Ep 55: How Bonds Work: What Retirees Need To Know

On This Episode

Too many folks misunderstand bonds, how they work, and what role they play in a proper financial plan. We’ll address some of those bond related issues on today’s show.

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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 Killian: Welcome into another edition of the podcast, Retirement Planning – Redefined with John and Nick from PFG Private Wealth. And it’s time to talk about bonds and really what you need to know and how they actually work. And there’s a lot of conversation around that, obviously in ’22, certainly to the fact that nothing seems like a good idea as far as things go. And when the market is weird, often we run to bonds for the safety aspect, but there’s some things going on there too. So, let’s talk about how they actually work, what role they might play in a proper financial structure and how maybe this here lately, it’s been a bit of a different show in that regard. So guys, welcome in. Nick, what’s going on buddy? How are you?


Nick McDevitt: Pretty good, pretty good. Staying busy.


Marc Killian: Yeah, that’s good. Very good. John, and you? How are you doing?


John Teixiera: Doing all right.


Marc Killian: Yeah?


John Teixiera: Hanging in there.


Marc Killian: How’s the bond market? A little rough.


John Teixiera: Little rough if you’ve owned some already. Could be good if you’re buying some new ones.


Marc Killian: Yeah, right. And that’s the difference, right?


John Teixiera: It depends where you’re at.


Marc Killian: Depends where you’re at. So yeah, we’re going to talk about that a little bit. First thing I want people to understand is that the bond market is actually way bigger than the stock market. A lot of people don’t know that. That’s just an interesting little tidbit, but it is a lot bigger.


John Teixiera: Yeah. Yeah, a lot of people aren’t aware of that, but-


Marc Killian: There’s a whole lot more stuff in there. Right?


John Teixiera: Yeah.


Marc Killian: But let’s go into the misunderstandings, right? So first off, just why don’t you guys give us the basic gist of how a bond works, for folks who just might not know?


John Teixiera: Yeah. So, to break it down to its simplest form, a bond is basically loaning your money to a public institution or private entity. So, you’re basically saying, “Hey, I’m going to give you my money.” And for that, the company typically provides some type of interest rate for that period of time where they have your money. And as far as obligations go from that company or public institution, there’s a promise to pay you back. And that promise is only as good as the paying ability of that company. So, I think that’s bonds in a nutshell, if you try to break it down to its simplest form.


Marc Killian: Yeah, you’re loaning the company money, right? You’re lending them money versus as a stockholder you’re buying a piece.


John Teixiera: Correct.


Marc Killian: Yeah. Okay. Nick, what’s the difference between a bond and a bond fund? So, like an individual bond and a bond fund? Because most of us wind up with bond funds and we’re maybe not totally sure what it is we have, we just say, “Oh, I have some bonds.” But what they really have is a bond fund.


Nick McDevitt: Yeah. The reality is the difference as far as how it affects a typical investor is the important part to understand. So, with bond prices and interest rates having an inverse relationship, so again, if interest rates go up, bond prices go down, then the issue that somebody that has invested in a bond fund has is it’s a pool of bonds. And so, you’re relying upon the manager of that bond fund to manage the buying and selling of those bonds while trying to protect the value of your account and gaining interest. So, sometimes the easiest way to guide people through this, and obviously we’ve been having this conversation quite a bit lately with people, especially with how we’ve invested in fixed income in the last few years, is that if you own an individual bond, you have the ability to hold it until maturity. And when you hold it until maturity, you then receive the par value back. And this might be a little bit too much detail, but we’ll try to give people a good understanding of this. So, oftentimes people get confused with the difference between the initial issue of a bond and then when it trades in the secondary market. So, when a company initially issues the bond, that’s when they are receiving the loan basically, or the money from whoever purchases that bond initially. So, when they sell the bond, the bond sells for $1,000, there’s a promise to pay that the company issues with the bond as well as, “Hey, in the meantime we’re going to pay you an interest or a coupon.” So, let’s just say it’s 3%. So, company A, we’ll call them Apple, Apple issues a bond in 2020 for five years and they’re going to pay 2% over those five years. And as long as whoever holds that bond at the end of that five years, no matter what they paid for it, they’re going to get $1,000 back. That’s the promise.


Marc Killian: Okay.


Nick McDevitt: So, we’ll say John bought that bond initially, but two years into it he decides, “Hey, I no longer want this bond, I’m going to go ahead and sell it.” So, because of the market situation and what’s going on in the market, that bond in the secondary market, because interest rates have gone up, even though he paid 1,000, he can only sell it for 900, because that 2% coupon rate isn’t competitive.


Marc Killian: Right. Yeah.


Nick McDevitt: So, let’s say he sold it to me and I bought it for 900. So, I got a discount like, “Hey, I’m only getting 2% so I’m not going to pay less, so I’m going to get a discount.” And now my goal is I’m going to hold that bond until the end of that total five year period and I’m going to collect that 2%, but I’m also going to get the extra $100 on top, which makes my return, my overall return, my total return higher. So, the difference is that when people, as an individual, when they own those bonds individually, they have more control over holding that into maturity and essentially getting their par value back while collecting their interests in the meantime versus when it’s in a bond fund, that performance is strictly going to take place dependent upon how it gets managed. And we know obviously it’s confusing and it’s always a tricky spot of trying to help people understand and giving what might be too much information. But with this, I think a lot of times it’s the more you know, the better it is to try to understand it.


Marc Killian: Yeah. And we’re going to talk a little bit more about some normal things that we’re used to thinking about or hearing and how it messes us up a little bit. And John mentioned earlier, he is like, “Yeah, if you’re getting into a bond right now, higher interest rates, they look a little bit more appealing than someone who bought maybe a year ago, as the rates were down lower.” And to your point, you said the inverse reaction. I was always taught, an easy way to remember it is when rates are high, bonds die. So, little rhyme, helps you remember it. So, when rates are high, bonds die, because the value. Right? So, they have that inverse reaction. That’s just a good way to think about it. So, John, a lot of people consider them to be the safer, conservative part. I want to jump to the standard 60/40 for just lack of a better term. Right? We’ve grown up with this thing of when the market’s rough go to bonds, right? As you get older, go to bonds, because it’s a safer option and we feel as though it’s that safe, conservative part of the portfolio. Do you agree with that approach normally? And what’s your take on it this year when it’s also having a lot of trouble?


John Teixiera: Yeah, normally I’d say that you’re correct. Yeah, normally that is how it works. This year it’s a little different obviously with the Federal Reserve really trying to hedge against inflation. So, they have been aggressively raising the rates. So, that’s where you’re starting to see these bond values drop drastically. And I don’t know the exact number, but I think year-to-date we’re almost negative 10 to 15% in the [inaudible 00:07:35] bond index.


Marc Killian: Yeah. It was close to 15, last I checked.


John Teixiera: Yeah. That’s actually what’s happening in people’s portfolios where if the market was down, they have at least a bond portion that’s level or maybe down a little bit or up a little bit. But right now it’s like, hey, you’re getting two sides of it where they’re both getting hammered. This is where it’s important, and Nick mentioned, how can you mitigate that risk? And you can do it, it’s just a matter of structuring the portfolio and getting the right type of investments to understand, “Hey, in this type of environment, this is where I want to be.” So, it really comes down to, again, this is your investment plan. Like, “Hey, what’s your investment plan to mitigate this type of environment and how do you take some of this risk out of your portfolio?”


Marc Killian: Yeah. Nick, back to you, and the question I asked you a minute ago, people say, “Well, individual bonds themselves may not still be a bad option right now in this current bond environment, but it’s the bond funds that tend to be taking a bit more of an issue.” And to your point, you mentioned, actually maybe it was John who mentioned them being a pooled investment, but either way, right? And that bond fund manager, whereas an individual bond may still be an okay option. So, that’s really where you need to talk with your advisor or have an advisor to find out if you’re thinking about bonds, what’s the right avenue to go? Am I on track there or is that incorrect?


Nick McDevitt: Yeah. To a certain extent, for sure. And another thing that happens, one of the things that we’ve integrated into clients’ portfolios, and we did it a few years back, was bond ladders. So, exchange traded funds that hold bond ladders that mature at a set maturity date, so that way we can still use a pool of investment that’s a little bit more efficient to buy and sell, and we know when the maturity data is going to be, so we can act accordingly and adjust accordingly. So, there’s always this give and take, but using instruments like that, using individual bonds, are absolutely ways to take a little bit more control in the space and have less of a negative impact on the overall value of your portfolio.


John Teixiera: Yeah. And to jump in with what Nick’s saying there-


Nick McDevitt: Sure.


John Teixiera: … I think it comes down to ownership. When you have a bond fund, you don’t actually own those bonds, the fund does, you own a piece of the fund, but when you’re talking about individual bonds or this basket of bonds, that’s where you technically have ownership of that. So, you can control when it’s bought or sold.


Marc Killian: Okay. Yeah, that’s great information. Thanks so much for sharing that. So, guys, anything else that I might have missed on the bond, what we need to know area? Either one of you, feel free to jump in with something.


Nick McDevitt: I think from the perspective of overall for investors and just understanding in general the space that we’re in, one thing that we’ve done even recently is we’ve started to add in some shorter term CDs for clients, because that helps them get a decent rate of return because those rates of returns have gone up and it lets them stay a little bit more flexible with where we expect rates to go, which we still expect some increase on them in the next six to 12 months, where they can then stabilize a little bit. But just like anything else, it’s important to have … Different aspects of your investments have different jobs, and bonds and fixed income still play a necessary role. And realistically for people that are retired or are going to be retiring soon, a lot of the pressure on portfolios for the last 10 years has been all on the stock market because you really couldn’t get any returns on the fixed income side. So, now at least, hey, we can get four to 5% a lot easier on fixed income, which will help to generate returns and income for people, which it makes it a little bit easier for us to get a little bit more conservative in portfolios, which has been much more difficult over the last 10 years. So, there’s a little bit of a silver lining in here and as we adapt to a new normal like we always do, there will be positive to it. But when you’re in the midst of it and going through it, like we have this year, it can be difficult.


Marc Killian: Yeah, no, and that’s why I wanted to talk about it because again, we were taught this traditionalism and if you’re doing things on your own, you’re thinking, “Hey, I’ll just jump over to bonds, while the market’s been so rough this year after,” to your point, “the market being fantastic for the last 10, 12 years.” And it may or may not be a good move. Right? So, that’s just why, understand the basics, or maybe a little bit more than the basics, and then make sure that you’re having a conversation with an advisor. Bring somebody into the fold, especially if you don’t know what you’re dealing with, because there’s a lot out there in the bond arena. So, good stuff. Thanks for sharing on that, guys, I appreciate it. Again folks, if you’ve got questions and need help, jump on over to the website, book some time with them, reach out to them, let them know you’ve got some questions around bonds and how it works or what you’re thinking about doing, or strategy, conversation, questions, whatever that might be. And get some time with the guys at pfgprivatewealth.com. That’s pfgprivatewealth.com. A lot of good tools, tips and resources. You can send a message into the podcast. Like I said, you can schedule time to talk with the guys. Lots of good stuff there. So, pfgprivatewealth.com. And we’ll wrap it up with an email question again this week here on the podcast, Hoover wants to jump in on this, totally fine. Wendy had a question. She says, “Guys, our 401(k) plan at work now has a Roth option for available future contributions. Should I take advantage of that?” I’m curious too, guys, because actually my wife, they just offered that to her actually. She just got the paperwork I think about three days ago. So, what’s your thoughts on 401(k) Roth options?


Nick McDevitt: The annoying answer is it depends. The reality is that most likely it does make sense to take advantage of it. Some people cannot make contributions to regular Roth IRA accounts because the income is too high. So, this is their only way to be able to make contributions. Our feeling in general is that the more options you have from income sources in retirement, the better. So, especially if you don’t have any Roth funds built up or if your pre-tax funds are substantially more than your Roth funds, it’s a good idea to integrate that. And so, one thing that people have done to just start it, so as an example, let’s say that somebody’s contributing 10% of their income and maybe their company matches 4%. Okay? So, the match that a company puts in is always pre-tax. So, in reality, if they’re doing 10 and they get a 4% match, 14% of their income is going into pre-tax money. So, maybe you say, “Hey, out of my 10 I’m going to make it 4% Roth to match the match that they’re getting. The other 6% is pre-tax, and now it’s like 10 and four.” That could be a good place to start. And then maybe build it up where some people say, “Hey, each year when I get a raise, I bump up my contribution by a percent or 2% and try to build it up to make it match, until you’re maxing out.” But absolutely, building that up to build up some Roth funds for yourself is a good idea.


Marc Killian: Yeah. The limits, so if you think about a traditional Roth IRA, there’s earnings limits, right? You can only make a certain amount, I think it’s 144,000 for individuals, 214, somewhere in that neighborhood, I think, for married couples. And they change it all the time, but I think that’s ’22. But with a Roth 401(k) at work, there is no income limit. So, if she makes more than that, for example, she could still put money in.


Nick McDevitt: Exactly. Yeah. But you don’t have to deal with that income limitation anymore, which is great.


Marc Killian: And it’s a newer piece too, John, right? Not every company has this option yet, so they’re starting to come on more and more though.


John Teixiera: Yeah. Yeah, it is a newer piece. I’d say the majority of companies we run across now do have them.


Marc Killian: Okay, good.


John Teixiera: But I’d say we do run across some that still don’t offer it, but it’s catching on pretty quick because a lot of people do like that option.


Marc Killian: Yeah, for sure. So, I think definitely to answer the question, just make sure that you’re double checking, check the various different limitations. If you don’t have a professional you can bounce those questions off, certainly, hopefully the guys gave you some thoughts there. But you can always just call, reach out, and get a little bit more in-depth if you have some of those Roth 401(k) questions versus a Roth IRA, and those questions too, as well. But reach out to the guys, don’t forget to subscribe to the podcast, Apple, Google, Spotify, all that good stuff. It’s Retirement Planning – Redefined with John and Nick, and you can find them online at pfgprivatewealth.com. Guys, thanks for your time. As always, appreciate, have a good close out to the holiday season as that’s upon us, and we’ll see you guys 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.



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

Here is a transcript of today’s episode:


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


Nick: Doing pretty good. Thanks.


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


Nick: Unfortunately she passed like a month ago.


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


John: Thanks. I definitely need and appreciate it.


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

Ep 42: How “The Great Resignation” Could Impact You Or A Loved One’s Retirement

On This Episode

Droves of workers are retiring early or taking a break from work as they change career paths. It’s become known as The Great Resignation. On this episode, we’ll highlight some of the key takeaways of a recent Forbes article and explore a lot of the impacts on retirement planning from across different age groups in the wake of this massive workplace shift that’s underway.

Forbes Article: https://bit.ly/3JtbbeQ

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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:


Mark: Hey everybody, welcome in to the podcast. Thanks for tuning in to another edition of Retirement Planning Redefined with John and Nick, as we talk investing, finance, and retirement. And we are going to discuss the Great Resignation on this podcast. And if you’re not familiar with that, well, that’s been all the mass exodus of people leaving work over the last three to four to five months. And we’ve got some interesting key takeaways here to talk a little bit about this. Droves of workers retiring early, or taking a break as they consider this career path, that’s been called now the Great Resignation, and there’s a Forbes article, we’ll probably take a link and put that in the show notes as well. But guys, what’s going on? How you doing Nick?



Nick: Good, good. Staying busy, kind of getting rocking and rolling to start off the new year. So, you know, I think a month or two ago we had hoped that maybe it’d be a little less chaotic from the standpoint of the whole pandemic thing, but I think everybody’s just kind of plugging away and recovering from the holidays.



Mark: Yeah, definitely. John, how you doing my friend?



John: I’m good. I’m good. Doing good.



Mark: Yeah. Nothing, nothing too crazy going on. Into the new year all right?



John: Yeah. Yeah, it was quiet. So just hung out with family locally here and in Tampa area. So it was just a nice little break and like Nick said kind of excited to be back to doing some work here and the holidays it’s always nice, but at the same time, I’m kind of ready to get back at it.



Mark: Yeah, exactly. So have you guys heard this term, the Great Resignation, are you guys a little bit aware of this and what’s your thoughts? We’ll get into it here, some data here in just a second, but just have curious if you’ve heard it or not.



Nick: Yeah, I definitely have. I think it’s interesting. I think depending upon who you talk to, their interpretation of it is a little bit different, but in my mind it’s really, it’s kind of, to kind of think about it from the perspective as almost like a real estate market, there’s a buyer’s market and there’s a seller’s market. And I think that really what’s happened is not all, but many companies have been slow to kind of improve wages and pay and benefits and things like that and so this has kind of put things into kind of the worker’s hands a little bit more and given them a little bit of leverage from the perspective of competitiveness from a company standpoint. And that obviously, that doesn’t deal with the people that are in between or are waiting to kind of figure out what they want to do with their whole life, that sort of thing, but more specifically, the people changing jobs and how difficult it’s been for employers to keep employees.



Mark: Yeah. I mean, it’s definitely all over the map and John, we’re going to talk a little bit about it from the different age groups, but for the most part, we’re going to look at it as it affects retirees and pre-retirees, but have you seen some of this stuff? Are you familiar with it?



John: Not necessarily the term itself, but yeah, we’ve seen a lot of this with our own clients that are basically doing some job changes or just outright, just retiring early which I know we’re going to get into. But yeah, we’re seeing quite a bit of this. And then we see it when we’re trying to personally and work wise trying to get service work done. It feels like-



Mark: Big time.



John: Feels like no one’s working anymore. My local Dunkin’ Donuts here, I can’t go in to get a coffee because they don’t have enough workers, so everything’s drive through. But it just [crosstalk 00:03:23] seen across the board.



Mark: And that’s part of it. Yeah. And that’s part of it. So a lot of times, I think, when we think about this what’s happened in the pandemic, we automatically go to the lower paying scale jobs, the fast food type jobs, and that’s definitely a big piece, but for an example, 4.2 million people quit their job in October of 2021. So just a couple of months ago and there’s been a lot of other people quitting. So there’s been, I think somewhere now around six, six and a half million, I think over the last four to four and a half months. And it’s not just the lower end stuff. And of course it’s also unknown how long these people will stay out of work. Some of it could be retirees or pre-retirees that are just like, you know what, I’m not going back.



Mark: I’ll use my brother as an example, he’s 63 and he’s like, as long as they keep me working from home, I’m going to stay. But the minute they tell me, I have to go back to the office. I think I’m going to pull the trigger and retire early, even though his plan calls for him to wait till 60, his full retirement age, which I think is 66 and seven months or something like that. So let’s talk about it from that’s kind of standpoint, guys.



Mark: I’ve got three takeaway categories here, or actually four. I’m going to kind of give you guys the headline and let you guys roll from there a little bit on this. Okay. So we’ll dive into it, hit it however you’d like, not just the lower income scale, but also the upper end, or people just closer to retirement things that you might be seeing or hearing. So number one, if you are going to step away early, taking a break from Social Security, whether it’s short term, long term or whatever, don’t sell short that, the impact that, that can have to your long term benefits.



Nick: So, depending upon how long you are out of work, it’s important to keep into consideration that when you’re not earning an income, you’re not building up your Social Security credits and so that’s something that can impact you down the line. And I’ve actually had this come up a little bit lately where people don’t quite grasp the impact, the positive impact of Social Security, or how much, or how important it is to their overall plan. So it is a big deal and you want to make sure you still have your 10 year minimum work history. It’s important to remember that, really the benefit that you receive is a cumulative kind of record of your highest 35 years of income.



Mark: Right.



Nick: So every year that you have a higher year than a previous year, adjusted for inflation, that’s going to knock out the other years and you really kind of help bump that benefit up.



Mark: Right. And if you’re stepping away in your fifties because of this Great Resignation type of thing here, that’s some prime earning years. So that’s where I say you could be putting a big dent in that.



Nick: Yeah, absolutely. And realistically it always does kind of go back to the whole plan concept of that we really try to harp on people about, is we have had some people retire early because we have had a bull market for the last 10 years and they’ve done a good job with saving and those sorts of things, but we kind of verified it through the planning, the whole retire really early on a whim or not really looking at it from an analytical standpoint can definitely be pretty, pretty dangerous.



Mark: Yeah, for sure. So you definitely want to make sure that if you are stepping away from Social Security, you’re looking at what it could do to your long term strategy, six months, a year, retiring early, whatever the case might be. Just make sure you’re strategizing that with your advisor.



Mark: John, talk to me a little bit about takeaway number two, the 401k isn’t a rainy day fund, is kind of the category I had. Because over the last two years, and even the last six months, there’s some pretty interesting stats about what people are doing with their 401ks.



John: Yeah, yeah, for sure. I mean, during COVID 2020, there was some ability to actually access for 401k funds or retirement funds without any penalty.



Mark: Right.



John: And not even have to do a loan and that’s gone away. So now, not that… Fortunately for our clients, and I think we do a great job educating them, we haven’t really seen too much of this where clients are taking out 401k loans. But I have had conversations with some individuals that have done that. And it’s just kind of like, “Hey, how much can I pull from my fund? I did this, what are the impacts of it?” So it’s just important to fall back to the plan. And we do a… One of our biggest recommendation’s to make sure that people have an emergency fund and whether it’s three to six months or a year of emergency savings, because, as you know the pandemic hit in 2020 and no one saw that coming and you just don’t know what’s going to happen in the future. So it’s important to have an emergency fund to help out in certain situations like this, so you avoid pulling from the 401k loan because you really want to let those assets grow for your retirement and not access it for rainy day funds- [crosstalk 00:08:10].



Mark: Kind of a stop gap.



John: …. on things like that.



Mark: Yeah, yeah, yeah. What’s some negative impacts of doing that though, John? I think one of the things people get lost on is just the compounding of it over time, right?



John: Yeah. So you take out 40 grand out of it, basically, especially, let’s say you did that in 2020, let’s say you took out $40,000 there, you just lost the compounding over the next year and a half, two years of which has been really excellent in reality [crosstalk 00:08:33] with what the market’s done. So not… You’re just not losing that $40,000, you’re losing what that $40,000 could have grown to, which is the importance of having, again, the rainy day fund, so you can let that money in there, let that money grow for you and earn and work for you.



Mark: Yeah.



John: And then nevermind then you’re paying money back into it that are after tax dollar. So there’s a lot that goes into it that you really need to evaluate it. Sometimes it’s you have to because you have nothing else to pull from.



Mark: Right.



John: But it’s always important to plan and make sure that you… This is the last resort.



Mark: I hear a lot of advisors say taking that loan against it is usually the later, like if it’s kind of like the last in the line, if you really need it, okay, here’s where we can go. But let’s try not to. Just simply from a multitude of reasons, especially with the resignation, right? If you take a loan against your 401k and you leave the job, you have to pay that back. Correct?



John: Yeah. That’s a great point that you bring up. Most companies will give you 30 days to pay it back. So example, you take out that $40,000 and all of a sudden it’s, “Hey, we’re downsizing,” and you get a pink slip, and not only you got, now you all of a sudden you got to pay 40 grand back to your 401k within, a 30 day period, maybe 60 day period. And if you do not pay it back, you’re going to be paying taxes and penalty on that, on those dollars.



Mark: Pretty stiff. Yeah.



John: Yeah.



Mark: Yeah. So that’s another takeaway for that. And Nick, let’s stick with the 401k for a minute for the next one. If you are in this kind of nomad thing where you’re jumping out of one job, you’re waiting a bit, maybe going into another, looking for a better option for yourself, seeing who’s hiring, whatever the scenario is, take that 401k with you, right? Don’t just leave it back behind at the old place.



Nick: Yeah. It can be, realistically the more accounts people have, the more places, the more often things are overlooked, not checked up on, not taken care of, so we definitely are fans of consolidating. Whether it’s rolling it into the plan at your new employer or rolling it into an IRA where you can control the assets yourself or work with an advisor to manage them for you. Just like so many other things, it’s one of the things that former or past employer 401k plans are oftentimes one of the most overlooked and non-adjusted things that we’ve seen people kind of not take care of.



Mark: Yeah.



Nick: And then they lose a lot of long term money on it because of that.



Mark: Well, you got to think about the vested portion too. Right? So if it’s, let’s say you’re 50 or something like that, and you’re pondering this, make sure you under… that you’re getting the fully vested part before you jump on. There are some people that could say, well, all right, maybe I’d better stick this out a little longer or whatever the case is.



Nick: Yeah, absolutely. There are some people that… It’s much more common for people to move from one employer to the next these days. Especially in certain industries where they can be almost more of a tech role or consultant role, things like that. And sometimes, because of that, their employer has put in a decent amount of money, so an employee’s contributions are always vested, it’s always their money, but they could have substantial employer matching that vests over three to five years. Or some other sorts of benefits, even if it’s not exactly the 401k, but maybe there’s a stock plan that has vesting. It’s important to take those things into consideration because we’ve seen people leave tens of thousands of dollars on the table.



Mark: Right.



Nick: Not realizing that it was a factor they should have taken into consideration before they switched employers.



Mark: Yeah. Don’t leave that behind. Right? So definitely take it with you, whether you’re rolling it from the old one into the new one. And if you do it properly, it’s not going to, it’s not an issue, right, Nick? So if you’ve got it in the old one and you roll it to the new one, you just go through the proper channels and there’s no taxable event and so on and so forth. Same thing if you move it to an IRA, correct?



Nick: Correct. Yeah. The goal is always to make sure that it’s rollover, it’s not taken as a lump sum distribution-



Mark: To yourself.



Nick: Yeah. So you always want to make sure that when the rollover happens, it gets paid directly to the new custodian. So it’s not written out to you. It’s written to the new custodian, whether that’s a Fidelity or a Vanguard or whoever it may be, it’s paid directly to them, the funds go over and that avoids there being any sort of tax liability or penalty if somebody’s under the age of 59 and a half.



Mark: All right. So let’s go to the fourth takeaway here, guys. I’ll let you both kind of jump in and out on this. John, I’ll start with you. It seems like this whole resignation thing is kind of tailor made for those early retirement dreamers. Kind of go back to my brother’s conversation there about, Well, if they… I’ll retire a couple years early, if they make me go back to the office kind of thing, but I’ll work from home.” So it’s enticing for sure, but point out some challenges to just ponder if you are retiring early, ahead of what you originally planned, you guys kind of divide up a few of these, if you would, but John go ahead and start with a couple of bullet points to think about.



John: Yeah. One of the things that I think about is qualifying for Social Security. The earliest you can draw Social Security is age 62. So, if you’re retiring at let’s just call 57, you got a decent gap of where you can’t take any Social Security. So you really have to evaluate are there any other income sources coming in like a pension or maybe some real estate income or whatever it might be. And then if there isn’t, is your nest egg able to sustain your plans. [crosstalk 00:14:06].



Mark: Five years, yeah.



John: Yeah. Is it able to work if you’re using your nest egg to basically live off of for that period of time. So those are one of the things. And then you always want to of look at as one, we’ve had situations where one spouse might retire early and the other one’s still work and they say, “Hey, we could live off of just one income for the time being. And if we need any extra money, we have the nest egg that we can pull from as needed.” So that would be a big one to really look at.



John: Another one that we come across quite often is healthcare coverage. I’d say one of the main reasons that people don’t retire. From our standpoint, what we see is really healthcare. So they wait till they’re 65, so they can draw on Medicare. And prior to that, they just kind of look at the cost of going to the Marketplace and say, you know what, this is probably a little too rich for my blood, so [crosstalk 00:14:55] kind of hold off.



Mark: And if you use your example of 57, I mean, you’re talking eight years, what are you doing in that gap? Right.



John: Yeah. And we’ve seen everyone’s situations different in what their premium is, but I’ve seen some premiums for individual at that age at $10-11,000 per year. Nevermind, the coverage isn’t as good. So that’s [crosstalk 00:15:12]-



Mark: And that’s not per person too. Right. So if you and the spouse.



John: Yeah, yeah. Yep. That’s per person.



Mark: Can your retirement accounts handle that for that setup that we just talked about or whatever the case might be and then realizing that that’s also, that your retirement is now going to be longer, right, because you’ve retired early, so it’s the kind of great multiplier. So those things just kind of compound and go up from there. Nick, do you agree with that and what’s some things you see?



Nick: Yeah. For sure. It’s definitely a slippery slope when you start to factor in. We’ve got some clients who work for large employers, their total health premiums for the households can run $2-3,000 a year for both of them. So when you go and you take… You go from $2-3000 for both of you while you’re working to somewhere between $8-20,000 a year before Medicare age, it can be pretty substantial. And oftentimes, for many people, there’s going to be a price increase, even when they’re on Medicare from if you were working for a company that was a larger employer and had pretty inexpensive health benefits. So that makes a huge, huge difference.



Nick: And one way that some people have managed things from that perspective are with some of the Marketplace options out there will kind of connect people with specialists that can help on the medical insurance side of things. And you may be able to take money from taxable accounts that don’t have large gains to put your income lower so that you don’t pay as much, but in reality, to be frank, usually the only people that can do that are ones that have saved substantial amount of money into a non-qualified account, which usually means they have a lot of money. So, it’s less of an issue. So really looking at that, looking at the different types of accounts, when you create your withdrawal rate, and figuring out, hey, how can we keep your income taxes low, not a only for a short period of time when you’re in retirement, but kind of building flexibility throughout your retirement, where you’re not just letting this tax bomb grow, or you’re not using all of your Roth money first or leaving it all for the end.



Nick: It’s usually kind of a bit of a balance. So we harp on it a lot, but this is really where there’s so many factors and things like this. That this is where kind of software and the tech tools that we have today really help us tailor make a plan, come up with a really good income and liquidation strategy, help us figure out what kind of gaps are we going to have between the time that you retire and when things like Social Security are going to kick in to help supplement the income, and then when Medicare’s going to kick in to help reduce expenses. So, it’s definitely a puzzle and fortunately we enjoy putting the pieces together.



Mark: Right. Well, look, if you’re on the fence, well, if you already did the resigned and walked away, hopefully you had a plan in place, but if you’re not, if you’re among some of those folks that are still considering, I’ve heard some interesting stats that they think that’s going to happen. Again, early on the first half of 2022, make sure you’re talking with an advisor about all the different things that could happen if you do step away early. Most people, hopefully do, but sometimes you just get frustrated or whatever the case is. And a lot of it does have to do with this kind of going back to work, staying working from home, it got good to us, we really kind of, in some ways, very much so enjoy being able to work from home, in other ways we kind of missed the camaraderie. So there’s a lot of different things to just kind of take into account before you pull the Great Resignation.



Mark: And with that, we’re going to wrap it up this week. We’re going to knock out an email question here real fast. Whichever one of you guys want to tackle this, but we’ve got one from Rebecca who said, “Guys, every six months or so I tell myself, I need to start saving more for retirement and I pretend like I’m going to get serious and actually do it. But then I can’t stay motivated to increase my savings. I’m putting a decent amount in the 401k and I have a pretty nice balance there, but it feels like I could be doing more. It’s the beginning of the year, I want to be more motivated. How do I do it?”



John: This comes up quite a bit. And I’d say the easiest way to save is probably the 401k, because it’s done through payroll and you really, once you start saving in to it, you really don’t miss the money coming out into it and you can always adjust it. And we’ve had some people where they say, “Hey, I’m putting enough into my 401k, what else should I do?” And the first step is just really just setting up an account and you can start with as little as $25 a month, or $50 a month, but once that account’s open, it’s much easier just to say, hey, let me up this. So I would say the first step is look at the 401k and if you don’t want to continue contributing to that, just open up an account somewhere with your advisor or on your own and just set it up monthly, and then you can always adjust it as needed.



Mark: Yeah. Or maybe a Roth, right? If she wants to look at a tax, something more tax efficient. So…



John: Yep.



Mark: That’s another way to look at it. But yeah, I think if you automate it and you just put it in play, Rebecca, that should hopefully get you… You just, if you don’t see it and you don’t think about it and it’s just happening in the background, then that’s the beauty of it, so then you don’t have to worry about necessarily getting motivated. But another way might be to sit down with a professional and start getting some advice. It doesn’t matter really on your age, the sooner, the better. So if you got questions, need some help, reach out to John and Nick, go to the website, pfgprivatewealth.com. That’s pfgprivatewealth.com.



Mark: Don’t forget to subscribe to the podcast on whatever platform you like to use, Apple, Google, Spotify, iHeart, Stitcher, just type in Retirement Planning Redefined, or again, just find it all at their website, pfgprivatewealth.com. If you got questions, need some help, John and Nick are here for you.



Mark: Guys, thanks for hanging out. I appreciate it. Talking to me about the Great Resignation and we’ll talk about it in a couple of weeks here, we’ll see what’s going on.



Nick: Thanks, Mark



John: Thanks.



Mark: I appreciate your time as always. Guys, thanks for hanging out with me. We’ll see you next time here on the podcast, with John and Nick, this is Retirement Planning Redefined.

Ep 40: Quit Cutting Corners In Your Financial Plan

On This Episode

It can be tempting to cut corners as you make your retirement plan – but those decisions can often turn into a huge inconvenience, if not an outright disaster. We’ll go over some common ways people cut corners in their financial plan, and what you should be doing instead.

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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 to the podcast. Thanks for tuning in to Retirement Planning – Redefined with John and Nick here from PFG Private Wealth. Going to have a good conversation, as we usually do, about investing, finance, and retirement, and cutting corners. Quit it, stop that. You don’t want to cut corners when it comes to your financial plan. So we’re going to look at a few ways that people try to do that. And the guys will give us some feedback on why that is not a good idea.


Marc Killian: And we are moving right along here in the year, it’s just winging by. So how you guys doing, everything going all right?


Nick McDevitt: We’re getting ready for approaching the holiday season here. Usually these last couple months of the year just fly by, just end of the year stuff and get through the holidays.


Marc Killian: John, how about you, buddy?


John Teixeira: Doing good, yeah. Doing good. Actually this morning I picked up my wife and kids from the airport and I like to think I saved someone’s life. Some guy fell on the escalator and couldn’t get up so I had to run there and help him up. So I did my good deed for today.


Marc Killian: Fantastic. Nice. I’ll tell you what, those things, man, they can hurt. You get trapped on one of those things-


John Teixeira: Oh no, he’s okay, but he’s definitely scratched up. And when I grabbed him, his head was like on the bottom and I was having flashbacks of seeing those things where people kind of get knocked out. So I was just trying to keep his head up. But he ended up getting up all right.


Marc Killian: All right, well, let’s get into some cutting corners here, guys. There’s no cutting corners when it comes to the financial strategies because, again, it’s not a good idea. So where we typically see this stuff is taking too much risk when you’re trying to make up for the perception of being behind. And I think that’s the reason I wanted to frame it that way, is a lot of times people come in for a review, their first time sitting down with an advisor, guys like yourselves. They think, most people think, they are actually in worse shape than they are, but often fairly pleasantly surprised. So you could be taking risks when you don’t even need to.


Nick McDevitt: Yeah. I would say that one of the… and some people do end up coming through the classes that we do and maybe they are a little bit behind. But the thing that we try to emphasize with people is that just like many other things in life, we can’t change the past and regrouping and just making decisions based upon where you are now and moving forward is important. And being able to show them via the planning about the things that they can do to catch up, because you’re right, that perception, there are a lot of people that have that, some that are doing okay, some that are maybe a little bit behind. But usually when they’re behind, they just don’t know what they can do to get themselves caught up.


Nick McDevitt: And oftentimes if they are behind, taking more risk doesn’t really make a huge difference because they haven’t accumulated enough money for that risk to benefit them yet. So yeah, that’s usually not the way you want to do it. And the good thing about planning is that we can really kind of illustrate like, “Hey, if you are a little bit behind here, there are decisions that you could make that can get you ahead.” And when we work with people, those decisions don’t ever include taking more risk than they should.


Marc Killian: Gotcha.


Marc Killian: John?


John Teixeira: Yeah. I would jump in on that. And we do hear that a little bit and it’s a bad idea to go ahead and start taking too much risk just to try to catch up because when you find yourself in the wrong portfolio based on your risk tolerance, you could really make bad decisions. So example, market dips, and let’s say, you’re a conservative investor and you say, “I got to get more aggressive.” And all of a sudden, you’re in an aggressive portfolio, the market dips. And it’s like, “I can’t take this,” and you bail, you leave the strategy. And the next thing you know, as we all know, in a couple of weeks, or a month or so, it bounces back up and it’s like, “Okay, you just lost out on some stuff there.”


Marc Killian: Yeah, especially in the environment that we’re in right now because we’re not sure what’s going to cause a downturn at some point, but certainly we’re overdue, I mean, just from a historical standpoint. So if you’re take too much risk and then one of these different things we’ve got going on out there, it’s a very volatile time, you don’t want to be caught holding that bag, per se. So definitely having a plan and getting a strategy put together and making sure that you’re not taking too much risk for the type of portfolio that you need and can handle is certainly a good idea. So don’t cut that corner.


Marc Killian: Another one is legal documents, guys, not getting these put in place. This one just frustrates me because it’s super easy to do and it’s often not that costly. And a lot of these things you can just handle them pretty quick and it saves a whole lot of heartache for a loved one down the way.


John Teixeira: Yeah, this is really important. It is one of those things that, it’s not expensive to put in place, but it’s just one of those things that are on your to-do list for a while and it just never really gets done. But that’s something we try to make sure we’re active with our clients in making sure they have the right documents in place because we’ve seen scenarios where someone passed away and they didn’t have the documents. And it was just really, I won’t say it’s a nightmare, but it was very difficult for the beneficiaries to track things down. And I’d say especially in the case of a second marriage where you have maybe two sets of kids, one on each side, it’s even more important to make sure that you have the right documents in place and that your assets are going where you want them to go. So we can’t stress that enough.


Marc Killian: Yeah, not getting organized, Nick, that’s another one that people cut corners. It’s easy, just throw it all in a box here, kind of thing.


Nick McDevitt: Yeah. Yeah, I would say many of us struggle with this sort of thing in some part of our lives.


Marc Killian: Oh, sure. We all have a junk drawer, right?


Nick McDevitt: Yeah, for sure, a junk drawer for something, that’s for sure. Now whether it’s, up north, it was basements-


Marc Killian: A junk basement.


Nick McDevitt: Yeah. Yeah. And down here, we just try to find anywhere to put it, but-


Marc Killian: The closet.


Nick McDevitt: Garage.


Marc Killian: The one closet no one opens because they’re afraid it’s all going to come falling out, yeah.


Nick McDevitt: Exactly. So one of the things, and obviously we talk a lot about our emphasis on planning, but for example, the software that we use and what we try to emphasize with people is that, “All right, you’ve taken all these steps to get started with planning and it’ll be a little bit intensive to get rolling, but once we get everything all set up and put together, then in the platform, the client platform that we use, it allows them to upload important documents. It allows them to link all their accounts together which usually helps push them to consolidate a little bit. And they really like the fact that they can log into one place and see all of their accounts in one spot. We’ve got clients that will bring in their kids and we can create a separate login for their kids and only have a certain amount of access so their kids know where things are.


Marc Killian: All right. How about number four here on my list, guys, ignoring details about certain investments. Whether that be, “Don’t talk to me about X, Y, or Z product because I have no interest in it,” or maybe thinking something is everything you want, but you really didn’t do that much research on it. You’re just like, “Oh, that looks good. Give me that.” Don’t cut the corner of not understanding what you have.


John Teixeira: Yeah. That’s really important to understand what you have and we always harp on the plan, but really getting a grasp of what you have and how does that implement into your financial plan, so it’s really important.


Marc Killian: What do you have and why do you have it?


John Teixeira: Exactly. What’s the goal for this? What’s it doing for me? How does it operate, and what you just said there about the biases of certain investment vehicles. Really, before you shut the door on things, again, everyone’s situation’s different, you should probably be open to understanding how that works, and ultimately, how can that benefit you and help you reach your goals and give you peace of mind. Everyone’s situation’s different, but can’t stress enough, understanding what you have or what’s available to you to help you hit your goals.


Marc Killian: Exactly. My brother is a anti Ford guy. He will not drive a Ford, look at a Ford, ride in a Ford, nothing, to the point that I’m like, “Really, man? This is a strange bias.” And it’s just one of those things, he can’t really explain why. He just, “They make some really nice looking cars, but I don’t want to even check one out.” And I’m like, “Why? You’re just limiting yourself.”


John Teixeira: I’m assuming he’s a Chevy guy?


Marc Killian: Oh yeah, exactly, yeah.


John Teixeira: It’s interesting. It’s one or the other with [crosstalk 00:08:19].


Marc Killian: Yeah, exactly. But people do that. They get these weird biases, and it’s like, “Don’t talk to me about this because I won’t pay attention to it.” And it’s like, “Okay. But you could be cutting something out that’s very helpful. So just don’t do that,” Especially when we’re talking about financial stuff.


Marc Killian: All right. Well, let’s do some fun stuff here as we wrap things up. We’re going to do a little getting to know you. We don’t do this too often on the show. But I got some fun questions here I’m going to ask you guys. Feel free to answer. We’ll jump in with this first one. What’s the hardest job you’ve ever had? John, you go first.


John Teixeira: In college, I worked couple of summers with a mason. So I was basically lugging around cinder blocks and-


Marc Killian: Yep, laying bricks.


John Teixeira: … and going on scaffolding, which, I’m not afraid of heights, but I also don’t like being up on a scaffold that’s swaying, you know what I’m saying? So I’d probably say that was one of the more difficult jobs I’ve had from a physical standpoint. Yeah, I would never go back to that world of scaffold.


Marc Killian: Nick, you got anything?


Nick McDevitt: Yeah. So honestly, maybe it’s a priority for some people, but getting started as an advisor, it’s a pretty wild world. And so I started back in 2007 without local contacts and not being from the area. And so it was a little bit of a slow start, but something that I obviously really enjoy and still doing. So I’d say, from just getting things going, that was probably the hardest thing. But the good old 16 year old dish washing, and all that kind stuff. That was a different sort of hard, but gave you perspective and tell you the value of the dollar, and all that kind of thing.


Marc Killian: No, that’s cool. Yeah, I like that because, I mean, what you guys do is complicated and getting your licenses and things, it’s serious stuff. So it definitely can be complex. But yeah, the manual labor side, I’m with you there, John, I worked for a construction company as well and did asphalt and, ugh, asphalt that’s a hot job, in the summer, woo, not something I recommend. That’s a tough one. So anybody does that, kudos to you. That is hard stuff.


Marc Killian: All right. Here’s a random silly one. Who’s your favorite TV character, if you have one?


Nick McDevitt: I watch a fair amount of TV, especially working from home. I usually have something going on in the background. And I want to say, two or three weeks ago, Netflix added Seinfeld. And so I went back from the beginning and have been rewatching Seinfeld. I always knew George was hilarious, but he continually makes me laugh. So he’s one of my favorite characters in all of TV in just his mannerisms and all the things that drive him crazy are just really entertaining.


Marc Killian: John, with two little ones, I don’t know if you even have time to watch TV, but if you do, it’s probably some cartoon character like Peppa Pig or something, right?


John Teixeira: Yeah. I’m trying to think what are they watching nowadays?


Marc Killian: SpongeBob.


John Teixeira: Like Fancy Nancy, I think, is what’s on my TV quite a bit or Doc McStuffins turning into my number one there.


Marc Killian: There you go. There you go, Doc McStuffins.


John Teixeira: I would say, I mean, I don’t necessarily have a favorite character, kind of Nick said there, it just depends on what I’m watching, but I’m a pretty big Game of Thrones fan. So I like Tyrion Lannister, his wit and sarcasm is pretty good.


Marc Killian: That’s right. He drinks and knows things, that’s what he says, right?


John Teixeira: Pretty much.


Marc Killian: Yeah. There you go. Well, there you go. Let’s do one more thing. We’ll wrap it up this week with an email question. And of course, if you’d like to submit your own into the show, feel free, or just ask a question period, well, just go to the website, pfgprivatewealth.com to get your questions answered. To get on the calendar to have a conversation about your retirement journey, pfgprivatewealth.com is where you go to make that happen. And you can subscribe to the podcast while you’re there on Apple, Google, Spotify, iHeart, Stitcher, all that stuff. You can find it all right there at the website and get in contact with the guys and the team at PFG Private Wealth.


Marc Killian: And here’s the email question this week, it’s from Wade. And he says, “My wife and I both earn pretty nice incomes and we don’t have any kids and we are only 45, but we think it’s reasonable to look at retirement in 10 years at 55. Any pointers on things to do to make this happen?”


Nick McDevitt: Yeah, I’ll jump in on this one. Sounds a little flippant, but it’s called a plan.


Marc Killian: There you go.


Nick McDevitt: It’s one of those things where instead of… this is a classic example of what we’ve seen in the past in situations like this, and I can almost use a client that we got about five or six years ago. They’re a few years apart and this situation, good income, no kids. They were about 45 and 50 when we started working with them and he retired last year and she retired this year. And it was really the putting the plan together, first letting them know that it was feasible instead of just like in theory, feasible like, “Hey, we’ve done well for ourselves. We think we can do it,” to making it very concrete, creating very specific goals and helping them get there.


Nick McDevitt: And they constantly tell us how big of a difference that made to them in having those specific goals. Because usually what happens in this situation is, somebody’s 45, they ask questions like this. They talk about it with themselves. They talk about it with friends, all of a sudden, it’s five years later, they haven’t done the things that they could have been doing for last few years to hit that goal. And now they end up being behind where they could have been, so the sooner the better.


Marc Killian: Gotcha. And I would think, the one thing that would jump out to me if you’re talking about retiring at 55, would be the healthcare side of things. Like what’s your plan, and that would be part of the plan, right? What is your plan? Because you’re not going to get Medicare for another 10 years until you’re 65, and that could be pretty costly.


Nick McDevitt: Yeah. Yeah, absolutely. The managing of the expenses, especially for people that work for companies that are benefit rich can be a little bit of a shock. So figuring that out and then navigating that space, especially learning some of the rules and where they’re going to generate their income from and how to keep those high healthcare costs down, all that sort of stuff can be a bit of a maze.


Marc Killian: Well, and that’s all part of getting a plan put together, as you said. You said that it’s not really flippant if it’s true, right? So get a good plan together, wait, and have a conversation, reach out for some other pointers and some things to start. If you’re serious about doing this, the longer you wait, the longer it takes to get that put together. So get started with a plan with Retirement Planning – Redefined, and the guys in the team at pfgprivatewealth.com, that’s pfgprivatewealth.com.


Marc Killian: Guys, thanks for hanging out, as always, I appreciate it. John, have a great week.


John Teixeira: You too.


Marc Killian: Nick, we’ll see you next time, buddy.


Nick McDevitt: All right, thanks.


Marc Killian: All right, we’ll talk to you later. Hear all the podcasts. This has been Retirement Planning – Redefined with John and Nick.

Ep 32: Are You Flirting WIth Financial Disaster?

On This Episode

Let’s talk about some of the areas of your financial life where you might be flirtin’ with disaster and don’t even know it.

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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 Killian: Hey everybody. Welcome into this week’s edition of Retirement Planning Redefined podcast. We appreciate your time, hanging out with John and Nick and myself as we’re talking, investing, finance and retirement. And of course you could check them out online if you’ve got some questions or need to follow up or have a chat about your own situation, get your retirement planning redefined at pfgprivatewealth.com. That’s pfgprivatewealth.com. Don’t forget to subscribe to the podcast while you’re there. A lot of good tools, tips and resources to be found.

Marc Killian: And on this go-around, we’re going to talk about flirting with disaster. As Floridians, there’s certainly always the case where we have some disastrous situations can come up from time to time, but we’re going to talk about these from a financial standpoint and some areas in our financial life where we could do this and not even realize it. First off, let’s say hey to the guys. What’s going on, Nick? How are you?

Nick McDevitt: Doing well. Doing well. How about yourself?

Marc Killian: Doing pretty good hanging in there. Looking forward to today’s topic. Got some good, easy fixes I think for a few of these things, as well as some that are maybe a little more complicated. We’ll dive into that. Let you guys share. But John, how are you?

John Teixeira: Doing good. Doing good. Nick and I are actually in the process of planning a golf tournament for a couple of charities here locally with… the group we’re in is, again, 13 Ugly Men Foundation. And we’re partnering up with Bern’s Steakhouse to do a golf event at TPC Tampa Bay. So, we’re excited about that coming up.

Marc Killian: Very Nice. Yeah. Keep us posted on that. We’ll definitely like to learn more as we get closer to there. Well, hopefully, you guys won’t have any disastrous situations come tourney time, but let’s talk about them today. I got about five here, guys, I want you to just break down for us. And, like I said, some of these are kind of easy fixes, so let’s start there. They can definitely cause a lot of havoc, but, again, they are easy fixes. So, out-of-date legal documents. Not the sexiest thing in the world, but a pretty easy thing to fix.

Nick McDevitt: This is something that is a common oversight, a common mistake that people make. Some of the instances that we see where the documents are out of date or just not going to accomplish the things that they’re hoping to accomplish. Our scenario’s somebody moved from out of state and the… many people don’t realize that from an estate planning standpoint, from a legal document standpoint, a lot of those documents are different from state to state. So, that’s an important thing to review if you are somebody that has recently moved. A few years back, there were updates in Florida to durable power of attorney rules. And so, that’s a reason to have a review.

Nick McDevitt: But just like anything else, it’s important to make sure that you have in inventory or you take an inventory of what you have. Something like this, people never… or oftentimes, people don’t realize how long it’s been since they have updated their documents. There could be children that are alive now that weren’t before, parents that were alive then that aren’t now, a previous marriage, et cetera, et cetera. So, making sure that those documents are updated and chatting with an attorney about that is a really important thing.

Marc Killian: Yeah. We tend to set it and forget it with a lot of those. What are some of the key ones we should think about, John?

John Teixeira: I would say one of the biggest ones is a second marriage. That’s where you really want to pay attention to who the beneficiaries are, who’s getting what. And there are certain rules in the state of Florida. And, of course, defer to the professionals and attorneys on that, where a spouse is entitled to a percentage of the assets. So, if you want to make sure that, if it’s a second marriage, you have kids in the first marriage and you don’t want to disinherit them, you want to make sure your documents are definitely up to date.

John Teixeira: Another one we’ve seen, and Nick mentioned it, people moving in from out of state. If you have assets in other states, it’s important to make sure that you kind of have some documents for that state where the other assets are. So, example, I’m from Massachusetts. My parents have a house up there, so they had to make sure that… they basically had a will for up there and down here.

Marc Killian: Yeah. I got you. Now, a lot of times, the misconceptions with wills are if you have a will, the saying goes, you will go through probate, whereas a trust allows you to maybe not do that. Is there some other main documents that we should have? I’m assuming the power of attorneys, correct?

Nick McDevitt: Yeah. Durable power of attorney, a will. Oftentimes, people will confuse a traditional will with a living will. And essentially end-of-life documents are important to have.

Marc Killian: Like a medical power of attorney obviously, right?

Nick McDevitt: Yep, exactly. So, there’s kind of that core package that most attorneys will review with you, help you recognize, “Hey, is this out of date? Is this still applicable?” And we always recommend, obviously with any sort of legal topic, that you’re communicating with either an attorney that you have and are familiar with or we obviously have a few attorneys that we work with that we send clients to that we know and trust and will help make sure that they get through the process.

Marc Killian: But it’s often not as costly as we think it’s going to be too, to get these things handled. And once you get them in place, again, out of date, if you’re just making some adjustments, usually can be done through a phone call. So, kind of an easy fix, right?

Nick McDevitt: Yeah. We’ve definitely seen, especially over the last year, many, many companies, including law offices, have put their tech into hyper drive to make [crosstalk 00:05:18] easier for clients. So, yes, sometimes mentally things will feel overwhelming and that will slow us down from doing it. And this is one of those things that doesn’t need to be super difficult and can be done pretty easily.

John Teixeira: Yeah. And we actually have something we give to clients, it’s kind of a wills point checklist. It’s like 24 questions to consider, almost like a prep before you go see an attorney so you feel like, “All right, I’m a little bit prepared for this.” So, if anyone does want that, they’re more than welcome to shoot us an email or call the office and just mention that and we can get it to them.

Marc Killian: Yeah. Again, folks, stop by the website, pfgprivatewealth.com. Drop them an email. John or Nick @pfgprivatewealth.com is where you can email them. Yeah. That’s a great point. So, thanks for bringing that up as well.

Marc Killian: And, John, you mentioned another marriage, for example. So, the BDs, the beneficiary designations, having those incorrect, another easy fix. And it’s not just… we tend to think of, I don’t know, one item or one type of account, but there’s multiple places where you’re going to have these beneficiary designations. And updating these is, again, a pretty easy thing to do.

Marc Killian: I had somebody teach me that there’s a couple of Ds to remember, to kind of trigger you to double-check these: if you get a divorce; if you have a death; or a disability; or at minimum, at least once a decade. That way, you get the four Ds, if you will, to maybe update these or take a look at them.

John Teixeira: Yeah. Those are all really good ones. Actually, kind of going back to the will stuff. So, if you do have beneficiaries on some of these accounts, it does bypass probate. So, if there’s a beneficiary on a life insurance or a retirement account, it doesn’t actually go through probate; it goes directly to that beneficiary. So, that’s always kind of good to know.

John Teixeira: But yeah, divorce, very important one to update. Can’t tell you how many times Nick and I have done some reviews with some clients that are new clients and it’s… we’ve seen on the 401(k)s especially because that’s kind of a set-it-forget-it type thing, where you have an ex-spouse on there. We’ve unfortunately seen some people with 401(k)s where they get auto-enrolled. They just never put a beneficiary on there just because [crosstalk 00:07:27] signed up, it’s auto-enrollment for the company. So, those are two important things to really take a look at.

John Teixeira: And we don’t see this too often, but we have seen some people just kind of just have a fallout with some beneficiaries, whether it’s a child, a niece, nephew, whatever it may be. And we’ve seen some changes from that where it’s, “Hey, to be frank, I just don’t like this person anymore.”

Marc Killian: I mean, it happens. It definitely happens. And so, we’re talking IRAs, life insurance policies, 401(k)s, things of that nature.

John Teixeira: Yep.

Marc Killian: Okay. All right. So, those are, again, pretty easy fixes for some of that stuff. And the havoc they can wreak… I imagine having somebody come in and the new spouse is saying, “Hey, I found out that the old spouse is still on this life insurance policy.” That’s not good. And that’s not an easy fix at that point, but it can be taken care of ahead of time pretty darn quickly.

Marc Killian: Let’s move to some more complicated one here, guys. You could be flirting with disaster, talking about the ticking tax time bomb. Obviously, that is going to continue to be a mainstay of conversation in retirement planning in general because it’s such an important part of it, how we’re being… if we’re being as tax-efficient as possible, I should say. But with the continued spending that we’re seeing as a nation, it seems like this is only going to become more and more of an issue.

Nick McDevitt: Yeah. So, one of the things that we try to… so, when we talk about a tax time bomb, what we’re typically referring to is when people only save into accounts that are tax-deferred, a.k.a. traditional 401(k), a.k.a. traditional IRA. And so, when they are in retirement, the thought process is like, “Hey, I’m going to have lower taxes. So, no matter what, this is going to be a better deal for me.”

Nick McDevitt: And the thing that we try to focus on with clients and with people in general is that there’s a lot of uncertainty on what we know is going to happen from a tax perspective. And so, our really emphasis is not necessarily to be right, as far as, “Hey, we know that X, Y and Z is going to happen”; it’s that you have options so that no matter what, you can adapt to what’s going on.

Nick McDevitt: And the tricky part about that is if you’re two to three years out from retirement, you’re at your highest earning income years, you don’t have any Roth money for example or any just regular investment account funds put away, we may continue to have you save into a pre-tax account. But then once you retire, we may look into trying to do some Roth conversions or make some adjustments or plan for kicking in a strategy when you do retire. So, it’s not like it’s necessarily the easiest thing to navigate. Your best bet is that, as soon as you can, start to save money into different places so that you not only are diversifying your investments, but you’re diversifying how you’re going to be taxed in retirement, is really a thing that we emphasize with clients.

Marc Killian: Yeah. And that’s a good point as well because this is not as easy as a fix, but it’s something you can get on pretty quickly simply by working with an advisor, having them review your scenario and your situation and saying, “Okay, how can we be more tax-efficient?” and looking for ways to do that. And I just saw the other day that they’re estimating about 40 trillion is what’s sitting out there in uncollected taxes on traditional IRAs or 401(k)s. The government’s kind of salivating over this estimated $40 trillion as people go through these retirement accounts and start to pull the money out or whatever the case is. So, certainly places where you could have those conversations and hopefully be more tax-efficient. So, again, if you need the help with that, make sure you’re talking to a qualified professional like John and Nick.

Marc Killian: What about flirting with disaster, guys, when it comes to just no plan at all for long-term care expenses? This one obviously is going to be even more complicated, but most people just ignore it. I know it’s a daunting subject sometimes for folks, but there’s things you can do.

John Teixeira: Yeah. So, you’re right on that. Most people do ignore it. And there are some options out there. They used to be much better. Unfortunately, they’ve kind of gotten just not as strong. 10 years ago, you could get a really good policy from a good provider. And nowadays, a lot of these providers have left the space in essence and they’re not offering it anymore.

John Teixeira: So, what we’ve kind of seen more is kind of, and Nick goes through this part in the class, some hybrid vehicles where it’s a life insurance and a long-term care policy kind of bundled up in one. We’ve had situations where, from a planning standpoint, maybe getting… it’s very hard to qualify for it so we’ve had to put in some buffers to self-insure. Again, not covering the whole cost of it, but just trying to help out in the event that something were to happen. It’s very important, just limited options out there currently, but it’s definitely worth exploring your situation to see what fits for you.

Marc Killian: Yeah. And I imagine you’re going to exacerbate that by not having the conversation. So, if the options are becoming a little bit more limited and you’re also not taking the time to discuss it, you could be putting yourself even further behind the proverbial eight ball. So, definitely have those conversations. Don’t just stick our head in the sand, especially when it comes to long-term care expenses, whether it’s the 2 out of every 3 people or 7 out of every 10. Whatever the case is, it’s happening more and more because we’re living longer. So, we therefore have to deal with those outcomes that come with it.

Marc Killian: One more here, guys, on some places we can flirt with disaster. And then we’ll probably wrap up with an email question that we got into the site as well. But that’s the classic 60/40 portfolio. First, just run it down for us, what that is for folks. And then why might you flirt with disaster on that?

Nick McDevitt: Sure. So, there’s a little bit of jargon in there, of course. We try to stay away from it as much as possible. But a 60/40 portfolio is what’s considered 60% stock, 40% fixed income or bonds. And it’s tricky because really, the way that people invested a short while ago was different than the way that people are investing now. And really, what also happens… so, for example, these last few years, as bond yields or returns from bonds have gone down, people have kind of flirted a little bit more with taking more risk on the stock side. And so, it’s really important to make sure that when you are evaluating your overall portfolio and looking at how much risk you’re willing to take, that you really understand how these different parts work and move together.

Nick McDevitt: So, really, what it boils down to is that it’s important for you to have a liquidation order. So, for example, what some people used to do is, “Hey, I’m going to have a 60/40 portfolio. I’m going to pull from my account every single month without any sort of strategic plan on how I’m going to pull that money out or where it’s pulling from.” And when we have corrections in the market or volatility in the market, where we’ll see people really suffer is let’s say they had a million-dollar portfolio. We get a big pullback. All of a sudden, your statement debt, two months ago said a million bucks, says 800,000 or 750,000 now. It can make you or prompt people to overreact to the market.

Nick McDevitt: And then once that overreaction happens, basically you’re locking up your losses. You’re selling at lows. Then you’re going to want to buy back at highs. And so, it’s really, really important to make sure that the portfolio and the allocation that you have lines up with truly how much risk you’re willing to take.

Marc Killian: Yeah. John, it seems as though the 40% in bonds… I mean, the bond market’s been just as volatile as of late for a while. So, that seems like maybe one of those rules of thumb that might be a bit antiquated, going with that standard 60/40. But again, everybody’s scenario is different, so, like a lot of things, I imagine that it might be fine for some and not for others.

John Teixeira: Yeah, of course. And, like we say, we really want to start with a plan for the client and dictate the investment options and strategy based on that plan. There are some other what we consider fixed income vehicles that can kind of substitute the bond market that we’ve been utilizing when necessary. And, again, works for some people; doesn’t work for others. But it’s good to know your options and how it works for you.

Marc Killian: Yeah. Versus trying to see-

Nick McDevitt: And just to your point there, Marc, too-

Marc Killian: Oh, go ahead.

Nick McDevitt: … as far as the bond side of things. In general, as interest rates go up, bond prices go down. And so, one of the ways that we have built around that, just for clients, for those people listening that are clients, are essentially creating bond ladders in their portfolios that aren’t as negatively impacted as rates do continue to go up. So, there are ways to work and to build around these things, but typically, especially people that are holding this money in their 401(k)s, those sorts of things, there may be significant limitations to how they can adjust to them there. And that’s where they can get in trouble.

Marc Killian: Yeah, no, great points. Exactly. I mean, that’s kind of the point of doing the podcast as well, is to share some of these things for not only existing clients, but obviously for potential clients that might be listening to the show and just hopefully offering some good nuggets of information along the way.

Marc Killian: And with that said, that’s going to kind of wrap up our flirting with disaster. Again, five areas where you can jump on these things and maybe get these corrected pretty easily. At least a couple of them, for sure. And the other ones, it’s worth having those conversations with an advisor, if you’re not working with one, on how to be as efficient as possible.

Marc Killian: With that said, let’s wrap up with an email question this week. Again, if you’d like to stop by the website, we certainly encourage you to do so at pfgprivatewealth.com. A lot of good tools, tips and resources there. While you’re there, you could subscribe to the podcast on Apple, Google, Spotify or whatever platform you use. You can also drop the guys a line as well at pfgprivatewealth.com.

Marc Killian: And here is an email from Andy who says, “How much of my portfolio, guys, is it okay to have invested in just one stock? I’m sitting on about 2 million, but almost half of it is with one company.”

Nick McDevitt: Well, that’s enough to have a panic attack. So, usually, if you’re asking if you have too much in one place, you do. But all kind of joking aside, where we typically see this sort of thing happen is in one of two situations.

Nick McDevitt: So, situation number one, was inherited from a parent. And maybe that parent worked for a company for many, many years or they invested in that company for a long period of time. And now, all of a sudden, that money has ballooned into a big amount. And due to a combination of tax rules and laws, plus sentimental value, all of a sudden, that holding makes up a significant portion of the underlying portfolio.

Nick McDevitt: And option number two is just somebody that has worked for a company for a long time, 30, 40 years. They’ve been buying the company stock for years and years and years. And maybe the stock has performed well and there’s this kind of emotional and financial attachment to it. And so, in this situation, oftentimes what we’ll do is we’ll show them a comparison of that stock to the S&P 500, for example. And oftentimes, the S&P 500 itself has performed similarly or even a little bit better. And we’ll show them like, “Hey, look at, you can have the same sort of upside potential or growth potential by holding an ETF or an index fund versus just holding that one stock and protect yourself a lot more.”

Nick McDevitt: And another question that we’ll pose to them sometimes that we’ve gotten good results from in the past was, “Okay. So, if I was going to hand you a $2 million lottery ticket and you were going to invest that money, would you spend half of it on one stock?” And the answer is usually a cross-eyed look like, “No, are you crazy?” And so, that’s exactly the same sort of thought process, where usually it’s just way more risk than somebody needs to take. There’s ways to still have similar performance and reduce the risk by quite a bit. And it’s just not really worth it at that point in time, is typically the case.

Marc Killian: All right. Great question, Andy. Thank you so much for submitting that into the show. I know it’s cliche, but as your grandmama might’ve said, “Don’t have all your eggs in one basket.” So, have those conversations. And certainly, you’re thinking about it, to Nick’s point, if you took the time to drop an email to the show here. You’re obviously probably already thinking that direction anyway. So, follow up. Have a conversation with some qualified professionals like John and Nick from PFG Private Wealth.

Marc Killian: And that’s going to do it this week for us on the podcast. Thanks for your time as always. We appreciate it. Always check out with a qualified professional, as I mentioned, before you take any action on anything you hear on this show or any other. And you can find it all at pfgprivatewealth.com. For John, for Nick, we’ll see you next time here on the show. Thanks for your time. We’ll talk to you later.