Leibel on FIRE
Leibel Sternbach, EA & Freddie Bell
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The Financial Independence and Retirement show dedicated to helping you build the life of your dreams, as fast as possible, with as little stress as possible
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What is a "Buffered" or "Barriered" ETF
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) a…
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Mar 22, 2023
How To Protect Against Market Volatility
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!
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Mar 15, 2023
Silicon Valley Bank and Your Retirement Accounts
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 t…
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Mar 9, 2023
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…
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Mar 1, 2023
More In The Bank or Bigger Social Security Check?
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.
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Feb 22, 2023
File Early or File Late - The "Big" Social Security Question
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.
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Feb 15, 2023
Mortgages and Retirement...Should You Pay It Off Early?
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.
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Feb 8, 2023
5 Easy Ways to Save On Taxes in Retirement
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 <<
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Feb 1, 2023
Secure 2.0 Changes The Math for Roth Conversions
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!
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Jan 18, 2023
Secure 2.0 Act - Major Changes to Retirement Planning & RMDs
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 Signup For The Course
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Sign up now to start saving on taxes and maximizing your retirement income. Use the link below to get started.
>> Signup For The "How to Pay Zero In Taxes in Retirement" Course
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Dec 21, 2022
How to Avoid a Roth Conversion Disaster!
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 yo…
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Dec 14, 2022
The 5 Major Risks in Retirement
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 gon…
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Dec 7, 2022
End of Year Tax Saving Tips
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…
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Nov 30, 2022
Is The 60/40 Portfolio and 4% Rule dead? [Part 2 of 2]
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…
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Nov 23, 2022
S2E13 - Is the 60/40 Portfolio dead? [Part 1 of 2]
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 surpr…
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Nov 16, 2022
S2E12 - Is this the end of Crypto? WTF Happened? Who is SBF and FTX?
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…
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Nov 9, 2022
S2E11 - The Safest Way to Invest in the Market
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.
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Nov 2, 2022
S2E10 - Handling Market Anxiety
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…
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Oct 26, 2022
S2E9 - What Type of Advisor Should I Hire?
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 i…
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Sep 28, 2022
S2E8 - The 4% Rule...What You Don't Know Can Hurt You!
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 histor…
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Sep 14, 2022
S2E7 - What Type of Advisor Should I Hire to Help Me in Retirement? What should I look for in an advisor?
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…
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Sep 7, 2022
S2E6 - Investing for Retirement
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…
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Aug 31, 2022
S2E5 - What is the "market?"
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 i…
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Aug 24, 2022
S2E4 - How to Ethically Pay Zero Taxes in Retirement
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…
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Aug 17, 2022
S2E3 - Retirement Income Plan
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. Mi…
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Aug 3, 2022
S2E2: Retiring in a Recession - What You Need to Know
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!
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Jul 27, 2022
S2E1: How Do I Take Over My Retirement Account? (401k, 403b, etc..)
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…
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May 25, 2022
19 - Elder Abuse & Scams
Elder abuse is a serious issue and one that often goes undetected. In this episode, we take a look at some of the most common types of elder abuse, as well as some of the scams that are frequently used to target seniors.
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May 18, 2022
18 - Economic Cycles
How does the economic cycle impact the markets and my retirement? Is the country entering a recession? If so, how should I prepare?
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May 11, 2022
17 - How to Pay Less in Taxes
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.
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May 4, 2022
16 - Don't have enough to retire?
What if you don't have enough to retire? How can you make up the gap and shortfall? What resource can you tap into?
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Apr 27, 2022
15 - Secure Act 2.0 & Your Roth Conversion
The Secure Act 2.0 changes the game when it comes to Roth conversions. Join as we discuss it on today's FIRE podcast.
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Apr 20, 2022
14 - Alpha, Beta, Gamma - What do they all mean?
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.
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Apr 13, 2022
13 - Investing and Inflation
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.
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Apr 6, 2022
12 - Investing vs Gambling
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.
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Mar 23, 2022
11 - The World Right Now
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.
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Mar 16, 2022
10 - Estate Planning
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.
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Mar 9, 2022
09 - FIRE over 50!
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?
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Mar 2, 2022
08 - Social Security Maximization
Wondering how to get the most out of your social security? Worried you are going to make the wrong decision.
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Feb 23, 2022
07 - How to Handle Market Anxiety
Thoughts on current volatiltiy. How to handle market anxiety. What should you be thinking? How do you hold on during all this volatility?
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Feb 16, 2022
05 - How Advisors Are Paid
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.
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Feb 9, 2022
04 - Tips for Budgeting & Spending Less
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.
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Feb 2, 2022
03 - Downsizing...What You Should Consider First
What are the pros/cons of downsizing? When looking at HOA vs Condo what should you consider?
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Jan 26, 2022
02 - Inflation Scares
How do you plan to cope with inflation throughout your retirement, especially if you are or plan to retire early?
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Jan 12, 2022
01 - How to Think About Roth Conversions
Should I do a ROTH conversion? When should I do it? Get the essentials you need to know.
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