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

On This Episode

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

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

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

Here is a transcript of today’s episode:


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


John: Hey, doing good. How are you?


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


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


Mark: Nice.


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


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


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


Mark: Okay.


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


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


Nick: Yeah. Luckily I’m flying. So…


Mark: All right.


Nick: We’re good to go.


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


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


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


Mark: Sure. The world we have. Yeah.


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


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


Nick: Yep. Very much reactionary.


Mark: Okay.


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


Mark: Which is the wrong. Yeah. Okay.


Nick: Yeah.


Mark: So that’s the first one.


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


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


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


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


Mark: Sure. Right.


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


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


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


Mark: Sure. Yeah.


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


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


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


Nick: Right.


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


Nick: Oh yeah.


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


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


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


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


Mark: Yeah.


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


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


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


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


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


Mark: There you go.


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


Mark: Sure.


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


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


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


Mark: No, you’re fine.


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


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


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


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


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


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


Mark: That’s a great point. Yeah.


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


Mark: Right. Yeah.


Nick: Or text message.


Mark: Wait till you cool down.


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


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


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


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


Mark: Well, that’s true too, but.


Nick: So if you really want it…


Mark: What do you think, John?


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


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


John: That could affect the rest of your life.


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


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


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


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

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

On This Episode

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

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More Episodes

Check out all the episodes by clicking here.



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

Here is a transcript of today’s episode:


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


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


Nick McDevitt: Good.


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


Marc Killian: Nice.


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


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


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


Marc Killian: Right? I know.


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


John Teixeira: Yeah.


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


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


Marc Killian: Yeah.


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


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


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


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


Marc Killian: Yeah.


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


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


John Teixeira: Yeah. That was a big risk.


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


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


Marc Killian: Right.


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


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


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


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


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


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


John Teixeira: Yeah.


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


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


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


Marc Killian: Yeah.


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


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


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


Marc Killian: Right.


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


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


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


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


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


Marc Killian: Yeah.


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


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


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


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


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


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


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


Nick McDevitt: I’ll go with the Packers.


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


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


Marc Killian: He does play.


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


Marc Killian: Yeah.


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


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

Ep 26: How To Process A Rollover

On This Episode

Last episode we talked about the different items to take into account if you are thinking about doing a rollover. John and Nick will discuss how to actually process a rollover and some common mistakes to avoid.

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

Here is a transcript of today’s episode:


Marc: Thanks for tuning in to Retirement Planning Redefined with John and Nick from PFG Private Wealth. We appreciate you tuning back into the podcast. We’re following up with our prior session on rollovers, if it’s right for you, having the conversation and this session is going to be a little bit more about how to kind of go through that. Some of the differences, some of the biggest mistakes sometimes that people might get themselves into when attempting to do this. So we’re going to dive in and get started. We’re just going to just hop right in.


Marc: Nick, differences between rollovers and transfers. Let’s just start there, kind of break it down a little bit for us.


Nick: Yeah, I would say, the reality is, is that this space from the standpoint or the perspective of the process of taking your money from one place in a retirement account and putting it into another place in a retirement account, the jargon or the terminology gets intermingled quite a bit. And some of those terms that get intermingled are rollovers and transfers, and we’ll talk about it a little bit more, but from the perspective of a direct rollover versus the 60 day rollover.


Nick: Just to kind of back up a quick second, when we are discussing or having this conversation we kind of preface it from the standpoint of the money that we’re talking about is money that is held in a retirement plan of either a former employer, so maybe it’s 401(k) or 403(b), and you are looking to move that money elsewhere.


Nick: Your options are typically you can take that money and you can do a direct rollover into either traditional individually held of IRA. Or if the funds are Roth funds, you can move it into a individually held Roth IRA. Or if you are employed with a new employer and you are eligible, you have to check with them, you may be able to move the money into the new plan at work and do it that way.


Nick: When you are doing that, usually when you are executing kind of this process, it either has to be done via a form, or via a phone call. Some places require a form and we’ve seen a lot of people make mistakes on completing the form correctly, so oftentimes we’ll help clients with it. And then if it’s a phone call, the issue is that you’re dealing with somebody and I will say the level of service probably over the last few years at companies has gotten better, but we still see a lot of mistakes.


Nick: Oftentimes you are working with somebody that’s working in a call center and although it is their job, mistakes happen. When you are kind of doing this process, understanding that the terminology of executing a rollover is when you are moving that money from that retirement account into an IRA or a new plan. A transfer is when you have an existing account that is an IRA or a Roth IRA, and you are moving it from one custodian to another custodian.


Nick: I’ll use an example just to try to make it a little bit more easily understandable. A direct rollover example is, okay, Mrs. Client, she just got done working at her company and their 401(k) was held at Fidelity. And now Mrs. Client would like to move the money from Fidelity into the IRA that she opened up at Vanguard. She’s able to call up and get the process going of processing that roll over from Fidelity, the 401(k) to the IRA at Vanguard. A transfer is you already have an IRA or somebody already has an IRA. We can say at T. Rowe Price and they have a new IRA, they no longer like T. Rowe Price, they have a new IRA at Fidelity, and they want to move that money from T. Rowe Price to Fidelity. That is a custodian to custodian transfer. And the reason that we mentioned that is because there are some limitations on what are technically rollovers.


Nick: John, can you give a little bit of an example of exactly what a 60 day roll over it?


John: Yeah. There actually kind of two ways to do it where if it’s coming from a plan. Let’s say if it’s coming to you directly. So John Teixeira gets a check from the plan, I have 60 days to put that into my IRA. Or if let’s say I have money in my IRA, and for whatever reason, I might need the funds and I pull it out, I have 60 days to put it back into the plan, and that would be a kind of a 60 day rollover period.


John: Important if you are processing it that way, definitely keep good records. You want to keep the records of when the money was distributed when you received it, and then when you deposit it, because if you ever were audited, you have to prove that the money went back in within 60 days or else everything is taxable.


Nick: And the issue with that 60 day rollover and what kind of give an example of kind of one of the most common ways that we’ll see it as a mistake is that you are only eligible to execute I believe it’s one of those per calendar year. Is that correct, John?


John: Yeah, that is correct.


Nick: So if somebody is making a mistake or even doing it on purpose, if they by mistake execute more than one of those in a year, there’s some pretty significant penalties that are involved in that, and that’s really something that you want to avoid. What we always like to see is the money moving directly from one custodian to the other custodian. And when that happens, the check is made payable from the old custodian to the new custodian. And we’ll kind of talk about that in a little bit more detail, but I wanted to give a kind of a quick example of where we see this mistake happen the most often.


Nick: The reality is that the majority of the people that are listening to this with how things are set up currently, they may not run into this too often, but where we have seen this issue come up quite a bit is if they are helping their parents with finances. Maybe their parents are in their 70s or 80s. And oftentimes that age demographic loves CDs and they love chasing rates at banks. And there will be confusion from the standpoint of, hey mom has a CD at BB&T Bank, and the CD is actually inside of an IRA. And she goes into the branch to move the CD from BB&T bank over to Bank of America because Bank of America is offering an extra 0.2%. And so she’s working with the teller at the bank and she says, “Hey, I want to take out my money because I’m moving it to another bank.”


Nick: What we’ve seen happen is that teller will sometimes have that check made payable to the client, to mom, in her name. And at that point it’s considered that starts at 60 day window. The reality is that we want that check made payable to the new institution for the benefit of mom. This is where we’ve seen issues kind of pop up and arise where mom might try to do this a couple of times a year. Now she has done more than one 60 day rollover in a year because it was done incorrectly. It wasn’t necessarily her fault and it just creates this total kind of quagmire and tax nightmare.


Nick: We always like to kind of bring that up to make sure that people understand that that’s an issue. And again, because the terminology is oftentimes intermingled and not done correctly, having that done the proper way is really important. I know John does a good job of explaining the best way that people can make sure that they execute that properly.


John: Thank you, Nick. I do a very good job at explaining that, actually. So I appreciate that. So yeah, just kind of walk you through the process of doing a direct rollover. First step is contacting the investment provider for the retirement plan and you need to determine, can they do this over the phone or is it a form as Nick mentioned earlier? Let’s just assume it’s over the phone and you’re putting your money into, let’s say TD Ameritrade. TD Ameritrade is the custodian, they’re the ones holding the funds. They’re like a Fidelity or Vanguard. So you want to make sure that check is made payable to the custodian, and that way you’re not the one getting the receipt of the funds, it’s the custodian, and that’s the main reason why it doesn’t kind of execute that 60 day rollover kind of window.


John: It’s a direct transfer to the custodian and the checks going to be written out to in this example, TD Ameritrade for benefit of you. So if I’m doing it, it’s going to be check’s going to be made out to the TD Ameritrade for Benefit of John Teixeria. Now, once you receive that check, we were going to say it now, do not sign the check, because it’s actually not written out to you, it’s written out to the custodian. We do have some people that will say, “Do I sign it?” Or, “I signed it. What do I do?” Don’t sign it. There’s no need to.


John: Once you receive the check, the next step is now it needs to get deposited into your IRA. And if you’re working with an advisor, typically you pass it off to him or her. And if you’re just working directly with an investment company, you’re going to want to go ahead and get it to the investment company and have them deposit into the IRA for you. If you are mailing checks, just some people like to be cautious and kind of make sure it has some type of a tracking number which is something you can request from the retirement provider, not necessarily, but some people just prefer that so they can kind of keep track of where it’s at.


Marc: Okay. So obviously there’s a lot that can go into this and there’s mistakes that are going to happen as you just alluded to. So what are some things to maybe avoid, just kind of some simple things to check off for folks?


Nick: I would say the first one and we talk about this whole process in the class that we teach. And I have a slide that I bring up and it’s a huge picture of a train fire. The biggest mistake to avoid again, is to do a lump sum distribution when the money’s paid directly to you. That is the number one. And I know we’ve kind of harped on it quite a bit, but it can be confusing because especially on some of the forms that companies use. They say, “Hey, I want to take all my money out, because I’m going to move it to this new place. So that’s a lump sum distribution, right?”


Nick: Well, depending upon where it is, that might mean that that money is coming directly to you, which it enters you into that 60 day window, which is what we want to avoid. Making sure that you do a direct rollover versus a lump sum distribution is really important. That’s probably the number one mistake.


John: Yeah, and if we see the lump sum, what the 401(k) or whatever, 403(b) provider will have to automatically do. If I were to receive the money directly to me, they would have to withhold 20% automatically. 20% is going to uncle Sam, so that could create an issue if you’re trying to get all your money back into another IRA within 60 days.


Marc: Well you mentioned 401(k), and then you said another. I would assume that this is kind of the same for several of those alphabet soups, right? Whether it’s a 403(b) or TSP, is that same kind of process in general?


John: Yes. Yeah.


Marc: Okay.


John: I mean, yeah, exactly. Employer retirement plans, it’s-


Marc: Gotcha, okay. Because sometimes people-


John: … across the board.


Marc: … get confused by that, right. They’ll think, “Oh, well I don’t have a 401(k). I have a 403(b) or whatever.”


John: Yeah, 401(k), 403(b), 457-


Marc: Right.


John: [crosstalk 00:11:41] plans.


Marc: Right. Yeah.


John: All of them.


Marc: All of them. Yeah, the whole alphabet soup. Exactly.


John: Yeah.


Marc: Nick, any other mistakes to avoid anything too that we might’ve missed as we’re kind of winding down here?


Nick: I know it’s come up a couple of times, but sometimes people will worry about timing. From the perspective of there’s… As an example, the last five months really kind of post-Corona market drops, et cetera, et cetera. And people will say, “Hey I’ve lost a bunch of money in my account, is now the time to move it? Should I wait for it to bounce back?” And the reality is that you want to take a broader perspective and look at it from the standpoint of that you’re moving it from market to market. So the goal is to do it as quickly as possible, but the perspective of, hey, should I let this bounce back before I move it? Isn’t necessarily always valid because as long as you’re in a similar allocation and maybe even a better allocation with a higher level of management, the reality is, is your bounce back could be quicker and/or better potentially by making a change the sooner the better. It all depends, but that’s usually a pretty low priority variable in the whole conversation is time.


Marc: Okay. All right. Well, there you go, folks. So as always, there could be some moving parts here, it’s not always very too complicated, I suppose, maybe is a good word, but it can be, especially if you’re not focusing. The best way to do it is to avoid some of those mistakes by reaching out and talking with a qualified professional before you take any action, getting some helpful tips, getting some advice, whatever the case might be. But before you take action, reach out to someone who does this on the regular. So call John, call Nick, give them a jingle at (813) 286-7776, that’s (813) 286-7776. When you’re talking about doing a rollover and if it’s right for you, there’s just a lot of questions that they can help you walk through and get you some advice going in the right direction. Also, stop by the website at pfgprivatewealth.com, that is pfgprivatewealth.com.


Marc: While you’re there, subscribe to the podcast, Retirement Planning Redefined, you can find them on Apple, Google, Spotify, whatever platform you choose. So there you go, that’s going to do it for the series here on rollovers guys. Thanks for your time as always. I appreciate it. Obviously, there’s so much that goes on in the financial world. It’s good to just do these since you’re not doing classes right now, doing a lot of things online or podcasts. It’s good to go through and kind of get this information out for folks.


Nick: Thanks, Marc.


John: Thank you.


Marc: Appreciate your time. We’ll talk to you next time here on Retirement Planning Redefined with John and Nick of PFG Private Wealth, and we’ll see you next time.