One For The Money

Jonny West

Listen to hear Jonny break down the tips, tricks, and strategies he uses to help clients retire early. This is the "easy button" when it comes to early retirement because everything you want and need to know is right here. Jonny will lay it all out in plain English so you can get the details on the actions you can do to put yourself on the best path to early retirement. He'll also interview top real estate, tax, and estate planning and other professionals to provide a comprehensive approach to your retirement planning. Nobody builds wealth by accident. Listen to find out how you can do it on purpose. read less

Congress Just Made Changes to Your Retirement… Again, Ep #31
5d ago
Congress Just Made Changes to Your Retirement… Again, Ep #31
Every once in a while, Congress makes changes to your retirement. In this episode of the One for the Money podcast, I talk about recent, significant changes. Your financial plan must take advantage of these changes because there are always winners and losers when Congress makes changes. In the tips, tricks, and strategies portion, I share tips on reducing your taxes in retirement.In this episode...The SECURE Act [01:05]Required Minimum Distributions(RMD) [03:31]Transferring funds from a 529 to a Roth IRA [06:24]Lowering your RDMs [10:01]The SECURE Act of 2019In December 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. And in December 2022, they passed the SECURE Act 2.0. Before looking into the follow-up version, it’s essential to understand the original. The 2019 law brought massive changes to retirement planning. The most notable was the death of the Stretch IRA. The stretch IRA was an estate planning strategy where your child would inherit your not-yet-taxed retirement account and distribute it over their entire lifetime, giving them significant tax savings. So a daughter who inherited a million-dollar IRA could spread out the distributions over a few decades, significantly reducing the taxes she would need to pay. As of 2019, a non-spouse must take those distributions in just ten years. This results in their paying significantly more in taxes because they would have to distribute much larger amounts over a shorter period. Beneficiaries will be paying way more taxes than before the 2019 SECURE Act.What is a Required Minimum Distribution?When you contribute money to a pre-tax retirement account, you have elected to pay taxes when you take the money out in your retirement, hoping your income and tax rate will be lower. Since you haven’t paid taxes on this money, Congress forces you to take money out each year starting at a certain age. In 2019, Congress raised the age from 70.5 to 72. One of the reasons is that people are working longer because they didn’t save up enough for retirement. In the new SECURE 2.0 Act, Congress pushed out the RMD required dates even further. Those born between 1951 and 1959 are required to start taking money out at age 73. People born in 1960 or later can wait until age 75. That’s a great thing because it allows their money to grow longer without being taxed. Some people might consider not taking their RMDs, but the IRS would penalize them for that. The penalty for a missed RMD used to be 50%. So if the requirement were $10,000, the IRS would charge $5,000. Now that amount is 25%, and if corrected promptly, the penalty is reduced to just 10%. SECURE Act 2.0One of the best changes made by SECURE 2.0 is that it made it possible to transfer funds from a college savings account, also known as a 529, to a Roth IRA for the beneficiary. This process can start in 2024, but several conditions must be satisfied before a transfer can be valid. The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan. The 529 plan must have been maintained for 15 years or longer, and any earnings and contributions to the 529 plan within the last five years are ineligible to be moved to a Roth IRA. The annual limit for these transfers is whatever the individual’s limit is for a Roth IRA that year. The maximum amount that can be moved from a 529 plan to a Roth IRA in an individual’s lifetime is $35,000. This new strategy could be used for higher net-worth families to prime the retirement pump for children, grandchildren, and other loved ones. A meaningful contribution could be made to a 529 plan when the child is born. Then, after the account has existed for over 15 years, the account’s funds could be moved to a Roth IRA for the child’s benefit. The transfer rules require that the child have...
The "B" Word, Ep #30
Jan 15 2023
The "B" Word, Ep #30
Let’s talk about the B-word: budget. In this episode of the One for the Money podcast, I share information about budgeting, why it is essential, and how to use it to invest in your future self. In the tips, tricks, and strategies portion, I share a powerful tip on why you want to avoid credit card debt. Listen in to learn how having a spending plan can help you aim to reach your goals.In this episode...Using a budget to steer [01:00]The purpose of a spending plan [02:45]How to make a budget [04:58]Is your budget working? [06:52]More than minimum [08:59]The perspective on budgetsNot long ago, I read my boys the classic Treasure Island by Robert Louis Stevenson. The book tells the story of a few men and their mutinous crew sailing from England to Treasure Island on a ship called the Hispaniola. This large ship could not have made such an impressive journey without the aid of a small rudder to steer. As a certified financial planner, I see a parallel between a rudder steering a ship and a budget steering someone into a better financial future. Without a rudder or a budget, we would never reach where we want to go.Many people view budgets as a financial straightjacket, sucking the joy out of life. Some view it as a diet for money or a middle seat on a long flight, unpleasant but necessary. Regardless of your view, budgets are essential, and we must see budgeting in a better light. One way to do that is to use a different term: spending plan. Planning for your lifestyleSpending plans, or budgets, aren’t designed to deny you lattes or your Amazon Prime subscription. Instead, they are a way to plan a satisfying lifestyle for both now and in the future. When I work with clients, I advocate for two people: the client’s present self and the client’s future self. I want both people to have wonderful and fulfilling lives, and a spending plan can make that possible.Spending plans also ensure you’re making the most of your financial opportunities, maxing out retirement contributions, getting the highest rate on savings accounts, or reducing your insurance premiums. The plan also ensures you’re not wasting money on old gym memberships or streaming services that you no longer use or have forgotten. One study found that the average American spends $237/month for subscription services and that 84% of consumers underestimate how much they spend on these services each month.How do you know your budget is working?One way to tell if your budget is working is if you have revolving credit card debt that’s non-medically related. Reviewing your budget is imperative if you don’t have an emergency fund of at least three months worth of expenses and aren’t saving at least 10-15% for retirement. The necessity of addressing spending priorities applies especially to those who have credit card debt rolling over each month.People with credit card debt are sadly living in a fantasy, without incomes to support their lifestyles. Plenty of credit card companies and auto dealerships are more than happy to charge Americans thousands of dollars in interest each year to help them believe in the fantasy of their unsustainable lifestyle. If your financial ship is sailing with a compromised rudder, you can end up in dangerous waters. Like a ship off course, you must make the corrections to get yourself back on the path. With an honest assessment of your spending and regular reviews of your spending plan, you can help ensure a bountiful future.Resources & People MentionedTreasure Island by Robert Louis StevensonQuote by...
Healthy, Wealthy & Wise, Ep #29
Jan 1 2023
Healthy, Wealthy & Wise, Ep #29
This episode of the One for the Money podcast airs on January 1st when many Americans make resolutions to improve their lives. These resolutions often focus on eating better and getting more exercise, perhaps because of everything eaten during the holidays. In this episode, I share why, financially, it’s better not just to be wealthy and wise but healthy too. Listen to the tips, tricks, and strategies portion, where I share a few ideas that have helped make exercise easier for me.In this episode...Exercising and long-term financial goals [01:33]Greater quality of life [04:17]Benefits of HSAs [08:28]Tips to help you exercise more [11:22]Returns in exerciseJanuary is a time of resolutions that often focus on physical health. Unfortunately, most of these resolutions have faded away by mid-February. Investing in your health is in your long-term financial interest, and health brings a freedom that few realize until it’s gone. Not only does exercise extend our lives, but it extends the years we have good health. Good health allows us to spend less on healthcare and more on things we want. Longevity is most impacted by major modifiable behaviors such as exercise, sleep, nutrition, and emotional health. Exercise itself is in a league of its own because of its ability to extend one’s life and reduce all-cause mortality. This observation was made by the famous Dr. Attia, whose practice consequently focuses on exercise. Dr. Attia also noted that this is the most challenging aspect of behavior for people to change because of the significant time commitment. Greater quality of lifeExercise doesn’t just buy you more time; it buys you more quality time. Quality of life isn’t the only benefit. Good health is essential because healthy people can have lower healthcare expenses. Healthcare is expensive now, but even more so in retirement. The average retired couple will spend $285,000 in today’s dollars just for medical expenses, not including long-term care expenses. Early retirees will especially want to consider exercise, as they must pay most of their healthcare expenses before Medicare does. Just because someone turns 65 does not mean Medicare covers everything. Deductibles, premiums, and prescription costs add up quickly, and all must be considered. Stay healthy, and you may be able to avoid many of these costs.Health Savings AccountsOne of my favorite planning tools is a Health Savings Account. HSAs are the only investment vehicles that are triple tax-free. If used for qualifying medical expenses, growth and distributions are tax-free. The money in an HSA is not susceptible to taxes and isn’t impacted by the amount of the individual’s income. While anyone can get this deduction, not everyone is eligible to invest in an HSA. You must have a qualifying, high-deductible medical plan. Additionally, the contributions are limited per individual and family. What if you don’t need all the money in an HSA for health care expenses? Essentially the account becomes like a traditional IRA, and distributions are taxed at ordinary income tax rates. Remember, the earlier you invest your money, the longer it grows. That growth can be significant. With just $2,000 invested annually for thirty years, earning a 7% rate of return could grow that account to over $200,000. That money would go a long way to help offset healthcare expenses in early retirement. Resources & People MentionedExercise, VO2 max, and longevity | Mike Joyner, M.DJerry Morris: Pathfinder for Health Through an Active and Fit Way of Life
One of the Biggest Risks in Retirement, Ep #28
Dec 15 2022
One of the Biggest Risks in Retirement, Ep #28
In this episode of the One for the Money podcast, I explain one of the greatest financial risks you could face in retirement, which has nothing to do with the stock market! I’ll also share the planning strategies you can use to address this risk. In the tips, tricks, and strategies portion, I share a strategy to reduce the financial risk associated with lawsuits. Listen to learn more!In this episode...Top three risks in retirement [01:09]Long-term care planning [03:41]Options for long-term care [06:40]What is umbrella insurance [09:46]Three of the greatest risks in retirementWhile there are risks in retirement, I view three as more serious. The first is running out of money via significant negative returns in the years just before and after retirement. That scenario is also known as the sequence of returns risk, which I outlined in episode 20. Significant negative returns in the few years just before or after retirement can significantly impact how long your money lasts. One way to counteract this risk is the bucket strategy. That strategy allocates a portion of funds to a conservative bucket of investments, a portion to a moderate bucket, and a final portion to a growth bucket.The second primary risk I see in retirement is inflation, which is the persistent rise in the prices of goods and services. For example, if someone had $100,000 in a safety deposit box, and inflation averaged 5% per year, that money could buy only half as much in just thirteen and a half years. As I explained, the growth portion of the bucket strategy works to address the risk of inflation.The third major risk in retirement is fundamentally different from the others. It’s the tremendous expense associated with a long-term medical event such as an extended bout with Alzheimer’s. The long-term care needed for such an event can top $100,000 annually.Long-term care planningLong-term care describes the medical and non-medical services older adults generally need when they can no longer care for themselves. These are called activities of daily living, and there are six of them. Activities of daily living include bathing, dressing, getting in and out of a bed or chair, walking to use the restroom, and eating. If you cannot complete at least two of those in your own power, you are considered in need of long-term care, and you can access the benefits of a long-term care policy if you have one. While most of us hope to live a full life with little to no illness before leaving for the next life, seven out of every ten people over 65 will need long-term care support. The national average for in-home health care is $59,000 per year, and a nursing home can be as high as $108,000 per year. Those are 2022 numbers, but because healthcare expenses increase quickly, those long-term care costs could double every fourteen years! Unfortunately, Medicare doesn’t cover long-term care. Medicaid can cover long-term care, but only for those poor enough to qualify.Since Medicaid is not a desirable option, two options remain. The first is self-insure, assuming the risk and hoping a need doesn’t occur. That’s a huge risk for you and your loved ones to carry. With expenses potentially being $100,000 per year, your retirement nest egg would quickly be impacted. The second option is to share your risk with others by pooling your resources via an insurance-based solution. Insurance optionsThere are a few types of insurance options. The traditional standalone policies were a popular option quite a few years ago, but the insurance carriers underestimated the need and vastly underestimated the cost. This situation resulted in holders of these policies having their monthly premiums increased significantly and their benefits reduced. A huge drawback to these policies is you can’t use any of the money you’ve put into it unless you have a...
Can You Retire with Debt?, Ep #27
Dec 1 2022
Can You Retire with Debt?, Ep #27
Can you retire when you have debt? This episode of the One for the Money podcast focuses on answering that question. More and more Americans are retiring with a mortgage, but is it right for you? Doing so depends on many factors that can’t be assessed in isolation. Listen to the end when I share a simple strategy to pay off your mortgage early.In this episode...Keeping mortgages past age 65 [01:44]Why are more people retiring with a mortgage? [02:57]Retiring with a mortgage [06:58]Debt and relationships [08:16]Advantages of paying off the mortgageWhether you can retire or retire early with debt depends on the type of debt you have. If you don’t have a three- to six-month emergency fund, have multiple sources of debt, have multiple credit cards to pay off, have an auto loan, and have a mortgage, then the answer is almost certainly no. If you only have a mortgage, retiring may be possible depending on several factors, such as retirement income, mortgage payment, mortgage interest rate, and years remaining on the mortgage. Having no debt, including a mortgage, makes retirement so much easier. I wouldn’t recommend an early retirement before paying off your home. Paying off your mortgage early essentially provides a risk-free rate of return. For example, if your mortgage rate is at 5%, paying it off early saves 5%. While that savings isn’t an incredible rate of return, it’s pretty fantastic, considering you don’t have to pay that on the loan. However, more and more Americans are entering retirement with a mortgage. A 2016 report by Harvard’s Joint Center for Housing Studies showed that in 1996, 25% of homeowners in their late 60s to 70s still had a mortgage, but in 2016 that number had jumped to nearly 50%.Why are more people retiring with mortgages?Several developments over the last three decades may explain the dramatic increase in the share of retirees with mortgages. Americans today seem to have less aversion to debt than the generation that grew up after the Great Depression. Although consumer debt levels always ebb and flow with economic cycles, total debt as a percentage of disposable income is significantly higher today than in the late 90s. The Tax Reform Act of 1986 made mortgages a more attractive form of debt. The reform eliminated the income tax deductions for interest on credit cards and other types of consumer debt with one exception: mortgage interest.For the majority of the last decade, mortgage rates were extremely low. While the rates have climbed rapidly this year, 85% of homeowners in the United States have a rate lower than 5%. That makes taking a mortgage into retirement a little more manageable. People have also been purchasing homes later in life because homes have become expensive. In the late 80s and early 90s, housing prices were about three times the typical household earnings, while prices today are more than four times.Paying off your mortgage earlyA simple tip to paying off a mortgage early is making one extra payment each year, applied to the principal. What kind of difference can that make? Let’s say you secured a 30-year fixed-rate mortgage for $400,000 with a 5% interest rate. Your regular monthly payment would be $2147 per month. If you make an extra monthly payment of $2147/per year, you’d pay off your 30-year mortgage four years and five months early and save over $62,000 in interest in the process. That’s a huge savings of time and money, which would set you up very well for early retirement. Ultimately, a paid-for home gives you something a mortgage cannot: peace of mind. Removing that worry significantly impacts psychology and happiness, which is why I believe a paid-for home is a critical piece of early retirement planning.Resources & People Mentioned
Maxing Out Your Life with a Mini-Retirement, Ep #26
Nov 15 2022
Maxing Out Your Life with a Mini-Retirement, Ep #26
While the One for the Money podcast focuses primarily on retiring early on a permanent basis, this episode explains the planning needs to retire even earlier via a mini-retirement. A mini-retirement provides the opportunity to test-drive a full retirement, allowing the individual to travel, volunteer, and pursue new hobbies or other interests. In the tips, tricks, and strategies portion, I share some strategies that could mean massive tax savings during a mini-retirement.In this episode...Taking a temporary break [01:11]Self-funding mini-retirement [03:53]Health insurance [06:29]Tax savings in mini-retirement [10:44]Tax gain harvesting [13:15]Sabbaticals aren’t just for professorsThe idea of a mini-retirement isn’t new but is often associated with professors. Nowadays, a sabbatical is a periodic break from work. This tradition started at Harvard around 1880, but other professions, such as scientists, physicians, and lawyers, also take sabbaticals. According to a survey by the Society for Human Resource Management, only 17% of companies offered a sabbatical policy to their employees in 2017. That means most people won’t work for a company that provides a sabbatical. However, with some planning, people can create their own sabbatical via mini-retirement and enjoy the benefits themselves.This episode is just an introduction to the planning considerations of a mini-retirement. Sadly, far too many people have consigned themselves to a life of working from 9-5 until age 65, not realizing that many retirements are even possible. But, with the right kind of planning, they certainly are. Often such mini-retirements will have only a little or limited effect on one’s goals for retirement, even an early one, and a delay of a year or so is more than worth it. Taking care of your healthHealth insurance needs in mini-retirement can be met in the same way as in early retirement, which I discussed in episode 5. For a U.S.-based mini-retirement, employer retirement healthcare benefits can be utilized for an additional 18 months of coverage. This coverage was made possible via the Consolidated Omnibus Budget Reconciliation Act of 1985, also known as COBRA. However, most times, the full cost of the health care plan will need to be paid, plus an additional 2%. The extra cost is worth it for a domestic-based mini-retirement. Another option is the public market established under the Affordable Care Act. This legislation enables people to obtain coverage, even with a pre-existing medical condition. While the cost of these plans can vary widely, the recently enacted American Rescue Plan provides even more generous subsidies based on income. These are solutions for U.S.-based mini-retirements. International mini-retirements require other planning. However, travel supplemental insurance is often an option. Travel health insurance is also an option for those traveling abroad for a short time. For extended periods, many countries allow foreign nationals to purchase health insurance from the government or private firms within that country.Factors to consider when planningOne of the most significant factors to consider is the length of the mini-retirement, which will determine the level of planning required. If the plan is for one to three months, the amount needed for expenses can be saved up in advance. The plan must include home and location expenses if time is spent in another location. Taking a mini-vacation for six months to a year would require considerably more planning. Homeowners need to consider if they plan to keep or sell their homes. Selling would simplify the math, but keeping could mean potential rental income.Once the duration of the mini-vacation has been determined, monthly expenses are the next thing to consider. While income may stop during mini-retirement, expenses certainly will not....
The Fed is Not Your Friend, Unless You Are a Bank, Ep #25
Nov 1 2022
The Fed is Not Your Friend, Unless You Are a Bank, Ep #25
While an early retirement can be a result of actions you have taken via better planning, there are outside forces that need to be considered as well. One of those forces is the Federal Reserve. In this episode of the One for the Money podcast, I share why the Fed is not necessarily your friend unless you are a bank. Listen until the end to hear more strategies to consider, given the actions of the Fed.In this episode...Why are stocks and bonds struggling? [01:46]Mortgage on a house of cards [04:38]Fixing inflation [06:41]No one knows the future [09:33]A happy mediumAt the halfway point of this year, the markets had the worst six-month performance in over 50 years. Stocks and bonds were down for only the fourth time since 1926. Now, nine months into the year, bonds and stocks are still down, and the primary reason they're still struggling is higher-than-expected inflation. If the prices of things that both businesses and individuals buy increase too quickly for too long, future prices can go out of control and cause significant economic problems. A small amount of inflation is good, lots of inflation is bad, and negative inflation on a broad scale is even worse, like what is seen in a depression.Because inflation is a natural result of the economy, we want a happy medium for inflation. The Federal Reserve is responsible for keeping inflation in that comfortable, medium zone. Right now, they're taking actions that are causing both bonds and stock prices to reduce. However, it's unknown whether these actions will have their intended effect. Understanding how we got hereTo understand where the economy is going, we must first understand the journey to where it is today. What may surprise many is that the challenges we face today result from actions taken during the Great Recession between 2008 and 2012. In the early 2000s, the housing market was ascendant, and there was a surge in home purchases and prices. Sadly, the housing market crashed, and the economy was pushed to the brink of collapse, as many banks were at risk of failing. As a result, the nation became dangerously close to another depression. During this crisis, an untested solution was implemented to save the banks and economy that sowed the seeds of what we are reaping today. Many believe this crisis was solely a result of greedy banks, but that's not entirely true. Banks were indeed guilty, but they had a tremendous amount of help from homebuyers and a well-intentioned government program. That government program reduced the financial requirements to borrow money to purchase a home. Requirements for proof of income, credit scores, and down payments were significantly reduced or eliminated so that more people could buy homes. Correcting inflationDuring normal times, the Federal Reserve raises interest rates and reduces the amount of money in the banks. The reduced bank reserves and higher interest rates make borrowing money more expensive for consumers, lowering demand and ultimately slowing inflation. Unfortunately, the usual levers aren't an option as the banks have already lent out much of this extra money. The Fed can now only increase interest rates and not substantially reduce the money supply in the economy. Some may use this situation as an argument for the government to take over the banks. This solution could cause even more problems, however. Concentrating control in the hands of fewer individuals will only create more problems. The best societies and economies have power distributed more broadly. So what can we do? One solution is to significantly reduce the Fed's ability to create more money and create conditions in the economy that will allow businesses and the private sector to grow and make the extra revenue needed to retire the debt used to justify the printing of the extra money.Resources &
Too Much Money & Too Few Memories, Ep #24
Oct 15 2022
Too Much Money & Too Few Memories, Ep #24
We often focus on the amount we need to retire comfortably. In this episode of the One for the Money podcast, you might be surprised to learn that most retirees die with too much money and too few memories. I’m not advocating that we reduce our savings for retirement. Instead, we should enjoy the fruits of our labor both before and during retirement.In this episode...The strongest force in the universe [01:29]Spending just the earnings [02:37]Why do people die with so much money? [04:51]Making lasting memories [06:42]How to spend more, wisely [10:54]Compound memoriesAlbert Einstein famously called compound interest the strongest force in the universe. I love showing people the remarkable growth that can come from small contributions given significant time. It’s astounding that if you invested $5,000 a year for 40 years, and your investments earned an average rate of return of 10% each year, the $200,000 contributions would grow to $2.2 million. That’s eleven times the original investment!As remarkable as that is, I’ve found that there’s something that compounds even better than money: memories. Many retirees don’t spend down their money in retirement. According to a 2018 Investments and Wealth Institute study, nearly six in seven retirees spend down only the earrings in their portfolios. That means they spent only the money generated by their investment portfolios. These people use guaranteed income sources such as Social Security, dividends, and interest and don’t touch the principal.Spending decisions in retirementMany retirees are unnecessarily constraining spending and living well below their means. Behavioral biases and predispositions may prevent individuals from making optimal spending decisions in retirement. Most people match their spending with their income, and when their expenses increase, they decrease their spending accordingly. In fact, many retirees save money in retirement rather than spending. According to the research, retirees with more than $100,000 of assets save 38% of their income. According to a survey conducted by the Insured Retirement Institute, 48% of people prioritize a comfortable standard of living, while only 3% view leaving a legacy as their primary goal. The only other double-digit financial goal in this survey was protecting one’s current level of wealth. Most people’s goals in retirement are a comfortable standard of living and protecting the current level of wealth. The remaining common financial goals are minimizing taxes, better managing risk, funding college, improving cash flow, aggressively growing wealth, or some charitable giving. However, all of those were between 1% and 6%. Confidence in spendingBased on my research and experience in my practice, I believe there are two primary reasons people don’t spend as much as they could. The first is that they’ve always been in a saving mode. Switching to a spending mode is difficult, especially when there is no longer a salary. Everything depends on the next egg. It’s why people with guaranteed sources of income, pensions, and annuities spend more in retirement. I believe there are better ways to spend more than using annuity, but it shows what an impact this can have. The second reason is what I would call the “just in case” expense. We financially plan for worst-case scenarios. However, there are ways to prepare without sacrificing the ability to make memories both now and in retirement.Sometimes, some of the best help I can give clients is when I give them the confidence to spend on what they want to achieve. Then they can make memories that can last lifetimes. And when we make memories with our kids and grandkids, those memories will last lifetimes. Of course, we need to plan so that the fear of running out of money doesn’t leave us with a worse feeling of regret. Most retirees die with
Will I Be Able to Retire?, Ep #23
Oct 1 2022
Will I Be Able to Retire?, Ep #23
The question I’m most often asked is, “Will I be able to retire?” In this episode of the One for the Money podcast, I answer that question and share ways to know you’re on the right track. In the tips, tricks, and strategies portion, I explain how a simple rule can help you track your progress towards retirement. Listen to learn more!In this episode...Well, it depends… [01:06]Determining yearly expenses [03:37]Income sources [04:56]The 4% rule [05:44]How much will you need to save? [07:28]High impact factors [09:19]The rule of 72 [11:50]Where to startAs a Certified Financial Planner, people often ask me if they’ll be able to retire. That question is imperative to ask now, because now is the time to make adjustments in saving and spending. The few years prior to retirement are generally too late. We need to consider many factors to determine readiness for retirement. Of course, these factors are based on assumptions, as we’re making forecasts about the future regarding rates of return, inflation, healthcare expenses, and life expectancy. There are some standard benchmarks we can use such as starting retirement at age 65 and living to age 90. That would mean 25 years of retirement. My financial planning practice focuses on early retirement, but we can make modifications from that initial baseline. Determining how much you need to retire starts with considering how much will be spent each year. That number is generally higher than one might think.Expenses in retirementMore people are taking mortgages into retirement. For those who don’t take a mortgage into retirement, their houses tend to be older and require more repairs and maintenance. Transportation costs will remain the same if the person leases vehicles. Insurance and other costs will be factors if the car is leased or owned. Any additional expenses such as heat and air, electricity, subscriptions, personal care, food, and internet will be similar to now and will increase with inflation. Healthcare and leisure expenses increase significantly in retirement, especially healthcare. A couple, on average, spends over $250,000 a year on healthcare in retirement. A Fidelity study found that people should expect to spend between 55% and 80% of their pre-retirement income each year through retirement. Interestingly, the higher a person’s pre-retirement salary, the smaller the percentage of working income would need to be replaced when they stop working. Sources of incomeAfter calculating approximate expenses for a typical retirement, the next step is determining the sources that produce that income. First, we would add up what is sometimes called “mailbox income.” This income comes in regularly, including a pension, social security, and rental income. We would then subtract the annual amounts of this steady income from the total amount needed for spending each year. The difference between those is the income investments would need to produce. How do we determine how large an investment nest egg needs to be? The 4% rule is a distribution rule derived by financial planner Bill Bengen. This rule has been adopted by many in the industry because of its simplicity. It was created to meet the financial needs of a retiree, even during a worst-case economic scenario such as a prolonged market downturn. The rule was developed using historical data on stock and bond returns over the 50 years from 1926-1976, focusing heavily on the severe market downturns of the 30s and early 70s. Bill Bengen concluded that even during untenable markets, no historical case existed in which a 4% annual withdrawal exhausted a retirement portfolio in fewer than 33 years, which bodes well for early retirement. The 4% rule was tested during some challenging decades, notably the Great Depression, World War Two, and the...
Estate Planning Simplified, Ep #22
Sep 15 2022
Estate Planning Simplified, Ep #22
If you are confused about what estate planning is and its importance, this episode of the One for the Money podcast will resonate with you. I break down the critical elements of an estate plan and their respective purposes, which should help you understand why you need one. In the tips, tricks, and strategies portion, I share tips on ensuring your estate plan is executed as you had planned.In this episode...What is an estate plan? [01:01]Creating an effective plan [03:19]The purpose of a trust [05:05]Power of attorney [07:12]The 30-year estate battle [09:04]What is an estate plan?Many people don’t understand estate plans or why they would want one. As a culture, we don’t talk about these things a lot. And fortunately, many of us haven’t encountered situations where one was necessary or wasn’t already in place. Those who have experienced what it is like when someone passes without an estate plan know how vital a plan truly is. An estate plan is the sum of everything someone owns that has value. That would include land, real estate, stocks, bonds, annuities, cash, jewelry, vehicles, and any other asset someone owns or has a controlling interest in, less liabilities such as mortgage and consumer debts.An estate plan is simply a plan for how to distribute someone’s net worth after death. In the last episode, I explained how expensive and time-consuming the process is without a plan. Some may wonder why they can’t just distribute assets to the spouse and next of kin, but life and families aren’t that simple. Family members have had far too many disputes about who would receive what. A trust or estate plan may seem complicated, but it is way better than the alternative.Critical componentsMost people are familiar with a will. A will provides the details on how assets are to be distributed at death, names the estate executor and beneficiaries, how and when said beneficiaries will receive assets, and who would be guardians for any minor children. A will is vitally important because it is where a beneficiary is named for certain assets that don’t allow a beneficiary to be named directly. A retirement account, for example, requires at least one beneficiary to be named. Certain assets don’t allow listing a beneficiary, such as a house or real estate. Wills can be as simple as a handwritten note. However, wills alone are not legally binding and can therefore be contested in court. While the will can guide the court in how assets should be distributed, beneficiaries will still have to go to court. As I mentioned in the previous episode, this legal process is called probate, which is expensive and open to the public. Beyond a willIf a will doesn’t avoid probate, what does? That’s where a trust comes into play. A trust is an arrangement that allows a third party or trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets will be passed to the beneficiaries. Trusts usually avoid probate, so beneficiaries can gain access to these assets much more quickly than if there were only a will. There are many types of trusts, but a significant distinction is whether they are revocable or irrevocable. My wife and I have a revocable, living trust we established in 2016. The trust allows us to proceed with our lives as usual, and we can change it anytime. It essentially serves as a safety net for our family if something happens to my wife and me. Revocable estates are subject to estate taxes, but only if the value is greater than $23.4 million, according to 2022 tax law. An irrevocable trust would help mitigate taxes. However, all assets transferred to the trust would be beyond further control, the terms could not be changed, and the trust could not be dissolved. These types of trusts work if the primary aim
Congratulations, You Already Have an Estate Plan - BUT YOU DON'T WANT IT!, Ep #21
Sep 1 2022
Congratulations, You Already Have an Estate Plan - BUT YOU DON'T WANT IT!, Ep #21
In this episode of the One for the Money podcast, I explain how everyone has an estate plan. I also provide reasons why you want better than the default. In the tips, tricks, and strategies portion, I share a tip in the form of a sad story that shows why you want to review and communicate details of your estate plan to the responsible party. Listen to learn the importance of estate planning and the difference good planning can make.In this episode...What happens without an estate plan? [01:38]The memory you leave [03:53]Keeping the plans updated [06:35]The importance of communication [07:53]Without a planEstate plans are a critical component of better financial planning and, ultimately, a better life. We accumulate assets, real estate, investment accounts, vehicles, and more throughout our lives. When we pass away, there needs to be an orderly way for these assets to be distributed to the people we choose. Without an estate plan, the state of residence makes those decisions in public and after many extra expenses. While it may seem obvious that you would want to avoid having the state in charge of your assets, a surprising number of people don’t have an estate plan when they die. Perhaps we wouldn’t entirely fault those who died suddenly, but even many with longer-term illnesses don’t plan for their estate. Establishing your wishesWhen I open a retirement account for clients, naming a beneficiary is required. Bank accounts can also have beneficiaries. However, certain assets such as houses, cars, and jewelry do not have a way to assign a beneficiary. That’s where an estate plan comes in. It allows us to name who receives what, when they receive it, and under what conditions. For example, we might want our children to receive their inheritances in portions throughout their lives rather than a lump sum when they’re younger and possibly less disciplined. Without a plan, the state will be making all of these decisions.I recently heard an estate planning attorney describe the challenges of not having an estate plan in California. Without an estate plan, the process takes a long time. Currently, the courts are backlogged, causing people to wait for an initial appointment for up to nine months. Then the family would need to pay a filing fee to open the proceedings, run a notice in the local newspaper, wait another several months for a final hearing, and pay another court fee to close the case. In addition to those expenses, the hourly fees charged by the lawyer can cost thousands of dollars. Communication is key to a successful planI was at a webinar where the presenter shared the story of how an elderly couple had moved to Florida. Years later, the wife passed away, and their grown children decided they would move their father back north to be closer to his family. His children made all the necessary changes to facilitate the move, changing bank accounts and mailing addresses for investment accounts. After he passed away, the family went through their father’s things and were elated to find a $500,000 life insurance policy. When they contacted the insurance company, they were informed that, sadly, the insurance policy had lapsed and was worthless. Despite their father paying for the policy for several decades, payments were missed because of the closed bank account. Sharing details of an estate with the responsible party is essential to one’s wishes being carried out.Years ago, I spoke with another advisor going through a difficult time because one of his clients had died unexpectedly. Thankfully, the client had a life insurance policy. Unfortunately, his ex-wife from over ten years ago was still listed as the beneficiary, and his current wife wasn’t happy about it. Since the advisor didn’t facilitate the purchase of the original policy, he hadn’t thought to review it to ensure the...
Ways to Avoid Running out of Money in Retirement - Most Accidents Happen on the Way Down, Ep #20
Aug 15 2022
Ways to Avoid Running out of Money in Retirement - Most Accidents Happen on the Way Down, Ep #20
Even the best savers can run out of money in retirement. In this episode of the One for the Money podcast, I share how making the appropriate adjustments in the few years before and after retirement can help prevent that. In the tips, tricks, and strategy portion, I’ll share information for those who started saving later for early retirement. Listen to learn more!In this episode...Into thin air [01:51]Sequence of returns risk [03:30]The years before retirement [11:32]The bucket strategy [13:09]Saving late for early retirement [16:43]Climbing down carefullyWhile the most common accident in mountain climbing is falling, the majority of those incidents occur on the way down from the peak. People put so much physical and mental energy into making it to the pinnacle that they don’t take the necessary precautions on the way down. Think of your approaching retirement as submitting your financial Mount Everest. Taking withdrawals from your retirement investments is like climbing down, which requires even more precautions.The mistakes made after retirement can be costly, and unlike when someone is younger, they don’t have the time or salary to overcome these mistakes. One of retirees’ biggest fears is running out of money. This shortage can happen for many reasons, including negative returns in the first few years before and just after retirement. Another significant risk is inflation. Strategies need to be deployed to address both of these risks.Before and after retirementThe rate of return in the first few years of retirement significantly impacts how money lasts throughout retirement. Similarly, the rate of returns in the years before retirement makes a huge difference. So what can you do to retire on time without running out of money? We can’t predict the future rates of return, and we can’t know if the stock market will be up or down.Some might think a good strategy is to be conservative in investments. However, that would also mean slowing growth and not keeping up with inflation. For my clients nearing or in retirement, I employ a bucket strategy. The monies to be withdrawn in the near term are invested more conservatively. Monies to be withdrawn in the next 6-15 years are invested more moderately. Finally, monies that will be withdrawn beyond that timeframe are invested more towards growth or a higher percent allocated to stocks.Strategies around retirementIn the bucket strategy, the ultimate determining factor for each bucket is the action of the market, the individual client’s spending goals, and their tolerance for risk. The logic behind the strategy is that money spent in the near term shouldn’t be impacted by large swings in the market. Monies spent further in the future have the potential for increased growth to provide future income and offset the effects of inflation. While the bucket strategy works well for those who completely stop working, another approach would be retiring slowly by reducing work hours before leaving the workforce. This situation would result in less reliance on income generated from an investment portfolio and create a smoother transition from a full-time job to a life without work responsibilities. A flexible or dynamic budget can be helpful to make withdrawals less in down years. Delaying Social Security to increase monthly benefits can also reduce reliance on income generated from a portfolio. These and similar approaches aim to match assets, liabilities, and time horizons as best as possible.Resources & People MentionedInto Thin Air: A Personal Account of the Mt. Everest DisasterA Wealth of Common...
Beware of Wolves in Insurance Salesmen's Clothing, Ep #19
Aug 1 2022
Beware of Wolves in Insurance Salesmen's Clothing, Ep #19
This episode of the One for the Money podcast is a little different than previous episodes, as it’s more of a “buyer beware” when buying life insurance. Life insurance is a valuable part of any financial plan, but I’ve seen too many individuals fall for the tricks of some insurance salesmen. Listen to the end when I share strategies on some of the best ways to buy life insurance, which some agents may not want you to know.>>>>>player code hereIn this episode...My journey to becoming a CFP [01:19]The wrong life insurance [02:53]Permanent life insurance [05:55]The fastest way for agents to make money [08:35]Factors in life insurance [11:30]Avoiding expensive life insurance [16:02]One of the best ways to purchase life insurance [18:01]The dangers in life insuranceI became a certified financial planner to have the greatest impact for my clients. This career has married personal finance and education, two things I love. Sadly, my career didn’t start that way. Due to my naivety, I joined a financial services firm that claimed to put financial planning at the forefront of what they did. However, the reality was that they primarily pushed expensive insurance that the overwhelming majority of people don’t need. In my defense, the job wasn’t anything like what I was promised in the interviews with the firm. I had interviewed with a few certified financial planners who spoke of the merits of being fiduciaries, but apparently, this was in name only. In fact, they did not do comprehensive financial planning, nor were they fiduciaries. Their primary efforts were to sell expensive insurance. I share this so you know I have first-hand knowledge of how some financial services industries operate.Why is permanent life insurance so bad?Many people don’t have life insurance at all, and those who do often have policies that are way too expensive because they fell for the tricks of insurance salespeople. This insurance is called Index Universal Life(IUL), whole life and similar permanent life insurance policies. Legally, life insurance cannot be sold as an investment, but there are far too many instances where an IUL is portrayed as an investment. Often IULs are sold as a way to avoid stock market losses and receive stock market-like returns. The illustrations used to demonstrate the policy often don’t share the majority of expenses associated with these policies, some of which include significant commissions. More importantly, these representatives don’t determine if these policies are in the individual’s best interest. Permanent insurance is introduced as the only solution. I know this because of my training at the original firm on how to schedule appointments and use emotionally manipulative sales techniques. But that firm didn’t train on how to determine if the clients had sufficient retirement savings or whether they had an adequate emergency fund. The focus was to sell the most expensive insurance.Needless to say, the agency and I parted ways. I’ve since learned that, with rare exception, term life insurance is usually all that is needed. It typically costs less than indexed universal life, variable universal, or whole life policies that are incredibly expensive and may not meet clients' goals. An IUL policy could potentially erode over 80% of your wealth compared to investing directly in an index fund. How to choose life insuranceVarious insurance companies offer better-priced policies for specific individuals. Some offer better terms for people with diabetes, while others are only better for younger people. A person could apply for one company and receive the highest health rating but receive a lower rating at another company. These variables result in a significant difference in monthly premiums for the same benefits....
When Life Gives You Lemons, STAY INVESTED!, Ep #18
Jul 15 2022
When Life Gives You Lemons, STAY INVESTED!, Ep #18
In this episode of the One for the Money podcast, I share a personal, financially painful experience that can serve as an example of why you should stay invested. Considering the stock market of late, this is quite a timely topic. Listen to the end when I share a strategy you can use some stock market losses in a non-retirement account to ultimately reduce your taxes.In this episode...Unprecedented events [01:13]Locking in losses [03:42]Delusions in timing the markets [08:25]Aligning investment plans with goals [12:10]Tax-loss harvesting [13:35]Don’t lock in lossesThe last few years have offered more than enough unprecedented events, the stock market included. With the pandemic shutting the world down, we had the fastest bear market in history. In 2020 that took only sixteen days to happen, and then the market dropped further. A short time later, the stock market rocketed higher with the fastest fifty-day rally in history. In 2021 the stock market had more remarkable growth. However, the stock market in 2022 began the year with the worst start in half a century.Seeing the value of your nest egg decrease can be incredibly disheartening. Sadly, far too many people succumb to these emotions and sell their investments. In fact, a study found that close to a third of investors over the age of 65 sold all of their stocks during the Coronavirus meltdown. Because they sold their investments, they missed out on these significant rallies to the upside, locking in their losses.A cautionary tale of emotional sellingMany believe we are due for a recession, and they’ll be right eventually. There’s no way to know when it will occur or to what magnitude, let alone its impact on the stock market. What we do know is that succumbing to these fears is detrimental to building wealth and early retirement. For those nearing retirement, we will conservatively invest in the next few years. For those seven or more years from retirement, now is the time to keep buying periodically and not sell stocks. Selling leads to realized losses and missed out gains.I know from personal experience the pain of selling an investment when I shouldn’t have. Years ago, I purchased stock in a company that was exploding in popularity. However, during the 2008 financial crisis, these stocks dropped 50%. I was scared to lose more, so I foolishly sold, guaranteeing my losses. The painful part of this story is that these stocks have since increased by over 7,500%. While I did use the proceeds of my sale to invest in some companies that worked out well for me, emotional selling was a huge mistake. I’ve learned a lot since then and invest much differently now, but my sad story illustrates the mistake of selling that many investors have made.What is Tax-loss harvesting?Tax-loss harvesting is a strategy that involves selling an asset or security at a net loss. The investor uses the proceeds to purchase a similar investment, maintaining the portfolio’s overall balance. The investor can continue to gain while paying fewer taxes. Essential to keep in mind is that the IRS has a rule that says you can’t just buy a substantially identical investment within thirty days, so you’ll have to wait.What do you do if you have more than the maximum of $3,000 in losses? The good news is that you can use these losses to offset the ordinary income tax. The losses can carry over for the next two years to offset income taxes. Tax-loss harvesting can only be used in non-retirement accounts, and you can see the power of that strategy to offset taxes.This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.Resources & People Mentioned
The Case for Optimism, Ep #17
Jul 1 2022
The Case for Optimism, Ep #17
How much does the news influence your financial decisions? This episode of the One for the Money podcast focuses on the optimism we can have in the market, even through disheartening times. The world has changed dramatically over the years, yet time and time again, investments have proven themselves. Listen through the end when I share tips regarding credit scores.>>>>>player code hereIn this episode...Negativity sells the news [01:20]Progress over the years [02:41]Investing proves itself again and again [06:40]Credit score and financial plans [10:40]The news and investmentsThis year has brought a lot of market volatility, creating fear in investors’ hearts. With a war in Europe, inflation at levels we haven’t seen in over 40 years, a pandemic still lingering in parts of the world, and political and civil strife, there’s an overall theme of negativity in the news. It’s essential to remember that media companies are businesses, and negative news attracts more attention, creating more revenue. While the media may have a financially compelling reason to focus on negative things or things that generate fear, it’s important not to let that shape our perspective of the general trajectory of humanity, which is undoubtedly positive. The pace of progressThe photo on my website shows my great-grandparents, both clad in fur coats. My great-grandpa John was born in the United States and emigrated to Canada in 1894. My great-grandma Margaret was born in Germany, immigrating first to Wisconsin. She later emigrated to Canada, having answered my great grandpa John’s advertisement in a newspaper for a wife. Great Grandpa John was a rancher and settled near the town of Mountain View, where he built his home. While that was a stunning place to live, cattle ranching is a hard way to make a living, especially through the brutal Canadian winters. My great-grandparents didn’t have indoor plumbing for most of their lives, let alone toilet paper or a way to order it to be delivered just hours later. What would they say about self-driving cars or about the feats of architecture, medicine, agricultural productivity, airplanes, and space travel that could all be enjoyed by their great-grandson? All of this progress occurred in the last 100 years, and the pace of that progress and positive change is only moving faster. If this is the progress of the previous 100 years, what do the next 100 years hold?A review of history shows that there have always been reasons why investing is scary, but that investing has repeatedly proved itself. Some may argue that this time is different, but they are joining a long line of people who said the same thing and were proved wrong. Regardless of what happens, people will still work, earn a living, and spend their money on goods and services. Investing in well-run companies that provide those goods and services is one of the best ways to grow your wealth. Credit history and scoreCredit scores can be a critical part of a financial plan, especially when purchasing a home. However, most people don’t know how their credit score is determined. Thirty-five percent of a credit score is derived from payment history, and thirty percent is derived from the amount owed. The next fifteen percent is derived from the length of credit history, ten percent is new credit, and the final ten percent is the type of credit owed. A credit score over 800 is deemed exceptional, and the higher a credit score is, the lower interest rates are in the terms offered.Three companies provide credit scores to lenders: TransUnion, Equifax, and Experian. The first tip I recommend is freezing credit with all three companies, which will prevent someone from opening new credit in your name. The second tip is regarding credit history. Fifty percent of credit score is
The Cost of College and How to Pay for It - Part 2, Ep #16
Jun 15 2022
The Cost of College and How to Pay for It - Part 2, Ep #16
This episode of the One for the Money podcast is part two of this month’s series on the cost of college and how to pay for it. In the last episode, I talked about the rising cost of college and student loans. This time, I will share information about the 529 college savings account. Listen to learn some strategies to make the most of your money investing in your loved one’s college expenses.In this episode...What is a 529 account? [03:13]Creating a legacy of education [05:20]Navigating college funding [10:00]Determining what your family can afford [12:18]Prioritizing retirement [16:21]More than meets the eyeA 529 account is a phenomenal investment vehicle to help pay for college. These investments are made with after-tax money, so taxes don’t have to be paid again when the money is used for qualifying college expenses. These qualifying expenses include tuition, fees, books, computers, and even room and board. While the general strategy of a 529 seems straightforward, there’s much more than meets the eye regarding what you can do with them. One of the most powerful wealth transfer vehicles available to the American public is the 529. Any relative, friend, stranger, or even yourself can be named on the account as a beneficiary. While most people invest in a 529 for children, you can also use these for yourself. If one of your goals in retirement is to go back to school, you can start saving now to have tax-free funds to help offset that cost.When to save for college We all want our kids to graduate from college so that they have a better chance of higher-paying jobs and are less likely to be unemployed. So we must be careful how we go about paying for college. Please know that as a parent, you should only contribute to your kid’s college savings after you have an established emergency fund, no high-interest debt, and you are on track for retirement. Of course, your kids would love for you to pay for their college. Still, they’re less enthusiastic about parents moving in who weren’t retirement ready! Additionally, it seems kids study a bit harder when they know they’re paying for a portion of their education. The college funding mazeThere are many factors to consider when it comes to navigating college funding. While a 529 is a tremendous help, it’s only part of the financial strategy. One of the first things to consider is which college is affordable. As I mentioned in the last episode, colleges will charge you based on what they believe you can afford. Colleges look at parents’ and students’ assets and income to determine what you will be able to pay for college. So it’s essential to understand what colleges think you can afford. Similarly, families need to determine how much they can realistically afford. Far too many people don’t look at the calculations available to them. The college application process itself can take the majority of a family’s attention, and understandably so. Unfortunately, too many achieve their college dream by graduating from a particular university, only to end up having a student loan nightmare as a result. They’re saddled with student loan debt and can’t begin saving for retirement, so they miss out on years of compound growth. This conversation needs to happen long before your children receive an acceptance letter. It’s much more challenging to have this conversation after they’ve been accepted, particularly if the school is one they want to attend.Resources & People MentionedThe Cost of College and How to Pay for It - Part 1, Ep #15FAFSA® Application |...
The Cost of College and How to Pay for It - Part 1, Ep #15
Jun 1 2022
The Cost of College and How to Pay for It - Part 1, Ep #15
June is the graduation season, so the episodes airing this month will focus on the cost of college and how best to pay for it. This episode of the One for the Money podcast focuses on your ability to pay for the college education of your loved ones effectively. Listen until the end when I share a great resource to help you further understand the expense of college and additional options on how to pay for it.In this episode...The magnitude of student loans [02:14]College costs more now than ever [05:22]Be careful with your choice of college [08:25]Understanding the cost of college [12:52]Preparing for college financiallyMy wife and I can’t believe how quickly time has passed. Our oldest son is going into high school this fall, our middle son is going into middle school, and our youngest is starting the second grade. Sooner than we realize, my wife and I will begin working on their applications to college, which is a daunting project. If the college application process isn’t complicated enough, paying for college is an equally important and complex matter. Our focus on the costs of college has increased for a good reason. The current level of student loan debt in the United States is $1.7 trillion. In fact, student loan debt is the second-highest consumer debt category behind only mortgage debt and is higher than both credit card debt and auto loans. These debts have a chance of leading to a future of financial crisis. The forgiveness of student loan debt may feature in the midterm elections. The government has already deferred interest, which has cost America over $100 billion.The increasing costs of collegeThe cost of student loans has increased at twice the rate of inflation since 1983. The usual suspect is good government intentions to make schools more affordable. Despite the good intentions, these student loan programs caused a significant rise in tuition because the supply and demand mechanism became broken. Typically, prices are relatively held in check because consumers can’t afford steep increases. However, when people can borrow more and more money, tuition increases, and the federal government guarantees these loans.College Planning EssentialsThere’s a fabulous resource to help you further understand the cost of college and how to pay for it. College Planning Essentials is a resource provided by JP Morgan with a tremendous amount of relevant data. This tool provides the starting salaries achieved from certain degrees, with computer science having the highest starting salary, followed by engineers. It would seem that the STEM programs are great for future earning potential. This resource also provides intriguing facts about athletic scholarships and what they cover, which isn’t as much as you might think.College Planning Essentials also provides a breakdown of expected family contribution. That’s a formula that colleges use to determine how much they will charge you. Unfortunately, the sticker price at a college isn’t the same for all families and instead is based on expected contributions. The resource compares various college saving vehicles, the benefit of 529s, and a host of other information. Check it out to learn more about the expense of college and how you can make well-informed decisions about those costs.Prior to investing in a 529 Plan, investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.Resources & People Mentioned
Financial Planning is Personal, Ep #14
May 15 2022
Financial Planning is Personal, Ep #14
Many people struggle with finances, and it’s heartbreaking to see. In this episode of the One for the Money podcast, I share my personal experience with what happens when there is no financial plan. Financial literacy and education are critical life skills that can benefit us all. Listen in, and at the end, I’ll share a tip regarding calculating your net worth and why you’d want to do that.In this episode...The power of financial planning [01:07]Financial family dirt [02:44]Good things through good planning [04:01]The effect of not having a plan [07:15]Better life through better planning [08:01]Determining your net worth [09:45]More choices, less stressFinancial planning is powerful. However, when it is absent, huge problems occur. I’ve experienced this reality in some unfortunate events in my own family. Many of my own family needlessly struggle because they failed to plan financially. My family and others didn’t plan financially because they didn’t know what to do or where to start. Because of that, I’m a huge advocate for financial literacy and education. I started a blog and podcast to provide this information from my perspective.How much wealth a person accumulates is not an index by which we measure success. However, planning done right can provide a life of less stress, more choices, and better experiences, regardless of income. Marriages are stronger, retirement is better, and you can visit more of this beautiful world. Life turns out way better when you have a plan.Spreading financial literacyMy mission is for people to have a better life through better planning. Through my podcast and blog, you’ll learn how to plan better so you can live better. The financial world can be confusing, but I hope to make it much more understandable. That’s a significant reason many people don’t plan financially very well. Fortunately, there are many ways today to learn what one can do to prepare better. Many financial planning professionals can provide excellent guidance. As I mentioned, I’m a huge advocate of financial literacy education. Each summer, I conduct a webinar on the financial fundamentals of building wealth, which I teach to high school graduates and college students. I also teach a financial literacy class in the community for those who need it most. Charles Schwab conducted a survey that proved that those who plan have better outcomes. The survey also showed that having a written financial plan leads to better money behaviors.Know where you arePart of putting together a financial plan is calculating net worth. My clients are often surprised regarding their net worth. That surprise is primarily positive because people had no idea they had that much net worth. This knowledge changes my conversation with clients because we can discuss things like early retirement or other goals they want to achieve. It’s necessary to have a gauge and understand where you currently stand financially. With a net worth worksheet, you can figure this out. After calculating your total assets, you’ll assemble all of your debts. It’s important to look at the interest rates on debts to ensure that you’re trending more positively and that your net worth grows with time. Calculating your net worth helps you know what actions you need to take to reach your goals.Resources & People MentionedInvestopediaFinancial Planning is Personal — BetterPlanning.BetterLife.5 Ways Financial Planning Can Help |
The Psychology of Money, Ep #13
May 1 2022
The Psychology of Money, Ep #13
In today’s episode, I’ll be sharing thoughts from a personal finance book that I read last summer. Morgan Housel, a former columnist at The Motley Fool in the Wall Street Journal, wrote the book entitled The Psychology of Money. In it, he shares the idea that intelligence isn’t what makes someone good with money; behaviors are what play the most significant role. Listen to learn what these behaviors are and how you can benefit from them.In this episode...Intelligence vs. behavior [01:13]Investment bias [05:41]What is happiness? [08:26]Lessons from a gerontologist [09:39]Lifestyle and budgeting [12:01]Behaviors make the differenceIn 2020 Morgan Housel wrote a book called The Psychology of Money. The book’s premise is that doing well with money has little to do with how smart you are and a lot to do with how you behave. If a genius loses control of his emotions, that can create a financial disaster. The opposite is also true. Ordinary people without financial education can become wealthy if they have a handful of behavioral skills. Someone who makes a lot of money can be poorer than the man sweeping floors. The difference comes down to lifestyles and how they utilize what they have.Emotional financesHealth and money are two things that impact everyone. Despite this similarity, we’ve seen a divergence in the outcomes. While health has improved for centuries and made remarkable advancements in improving people’s lives, financial advances haven’t. The extensive research hasn’t made us better investors or savers because money is far too emotional. A consumer finance survey found out that people’s lifetime investment decisions are heavily anchored to their experiences in their generation, especially experiences in early adulthood. If inflation was high, people invested less in bonds throughout their lifetime. If the stock market was strong, they invested more in stocks. That was true for me because I started investing in the late 90s at the start of the dot-com era. I still invest heavily in stocks, albeit differently than I did then. Before, I purchased single stocks hoping they’d outperform. Now I use evidence-based research and invest in broadly diversified portfolios. Prioritizing expenses and reducing wastePeople strive to get a couple of percent higher returns. Meanwhile, what they could benefit from is reducing lifestyle bloat. The tip here is to review expenses regularly to see if they make sense. According to a recent study, adults in the US spend nearly $1,500 a month on non-essential items. That’s roughly $18,000 a year on things we probably don’t need. That’s a lot of money, considering how much Americans are letting their savings and other crucial goals fall by the wayside.The same study found that 58% of people believed that there were important things they were unable to afford, including retirement savings and life insurance. There’s nothing wrong with enjoying a few luxuries here and there to make life enjoyable. But unfortunately, Americans are spending a small fortune on things that take away their opportunity to save for the future or protect their families with life insurance. The good news is that examining our budgets and reducing waste will help us prioritize those important things for our families and us.Resources & People MentionedThe Psychology of Money: Timeless lessons on wealth, greed, and happinessWhen it Comes to Early Retirement - Start with Why, Ep #1
The Ticking Tax Time Bomb in Your Retirement Account, Ep #12
Apr 15 2022
The Ticking Tax Time Bomb in Your Retirement Account, Ep #12
How much of your retirement will be available to spend? Most Americans aren’t aware of the ticking tax time bomb in their retirement accounts. In this episode of the One for the Money podcast, I share ways you can get the most out of your retirement investments. Listen to learn strategies to overcome the uncertainty of future taxes.In this episode...The ticking time bomb [01:04]Roth conversions [05:48]The benefits of being tax diversified [09:09]Reasons not to consider Roth conversions [10:38]The importance of rebalancing [11:54]Future taxes and retirement accountsThe vast majority of retirement accounts held by Americans are in the form of traditional IRAs and 401. Contributions to these accounts are pre-tax, meaning that future politicians will determine the amount left to spend in retirement. So, in a sense, these retirement accounts are co-owned with Uncle Sam. While we can’t predict what taxes will be, I can think of 30 trillion reasons why taxes could be raised. The U.S. Debt Clock online has interesting information highlighting U.S. debt ratios, the largest budget items, and other fascinating census type data. These references to the deficit and taxes aren’t an endorsement or criticism of any political party. The reality is that these factors affect everyone, and we need to prepare as best we can.Taxes can go in one of three directions: lower, higher, or stay the same. In 2022, taxes are at historic lows, so many don’t believe there’s a risk of lowering taxes. Meanwhile, deficit spending has never been higher. Therefore, you will want to be proactive in your approach to when you pay income taxes.Becoming tax diversifiedWe can approach the unknown of future tax rates by becoming as tax diversified as possible. Otherwise, tax rates may determine your lifestyle in retirement because of the amount you’ll have remaining to spend. Americans have two options. They can either hope that taxes will be lower in the future, or they can implement strategies via a plan to become tax diversified. Roth conversions can be the most powerful way to reduce future taxes when the conditions are right. They work just as they sound by converting portions of not yet taxed accounts to an already taxed account, also known as a Roth. There are no income limitations on these conversions. Remember that income taxes will be paid in the year of conversion, so Roth conversions make the most sense in years where your income is lower. Because of the many factors involved, I recommend you speak with a certified financial planner and a CPA about this before trying it out on your own.Rebalancing investmentsRebalancing is when adjustments are made to investments to bring them back to specific ratios. This adjustment is made when part of your investments do better than others, causing the ratio of your portfolio to change. Rebalancing would sell a percentage of an investment and reinvest that to achieve the intended ratios. Many of my clients rebalance investments quarterly. This strategy was beneficial during the so-called COVID correction. The stock market had hit a low in March, just before rebalancing. This dip meant we sold investments and reinvested them into the stock market at much lower prices. While we were fortunate in the timing, it doesn’t lessen the positive impact rebalancing had on the rest of the year.This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions...