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Financial and retirement planning guidance from Certified Financial Planner John Teixeira and Nick McDevitt of PFG Private Wealth Management in the Tampa Bay, FL area. On this show, you’ll learn about how the financial and retirement world has evolved over the past several decades, how to properly plan for your own future, and some of the important pitfalls to avoid.
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Let’s talk about some of the areas of your financial life where you might be flirtin’ with disaster and don’t even know it.
PFG Website: https://www.pfgprivatewealth.com/
PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. 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. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
Transcript of Today’s Show:
For a full transcript of today’s show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/
Marc Killian: Hey everybody. Welcome into this week’s edition of Retirement Planning Redefined podcast. We appreciate your time, hanging out with John and Nick and myself as we’re talking, investing, finance and retirement. And of course you could check them out online if you’ve got some questions or need to follow up or have a chat about your own situation, get your retirement planning redefined at pfgprivatewealth.com. That’s pfgprivatewealth.com. Don’t forget to subscribe to the podcast while you’re there. A lot of good tools, tips and resources to be found.
Marc Killian: And on this go-around, we’re going to talk about flirting with disaster. As Floridians, there’s certainly always the case where we have some disastrous situations can come up from time to time, but we’re going to talk about these from a financial standpoint and some areas in our financial life where we could do this and not even realize it. First off, let’s say hey to the guys. What’s going on, Nick? How are you?
Nick McDevitt: Doing well. Doing well. How about yourself?
Marc Killian: Doing pretty good hanging in there. Looking forward to today’s topic. Got some good, easy fixes I think for a few of these things, as well as some that are maybe a little more complicated. We’ll dive into that. Let you guys share. But John, how are you?
John Teixeira: Doing good. Doing good. Nick and I are actually in the process of planning a golf tournament for a couple of charities here locally with… the group we’re in is, again, 13 Ugly Men Foundation. And we’re partnering up with Bern’s Steakhouse to do a golf event at TPC Tampa Bay. So, we’re excited about that coming up.
Marc Killian: Very Nice. Yeah. Keep us posted on that. We’ll definitely like to learn more as we get closer to there. Well, hopefully, you guys won’t have any disastrous situations come tourney time, but let’s talk about them today. I got about five here, guys, I want you to just break down for us. And, like I said, some of these are kind of easy fixes, so let’s start there. They can definitely cause a lot of havoc, but, again, they are easy fixes. So, out-of-date legal documents. Not the sexiest thing in the world, but a pretty easy thing to fix.
Nick McDevitt: This is something that is a common oversight, a common mistake that people make. Some of the instances that we see where the documents are out of date or just not going to accomplish the things that they’re hoping to accomplish. Our scenario’s somebody moved from out of state and the… many people don’t realize that from an estate planning standpoint, from a legal document standpoint, a lot of those documents are different from state to state. So, that’s an important thing to review if you are somebody that has recently moved. A few years back, there were updates in Florida to durable power of attorney rules. And so, that’s a reason to have a review.
Nick McDevitt: But just like anything else, it’s important to make sure that you have in inventory or you take an inventory of what you have. Something like this, people never… or oftentimes, people don’t realize how long it’s been since they have updated their documents. There could be children that are alive now that weren’t before, parents that were alive then that aren’t now, a previous marriage, et cetera, et cetera. So, making sure that those documents are updated and chatting with an attorney about that is a really important thing.
Marc Killian: Yeah. We tend to set it and forget it with a lot of those. What are some of the key ones we should think about, John?
John Teixeira: I would say one of the biggest ones is a second marriage. That’s where you really want to pay attention to who the beneficiaries are, who’s getting what. And there are certain rules in the state of Florida. And, of course, defer to the professionals and attorneys on that, where a spouse is entitled to a percentage of the assets. So, if you want to make sure that, if it’s a second marriage, you have kids in the first marriage and you don’t want to disinherit them, you want to make sure your documents are definitely up to date.
John Teixeira: Another one we’ve seen, and Nick mentioned it, people moving in from out of state. If you have assets in other states, it’s important to make sure that you kind of have some documents for that state where the other assets are. So, example, I’m from Massachusetts. My parents have a house up there, so they had to make sure that… they basically had a will for up there and down here.
Marc Killian: Yeah. I got you. Now, a lot of times, the misconceptions with wills are if you have a will, the saying goes, you will go through probate, whereas a trust allows you to maybe not do that. Is there some other main documents that we should have? I’m assuming the power of attorneys, correct?
Nick McDevitt: Yeah. Durable power of attorney, a will. Oftentimes, people will confuse a traditional will with a living will. And essentially end-of-life documents are important to have.
Marc Killian: Like a medical power of attorney obviously, right?
Nick McDevitt: Yep, exactly. So, there’s kind of that core package that most attorneys will review with you, help you recognize, “Hey, is this out of date? Is this still applicable?” And we always recommend, obviously with any sort of legal topic, that you’re communicating with either an attorney that you have and are familiar with or we obviously have a few attorneys that we work with that we send clients to that we know and trust and will help make sure that they get through the process.
Marc Killian: But it’s often not as costly as we think it’s going to be too, to get these things handled. And once you get them in place, again, out of date, if you’re just making some adjustments, usually can be done through a phone call. So, kind of an easy fix, right?
Nick McDevitt: Yeah. We’ve definitely seen, especially over the last year, many, many companies, including law offices, have put their tech into hyper drive to make [crosstalk 00:05:18] easier for clients. So, yes, sometimes mentally things will feel overwhelming and that will slow us down from doing it. And this is one of those things that doesn’t need to be super difficult and can be done pretty easily.
John Teixeira: Yeah. And we actually have something we give to clients, it’s kind of a wills point checklist. It’s like 24 questions to consider, almost like a prep before you go see an attorney so you feel like, “All right, I’m a little bit prepared for this.” So, if anyone does want that, they’re more than welcome to shoot us an email or call the office and just mention that and we can get it to them.
Marc Killian: Yeah. Again, folks, stop by the website, pfgprivatewealth.com. Drop them an email. John or Nick @pfgprivatewealth.com is where you can email them. Yeah. That’s a great point. So, thanks for bringing that up as well.
Marc Killian: And, John, you mentioned another marriage, for example. So, the BDs, the beneficiary designations, having those incorrect, another easy fix. And it’s not just… we tend to think of, I don’t know, one item or one type of account, but there’s multiple places where you’re going to have these beneficiary designations. And updating these is, again, a pretty easy thing to do.
Marc Killian: I had somebody teach me that there’s a couple of Ds to remember, to kind of trigger you to double-check these: if you get a divorce; if you have a death; or a disability; or at minimum, at least once a decade. That way, you get the four Ds, if you will, to maybe update these or take a look at them.
John Teixeira: Yeah. Those are all really good ones. Actually, kind of going back to the will stuff. So, if you do have beneficiaries on some of these accounts, it does bypass probate. So, if there’s a beneficiary on a life insurance or a retirement account, it doesn’t actually go through probate; it goes directly to that beneficiary. So, that’s always kind of good to know.
John Teixeira: But yeah, divorce, very important one to update. Can’t tell you how many times Nick and I have done some reviews with some clients that are new clients and it’s… we’ve seen on the 401(k)s especially because that’s kind of a set-it-forget-it type thing, where you have an ex-spouse on there. We’ve unfortunately seen some people with 401(k)s where they get auto-enrolled. They just never put a beneficiary on there just because [crosstalk 00:07:27] signed up, it’s auto-enrollment for the company. So, those are two important things to really take a look at.
John Teixeira: And we don’t see this too often, but we have seen some people just kind of just have a fallout with some beneficiaries, whether it’s a child, a niece, nephew, whatever it may be. And we’ve seen some changes from that where it’s, “Hey, to be frank, I just don’t like this person anymore.”
Marc Killian: I mean, it happens. It definitely happens. And so, we’re talking IRAs, life insurance policies, 401(k)s, things of that nature.
John Teixeira: Yep.
Marc Killian: Okay. All right. So, those are, again, pretty easy fixes for some of that stuff. And the havoc they can wreak… I imagine having somebody come in and the new spouse is saying, “Hey, I found out that the old spouse is still on this life insurance policy.” That’s not good. And that’s not an easy fix at that point, but it can be taken care of ahead of time pretty darn quickly.
Marc Killian: Let’s move to some more complicated one here, guys. You could be flirting with disaster, talking about the ticking tax time bomb. Obviously, that is going to continue to be a mainstay of conversation in retirement planning in general because it’s such an important part of it, how we’re being… if we’re being as tax-efficient as possible, I should say. But with the continued spending that we’re seeing as a nation, it seems like this is only going to become more and more of an issue.
Nick McDevitt: Yeah. So, one of the things that we try to… so, when we talk about a tax time bomb, what we’re typically referring to is when people only save into accounts that are tax-deferred, a.k.a. traditional 401(k), a.k.a. traditional IRA. And so, when they are in retirement, the thought process is like, “Hey, I’m going to have lower taxes. So, no matter what, this is going to be a better deal for me.”
Nick McDevitt: And the thing that we try to focus on with clients and with people in general is that there’s a lot of uncertainty on what we know is going to happen from a tax perspective. And so, our really emphasis is not necessarily to be right, as far as, “Hey, we know that X, Y and Z is going to happen”; it’s that you have options so that no matter what, you can adapt to what’s going on.
Nick McDevitt: And the tricky part about that is if you’re two to three years out from retirement, you’re at your highest earning income years, you don’t have any Roth money for example or any just regular investment account funds put away, we may continue to have you save into a pre-tax account. But then once you retire, we may look into trying to do some Roth conversions or make some adjustments or plan for kicking in a strategy when you do retire. So, it’s not like it’s necessarily the easiest thing to navigate. Your best bet is that, as soon as you can, start to save money into different places so that you not only are diversifying your investments, but you’re diversifying how you’re going to be taxed in retirement, is really a thing that we emphasize with clients.
Marc Killian: Yeah. And that’s a good point as well because this is not as easy as a fix, but it’s something you can get on pretty quickly simply by working with an advisor, having them review your scenario and your situation and saying, “Okay, how can we be more tax-efficient?” and looking for ways to do that. And I just saw the other day that they’re estimating about 40 trillion is what’s sitting out there in uncollected taxes on traditional IRAs or 401(k)s. The government’s kind of salivating over this estimated $40 trillion as people go through these retirement accounts and start to pull the money out or whatever the case is. So, certainly places where you could have those conversations and hopefully be more tax-efficient. So, again, if you need the help with that, make sure you’re talking to a qualified professional like John and Nick.
Marc Killian: What about flirting with disaster, guys, when it comes to just no plan at all for long-term care expenses? This one obviously is going to be even more complicated, but most people just ignore it. I know it’s a daunting subject sometimes for folks, but there’s things you can do.
John Teixeira: Yeah. So, you’re right on that. Most people do ignore it. And there are some options out there. They used to be much better. Unfortunately, they’ve kind of gotten just not as strong. 10 years ago, you could get a really good policy from a good provider. And nowadays, a lot of these providers have left the space in essence and they’re not offering it anymore.
John Teixeira: So, what we’ve kind of seen more is kind of, and Nick goes through this part in the class, some hybrid vehicles where it’s a life insurance and a long-term care policy kind of bundled up in one. We’ve had situations where, from a planning standpoint, maybe getting… it’s very hard to qualify for it so we’ve had to put in some buffers to self-insure. Again, not covering the whole cost of it, but just trying to help out in the event that something were to happen. It’s very important, just limited options out there currently, but it’s definitely worth exploring your situation to see what fits for you.
Marc Killian: Yeah. And I imagine you’re going to exacerbate that by not having the conversation. So, if the options are becoming a little bit more limited and you’re also not taking the time to discuss it, you could be putting yourself even further behind the proverbial eight ball. So, definitely have those conversations. Don’t just stick our head in the sand, especially when it comes to long-term care expenses, whether it’s the 2 out of every 3 people or 7 out of every 10. Whatever the case is, it’s happening more and more because we’re living longer. So, we therefore have to deal with those outcomes that come with it.
Marc Killian: One more here, guys, on some places we can flirt with disaster. And then we’ll probably wrap up with an email question that we got into the site as well. But that’s the classic 60/40 portfolio. First, just run it down for us, what that is for folks. And then why might you flirt with disaster on that?
Nick McDevitt: Sure. So, there’s a little bit of jargon in there, of course. We try to stay away from it as much as possible. But a 60/40 portfolio is what’s considered 60% stock, 40% fixed income or bonds. And it’s tricky because really, the way that people invested a short while ago was different than the way that people are investing now. And really, what also happens… so, for example, these last few years, as bond yields or returns from bonds have gone down, people have kind of flirted a little bit more with taking more risk on the stock side. And so, it’s really important to make sure that when you are evaluating your overall portfolio and looking at how much risk you’re willing to take, that you really understand how these different parts work and move together.
Nick McDevitt: So, really, what it boils down to is that it’s important for you to have a liquidation order. So, for example, what some people used to do is, “Hey, I’m going to have a 60/40 portfolio. I’m going to pull from my account every single month without any sort of strategic plan on how I’m going to pull that money out or where it’s pulling from.” And when we have corrections in the market or volatility in the market, where we’ll see people really suffer is let’s say they had a million-dollar portfolio. We get a big pullback. All of a sudden, your statement debt, two months ago said a million bucks, says 800,000 or 750,000 now. It can make you or prompt people to overreact to the market.
Nick McDevitt: And then once that overreaction happens, basically you’re locking up your losses. You’re selling at lows. Then you’re going to want to buy back at highs. And so, it’s really, really important to make sure that the portfolio and the allocation that you have lines up with truly how much risk you’re willing to take.
Marc Killian: Yeah. John, it seems as though the 40% in bonds… I mean, the bond market’s been just as volatile as of late for a while. So, that seems like maybe one of those rules of thumb that might be a bit antiquated, going with that standard 60/40. But again, everybody’s scenario is different, so, like a lot of things, I imagine that it might be fine for some and not for others.
John Teixeira: Yeah, of course. And, like we say, we really want to start with a plan for the client and dictate the investment options and strategy based on that plan. There are some other what we consider fixed income vehicles that can kind of substitute the bond market that we’ve been utilizing when necessary. And, again, works for some people; doesn’t work for others. But it’s good to know your options and how it works for you.
Marc Killian: Yeah. Versus trying to see-
Nick McDevitt: And just to your point there, Marc, too-
Marc Killian: Oh, go ahead.
Nick McDevitt: … as far as the bond side of things. In general, as interest rates go up, bond prices go down. And so, one of the ways that we have built around that, just for clients, for those people listening that are clients, are essentially creating bond ladders in their portfolios that aren’t as negatively impacted as rates do continue to go up. So, there are ways to work and to build around these things, but typically, especially people that are holding this money in their 401(k)s, those sorts of things, there may be significant limitations to how they can adjust to them there. And that’s where they can get in trouble.
Marc Killian: Yeah, no, great points. Exactly. I mean, that’s kind of the point of doing the podcast as well, is to share some of these things for not only existing clients, but obviously for potential clients that might be listening to the show and just hopefully offering some good nuggets of information along the way.
Marc Killian: And with that said, that’s going to kind of wrap up our flirting with disaster. Again, five areas where you can jump on these things and maybe get these corrected pretty easily. At least a couple of them, for sure. And the other ones, it’s worth having those conversations with an advisor, if you’re not working with one, on how to be as efficient as possible.
Marc Killian: With that said, let’s wrap up with an email question this week. Again, if you’d like to stop by the website, we certainly encourage you to do so at pfgprivatewealth.com. A lot of good tools, tips and resources there. While you’re there, you could subscribe to the podcast on Apple, Google, Spotify or whatever platform you use. You can also drop the guys a line as well at pfgprivatewealth.com.
Marc Killian: And here is an email from Andy who says, “How much of my portfolio, guys, is it okay to have invested in just one stock? I’m sitting on about 2 million, but almost half of it is with one company.”
Nick McDevitt: Well, that’s enough to have a panic attack. So, usually, if you’re asking if you have too much in one place, you do. But all kind of joking aside, where we typically see this sort of thing happen is in one of two situations.
Nick McDevitt: So, situation number one, was inherited from a parent. And maybe that parent worked for a company for many, many years or they invested in that company for a long period of time. And now, all of a sudden, that money has ballooned into a big amount. And due to a combination of tax rules and laws, plus sentimental value, all of a sudden, that holding makes up a significant portion of the underlying portfolio.
Nick McDevitt: And option number two is just somebody that has worked for a company for a long time, 30, 40 years. They’ve been buying the company stock for years and years and years. And maybe the stock has performed well and there’s this kind of emotional and financial attachment to it. And so, in this situation, oftentimes what we’ll do is we’ll show them a comparison of that stock to the S&P 500, for example. And oftentimes, the S&P 500 itself has performed similarly or even a little bit better. And we’ll show them like, “Hey, look at, you can have the same sort of upside potential or growth potential by holding an ETF or an index fund versus just holding that one stock and protect yourself a lot more.”
Nick McDevitt: And another question that we’ll pose to them sometimes that we’ve gotten good results from in the past was, “Okay. So, if I was going to hand you a $2 million lottery ticket and you were going to invest that money, would you spend half of it on one stock?” And the answer is usually a cross-eyed look like, “No, are you crazy?” And so, that’s exactly the same sort of thought process, where usually it’s just way more risk than somebody needs to take. There’s ways to still have similar performance and reduce the risk by quite a bit. And it’s just not really worth it at that point in time, is typically the case.
Marc Killian: All right. Great question, Andy. Thank you so much for submitting that into the show. I know it’s cliche, but as your grandmama might’ve said, “Don’t have all your eggs in one basket.” So, have those conversations. And certainly, you’re thinking about it, to Nick’s point, if you took the time to drop an email to the show here. You’re obviously probably already thinking that direction anyway. So, follow up. Have a conversation with some qualified professionals like John and Nick from PFG Private Wealth.
Marc Killian: And that’s going to do it this week for us on the podcast. Thanks for your time as always. We appreciate it. Always check out with a qualified professional, as I mentioned, before you take any action on anything you hear on this show or any other. And you can find it all at pfgprivatewealth.com. For John, for Nick, we’ll see you next time here on the show. Thanks for your time. We’ll talk to you later.