Secure Act 2.0 has made changes to the RMD age requirement, allowing individuals to delay taking RMDs until age 73 in 2023 and age 75 in 2033. This change is seen as a positive development for investors as it allows them to keep their retirement savings invested for longer. However, some financial experts advocate for abolishing RMDs entirely as they can deplete retirement savings and bump retirees into higher tax brackets. As financial planners, retirees, and investors, it is important to be aware of these requirements and take steps to protect our retirement savings from unnecessary depletion.

Ways to Mitigate The Tax Burden of RMDs

While the changes to RMDs in the Secure Act 2.0 are positive for retirees, the question of whether or not the genie can be put back in the bottle remains. However, there are strategies that can be employed to help mitigate the tax burden in retirement and control the income that is received during retirement.

One key strategy is to be strategic about where income is received from in retirement. This may mean deferring social security benefits or taking them earlier and using retirement accounts to supplement that income. By controlling the income that is received during the years leading up to RMDs, individuals can offset it with credits, deductions, or exclusions on their tax return.

Another important change in the Secure Act 2.0 is the decrease in the penalty for not taking RMDs. The penalty has been reduced from 50% to 25%, which changes the calculus for retirees. It may now make more sense for some individuals to not take an RMD in a given year if it results in a lower tax bill. Additionally, the penalty for correcting a missed RMD has been reduced to 10%, making it easier for individuals to fix any mistakes they may have made.

It is important to note that the IRS has yet to release the rules for these changes, so it is crucial for individuals to stay informed and consult with a financial advisor to determine the best course of action for their retirement planning. It is also worth noting that a lot of the software and online tools available for retirement planning are not yet updated to reflect these new rules and regulations, which may significantly change the assumptions and plans these tools provide.

Contribution Limits Get a Boost

The Secure Act 2.0 also includes an increase in catch-up contributions for certain types of retirement accounts in 2025. This change is in line with recent updates to the tax code, which have been inflation-adjusted to better reflect the needs of individuals and to keep pace with the cost of living.

Historically, tax brackets and contribution limits were fixed dollar amounts and were not updated frequently enough to keep pace with inflation. This made it difficult for individuals to save enough for retirement and for catch-up contributions to be meaningful.

The Secure Act 2.0 addresses this issue by updating the contribution numbers and making them inflation-adjusted. This means that Congress will not need to pass a law every year or every time to update these numbers, and they will automatically reflect reality and people's needs. Additionally, this change transfers control of these updates to the IRS, which is generally more favorable to individuals saving for retirement.

Overall, the Secure Act 2.0's increase in catch-up contributions, along with the other changes it made, is a positive development for individuals saving for retirement and it shows a shift towards retirement planning and tax code that is more beneficial for individuals and less controlled by Congress.

Want to Learn More

For those looking for more information on the Secure Act 2.0 and its impact on retirement planning, there are several resources available.

One resource is this article that I have written on the Secure Act 2.0, which provides more detail on the changes and their impact on retirement planning. Additionally, I will be offering webinars and more articles in the coming weeks that delve deeper into the different areas of the Secure Act 2.0 and how they impact retirement planning.

I am also working on a tool to help individuals with social security and retirement planning in the context of the Secure Act 2.0. This tool will help individuals stress test their retirement plans and make informed decisions in light of the changes.

Fidelity also has a really great article that you can check out here: https://www.fidelity.com/learning-center/personal-finance/secure-act-2

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Today we're going to talk about the biggest mistakes people make with Roth conversions and how to avoid them. We're also going to talk about how Aunt Irma and Uncle Ronald, r m d, and our good old friend, uncle Sam, so stick around while we go through the nitty gritty of what you need to know before doing a Roth conversion.

What is a Roth conversion?

So a Roth conversion is essentially when we decide to pay taxes on our retirement accounts and choose when and how we pay taxes.

Ordinarily, we would pay taxes when we take the money out of the account and we would take it, out in retirement. A Roth conversion is saying, Hey, I'm gonna pull out more money than I need. I am going to pay taxes on that immediately, and I'm going to put it in this Roth. Now the benefit of this Roth account is that it grows tax free, and when we take the money out, it's tax free on the distributions.

Of course, there's an asterisk with that, that we'll talk about more about, but essentially that's what it is. It's paying taxes when it's convenient to you and not when it's convenient. In Congress,

What About IRMMA?

So I think that, these are nice hypothetical discussions and like lots of things in finance, we can get caught in the weeds.

We can talk about, like what's theoretically the best decision to do, right? What's the best stock to buy? What's the best bond to buy? What's the best, R M D or Roth conversion? But at the end of the day, all of the hypothetical decisions and all the hypothetically best things to do really don't carry any water or hold any water when it comes to your retirement because this is your retirement we're talking about.

We're talking about the money that you need to live on, the money that you need to count on. Then you need to be there for the rest of your life and your spouse's life and maybe even your children, right? So when we are talking about. What we need to look at is really, is it going to create the experience that we want to have?

Is the decisions that we are making as converting, doing this Roth conversion? Is it going to help our retirement? Is it gonna make our money last longer? Is it gonna give us more income in retirement? Or is it gonna detract from that? Because at the end of the day, that is the only thing that.

Not some theoretical decision of, will this theoretically save me money if I live to 120? Maybe theoretically, but I don't care about theory, I care about practice. And so that's really, when it comes down to it, I think that every single person, it has a unique decision, right? And how much to convert, if you should convert when you should.

That is a uniquely personal decision, and I really, it really gets to me when he will make these blatant statements out there and they say, oh, everyone should convert. Everyone should do this. Everyone should do that. No, you are not everyone. You are a unique human being.

The Biggest Roth Conversion Mistake

I think probably the biggest mistake that I see people making, especially right now is to do these massive Roth conversions upfront. I, for some people I recommend Roth conversions for the vast majority of people.

I actually show them that. Either doing a small conversion or not doing any conversion at all is beneficial for them, but I do tell them right the concerns that we have today about doing Roth conversions, like the fact that our tax code is scheduled to expire in 2026. The fact that every administration comes in and puts their stamp on the tax code, the fact that we have high inflation, the fact that we have, interest rates are rising, which means that the Federal deficit and the Federal Debt service cost is gonna go up, right?

All of these are reasons why we should be concerned about taxes increasing. . But the thing that I also tell everyone is that you can bet that Congress is going to have a way to protect their money and that in the United States, the tax code is not set up to collect revenue. It's actually an extension of our economic policy.

It is a way of for the government to incentivize behaviors that drive our economic. And so there will always be opportunities for us to reduce our taxable income in retirement to be able to reduce the impact that has. And so what we wanna be is strategic about the decisions that we make, and make sure that we have as many options as possible.

Now ha. Having said all that, there are people, right? If you have all your money tied up in a retirement account, right then you are right for Congress to come after. And we might want to do a Roth conversion at that point. Not because we're worried about taxes, but because we don't want to have Congress be able to dictate when and how we take money out and we don't wanna be subject to the whims of Congress.

And when we do that, we wanna make sure that we do it in a way that's beneficial to our retire. And that it doesn't detract from our retirement. And the answer for that is gonna be different for every single person. It's gonna depend on your tax bracket. It's gonna depend on how much money you need, how much money you need in retirement, right?

What your shortfall is, how much your, what your health is, how well your age is. There are so many factors that are individual.

Is This Strategy Right For You?

 I get this question all the time, right? Almost every single conversation I have with a new person begins with I read this article, or my current advisor told me X, Y, Z. What are your opinions about it? And I always, my answer is always the same. It's, those are great ideas. And they work for a certain set, a subset of people, right? They're the perfect solution for a certain person. Now, I don't know if you are that person, right? And from the information that you've given, You don't know if you're that person, and I don't know if you're that person.

And the only way we're gonna figure it out is to actually map it out, right? Let's put pen to paper. Let's map out the future, figure out what it, what exactly will impact us and will this have a positive or negative impact? And when people say but by the Wall Street Journal said this, or, Montley Fool said this.

The answer is they're selling headlines. They're selling views, right? And when you're trying to, when you're trying to get people to read something, when you're trying to engage people, you say really strong, bold statements, right? Because that attracts people. It riles people up. It makes people feel like, this is the truth, right?

And either I feel strongly for or against it, and it gets people engaged. Your retire. Is not a political statement. Your retirement is not, some headline that gets viewership. It is, it, I it is your experience, right? It is th your life and we don't want to, have some headline truth.

We want to have the experience that we've worked really hard to have, and the only way we're gonna do that is by doing the hard work. Don't let anyone convince you that there's a shortcut to doing the.

Common Roth Conversion Mistakes

when we look at Roth conversions, right? And we look at the mistakes that, people make or that, even advisors and financial professionals and the media, right? The things that they espouse, right? So the things that you will encounter are taxes are gonna go up. So let's convert it also where at lower taxes, right?

Which, there may be truth to taxes are going to go up. I do believe that taxes are gonna go up, but that doesn't mean it's gonna go up for you. But the other thing is if you're gonna pay a whole bunch of money in taxes now that's gonna decrease your portfolio value, which means it's gonna decrease the amount of money that you have to grow your assets on, right?

And depending on where you are in retirement, it's gonna determine how much of an impact that's gonna have on your retirement lifestyle, right? Because that's gonna directly impact how much money you have. So mistake number one would be converting too much upfront. Mistake number two is if you don't have anything converted, and you do need to.

Convert right, than not doing the conversion. So it's, it's two sides to that coin. So you have to every single year look and make the decision of, do I do a Roth conversion this year? If so, how much do I do? And it is very much a game day decision. The next thing is you wanna look at, how does this affect your overall picture?

So you have, are there things you can do to take advantage? Which we can talk more about the five year rule, which is a negative impact, right? So I can, when I take that money outta my retirement account, I don't necessarily have to put it into a Roth account. I can put it in a brokerage account if I put it in a brokerage account, right?

I have to pay taxes every time I have capital. But it also means I can harvest lost losses. It also means that I can borrow money against it, which means that when the market, if the market is down and I have a significant amount in my brokerage account, I can borrow live off of that and then repay that loan when the market recovers.

That's one of the things that the wealthy do to stay wealthy. It's how they, how their investments are constantly growing because they don't have to tap into it when the market is down, right? So that's something that you can do by, again, not doing a Roth conversion. Now, five year rule is something that kind of rears its ugly head, where when you do a Roth conversion, Congress says we don't want you just doing this conversion and then getting money tax free, growing it and having it tax free.

You don't get this benefit for. So in order to get this benefit, you're gonna have to hold that money in this Roth account for at least five years and not touch it. You have to be over 59 and a half, which you'll pro, you're probably already at that point. But you gotta, it is gotta sit there, right?

It's gotta mature, it's gotta, marinate and. . If you are living off of this money, then you're not gonna see that benefit and you're gonna actually get hit by a 10% tax penalty. So we need to be careful about that. And we need to be careful about things like Irma, which is, the Medicare premium, which is tied to your income.

So if we do these Roth conversions and that jacks up our taxable income, , all of a sudden our Medicare premiums make up go up, which also is the flip side, the argument when people say, why? Actually you should do these high Roth conversions early so that later in life your retirement premiums are lower.

How To Avoid Roth Conversion Mistakes

Number one, make decisions based on the future that we know is going to happen and the likelihood of it's that it's actually gonna happen, right?

It's easy to get scared about unknowns, right? We don't know what the tax code is gonna be like in two years. We don't know what tax rates are gonna be. Like, we don't know. We can't make decisions based on unknowns. We have to make decisions based on. And we need to know what our income's gonna be in retirement what our distributions are gonna be in retirement.

Let's try to make these decisions based upon evidence. I'm a firm believer that any financial decision you need, you make needs to be overwhelmingly obvious. If you do not feel like this decision is overwhelmingly obvious that you should be making it, then it is probably the wrong.

Want help deciding if a Roth conversion is right for you? Book a free appointment with our team and we'll help you decide. https://www.yields4u.com/book-your-tax-swot-analysis

As investors transition into a new phase of their lives, it is critical to recognize and address the five major risks that could impact their financial well-being. Every financial decision should be made through the lens of how it impacts these risks.

Drawdown Risk The first major risk retirees face is drawdown. This refers to anything that decreases the value of one's retirement savings or portfolio, whether through taxes, market loss, inflation, or having to pay retail for everyday items. As retirees, it is vital to conserve as much capital as possible, so it can be spent on the things that matter and be there when needed.

Inflation Risk The second risk is inflation, which is the inevitable increase in the cost of living over time. Inflation erodes buying power, making it crucial to invest wisely and not simply store money under the mattress. Failing to protect one's nest egg from inflation can lead to financial struggles in retirement, such as an inability to pay rent or put food on the table.

Longevity Risk The third risk is longevity. As medical advancements continue to progress, people are living longer, healthier lives. This means retirees must ensure their savings will last long enough to support them throughout their golden years. To do this, individuals must balance risk and make assumptions about how long their money needs to last.

Unexpected Expenses The fourth risk involves unexpected expenses that arise due to aging or unforeseen events, such as a medical emergency or damage to one's home. It is crucial to be properly insured and prepared for these expenses to avoid sudden financial strain during retirement.

End-of-Life Planning The final risk is the inevitable end of life. Retirees must plan for their last few years and ensure a smooth transition of finances to their loved ones. This includes having insurance policies, a financial plan, and a legal plan in place to prevent surviving spouses from inheriting debt or dealing with financial chaos.

In conclusion, retirees must consider these five major risks when making every financial decision, including when to file for Social Security. By addressing these risks head-on, retirees can better ensure a financially secure and enjoyable retirement.

Below is the unedited transcript.

There are. Five major risks that I see a or for retirees. It's for everyone in general, but it's specifically once we, as we're transitioning into retirement and you need to start thinking about this, within a few years of retirement.

But there are five major concerns and really every financial decision you make shouldn't be made through the prism, through the lens of how does it impact me for. Five major risks. And those five major risks are, number one, is draw down, right? So anything that decreases the value of your retirement, savings of your portfolio doesn't matter whether it's taxes or market loss or inflation or having to pay, retail for something.

And I was talking to someone the other. And I was like, listen, toilet paper, right? You know how much toilet paper you use? Just buy it up in bulk, right? So that you save that money, right? And it's not a lot of money, but if you're looking for ways to save and that can make a difference.

We know how much toilet paper we're gonna use. Everything is a, it really is a penny saved as a penny earned. And when it comes to retirement, we need to hold onto as many pennies as possible. , everything that decreases the value of our portfolio. It doesn't just affect us today.

It affects our entire retirement. It affects, five years from now, 10 years from now, 20 years from now, I have done analysis for clients and I've shown them how just saving. Figuring out how they can save 5,000 or 6,000 or $10,000 a year, right? And we're not talking about a lot of money, at least in, in portion for them.

But we're talking, saving five, 10% off of your annual expenses. And again, that can come from taxes. It can come from maximizing your social security. It can come from, buying wholesale instead of retail. It doesn't matter where it's coming from, but that can have such a huge impact. It can be the difference between running outta money.

It can be the difference between, living the life and not worrying about what you're spending to, pension pinching pennies. And, not seeing the grandkids as often as you'd like.  number one, biggest risk is you gotta make sure that the decisions you.  and the things that you are doing, protect your retirement, nest egg as much as possible, and conserve as much of that capital as possible so that you can spend it on the things that you want, and it'll be there when you need it.

Draw down risk number one, right? Risk number two. . Okay. Risk number two is inflation, right? Inflation is the second biggest risk, and I put this on the list, it, it's, draw down, brings down the value portfolio.  inflation is that you're gonna have to spend more money than you planned in order to meet your living expenses.

We usually, I have to teach this a lot and I have to explain this, and people just look at me and ignore me. But the last two years, right? We really know what inflation is. Yes, we do.  And here's the thing, right? You just to put it in perspective, how bad inflation has been. It used to be that if you looked in the last hundred years, inflation was an average of 3%.

So if you took all the inflation that we experienced and average that was 3% a year because of the last two years, that's now 4%. Wow. 4%, four, over the last a hundred years. And so when you're thinking about, okay, how do I protect myself, right? It's, we need to keep an eye on and make sure.

The, our assets are, we can't just put them under our mattress in cash. I actually had someone comment that on Facebook. I put out a.  Saying, what's the worst things that, you know a retiree can do with their money? And one person said, what happened in the stock market?

Cash is king. Put it, under your mattress. And, I didn't tell this guy off, but here's the truth, right? If you put your money under the mattress, you are guaranteeing a loss. You are guaranteeing that your money is going to devalue your buying power is gonna devalue. And you're guaranteeing that in 10 years of 15, 20 years.

You're not going to be able to live the same life that you have right now. I, I don't know. The last time we had inflation like this it was sometime in the nineties. And it wasn't even this high. It was like, four or 5%. But it happened for a few years and. , people's social security checks were not meeting their needs.

And I remember people talking about the fact that, they couldn't pay their rent.  Because they were, their budget was so tight. That's what happens when you don't protect your portfolio from inflation. When you don't protect your nest egg from inflation, then what ends up happening is, You're going along just fine.

You start dipping into your savings and before you know it, you're struggling to pay your rent. You're struggling to put food on the table, so we always need to keep in mind. That there will be years like this where inflation is, 8%, 10%, right? That could happen At the same time, there's also the steady erosion of inflation, because that's what drives our economy.

The Fed is targeting a 2%, inflation. That means our economy is growing. That means wages are growing. That means things are healthy, when things are unhealthy. , right? It grows a little too fast or it goes negative, but we always have to keep in mind on that, right? So that risk number one, draw down, right?

Devalue in our portfolio. Risk number two is inflation, that we, our buying power is gonna decrease, which brings us to number three, which is longevity, right? , every assumption out there, every analysis, any advisor you go to, they're going to use an assumption for how long you're gonna.  right the way, if you think about the 4% rule that is not based on you living for forever, people talk about it like, oh, if you have the 4% rule, you do the 60 40 or 50 50 or whatever, you're never gonna run outta money in retirement.

That is not what that rule says. That is not what any of those studies say it was that you won't run outta money in 25 years or 30 years. . It wasn't that it was gonna be for forever, but eventually it will happen.

So

eventually that's where you need to be a good steward of your money. If you protected your money well from drawdown and you protected it from inflation, right?

And then you factor in, maybe I live longer than I expect, then you have a potential that maybe your assets will actually grow in retirement and not.  because that is the ultimate goal. But that requires balancing. Now, for a lot of people, they may not have enough money to retire today, right? If they wanna be super conservative.

So they have to take on more risk, and they may, they will have to eat up some of their principles. So you're gonna have to make assumptions of, how long do I need this money to last? And you wanna make sure that you bake into those assumption.  that you've lived long enough and that you're not running outta money by the time you're 85.

Because maybe you're gonna live to 90. Medicine's always getting better and better. That's true. People are staying healthy longer. It's e easier to stay alive longer. I think it's 10% of social security beneficiaries are over the age of 90 or 100. It's it's a very high number.

Wow. And who knows what that's gonna be in 15 or 20? So longevity, right? Making sure that as you get older, you're not looking at the gas gauge going, I'm running on empty, I'm running on fumes. That you're not worried about that, so that you can enjoy your retirement, you can enjoy your time with your family, and this time that you've earned and deserve.

Which brings us to number three, right? We're number four, which is number four. Sorry, number four, which is the inevitable, right? The unexpected expenses and the inevitable, right? Listen, we all get old . We all have body parts that start failing. That is just a reality of life, right? It's either we get hit by a bus and not, and die, without all of that, or something happens, right?

And we, our body so slowly fails on us. We get sick, this is just the reality of life. Now, what. In those unexpected expenses, right? Whether it's a tree falling out in our house or it is, we get sick, right? And we have an extended stay. You fall, right? And now you're in rehab and you for a few months, those are expenses, correct?

Those are things Now, if you think about it, right? And we don't like to think about it. , but we need to prepare for them because if we don't prepare for it, what's gonna happen? We're gonna have a sudden and massive expense in our retirement at a time when we can't withstand it, right? When we probably don't have the savings for it.

And all of a sudden, when you have that massive expense, if we are not properly insured and we're not properly prepared, it will completely destroy the rest of our retirement, and we'll go from living comfortably to having to move in with our kids or having to. Into a facility or downgrade or who knows what.

And so we wanna make sure that we're properly insured and we're properly protected. And most importantly, that we don't hurt our surviving spouse because let's face it. Almost certainly one spouse is gonna outlive the other one, right? Usually by a wide margin. . So we wanna make sure that surviving spouse isn't inheriting debt, that they're not inheriting a financial mess, and it doesn't take a lot of work to make sure that we have those insurance policies in place, that we make sure we have a financial and a legal plan in place to take care of that.

. But you wanna make sure to do that, which brings us to number five which is, the inevitable, right? We will die even. . And we wanna make sure that we're prepared for that, right? Both for those last few years of our life, as well as for transitioning over our finances to our loved one.

I have seen too many people get hurt by that, where they were not prepared for it, and, Bad things can happen when you're not prepared for it. And it can be, whether it's expenses or it's, bank accounts get frozen, nobody knows what to do, and all of a sudden things are getting sold that shouldn't get sold, or creditors are coming after things and everything falls apart.

So you wanna make sure that you have a plan in place to take care of it, . And so the five major risks, right? Just to recap, five major risks, right? Portfolio decreases in value to draw down inflation. We can't buy as much as we need to. We can't maintain our lifestyle longevity. We live longer than expected because a life is awesome.

And then we have unexpected expenses. Tree falls on our house. We trip and fall, things like that. And then we have the inevitable that happens to all of us, right? And so we need to make sure to prepare for and plan for these things. And in really every single decision in our life, it affects something like this.

Now, let's take Social Security, right? Social security is a decision that everyone needs to make. We all need to make this decision of when do we file for social security? Are we taking it early? Are we taking it late?  When you're thinking about that, right? You need to think of it in the context of these five questions because these five questions will tell you, do I need to take it early?

Does more money now, earlier in retirement, taking, sorry, less money earlier in retirement, that's gonna help me more than more money later in life, right? , I've talked to a lot of people. My dad died at 63 right. Waiting until age 70. So he got the bigger check. Wouldn't have helped anyone. Oh my gosh.

And him taking social security as early as possible allowed not only him to take, to get benefits, but allowed my siblings right. And his wife to get benefits. And so a lot more financial value. And a lot more value as survivor benefits, right? So you gotta think about that. You gotta think about what's more important now versus later.

How will that affect you over the lifetime, right? Over your lifetime, over your spouse's lifetime. And so you really gotta think of it from that holistic context. And every decision. It really is. Every decision needs to be done through the prism of those five questions.

 

 

Tips on how we can take advantage of our losses in the market:

So end of the year and end of the year is a great time to start looking at your taxes because you got, you have an idea of how much income you're gonna have earned for this year, and that gives you the ability to actually do some real tax planning and to really.

Really take steps to minimize your tax bill. There are things that you can do after December 31st, but the vast majority and the best stuff is before December 31st. And so highly recommend, right? Something that I do for all my clients is, end of year tax planning. And we, we look for, what we can do to maximize.

Exclusions, our deductions, our credits, and then we look forward and say, okay, what can we change for next year? Knowing that this is, what we've done and the things that we wish we could have taken advantage of that we can do for next year to further decrease our. Tax bill because let's face it the markets, we don't control the markets.

We can manage our investments as best as we can, but the markets will do what the markets will do, right? And in retirement, we need, every penny we can. So let's, we're gonna try to manage that as best as possible. But taxes is something that, once you owe it, it's forever gone,

And so we need to, every penny that we can save on taxes is a penny. More in our pockets market. Come up and down. Inflation, nothing we can do about it. Taxes, there's always something you can do about taxes.

What is Tax Loss Harvesting

tax loss harvesting probably one of the best things to do and I should preface this by saying you need to be in a position where it'll do you some good, right?

And that requires, that's one of those things that doesn't happen overnight. It takes, years of working to get yourself into a position where tax loss harvesting is something that really pays off dividends. And that's a little bit of a pun and you'll see in a second, but, Tax law is harvesting and it's most basic.

My, my account is down in value. Let me harvest all those losses, right? This thing, you're going through the field and you're harvesting those losses and you're not gonna pocket those and you're gonna use them for some time in the future to reduce your future tax bill. And you can do this with gains, and you can do this with losses, but losses are the most beneficial because it offsets those gains.

And even a small part of that can be used to offset ordinary. Now, here's the best thing, right? I said, it takes some years to get into a position where you can really use that tax loss harvesting and really benefit you. . But vast majority of people have their money in retirement accounts.

If you're, if you move, and you work to get your money out of those retirement accounts, so you're not subject to require minimum distributions, what you can. Is, make it so that all of your gains in your taxable accounts are completely offset by losses. Because what's the one thing that, that we know for certain about the markets?

The markets are volatile. They go up and down, and so in the moments where the market goes down, it doesn't have to stay down for very long, but let's say it goes down 5% one day, right? If we harvest that loss and capture. And we ride the market back up, right? But we harvest that loss, put it in our pocket, we can offset it again in the future.

We can offset it when we're selling for income so that our taxable income in our taxable base in retirement is much lower. It sounds like a lot of work. It's definitely work. Saving, saving money on taxes and making money in the markets is not easy work, right? It's not say a fire and forget it, but it's something that can make a huge difference in your retirement if you do it properly and you shouldn't do this yourself, right?

This is why you pay advisors is to do things like this.

(P.S. Here's a great article I wrote on Tax-Loss Harvesting: https://www.yields4u.com/blog/turn-your-paper-losses-in-to-tax-savings)

What is a Roth Conversion

So a Roth conversion is a what I like to call it is tax arbitrage.

And tax arbitrage. Arbitrage is fundamentally, it means taking advantage of a mismatch in pricing. For instance, let's take a basic example. Let's say I am buying, Cotton, right? And or I'm buying, oil, right? Oil, let's say oil, right? So oil in, Saudi Arabia, oil is, a hundred dollars a barrel.

And in, Texas, it's, $90 a barrel. So there's a price missed batch of $10 a barrel. So if I were to buy. If I were to buy oil in Texas and I were to sell it on the open market I would be able to arbitrage that and get that $10 a profit, right? It's the same thing, same value, right?

And I can realize that difference when we look at taxes that way. And we add in a factor of time. So it's not just right now, it's also in the future. And we say, okay, right now my taxes are lower, or my taxes are higher, and in the future they're gonna be lower, they're gonna be higher, right? And I can control my taxes because this is something that I actively work on as to control my taxes.

I can take advantage of that mismatch and pricing. So let me give you a perfect example. I'm working, right? , working towards the end of your career, you're probably making the most amount of money you're ever gonna make, right? Which means you're in the highest tax bracket possible. Now, what happens when you retire?

What's the first thing that happens? You lose your w2, right? You stop making income and you have to start taking money from your retirement accounts. Now there's this period from when you retire until the IRS requires that you take required minimum distributions from your retirement.

Which right now it's at age 72. It might get pushed out to age 75. So you have this opportunity, this time period where you need to take money from your retirement accounts, but the IRS doesn't require you to take them yet. Which me and you're in the lowest tax bracket possible because, so you're at zero, right?

Because now you get to control how much income you have for the next, whatever. 10 years, five years, seven years. Until you are required to take RMDs, you control your income, which means you control your tax rate. So you can decide when and where and how to take your income, and maybe you'll take a little bit more one year because you're in a lower tax rate to convert it, pay taxes on it upfront in those low years so that in the future you're not paying more money.

And so a Roth conversion is taking advantage of that mismatch and pricing. And it's taking money from your traditional retirement account, your traditional ira, you pull that money out, pay taxes on it, and then put it into this Roth IRA account where it grows tax free tax tax free. When you take the money out, it's tax free.

The only caveat is you gotta have it in there for five years or more. Otherwise you get hit with a 10% tax penalty.

Check out this great article on Roth Conversions: https://www.yields4u.com/blog/roth-conversions-windfall-for-some-bust-for-others-investors-should-proceed-with-caution

Tax Worries for Retirees

The biggest thing that's on the horizon that I, the two things that I really worry about number one is we have the tax cut and jobs. Which one of the biggest provisions in it is that it inflation adjusts the tax brackets. And so that means that, the tax brackets where they are right now, they weren't there 15 years ago.

And the tax cut and jobs act was, 20 18, 20 19. It's, if it goes back to those levels, it is really low numbers and that will automatically bump people into higher tax brackets. So that's something that I worry about is, you know what happens when the tax cut and jobs act expires and the tax brackets automatically by default will increase, right?

Or rather the number, the brackets will decrease and everyone's gonna jump to a higher tax. What happens at that point Now here is what worries me about it. Okay. Tax cut, tax code changes with every administration and every four to six years it's constantly changing, right? That's nothing new about that.

What I'm worried about is that. We have interest rates are rising, which means that our federal deficit, which is at 30 trillion, the payment that our government has to make in order to meet those obligations in order to pay the servicing cost, the minimum payment on that debt is going to increase over time.

And as that increases, they're gonna need to generate revenue from somewhere. I can totally see our Congress, being deadlocked and not passing a bill, and them intentionally not passing something when it comes, when the tax cut and jobs act expire. Because they need the revenue to cover those tax payments to those interest payments.

I can see them letting it expire without a new bill or with an inadequate bill that doesn't inflation adjust the tax brackets intentionally so that it harms. The average American, because that's who gets the harmed the most by that. And it increases their tax base, and they're just gonna point the finger at the other party and say, it's their fault.

It's their fault. Especially now we have, Congress is really, the Senate and the house. It's very close there. There isn't a clear majority. It'll be very easy for them to do. And that, that is really what scares me is that will happen and then everyday Americans will pay a lot more money and this will fall especially on retirees.

And there's gonna be no blow back on, the, every party is gonna think it's an advantage to them. So it's not like one of those things like cutting social security where everyone's gonna get upset. It's, whichever party thinks they have the most to gain is. Is gonna benefit.

 

 

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?

My book Living with Financial Anxiety

My blog and Articles

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?

Education
Find 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!

 

Why is Wall Street saying one thing and the White House another? How does any of it relate to your retirement portfolio? Are we in a recession? What do you need to know!

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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Is the US tax system fair? How can you reduce your tax bill today and in the future? How to use the tax system as a treasure map.

What if you don't have enough to retire? How can you make up the gap and shortfall? What resource can you tap into?

The Secure Act 2.0 changes the game when it comes to Roth conversions. Join as we discuss it on today's FIRE podcast.

Have you ever wondered if the investment proposals you are seeing are accurate or just a load of hogwash? Have you ever wondered if people are just pulling a fast one on you? Get the low down in this week's episode, as we dissect what these numbers all mean and how to read investment proposals.

Some good news for a change. Why the economy will probably continue to do well, why the US will probably have a labor shortage...though not for everyone...and what it means for your retirement.

How do you know if you are "investing" or just plain old "gambling" in the market. What differentiates the two? Here's what separates the amateurs from the pros.

How does War, Inflation, a down market, 30-trillion dollars in national debt, and rising interest rates impact your retirement? What can you do about it? What should you do about it? How do you protect your retirement? What does it mean for the future? Join us for an in-depth discussion.

What are the essentials we need in an Estate Plan? How do we protect those we love? You don't need a fancy trust, or lawyers to have an effective estate plan. Find out how the must know facts in this week's episode of Leibel on FIRE.

What is FIRE (Financial Independence and Retire Early) and how does it apply to someone who is near retirement or already in retirement? Are there shortfalls?

Wondering how to get the most out of your social security? Worried you are going to make the wrong decision.

Thoughts on current volatiltiy. How to handle market anxiety. What should you be thinking? How do you hold on during all this volatility?

Do you know how your financial advisor gets paid? In this video, we'll break down the three most common compensation models and help you understand which one is best for you.

Struggling to cut back on impulse purchases? Having trouble sticking to a budget. Check out this episode for an interesting discussion with Freddie and Leibel on how to take control of your personal finances.

What are the pros/cons of downsizing? When looking at HOA vs Condo what should you consider?

How do you plan to cope with inflation throughout your retirement, especially if you are or plan to retire early?

Should I do a ROTH conversion? When should I do it? Get the essentials you need to know.