Ep 47: Understanding Financial Jargon: Investment Terms You Should Know

On This Episode

There are some important terms you’re going to come across as you prepare for retirement. Having a basic understanding of these will help you achieve financial success, so we’ll cover what they mean and what you should know on today’s episode. And don’t worry. We won’t go quite so far down the rabbit hole where we expect you to be able to explain how a company’s P/E ratio meshes with it’s Alpha and Beta ratings to determine how much stock you should buy.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Mark: Hey everybody welcome into the podcast. Thanks for hanging out with John and Nick and I, as we talk about Retirement Planning Redefined here on the podcast. As always, don’t forget to subscribe to us on whatever platform you like to use. Find all the information you need at pfgprivatewealth.com. That’s the guys website pfgprivatewealth.com. Lot of good tools, tips, and resources to be found there. We’re going to have another conversation today about some financial jargon. This is more kind of investment terms you might want to know or have heard and maybe you want to get a better understanding on, especially if you’re sitting down and you’re shopping for a professional or something like that. You want to kind of understand some of these things that you’re talking about. Now we’re not going to go super deep. We’re not going to get into PE ratios and alphas and betas and all that kind of stuff, but we’re going to keep it kind of high level. So we’ll jump into that this week on the podcast, Nick, what’s going on, buddy? How you doing?

 

Nick: Pretty good. Pretty good. Staying busy. We’re recording this, just kind of closing up tax season. So happy that that is over for-

 

Mark: I bet.

 

Nick: Everybody that is at least not filing an extension.

 

Mark: Yeah.

 

Nick: But yeah, it’s obviously a lot going on in the world. So it’s been keeping us pretty busy.

 

Mark: Yeah that’s true. Very true. John, what about you buddy? You glad tax season’s over?

 

John: Yeah. Yeah. It’s a fun kind of hump to get over.

 

Mark: I like that little pause. It’s fun. Yeah.

 

John: Yeah. So, no, it’s good. It’s kind of a mark that people have on their calendar, so that’s over with, and really we start to kind of get busy afterwards.

 

Mark: Yeah.

 

John: Because a lot of people kind of delay meetings until after tax season, so excited to get back at it. And then also excited that NBA playoffs started. So Boston Celtics are playing the Nets right now.

 

Mark: Alright now, there you go.

 

John: Gearing up for that, so-

 

Mark: There you go. Very good. Well we probably should have done a show really on tax planning versus tax preps right after tax season because really tax planning is something you should be doing all year long with your retirement professional anyway, but we’re not going to do that this week. Maybe we’ll do that here in the next couple of weeks, we’ll come up and do something.

 

Mark: But for now let’s talk about some terms that people hear and probably should know. Maybe you know, maybe you have that kind of cursory high level view, whatever the case might be. Maybe you don’t. So let’s talk about a few of these. Let’s kind of start with fiduciary guys. And this is a term that I think people should know. They should know what it is. I kind of wish, and I was thinking about this before we started that our politicians had to do what fiduciaries have to do, right? They have that legal, moral, ethical responsibility to do what’s right for their client AKA us as American citizens. I wish our politicians had to be fiduciaries, but either way explain what it is and maybe a little bit of the difference between that and like suitability.

 

John: Yeah. So fiduciary, especially in our world’s investment advisor, it’s where the fiduciary is obligated to put the client’s best interests ahead of their own. So really looking to do what’s best for the client, regardless of any other factors. And what you mentioned there with as far as, how does that compare to suitability, where kind of like a broker has to recommend something that’s suitable for the client, so there’s a big difference when you start to kind of analyze that is something might be suitable for you, but it might not be the best thing for your situation.

 

Mark: Right.

 

John: Or maybe there’s other things out there that are better. So fiduciary has the due diligence and say, “Hey, I’m making this recommendation. And based on my expertise, my knowledge, everything I’ve compared it to this is what I believe is the best for you.” And also if there’s any conflict of interests for the advisor as a fiduciary, they must disclose that to you upfront.

 

Mark: Yeah.

 

John: So one thing, what people really need to do when they’re interviewing advisors or kind of taking that step to try to find someone to work with, it’s really one of the first questions should be asking. I’d say the good thing is the industry is really going in this direction-

 

Mark: Mm-hmm (affirmative).

 

John: Over the last, decade or so. It’s really been kind of going, fiduciary, fiduciary, so that’s.

 

Mark: Making that the standard, making it more the standard?

 

John: Yeah. Yeah, no, I think that’s a great point. So if I’m getting this right, then maybe to kind of break this down for people, and Nick feel free to chime in, but so if there’s three options available, suitability would say, “Hey, any of these three technically work for my client, but this one actually pays me better or there’s a reward of a trip or something like that attached to it.” You’re not doing the wrong thing by picking that. It’s still suitable. Whereas a fiduciary has to go with the absolute best thing for the client period. Is that a fair way to break that down in layman’s terms?

 

Nick: Yeah, I think that’s a pretty fair way to kind of break it down and it can get tricky because when you really get into the nitty gritty in theory, people can argue about what’s better now versus what might be better down the road and that sort of thing.

 

Mark: Right.

 

Nick: But if anything, I think what’s important for people to understand is the conflicts of interests, the potential conflicts of interest and where they come from. So, if you’re working with an advisor that is tied in with a parent company that has proprietary products, then they’re probably not able to function as a fiduciary. So-

 

Mark: Gotcha.

 

Nick: Understanding that there’s a conflict of interest, a potential conflict of interest, there is just something that people should ask about so that they understand it. It can be from experience just kind of chatting with people. It can get a little overwhelming for people to kind of really drill down understanding the difference between fiduciary and standard versus a suitability standard. But people oftentimes understand conflict of interest. And just to kind of piggyback a little bit on your short little rant earlier about politicians, many people would be shocked to know that many politicians are able to invest in companies even though there may be conflicts of interests.

 

Mark: Yeah.

 

Nick: And the fact that’s able to happen. And there’s some websites that track those sort of things, but oftentimes they’re privy to information that will impact a company in the marketplace and they’re able to take advantage of it even though, the rest of the country can’t do that, so-

 

Mark: Yeah, I was just even talking financially. In just their basic decision making when they pass laws.

 

Nick: For sure. For sure. But that’s a good example of them not passing laws that-

 

Mark: True.

 

Nick: Aren’t good for everybody.

 

Mark: Well and to John’s point, so there’s nothing wrong with asking, right? When you go in and sit down with someone, you just say, “Hey, are, are you a fiduciary?” Right? That’s a fair question, and there’s nothing wrong with asking that.

 

Nick: Agreed.

 

Mark: Yeah. Okay. All right. So let’s move on to the other big term right now that everybody’s getting hit over the head with, on a regular basis, and that’s inflation. At the time we’re doing this podcast guys, the CPI numbers came out a couple of weeks ago for March, pretty ugly. Gross is a term that has been thrown around quite a bit some of these numbers, 8.5% on the inflation, we’re talking what 48% on gas, 35% up on used cars, food 13 to 17% up. So inflation break it down a little bit.

 

Nick: Yeah. So inflation has to do with spending power of money. And so one of the easiest ways for people to kind of think about it is, you mentioned food for example, one of the things that we kind of joke around with people is they were able to a couple years ago, do you remember when you could walk out of Publix and get everything you needed for 70, 80 bucks versus it now costing 100, $120 for the same amount of stuff. And the tricky thing with inflation is that it’s there on a consistent basis year to year, but every 10 to 15 years, it kind of creeps up on us. And then we realize, Hey, this is kind of annoying.

 

Nick: And then obviously we have times we’re in right now where there’s some hyper inflation and kind of pocket books are getting hit. The one thing that I would say just to kind of pour some water on it is that although there are some real substantial issues that people are dealing with, there are some kind of, I guess, what we would almost call acute factors that are having an impact on it, that we would hope subside to a certain extent within the next year or two. But also there are going to be ramifications that we’re already starting to see where the FED is doing things to try to combat inflation, like increasing interest rates, which we’re kind of already on the docket, but has been getting pushed down. The cans been getting kicked down the road for a while.

 

Nick: And so things like mortgages, mortgage rates are now I think mid fives I read, whereas a year ago, closer to three. And I was just having a conversation with somebody to kind of put that in real world numbers. A half a million dollar mortgage at rates a year ago, a half a million dollar financed amount is from a monthly payment standpoint is equivalent to around 370,000 now, or if you look at it inverse half a million dollar mortgage at current rates is going to cost you around $700 a month more than it was a year ago. So that’s going to have a real impact on housing prices and a lot of other things as well. So those are some real world examples of how inflation kind of impacts our life.

 

Mark: All right. So yeah, obviously we’re hyper aware, we’ve talked about it before a little bit, but inflation we always kind of think of, at least I do it anyway, like calories, right? We know it exists and we don’t often put a lot of thought into it until it’s slapping us in the face, so to speak. And it’s definitely doing that right now, so a lot people very concerned about that. So when we are talking about that, what happens is you start thinking, well maybe I should take a little more risk or whatever the case is with my portfolio to try to outpace inflation or keep up with it or whatever the case is, especially in these crazy times. So that leads us into risk tolerance guys. So what is your risk tolerance? And is that a wise move to try to take on more risk to combat something? Usually it’s not.

 

John: No, it’s not. And this is one of the most probably important things in building a portfolio that someone should really take a look at, and it’s often overlooked. So risk tolerance is, to kind of bring it down to the simplest form is how much loss is an investor willing to take in their portfolio? How much volatility can they tolerate? So one of the things that we do when we are building a portfolio for our clients, the first thing actually is we have them go through a risk tolerance questionnaire to determine, are they conservative, moderate, aggressive? And from there we really help us design the portfolio so that way we can kind of match up the expected volatility of the portfolio with kind of what they could bear.

 

John: Because one of the worst things you could do investing is jumping around. And I hate to say it seeing a little bit right now I’ve already kind of feel a few phone calls I’m like, hey what should we do with the market? And if this volatility’s already got you nervous and it hasn’t really, it’s been a pullback but it hasn’t been anything too significant.

 

Mark: Right.

 

John: You really need to take a look at am I invested correctly because as we all know, as you shift to conservative or to cash, and then the next week the market just rally up and all of a sudden you just lost all. You realized your losses and didn’t get to recover from it.

 

Mark: Yeah, knee jerk reaction is not the best right now. Right?

 

Nick: Yeah. And I would even jump in with that too going along with what John said where I think we have hit that point where people have forgotten what it’s like to have bad markets, or even a normal market cycle of having a negative year. Even during COVID when the markets pulled back, 35, 40%, they bounced back by the end of the year. So it was never really realized. There was a short period of panic, but the recovery was quick, but.

 

Mark: Mm-hmm (affirmative).

 

Nick: There’s a lot of people that don’t remember that hey, there are going to be years where the market is down 10% for the year, the whole year. 12 whole months, so that’s something that’s interesting that’s happening right now that we’re seeing. Plus, historically where people would shift would be to fixed income or bonds. And that’s not necessarily a safe place right now, either. So we’re kind of in this, almost unicorn phase that only comes along every 50 or 60 years where there’s not a lot of opportunities in many places. And so there’s going to definitely have to be some patience involved-

 

Mark: I like that.

 

Nick: In the next 12 to 18 months.

 

Mark: Yeah. I like the unicorn phase. That’s a good way of putting it. It’s definitely been interesting, that’s for sure. So do you guys kind of with the risk tolerance, is it kind of that number kind of system? Do you guys do that risk tolerance kind of thing where you kind of give someone almost like sleep number, if you will. If you’re 100 or if you’re a 20, how does that work?

 

John: Yeah. So how we do it and I’ve used actually some programs that do that. They give you a risk number based on how you answer questions. We have a set of some pretty good questions that give us an idea of what that person can kind of stomach.

 

Mark: Okay.

 

John: And what their expected return is. It’s really, when you start to break it down, it’s a lot of the same questions just asked differently to really kind of understand how the person ticks.

 

Mark: Yeah.

 

John: So we do a real good job of figuring that out. And then as advisors, part of our job is to make sure we put them in the appropriate portfolio based on how they answer.

 

Mark: Yeah. Because it’s pretty easy to say conservative, and you go, what does that even mean? Right? Or I’m moderate.

 

John: Yeah.

 

Mark: Well what does that mean? That’s probably a wide window, right?

 

John: It is.

 

Nick: Yeah. And then I would say one of the things that without it sounding like a commercial for ourselves, one of the things that we do that’s a little bit different than some places that we do have what’s called like a tactical tilt to how we manage money, where if we do have significant concerns, we will tamp down the risk. So maybe if somebody’s normally in a portfolio that’s a 50/50 mix stock to bond and what we would consider a moderate portfolio, if we have significant concerns in the market, we may drop them down to 30% on the stock side of things in certain cycles where we have high concerns. So sometimes what we found is that helps allay some fears for some people that there’s some proactive potential changes, where if we really feel like it’s going to hit the fan, we will make that change.

 

Mark: Right. Okay. So risk tolerance, another big one then definitely making sure that you’re having that proper risk tolerance for yourself, especially in these inflationary times. When it becomes, it’s hard to not feel, I think as humans, we feel like if we don’t do something, we’re doing something wrong or we have to take action or therefore we’ve made a mistake. And sometimes doing nothing can be a smart move. Especially in volatile times when it comes to a financial standpoint, if you don’t know the correct answer, making no move might be a good place to start at least. That way you’re not having that knee jerk reaction. And then of course, talk with a professional. Get some advice, and get a good strategy in place so that you know the right moves to make at the right time. Let’s do another one here, guys, another technical one, dollar cost averaging, what is that?

 

Nick: So dollar cost averaging is the easiest example that most people have exposure to on a regular basis. And they don’t probably realize that they’re doing it is when people are contributing to their 401k. So every two weeks, a certain amount of your paycheck goes into your 401k and you have a set allocation and you are buying in to that allocation at whatever price it’s at that point in time. So the thought process with dollar cost averaging is that you are balancing, you’re investing over a period of time. Where sometimes you’ll be buying at a premium, sometimes you’ll be buying at a discount, but the objective is to continually invest and make sure that you are not trying to time the market.

 

John: And part of that is also what we’re finding with the current market where it’s at, with people with money on the sidelines, it could be a good way to kind of take some of the risk of putting all your money into the market and all of a sudden it dropping. So there’s a strategy to basically say every, if I have 100,000 I want to put into the market every month or so, I’m going to be putting in 10 grand into it. That way, if it does dip down immediately, I only have $10,000 at risk. So dollar cost averaging, as Nick mentioned, most people are doing the 401k, not knowing it, but if you have money on the sideline in a volatile market, or if you’re nervous, it is a good way to kind of get money that was on the sideline into the market.

 

Mark: Okay. All right. Well let’s do one more guys and we’ll wrap it up this week. Asset allocation, another big term we hear. We probably get that tossed around a little bit. Give us the kind of high level view of what that is. And because often I think people wind up feeling like they have a whole bunch of one thing and they’re diversified because they’ve, I don’t know, for example, I’ve got a whole bunch of mutual funds, so therefore I’m good. So explain what asset allocation is and is that correct? What I just said, is that really diversified or not?

 

John: Yeah. So asset allocation’s kind of taken diversification to a different level. You could have seven different mutual funds, but if it’s all the same type of funds, for example, like a large cap growth fund, they’re going to do the same thing in reality when the market goes up or down. So when you do asset allocation, you’re spreading your money, your portfolio within different asset classes, such as large cap stocks, small stocks that Nick mentioned, fixed income earlier, cash, some alternatives.

 

John: So what you do there is when you’re building a portfolio and again, starting with your risk tolerance and your goals, you determine, hey my risk tolerance is X, here’s my goals. I should be in a, let’s just call it in income in growth portfolio. Well, what’s the right mix of asset classes to make that work and to kind of bring it down to layman’s terms here? Imagine kind of cooking, you’re making recipe for a pie. The pie has certain ingredients to make it work and make it taste good. And that’s basically what you’re doing in your investments. It could be 20% large cap, 5% small cap, 20% fixed income, and our job as advisors and wealth management is we build that portfolio for the client if they hire us to do so.

 

Mark: Gotcha. Okay. All right. That’s a good way of breaking that down. You just think about like a pie. So, and who doesn’t love pie? So there you go. All right guys, thanks so much for the conversation this week. Good stuff talking about these technical terms, some jargon here. Hopefully we kept that pretty high level and it helped out with some of the things that you might be thinking or hearing. And if you’ve got questions, definitely reach out to the guys.

 

Mark: As always, before you take any action sit down. If you’re already working with them, maybe share this podcast with someone who might benefit from it. If not, if you’ve been listening for a while, just reach out to them, have a conversation, and chat with them for yourself. You can find all of it at pfgprivatewealth.com. That’s their website pfgprivatewealth.com. They’re financial advisors at PFG Private Wealth, which makes a lot of sense. So make sure you subscribe on Apple, Google, Spotify, all that good kind of stuff. That way you can catch past episodes as well as future episodes. For John and Nick I’m your host, Mark. We’ll catch you next time here on Retirement Planning Redefined.

Ep 46: The Most Important Birthdays In Retirement Planning

On This Episode

There are certain age milestones where you should really pay attention to your retirement planning progress. On this episode, we’ll look at the most important birthdays as you approach retirement and cover the exact things you should be checking off your to-do list at each age.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Mark: Hey, everybody. Welcome into another addition of the podcast. This is Retirement Planning Redefined, with John and Nick and myself, talking investing, finance, retirement, and birthdays.

 

Mark: We’re going to get into important birthdays in the retirement planning process. As we get older, I don’t think any of us really want birthdays, but these are some things we need to know. They’re pretty useful. Some of this is pretty basic. Some of this stuff’s got some interesting caveats in it as well. So you might learn something along the way. It can go a long way towards that retirement planning process.

 

Mark: We’re going to get into that and take an email question as well. If you’ve got some questions of your own, stop by the website, pfgprivatewealth.com. That’s pfgprivatewealth.com.

 

Mark: John, what’s going on, buddy? How you doing?

 

John: A little tired. Got woken up at 2:00 in the morning with two cranky kids.

 

Mark: Oh yeah.

 

John: So if I’m a little off today, I apologize.

 

Mark: There you go. No, no worries. You get the whole, they climb the bed, and then you’re on the tiniest sliver?

 

John: I got one climb into bed, I think kicked me in the face at one point.

 

Mark: Oh, nice.

 

John: Another one climbed into bed missing out on the other one, because they share a room. Then I had the sliver. I woke up almost falling off the bed.

 

Mark: There you go. And usually freezing because you have no blankets.

 

John: Yeah, yeah.

 

Mark: That’s usually the way it goes. Nick’s sitting there going, “I don’t know what you guys are talking about.”

 

Mark: What’s going on, buddy. How you doing?

 

Nick: Yep. No. Pretty low maintenance over here.

 

Mark: Well, that’s good. Hey, don’t you have a birthday coming up?

 

Nick: I got a couple months still.

 

Mark: Okay, a couple months.

 

Nick: Yeah, I just got back from a trip a few weeks ago. Some buddies that I grew up with, a group of us have been friends for a really long time, I guess, going back to middle school. We’re all turning 40 this year, so we rented a house in Charleston, and all survived.

 

Mark: Nice. There you go.

 

Nick: Yeah. It was good.

 

John: This is how you know Nick’s turning 40. He came back with neck pain.

 

Mark: Exactly.

 

Nick: Yeah.

 

Mark: Hey, when you start to get a certain age, you start going, “When did I hurt that?” It’s like, “I didn’t even do anything.” Yeah. You don’t have to do anything.

 

Mark: Well, you know what? That’s a good segue. Let’s jump into this.

 

Mark: We’re going to start with age 50. I turned 50 last year. First of all, the thing that sucks is you get the AARP card. I don’t know about all that. That’s annoying as a reminder that you’re 50.

 

Mark: But the government does say, “Hey, let me help you out a little bit here if you need to catch up on some of the retirement accounts, help building those up.” Talk to me about catch up contributions, guys.

 

Nick: Yeah. Essentially what happens is when you hit 50, there’s two types of accounts that allow you to start contributing a little bit more money. The most basic one is an IRA or a Roth IRA, where the typical maximum contribution for somebody under 50 is 6,000 a year. You can add an additional thousand to do a total of 7,000 a year. The bigger one is in a 401(k) or 403(b) account, where you’re able to contribute, I believe it’s an extra 6,500 per year.

 

Nick: This is also a good flag for people to think about where, hey, once that catch up contribution is available, it’s probably a good time, if you haven’t done any sort of planning before, to really start to dial in and understand your financial picture a little bit more. Because if you talk to anybody that’s 60, they’ll tell you that 50 didn’t seem too far back. So that’s a good reminder to dig into that a little bit.

 

Mark: Yeah. It adds up. It’s not necessarily chicken feed. You might hear it and think, “Well, a thousand dollars on this type of account over a year, or 6,500 on the other type of account, whoopedidoo.” But if you’re 50 and you’re going to 67, let say, for full retirement age, and we’ll get to that in a little bit, that’s 17 years of an extra seven grand. It’s not exactly chicken feed, right?

 

Nick: No. It’s going to be big money down the road.

 

Mark: Yeah, exactly. So that’s 50.

 

Mark: John, talk to me about 55. This one’s really similar to 59 and a half, which most of us are familiar with, but most people don’t understand the rule at 55. So can you break that down a little bit?

 

John: Yeah. We don’t see people utilize this too often, but an example would be let’s say you’re 50, 55, 56, and for whatever reason, you leave your current job. You have an opportunity, at that point…

 

John: Let’s give a bad scenario. You get laid off. If you didn’t have a nest egg saved up in savings, there’s an opportunity to actually access some money from your 401(k) plan without penalty. What you’ll do is, basically, you take the money directly from the plan, and you just have it go to your bank account, and the 10% penalty’s waived.

 

John: Now, some people need to be careful with this. Once you roll it out to an IRA, this 55 rule here, where the 10%’s waived, ceases to exist. It has to go from the employer plan to you directly in that situation. It’s a nice feature if someone finds themselves in a bad situation, or they need access to money, and the 10% penalty’s gone, but you still have to pay your income tax on that money [crosstalk 00:05:03]

 

Mark: Of course. Yeah. That caveat being, it’s only from the job that you’ve just left, right? It can’t be from two jobs ago kind of thing. It’s got to be that one that you’ve just walked away from, or been asked to leave, or whatever the case is. That’s that caveat.

 

John: Correct.

 

Mark: It’s basically the same rules, Nick, as the 59 and a half. It’s just is attached to that prior job. But 59 and a half is the more normal one. What’s the breakdown there?

 

Nick: Yeah. Essentially what happens is, at 59 and a half, you are able to take out money from your qualified accounts while avoiding that penalty without any sort of caveats. One thing to keep in mind is that usually you’re taking it out from accounts that…

 

Nick: For example, if you’re currently employed, the process of taking it out of the plan where you’re employed can be a little bit different, but it’s pretty smooth and easy if you have an IRA or something like that outside of the employer plan.

 

Nick: One other thing that happens in most plans, for people at 59 and a half, is, and we’ve seen it a bunch lately, where a lot of 401(k) plans have very restricted options in fixed income and those sorts of things, where most or many plans allow people to take inservice rollovers, where they’re able to still work at their employer, but roll their money out of the plan to open up some options for investments outside of the plan.

 

Nick: That’s not always the best thing for people. Sometimes the plans are great. Fees are really low. Options are great. So it may not make sense, but oftentimes people do like having the option to be able to shift the money out without any sort of issue.

 

Mark: Okay. All right. So that’s the norm there. You got to love that half thing. You always wonder what the senators or whoever was thinking when [crosstalk 00:06:56]

 

John: Finally, they got rid of the 70 and a half [crosstalk 00:06:58]

 

Mark: Yeah. They get rid of that one. Yeah. We’ll get to that in just a minute as well.

 

Mark: John, 62, nothing too groundbreaking here, but we are eligible finally for Social Security. So that becomes… I guess the biggest thing here is people just go, “Let me turn it on ASAP versus is it the right move?”

 

John: Yeah. So 62, you’re now eligible. Like you said, a lot of people are excited to finally get access to that extra income. You can start taking on Social Security.

 

John: Couple of things to just be aware of is, any time you take Social Security before your full retirement age, you will get a reduction of benefit. At 62, it’s anywhere, depending on your full retirement age, roughly 25 to 30% reduction of what you would’ve gotten had you waited till 66 or 67.

 

Mark: They penalize you, basically.

 

John: Yeah.

 

Nick: Yeah. Actually, if you do the math, it ends up breaking down to almost a half a percent per month reduced.

 

Mark: Oh wow.

 

Nick: Yeah. It really starts to add up when you think about it that way.

 

John: Yeah. We always harp on planning, so important if you are thinking about taking it early, once you make that decision, and after a year of doing that, you’re locked into that decision. So it’s important to really understand is that best for your situation.

 

John: Other things to consider at this age, if you do take early, Social Security does have what they call a earnings penalty slash recapture. If you’re still working and taking at 62, a portion of your Social Security could be subject to go back to them in lieu of, for a better term, [crosstalk 00:08:27]

 

Mark: It’s 19,000 and some change, I think, this year, if you make more than that.

 

John: Yeah.

 

Mark: Yeah.

 

John: Yeah. Anything above 19,000 that you’re earning, 50% goes back to Social Security. [crosstalk 00:08:36]

 

Mark: Yeah. For every two bucks you make-

 

John: 5,000 goes back to Social Security. So that’s really important.

 

John: Something that I just want to make, last point on this, is that earnings threshold is based on someone’s earned income, and it’s based on their own earned income, not household. That comes up quite a bit, while people say, “Well, I want to retire and take at 62, but my husband’s still working. Am I going to have a penalty if I take it?” The answer is no. It’s based on your own earnings record.

 

Mark: That’s where the strategy comes into play too. Because if you are married, then looking at who’s making more, do we leave one person’s to grow, as we’re going to get into those in just a second, to grow towards that more full number.

 

Mark: Again, that’s all the strategy. It may make sense for one person to turn it on early, and the other person to delay it. That’s, again, part of the strategy of sitting down and talking with a professional, and looking at all the other assets that you have, and figuring out a good move there.

 

Mark: Nick, let’s go to Medicare. 65 magic age.

 

Nick: Yeah. Actually, my dad turns 65 this year. So we’ve been planning this out for him. He is a retired fireman, so he has some benefits that tie in with his pension.

 

Nick: One of the things that came up, and just something that people should think about or remember, even if they are continuing to work past 65, is it oftentimes makes sense to at least enroll in Medicare Part A. You can usually enroll as early as three months before your birthday. The Medicare website has gotten a lot easier to work with over the last year or two.

 

Nick: Part A, the tricky thing is that you want to check with your employer, because usually what happens for the areas that Part A covers, which is usually hospital care, if you were to have to be admitted or certain procedures, it’s figuring out who’s the primary payer, who pays first, who pays second. So making sure that you coordinate your benefits. Check in with HR, if you’re going to continue to work.

 

Nick: If you are retired and are coming up on that Medicare age, make sure that you get your ducks in a row so that you do enroll. Most likely you’re going to start saving some money on some healthcare premiums.

 

Mark: Technically, this starts about, what, three months early? It’s a little actually before 65. I think it’s three months when you got to start this process, and three months before and after.

 

Nick: Yep. Yeah. You can typically enroll three months before your birthday, and then through three months afterwards. There can be some issues if you don’t enroll and you don’t have other healthcare, at least for Part A. There can be penalties and that sort of thing.

 

Nick: Frankly, with Medicare and healthcare in retirement, this is a space that we typically delegate out. We’ve got some good resources for clients that we refer them to, because there are a lot of moving parts, and it can be overwhelming, especially when you start to move into the supplements and Advantage plans, and all these different things.

 

Mark: Oh yeah. And it’s crucial. You want to make sure you get it right. A lot of advisors will definitely work with some specialists, if you will, in that kind of arena. So definitely checking that out when we turn 65.

 

Mark: Again, some of these, pretty high level stuff, some of this stuff we definitely know. But we wanted to go over some of those more interesting caveats.

 

Mark: Let’s keep moving along here, guys. Full retirement age, 66 or 67. John, just what? It’s your birthday, right?

 

John: It is your birthday. That’s the time that you can actually take your full Social Security benefit without any reduction, which is a great thing to do. Then also that earnings penalty we discussed earlier at age 62, that no longer exists. Once you hit your full retirement age, 66 or 67, you can earn as much as you want and collect your Social Security. There’s no penalty slash recapture.

 

John: When that happens, people have some decisions to make. If they’re still working, they can decide to take their Social Security. I’ve had some clients that take it, and they use that as vacation money. I’ve had some other ones take it, and they take advantage of maxing out their 401(k) with the extra income. Or you can delay it. You don’t have to take it. You get 8% simple interest on your benefit up until age 70.

 

John: So full retirement age, you got a lot of big decisions to make, depending on your situation. But you want to make sure you’re making the best for what you want.

 

Mark: Definitely.

 

Nick: Just as a reminder to people that that 8%, and you had mentioned it, but it does cap out at age 70. So there’s no point in waiting past 70, because it doesn’t increase any more.

 

Mark: Right. Thanks for doing that. It wasn’t on my list, but I was going to bring it up real fast. So yeah. People will sometimes email and they’ll say, “Hey, I want to keep working past 70. How’s that affect Social Security.” It’s like, “Well, you’re maxed out, so you got to just go ahead and get it done.” You can still work if you’re feeling like it. Your earnings potential is unlimited, but it’s just a matter of you’re not going to add any more to it. So I’m glad you brought that up.

 

Mark: John, you mentioned earlier, they got rid of the other half. Thank God. The 70 and a half thing, just because it was confusing as all get out. They moved it to 72.

 

Nick: Yeah. Required minimum distributions, as a reminder for people, are for accounts that are pre-tax, where you were able to defer taxation. 401(k), traditional IRA, that sort of thing. At 72, you have to start taking out minimum distributions. It starts at around 3.6, 3.7% of the balance. It’s based on the prior year’s ending balance. It has to be taken out by the end of the year.

 

Nick: An important thing for people to understand is that, many times, people are taking those withdrawals out to live on anyways. So for a lot of people, it’s not an issue at all. However, there are a good amount of people that it’s going to be excess income.

 

Nick: Earlier mentioned, hey, at age 50, really time to check in and start making sure that you’re planning. One of the benefits of planning and looking forward is to project out and see, hey, are these withdrawal going to cause you to have excess income at 72, where maybe we’re entering into a time that tax rates could be higher, tax rates could be going up, which is fairly likely in the next five to 10 years. So if we know and we can project that, then we can make some adjustments to how we save, should you be putting more money into a Roth versus a traditional, and how we make adjustments on the overall planning.

 

Nick: So making sure that you understand how those work, and then the impact that it has on other decisions to take into account for that situation, is a huge part of planning.

 

Mark: Definitely. Those are some important birthdays along the way. You got to make sure you get this stuff done. 72, there’s the hefty penalties involved if you don’t do that. Plus you still got to pay the taxes. All this stuff has some crucial moments in that retirement planning process, so definitely make sure that you are not only celebrating your birthday, but you’re also doing the right things from that financial and that retirement planning standpoint along the way.

 

Mark: Again, if you got questions, stop by the website, pfgprivatewealth.com. That’s pfgprivatewealth.com. You can drop us an email question as well, if you’d like. That’s what we’re going to do to wrap up the show right now.

 

Mark: We got a question that’s sent in from Jack. He says, “Hey, guys. I’ve thought about meeting with a financial advisor to plan my retirement, but I’ve never used a budget or anything like that before. So I’m wondering, should I budget myself for a couple of months before I meet with a professional?”

 

Nick: Based upon experience, putting expense numbers down on paper is one of the biggest hurdles for people to get into planning. But with how this question is phrased, I would be concerned, because it’s kind of like the situation of starting a diet. You start a diet. You’re going to eat really good for two to three weeks. You’re trying to hold yourself accountable. You’re functioning in a way that isn’t necessarily your normal life.

 

Nick: One of the things, as advisors, that we want to make sure that we understand are what are you really spending. It’s great to use a budget, but if you’re budgeting to try to look good in the meeting, which we’ve seen happen, you’re painting a false picture, and you’re not letting us know what the finances actually look like.

 

Nick: So I would actually say to put down the real expense numbers in place, let’s see what it really looks like, and then if we need to create a budget after we’ve created a plan, then that’s something that we can dig into.

 

Mark: Yeah. John, let me ask you, as we wrap this up, sometimes people associate seeing a professional financial advisor with a budget. Also, people have a cringe to the B word. They think, “Well, I don’t want to live on a fixed budget,” or something like that.

 

Mark: That’s not necessarily what we’re talking about, right? That’s not probably what Jack is referring to. He’s just trying to figure out, I guess, more income versus expenses, right?

 

John: Yeah, yeah. The first step is to analyze your expenses. That could be what he’s referring to as far as, “Hey, should I take a look? Should I get my expenses down before I meet with someone?”

 

John: I’d agree with Nick, even if that’s what you’re looking at, versus the budgeting, I would say no. I think the first step is sit down with an advisor, because they can assist in categorizing the expenses correctly based on today’s expenses, versus what expenses are going to be at retirement.

 

John: I think it’s important just to get going rather than trying to prep. Because we’ve seen a lot of people that have taken … They’ve been prepping for years to meet. That’s years where they haven’t done anything, and they’ve, unfortunately, lost out on some good opportunities, otherwise, if they just said, “Hey, I’m going to sit down first, see what’s going on.”

 

Mark: Yeah. It gives you that built-in excuse.

 

John: [crosstalk 00:18:26]

 

Mark: It gives you that built in, “Well, I’m not quite ready.” Well, you might never be ready if you play that game. Especially a lot of times when it’s complimentary to sit down with professionals, have a conversation. Most advisors will talk to you, no cost or obligations. So why not right? Find out. Just get the ball rolling. That’s the first step. It’s usually the hardest part too.

 

Nick: Yeah. One thing that we typically tell people is that we are not the money police. We are not here to tell you that you can’t use your money the way that you want to use it.

 

Nick: The way that we view ourselves, and what our role is as an advisor, is to help you understand the impact of decisions. Whether those decisions have to do with spending money, saving money, whatever, it’s to make sure that you understand the impact of your decisions so that you make better decisions. That’s it.

 

Mark: There you go. Yeah. It’s your money, at the end of the day, your call, but certainly having some good, well, coaches in your corner, if you will, advisors to help advise, that’s the whole point. But I like that. Not the money police.

 

Mark: All right. That’s going to do it this week, guys. Thanks for hanging out. As always, we appreciate your time here on Retirement Planning Redefined. Don’t forget. Stop by the website.

 

Mark: If you need help before you take any action, we always talk in generalities, and try to share some good nuggets of information, but you always want to see how those things are going to affect your specific situation.

 

Mark: If you’re already working with John and Nick and the team at PFG Private Wealth, fantastic. Then you already have a lot of this stuff in place. But if you have questions, or you’re not working with them, or you’ve come across this podcast in whatever way, or maybe a friend shared it with you, definitely reach out and have a chat. pfgprivatewealth.com. That’s pfgprivatewealth.com. Don’t forget to subscribe on whatever podcasting platform app you like to use.

 

Mark: We’ll see you next time here on the show. For John and Nick, I’m your host, Mark. We’ll catch you later here on Retirement Planning Redefined.

Ep 45: Planning For Things We Can’t Predict

On This Episode

There are certain things in life we just can’t predict. If we knew the answers to some of these questions, planning for retirement would sure be a lot easier. So let’s see how you go about constructing a plan that addresses the kinds of questions to which you can’t possibly know the answers.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Speaker 1: Hey everybody. Welcome into another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find them online at pfgprivatewealth.com. That’s p-f-g-private wealth.com, where you can check out a lot of good tools, tips, and resources, schedule some time with the team or subscribe to the podcast on whatever platform you like to use. And on the podcast us this week, we’re going to talk about planning for things that we cannot predict. There’s many things in life that are just out of our control, and we can’t predict. Yet, we somehow have to figure out a way to bring these things into the fold when it comes to our retirement strategies. And if we knew the answers, these things would be a lot easier to do, right? Just like saying, if we knew when we were going to pass away, you guys could build the greatest plan anybody’s ever seen, but we don’t come with a timestamp on us. So we have to figure out a way around some of these complicated questions and construct a plan that handles these, but also works with the unknown. So we’ll get into that in just a second, but what’s going on, Nick? How are you doing?

 


Nick: Doing pretty good. Thanks.

 


Speaker 1: Yeah, how’s the old puppy doing? I’ve got mine next to me right now while we’re taping.

 


Nick: Unfortunately she passed like a month ago.

 


Speaker 1: Oh, I’m sorry, buddy. I didn’t mean to do that.

 


Nick: It’s all right. Oh yeah, no, I don’t take it like that. I was going to say something earlier and then I just kinda left it, but yeah, it’s been a bit of a crazy month.

 


Speaker 1: I gotcha. I’m sorry to hear about that. It’s always rough when we lose our little furry friends there as well, but hopefully things will get better for you. And we’ll talk about something, you can’t predict that kind of stuff. Right? We’ll get into that kind of conversation here in a second. John, what’s going on with you?

 


John: Today’s topic is pretty fitting. I couldn’t predict that the house I bought had a loose AC drain and currently all the floors in my master bedroom and hallway ripped up. It’s going well, as well as can be. So we’re adapting to the renovations in our house currently. I just send Nick some pictures of it and he’s like, whoa.

 


Speaker 1: Oh, wow. Well, I put my foot in my mouth already to start the show, so we’ll get into it. But I guess that fits really well though with the over conversation is, because there’s a lot of things. I mean, life is unpredictable, right? Murphy’s law, whatever you want to subscribe to. And so we still have to somehow plan for some things, look at the state of the world, right? Who would’ve predicted 7.9% inflation rate, who would’ve predicted. What we’re seeing in the Ukraine and so on and so forth. So it all affects the financial side. So we’ll turn our attention there as we typically do. And a lot of times guys with what you do for a living, I imagine, and I talk to advisors all across the country when they meet people that do what you guys do for the first time, almost inevitably somebody goes, Hey, so when’s the next market crash, right? They kind of like you guys, somehow some know this magical information that when the next it crash is going to be, well, you can’t predict for that, John, but you still got to plan for being able to retire in any economy regardless of what the market’s doing.

 


John: Yeah. And this point I’m going to say, probably goes for all of these things we’re discussing today. Is you really want the flexibility to adapt for any, I don’t say any, a lot of situations that come up in retirement and one of those are, a market pullback or a crash, so things to put yourself in a pretty good position is, we kind of stress this, is having a decent cash savings. So if the market is crashing, you can rely on your cash savings for income during that period of time. So you don’t sell any of your losers and realize those losses. So there’s a lot of things you can, you can’t predict it, but you could definitely set yourself up in a situation where you can adapt to it, to put yourself in a good situation moving forward.

 


Speaker 1: Yeah. And as I mentioned on the last podcast, we were talking about the fact that we were dealing with overconfidence as one of the money biases. And the last several years, it’s been easy to get confident in the market, but when we start to see these downturns or corrections, like we’re going through right now, people get nervous and they tend to do the wrong thing. So you can’t predict when it’s going to happen, but you want to make sure that you’re setting yourself up in a way to work through that. And Nick, similarly, we could talk about healthcare costs, right? I mean, who knows what they’re going to look like in 20 years? Now a good bet is probably that they’re going up more than likely, right? Unlike the market crash, where there is some historical data, I mean, healthcare costs, the reality is we’re living longer. So more than likely these costs are going up, but how can you plan for that? If you don’t really know, you just have to start, kind of chipping away at this. Maybe.

 


Nick: Yeah. It’s interesting because this is one thing that we can probably lock in that it will go up and will continue to go up. But from a practical sense, in a practical standpoint, the things that we can do are from a planning perspective, make sure that when we’re planning for them, for these healthcare related expenses that we understand what’s involved. So as an example, a lot of people think about, well, Hey, I know that my healthcare expenses are going to get higher later on down the road, but many times they don’t understand. And when we see this all the time that even their cost for Medicare, when they switch to Medicare in retirement, there’s a decent chance it’s going to cost more than what they’re currently paying for their health benefits through their work.

 


Nick: And because a lot of people have that concept that it goes down versus most likely going up from a premium perspective for a lot of people. Using a higher inflation number for those healthcare premiums and healthcare related expenses, which is something that we make sure that we do with clients where we’ll use a three and a half to 4% inflation number on healthcare related expenses in the plan, which tends to be, one to two points higher than the rest of the categories in for inflation.

 


Nick: So, things like that where we can’t predict it, but at least from a modeling standpoint, we can kind of, use a prudent person rule of, making sure that we at least model those things to be a little bit higher and faster, increasing costs, especially when we look at how those plans are being financed by the government, which is not great.

 


Speaker 1: Yeah. And that’s a great point because even in normal inflationary times, right? What is it the two industries that outpace even regular inflation on the regular is college tuition, right? And healthcare. So while college tuition may not be affecting as many of retirees or as maybe pre-retirees the healthcare certainly is going to affect them. So you got to take that into account and definitely start strategizing for those healthcare costs. Putting your head in the sand is not going to help you out 20 years later when you need it. And John, you could kind of make that same argument really about the tax rates. Right? The Smart bet, the money is probably on the fact that yeah, they’re going up, but God willing, you’re going to live through multiple administrations in retirement. So, to say, well, what are tax rates going to look like three presidents from now who knows, right? Administrations are going to do what they got to do.

 


John: Yeah. And that’s where, again, it’s important to flexibility to adapt to the situation and how you get flexible is diversifying your assets from a tax standpoint. So, and you might want to look at, increasing your Roth contributions, if you have a Roth 401k at work or eligible to contribute to a Roth IRA. So that could be a really good strategy. So that way, if tax rates are up, when you’re taking your income, you could say, Hey, you know what, I’m going to take some of my tax free income this year or for these next couple of years. And you can really adjust to that situation. And not just only with Roths, but you could go outside of retirement accounts and kind of deal with capital gains. But then you got the same issue there with what are the rates going to be?

 


John: What Nick and I have been seeing quite a bit lately is clients really over funding their HSAs and not using them, just letting them build up for retirement. Cause that would be a nice tax free distribution, if qualified for healthcare costs, which also piggybacks what Nick was talking about. About healthcare costs, not knowing what they’re going to be. So there are definitely different things you can do to allow yourself some flexibility. And one thing that we typically do when we’re doing planning is we do stress test these things for certain clients. Where we’ll look at some kind of market pull backs. How does your plan look like if there’s a 20% pull back? What if healthcare costs go up? What if inflation goes up? So there’s definitely things you can do to prepare.

 


Speaker 1: Now. Those are some great points right there because we, again, we don’t know what’s going to happen. The smart money is taxes are probably going up, we’ve got 30 trillion dollars in debt. There’s almost 40 plus trillion dollars in retirement money sitting out there, the taxes haven’t been collected on. So if that doesn’t have a bullseye on it, you’re probably kidding yourself. So trying to be as tax efficient as we can today could be beneficial. Because again, we have no idea what it would look like three presidencies from now.

 


Speaker 1: So these are, again, things we cannot predict, but we certainly got to still plan for some of the options that are out there. And Nick, I joked earlier that if we had an expiration date stamped on us, like a gallon of milk, you guys could build the greatest, retirement plan for each individual that they’ve ever seen, but we have no idea how long we’re going to live. And I could use my own self as an example for the listeners. My brother died at 50, I’m 50. My brother died at 57, my father at 63, my grandfather at 60, be easy for me to say, Hey, I’m going to spend all my money between now and the age of 65, because I’m not going to be here. So I’m going to party. But yet that’s not responsible, because what if I’m wrong? Technology has changed. And of course, what am I doing to my spouse?

 


Nick: Yeah, this is always an interesting one. It’s probably the source of the most quote unquote jokes from people. Whether it’s clients or people that attend our classes, that sort of thing. And really from a practical sense where this comes in is, how long do we plan for? So when we’re building a plan 99% of the time, we plan to age 100. And when we plan to age 100 for clients, we can see what, how much money’s there at age 85 and age 90 and all those sorts of things. And the thought process is that if the plan works until age 100, then the probability of it being successful up into, 80, 85, etcetera, is much higher. And the plan, what it will also help us do is for those people that do want to make sure that they spend their time early on in retirement, really doing the things that they want to do, no matter how much bluster there can be about, because again, usually it’s some sort of internal insecurity or internal bias that has them talking about passing away early.

 


Nick: But sometimes what we found is that, really they’re just saying that because they don’t want to deal with the concern of running out of money. It’s almost in a weird sense, comforting that, Hey, if I pass away early, then I don’t have to worry about money. This planning thing isn’t important. I don’t have to stress about it. No big deal. So in actuality, when you go through the planning process and you do see where you sit and you do see, Hey, maybe I can do the things that I want to do and I can still, make sure that there’s money down the road for a spouse, all these sorts of things. It actually really kind of tick up the confidence and they will enjoy those things much more than having that uncertainty because, and I’ve seen it across the board because what ends up happening. I mean, and again, just seeing it being in this business, people that had that thought process 60 today, used to feel like 50 70 today feels like it. when people were 60, 15 years ago, nobody realizes how old they are, or they have this perception of that they’re going to feel a certain way. And usually that’s not the case. So, planning for all scenarios is really important.

 


Speaker 1: No, definitely. I mean, my mom’s always joking. She’s 80 and she’s forever saying, I don’t feel it. when I, if I’m not moving or if I’m not doing anything, I don’t feel like I’m 80. She’s like in my mind I still feel like I’m 30 or 40. She’s like until I look in the mirror or I try to move a certain way.

 


Nick: Yeah. And unfortunately I had to go up to New York for a funeral this past month and my dad and I flew up and we walked into the room with some family members and stuff like that. And after the initial reminder that we’re no longer in the south due to how loud it was and all of the swearing. Somebody said something about because that side of the family, I was always one of the younger and I’m like, how old are you going to be? And I was like, I’m going to be 40 this year. And everyone looked and they’re like, and I was like, you know what? That means you guys are really old now. So, again, it’s that whole concept of people just don’t realize it. And the concept when you’re younger of what you’re going to feel like or what it’s going to feel like when you’re older, it never tends to be that way. So it’s important to really plan.

 


Speaker 1: Yeah. It definitely. So you got to plan for these things, even though we can’t predict them, how long we’re going to be around tax rates, healthcare costs, market crashes, whatever the case is, these things are again, probably going to happen throughout your retirement. And if you have a nice long retirement, which you certainly hope that you do, you might be retired 20, 25, 30 years. You’re going to experience multiple things with some of this stuff that you can’t necessarily predict for, but you still have to strategize to hopefully have the retirement that you want in any economy and any circumstance. So that’s where planning comes into place. And that’s what you got to reach out to the guys for here on Retirement Planning, Redefined with John and Nick at pfgprivatewealth.com. That’s where you can find them online, pfgprivatewealth.com. Don’t forget to subscribe to us on whatever platform you like to use. Apple, Google, Spotify, so on and so forth. And we’ll be back with more episodes coming up in a couple of weeks. Nick, thanks for hanging out as always. John Good luck with those floors, man.

 


John: Thanks. I definitely need and appreciate it.

 


Speaker 1: Absolutely. Nick, we’ll see you next time here on the podcast. This has been Retirement Planning Redefined with John and Nick from PFG Private Wealth.

Ep 44: Do You Have A Money Bias? And How Much Is It Costing You?

On This Episode

On this episode, we’ll breakdown a recent CNBC article that analyzes a recent Morningstar study. The study found that most of us have at least one money bias, some of us more than one, and that those biases are very possibly costing us money in our checking, savings, investing and retirement accounts. Listen to see if you might be impacted by a specific money bias and for strategies to get it back under control.

CNBC Article: https://cnb.cx/3KKXSHf

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Mark: Hey, everybody. Welcome back to the podcast. It’s another addition of Retirement Planning – Redefined with John and Nick from PFG Private Wealth. We got to fun and interesting podcast this week to talk about, money biases and what those are, and are they costing you a little bit? If you have a money bias and you’re going to be probably surprised to find out that you indeed do most people, I think do have biases about a lot of things. So, that’s going to be on the podcast this go around. And of course, if you’ve got questions you need some help, always reach out to theguys@pfgprivatewealth.com. That’s p-f-g, private wealth.com. John, what’s going on, buddy? How you doing?

 


John: Hey, doing good. How are you?

 


Mark: Hanging in there. Doing pretty well. We were chatting a little bit off air and just talking about life, moaning and groaning a little bit, but overall you’re doing okay? Hanging in there?

 


John: Yeah. Yeah. We, we just wrapped up a golf tournament that we hosted with Bern’s Steakhouse. It’s our second one.

 


Mark: Nice.

 


John: Yeah. Finalizing the numbers, but looking like a pretty decent donation to a couple of local Tampa charities here, which are Blue Star Families and then Jackson In Action, 83 Foundation, both a military base. So, so we’re excited. It was a great event and we look forward to delivering the check soon.

 


Mark: That’s fantastic. Awesome. Nick, how you doing my friend?

 


Nick: Doing pretty good. It’s been a little bit of a crazy month, but have some vacation coming up, which will be nice, although I’m going to Key West and it’ll be my first time going there, so…

 


Mark: Okay.

 


Nick: I’m looking forward to seeing what that’s like.

 


Mark: Well, I don’t know how you’re getting there, but I filled up my truck yesterday and it cost me triple digits for the first time. It was over a hundred bucks.

 


Nick: Yeah. Luckily I’m flying. So…

 


Mark: All right.

 


Nick: We’re good to go.

 


Mark: Well, the inflation numbers came in for February 7.9%. I don’t know if you guys saw that at the time we’re taping that they just came out this morning, so yay. Right? So people are definitely frustrated and we’re kind of concerned. There’s a lot going on, obviously the stuff in the world and the market’s been reacting to that inflation is up. And so I thought it would be interesting to kind of have this chat. And we were talking about these money biases and how we feel about some of the different things. And I thought maybe it’d be a good idea to share some of this stuff with the listeners. So what we’ll do is we’ll also put a link to the article. This was a CNBC article guys, that was based off a Morningstar study. And I’ll let you guys talk about Morningstar if you’d like to, just to explain that to the folks in a second.

 


Mark: But the study found that most of us have at least one money bias, some of us more than others, and that biases are very possibly costing us additional money in our checking, savings, or investing in retirement accounts. So, we’ll see how this kind of impacts you and you’ll kind of learn a little bit about this along the way. So a couple of key points before we dive in is that everybody has different attitudes about money. No real shock there, right? We know that, but that new behavioral financial study from Morningstar found that 98% of the respondents exhibited one or more. So when we say just about everybody has one, that’s pretty true and that they are likely costing them some money. So we’ll jump right in and get going here and with take away number one. Nick, what are the four main biases that they talked about and that you guys see?

 


Nick: Yeah, we really wanted to kind of focus on this with this chaotic as the beginning of the year has been. we think that people taking a little self inventory on, on how they might make some decisions would be beneficial. So right. The first bias is called a present bias or really kind of like present time. So really what this focus is on is kind of the tendency to go for immediate rewards over long term goals, or, the good old instant gratification. I would say that, what’s interesting is, this can definitely be different for different age bands. So for people that, kind of like in that baby boomer era, they have their toes in this, for sure, whereas younger clients definitely. I would say it’s a little bit more dominant just because of the things that they’re used to and convenience and instant gratification.

 


Mark: Sure. The world we have. Yeah.

 


Nick: Yeah, for sure. And I think this is something that’s real important because this become a stronger and stronger bias just with things that we’re used to like news cycles and stuff like that. So, so that’s, that’s the first one.

 


Mark: Well, let, let me ask you a follow up on that real quick, Nick, before you move on. So with that present bias basically like it’s that idea of, I feel like I need to do something now. Right? So like we’ll use the market falling as an example. Right this minute we’re down about 10% I think in the S&P or into a correction, I guess officially. So I must… I must need to do something now, so I can see the response, the immediate response. That way I feel like I’ve done something that’s really what a present bias is.

 


Nick: Yep. Very much reactionary.

 


Mark: Okay.

 


Nick: Typically, and usually for most people, taking action at something like this, it’s oftentimes too late. So that can really turn into this kind of yo-yo effect of, waiting where this is one of the things that lead people to buy high in sell low, which is kind of the opposite.

 


Mark: Which is the wrong. Yeah. Okay.

 


Nick: Yeah.

 


Mark: So that’s the first one.

 


Nick: Yep. And then second one, is what’s called base rate neglect. So really what happens is, this is kind of focused on how you judge the probability of something happening based upon new information, while you essentially ignore your original assumptions. So this is something where, for example, the whole concept of best laid plans. So this is where planning can really come into play, where might get a call from a client that, maybe it’s a certain sector of the market. Hey, I want, I really want to jump into this certain sector of the market and they’re not taking into consideration that maybe they already have exposure to that.

 


Nick: Or again, maybe it’s a little bit too late and they’re forgetting all of the effort and all the time that has been put into kind of creating the overall plan and then overreacting to good or bad news. And, this is definitely something like, for example, for myself, right. That I have to have, people remind me, I know that this is something that happens to me where it’s like, because I do try to consume a lot of information and process, a lot of information and news where, dependent upon what’s going on. This can kind of throw me a little bit for it.

 


Mark: I gotcha. So let, let me, John, let me of get you in here on this for a quick second. So for example, what I’m hearing then, so the NASDAQ for example, is technically into bear territory now, cause it’s down 20 plus percent. So people calling up and saying, Hey, I need to get out of tech might be an example of this base rate neglect because they’re seeing the current situation and they’re reacting to the news versus does it make sense for their overall long term strategy?

 


John: Yeah. A hundred percent. It’s the whole, kind of going into behavioral finance where it’s, you’re selling out when, when you shouldn’t be, in reality, now’s the time you know, if, as Nick mentioned, it’s probably too late at this point.

 


Mark: Sure. Right.

 


John: It may be best just to stay of the course and stay in it, but a hundred percent that’s kind of what we typically see.

 


Mark: Okay. All right. Go ahead Nick, what the third one for us?

 


Nick: Sure. So third one is overconfidence. This is an interesting one. Also, one that I know that I have a bias, where it’s the whole concept of putting too much weight in your own abilities to make good financial decisions.

 


Mark: Sure. Yeah.

 


Nick: So, another way to think about this can be, is wanting to be right. And we tend to all want to be right. But then sometimes we will, double down or not take into consideration a concept of like a sunk cost where Hey, we’re not always going to be right. And sometimes it’s okay to make mistakes. You just want to learn from that. Oh definitely. And not double down, triple down, that sort of thing. So understanding that there’s law of large numbers and there’s efficiencies in different areas of the market and or planning. So being over confident, and again, this is something where if you look at the pie, you want to have your plan, your investment strategy, all that you want that pie to be, around 90% or so of the very strong part of your fundamental long term plan.

 


Nick: So sometimes having some of these biases on a small portion will help you really learn, usually people don’t, they try to do it on a much larger portion. So that’s a little bit of a takeaway too, is in moderation. Some of these things can be good because there are places where you can have a lot of upside that if you do it with the right amount of money and you take a little bit of risk with a smaller amount of money can help you kind of work through some of these biases without over overacting over correcting.

 


Mark: Oh, definitely. And if you think about the overconfidence bias here, Nick, I mean, we’ve basically been on a 12 year run, 12 plus year run with the market. So everybody’s been feeling pretty confident. I mean, 1920 and 21 all finished up with double digit years.

 


Nick: Right.

 


Mark: So it’s easy to feel confident when, when everything’s going up, everybody’s a genius, right?

 


Nick: Oh yeah.

 


Mark: So it’s when it’s going down that you start to get a little more concerned and maybe that overconfidence comes into play. And since we mentioned down, go ahead and go to the fourth one, which is the final one.

 


Nick: Sure. So the fourth one is going to be loss aversion. So a classic case of this is, because there’s different types of risk as well. And one of the risks that we talk about sometimes are inflationary risks, which we’re seeing now. So in other words, for people that might be way too heavy in cash over prolonged period of time, or they’re afraid to take any sort of risk, they don’t necessarily think about the trade off. So they, again, this is the concept of having a plan and having balanced, not only in your investments, but in your strategies and your overall planning is really important because as we see, sometimes people’s thought processes, well, hey cash, if I’m in cash, it’s okay. I just don’t want to lose my money while, in times of massive inflation or just compared to other areas of the market, there can be significant downside to, the concept of what some people may think is no risk can actually have quite a bit.

 


Mark: Okay. So those are the four biases then. So you’ve got the present bias, the base rate neglect of the overconfidence bias and the loss aversion. So John here’s the interesting part to me about this whole thing is take away number two, is that 98% of people are exhibiting at least one of these, what they found was the lower, the level of bias, the better your overall financial health. So if you only have one let’s say of these four, then you’re probably in better shape than someone that has two, which again, it kind of makes perfect sense, but there was some interesting statistics and information in this. So why don’t you talk to me a little bit about that?

 


John: Yeah, yeah. That is pretty interesting. Basically the lower level of bias you have, the better financial health you end up having. And it’s one of the ones here is like the present bias where basically research showed, if you have a low level of present bias, you were three times as likely to spend less than the money you that you make. So basically you’re going to be saving more money. So again, it’s kind of… You kind of look at this in life. You don’t have that instant gratification. You’re kind of looking at the long term of, Hey, I don’t need this today. You know, if you go to the store and buy something, do I really need that now? No, I don’t. I can hold off on it. You know, just making better financial decisions all around when you kind of break it down. Another one that was interesting with, with that, with the present bias was there’s seven times more likely to plan for the future.

 


Mark: Yeah.

 


John: So, so I get… [crosstalk 00:11:36] go ahead.

 


Mark: I was trying to say, so what I’m hearing there is then, is if they don’t re… If you don’t react, if you don’t give into the instant gratification bias, you typically were a better saver. Sounds like.

 


John: Better saver, better planner, just not reactionary to what’s going on. So it’s really the long term goal seems to be in mind with these type of people.

 


Mark: Seven times more likely. That’s pretty good.

 


John: Yeah. It makes me think I need to… I need to be a little less into gratification for myself.

 


Mark: There you go.

 


John: You know, it’s, I’m getting off topic here, but it’s funny. I was talking to my wife the other day with, we got Disney plus for the kids.

 


Mark: Sure.

 


John: And it’s like, oh, I want to watch this. And I started thinking, I’m like, man, I just remember just sitting there looking at the guide until, a TV show would finally pop on or a move I wanted to watch because you couldn’t watch things right away. You back in the late eighties.

 


Mark: And in those places, it’s great. Right. We enjoy that kind of stuff. But then what happens to this kind of this point is next thing you know, you’ve got 12 subscription services and you’re not using them all. So yeah.

 


John: Yeah. So anyhow, starting off on a tangent.

 


Mark: No, you’re fine.

 


John: But yeah, another one would be, overconfidence, lower level bias there. They found that people would have basically more savings. So again, back when Nick was staying with overconfidence in and I fall into this quite a bit, it’s like, ah I have some time I can build that up or whatever. And I’ve seen this quite a bit with some retirees. So, if you’re not over, you tend to save a little bit more and last one is the loss aversion of having lower 401k balance, the less bias you have towards that, the more apt you are to take a little more risk and save more into your 401k. And just as Nick mentioned here, not sit in cash and try to outpace inflation.

 


Mark: I gotcha. So yeah, if you, if you’re a bit more overconfident, you feel like you can kind of well, I’ll take some chances, right. Because I can get it back. So therefore I can build that savings back up or whatever the case is. So really interesting takeaways from that standpoint, when you think about it, because we all fall into one of these, whatever it might be. And so the lower level of money bias, typically the better financial health. Nick, so talk to me about some of the solutions Morningstar offered because they called it build a money life that fits your priorities, which makes a lot of sense for what you guys do as advisors to kind of find that right mold or fit for the individual.

 


Nick: Yeah. So it’s pretty interesting in… We joke a decent amount of time with clients and among each other that, our business is probably 20 to 30% finance and 70 to 80% therapist. And really it’s helping people with these sorts of things. So some of the things they talked about as far as what they call building a money life is kind of put some speed bumps or have a process in place for your decision making. So, one of the things that we try to get our clients to do as an example is that we have the… Because we are a planning focus firm and we use planning tools and software to help people model out different scenarios, we try to get them to start thinking through that realm because a lot… People have often like the quite, well, what about this?

 


Nick: Or what about that? Or should you know, one of the most common is, do I put extra money towards the mortgage or do I save some money? And the answer for everybody is different based upon what they’ve done up until that point. And so, for those that work with us, what we try to get them to do for those speed bumps is to say, number one, number two; number one, if there’s something that you’re concerned about, walk us through, what is the scenario that you’re concerned about? So for example, if you’re concerned about, the cost of fuel, cost of inflation, those sorts of things, in what way are you concerned about how that applies to you specifically? So not just the world and everybody on the news and all that kind of stuff, but how does it involve you specifically?

 


Nick: And so, okay. So, sometimes what people realize is that it’s not going to impact their life in a dramatic way. It could have some sort of impact on, the economy and those sorts of things. But most of the times it’s not going to have a massive impact on their life. And then we take it. So maybe, we figure that it could have some sort of impact. So then we can kind of go to the planning software and kind of model it and say, okay, well, if these things happen, let’s take a look and see what it looks like. And okay, so now that you see what it looks like, here are some of the decisions that you can make to bring that sort of risk down and have a little bit of clarity. And then we can go ahead and try to implement those decisions.

 


Nick: So instead of just these open-ended concerns of things that are not in anybody’s control, let’s look at the things that we do have in control. And those decisions that we can make to impact and make it easier. And kind of referring back to what we talked about earlier, where that kind of high level of base rate, and then the overconfidence for lower savings and checking, sometimes what ends up happening is that, and we try to remind people of this is, having a solid base of savings, cash savings is your permission slip for a lot of different things. So when people look at and realize like, Hey, that this is… These are exactly the times that we emphasize having this cash handy because we can deal with these fluctuations in the market. We don’t have to make irrational decisions because you’ve built this buffer and you’ve given yourself this permission slip to deal with these different sorts of circumstances.

 


Mark: That’s a great point. Yeah.

 


Nick: Yeah. So that can be interesting. And then if, you’re doing it on your own, maybe making some sort of process where, hey, you’ve got a couple of rules that you take into consideration where once you get to certain gains on an underlying investment, you’re okay selling, or you sell with half and maybe you let the rest of it ride. Or you just kind of give yourself a buffer time. You know, sometimes people will joke that they have rules for emails, like when they’re mad. So, give it an overnight, you’re ready to fire off an email, maybe it’s to a coworker it’s to a family member, whatever.

 


Mark: Right. Yeah.

 


Nick: Or text message.

 


Mark: Wait till you cool down.

 


Nick: Yeah, wait to cool down. And, or maybe haven’t had an adult beverage and give it a little bit of time because oftentimes, when we sit on it, we see that maybe even though we didn’t think we were, maybe we were a little over confident in what our thought process was previously.

 


Mark: So yeah. I like that idea, John, what do you think? Like one of the things they had on there, and I think this is a good idea was the whole, wait three days to make an important decision. I’ll use an exam… I mean, you’ve got the little ones there. That’s great advice to try to, raise kids on as well. My dad used to do that with me. Hey man, if it’s a good idea, on Monday, it’s still going to be a good idea on Friday. Right. But if something changed or you don’t feel like it’s a good idea, then it’s good that you waited before you took action. I’ve been thinking about buying a muscle car here recently. And of course, gas prices have got me second guessing that. So I went and looked at one last Friday and I still haven’t made a decision because I wanted to take that time to make sure I was making that right choice. Right. Don’t… That’s that instant gratification, I guess, take a few days… [crosstalk 00:18:48]

 


John: [crosstalk 00:18:48] A hundred percent.

 


Nick: [crosstalk 00:18:49] Or you might be getting a really good price right now. I mean…

 


Mark: Well, that’s true too, but.

 


Nick: So if you really want it…

 


Mark: What do you think, John?

 


John: I think it’s always best to wait a couple of days to see if that’s something you really want. I think, like you said there, it’s going to be there, and the price could jump up in three days in this environment. But I think it’s always best kind of way it a little bit before you make financial decisions. So you ultimately feel comfortable with decisions that you made. That it wasn’t kind of an impulse buy or decision…

 


Mark: Right. [crosstalk 00:19:20].

 


John: That could affect the rest of your life.

 


Mark: So, well, the speed bump idea was really good, right? The Morningstar, they called it speed bumps to place your… Slow down your decision making as Nick alluded to. And if you think about the stock market, right, they’ve got those circuit breakers in place. We saw that with COVID right. When the circuit breakers would kick in to prevent any more trading because it was falling so fast. So if you want to kind of use that same analogy, have some speed bumps or some circuit breakers in place for your decision making process. So lots of different ways we can look at it.

 


John: Yeah, another one in the article I was reading through is really, and it goes back to what we’re saying here, and what we always say is having a plan, a sense of direction and to tune out the news and really stop taking advice from your friends where it’s basically, “hey, I did this”, or “I’m buying this.” And especially with, we don’t advise on crypto, but you know, “I’m buying some crypto” and stuff like that. It’s really, have your plan and stick to what your plan is for versus listening to what other people are doing. That was also in the article, which I thought was an interesting point.

 


Mark: Yeah. Very good points. Well, I tell you what, like I said, we’re going to link this into the, to the show notes and information there. So if you’d like to check that out, you can. And as always, if you’ve got some questions, we’ll wrap this up this week about a money bias, your own money bias, which one you may be affected by. You should be able to tell if you suffer from the present bias that give me now thing, that base rate and neglect where you just react to the news, the overconfidence of feeling like you’ve got it all figured out, you’ve mastered it all. Or maybe just the loss of version where that fear of losing money, just really kind of cripples you either way, it could be costing you money. So reach out to the guys, if you’ve got questions on how to control this.

 


Mark: And I think that’s some of the value that an advisor brings to the table is they’re not going to have those biases about your portfolio plan because it’s not their money, right? So they’re there to help guide you and be that sounding board and be that coach. So reach out to John and Nick, if you some questions at PFGprivatewealth.com, that’s PFGprivatewealth.com. Before you take any action, you should always check with a qualified professional, like the guys, they are financial advisors at PFG Private Wealth. Don’t forget to subscribe to us on Apple, Google, Spotify, or whatever platform you’d like to listen to. And if you’d like to learn more about some of those charities that they were… John was talking about earlier in the show, or maybe attend the next time they do one of those events, again, reach out to them at PFG Private Wealth. For John and Nick, I’m Mark, thanks for hanging out with us. We’ll see you next time here on the podcast, Retirement Planning – Redefined.

Ep 43 : Don’t Fumble Your Retirement In The Financial Red Zone

On This Episode

In football, teams are extra careful not to make a mistake when they get within about 20 yards of scoring points (known as the Red Zone). They’ve typically worked hard to get to that point and don’t want to cost themselves by throwing an interception or fumbling the ball and giving it to the other team. On this episode, we’ll explore the financial equivalent of the Red Zone and discuss how you can really mess things up if you’re not careful during this phase of your life. If you’re approaching retirement, this is a fundamental conversation you won’t want to miss.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Marc Killian: Hey everybody. Welcome back into the podcast. It’s time to talk football a little bit here on retirement planning, redefined with John and Nick. We always talk finance, investing finance and retirement, and we’re still going to, but we’re going to talk about not fumbling your retirement in the financial red zone. We are in the playoffs at the time we are dropping this. Now we are recording just before they’re starting. They’re starting this weekend. And so this will come out while the playoffs are rocking and rolling, but that’s all right. We’re still going to talk about this analogy, because it works really well for this time of year. And we’ll get into that in just a second. But first let me say, Hey to the guys.

 


Marc Killian: Nick, what’s going on, buddy? How you’re doing?

 


Nick McDevitt: Good.

 


Nick McDevitt: This was a good reminder to ask John on when I’m going to get paid for my second place finish in the Fantasy Football League.

 


Marc Killian: Nice.

 


John Teixeira: I don’t know what Nick’s referencing here. We do not gamble here, so I’m going to give Nick a nice handshake and pat in the back for drafting the second best team in the league.

 


Marc Killian: There you go. Okay. Well what’s going on with you, John. You’re doing all right?

 


John Teixeira: Doing good. Trying to get some recapping from our last session of their great resignation, and actually trying to get some contractors to send me an estimate based after they came to my house has been a challenge.

 


Marc Killian: Right? I know.

 


Marc Killian: I was talking with some contractors not too long ago and they’re like, right now, all I got to do is show up and I get like 50% of the jobs, you know?

 


John Teixeira: Yeah.

 


Marc Killian: And, they’re not wrong, you know? So there’s a lot going on. Well, I know you guys are both football fans and guys both come in from the same division, actually. We got a Patriots fan and a Bills fan. So living in Florida, which is interesting, and especially considering that you got radio right around the corner now, but either way, we’re going to talk about this financial red zone and football and a little analogy to go back and forth. And as I said, the games are starting for the playoffs and you guys are going to be actually competing against each other. Your teams will be anyway. So we’ll have some fun with this. So do me a favor real fast. John, I’ll let you start. Tell me what’s the financial red zone? Go ahead and talk about the football red zone if you want as well. I think most people know it, but just real quick and then tell us what the financial equivalent is.

 


John Teixeira: Yeah. Football red zones, when you get 20 yards of scoring. So, right before the end zone, really important place to be efficient, making sure that everything’s tightened up. The defenses plays a little bit harder here because the shorter field. So just really important to make sure the offense is doing their best and making sure everything’s done right, which leads into what we call the financial red zone, where we would consider that last 10 years before retiring and can range for five to 10 years after retiring, but the analogy goes well where. This is probably the most important part of your retirement is making sure that, Hey, you got 10 years left or you’re five, 10 years into it. You cannot make a mistake.

 


Marc Killian: Yeah.

 


John Teixeira: And it’s important to make sure everything’s lined up and you’re being as efficient and careful as possible to make sure you hit all your goals and maintain the lifestyle that you want going into retirement.

 


Marc Killian: Yeah, for sure. So it has been pretty easy. Right? So just think of it like that, same scoring red zone. Now maybe you’re not trying to score necessarily in the financial red zone as you’re talking about retirement, but there are some things to pay attention to because turnovers, as you mentioned with the football analogy are more critical. So Nick give us some reasons why people need to pay attention to that?

 


Nick McDevitt: Yeah. There’re a few things here and obviously it’ll all depends on the plan, but in many ways, from an accumulation standpoint, time is no longer on your side. The goal is obviously to save as much money as you can. And once you get into that 10 year window, hopefully you’re in your higher earning years and you’re able to save more money. Maybe there’re less kids on the payroll, et cetera. And it’s also important from the standpoint of the money that you’ve saved up to that point, making sure that it’s invested properly, it’s a lot easier to have a half a million dollars double in the last two years than it is to have a hundred thousand dollars catch up to $500,000 or things like that.

 


Nick McDevitt: So, that’s some money that you’ve been able to build up once you’ve entered into that red zone and then how that money’s going to accumulate, leading up through retirement is an important time. So, really making sure that your decisions are coordinated together and you’re not really just, Hey, I just saved this amount of money and I put it into this, and I don’t pay attention to it. Usually isn’t the best sure strategy.

 


Marc Killian: Yeah.

 


Nick McDevitt: It’s just much more difficult to recover from mistakes that are in this period.

 


Marc Killian: Yeah. So, If you’re in a good place, right, this is when a lot of times teams will start looking at taking the knee, right? If you’re in a good spot from a financial standpoint, you want to start taking that victory formation because you’re trying to protect the ball. And John, I’ll go to this next one, but I’ll make you happy by bringing something up here when you’re talking about, some of the mistakes that you see people make getting a little too risky. Think back to that Seahawks Patriots game, Super Bowl, a few years back, I think it was 2015. Right? And the whole world knew the Seahawks were going to punch that in with Marshawn Lynch, running on the one yard line, but they took a risk. They threw it and they got intercepted and it cost them the Super Bowl.

 


John Teixeira: Yeah. That was a big risk.

 


Marc Killian: Right. It sticks in my mind seven years later, right?

 


John Teixeira: Yeah. It’s funny. I watched some of the man of the arena with Brady, it’s been background noise at this point just when I’m doing stuff around the house and they replayed that. And it was interesting to hear the people talk about it, but yeah, that was a big risk. And that’s a big mistake that we see for clients when they’re nearing retirement is they are taking too much risk and that can happen quite a bit in your 401k, because you’ve just picked a fund when you first started at that company.

 


Marc Killian: Right.

 


John Teixeira: And typically everyone unfortunately chases returns in their 401k. They just look at a fund and say, this did, will they pick it? But as you’re getting that red zone, it’s important you evaluate what you’re in because if you’re taking too much risk and we have a 2009 type recession, it takes a little bit to fully recover from there never mind that you got the mindset of, Hey, I just lost 30% of my portfolio.

 


John Teixeira: I don’t want to lose any more. Should I get more conservative? Which will seep into people as you get closer to retirement. So if you make that shift and get conservative, market bounces back within a two year period, you miss a majority of that recovery. So important to make sure that how much risk you’re taking your portfolio is the right amount of risk for you and your plan. We go back to, again, the planning, having the right distribution strategy, as you’re in the red zone, very vital to your retirement success and scoring.

 


Marc Killian: Yeah. Well, Nick, before I go to the next point here, I’m going to give you a chance on this as well, because if you think about, what he was just talking about, making sure that your portfolio’s not taking too much risk. This market is on a 12 year run. It makes it really enticing and really hard for us to not go. I can eek out a little more. Right? I can squeak out just a little bit more, but that’s when you start putting more at risk on the table.

 


John Teixeira: Yeah. And you know, because ultimately what ends up happening is what we’re trying to do is, is manage decision making and what ends up happening. And the reason that we try to de-risk a little bit in the situation is so that there’s not an overreaction. So, the easiest way to prevent an overreaction for an individual is to have a plan. So you can remind yourself of, Hey, this is why I’m doing what I’m doing. And you have something to go back to show you, Hey look at, this plan tells me that if I do X, Y, and Z, that I’ve got a pretty solid chance to have a comfortable and successful retirement. And, if you’ve got ice water in your veins and you can handle, a 40% dip in a year and something in a year that where things happen chaotic and it doesn’t even blip your iWatch then that’s one thing, but most people can’t.

 


John Teixeira: And when that feeling of anxiety starts to creep in, as you start to log in your account more because we’re going through a pullback happens and it pushes you to make a poor decision. That’s when the snowball starts rolling down the hill and that’s where we can really get into trouble.

 


Marc Killian: So, well, even if you’ve got ice water in your veins, there’s a good chance, your significant other doesn’t, right?

 


John Teixeira: Yeah.

 


Marc Killian: Oftentimes there’s that split in the investing philosophy many times where one is a go getter and one is a bit more conservative. So you want to make sure you’re just not taking too many chances in the red zone. If you got a good plan, you got a good strategy. Your team is so “winning the game,” then again, consider taking that knee, take that victory formation, at least start hedging your bet, that way you’re not going to have too much at risk because you got to still outpace inflation. That’s a given, but you also don’t have to necessarily continue to throw the ball, 40 yards down the field.

 


Marc Killian: So for those that are paying attention, John, that are being proactive, why is retirement planning easier for those folks once they do get to the financial red zone?

 


John Teixeira: Yeah, I’d say the biggest thing we see when someone goes through a planning process and they get to see it, it provides them a blueprint and a roadmap of what they can expect. And that roadmap of blueprint really gives people a little bit peace of mind so they can see the cash flow, they can see the money and it really comes down to, they can see their goals and what they want to do. So it makes it come to life. So that makes a little bit easier versus the unknown of, Hey, you try building the house without a blueprint, it makes a little bit harder. Right? So, the financial plan is that blueprint and just gives people peace of mind, which ultimately they make better decisions.

 


Marc Killian: Yeah.

 


John Teixeira: So you can look at things, income stream, social security, when is the best time to take it or my pension options. When you have the plan, you can test those. So you feel confident in, Hey, I already looked at this and I know what to expect. What’s the best option for me in my family and what we’re doing. So, the plan is key in making sure you make sound decisions and it provides people, again, sound like a broken record or a peace of mind that what they’re doing is right.

 


Marc Killian: Yeah. Definitely. Any couple of little bullet points Nick to toss in there.

 


Nick McDevitt: Yeah. I would just say that, the people that are doing well are the people that are able to zero in, in this financial red zone. Part of the reason is because everything starts to feel a little bit more real. Sometimes people have a really hard time thinking about 30 years down the line.

 


Marc Killian: Right.

 


Nick McDevitt: And the numbers seem out of whack and the variables seem super unpredictable, and things like that. So oftentimes once we’re in that zone, we have a good idea of what the numbers are going to look like from an income stream standpoint, whether it’s the social security or you have a pension or Hey, there’s lead at the end of the tunnel of having the mortgage paid down, or the kids are going to be off the payroll in two years and that’s going to free up X amount of income per month to be able to save. So, you feel there’s hope and momentum on the side and the people that do well with planning, they really lean into that and are really able to take that momentum and move themselves forward strongly.

 


Marc Killian: Yeah. So let’s not fumble the football in retirement, the financial football, if you will, if you got some questions, need some help, you should know what to do by now. Hopefully you’re already working with John and Nick. There’s a good chance of just catching this because you already are. And you’re checking out the podcast and you get the information. But if not, definitely stop by and reach out to them at pfgprivatewealth.com. That’s the team’s website, a lot of good tools, tips and resources at pfgprivatewealth.com. And you could drop us a line as well. We take email questions. Of course, they all get answered, but we also take some from time to time here and use them on the show. And that’s what we’re going to do to wrap things up.

 


Marc Killian: So, whoever wants to tackle this, no pun intended, go for it. My brother tells me that I have way too much money in the bank and he’s probably right. I got about $150,000 sitting in there now, but I just like knowing if there in case I have an emergency, this is Frank by the way. And so Frank says, is it really that bad to have that much in my savings account, take it away.

 


Nick McDevitt: So, this is an interesting question because oftentimes for most people, the answer might be yes. However, the thing to remember and what we try to harp on with people is that, it doesn’t necessarily matter what your brother, your sister, your mailman, your coworker, your dog walker, everybody’s willing to give their opinion or their advice on financial topics. And it’s important to take your situation, put in a perspective. If you’re somebody that makes $300,000 a year, then maybe that 150 is a good amount. If you’re somebody that makes $40,000 a year and you’ve got 150 in cash, then there’s a good chance that you’re not saving into things that have more upside and more growth for you. You probably have been a little bit wary of the market or didn’t know how or where to invest.

 


Nick McDevitt: And there’re things that you can do. Maybe you’ve never saved to a Roth before and we could start putting money into a Roth. Maybe you haven’t adjusted your 401k contribution in eight years. And that’s part of the reason that this money is saved up. So, there’re ways that we can take a portion of it and save it into vehicles and then maybe adjust. One of the things that we’ve seen is adjusting from here, moving forward. So in other words, it might make you very uncomfortable to take a hundred grand out of that 150 and put it to work, but maybe we can take 25 and put it to work, but also we’re going to aggressively save moving forward with the income that you have and and figure out where that pain point might be to put money away.

 


Marc Killian: Yeah.

 


Nick McDevitt: So it really is a function of what your expenses are. Things like, do you have dual income in the house? Is the house paid off? Dual income, you could probably have a little bit less in there. If the house is paid off, definitely put more money to work. So, it could be, but just like everything else that we talk about, it depends. And the easiest way to really truly answer that is to look at it through the lens of the plan and go from there.

 


Marc Killian: Well, I guess I would say John, probably what’s your definition of liquid, right? In getting to it, obviously a lot of people see, they want to see a certain number. I’d ask myself if I was Frank, what kind of emergency constitute 150 grand and/or what do you consider liquid, right? If it’s something you need to get to within three to five days, often there’re many types of accounts you can do that. It doesn’t have to just be money in the bank.

 


John Teixeira: Yes. So, liquid would. A lot of different people view it differently. So one would be, Hey, I can get access to this without any penalty. And that would be number one of being liquid. Another version would be, Hey, I can get this without any penalty or taxes, you know? So that could be another version of someone considering it liquid, but yeah, there’re different buckets to choose from when you need access money. And it’s important you work with an advisor to figure out what are the penalties and very important what are the tax consequences for accessing this cash?

 


Marc Killian: Yeah. Okay. Well, Frank, thanks so much for listening. Hopefully that helps you. I know you how you don’t want to admit your brother’s right. So technically you don’t have to. So if you’re like me, I never want to tell my brother he is right. You can just certainly say it depends. Right? So everybody’s situation is different. That’s going to do it this go round for the podcast. Don’t forget to subscribe to us again at pfgprivatewealth. That’s where you can find all the things from the team at pfgprivatewealth, which is John and Nick’s company there. So find it online at pfgprivatewealth.com.

 


Marc Killian: We’re going to wrap it up, but guys, I’m going to give you a chance to say what you think is going to happen for the Super Bowl since we’re dropping this beforehand, who’s winning the Super Bowl this year? John go.

 


John Teixeira: Good question. I’m going to have to say, I think the 49ers might win.

 


Marc Killian: Okay. All right. He’s calling the 49ers. Nick, who you’re going with, buddy?

 


Nick McDevitt: I’ll go with the Packers.

 


Marc Killian: Wow. Neither one of you guys took the team.

 


John Teixeira: I was going to go with the Packers, but Adam Rogers always chokes him.

 


Marc Killian: He does play.

 


John Teixeira: He is like notorious for NFC championship game. Let me play awful. Last year I think Brady threw three picks in the second half or third quarter or something.

 


Marc Killian: Yeah.

 


John Teixeira: And he couldn’t capitalize on it or fourth quarter, whatever it was. I don’t know.

 


Marc Killian: There you go. Well, folks, let us know what you think. And we’ll be back with more on the podcast in February. So probably after the Super Bowl. So, we’ll see if the guys are right and we’ll talk to you next time here on retirement planning, redefined with John and Nick.