Consumers Turn to Credit Cards as Inflation Pressures Finances

This month’s charts examine the trend of increasing consumer credit usage. Figure 1 charts the amount of outstanding revolving consumer credit, and Figure 2 charts the year-over-year percentage growth of revolving credit. Revolving credit, such as a credit card, allows the accountholder to borrow money repeatedly up to a set credit limit while making monthly payments. The charts show credit usage initially decreased during the pandemic as consumers used government stimulus checks and savings from fewer discretionary purchases to pay down debt.

After declining during the pandemic, data shows consumer credit usage is rising again and now back above pre-pandemic levels. The increase in credit usage started during 2021 as the effect of stimulus checks faded and the economic reopening released a wave of pent-up demand. Credit usage continues to increase during 2022 as inflation increases the price of everyday necessities, such as gas, groceries, and housing.

The increase in consumer credit usage raises an important point. Credit cards are an easy and common way to borrow money, but they are also one of the most expensive forms of borrowing. Most credit cards charge a variable interest rate tied to the prime rate, which is linked to the federal funds rate. This year’s interest rate increases by the Federal Reserve are intended to ease inflation pressures, but they also make carrying a credit card balance more expensive. An increase in the federal funds rate increases the prime rate, which in turn increases the interest rate charged on credit cards. According to a recent survey by Bankrate.com, the average credit card interest rate reached 17.96% at the end of August, which marks the highest level since 1996.

The increase in mortgage and auto loan rates is getting all the attention this year, but the increase in credit card interest rates is more impactful to everyday life. Credit cards are a valuable tool to manage your personal finances, such as building up a credit score, increasing your purchasing power, and earning rewards. However, credit cards can also create negative issues, such as overspending, high balances, and high interest expenses, when misused and mismanaged. Now is an important time to review your financial plan and make sure you’re sticking to it.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS. PFG Private Wealth Management, LLC is a registered investment advisor.

Ep 53: Getting It Right: Irreversible Financial Decisions

On This Episode

There are plenty of decisions that you’ll make in the retirement planning process that can’t be undone, so you want to make sure that you make the right call. On this episode, we’ll explain why these decisions are so important and can’t be undone.

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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: Back here for another edition of Retirement Planning Redefined with John and Nick once again, joining me to talk about getting things right the first time. There are some irreversible financial decisions or close to it in retirement and there’s plenty of things we’ve got to deal with. So we want to make sure we get it right as often as possible, right out of the gate, because some of these things just cannot be undone. So you guys being in Florida, mulligans, everybody plays golf. Mulligans are a thing, for sure. You didn’t see that? Some mulligan, its a give me. Let me do it again, kind of thing. But there’s things in retirements that you just got to get right the first time. So that’s going to be the topic this week. Nick, what’s going on, buddy? How you doing?

 


Nick: Good. Good. Staying busy.

 


Speaker 1: Yeah. Keeping rocking and a rolling. John, how you feeling my friend?

 


John : I’m feeling good. I’m feeling good. I’m looking forward to this topic. I’m actually a couple of weeks out from finish some construction in my house and I wish that the original builds and plumbers got it right and knew how to glue some pipes that wouldn’t have caused a leak down the road. But anyhow,

 


Speaker 1: Yes.

 


John : Looking forward to getting that construction done, so.

 


Speaker 1: Yeah, I tell you what, that’s a great point. Right. So we all want people to do their job right the first time. Certainly when you hire someone, that’s what you expect. But these are some decisions that many people do to themselves because so many people DIY retirement. Right. One of the benefits to turning to financial professionals like yourselves is to get these things right so that you don’t have to worry about having these issues that can’t be undone. So let’s walk through a few of these. We’re going to start with a biggie. Again, there’s a little caveat here, but for the most part, once you turn on social security, it is what it is. So you have to be sure that you’re, especially if you’re activating it early, that this is what you want to do. There technically is a do over, but most people don’t really go through it. So kind of explain if you will guys.

 


John : Yeah. So this is a big one because social security equates to roughly 30 to 40% of kind of average households retirement income going into retirement. So it’s important. And Nick and I, everything we kind of say goes back to the planning and this can’t be stressed enough because once you start taking it, let’s do over for the first year out of it, that is what it is. And I’ll kind of use an example of a client that we had where she was a survivor and she wasn’t fully aware of her options and the strategies she could use. And just luckily she was referred to us right before she started taking social security. And I don’t want to go too much into details, but basically the strategy that she was just going to take initially, I mean would’ve cost her a lot of money down the road. So we simply had to basically call social security, stop the payment and redo the strategy. But again, by not really having a game plan, she could have cost herself a lot of money down the road. And this doesn’t happen just for survivors. It’s anybody, whether it’s your taking your own benefit or divorced, things like that. So there’s a lot of things to evaluate when you’re taking social security and when’s the best time to take it.

 


Speaker 1: Okay. So and again I mentioned the fact that you can pull it back. Right. You have what one year. Nick is that right, correct? You have one year.

 


Nick: Yeah. So essentially the rule is that if you begin your social security benefits, you have 12 months to essentially reverse your decision that you started receiving benefits. You have to pay the benefits that you received back and then you can defer it again as if you never took it. So years ago, you used to be able to do that over a much longer period of time. And then the Social Security Administration caught onto that and they restricted it to a 12 month period.

 


Speaker 1: And let’s be honest. Most people, the reason doesn’t get really used very often is who wants to do it. Most people don’t want to, as soon as they hear, well, you got to pay the money back. They’re kind of like, eh, so I don’t want to do that. Right. So,

 


Nick: Yeah.

 


Speaker 1: [inaudible 00:03:57].

 


Nick: Yeah, it’s a tricky thing.

 


Speaker 1: Yeah.

 


Nick: It’s like we’ve had some clients inquire about this recently and their sub full retirement age, so sub 66 or 67 or somewhere in between there and in instances where, because where the confusion lies for a lot of people is they want to continue to work maybe, but shift to part-time.

 


Speaker 1: Yeah.

 


Nick: And they don’t realize that the part-time income is still in excess of the amount that they can earn without any sort of penalty, which for most people is around $20,000 for the year.

 


Speaker 1: Yeah.

 


Nick: And when you start to factor in the fact that you’re permanently locking in a lower benefit plus running the risk of having a penalty on top of it for the rest of your life, it’s not ideal. So,

 


Speaker 1: Right.

 


Nick: That’s definitely a major decision and something that we like to model out and test out for people.

 


Speaker 1: And again, so technically there’s a caveat to undo in a very limited window, but it’s just best to get this right the first time, because for all intents and purposes, it’s irreversible. You just don’t want to go down that path. Same with the spousal benefit situation here on a pension, should you be lucky enough to have one. Once you select this, I don’t believe there is any do-overs on this. It is what it is.

 


Nick: Yeah, that’s correct. This is definitely a topic that we go through in the classes pretty in detail. Years ago, it was a lot easier for people to mess this decision up. It still happens sometimes, but it’s less common because oftentimes the spouse has to sign off on it. But the reality is that having a really good understanding of what sort of survivor benefit you’re going to choose, if you are eligible for a pension through your employer is a major, major decision and something to take into consideration. And one thing to throw in here too, for those that live in the state of Florida, oftentimes the projections that they send you or that you can access easily online, I should say are options like one and two or A and B. And there are two other options that are oftentimes better options and you usually have to request those. So we’ve seen that be a mistake that people have made only thinking that they had two options when there’s actually four.

 


Speaker 1: Gotcha.

 


Nick: So that’s something and it’s important to know.

 


Speaker 1: Okay.

 


John : And what Nick’s referencing there is the Florida pension plan, the state pension plan.

 


Speaker 1: The state. Okay. Got it. Thank you. So John, what about life insurance? What is the kind of the impact here? Irreversible financial decision, somebody might say, well, can I just cancel it or whatever, right, kind of deal, but what are some important points to know when it comes to this?

 


John : Yeah. So when you’re doing planning, one of the things we look at is we start with the need for life insurance. And that really depends on dependence and some other factors, but it’s easier to get when your younger. So that’s one thing we take a look at and there’s different types of policies that allow you to convert. And not to get too much into the weeds, but the older you get, some health issues might come up where you can no longer get it. So that’s where it becomes very important to understand, Hey, is this something I really want to have down the road and does it work in my financial plan? And if it does, the sooner you can get it the better because things come up as we all know. As you get older, health issues come up. So you want to get it right the first time.

 


Speaker 1: And that’s where you could run into a problem, right, especially if you wait too long and then a diagnosis happens, then it could either make it impossible or certainly incredibly costly.

 


Nick: Yeah. Especially, we joked a little bit in the last podcast about John and I hitting 40 this year. And the reality is, is that I know, I know. Everybody I’m sure is shedding a lot of tears.

 


Speaker 1: A lot of our listeners are like 40. I would trade with you in a minute.

 


John : Let’s see, 40 back surgery this year. It’s a good year.

 


Nick: Yeah. All of a sudden I got tendonitis in my arm and my shoulders all messed up.

 


Speaker 1: And right now you have listeners going, I’m going to go in and slap him.

 


Nick: I know, I know. But the key, the point with this whole thing is that some of these things, maybe not some of the things that John and I talked about, but maybe a type two diabetes or some sort of health issue that pops up where it doesn’t in reality, necessarily in most people’s mind affect what your life is going to be like. It could have an impact on what life insurance is going to cost for you.

 


Speaker 1: Yeah, exactly.

 


Nick: And so you pay for it out of your bank account, but you qualify with your health. And so usually the sooner you can lock in any sort of coverage, the less expensive it is and that’ll pay off over time.

 


Speaker 1: No, you’re exactly right. I mean, we’re coming up, we were joking about this, but to really drive home your point, we’re coming up on the 10th anniversary for me of my open heart surgery. I was 41 years old. I didn’t think anything of it. And so it made it really difficult to get life insurance or get some different kinds of insurance once I had that happen. So I monkeyed around and waited too long. Right. And then I was like, well, I didn’t know this was coming. Now luckily it was more lifestyle and things. So after enough of a time period, I started to eventually get some offers, but it is more expensive. So it is important to definitely have this stuff in place if you can, sooner than later, because again, it makes the financial impacts pretty great. So definitely keep that in mind as well. And then finally, choosing a retirement date. We debated on this one, about throwing this on the list because people would definitely can argue and say, well, sure you could change your decision on this. If you pencil in a date to actually retire, you can just move it around as you need to. But if you want to take it that a step further, depending on how you want to go, if you’ve given notice at a position, maybe not, right, it may be something you can’t undo that. So just talk to me about the impacts of just either penciling in, choosing a retirement date to actually walk away just from different pros and cons.

 


Nick: Yeah. I can jump in on this a little bit. This is something where in reality, I think what we found is maybe a specific date is necessarily the key or the thought process, but understanding the range that you’re looking at and understanding what sort of cost you might be incurring if you do retire early. So for example, if your somebody that has saved and done a good job of that and is looking to retire early, call it maybe 62, understanding the impact of how much lower your social security benefit is, understanding what sort of costs you’re going to have when it comes to premiums for your health insurance. So as an example, we’ve got clients that are paying, some clients that are paying between eight and $10,000 a year for health insurance premiums per person, when they were used to while they were working, paying closer to three to $4,000 for the household. So that’s something that can have an impact on that retirement date, where maybe you’ve been thinking in the back of your mind, Hey, I’ve got a good nest egg. I’m just going to plan to go a little bit early, but didn’t quite realize the expenses associated with it. On top of that, from a planning perspective, we do have other clients that they knew that they were going to retire early. And so we put strategies together for leading up to retiring early. They were able to save some extra money into non-qualified or non-retirement accounts. And by taking their income in the first few years of retirement, out of those accounts, it allows them to qualify for certain subsidies for health insurance, which brings their costs down. So again, when we have clarity on what the goals and the objectives are in the financial world, there’s usually ways that we can plan around it and try to optimize it. And so having a good idea of what that looks like and the impact of the fallout from that goal and then planning around that, it allows us to be more strategic.

 


Speaker 1: All right. So obviously there’s lots of little things in there where again, you could make the argument that you could move some of these things around, but ideally we want to get it right the first time. And often, as I mentioned earlier, excuse me, when we’re doing it ourselves, we don’t know a lot of these little things, a lot of a little caveats and whatnot. So we want to get it right the first time. And that’s where working with a professional really comes into play. So if you got questions, you need some help as always make sure you’re checking with a qualified pro before you take any action on something here on this podcast or any other, you want to make sure that you’re seeing how it reflects and affects your specific situation. So stop by the website, pfgprivatewealth.com. That’s the home for the team, pfgprivatewealth.com. You can subscribe to us on Apple, Google, Spotify, iHeart, Stitcher, all that good stuff. Retirement Planning Redefined is the name of the show. You can look it up on those apps if you’d like, or just stop by the website again, pfgprivatewealth.com. We appreciate your time here on this week’s podcast. We’ll see you soon for another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth.

Ep 52: Retirement Planning From A Psychologist’s Point Of View

On This Episode

We always talk about the money side of financial and retirement planning. But what about the mental aspect of that big life change? Today we’ll break down an article written by a Licensed Professional Counselor (Kate Schroeder) for Psychology Today, titled The Psychological Investment In Retirement.

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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: Welcome into another edition of Retirement Planning Redefined. Thanks for hanging out on the podcast with John, Nick and myself, as we’re going to talk about retirement planning from a psychologicalist… Can’t talk, from a psychologist point of view. Say that three times fast. What’s going on, guys? How’re you doing this week?

 


Nick: Pretty good. How’re you doing?

 


Speaker 1: Apparently I can’t talk, but other than that I’m doing all right. What’s going on with you, John, my friend? How’re you feeling?

 


John: Pretty good. I think last time we spoke, I don’t know if I mentioned in the podcast, I was getting ready for kind of lumbar spine surgery. So, four weeks out and feeling pretty good, so everything went well, as far as I can tell and looking forward to rehabbing and getting back to normal.

 


Speaker 1: Good. Good to hear. Nick, my friend, I think we’re taping this just before the beginning of September. You and I are, I think John is too, football fans for sure. And so, it’s just around the corner. By the time we drop this podcast, it should be out. So, looking forward to the new season?

 


Nick: Oh yeah. Yep. Bills are opening up this season next Thursday night, so [inaudible 00:00:57] I’m pretty excited about that. Yeah.

 


Speaker 1: Very good. Very good. So good. Well, that’s always a fun time of the year for a lot of sports fans, so they’ll be happy to have that back. But let’s talk about, and I guess if you want to think about that analogy for a second of sports fans, we get kind of… Lots of people, sports fans get pretty depressed when the football season ends or whatever season it is that they’re into, sport they’re into. And then they get rejuvenated when it gets closer. Well, if you think about this from a retirement planning standpoint, a lot of people get pretty stressed, clearly, it’s a big difference, I understand, but I’m just kind of using that as an analogy to when it comes time to making that shift from working into actually being retired. So, there’s these big mental hurdles, if you will, to major life changes. So, we’ll put the link in the show notes as well, but we’ll break down this article written by a licensed professional counselor, Kate Schroeder, hopefully I’m saying that right, for Psychology Today and titled The Psychology of Investing for Retirement… Excuse me, The Psychological Investment of Retirement. As I mentioned earlier, I can’t talk today. So, let’s talk a little bit about this because, Nick, I know you got a little bit of a story to share along the lines of this as well, but a lot of people don’t consider, and this is kind of the first key point, the consequences of what that transition looks like when they walk away from something, the routine, the definition maybe, whatever term you want to put to it, that their life has had for a number of years, and they go into retirement. It’s a big, big hurdle for people.

 


Nick: Yeah. We’ve had a bunch of clients retire recently in the last couple of years, my parents have retired recently, so I see it a little bit more on the personal side with them and the transition for people, especially during a time we’ve had the last couple of years during COVID, post-COVID, people typically need purpose and structure. And so, for those that are not used to having that extra time, or maybe they weren’t self-employed, or maybe they got up and went to the office every day, they had that redundant kind of structure that at times, I’m sure they didn’t like, but maybe didn’t necessarily realize how big of an impact it had on kind of their overall life and their planning. Having all that extra time and having to find ways to fill that time and not kind of have it just turn into a black hole of sleeping in, just maybe watching TV, watching the news, doing things that aren’t necessarily healthy for you, or kind of keep your mind sharp and going. The feedback that we’ve gotten from quite a few people is that that transition has been a little bit more difficult than they expected.

 


Speaker 1: For sure. John, the author goes on to point out that the number one thing retirees struggle with is finding something consistent and kind of genuine or lasting in what they’re moving to. So, we need purpose as people, we need to find something that, I don’t know, makes us want to get out of bed, so to speak.

 


John: Yeah. Yeah. I would a hundred percent agree with that. I think finding something that has meaning to you or someone else, or really, I would say just helping people. I think what I’ve seen a lot of people where they’ve struggled with that, it’s like, “Hey, what do you enjoy doing? What can you do to help some other people or even family?” So, I’ve found a lot of people get fulfillment from that. So, whether it’s finding a charity that you’ve kind of probably, maybe want to participate in and never had time to, at this point, it’d be a good time. I’ll use my parents as an example, they watch my kids two to three days a week and that kind of gives them some consistency and purpose. It’s funny, my dad will actually… They’ve been retired for a little bit, but I can tell when he is getting bored, when he calls me up and he’s like, “Anything you need to be done around the house that I can come do?” And I’m like, “Yeah, sure, come on over.” So, for at least them, their consistency is their grandkids and kind of helping out family, but I think everyone needs to find kind of what’s important to them to give them some meaning and some level of importance to the ones around them and themselves.

 


Speaker 1: For sure. Well, as humans, look, I mean for a lot of ways we looked forward to retirement. We’re like, “Yes.” Maybe you’re tired of your job. You’re like, “I can’t wait to get out of here. This is going to be awesome. I’m going to do nothing.” But at some point the lack of structure does kick in and we kind of require that, we kind of crave that, I think as a species. We need some guardrails or something just to keep us on the track if you will. And so, people view their time off or that break as more of a stressful period because maybe there’s just nothing… Something productive is not there. Or even just the accomplishment of completing tasks. So, it can be that simple. And imagine when you guys are dealing with retirees, again, that’s the big hurdle. They have the excitement of wanting to be retired, but then at some point they do need that structure to be there. And maybe for some people that’s, Nick, I don’t know, going back to work or maybe finally starting some hobby thing they’ve always wanted to do. I’m sure you have clients ask about that.

 


Nick: Yeah. For some people it can be… We’ve had some clients that do a great job with it, that are almost more busy than they were when they were working.

 


Speaker 1: That’s the old saying, too. Right?

 


Nick: Yeah. Yeah. Have that mindset of maybe it’s lifelong learning, that sort of thing. And then they take up, whether it’s a sport or activity like golf. Or we had one client recently who has been trying to learn a new language and traveled and went and stayed in the country that they were trying to learn the language and kind of immersed themselves in it. And that was something that they really enjoyed kind of doing. And so, one thing just because this has been on my mind a little bit, just kind of seeing different clients go through it is just thinking further out, down the line, and even personally for myself, what are the things that I enjoy doing? What do I like to do? And one thing I’ve realized is, and it sounds pretty basic, but just getting outside, just being outside, even if it’s just for a walk or going for a bike ride, walking along the water, fortunately we have that here, can be a really good mental reset. So, that’s one thing I’ve heard from people where if they’re finding themselves maybe kind of falling into a routine that they’re not a fan of, having some sort of reset activity that kind of snaps them out of it, gets them going out, doing different things. It’s almost like the snowball effect where just doing one or two new things will oftentimes spur you into trying other things.

 


Speaker 1: Yeah, for sure.

 


John: Nick actually, and I’m following next month, you just hit 40 this year, so I think he’s giving some personal experience on his midlife reset here.

 


Speaker 1: Is it midlife at 40 or have we moved that to 50? Because I’m 50 and I feel like it’s now.

 


John: For myself about turn 40 next month, let’s say it’s moved to 50.

 


Speaker 1: Okay. All right. Yeah. I’m feeling it pretty heavy right this minute, so maybe 50 is better. You both got a ways to go, so that’s okay. So, I was going to pivot to your practice or just your clients in general. Do you see people that sometimes come in mentally prepared for this at all? And either whoever wants to answer, feel free to answer, but where they kind of come in and they’re already leading that charge by saying, “Hey, I’m a little worried about the transition,” or asking for advice on that, or even just saying, “Yeah, I’m prepared. This is what I want to do.”

 


John: Yeah. Yeah, I think we see that quite a bit. We see it a lot when, let’s say, one spouse is retiring early.

 


Speaker 1: Oh okay. Good point. Yeah.

 


John: I think when that happens, it’s the person that’s retiring early starts to think, “Hey, what am I going to do while you’re working?” So, I’ll say those people are typically thinking ahead of the game of, “Hey, while he or she’s working, I need to find something to do. And this is what I’m going to do.” And we’ve had people that get into photography or start doing kind of more physical activity, whether it’s running, bike and things like that, just kind of becomes more of a routine like we talked about. So, I’ll say yeah, I think we see a lot of clients that do start to mentally prepare for it. And normally if it’s a couple situation, it’s kind of what we like to do together, whether it’s traveling or whatever it might be, but we definitely see that quite a bit.

 


Speaker 1: Yeah. I’m five years older than my wife, and so she teases me already. She’s like, “I don’t know what I’m going to do if you retire before me,” she’s like, “Which you probably will.” She’s like, “I don’t know if I’m going to be jealous about that or not, it depends.” So, that’s yet to be seen in my life. Nick, when you guys have people that are struggling here, is there a role that you guys can play as advisors that help in that? Can you share other things you’ve seen or have you kind of encountered that where you do get leaned on?

 


Nick: Yeah. So, I would say what we tend to see people that have worked their whole lives, they’re transitioning into retirement and they have done a good job saving, but they have a little bit of a scarcity mindset. And they’re really concerned about whether or not they can afford something or by default, that’s one of the benefits that… That’s one of the things that have probably helped them throughout their working years save more money, was being a little bit more on the conservative side, but then in retirement they find themselves struggling to use the money that they saved up. And so, from a planning perspective, we try to tell people that, “Let us tell you now. So, whether it’s a thought process of you want to consider getting a second home in the mountains, or you want to bump up your travel budget for the first 10 years of retirement, or there’s a certain sort of, whether it’s a social club or a golf course or something that’s going to help kind of bring stability to your life, but you’re concerned about the money aspect of it. Let us run the numbers for you and show you that it’s okay.” And we go through different scenarios. And what we’ve found is because for many people, we’re trying to help them just improve their decision-making process when it comes to finances, and so we really try to help focus on the fact that we don’t want them to be self-limiting. The goal for us working together is to communicate for them to share with us what’s important to them, so that we can help get them there from a financial perspective, or at least give them the confidence they need to go ahead and make that decision. And frankly, we see that… We get emails or calls every couple of weeks on these people that are starting to make that transition and think about those sorts of things, so that’s probably the most fun part about what we do.

 


Speaker 1: That’s cool. Well, we’ll wrap it up with this kind of last little question here to follow this up. Is this something you guys actively include that’s kind of a softer side, if you will, of the financial planning process, not just the Xs and the Os? Is it something you think about as a team that you guys discuss these other parameters that’s not just again the Xs and Os? John, if you want to answer or either one of you guys or both.

 


John: Yeah. I think it is something that we consider and I think it’s a case by case, so not for everyone do we kind of go into this with planning, but specific individuals where we feel like, “Hey, maybe they need a little bit of guidance or a little assistance on some options, what’s out there, we’ll definitely go into it.” And in the classes that we teach and go through, there’s a section of the book that actually has some resources where pre-retirees, or retirees can go in and kind of see what’s out there. What are people doing? It’s always good to hear what others are doing to give you an idea of like, “Oh, I didn’t realize this was out there. I can do this.”

 


Speaker 1: Nick, anything else?

 


Nick: Yeah, I would just say kind of a little bit of what I alluded to in the last portion where just trying to get them to think about things more broadly, and instead of kind of going through… Because so many people, it’s like they have a friend or a brother or a sibling or whatever that did this or that did that. And they’re used to kind of sitting back and watching and maybe not participating as much. And so, them just really kind of being comfortable enough to open up to us, tell us what they really want to do, so that we can help figure that sort of thing out. From a financial perspective… To arm them with the information they need from a financial perspective, to be able to make the decisions that they want from a lifestyle perspective, I think is one of our top goals.

 


Speaker 1: Well, again, it’s a huge component of retiring, we get so focused on the Xs and the Os, making sure do I have enough money to retire, all that kind of stuff. And obviously that’s clearly important, but there is a lot to think about from the mental side, getting prepared to step away from maybe something you have been doing for 20, 30, 40 years, whatever the case is, how it affects the other person in your life. There’s a lot of little parameters that go into retirement other than just the money. And so, that was the point this week here on the podcast. Again, we’ll include the link to this reporter, this article from Kate Schroeder that we talked about here today on the show. And before we go, Nick, I wanted to give you a chance to mention, you guys have an upcoming class pretty soon here if folks would like to get involved. Give us a little bit of a rundown on that please.

 


Nick: Yeah. So, John had mentioned earlier in the session that we do classes and we know a lot of our clients have come through those classes, so starting on September 15th, we’ll be holding our normal Retirement Planning Today class at the Pasco-Hernando Porter Campus. It’s a two day session, so it’s about three hours each day. People can attend on the 15th and the 22nd, which are Thursdays, or the 20th and the 27th, which are Tuesdays. And so, we go through a full gamut of information. We bring an attorney to go through the estate planning portion of the class. And we always welcome those that have come through the class already, they’re always welcome to attend again as well. So yeah, just wanted to let everybody know that was coming up.

 


Speaker 1: Yeah. Good stuff. Now, this podcast is probably dropping out shortly before that, so what’s probably the fastest way to see if there’s still space available? Just to call the number? Just to call the (813) 286-7776?

 


Nick: Yeah, go ahead and give the office a call or shoot either John or myself an email and we can do the connection for you.

 


Speaker 1: Okay. So again, it’s (813) 286-7776 if you’d like to attend that Retirement Planning Today class, or you could email John or Nick, the basic way to spell their name, John, Nick@pfgprivatewealth.com. And there’s a lot of good tools, tips, and resources there. Guys, thanks for hanging out. John, I’m glad you’re feeling better, my friend.

 


John: Appreciate it. Thanks. Have a good one.

 


Speaker 1: Absolutely. Nick, thanks as well, buddy. And I’ll catch you guys in a couple of weeks.

 


Nick: Talk soon.

 


Speaker 1: All right. We’ll see you next time right here on retirement planning redefined with John and Nick from PFG Private Wealth.

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.

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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 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.

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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.