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Flight #18: Money Advice To Share With Your Kids

Pilot Money Guys:

Kids and Money!

Welcome to Flight #18, where we are discussing kids and money!

This podcast is all about helping your kids take the first steps to financial freedom and independence. We discuss some of the steps we all wish we would have taken when we were first starting out as new savers and investors.

We believe we should help our kids learn from other's successes and mistakes - We do not have time to make them all ourselves! In fact, life is a series of building off the successes and failures we all experience. Sharing those lessons with our kids is easy in some areas but with finances it can be tough. Don’t let that stop you from preparing them for a great financial future.

“Children are sponges—they are going to absorb whatever is around them, so we need to be intentional about what surrounds them.” — Dave Ramsey

Our kids will learn from our money habits whether we like it or not. We encourage parents to communicate money matters to their kids as well as be honest and transparent as much as possible, so they don’t make the same money mistakes we made.

In this podcast we cover the most important financial topics for getting started. We believe this content can help you have great conversations with your kids. They still won’t think your cool, but I bet they’ll listen and learn something.

Our goal for our clients is to help their kids build a foundation of financial knowledge that will set them up for success in the future!

Thank you for listening!

This hypothetical illustration assumes an annual 6% return. The illustration doesn't represent any particular investment, nor does it account for inflation. Source:https://investor.vanguard.com/retirement/savings/when-to-start

This chart shows that if you start saving earlier, you can have a higher balance at retirement than someone who saves more but starts later. If you contribute $10,000 a year from age 25 to age 40, for a total investment of $150,000, it could grow to $1,058,912 by the time you're age 65. If you contribute $10,000 a year from age 35 to age 65, for a total investment of $300,000, it could grow to $838,019 by the time you're age 65.

 

Can You Beat COWBELL in timing the market?!

https://www.personalfinanceclub.com/time-the-market-game/

 

Podcast Transcription:

Flight #18: Kids and Money

[00:00:00] Voice Actor: ladies and gentlemen, welcome aboard the pilot money guys podcast, where our mission is to help clients build and protect wealth to achieve their dreams. And. This podcast is brought to you by leading edge financial planning without further ado. Here is your host Robert equity.

[00:00:31] Rob: Hey folks. Welcome to flight 18.

[00:00:34] We're talking kids and money today. The tip of the Kaptio. Thank you for joining us here at the pilot money guys podcast, where we cover some airline news except for today. And of course, a financial times. We aim to educate and bring some lighthearted financial fund to your day. I'm your host, Rob Ackland.

[00:00:50] I'm a little under the weather. So the godfather Charlie Madingley certified financial planner and leading edge founder is with us. Hello godfather. Hello? Hello.

[00:00:59] Charlie: How's it going? I'm sorry. You're feeling feeling badly, but uh, we're gonna, you all were trying to keep me down last time. I was feeling bad. So this time we kicked you out, you're down to.

[00:01:12] Rob: So you

[00:01:12] Ben: wouldn't fight and he's also rocking a mustache for all that. Anyone on

[00:01:17] Charlie: YouTube, how to do the YouTube, which really makes my teeth look huge. It looks

[00:01:21] Rob: great. Yeah. Does dentist nice? I've of course set a little shout out to Alaska or Borealis. That's my background. Yeah. Ben's got the max. You got the max is your background.

[00:01:34] Ben: And I do, I do have the max. Yeah. Um,

[00:01:38] Charlie: the good oldest button that was the good old days.

[00:01:41] Rob: Oh, that's the ejection button don't hit that don't hit. Oh yeah. Yeah. Excellent. Well, and of course we've got Mr. Cal bell Ben tickets and welcome Ben. Thank you. Good to be

[00:01:51] Ben: here. All

[00:01:52] Charlie: right. Did you introduce yourself as a mallet?

[00:01:55] Rob: I did it today. You know, why, why have calls me the Viking idiot? Any of those can, I

[00:02:02] Charlie: will answer. You can substitute. And I mean, I'm starting to like Malad a little bit, I think it sounds kind of cool if you, if you just absolutely reject that notion, we will, we will start again, but you can't. But I like it because we started off as the MC hammer, which was a little too much too strong, but you are the MC and you are a hammer, but then you said, Hey, let's soften that a bit.

[00:02:22] So we went to rubber. Rubber mallets too many syllables and too many words. Yes.

[00:02:29] Rob: Well, last my days is an evaluator MC hammer.

[00:02:34] Charlie: I'm seeing him. So, I mean, I don't know a mallet that is really starting to sound pretty good. Just as long as we keep the story from straying too far from the temporary nature, we have 10% rule.

[00:02:44] Rob: Okay, fantastic. Well, we're going to talk some aviation news. I've got this one. I think. So there's this day in history, actually, it wasn't from today, but it's from two days ago. Close enough. On October 12th, 1944. First Lieutenant Charles Elwood, Yeager of the air Corps army. The United States shut down five count of five.

[00:03:11] in one second. Wow. Becoming an ACE in a day. That's air quotes. They're ACE in a day. The termination today is used to designate a pilot who shut down five or more airplanes in a single day, based on the usual definition of. As one with five or more aerial victories. Right. Wow. That's incredible.

[00:03:28] Charlie: That's

[00:03:29] Ben: amazing.

[00:03:30] Was it just, uh, you know, best, you know, right place, right time.

[00:03:34] Rob: Oh man. So I've got, I've got his, I've got his whole quote cause it's it's worth now. He was a P 51, a Mustang fighter pilot signed it a three 63rd fighter squadron near the village of, uh, I might be butchering this, but that Britain Suffolk.

[00:03:50] Albertson's pretty good. Pretty good.

[00:03:52] Charlie: As far as I

[00:03:52] Rob: know, anyways, here's Jagger's quote, it was almost comic scoring two quick victories without firing a shot. By now, all the airplanes in the sky had dropped their wing tanks and were spinning and diving in a wild wide open dog fight. I guess two of them collided.

[00:04:07] I stopped shooting at him. I blew up a 1 0 9 from 600 yards, uh, my third victory. So he shot at one of them and he hit his wing man and they both had. So he didn't. So I guess he barely had to do two for one, two for one. And then when I turned to see another angling in behind me, man, I pulled back the throttle.

[00:04:26] So bleep hard. I nearly stalled rolled up and over. It came in behind and under him kicking right rudder and simultaneously firing. It was directly underneath the guy less than 50 feet. And I opened up the 1 0 9 as if it were a can of spam.

[00:04:40] Charlie: Less than 50

[00:04:40] Rob: feet. 50 feet that made four that's incredible moment.

[00:04:46] A moment later, I waxed the guy's Fanny and a steep dive. I pulled up at about a thousand feet. You went straight into the ground. Crazy. Wow. You're talking 12, 19 44. Top. That really is awesome. Top that

[00:05:01] Charlie: cowbell. That's

[00:05:01] Ben: pretty incredible. I mean, I've done some cool stuff. My drone. Yeah. Yeah, that's amazing.

[00:05:07] I mean, Chuck would be proud, but I can't beat that. You're right.

[00:05:14] Rob: That's a good one. All right. Any other things we want to

[00:05:19] Charlie: talk about? Nothing going on at all in the world of aviation to see here. Nope. Turn away from anything you see in the news. Yeah. Vaccinations airlines. We're not, uh, we're not, we're going to stay lighthearted today, folks. Okay. There's a lot of serious stuff going on.

[00:05:37] And I told Rob today, look, we got to have some humor. How else can you get through these times? Without some humor, you gotta laugh. You gotta laugh about it. Otherwise you'll go crazy. So that's what we're doing. We're not going to address those things today. Too many variables too. Uh, too many unknowns and let's do a hurtful still.

[00:05:53] So we'll wait. Yeah, we'll wait

[00:05:55] Rob: too soon to right. Well, let's get into our financial topic then this one, actually, I'm really excited about it's kids in. And how do you talk to your kids about money? What are some things to think about? We're going to cover the mentality you should use, how they should use money.

[00:06:11] When they first get started at a young age, the savings and investing, they should do, um, three different ways. You can choose to save with them. And of course, in that, we're going to talk about UTMs and Ross. Um, and we'll get into. Charlie, what have you got anything? Oh, right off the bat. We're talking mentality.

[00:06:31] Oh,

[00:06:31] Charlie: we got tons of stuff. The toughest part about today is keeping it, , succinct and meaningful. , we're going to try to give some real practical applications to kids and money, just stuff we've learned from other,, people that we know clients have taught us a lot of things to do with their.

[00:06:51] Ben is, uh, is the one that remembers it the most clearly, I think. Right. And so he can help us a little bit. It's been a while for you and I Rob, especially, especially me, but I do remember a lot now, in fact, that the first thing that I remember, uh, or sticks in my brain and, and, and helped me get a good star and overcome some of my other Follies down the road.

[00:07:13] I was just starting early. And let me, I'm going to share with you guys, um, and, and our YouTube audience as well, but check the power of starting early is unbelievable. Okay. So here we go. Um, and we'll talk to this graphic, but again, our podcast listeners go to YouTube, check this out or Google it it's everywhere.

[00:07:35] So here's an example and the power of starting now and Ben, you and I, the other day, we're talking to, uh, one of our. Sons. He just is getting started in the workforce. He's got a great job, right? And he's like, Hey, he called us up, which is awesome. We encourage all of our clients, kids to call us. We love to talk about it.

[00:07:55] He was actually 25. So he said, this is perfect. This is you. So if you start saving at 25 and in this example on the screen, You say you start saving at 25, you save $10,000 a year. I don't know the rate of return in this particular example, I think it's five, six or seven doesn't matter because it kind of cancels out.

[00:08:12] The point is still the same, uh, in the, in the, in the examples. Anyway, so this person started saving a 25, 10,000 a year. They invested it and they stopped saving at age 40. Now at age 65, they had a little over a million. Now, this person's friend, we'll call him. Ben Dickinson started saving at 35 and they saved all the way they did not.

[00:08:40] You know, they started at 35 instead of 25. They started, they saved all the way through 65 and they only ended up with 840,000 versus the over a million. So let me re reiterate Ben's friend saved at 28, 25 for 15 years in. They had a million bucks, Ben say from 35 to 65, 30 years. And it has 840,000. I mean it's yeah,

[00:09:08] Ben: that hurts.

[00:09:08] That really hurts seeing that I knew my friend was doing well, but I, I didn't realize that. Well, he saved half as much as me. Yes.

[00:09:18] Charlie: It's that really was wild. All right, Rob, what do you think? Beautiful. Any thoughts? I love it. It's powerful.

[00:09:25] Rob: I, you know, I think it can kind of tie into, um, you know, just the power of saving early, which there's a mentality on that.

[00:09:34] And I think we should get in a little bit of that. I think when you talk to your kids about money, you should have an abundance mentality . And instead of using certain language, like we can't.

[00:09:44] When you go to the store and you're looking to buy a toy or whatever. Um, it's I think a little bit more helpful to say we haven't budgeted for that at this time, or how are we going to afford that? How are we going to budget for that in the future? So if we prioritize that you want that Tonka toy, well, let's save for it.

[00:10:01] Let's see how we're going to get there. Um, and I think families that actually have conversations about money. It probably as long as they're not too negative. I think it has. People get comfortable with the idea, as opposed to, , there's certain families that, that money is taboo. Ask your dad how much he makes is just not anything you would do.

[00:10:20] And I think that just kinda makes the subject of money taboo. So you don't want to talk about it, maybe it's evil. And, uh, the other thing is when families get into the, to a, probably a bad scenario where they're highly. Certain, thanks from their significant others, such as you hide, you know, you go off to a clothing store or toy store and you say, Hey, it's going to be our secret.

[00:10:43] We're not gonna tell mom about this. Probably not the best thing. Cause you're just teaching them. You know that again, money's kind of evil. Um, so yeah, we wanna, we want to teach the abundance mentality where you're saying, Hey, you've got to. Well, let's see how we're going to get it. And then the reason they're getting the toys, because you were smart with your money, as opposed to just saying they can't have it.

[00:11:05] And the reason why they can have it is because of money. Absolutely. Yeah, yeah,

[00:11:10] Charlie: yeah. Same. We can't afford it kind of, kind of a cop out just saying we can't afford it and maybe that's true, you know, sometimes, uh, but, uh, but I like what you're saying, especially. Um, about the communicating abundance mentality, you know, and, and to me, abundance mentality means being generous.

[00:11:24] And I think there's a whole lot to learn there. That's a whole nother podcast, but one of the things, um, before I hand it off to, uh, the, uh, what's your name again, been the, uh, we call on because Jesus, today we call you cowbell. Before I ended off to Cabell, , one of the things I, I tried, I've tried this with my 15 year old daughter, because when we.

[00:11:45] See clients and, uh, talk to them and just friends and family, you know, sometimes their parents did it, right. They did a good job or the best they could, but if it's not communicated, there are misunderstandings. So not only is it important to behave well as an example to your children, but you have to tell your children how you're behaving to make it clear because there will be misunderstand.

[00:12:10] , you're talking about a young kid looking at something that they don't understand, and they're going to learn lessons from that, whether you like it or not. So I just wanted to expound on what you said, Rob, it's super important, but a cowbell. What do you

[00:12:21] Ben: think? Yeah, I think I'm going back to what Rob was saying that, that kind of teaches more financial independence as well, which is what you're going to.

[00:12:32] When you, when you go out on your own is okay. All of a sudden I'm not getting any support from anybody. Would I, how am I going to manage my finances? And personally, um, I had a lot, uh, I had support going through school and, and, um, but once I graduated, once I got my job after school, it was like, well, here you are, you're on your own.

[00:12:53] You know, you have to, you have to budget. You have to, uh, set your goals. If you want to buy something, you can't, you maybe can't buy it right when you want. And sometimes that can be a really difficult transition, um, and starting to, to create that mentality of abundance. And Hey, if you want something you're going to have to work for it, um, or you're going to have to save or set it as a goal.

[00:13:14] I think starting that as, as early as possible is going to be, there's going to be really huge. I think, um, we've talked about, about this. , you want, you want the best for your kids. You want them to, you know, maybe be in a better position than you were at their. Um, but sometimes there are lessons that need to be learned.

[00:13:31] , and the only way to learn them is to , let them do it themselves. And so you, you may even be able to afford the toys that, that they're wanting, but sometimes it, maybe it's better to just say, Hey, let's, let's figure out how you can buy this yourself. And not only that, but at the end of the day, you feel better about yourself.

[00:13:45] You've accomplished it and you've worked and saved and gotten the thing that you want. Um, and that's a really valuable lesson. , when you're a young adult,

[00:13:52] Rob: Yeah. I think there's a key distinction there. When you're talking abundance mentality, it's just the way you're going about your life, that money.

[00:13:59] Isn't something that is so limited that you can't do certain things. It's more, Hey, we can use money to our advantage. And how do we do that? It's not, um, would, I think a lot of parents who have gotten into the habit of, and I'm certain, I'm probably guilty of it. Myself is just, you know, you know, handing my kid, whatever they want at certain times.

[00:14:18] And that's not helpful either. I don't think, uh, just giving them whatever they want or, you know, obviously they get spoiled and they don't understand the meaning of money. Tell you we're going to say something.

[00:14:27] Charlie: I mean, I think this podcast is, is fun because we're talking about. We're talking to young adults that are just getting started at college, was talking to parents of young kids.

[00:14:37] Like we have a Rob and we're talking to. Ben's age group as well on, on maybe even some things on what accounts to invest in. We'll talk about that in a minute, but it's a funny story real quick with my, uh, gosh, I can't remember how old my daughter was. I don't know, 8, 9, 10. I would give her like five bucks and said, you can have these $5 and let's go to Walmart and, you know, take her to the toy section and hunter, you can buy whatever you want.

[00:15:02] Cause I wanted her to make these choices for trade-offs. Well, you can have this, but, uh, but you could also have this and just, you know, thinking about that. So you probably know already what I'm going to get get at. And that's when I gave her $5, she came back to me after 20 minutes, I was like, dad, I can't buy anything, nothing to buy when $5.

[00:15:22] I was like, okay, sorry. A little out of touch here, but just some practical, stuff. As far as savings, we talked about saving early, , parents, you can start a custodial Roth. We'll talk about the nuts and bolts of that in a minute, you can start a UTMA or sometimes they're called . We'll talk about the pros and cons in a minute as well.

[00:15:44] Uh, we could do a whole podcast on each one of those, but another technique is to match the CA your, your child's savings. Hey, you save a hundred bucks. I'm at you a hundred dollars. That's training, , for, for future savings and 401ks and such,.

[00:15:58] Somebody told me . One time, they said, we give our kids allowances or pay them for chores. And we encourage them to save 10% to give away 10% to something that they find meaning. And then do the rest with whatever they want. You know, that's a pretty good little habit pattern and kind of like you said, Rob teaches , the abundance mentality.

[00:16:18] And so I think that's a really good technique as well.

[00:16:22] Rob: Yeah, for sure. I think I'm kind of backing up a little bit when you very first start with your kids being tangible or using tangible money, using cold, hard cash. Yeah, that's helpful. Yeah. When they can see the value of a dollar and they can see it coming in and you pay them for whatever work they did and they see it going out when they buy whatever it is they want, that helps them get an understanding of, oh, I can't work for this.

[00:16:50] I got this amount of money and it's going out. Eventually they're going to graduate. Right. They're going to graduate to apps. And of course, with all the technology, these days, they're going to have debit cards or credit cards or whatever they're going to use. And they're going to have an app on their phone.

[00:17:03] Tied to that. And even then be as tangible as you can be right with them. So like for my son, we have a capital 1, 360, a high yield savings account for him. And we'll get into that a little bit. I think it's, uh, uh, it's too much fun. I geek out about it, but I think, you know, when I, when I pay him for doing, uh, an extra job around the house , he does certain chores just because he's part of the family.

[00:17:23] He doesn't get paid for that. He can go above and beyond and do other things. Did he gets paid for it. So when he does those, I actually slide and there's a transfer, uh, slide to transfer on your, on your iPhone. Uh, when you're in new capital 1, 360 account, and you just slide it and it shows it going into his account and you can actually look and say, okay, the money's transferred from my account and now your accounts up $10 or $20 or whatever it is.

[00:17:48] And I think just kind of having that, Account where you can see that's a, I'm losing the word here, but a tangible, tangible, there we go. That's the one where you can actually feel it. , see it, touch it. And they see, okay. Yeah. That's, that's, uh, in my account now, as opposed to you just give them an open-ended account and all of a sudden they're out of money and,

[00:18:10] Ben: so yeah, my, my parents tried to teach me how to balance a checkbook and I don't think since then, I have ever used to balance a checkbook cause everything's on, on the app.

[00:18:20] I mean, they're so, um, anyway, that's just kind of, didn't really help me at all.

[00:18:27] Rob: Right?

[00:18:28] Charlie: What I liked about what you said, Rob, when you pay your children allowance, there's there's stuff they should be doing because they're part of the.

[00:18:37] Cleaning the room picking up after themselves, whatever. Hey, you're part of this unit. However, if you want to do something extra, , like Polish my shoes or something. No, no, I'm not. I'm positive. Mow the grass or whatever then. Yeah, that's an allowance, so we talked about, , saving how to help your children get started on that, you know, spending plans and Ben, you mentioned setting goals and saving for them, , teaching that delayed gratification, which is huge, which I don't think any of us have anymore, but what we call this, uh, in the nerd nerd world or financial planning is bringing these future expenses into the.

[00:19:14] And that applies to all of us, by the way, today I was working on my spending plan for the next quarter and I had to put on there, uh, a new car, probably not a new car, but a used car. And I haven't had a car payment a long time and it's going to hurt, but we, we just recently lost a car, which is another story for another day, but it's painful.

[00:19:34] So I had to put it in there and it's painful. I got to face. But bring those expenses that are 1, 2, 3 years out, bring them in platform right now.

[00:19:43] Ben: . Yeah. Um, absolutely. The first thing, just, just for, for the spending plan thing.

[00:19:49] Uh, first, first big purchase. After I started my first job, I went out and bought a, a medical. Um, literally with my first, my first paycheck. And then I had, uh, I had the rest of the month where then I realized, oh, oh crap. I didn't not have no more, no more money left for groceries. I really did. And so then.

[00:20:14] Everybody was asked it was worth it. Yeah. And then I had to call a call, uh, call my parents. And can you send me like a hundred dollars for some groceries? And they're like, what happened? Uh,

[00:20:29] Charlie: nothing at all. I would never do such a thing

[00:20:36] Rob: as we're talking about that budgeting. I think I do think one of the things we should touch on here is automating it, right?

[00:20:42] If you can, and there's two sides to that coin. Obviously, if you audit. You know, the payments going in, they don't see it. And they just, they just get used to money coming in. If they don't see that it's tied to the work, but when you automate it, when they, uh, you know, as far as their savings and investing, it can make it a lot easier.

[00:21:01]

[00:21:01] Charlie: Another technique is,, when you're, I don't know what age is appropriate, maybe 12, you know, when they can first start understanding stock ownership, as we're driving down the road, I would talk to my daughter, Hey, , you can own part of Walmart, , Hey, we go to Disney, you can own part of it.

[00:21:16] And what are you talking about? So then you go, Hey, I'm going to buy you a, a piece of a stock. You can actually buy single stock, stockpile.com. We should get paid for all our advertising today, by the way. But I stockpile dot copy, print out a, um, a certificate and frame it.

[00:21:30] Put other walls, say you own a piece of Disney. , that's great learning. Now, once you learn that lesson, then tell them we don't want to want to own just one company that we want to talk about. Mutual funds, ETFs, et cetera. But the lesson of ownership is good. Just be careful, you know, don't make, don't make a bunch of speculators out of your children at age 15.

[00:21:50] Ben: Just going to say, I need, I need a piece of paper like that for my Bitcoin. Um, so that it makes me feel like I own something other

[00:21:58] Charlie: a second. I thought you had coins. You don't have coins.

[00:22:02] Ben: Oh man. Here I go. Now we'll talk off the, off on this one. Just actual coin, the recording. Okay. I hate to break to you.

[00:22:10] There's nothing there. I don't have a gun.

[00:22:13] Charlie: Oh, this is. Yep. We're gonna have another, have another podcast on the Bitcoin. Uh,

[00:22:19] Rob: another one. Well, they should just go and look at what was it? You can't hide 7, 7, 7, 7. So Bitcoin, Jesus and Jesus.

[00:22:27] Charlie: That's called. I call it. You called that. So

[00:22:32] Rob: let's talk, speaking to the peak and the bottom.

[00:22:34] Can we, should we, should we do that, that little. Or save that for like, which graph you're talking about. Oh, the little a game trying

[00:22:42] Charlie: to time. That's right. So, so that was one of the lessons here for, for all of us, but especially as a young person starting out, it's not about timing the market. And this was our first point of compound interest, , Einstein said.

[00:22:57] Eighth wonder of the world compound interest. So it's not about timing getting in, getting out of the market. You know, it's about putting your money in there, saving it, and then, uh, investing wisely of course, but not trying to run for the Hills when things get scary. So we've got a little game we're gonna play on, uh, for our YouTube folks here.

[00:23:16] And this is personal finance club.com. You can, uh, Google, uh, timing the stock market game. And if several leads will pop up, so here's what we're going to do to put it

[00:23:27] Rob: in the show notes.

[00:23:28] Ben: And if you get, yeah, and if you can time the market, if you can beat this, if you beat us. Yeah.

[00:23:33] Charlie: We're going to get into today.

[00:23:34] . If you can beat this game, then send it in and let us know that it's possible. So. One Ben coin, we're going to hit play. And then Ben is going to try to time the market. So what's, we don't know it's going to be 10 years of the market and it's going to go up and it's going to go down.

[00:23:50] We don't know which 10 years. Right. But Ben's going to, what's your strategy, Ben, are you going to sell high and try to sell high buy low? Cause , sometimes the market gets too high. It's overvalued and you just want to sell, right. That's right.

[00:24:00] Ben: Yeah. If it goes up too much, I'm Def I'm definitely gonna sell.

[00:24:03] Um, you know, I don't want to just sit there while

[00:24:05] Charlie: let's go. Okay. That sounds good. So then we're going to compare Benz. With a buy and hold strategy for that 10 years. So, okay. Now remember, it's going to start off. First thing you got to do is you're going to be buying right off the bat. So if you want me to sell, you got to see it pretty quick.

[00:24:21] So here we get to say pretty quick. Okay. All right. So the market is going, oh wow. It just jumped up 10% going up like crazy 40% sell, sell, sell, sell. That's right. That's pretty high. And that's scary. That's

[00:24:32] Ben: scary. Oh no, it's still going. It's going through.

[00:24:35] Charlie: Oh, tell me when

[00:24:37] Ben: should I buy?

[00:24:37] Charlie: I'll know. Bye bye.

[00:24:39] Okay, we're going back in the market then I got to go back

[00:24:41] Ben: in with you. I couldn't stand it. All right. All right. Now I'm definitely waiting. Okay. It's going down a little bit. Yeah. All right.

[00:24:47] Charlie: Sell, sell, sell. Okay. That's scary. You're right. That's very

[00:24:50] Ben: scary. All right. All right. Bye-bye bye. I'm getting it's about to, I, I have a feeling right now as soon as it's about to spike.

[00:24:57] Oh, no. Yeah. Oh no. It's. You're struggling. You're in the market. How much longer we got you're in the main cell. So am I, but yes, I sold. All right. All right, now. Bye. Bye. Yep, let's go. And I think it's about to go. It's very scary, man. Come on. I need, I need some help here. I

[00:25:16] gave

[00:25:16] Charlie: him the 200 day moving average right here.

[00:25:18] Did not use that.

[00:25:20] Ben: Oh my gosh. I didn't even realize that's what that was. Or you could have used

[00:25:24] Charlie: the. Well, I mean, I think I've looked at this graph. I'm like, man, you did terrible. I was going to try to find something positive, but you did terrible. Your investment grew from October 21st, 1996 to 2006. Hey, that was a tough time.

[00:25:39] I was looking at this skill market. I was looking at this timeframe going, goodness. That is that's like two or three years. That's the beginning of my investment Rob year two. Right? We're the same age, right? Yup. Right? Yup. That's the beginning of our investment life right there. It was terrible. Anyway. So Ben, let's see how you did from October 96, doc Tober, 2006.

[00:25:57] Your investment grew your $10,000 investment grew to $17,000 almost while a buy and hold strategy netted $22,200 or thereabouts, you lost $5,260, you know, versus the market annualized told me, oh yeah, you did terrible. The market grew 8.3% per year. Your investments Ben grew 5.4% per year because. You, uh, got a little scared sometimes and you thought the market was overvalued and I thought you were going to nail it because I was like, oh, you sold and you're going to, and the market's going down and then, but you just don't know.

[00:26:35] I

[00:26:36] Ben: think I missed the buy

[00:26:37] Charlie: side. Yeah. Anyway,

[00:26:39] Rob: it's so funny. Cause that's exactly, even though you didn't have any news, you know, news media in your ear there, or any pandemics or anything, you know, you're still obviously underperforming. So that in the mix, and that's exactly what you see for a lot of investors who don't have the discipline and

[00:26:58] Ben: well, that first couple of years it went up, so it was up by 20, 30%.

[00:27:02] And so I was like, there's no way I can keep going at that pace. And then sure enough, as soon as I sold it kept going. Yeah. Double. Yeah. Yeah.

[00:27:10] Charlie: Great. Okay. Well, all right. All right. Nice, nice work then tumbled me. That's

[00:27:14] Ben: humbled.

[00:27:16] Charlie: So let's shift gears a little bit because it's so important to talk about what you mentioned earlier, Rob, the, how do parents save for their children , and kids are, you know, young adults.

[00:27:25] How do they save? We've had a lot of parents lately go. I want to get my, my kids started off on the right foot. What's the best way to do it. What's the best account. And I'll okay. Do you all? Yeah.

[00:27:38] Rob: Um, I, I've got the three ways kind of that we we've talked about. Uh, here, you've got of course joint bank accounts that you can do, just like you have with your spouse, with your spouse there, you've got your custodial accounts, which is the UTMA, which we'll get into.

[00:27:55] And then you have w I kind of just, the first salvo, I guess, is the prepaid debit card. If you just want to go out, get, you know, uh, get a debit card that you just. Fun. Whenever your child runs out of money, that's one way to do it. That's probably the first option. People who don't aren't comfortable opening up a bank account or custodial account.

[00:28:17] .

[00:28:17] Yeah. Ben,

[00:28:18] Charlie: what do you think

[00:28:19] Ben: I wish I had, I'd got to do earlier and just like we showed with the compound interest is actually get to save and invest. I mean, my first, my first account was just a custodial savings account at the bank and, uh, or a joint account.

[00:28:32] And that, that was a great place to start saving, just saving my money. But I think, um, really, I would love to have gotten investing early. And like we saw on that and hold and saving for the long-term and the way to do that, I know we've talked about it, the custodial, uh, UTMA accounts, but also the, the custodial Roth IRA.

[00:28:52] Um, Charlie, I think you're actually going through that right now for, for your daughter. Yeah.

[00:28:57] Charlie: I printed out the application and had some other parents asking me about it. Cause Rob, you nailed a couple of great strategies for just savings and spending and we could even get into how to start credit for your kids.

[00:29:09] But I think that's probably easy to put off until 18 early twenties, maybe. Um, but as far as investing and saving, if you want to start that, uh, for your, for your kids, um, , I did just like what you said, Rob? I took my daughter's, uh, sounds terrible. I took her Christmas money. I mean, I, how do I say this?

[00:29:30] Uh, in fact I've got a reputation. All the family. Yeah, there we go. I helped her. I helped her. Thank you. I was, I was really struggling there because everybody in my family was like, do not give your birthday money to your dad. Okay. But my daughter did part with some birthday and Christmas money and I invested before.

[00:29:48] And a joint brokerage account. And so now what I'm going to do is I'm just going to take equivalent cash and start her a custodial Roth. . Now custodial, anything Artemis , uh, custard a Roth becomes the property of the child at the age of majority, which is either 18 or 21, depending on. So it's going to become your, your kids. So just get over that part, whereas a five to nine doesn't ever have to become the property of your child.

[00:30:13] So there's some flexibility there, but in this case, we want our kids to have this. I want my daughter to have her birthday money, Christmas money back. I'm finally going to give it back to her and, and yes, it has multiple. Thank you very much. A couple of times. We'll see. Anyway, up until September of this, put it in there yet.

[00:30:30] Anyway. Um, so I'm going to do a custodial Roth. Now here's a couple of nuts and bolts about the custodial Roth. How young can you do this Schwab, , that's who we're working with. That's up for not the application. I called them. I said, Hey, is there an age limit? You know, Nope, no age limit. Now your custodian, sorry for using the same type of language.

[00:30:47] Let me clarify that. Fidelity, Schwab, Vanguard, who. They are not going to be the police of your custodial Roth. They do not care how old your kid is for them. You know, as far as, especially Schwab. I know that for sure. They're not going to ask. I mean, you're going to put it on the application, but they're not the police of that.

[00:31:02] They're just going to open the custody to a custodial account. They're going to do it now. Here's the rules your, your child has to make. So that's what

[00:31:11] Rob: I was just about to say, Charlie. So I am the police on this, so

[00:31:14] yeah,

[00:31:14] Charlie: you're the police.

[00:31:15] Rob: So now your child, you're not, you're not taking any birthday money and putting it around.

[00:31:19] No, no, no, no money she's earned.

[00:31:20] Charlie: She has to earn money. So my dog, so yeah, thanks for that clarification, Rob, because what I was actually doing is, was breaking the rules. My daughter does earn money so she can contribute now to a Roth. And in anybody, any child can earn money. Here's the sticky wicket. How do I prove if I get.

[00:31:38] Does my child have to file a tax return. Do they have to get a W2? What if they're mowing grass? They're not going to get a W2. So, if they work for a restaurant, they're going to get a W2. , if they work for someone else, they might get a 10 99.

[00:31:49] If they don't then just have records of that income, create a log, you know, making notes of it, uh, show bank accounts or receipts or deposits or something, , because your child, even though they make money, they may not have to file the tax return depending on how much they make. So those are the nuts and bolts of the custodial Roth.

[00:32:08] The limit is right now, $6,000, uh, for our child, they have to make, you can put a hundred percent of their income in it, so they can only put 6,000 in it if they make 6,000. Does that make sense so far? Am I on track here? If

[00:32:23] Ben: they only make 3000, they can't put in 6,000, they can only put in, correct?

[00:32:26] Charlie: Correct. Earn income. .

[00:32:28] Awesome. Yeah. So , last thing I'll say on just savings accounts is the utmost are pretty good. Um, but I th I think depending on the tax laws and things like that, sometimes they lose some of their advanced. So, but, but they're okay. I mean, they're all right.

[00:32:43] I'm not a huge fan of personally. I'd rather do the Roth, but everybody's circumstances are a little different. So,

[00:32:49] Rob: so I've got, um, I, my personal, I'm just going to disagree with disagree there. Charlie, I'll let it out. So. Yep. I think it's important to give them the UTMA is a little bit for, you know, some clients that are maybe a little bit higher or net worth, and it's a uniform transfers to minors, act it expounds upon the UGME, which is, was a little bit older it's uniform gift to minors act where that I think was only securities.

[00:33:16] The UTMA can be money, , real estate, fine art, all of that. If the account allows it obviously, but, but that's covered under the act and. And you're deaf in your example of the birthday money. I love UTMs for that example, because that's a, that expands on the gift act, right? So if there's a gift, that's where you can put that that's a great place for a gift and a TIG to get invested in the market or whatever you want to do with it.

[00:33:42] But that's obviously what we, uh, most of the time advice for longer-term assets, you're going to invest in the market and the UTMA does that fidelity Schwab I'm sure. Almost everyone does that. So that that's kind of where we get it. To, uh, the difference between if it's earning income than a Roth IRA for the kid is great.

[00:34:01] If it's not earned income, then maybe a UTMA works for

[00:34:06] Charlie: no, that's a great point. And I like the point you made too about watching out for, if you think you might get some student aid, uh, then, then those are going to count against you. That's why the 5 29 is really a powerful cause it, it doesn't do that, but.

[00:34:20] Ben: Yeah, and you can give $15,000 a year right now without filing a gift tax return. So if you were going to give money to. Know, that's just something to keep in mind. , the UTMA I think that for the majority of states, I believe it is 21. When the, when the custodian sturdy in ship ins custodial ship ends,

[00:34:40] Rob: uh, Colorado in Tennessee, at least it is.

[00:34:42] Ben: Yeah. Yeah. So. You know when w and we've experienced this with some of our clients, as soon as they turn that age. Well, that money is theirs.

[00:34:50] Rob: That's a good point. And I think it's important. Define some of these terms. So you, if you give them money or if you're a parent and you give your kids some money, that's going to go into a UTMA. You are the donor, you can name a custodian. Usually it's the, still the parent, that's just a custodian and you have a fiduciary duty.

[00:35:08] We've talked all about fiduciaries. If you've heard any of our other podcasts, you have a fiduciary duty to your kid in that scenario. So you have to do what's best for them in managing that investment, which means you can't take any of it.

[00:35:21] Ben: That's right. You can't invest in meme stocks, right? I guess you could.

[00:35:28] Rob: And part of that UTMA though, as far as tax wise is when it does become there, let's say at 21 who is then out on their own is they're taxed on the, any kind of capital gains on that. They're, they're taxed at their rate, not on their parents.

[00:35:43] Yeah. If I'm saying that that's a good

[00:35:45] Charlie: point. Yeah. Taxes and Artemis is, is, uh, not an easy subject. It confounds me continuously.

[00:35:54] Rob: The other part, I think that's important about Roth. IRAs is all the advantages that we've talked about. Roth IRAs, and we maybe do another podcast on that. Let us know, hit me up at Robert, uh, leading edge planning.com, but the Roth IRA.

[00:36:12] Are in a retirement account. However, when you contribute money to them, you can always take that money out because you've already been taxed on it without any penalties, any fees, any taxes. So you can take a take out your contribution amount and that's an important distinction. So some people might say, oh, Roth IRA.

[00:36:30] Well, my kid's 10. He doesn't get to see that until he's 59 and a half. Well, if something happens and he needs. He can take out the mountain. He's contributed now not the part he has earned or it's made, right? Not the part that, um, is getting pounding and gains. Thank you, Ben. Not

[00:36:48] Charlie: the kids call it these days.

[00:36:52] Rob:

[00:36:52] Yeah. Not the gaze. You, if you take out the games, then you're penalized and taxed on the gain. So anyways, I think that's a great thing that a lot of people don't understand is, oh, well, they can actually, they need to buy a car or whatever they can access.

[00:37:05] Yeah. That was contributed now, is that, why is that? May not be wise,

[00:37:09] Charlie: but they could do it. It's like an emergency emergency fund emergency, super remote. And

[00:37:15] Ben: don't buy a new car. Yeah, there we go. Don't

[00:37:18] Charlie: bind, you know, we're coming upon the baby coming up on the end here, but what, what final thoughts?

[00:37:22] You know, Ben, you've got some techniques as a young, young guy, young, newer investor. You've got something you're passionate about. I think you were talking about you'd liked about new cars or something.

[00:37:32] Ben: Oh man. Yeah. I love buying. Uh, I see these fancy, , Mercedes and I'm actually, I'm more of a truck guy, we were admiring a nice Dodge truck the other day.

[00:37:42] Man, I need that. Oh, it's $120,000. Nevermind, but no bug. Yeah. Oh yeah. The T-Rex yeah, the thing is awesome. I'm sure it's always been this way, but we see, we, we see social media that we see our friends with w you know, maybe nice cars we see are, are the people that we look up to with nice cars.

[00:38:01] Um, and we, it's really easy to fall into the trap of obviously wanting that, um, you know, you go to a dealership to get a new car, and they're going to talk you into, instead of maybe buying this used car one. Pay monthly and you can get this nice new car and, uh, and take out a loan for it. And so I would just say, you know, it's not always the best idea just to go and buy a new car.

[00:38:22] It is a, it is a wealth killer. Is that what we put on the sheet there? Charlie? But so, so that's one of the things, you know, don't fall into that temptation. Don't feel like you need to keep up with anybody. Um, number two, I would say is, um, you know, I'm, I'm currently renting property instead of, uh, I don't, I don't own a home right now and I think that's perfectly fine.

[00:38:42] Um, if you look at, if you look at some of the math, we can get into it, the pros and cons, but, um, don't feel like you need to go and just buy a house, right. When you graduate or right as your, uh, your, you know, your, your. You're out in the workforce. Um, you know, there that you may not, it may not actually be, uh, be thrown away money renting, which we hear a lot.

[00:39:02] And then the last one I know we talked about automating your, um, your savings. When you're setting a budget, just take 10, 20, 30 minutes to set a budget you don't have to stick to it, you know, by the penny, by penny, but make sure you have at least a savings goal , you can do it on an app. You can do it right now. Take out your phone and set a savings. I have a transfer and money into my savings account. Every, every few days it just transfers money into the. That has helped me tremendously with saving. I don't like to look at my, my account statements very often.

[00:39:31] I don't like to look at what I'm spending my money on, which is not, not necessarily a great thing, but I have a budget budgeted out where I know I'm meeting my savings. And I'm able to, um, to, you know, buy the things that I need, um, by doing that. So that has been really helpful to me. Those are the things that I'm passionate about.

[00:39:48] Charlie: I love it. Well, put you get off my pedestal. Drop the mic box. Yeah. Oh, total drop. That that's expensive. Rob, what do you got, man?

[00:40:00] Rob: That's all I got really? He nailed it. We've talked. Uh, we talked quite a bit. They did talk to mentality the use of money, tangible. The savings or automation, the three different ways to joint custodial and prepaid debit card that mothers, and obviously Roth IRAs.

[00:40:16] Charlie, what do you got anything to wrap it up? Oh boy,

[00:40:18] Charlie: this is a good one. I just love what Ben said, you know, set goals that are important to you. Not somebody else. We see so many people with this FOMO, right. And they're missing out. They feel like they're missing out, but it's like take the time as a young person to go.

[00:40:33] What do I want? And go after that. If you don't ever do that, then you're going to be constantly trying to meet a goal or benchmark that's moving on. You constantly and you will drive yourself crazy. I hope that makes sense to people, a lot of people say, it's know your values. That's a little bit vague and maybe, uh, a platitude of sorts, but know what's important to you and then write it down.

[00:40:59] And then set those goals because it's the L keeping up with the Joneses and we just see so many people through the whole life chasing this unattainable money goal. And then sometimes they get it and guess what? They're disappointed because it wasn't what they really wanted all along.

[00:41:17] So know what you want, know what's important to you and go through. That's it.

[00:41:21] Ben: I've just, I've just, I love that. That that's such a good point. He made me think of one more, one more thing that I find important right now. Um, we're in Tennessee just recently, uh, passed the, uh, the sports gambling act. I don't know what it's called, but you can now gamble on sports.

[00:41:38] And it's very tempting. If you can do it through an app on your phone and it tells you that it has pretty, uh, you know, graphics and everything that pop up when you win and they say you can win tons of money. And, um, you know, every day they say, they say, Um, and I think it's the same with some of the Robin hood stuff that you see on commercials.

[00:42:00] Um, I was seeing, I saw a Coinbase commercial the other day, and it's like, you know, you go and buy doge coin. It was literally a thing about dose going and how it was started as a joke, but you can go and invest in it and coordinate. So I would just say stick to the, you know, have your, have your long-term money that you're saving and don't, don't try and gamble it away on literally gambling or, um, these meme stocks trying to try to win it all on, uh, you know, following people on Reddit or in these Twitter groups or whatever it is.

[00:42:29] Um, you know, that will cause more stress in the long run. Most likely you're going to lose money. You're not going to be able to beat the market. We just, I'm, I'm an expert investor, as we all know. And I, I just lost to the game. So, I mean, right there, you can't beat the market. Um, no, but, um, I really think like as a young person, especially creating those habits and not falling into this trap of trying to, um, gamble your money away and really invest in investing is not gambling and, and really learning about that and sticking to that.

[00:42:59] I

[00:42:59] Rob: love it. Nice. That's it. All right. I've got the two quotes to wrap it up. We're not a fan of everything Dave Ramsey says, but this one I am. You've got to tell your money what to do, or it will leave. They Ramsay. If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.

[00:43:17] By Edmund Burke, we've arrived at our final destination. Let us be the first to welcome you to the end of flight eight. Thank you for joining us here at the pilot money guys podcast. If you liked what you heard, please hit that subscribe button and leave a review so we can reach more people. If you have any questions or you'd like to, uh, anything answered on the show, she does email info@leadingedgeplanning.com or robert@leadingedgeplanning.com.

[00:43:42] And as Emerson said, the world makes way for those who don't know where they are going. So plan accordingly. Thanks for listening. Take care.

[00:43:52] Voice Actor: Thank you for listening to the pilot money guys podcast. It has been our pleasure to share some information with you today. Give us a call to discuss absolutely any investment question. You may have click on the subscribe button below to be notified when new episodes become available. Visit leading edge planning.com to learn more.

[00:44:11] Take care.

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[00:44:33] And its representatives are properly licensed or exempt from licensure. The information provided is for educational and informational purposes only, and does not constitute investment advice and should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell. It does not take into account any investors, particular investment objectives, strategies, tax status, or investment horizon.

[00:44:56] You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-thinking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those.

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Categories
Pilot Money Guys

Flight #17: New Tax Changes

Pilot Money Guys:

New Tax Changes

In this episode of the Pilot Money Guys, we are joined by the Professor, Kevin Gormley CPA & CERTIFIED FINANCIAL PLANNER, to discuss the latest proposed tax changes.

Although these are subject to change, there are things that you need to know to be prepared. Some changes we discuss:

1. Capital Gains tax increases.
2. Roth Conversion changes
3. Child Tax Credit Changes

We would love to discuss these tax changes with you! If you have any questions for us, please send them to info@leadingedgeplanning.com. Or visit LeadingEdgePlanning.com to schedule a 1-hour consultation.

As always, thank you for listening! 
 
 

 

 

 

Podcast Transcription:

 we interrupt your regularly scheduled programming to bring you this ad hoc special edition charter flight 16.5. Of the pilot money guys, where we cover some airline news and of course, a financial topic we're going to talk today, especially about the tax proposals. Uh, in 2021, we aim to educate and bring some lighthearted financial fund dear day.

 

I'm your host, Rob Eckland, your flight crew today is the professor. Of course, we need a CPA to talk about this stuff. Certified financial planner, Kevin Gormley. Hello, Gormley here. And of course our very own Mr. Cabell, the Bendeka is in welcome, Ben. Thank you. Good to be here. Also present. Yes. Present today.

We're going to cover. The potential tax changes coming right around the corner. We're recording this just to kind of give you a buffer here. So if we make any mistakes, this is the 24th of September, 2021. All of that, we're going to talk about the tax proposals, at least is all subject, subject to change.

It's still going through Congress and who knows what could happen. So this is just a kind of a pre cursor of what could come. Things can change, but some of this is likely to pass. Enough of that. Let's jump into some aviation news. I've got the first one we're talking about the air force, KC wide bridge tanker, which is going to print.

Yeah, it's another tanker. I know. We thought we had enough of those with the KC 46, all you, uh, air refueling geeks like myself out there. Uh, but the KC tens going away. And they really don't have much to replace it with. So they're coming up with this, this next tanker Lockheed Martin has joined forces with Airbus and they're going to produce a Airbus three 30.

That's called the LMX T, which stands for the Lockheed Martin next tanker. And apparently it's going to be bigger, better, um, you know, batter than the KC 46, be able to go more places. And do kind of the stuff that the KC tin could do that the KC 1 35 could do at least that's my perception. It could go to more airfields because it's got a, you know, bigger wings and more useful load and all kinds of good stuff.

So kind of cool. Uh, for the case 10 folks out there, I was really questioning why they were getting rid of the KC 10 when the KC 46, wasn't all up to speed. Uh, and I could geek out about that for a long time, but I won't. Kevin and Ben, the professor with this, I can see glazed over luxury right now. Yes.

You raised your hand. I mean, how many kids, uh, you know, right now, or a 10, 12 years old and their dream is to fly a KC 10. I mean, probably, probably a lot of them. Right. Is that something that you dreamed of doing Rob when you work with. I turned to flying. I don't know, per se the KC tip, but you know, all of the impact I've had around the community here, at least one wants to fly KC 10 or they used to doing after seeing you fly there.

Right. You got to get some video footage of you flying it. I mean, oh yeah, for sure. That would be exciting to upload that. It's pretty good. Now that I'm retiring.

You think you can do a barrel roll gas station in this guy?

Absolutely. Okay. Let's get into the inspired. The next piece is inspiration for I've got my special copier. Failure's not an option in recognition of the first all civilian space flight and they did awesome. I think they landed. They went around the, the earth several times and the first civilian. It's baseline as far as I know, right?

Yeah. So can you say, uh, first civilian space flight, um, those other two civilian groups that went up, uh, they were, they were kind of in space, but this was the first time a craft orbited. The earth is that. I think so you're challenging. My, my, my, uh, this is not great as fuck, you know, headline says first all civilian crew goes to space.

I think those other crews had, uh, you know, military folks on. Right. Even though it was billionaires that grabbed all the headlines, you know, still the military folks doing the work. Oh yeah. We're going to make sure Ben puts that in the show, but. Whatever. Yeah. Yeah, yeah. Whatever the right answer is. We'll put it in there.

We'll find it and throw it in there. I did find out something interesting though about this. Maybe some, some drama about inspiration for. Which is that they had some toilet issues on the plane. This is a direct tweet from Elon Musk. Definitely need to upgrade toilets. We had some challenges with it on this flight.

Now, can you, I'm just trying to envision this right here. No low gravity, very low gravity. What that thing is, that's not sinking down there. I wonder what kind of issues they had this, you know, there's going to be some stuff floating around. Yeah. Yeah. It must've been pretty bad for that to become an issue, um, especially with it for some side effects in there, for sure.

Um, but Rob isn't that usually on a commercial aircraft, isn't the toilet, usually the most drama on any flight from what I've heard, uh, flushing, uh, paper towels and stuff like that and leaving it a mess I supposed to put down yeah. Smoking in the bathroom. It's. Just a, what would you call that? Something show?

Yeah, it's a lot of fun. Lot of fun for all you, uh, airline passengers out there. Let's just get a couple of ground rules right now. If you're going to go, number two, you go to the back of the airplane. Don't don't come up to the front where the pilots are. Let's just go to the back. I have some calm first-class toilets are so nice.

Come on. Well, that's a good point. We know Southwest is all first class ban. Okay. Yeah, you guys get the nice, nice, comfortable seats. They're really contour. All right. We can cut that one out.

Gotcha. All right. What else? Anything else? Uh, for aviation news, you one. Did you have a top 10 list? You want to go over real quick? I can go through it really quick. If we want to go through this. It's I think it's a pretty good top 10 list that I think people will be interested in. Um, I sure was entertained.

So this one right here is the top 10 weirdest airplanes of all time. And, uh, I'll just burn through this really quick. Add some comments about these. The first one is the number 10 and it does look pretty weird. It's the Boeing X 48, which is currently under construction, has a 21 foot wingspan. And, um, it is being developed as an unmanned aerial vehicle.

So it's kind of a weird plane. Uh, next we got the, the Horten ho 2, 2, 9 airplane. This was a, uh, world war II German fighter bomber. Um, and it, it, it looks pretty futuristic. It looks like it's out of the Jetsons. Pretty cool. You got to, have you heard of. Uh, you know, I saw a picture that way back when I think it, it almost looks like something out of, you know, captain America, the crashes, you know, similar it does.

It's got a nice bubble in the front, you know, we'll have to do is let's put all these pictures. Well, yeah, we, we definitely will cause these are, these are great and they start to get more and more familiar here. The next one is the Airbus balloon. Making it on the list I knew beyond here, I wasn't sure where it's the 8300, 600 wide body aircraft.

Uh, and it is used to carry the aircraft parts and cargo, uh, that are either too large or arguably are awkwardly shaped and it came, uh, took it to maiden flight in 1994. Weird looking airplane. Honestly, one of my favorite looking airplanes, it kind of looks, it just looks like a beluga, but it looks ridiculous.

So, and they even paint it most of the time to smile to make you have to that thing go if you're not sure what the beluga is, look that up. That thing looks exactly like that. Um, number seven, super Guppy airport. Uh, yeah, I mean, come on. Like, uh, it's basically the original beluga, uh, came out in 1965, uh, and operated by NASA.

Loved that one. Um, let's see. Number six, the dream lifter. So this is the Boeing seven, the 7 47 dream lifter. Is that, is that sound right? It's a 235 feet long and a cruising speed of 474. 211 foot wingspan. Uh, number five, the flying pancake airplane. This one intrigued me the most when I saw that. Cause I did not know that this plane existed.

Uh, this was when did this come out? I think this came out in the thirties, I believe, but, uh, it looks like a giant stingray. Uh, it was used by the Navy. It's called the Vaught X five F U plane X F five-year. Uh, maximum speed of 550 miles per hour in maximum takeoff weight of 18,800 pounds. Quite impressive.

Nice. Pretty weird. All we needed one pilot as well, and it looks like that's an ugly airplane that looks like a crab. It really, it really does look like it's meant to fly. And now do not know. . All right. Uh, number four. Um, Callanan K seven airplane. This one, to me, it looks like it's out of star wars or star Trek or something. It is, uh, one of the it's also called the Russian flying fortress developed in 1930.

And um, had 11 members, 140 miles per hours. Its max flying speed could carry 120 passengers and 15,000 pounds of mail. Oh. Or 50,000 pounds of mail. So that one, yeah, it looks crazy as well. Uh, number three, the Northrop tacit blue airplane. Uh, it was developed by the us air force in 1982. And it was considered the best technology on the planet has a gross weight of 30,000 pounds and can fly 290.

Now that you guys are going to look that one up. That one's pretty interesting as well, that Russian, just to back up the, uh, so the dream lifter was made because of the Dreamliner. The parts were too big. And so they had to make those specimen special seven, 14. Aircraft to haul the parts, but that Russian flying fortress is something out of a, out of a movie.

For sure. Yeah. That one will definitely put this one on there, but you're going to have to look that one up.

Um, number two, the pregnant Guppy airplane. So I got a lot of guppies bigger. This one flew from 1962 to 1977 wide body cargo plane used by NASA to transport components of the Apollo moon program. Um, so very interesting playing there could a load capacity of 141,000 pounds and a max wind speed of a 320 miles per hour.

It does. It just looks like a big pregnant fish, I guess that's why they named it. That, uh, the spruce goose has comes into number one. I think this one, this one was coming and Howard Hughes, uh, uh, it's an all wood airplane built in. What does it only flew once in 1947 carried 700 passengers and it's the largest flying transport ever.

The wingspan was that LA was longer than a football field. The spruce goose was actually a flying boat and could hold up to 150,000 total pounds, uh, including two 30 ton in four Sherman tanks. Uh, also known as the flying lumberyard. And today is in the evergreen aviation museum in McMinnville, Oregon.

That's from McMinnville. Yeah. Beautiful. That Guppy, if you ever fly into El Paso, a lot of times you'll see that super Guppy, the NASA one. Oh, yeah. I've never actually seen this. Yeah. Yeah. The super well, is it the, I don't know why the color, right. It might be the pregnant Guppy. Yeah. But it can, I think it can carry T 30 eights in it, which is they have four or five top gun, top gun fans out there.

 Nice. Where did you get that top 10 list? I got that top 10 list from arrow corner.com. We'll link to it in the show notes. Yeah, absolutely. Check it out. . . , I mean, that was super great. Let's give them even something more exciting, right? Yes. Taxes tax. Why calming. That's why we got the man, the myth, the legend, Kevin, the professor, the professor. All right. These tax changes are common.

Kevin, you want to walk us through some of this stuff? Yes. So I'll tell you this, Rob, when, uh, whenever we hear about tax changes coming and were doing tax returns, where a CPA or where a tax professional, uh, immediately we try to disregard because we have last year's tax return. In our mind, we have this year's, uh, what's happening with taxes.

And then we hear about all these. Projected taxes that are coming. And most of the time they don't come true. So usually, uh, we're very skeptical or, or maybe we just. We just wait and see what's past. But you know, this time around, uh, especially in the world of social media, things happening so fast, a number of clients have actually mentioned that they know tax changes might be coming.

So really that's really, the focus here is to discuss what, what, what probably will happen, what could happen. And also some of the things that a lot of people have heard are going to happen, which are really bad, which probably are not going to happen, Rob. Yeah. Well, fantastic. So the first one. I think a lot is on a lot of people's minds.

There's just the regular tax rate. The marginal tax rate is increasing from 37% up to 39.6%. Right. And that's for married, filing jointly folks above $450,000. So the, the 400,000 and the four 50, um, you know, one of the things that I do, like, uh, like might be the wrong word, but, uh, that at least I'm relieved with Rob is that they are focused more on people that make more than 401,000, if you're single and four 50 and $1, if you're.

$450,001. That is, but the issue that, that I find is that people that make more than that amount of money still don't feel rich, still don't consider themselves rich. So if you're in that, uh, area where you're above 400 or four 50, uh, it still can be painful, but you're right. For the most of the pilots that we work with, um, you know, they, they do get around the 400, 4 50 mark when they're captain.

But for most people, uh, the, uh, tax changes will not affect them, which is great news. And even if you did make $450,000, $450,001 that 39.6% is only taxed on that $1. That's exactly right. Clarify that, uh, it's only the amount over $450,000, uh, that, that applies to let's kick it off. Sorry. Kicking off is not the right word.

Let's talk about capital gains rates, which is right after the marginal tax rate. A lot of people start thinking about the maximum capital gain rate is going to move from 20% to 25%. Yep. So the rumors were out there, Rob, that it was going to go to 39.6% for people that made more than a million dollars.

Um, which, uh, you know, again, we, we have a few people that make more than a million dollars of income. Uh, most, most of the tax that we're talking about is income. It's not really wealth or where the rich, uh, and I used the rich in quotes. So that's right. Um, if you make more than again, 400,000 or four 50, Uh, then your capital gains will be taxed at 2,500.

Yeah, that four hundreds for the single filers and the four 50 is for married filing jointly, just to make sure everyone knows that that's, that's the amount you're we're talking about for the capital gains. Ben, I got something I've heard a rumor going around that they are planning to tax unrealized capital gains.

Is there any truth to that in this plan so far? All right, Ben. Um, did you see that on, uh, one of your Snapchat? Um, you mean my tic-tac yeah, I saw it on. Yeah. So, so I think that, I mean, that's a good point, you know? The people will ask us well, should I hurry up and sell my investments and get my capital gains?

Um, so that's called realized capital gains when you realize it is when you sell it. So if they ever taxed unrealized capital gains, uh, I'm not going to say something like I would eat my hat or something like that, cause, or leave the country because I don't feel like eating the hat or leaving the country, but that would be, that would be really hard to tax unrealized, capital gains.

Um, But, uh, who knows the creativity of the Congress. It's always possible Ben, but I've, I've not heard that. Okay, good. I, I, you know, I, I definitely don't want that to happen, but I've been hearing those rumors and I honestly just wanted to dispel that because I have, I feel like that is kind of going around, but interesting.

The other, the other thing with this capital gains is, um, you know, most of the tax laws, as far as I can tell. Uh, with this legislation, it can bounce back and forth is my understanding, you know, way more about this than I do Kevin, but it, most of the time, at least on this legislation will go into effect one January, 2022.

However, this is one piece that may be backdated, I guess, to the time, uh, that the legislature. It was proposed, which was be September 30th, 2021. So you wouldn't even be, even if you sold right now, in theory, if that holds which it may not may or may not, you know, you, you wouldn't be able to get around that anyways.

Any thoughts on that? Yeah, Rob. So, you know, when we say that people might not make 400,000 or whatever the figures are, sometimes people will sell a second home or a rental home and they will be pushed up into these high, you know, people can make $800,000 in a year because they make a problem. Five $600,000 on a home.

That's that's happening now. So yeah, the, the strategy a couple of weeks ago, might've been to hurry up and sell it, but, but you know, again, that's really hard to do so, but there is, uh, there is a date right now, which the Congress has says said, if you sell after this date, you will still get hit with the higher capital gains.

So you're absolutely correct. So any capital gains after September 14th, 2021 may be taxed at a higher. Fantastic. That's that's big. That's big to know that. That's interesting. Um, moving along here, we've got the 3% surtax and for all of our individuals out there making more than $5 million a year, and what we used to call Majaila modified, adjusted gross income.

You're going to be taxed at whatever you make over to the 5 million of 3%. Is that right? Did I say that right? Yeah. Yeah. Let's, let's have some fun here since none of us make over 5 million, no anyone that makes over 5 million of income per year. But if you take, if you take the 39.6, add the 3% and you live in the state of California, well, then your tax rate would be 59 points.

59.7. So you'd be sending in a, almost 60% of your money to the local and federal government. And that's the reason why, w what was that golfers name? The left-handed golfer that left the state of California. Oh, Phil was that Phil. Phil. So Phil left, Phil Mickelson left California. Yeah, he left because, uh, because he didn't want to pay those high tax rates and some people, uh, really hammered them on social media.

But, uh, can you imagine if you're someone like him making 10, $20 million a year and now all of a sudden you get to keep 40% and you get to be told you're not paying your fair share. I'm sure. Yeah. That's great. And how he got to that is the 39.6%. You know, if you're over the forfeit. Plus a 3.8 net investment income tax.

That's the knit that we that's, that's been around for a while. Plus the 3% surtax that gets you to 46.4 and then the California state tax is 30.3 that's 59.7%. That's a lot of tax, but you're making a lot of money. Uh I'll I'll just drop it. Yeah. Yeah. You're, you're rich. That's a lot. I'm joking by the way.

That's sarcasm. So don't get mad at me if you're, if you're making that money. Um, that's good stuff. We got the, uh, now we got the creation of a cap on the maximum amount of taxpayers, QBI deduction. And if you don't know what QBI is, it means it doesn't matter to you. So don't worry about it. But a qualified business income is.

Capped at the maximum deduction for that would be for joint filers, 500,000 single file or your 400,000 and a trust in the states. 10,000. Okay. Let's get on with the, whatever was been really talking about, at least in our circles is the disappearing, the disappearance of the backdoor Roth and the mega backdoor Roth.

Kevin, this is right up your alley. Take it away. Yeah. So those of you that have had it on two times speed, uh, so far that's okay. But, but slow it down now to maybe 1.25. And, uh, so the Capitol, or excuse me, the Roth conversions. I mean, that, that's a huge part of what we do as financial planners. Uh, people in our income thresholds do is they either, uh, do the backdoor Roth, um, or some people even Rob, they put money into their 401k as an after-tax and they do the mega backdoor Roth.

Uh, if you have after tax money, going into IRAs now going forward, uh, you can no longer convert those dollars. So I don't know exactly how that's going to work, but it basically takes away the backdoor. Uh, for people, and this is really important for people that maybe are, are married, filing jointly around the 1 98 to $200,000, because there might be some strategies here to allow you to put money into a Roth as opposed to a backdoor Roth.

Yeah. And this is one of those things. If you're using that strategy and talk to your financial advisor, call Ben Dickinson, right? Right. And ask him about this, but, uh, it's one of those things that if you're going to use that strategy, think about doing it this year, because it's, you can still do it in 2021, but again, January 1st, 2022, you won't be able to do that.

Backdoor Roth anymore is, is at least proposed right now. Again could change, but that's on the that's on the table.

, along with that, is there any changes that people need to take right now that are pretax going, doing the back door? Is there anything to think about for next year specific? Well, uh, for people that like that are near those income thresholds where you can't do the.

Contribution anymore. Um, maybe they should just go ahead and back. Do the backdoor Roth in 2021, because once, uh, you know, usually in 2022, we do 2021 taxes and we realize you made too much. So in that case, you wouldn't be able to do it anymore. So we really want to talk to those people that are in the income thresholds that maybe are doing the Roth contribution direct.

So that's, that's kind of the Roth and the mega backdoor Roth, which not a lot of people. Access to, uh, or I should say, not as many as we'd like, and that's again, just after tax dollars, going into your 401k that you can put into reach that 58,000, um, mark, if you will, if you're on the field, the only reason I'm happy Rob about this is I don't have to explain it anymore because it really makes no sense.

It really makes no sense to call it. I think we've we've, we've had a lot of people will ask us if it was even legal, uh, or what we were doing. Very confused, a few people, but now very common thing now let's go away. And one of the other things is important about since we're talking about IRAs, is there think about capping how much you can actually have in one of those, uh, accounts, retirement accounts before.

Uh, you can't contribute anymore. And the magic number there is $10 million, which sounds like, you know, a lot of money and not, we won't have a lot of folks right now hit that, but in the future, that's definitely a mark that quite a few people I think can hit. Well, it's just inflation continues. If inflation continues, we can all have $10 million IRAs.

All right. That's very sarcastic and mean. Sorry. Um, so, so you know, this is, uh, I think Thiel is the guy's name, who was the, uh, hedge fund person who had a, uh, and I forget the number bank five, five. I was gonna say the B.

So, so this, this, uh, you know, a lot of people might not think this affects them, but the whole idea of, uh, IRA, uh, limitations is a big part of the proposed changes. So, uh, if you have more than $10 million in an IRA, you have to take an RMD required, minimum distribution, a 50% of the amount over 10 million.

And I think over 20 million, it goes up even to a hundred percent maybe. My understanding is if it's in a Roth you have to take anything over 20 million out. So Peter, Teal's going to have to take over $4 billion and then, you know, then it goes into that above 10 million, 50%.

So. Yeah. So, so the, uh, so the thought process here, just to make sure that everybody understands the punishing of the rich, uh, idea here is we're going to raise taxes on the people that are quote unquote real. We're no longer going to let them defer the money into IRAs and build up big IRAs. We're going to tax them.

And this actually generates tax revenue for the next 10 years. Um, and then the third thing is if they decide to put it in capital, uh, put it in taxable accounts and get capital gains, we're going to tax that at a higher rate too. It's sort of the trifecta of, uh, going after the rich in, in air quotes.

Once again. Yeah, absolutely. And to think about it too, and not everyone can do this and it's not going to affect, obviously it's going to affect very few people percentage wise. But if you are in that, that, uh, situation where you're taking required minimum distributions and you are very, you know, you're in the rich, like you say, income category, Kevin, then think about it this year.

You know, you're at a 37% income tax rate this year when you're taking those required minimum distributions. Again. If you're in that tax bracket next year, you're going to have the 39.6% rate. If the all, again, caveat, if all this goes through and then you'll have another, you could have another surtax of 3%.

So you're up at 42.6% and that's before state taxes, that's a 5.6 negative rate arbitrage between 2021 and 2022. Meaning just the difference. If you wait between 21. And 22 is 5.6%. That's quite a bit if you're up there. Yeah. And Rob, the other part, I mentioned, uh, that the IRAs, uh, the laws have changed, uh, or they will change.

Uh, we think the, all the self-directed IRAs and all the people that had non-liquid companies, they start a company, they stick the company in an IRA. All of that stuff is, uh, is probably going to be nixed. So, uh, we get questions all the time. Hey, can I invest in a rental property with my IRA? And the answer is.

You could, but I wouldn't do it because the self-directed IRA is a PETA. And so I would not recommend it, but, uh, that looks like that that's going to be going away. Great point. That's important for a lot of folks out there that are, yeah. I feel like that's been a kind of a viral topic recently. A lot of people have been asking about that, I guess, with the housing market and people being able to do more, uh, research and have more time on their hands.

But yeah. Probably a good thing in the end of that, that one's getting knocked away. Yeah. Potentially, potentially getting he hasn't knocked away. The other part too, you know, this whole thing is the space. We're basically going to have the current estate and gift tax exemption. Right now it's 11.7 million.

And it's going to be replaced with an exemption of proxy, half that around a 6 million per person, you know, that's, uh, the index for inflation. But, yeah. So if you, if you, if you pass and you're trying to give away more than the estate and gift tax exemption of 6 million, you'll be, is that right? My understanding still remains the same at 40% is the tax rate of, of, uh, of money on that.

But, uh, it's going to be lowered to 6 million. So if you're, if you have quite a bit of money out there and you pass away giving it, passing it along to errors, won't be as. And Rob that that amount does include your property as well. Right? It's not just your, your investment accounts, right?

Well, it's your taxable estate, uh, whatever makes up that taxable state. And that's probably not something we want. Uh, get into, but, you know, w we, we have some clients that, you know, when we tell them the 11.78 or whatever, they would laugh, uh, you know, when you tell people it's more than 5 million, they don't laugh quite as hard.

So, I mean, there's a possibility that, that these numbers, uh, you know, if somebody has two or $3 million, even Rob, they may want to see a, uh, a tax attorney, you definitely want your team in place, your financial advisor, your tax attorney, you know, other attorneys, I guess if you're, if you need them, your airlines pilots, you're going to want those guys on your team at all times. And there were some, or if there's some nuances to that as well, or maybe some action steps that people could take now, potentially with gifting a little bit earlier, or maybe doing some, some things like that.

I know it is. Uh, not advice, but, uh, we'll throw out just some different ideas here. Definitely want to get, make sure it's right for you, but anything on that? Yeah. So in 2021, if you have $8 million, um, and you know, it's going down to five or $6 million, she could gift, uh, and use that, that 11 plus million dollar gift, uh, In 2021 now, is that what you're saying?

No, no, you can continue to live. Oh, okay. Yeah, you can continue to live because you're using the rules that are on the books, uh, as of 2021 point. Uh, and again, I don't know the exact number 11.8 or 11.9 million. So you could gift away a whole bunch of assets this year. Uh, with that L you know, 11 plus million dollar exclusion.

And then when you die with a, you know, under, under the $6 million, then none of it would be taxable. Gotcha. Awesome. And that's per person. So if you're married, LUN 0.7 for your wife, 1.7 for you, or vice versa for your husband. Um, okay. So moving along, the last thing I've got, I think is the child tax credit, the expanded child tax.

Kevin walks through that. So this is probably the biggest thing, uh, for, for our clients, Rob, um, because it's a, you know, $2,000 per child under age. Uh, I think it's under eight 17 for 2021 might even go up to 18. Um, but you know, $2,000 per child, if you, if you make less than a hundred and fifty one twenty five head of household, 75 single, uh, it goes up to $3,000 per.

So, you know, this can be some pretty significant amounts of dollars and the difference between, Hey honey, we're getting a refund and Hey honey, we owe tax money. So it can, it can be the difference. It can be the difference for sure. So, uh, so what I would suggest, uh, as a takeaway is if you're in those income areas, like if you're going to make 170,000, uh, in 2021, That might be an opportunity to put more money into an HSA or put more money into a tax deferral, a vehicle, a 401k, et cetera.

And I refer folks back to our child tax credit podcast, where we talked at nauseum on that. Um, hopefully not, but I think it's, it's important to realize for a lot of folks that are under those thresholds. You've probably been getting a check from the IRS every year. And again, go back and listen to that podcast and it'll walk you through why you're getting that check from the IRS, but you won't get it come tax refund time.

So just, just remember that. Yeah, that one is an easy one to forget. Just think it's free money and spend it away. And if you, for some reason are getting it and shouldn't be getting it, you're going to have to pay it back. So yeah. I think about that. What else?

What else did we miss? What did we get? What else you got Kevin Ben. Well, I think, uh, I think the major, uh, benefit here is that a lot of the things we thought were going to happen probably are not going to happen. So a lot of the clients that we work with are not going to be reamed, uh, from the IRS. Uh, maybe that's not a good word.

I don't know. Anyway, it was the word that came to mind. Yeah. So, you know, cause Rob, I mean, the thing is, I mean, I think this is really important to say that the people we work with, um, they're considered high income by standards, but, but most of the people we work with are they're paying health insurance, they're paying for college, you know, full price college.

Uh, we have a lot of people that don't get any, uh, you know, types of, uh, needs. So it's just really challenging for them and sorry, I'm getting, I'm getting choked up here. Uh, it's just really challenging for them. Uh, so, so I, I think that's all good news. Yeah. And I think it's important when you talk about that 450,000, . You're going to have to make about 480,000 to hit that four 50. Uh, mark to, to fall into that 39.6. So probably our, our ups pilots, FedEx pilots, maybe some of the pilots United American, you're going to watch out for it. You know, what makes the most money Rob?

Uh, somebody that works at another airlines, at least that's what every pilot tells us. Every pilot says they have it better. We don't have it. Good. I thought you were going to say like the flying pancake pilots or something like that, or maybe the, uh, Callanan case seven pilots flying fortress. That one deserves it should make over the heck.

Yeah. All 12 or however many people it takes to fly that thing. Yeah. All right. Anything else, guys? Okay. We'll wrap it up. Leave it with a couple of tax. Uh, a couple of funny ones here, kind of it's income tax time. Again, Americans time to gather up those receipts, get out those tax forms, sharpen up that pencil and stab yourself in the aorta de barrier.

That is courtesy of day Barry. This one's by John Baptist Cole bear, the art of taxation consistent. So plucking the goose as to obtain the largest amount of feathers with the least amount of hissing. That's it we've arrived at the final destination. Uh, this flight 16.5 to three ad hoc charter flight podcast.

If you have any questions, let us know if you like the podcast. Let us know if it's too hokey. If it's not serious enough, let us know. We're probably not going to listen to you, but hit me up@robertatleadingedgeplanningdotcomandsignupforthenewsletteratleadingedgeplanning.com to get more information, if you like what you heard hit that subscribe button so we can reach more people.

And remember, as Emerson said, the world makes way for those who know where they are going. So plant according. From all of us at leading edge. We're out. Thank you for listening to the leading edge financial planning podcast. It has been our pleasure to share this information with you today. Give us a call to discuss absolutely any investment question you may have until next time.

Take care. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. And then there can be no assurance that the future performance of any specific investment investment strategy or product we referenced to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance levels or be suitable for your portfolio.

Moreover, you should not assume. Any information or any corresponding discussions for services, the receipt, or as a substitute for personalized investment advice from leading edge financial planning personnel, the opinions expressed are those of leading edge financial planning and are subject to change at any time due to the changes in market conditions.

 
 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this Podcast will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 09/07/2021 and are subject to change at any time due to the changes in market or economic conditions.

Categories
Pilot Money Guys

The 4% Rule

Pilot Money Guys:

The 4% Rule

Welcome to Flight #16!

On this podcast, we are talking about a commonly used rule-of-thumb for taking retirement income distributions. The 4% rule is meant to help you easily determine how much you can withdrawal from your retirement accounts each year, without running out of money in retirement.

The 4% rule goes like this:

  • The year you retire, add up all of your retirement accounts, and withdrawal 4% of the total.
  • Each following year, take out only the 4% (of the total balance at time of retirement) + adjustments for inflation.
  • At this withdrawal rate, your money should last 30 years.

So, should you keep it simple and use the 4% rule? We don’t think so!

In fact, this who episode is dedicated to help you know why the “4% Rule” may not be best solution for taking retirement income distributions.

We recommend checking out this great article from Charles Schwab on the 4% rule!

Beyond the 4% Rule: How Much Can You Spend In Retirement?

 

TOP 10 Flying Movies!

10- Dr. Strangelove with James Earl Jones

 

9- Air America

"I don't wanna crash twice in one day!

Gene Ryack : Don't worry, I crash better that anyone I know."

 

8- Strategic Air Command with Jimmy Stewart

 

7- Hot Shots with Lloyd Bridges,

“Gentlemen, we've waited a long time to hear this. In exactly 5 hours and 17 minutes we hit the enemy toast"

Block: "Err... I think that's enemy coast sir"

Benson: "Huh? Coast? That'll take a bit more planning. But it doesn't matter..."

 

6- Flight of the Intruder With Willem Dafoe and Danny Glover

If only for the line “this is going to be the most exciting thing you've done with your clothes on doc”

 

5- The Right Stuff

 

4- Command Decision 1948,

Clark Gable, the trailer is fantastic beginning with, “here told with shattering impact is the inside the mysterious the hitherto top secret chronicle of men who shook the very earth itself whose spirit is embattled but whose hearts are with their families and one woman thousands of miles away.”

 

3- Airplane

Best quote: "You're gonna have to land this plane!"

Ted Striker: "Surely you can’t be serious..."

Rumack: "I am serious… and don’t call me Shirley."

"A hospital? What is it? A big white building with lots of sick people but that's not important."

 

2- Top Gun

"Ben, it’s not your financial planning, it’s your attitude. The crypto markets are dangerous. But right now, you’re worse than Bitcoin. You’re dangerous and foolish. You may not like the guys financially planning with you, they may not like you, but whose side are you on?"

 
1- Memphis Bell
 
 
 

Podcast Transcription

Flight #16: 4% Rule

[00:00:00] Rob: Hey folks, tip of the cap to you. Thank you for joining us here at the pilot money guys, podcasts flight 15. We're going to talk about the 4% rule. This is the place we aim to give you some a light-hearted financial fun. And we usually talk about some airline news, but today, a little bit different. We're going to be talking about the top 10 flying movies of all time.

[00:00:25] I'm your host, Rob Eckland flight crew today. I'll also known as rubber man. By those I don't like your flight crew today is the godfather CFP. Charlie. Madingley welcome, Charlie. Johnny's a little under the weather. Cut him some slack folks, but we've got Mr. Kyle Bell, Ben Dickinson. Welcome. Ben

[00:00:45] Ben: glad to be here and I'm feeling a hundred percent, so, uh, it's going to be, it's going to be good.

[00:00:50] And we're going to, we're going to make sure that Charlie gets through this

[00:00:52] Charlie: Charlie

[00:00:54] Rob: slack. Somebody needs to all right. Seriously. Excellent. Well, we're talking, we got a lot of good feedback allegedly about the top 10 lists. So we're going top 10 flying movie. The number 10, number 10 of all time, top flying movie is Dr.

[00:01:12] Strangelove with a lot of folks, but one of them's James Earl Jones is the Bombardier. Anyways, the best quote, I think from that movie is gentlemen. You can't fight in here. This is the war room. Number nine,

[00:01:23] Charlie: Ben, what do you got? We got

[00:01:25] Ben: air America. I don't want to crash twice in one day. Don't worry. I crashed better than anyone.

[00:01:32] I know.

[00:01:32] Charlie: Nice. Love it. Pretty good. Nice

[00:01:37] Rob: Charlie.

[00:01:38] Charlie: Number eight. Uh, number eight is a strategic air command with Jimmy Stewart. Something. It's a wonderful life. Maybe it was a throat. One confused something about an angel in that movie, not the set,

[00:01:54] Rob: the same Brigadier general Jimmy thought that

[00:01:57] Charlie: was where the bell rings on the Christmas tree and the angel gets his wings.

[00:02:00] Rob: Didn't Reagan make Jimmy Stewart a major general later on. He did. I'm pretty sure he did. Yeah. Yeah. Okay. So take that, uh, number seven. Is, uh, you know, maybe, maybe a critically acclaimed hot shots with Lloyd bridges, famous quote, or a little excerpt gentlemen, we've waited a long time to hear this in exactly five hours and 17 minutes.

[00:02:24] We hit the enemy toast, or I think that's enemy coast, Sur coast. That'll take a bit more planning, but it doesn't matter. Number six, Ben.

[00:02:38] Ben: Flight of the intruder with William Defoe and Danny Glover. If only for the line, this is going to be the most exciting thing you've done with your clothes on doc.

[00:02:50] Rob: Be the best line and aviation flying history movie, uh, in the movie world.

[00:02:56] That is number five. Great stuff. Charlie, what do you got

[00:03:01] Charlie: the stuff coming in at number five, you had a great quote. Oh, ghost

[00:03:06] Rob: in the inner demons. There, there was a demon that lived in the air. They said, whoever challenged him would die, their controls would freeze up. Their planes would buffet wildly and they would disintegrate.

[00:03:16] The demon lived at Mach one on the meter, 750 miles an hour, where the air could go no longer Mo there could no longer move out of the way. He lived behind a barrier through which they said, no man could ever pay. They called it the sound barrier. Whoa, that's scary. That was a, obviously that one could be arguably be number one.

[00:03:35] I think that's good. Number four command decision Clark Gable, the movie itself, not that great, but the is fantastic and epic and it goes something

like this here told was shattering impact is the inside the mysterious, the hitherto top secret Chronicle, a man who shook the very earth itself, whose spirit is embattled by who, but whose hearts are with their families and one woman, thousands of miles.

[00:04:01] Yeah. I mean, it just stopped podcast right here.

[00:04:05] Ben: Nice. We put that at four, we get based on the fact that the movie isn't good, but the trailers off is that right?

[00:04:12] Charlie: Okay, here I go. Here I go. You're going to have to land this plane. Ted striker says, surely you can't be serious. I am serious. I know. Call me Shirley.

[00:04:21] Rob: That's you know,

[00:04:23] Charlie: I mean, we've got another one, a hospital. What is, is it a big white building with lots of sick people, but that's not important.

[00:04:35] Rob: Classic. Okay. Number 10. I, uh, I'm going to take, because I, I switched it to make it a financial planning because it's so well known by everyone listening to probably top gun, obviously number two, Ben, it's not your financial planning. It's your attitude. The crypto markets are dangerous, but right now your worst, the Bitcoin you're dangerous of foolish.

[00:04:54] You may not like the guys financially planning with you. They may not like you. Whose side are you?

[00:05:02] Charlie: A little bit too close to home, a little bit too true.

[00:05:04] Rob: Only kid cause I love man.

[00:05:07] Ben: I love that though. You know, I mean, as Bitcoin Jesus, I can say I am a little too into crypto and crypto is, are dangerous. Disclaimer.

[00:05:17] Rob: Yes. Number one, Charlie, bring it home for us. I mean this one is number one.

[00:05:22] Charlie: Memphis Belle. Yeah. That's it, no quote, necessary

[00:05:26] Rob: quote necessary B 17 crew flying their 25th and final sword. Wow. Germany notables left off this list. I know a lot of people are thinking where's irony Eagle where snakes on the plane

[00:05:40] didn't make it. Yup. All right. Enough of that, let's get into our financial topic of the day, the 4% rule. What is it? How do we think about it? Ah, let's dissect this a little bit. Who wants to take first shot at this?

[00:05:57] Charlie: Let's do this. I could definition Ben. Rob, you got a definition

[00:06:01] Ben: I can, yeah, I can. I can do a little definition.

[00:06:05] You'd have to ready. All right. So 4% rule. You've worked hard. You've saved for retirement. And now you're ready to take some money out of your accounts. Um, but you don't know how much you can spend. If you spend too much, you may be, you may run out. If you've been too little, you may not be able to do the things you want.

[00:06:23] So the 4% rule is a way to figure out how much you can withdraw from your retirement accounts and hopefully, and most, you know, how with high probability not run out of your money. So the 4% rule is. Take 4% of your total retirement accounts, the year you retire and you can withdraw 4% of that amount. So for instance, if you have $1 million in your entire retirement accounts, then your first year, you could take out $40,000.

[00:06:55] That's 4% of a million. And each year you increase the amount that you withdraw based on inflation. So you can adjust it just by the cost of living and that money should with a high probability lasts you for about 30 years. So that is a very common rule. We hear it a lot. Um, it's, there's millions of articles about as probably the first thing that comes up with.

[00:07:18] If you, uh, Google, how, how much can I take out of my retirement

[00:07:21] Charlie: accounts?

[00:07:23] Rob: Absolutely. Well done.

[00:07:24] I would say the 4% rule should not be called the 4% rule. I contend it would be the. Uh, guideline or rule of thumb, but not by any means.

[00:07:34] Right? So, um, little, little history here, uh, for us nerds developed by William being and back, and it was published back in 1994 in the October issue of the journal of finance. He's a native of Brooklyn. Does anyone, do you guys know happen to know what bill being in did for a living prior to becoming a financial advisor?

[00:07:56] Anyone excavator clothes, clothes. He got her, he got a bachelor of science from MIT and aeronautics and astronautics. Wow. He coauthored topics in advanced model rocketry and. At MIT, I guess. So I don't know that he's still doing anything, but yeah, he's he was at least, uh, some of the research.

[00:08:16] I said he was, he saw, he was still doing stuff up through the 2007. I don't know if he's still doing stuff. That's a great question. Put that in the show guests guest,

[00:08:24] Ben: or you should definitely tune into the show. He would enjoy it. Yeah,

[00:08:28] Rob: sure. Uh, but originally it was. Taking 50% large cap, uh, stocks, low cost index funds, ish and 50% bonds.

[00:08:43] And it doesn't get into the bonds too much. Or at least I didn't see that any of my research. And like you said, 30% would draw a safe what they consider a safe withdrawal rate, which is there such a thing? Is there just one number, Charlie? Do you think that just one number that we can say as this.

[00:08:59] Charlie: No, no way.

[00:09:01] That fact that's one of the, uh, the drawbacks about this is so rigid, you know, and like you said, or alluded to at least Robert's rules of thumb,, I don't really know what they're good for. You know, if you're planning for retirement, I don't think this is something to maybe just give you an idea of ballpark, big time ballpark, but there's a lot of assumptions that go into it that may not apply to you.

[00:09:20] You know, a lot of them such as historical rates of returns such as your time horizon, a risk tolerance, et cetera. So yeah, absolutely not to

[00:09:28] Ben: mention that most people spend less in the future. Then they, throughout their retirement, they actually decrease their spending overtime rather than increase it.

[00:09:36] This rule actually says you. Lots of train. Ignore that.

[00:09:42] Rob: yeah, I think what's interesting too about there's so many assumptions that go into it and he later went back and looked at, okay, let's just not look at large cap funds. Let's throw in some small cap and surprise, surprise the rule or the 4% moves to 4.5% when he throws in small.

[00:10:02] Funds, which is no surprise because we are always talking about, you know, where returns come from. And a lot of returns come from small cap funds and a dimensional fund advisors. And we talked at nauseum about that. Well, maybe talk more about it, but, but very interesting how it moved from 4% to 4.5% throwing in different asset classes, uh, or at least different diversification.

[00:10:25] Charlie: Yeah. I think what Ben mentioned is, is really critical in that, as a, when we're working with clients. , firstly, we don't want anybody to run out of money. We don't want that to be even an issue that they have to worry about. That's a big fear that people have. So we want to alleviate that fear, you know, really quickly.

[00:10:41] The second biggest fear that I have as far as retirement income is I don't want to shortchange people early on in retirement. , I really want to get this. Especially when they're newly retired, they're most active, ready to travel. Ready to go. One of these, uh, the go-go years. Is that right? Rob?

[00:10:59] Go-go slow-go

[00:11:02] Rob: no-go slow-go no-go yeah. Yeah.

[00:11:07] Charlie: And I think one of the things. , the 4% rule, with the assumptions of 50 stock, 50 bond, we could talk about allocation a lot and what the assumptions are for future returns versus past not to mention 30 years of life expectancy, maybe you're, maybe that's not an appropriate number either.

[00:11:27] But what I think is, is a very interesting, and that is the assumption that it's a 100%, uh, level of comfort. Now that's interesting because when we do our planning, we also come up with a probability of success or level of confidence. And what, let me take a minute to explain what that is, , it's a Monte Carlo analysis where you run a thousand different stock market scenarios, different rates of return, a different order of return.

[00:11:56] And so then it says out of a thousand scenarios, your success. Uh, you know, if you're, if your level of confidence was a hundred percent, you're a successful a thousand of a thousand times. That's great. And some people think, oh, that's what I want. However, I would argue that you don't want that. I would argue that if you have that level of success in retirement, and this is just my opinion, not advice, but I would argue that you need to spend more.

[00:12:21] You know, because, uh, you have probably have the capacity to do that. And here's, let me give you another example. There was a great study by, uh, some people on Michael Kitces team about what does this probability of success mean? Or level of competence? In other words, let's say you didn't have a hundred, but you had 75.

[00:12:41] You know, level of confidence. And I've seen this before with people going into retirement. One of them was a teacher and she said, oh my gosh, I got, I'm getting a C, this is a bad grade. You know? And we've had other people say, Hey, if that falls less than 90%, that I'm, I'm not going to sleep well at night, but let me explain and, and maybe put a different, uh, framework on this thing.

[00:13:00] And that is that if you're going into retirement and you're doing these calculations, You have a 75% level of confidence or probability of success. What that really means then is that at some point in your retirement, the next, and at some point in the next 30 years, there's a 25% chance that you'll have to make.

[00:13:20] I change, that's it a change? So that sounds much better, right? I mean, and so I think that, you know, th and this is really called dynamic. You know, if, if this is, if we're talking about the 4% rule, what I'm talking about now is dynamic spending where you evaluate it every year, and you look at the, spend, you look at the markets and what's going on and you reevaluate, however, Personally, I'd rather have the 75% cause I'm willing to make an adjustment at some point.

[00:13:47] And the way that, we do this is in, I think, I think people can do this on their own., you all correct me if I'm wrong, but , we dissect it so much that,, a failure in retirement, let's say the 25% scenario where I got to make a change. It's not like you've got to stop spending and eat beans and rice.

[00:14:06] It just means I've got to stop playing golf five times a week and maybe cut back. Or maybe I've got to downsize my RV just to, from class a, to, to a fifth wheel, you know, I mean, so it's not a fail fail. It's just, we've got to

make some adjustments and, and, uh, again, that's the, I think the benefits of dynamic versus the strict of 4%

[00:14:25] Rob: in, even if you tried to do this strict 4%, and I'm gonna put you on the spot here bend a little bit because you described it perfectly.

[00:14:31] It was very well done. Thank. Yeah. How would you even imply apply that 4% rule in it? And I think if we walk through that a little bit, the very easy example we're going to get into it's it becomes very apparent that this is not something you would actually do in practice. So if you had the million dollars, like you said, how would the 4% rule apply first?

[00:14:50] The first year you're taking out 40,000 and then you adjust for inflation, say it's 3% or deflate. Right. Yeah. Not to mention, Hey, you're 50% large cap and large cap had been crushing it lately. Right? So maybe your, your, your million dollar million dollars is ballooned up to whatever 1.1, 1.2. Now, all of a sudden, you're, you know, you're raising your level of spending just because the markets went up and then converse.

[00:15:19] If the markets went down, right? What would you do benefit if the markets went down using the 4%, you know, guideline that they talk about and you're at a million dollars and it goes down and now you only have 800,000, , we don't have to get into the exact numbers, but what are you going to do with your spending?

[00:15:33] If you're, if you're a retired.

[00:15:35] Ben: Yeah, that's a great, that's a great question, Rob. And a lot of people, that's one of the problems with the 4% rule. So it's a problem because a lot of times people will see, oh, well last year my S my accounts did great. So this year, my 4% is higher than it was last year, but the whole rule hinges on the fact that you can take it's based on.

[00:15:54] Account balance at retirement. That number, not the number that it is year by year. And so that's really tricky with, you know, like you said, one year, oh, well I may be, I may have to spend less, but if it's a great year, you're going to be really tempted to be like, well, I'll pull out a lot more because all of a sudden I have so much more money and that that's where that 4% rule falls apart.

[00:16:15] And so that, that's why it's a little tricky with this.

[00:16:19] Rob: Yeah, it's definitely gets tricky when you're trying to put it into practice, I think, and it just doesn't really make sense. Why would I, you know, all of a sudden go down. As opposed to 40,000, I'm going down to 30,000. Did you know, is it, can I even do that?

[00:16:33] Is that possible? And oh yeah, the next year stocks, you know, if it went down 10%, the next year might be up 20% or 30% or whatever. So that volatility, if you're going strictly by that year to year, Um, data is, is tough to, to implement, which kind of brings up the point when he did the study. Now, this is kind of a warm, fuzzy, when you think about it when he did the study, but again, back in 1994, and he's repeated the stage with other things like small cap, it was kind of a worst case scenario, which is kind of a warm, fuzzy, Hey, this is.

[00:17:05] 4% rule was based on, uh, if a person retired in 1968 historical returns and that's important too, to foot stop. And Charlie got into it a little bit, the difference between historical returns and what can happen. It reminds me of that quote I picked up in the military somewhere is you don't plan for what you think is going to happen.

[00:17:22] You plan for what can happen. Um, it was kind of, uh, uh, you know, can be used in a lot of ways and in particularly this way. So he looked back historically at what has. Which is, which is a, you know, something to consider. But the 4% rule looks at someone retiring in 1968 and suffering two major bear markets within the first five years.

[00:17:43] And then 10 years of high inflation. And they still lasted for 30 years now, something to think about that was with us investments and a 30 year horizon. If you're shorter, if you're higher, if you're not in the us. You know, different, uh, diversification methods it's going to change. So it sounds good. But when we run Monte Carlo, correct me if I'm wrong, but my understanding of the whole Monte Carlo is it's more about what can happen.

[00:18:11] Not the historical returns, it's a thousand different or whatever. Uh, you know, I guess whichever Mar Monte Carlo you're using, uh, analysis, and it's gonna run through a thousand different, uh, market timing, not market timing. Excuse me. Sequence of returns. Uh, scenarios. So, Hey, the first year the market goes way down, what's that going to do?

[00:18:33] And, uh, you know, runs it all the way through. And then it gives you that 75%, which is so important that that 75% or whatever percentage comes up with is if you change nothing. So that all that percentages, if you

change nothing, that's the percentage that you won't run out of money. And two things here, two fears that I have.

[00:18:52] Uh, is running out of money for sure is probably the top one, but closely followed, like you said, is having too much money when I die. I mean, I don't want to just sit there and eat beans and rice the whole time when I have, you know, a couple mil in the bank. Yeah.

[00:19:06] Ben: Yeah. You could have bought that Tesla when you were 65 and all of a sudden you're 19.

[00:19:12] And you're like, dang it. I can't, I can't get down into a Tesla too old. I've missed my chance to

[00:19:19] Charlie: buy it. Have you seen the video, those, those old guys trying to get out of the sports? I can't do it. If you're, if you're 80, you can't get out of some of these sports cars. So don't wait till you're 80 to buy sports car.

[00:19:30] Ben: That's why you gotta buy a Buick. You gotta

[00:19:32] Charlie: buy, you can't get out of those things. Is it too low?

[00:19:39] What are some alternatives to the 4%?

[00:19:42] Rob: You know, there's a. I think the 4%, you can start with that and say, it depends on your w what you're thinking about as far as your retirement. And there's obviously the bucket approach is, is helpful. And maybe combined with some type of, not the 4% per se, but some type of, uh, changing percentage I think is something, uh, that is used.

[00:20:05] Kitsis Michael Kitces, obviously. Prominent financial planner talks about the bumper rules. So he likes using the 4%. Again, he uses, I think even more than 4%, 4.5, or maybe in 5%, uh, based on the returns and, uh, and the diversification methods. And he uses the bumper rule where he'll go to like, you know, 5% plus or minus two, and he's not going to change.

[00:20:28] You don't change your spending, uh, until you hit one of those bumps. And so if you think of the bumpers, like a bowling alley and you put the, for the kids, you put up the bumpers, you know, and the ball hits the sides. So you're not changing your percentage until it hits the sides. But even that I think is complicate

[00:20:46] So I think you're, you know, Charlie, the point of having somebody to help you with this, not to mention when you're hitting this age, uh, I hate to tell you, but your mental capacity may not be as sharp as it once. And at some point they might be for awhile, but at some point it won't be, uh, or it's likely that it won't be.

[00:21:04] So having somebody as a backup is helpful on this.

[00:21:08] Charlie: Absolutely. Ben, what you got?

[00:21:11] Ben: Yeah, I was gonna, I was just going to throw out the, probably the easiest one, which is. You know, talk to, uh, talk to a financial planner, get a couple hours if you're about to retire. And you're curious about, Hey, how much can I spend year to year in retirement, spend a couple hours with the financial planner and come up with a plan.

[00:21:27] What you're going to buy, what you're planning to do in retirement and how much you have. And, you know, they can help really lay it out because it is one of those situations that you may year to year at your spending is going to be maybe completely different. You may want to buy a, buy a big boat one year.

[00:21:42] You know, that would ruin your 4% roll right there. You want to, so you should really get a plan together. We can run the Monte Carlo scenario. Um, but even just to get a. Sort of outline of how much you can, you can withdraw year to year, but, uh, I maybe just took the easy way out. I don't know.

[00:22:00] Charlie: I like, I like that's good.

[00:22:02] Hey, and do you happen to know and good financial planners? I

[00:22:07] Ben: think there's one on this call,

[00:22:10] Charlie: but no, this is a it's in all seriousness. I was telling you all. , this would take a lot of effort. I think if you're on your own, it takes a lot of, I think you should put a lot of effort into it regardless because it's worth it.

[00:22:22] You know, if I could, if I learned that I could spend some more money in retirement and do some more stuff, that's pretty cool. And, and or if I, if I learned. You know, I can prevent myself from running out of having to worry about running out of money, but, , that's worth the effort, whether it be yourself putting in the time and effort or hiring someone.

[00:22:38] But, um, you know, I like, uh, there's definitely other methods. Like you talked about Rob, um, the bucket approach. We, we liked that one a lot. We think that, um, can you describe really just like, absolutely I think is really effective, um, because of what you said, in fact, you alluded to, you know, the mental capacity and I would also add on.

[00:22:58] The emotional capacity. I mean, when we're working and we're accumulating watching the stock market go up and down, as you know, it was kind of painful, but when you're pulling money, And you have that's it it's really painful. Right? I mean, so there's a,

[00:23:15] Rob: I just talked to a guy, you know, we're, we're sitting there chatting and we got into that exact scenario where he was, you know, he was telling her, talking about how he was talking to his mom about the COVID crisis.

[00:23:27] And he was saying, don't do anything. And I said, Absolutely. , you want to rebalance do all these different things, but don't pull your money out. She was wanting to pull her money out and I said, that's so easy for you, or it's a lot easier for you when you have, uh, you know, $30,000 a month paycheck coming in and.

[00:23:47] You are still saving for retirement and you keep seeing your nest, they get bigger. That's easy to kind of, or it's easy. You're still not easy, but it's easier to withstand the ups and downs or the downs per se, uh, of the, of the market. But when you have stopped, you know, making money and you. Nest egg is just dwindling and that's all it's ever going to do.

[00:24:09] And that's why I hate the term nest egg. I would prefer the term deferred spending, although it doesn't, you know, have a good mental picture. I guess the, your spending egg is just dwindling and you see it go down by 30, 40%. That's tough to not run for the Hills. So that's having a financial plan or having a buddy with you saying, Hey, it's going to be okay.

[00:24:32] We're not, it's only bad if you're withdrawing everything this year, which you're not. So, uh, having that bucket approach of the zero to five years of pretty riskless money set aside, Hey, you're good for five years, five to 15, maybe a little more risk. And above 15 years now, you've got a lot more money, a lot more risk, and you can, you can really withstand those ups and downs.

[00:24:54] Charlie: Yep, absolutely. And you just kind of described the bucket approach and, and, uh, I'll just pile on a bit, but. But yeah, you separate those

assets. In other words, if I'm in retirement or entering into retirement the year before then, you're you can, we literally open up new IRAs or new brokerage accounts. We can name them, you know, bucket one safe money.

[00:25:17] One guy said, play money, fund money, whatever we can name it. And there's some psychology behind that. There's mental accounting, you know, behind that, where, when you see, uh, an account that belongs to you and it says. Short-term retirement money, you know, or whatever you want to call it bucket one. And then COVID hits and you see that that money is stable, you know, relatively stable, especially compared to equities.

[00:25:42] Then man, you, you, you were enjoying retirement in the middle of a pandemic as much as you possibly can in the middle of a pandemic without being able to go anywhere. But anyway, you're not stressed out about your, your income going away because you see that one account and you see that it's not. Uh, again, it could be down.

[00:26:01] There's no guarantee, but it's not down as much as the equities usually. So that's, that's, that's really important for our emotional health and our ability to enjoy retirement is to pull those apart. For example, the opposite of that is kind of what you were talking about, where let's say you're in a target date fund, nothing wrong with target date funds to a certain extent, but when you enter retirement, you have one bucket, so to speak or one account, and it's one.

[00:26:27] And even if it's 50 stock, 50 bond is going to go down during a bad stock market because there's equities in there and you're not going to be able to distinguish, you're going to feel like your retirement money is going away. And that's very stressful, very stressful. And so that's one of the beauties of the bucket approach.

[00:26:45] The other thing, and that's kind of a mental, you know, um, mental emotion. You know, benefit. And I would tell you that some of the other benefits are, are that when let's say that a bucket one is your conservative next couple of years of retirement monies, are there be that bonds short term, government bonds, whatever CDs.

[00:27:07] Then when the bad times come along. And we know they will. And equities go down and, and maybe let's say your bonds go up. Sometimes they do that in a bad market. Well, now guess what we get to sell some of those that, that went up because our bucket one is too much. Now it went up, it's too high.

So I'm going to sell some of that stuff and I'm going to buy some bucket three potentially, cause it went.

[00:27:30] So that's really hard to do if you're not, uh, you know, set up to do that. And it's kind of hard to do anyway, quite honestly, because you're, you know, when you're in the middle of a downturn and you're buying more stocks as a retiree potentially, you know, but, but that's an advantage. That's what you're supposed to do.

[00:27:46] You're supposed to rebalance into that and sell high buy low.

[00:27:50] Rob: And I think maybe we need to do a whole, let us know. Hit us up@infoatleadingedgeplanning.com. But I think we might need to do a whole show about that. And I've been thinking about that, maybe writing a paper, white paper on it or something to target retirement date funds, because that's one of my arguments with it.

[00:28:09] It sounds so great. Oh, target retirement date and see if it got the word target in there, which, you know, fighter guys love. Right. Charlie, you and mark would love it, but. It's one of those things. Where is that accounting for your pension is accounting for your IRAs is accounting for all the different facets of your, your retirement inheritance, uh, different scenarios that you're going to go through.

[00:28:31] It doesn't account for those things. It just is saying you're going to retire this time and we don't want you to have that much. At that point, doesn't use a bucket approach, which is, you know, is there's something to be said for having that risk that's whether we like it or not. That's where returns come from is when you have a risk.

[00:28:47] If you're willing to bear the time horizon associated with different, uh, investments, that's where you're going to get the returns. That's partly where returns come from. So I like that.

[00:28:59] Ben: Yeah, I I'll just pile on that as well, the bucket, but, uh, I love that, uh, that first bucket where you see you go into you go into a COVID situation and you look at your cows and you say, oh, I remember now I have this entire account of money.

[00:29:15] That's just cash for the next year, two years, maybe three years. Uh, if, if, depending on how you set it up, but that just gives you that safety. Okay. So all the money I need to spend for the next, however, many 1, 2, 3, That's

that's there. I've already got that. So hopefully the markets will recover by, by that, but even if not, you've still got another safe bucket in the bonds.

[00:29:38] Following that, that usually in a recession does better. So even if the recession lasts for longer than three years, you start running out of that cash. Well, you still got this bond portion that. I just, and then of course you got your long-term money invested, more risky stocks. So maybe some, some Bitcoin

[00:29:56] Charlie: it's like bucket seven or something ultra high risk.

[00:30:00] But I will tell you that, we do have to be careful. The amount of cash we have. And I know you were kind of speaking in generalities a little bit, um, but you don't, that's the one thing where you got to balance how much cash do I have? Cause I don't want to have money just sitting around for, for years, that's just cash, maybe not producing.

[00:30:17] So there's some moving parts to that. Uh, But we do like it and we think it pairs up really well with like a dynamic spending, um, approach as far as kind of reevaluating every year. I think you kind of need to reevaluate every year anyway, but, um, just shifting gears a little bit, I want to hit on, uh, what about just living on my dividends and interest you all?

[00:30:38] What do you think about that?

[00:30:40] Rob: The dividends and the interest off of your, uh, your 50, 50 portfolio kind of thing.

[00:30:47] Ben: Yeah. Yeah. I mean, you, you probably wouldn't spend nearly as much as you could. Yeah, exactly. I would think

[00:30:53] Charlie: it would

[00:30:54] Ben: be insight going down that road, Rob. I mean, Charlie.

[00:30:58] Charlie: Well, I mean, I, I think it it's, it's fascinating.

[00:31:01] The dividend thing is fascinating. In fact, uh, Kevin, oh,

[00:31:04] Rob: go ahead. Robert. You got, oh, I was just going to say, what if you didn't get any dividends or what if you're a native that year? So

[00:31:11] Charlie: that's right. So, so. You know, one of the most popular videos we we've done, uh, and I I'll give a credit to Kevin was about dividends.

[00:31:20] It just attracts a lot of attention. You know, people want to buy these dividend players about dividend stocks, whatever. And, uh, and those are great stocks. Those are great mutual funds, ETFs, whatever. Usually, however, what I think is my theory is that. Our parents, grandparents could do that. They could do that effectively.

[00:31:40] There were the blue, big blue chippers and they, they were reliable and steady and they lived off dividends possibly. And then they just tell their kids, Hey, just gets you some dividends and live off of them. And so now we have people. Wanting to do that. And I'm thinking, I don't think that applies anymore.

[00:31:56] And here's why there's a couple of things that I think create problems when I want to go by dividends and just live off of them. First of all, it skews my portfolio, asset allocation. You know, I start leaning towards all these dividend players. Again, great companies, but now you're missing out on maybe some companies that are not dividend players, small companies, like you mentioned earlier, Rob, you know, a large values, maybe some of these big companies don't pay dividends and oh, by the way, what if they stop paying dividends such as, uh, for example, last year, Southwest ended its streak of.

[00:32:32] I dunno, 177 quarters of dividend payouts. In fact, they had to write, they, if you take, that was one of the stipulations were taking the, the, the, uh, government funding was no dividend payouts and no stock buybacks. So, people think, well, I can't cut the dividend. Well, they'd cut them all the time.

[00:32:52] 2008 dividends were cut reduced big time. So I love dividend investing, but I do love it as part of an overall. The diversification plan and, , you can create your own dividend. Let's say you own a thousand companies. You're perfectly diversified if that's possible. And they don't, and none of them pay dividends.

[00:33:13] You create your own, just sell capital gains. It's essentially the same thing. So, uh, so that's my 2 cents on dividends is just a kind of , a word of caution. Anyway, I think it's, I think it's different a little bit.

[00:33:24] Ben: . And ju and those companies that don't pay dividends, there's a reason they don't do it. And it's because they can then take that money that they

would pay out in dividends and then reinvested back in their companies and grow more. And that's typically why they don't do that.

[00:33:36] So a lot of those companies, typically over time, don't grow as fast. And again, this is generalization. It's definitely happens, but typically over time, they may not grow as much as these companies that are reinvesting these dividends back into their, their company, just in. From that kind of

[00:33:53] Charlie: perspective as well.

[00:33:55] Ah, so it's like, uh, the 4% rule is a popular rule of thumb, Rob, like you said, but what are, how can we do this, to the meat of the mission, , like what can people do? What should people do if they're approaching retirement? .

[00:34:10] Rob: What do y'all think? I think the first thing, even for me, even for you trolley, right? Like I have you as an advisor, um, and this, I don't want to get into testimonials per se, but you're my advisor and it's nice knowing that number one, if something happened to me, you know, Jan and the FA and Robbie are taking care of.

[00:34:31] But number two, if something, if I'm not, uh, thinking of things correctly, we got got people behind us that are making sure we're doing the right thing. So I think that's number one for me.

[00:34:41] Charlie: Yeah. I got one.

[00:34:45] Ben: I think, I think if you, you got to think how, how much, how long do you think you will need to take money out of these retirement accounts?

[00:34:53] Um, you know, what, how long, how long will you live? How long will you be taking this money out? Because once you do that, then I think you can really kind of nail down a little bit more accurately. How much can you spend, uh, without underspending, without overspending? Yep. So talk about that. Look at your family history.

[00:35:10] Maybe that would help, obviously it would be really nice if we all knew when we would die, which we don't, but that's

[00:35:15] Charlie: right.

[00:35:17] Rob: Gypsy, we recommend going to a gypsy now I'm kidding.

[00:35:24] Ben: There's one of those Palm readers down the street from me.

[00:35:26] Charlie: You can go to the column writer and then go to legal planning. We can tell you exactly what to

[00:35:31] Rob: do there.

[00:35:34] Charlie: So I think number one is what you all said,, get a plan and start thinking about like how long, well, you know, my 60 am I retiring at 60? Am I retiring at 70? What's your time horizon? How long does the money need to last? You know? And then, uh, that's gonna, that's gonna be a big factor in. Whether the rule of thumb is anywhere near, , what, what you might want to spend.

[00:35:59] Um, you know, I think number, number two is, um, get a spending plan, you know, I guess that's part of planning still, and maybe, maybe one a, but how much are you going to spend? How much do you want to spend? And that's something that we go through. , especially if they're in their fifties and whatnot is like, well, what does retirement look like to you?

[00:36:17] You know, and you, and again, we're not talking about I'm straying far from the 4% rule, but, uh, I think early on, if you know how much you want to spend, what kind of lifestyle you might have.

[00:36:27] The other one I have and, , maybe this is number three. Um, what is your emotional, tolerance. And we talked about earlier, the reason I say that is because I think that should have an effect on how you invest. In other words, you know, annuities, we throw annuities out there, very, a polarizing topic in our business, but there are some low cost commission-free annuities that can be, , can be purchased and they can add peace of mind.

[00:36:52] Retirement plan, you know, they, they can help you. And there's been a lot of studies. In fact, I'll throw this one out there too. How about reverse mortgages, reverse mortgages. Talk about their own. A polarizing went out there. They've come a long way. They're very different. Uh,, I've got a paper right in front of me about Wade fowl.

[00:37:07] He's, uh, he's part of the retirement researcher organization, and he's very, well-respected up there with Kitces and he talks about how to use reverse mortgages

[00:37:18] , you know, um, there's a lot of things you can do on your own. There's no doubt about it. If you're willing to put in the time, the effort and, and do some planning, it can be done.

[00:37:26] But this one, I think is one of the more complicated things with the highest, um, consequences. I mean, again, I want my family, me, you all to have a blast in retirement, you know, especially those first 10 years, 10, 15 years when you're active, Healthy before you're in a wheelchair and I'm pushing you around and all that kind of stuff.

[00:37:49] Ben: I I'll pile on and get some advice. I feel like a lot of this stuff, people, people don't know about retirement, how these withdrawals work and then not to mention some of the tax consequences of these withdrawals as well. Uh, for instance, RMDs are a huge one. I'm sure a lot of people have heard of the.

[00:38:05] You know, those are very important. I did talk to my father and not to just roast him on this podcast. He's about to retire. And I was like, yeah. So what, w what do you plan thought about your RMDs and things like that? He's like, well, what's an RV. Say what the heck is that? And I was like, Well, we need to talk, what is an RMD required?

[00:38:27] Minimum distribution, right?

[00:38:32] Charlie: Yeah. You better charge your dad double that's all I'm saying.

[00:38:36] Ben: So

[00:38:37] Rob: I think we could do a whole show on RMDs. Not that we haven't covered them in the past, but we could probably do let us know folks. We need to know. .

[00:38:46] Awesome. Fantastic. Anything else guys? That's

[00:38:51] Charlie: good coverage right there.

[00:38:52] Yeah.

[00:38:53] Rob: It felt it was strong. Oh,

[00:38:54] Ben: I do have one thing. Oh, you introduced this podcast as flight number 15. Not forget. It's 16. Technically it's 16. Wow. I know. It's

[00:39:04] Charlie: crazy.

[00:39:04] Rob: . . we've arrived at our final destination of whatever flight. This is. It's the end. Thanks for joining us here on my guys podcast. If you have questions, hit me up robert@leadingedgeplanning.com or info at leading edge planning.

[00:39:14] Now. If you like what you heard hit that subscribe button so we can reach more people. And as Emerson said, the world makes way for those who know where they're going, that's it from leading edge. Right? Thank you for listening to the pilot money guys podcast. It has been our pleasure to share some information with you today.

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Categories
Pilot Money Guys

Flight #15: Changing Your Domicile to Avoid State Taxes

Pilot Money Guys:

Changing Your Domicile to Avoid State Taxes!

Your domicile is defined as your permanent home where you pay your state income taxes.
 
For most people, your domicile is straightforward, however, for those with multiple residences domicile can be hard to establish. And maybe even a little tempting to lean toward the lower tax state. Our goal in this podcast is to help you understand how to have multiple homes and stay out of trouble with Uncle Sam!
 
Furthermore, the IRS says your domicile is based on your intent, which can be tricky to prove. A famous example is from a New York corporate executive moving to Texas. Even after getting a Texas driver's license and registering to vote there, the New York Division of Tax Appeals performed an audit and found the man to be liable for thousands of dollars in New York state income taxes. The man had to use the veterinary records of his dog in Texas to prove that he was intending to stay in Texas for the long haul!
 

Thank you for listening! If you’d like to have a conversation with us about tax domicile questions you may have, please email info@leadingedgeplanning.com or call 865-240-2292.

www.LeadingEdgePlanning.com

 

CHANGING DOMICILE CHECKLIST:
 

 

 

 

Podcast Transcription:

Rob: tip of the cap to you.

Welcome to the pilot money guys, podcast flight 15 already today. We're going to be talking about changing domiciles, changing where you live, and I'm your host. Rob Eklund, a wealth manager, financial planner, whatever you want to call. And with me, we kicked off Charlie. He's not, the godfather is not with us today.

Instead we have the professor CPA and certified financial planner. Kevin Gormley. Welcome Kevin. Yes. Thank

Kevin: you so much. It's great to be back. Oh, great. To be back. It's good

Rob: to have you here. The fans wanted more Kevin. They did. And of course we have the wonder boy, Ben Dickinson. Wonder man. You're a man cow bell.

What? I'm the cowbell? You're a man of many faces. That's for sure. That's true. Welcome. We're going to kick it off here with the little aviation news. Kevin, you were just talking about some movies. What do you got on the movie front for AVS?

Kevin: Yeah. So I'm a big movie fan and I was one of the people that did like top gun, so please don't judge me.

But so I was excited that the new movie was coming out. It's been delayed again until may of 2022. So say it. You can watch those trailers over and over again, but it's just not the same, but also two other things I learned is that jackass forever has also been delayed until the February of 22 and a mission impossible seven has been moved to September of next year.

Now the only other fun fact I'll tell you about jackass is I actually came across an article and those guys have spent like $38 million in medical costs. Oh,

Rob: are you serious? Yeah.

Kevin: Those people abused themselves, get paid for it. But they also have to pay all those medical bills. So anyway, wow.

That was just something that was Johnny Knox is from Knoxville

Rob: that's a Tennessee thing. Ben, were you ever thinking about. Oh, yeah.

Ben: W there's some videos out there of me and my friends doing some of our own our own stunts but I think one broken arm, then it really made a stop stop worrying about it.

And that's actually true. That's true, but that that's the other day, but but yeah I, my guess is why this is delayed is probably goes back to the Suez canal being blocked. That's my theories on supply

Rob: chain, hurricane Ida. Ranch and everything. Yeah. Excellent. Aviation wise, we got a pilot shortage that has been around and we knew it.

We'd known it's been coming for quite a while. And now they're just talking about, Hey, we just have 5,000 pilots taking early out from the airlines because of COVID. They, the companies were in dire straits. They offered pilots to get out a little early and 5,000 of us took it to include the gods.

Charlie and now, with air travel ramping back up and getting back to 2000, 19 levels or close to, we'll see what happens with the Delta Varian obviously. But, we have a bigger shortage now because 5,000 of us are gone. So it's interesting. No new shortage, new, old shortage here.

Ben: Yeah.

Yeah. That'd be interesting. A lot of they'll have to be bringing us some young folks in there,

Rob: training them up.

Kevin: Doing so Rob, let me ask you what, how much does it cost to become a pilot today and what are the different ways to become a pilot? That's because sometimes people will ask me.

Yeah, that sounds like a good good life, which it's not always, but it is hard to get into.

Rob: Yeah, no, that's a great question, Kevin. And it's a moving target back when I, way back when and the 2000 timeframe, when I got in, obviously I went to the military, so they paid. But then that's a significant cost buried by the by the taxpayers there.

As far as the commercial side of things, you bear a lot of the costs. You have to really, you're betting on yourself for a lot of years there and, you pay for all the training teacher ratings, your instrument ratings and whatnot. And then you have to accrue time and hopefully get hired by somebody to do that.

So they're paying for the gas and the plane. As you're accruing time once you've got the ratings, but the ratings are substantial now, though you've got a situation where airlines are seeing the shortage so that they've gone out and done different programs. So they're starting to take guys off the street and gals off the street and teach them right from the get go and start with some of the costs there.

They're providing the cost upfront for those pilots. So they're covering some of that. There's still a heavy burden, I think, on the individual. And you've got to bet on yourself for a long time before it pays off before you get to a major. For sure. So does that answer your question, Kevin?

Kevin: Yes, it does. And I think that's the interesting part to me is are there programs that are out there that if somebody wants to do it, that a company could take an equity position in that individual and say, we're gonna, we're gonna help pay for it.

Training and then you have to, give us three or four years or whatever the case may be.

Rob: Yeah. And it used to be that the military, I think, was producing more pots than in a, maybe the military has to ramp up their pilot production if you will. But I think right now with a lot of UAVs and unmanned aircraft out there, it's not going to be as organic as it used to be as not as seamless as hail was finding the KC 10 and.

Just move right over the airlines. So it'll be interesting how this all shakes out, but there'll definitely be different programs coming out. United has got one. I know Southwest has some things in the works and I'm sure Delta and American do as well. So we'll have to cover that on a different episode.

Maybe like what exactly are the avenues that the majors are looking at to bring guys on.

Ben: Yeah. And if you're a new pilot check out our last series, because we got some good info on some benefits stuff especially for some younger folks or people getting into it, because there's a a lot of nuances I've learned from

Rob: you all.

Absolutely. And then once you get to the majors you're gonna probably have enough money. You might have to give us a call. So that's true. That leads right perfectly into our next set. Which is exciting stuff. We're going to be talking about changing domiciles, which military folks, airline pilots, everyone deals with at some point in their lives, usually.

And but before that, this podcast is brought to you by leading edge financial planning, we're fiduciary fee, only advisors who strive to do what's right for you. What keeps you up at night? What questions do you have about retirement savings? Life insurance policies. Long-term care options. State planning or why we call Ben Kalba give us a jingle

it's up to you to get these facets of your life in order or not. If you decide to get a handle on these issues, we can help. Okay. Now for that, let's kick it off with domiciled change, Kevin, over to you.

Kevin: Yeah. First of all, as the Eagles wrote in the song hotel, California, you can check out any time, but you can never leave.

And that's a good quote to discuss the fact that when you move from one state to another or even when you're working in multiple states states love to get tax money from. And even though you've checked out of a state and you think you're gone, they may not think you're gone and they will track you and and they have the power to tax you.

That's really what this is all about. And this has come about for me, Rob, because a number of clients have said, Hey, I'm moving out of one of the high tax states, California. Illinois New Jersey, New York, and one of the things I need to be cognizant of as I moved to the promised land, which there are nine states out there that are a part of what I would call the tax promised land, the sunshine states, including Florida Texas, Tennessee.

And then there's a Alaska Rob, which you grew up in Nevada, South Dakota. Washington, Wyoming, and then New Hampshire up there on the east coast. So these are all no tax states. And so people can get really excited even to retire to one of these states and what we're finding, what we see online all the time is that even though you've checked out of a state and you've left the state continues to tax you and then you have to fight it.

And so that's really what this is all about.

Rob: That's tough too, Kevin. Cause if you get in a situation, as we're doing some of the readings here for the show prep, some of the states, can, you move from one state, they taxed you and you moved to the new state and they can tax you.

And it's not exactly clear. Who's going to win that battle. And I guess the federal government, in some cases, won't even step in and say, okay, you're going to, or the court system will step in and say, okay, California, you got the tax. Whoever Colorado, you got the taxes. Which was very interesting to me.

I thought that at some point, they'd say, okay, you're not going to be double taxed, but it's it's a tough situation. So what do you want to do in that case, Kevin, to make sure you're not getting double taxed. I might be getting ahead of myself.

Kevin: No, I think that's a good place to start. And there was a Supreme court case a few years ago where taxpayer said, Hey, this is not fair.

And the Supreme court voted, I think it was. I think it was five to four. I don't know how many circles Supreme court justices there are, but anyway, it was a okay good. There was a very narrow victory in favor of the taxpayer that you can not be taxed by more than one state. And so I've heard people say to me before, Hey, I can't be taxed by two states.

That's true, but you still have to file two tax returns and take a credit. And it costs money to file tax returns. That's not fun. And also if you brush up against one of the high tax states, Rob, let's say that you end up paying tax in California and you get a credit for Tennessee.

Guess what, there is no income tax in Tennessee. So that's really where the devil's in the details with this. And it's just something you want to be cognizant of. Now, I will say as well, that we've, since we live in Tennessee Ben and I we've had people that have been Tennessee clients who have moved to other states.

Such as Colorado. And that tax is not the only reason to leave a state obviously. But when people leave Tennessee, they say, what do I need to do? And I said not really much because the new state is going to be happy to have you and Tennessee doesn't get any income tax anyway.

So they're not going to be fighting over you. So that's one of the dynamics that, that happens.

Rob: Yeah. And like you mentioned, Hotel California lyrics, California is one of those states that has obviously high tax, New York, probably New Jersey, those types of states. They're going to want to hold on to you as much as they can.

Kevin: That's a, that's one of the most fascinating things in my reading is that, in California, you could have a domicile. And the word that we're going to get into in a second is domiciled versus. But if you're a domicile in California, that is, you have a place there, you return there and you don't live in the state of California even one day of the year and you work in another state and you live in another state.

You, you're actually physically out of the state, California will still tax you and they have a right to tax. And you will pay California tax or you can, fight them for years. So these rules are very complicated and convoluted but it can be a very painful experience in California and New York.

Ben and I were talking about this earlier when there's a lot of money on the line, they're obviously going to hire a lot of people to come out.

Ben: Yeah. Yeah, there's a bigger reward on the end of that that battle and Kevin, you were telling me it's the burden of proof is on the taxpayer.

These states will come after you, like you're guilty and you have to prove otherwise. And we'll get into later, maybe more details on some of the things to avoid doing that. But I just thought that was really crazy that they actually basically can say, you're, we're taking this money and good luck telling us otherwise,

Rob: pretty much I've heard, I heard one.

One Pandit was talking about states being like pit bull. He compared to the states to pit bulls and they just don't want to let go. And you gotta practice.

Kevin: I think that's, I think that's great, Rob, and yeah innocent until proven guilty does not apply. And, like one person recently said that's not fair.

And I said, no, it's not fair, but fairness. Doesn't have anything to do with it because taxing authorities have the ability to garnish wages and, if they rule in favor of their state and you lose the case, guess what. You're either going to have to pay or maybe flee the country and, fleeing the country.

I don't think there's a good financial strategy although some do.

Ben: Yeah, that's true. But I think they still, Hey California in New York, they may still come after you never.

Rob: Yeah,

Kevin: Ben, that's a, that's an excellent point. And so I got into the idea of, ex-pat and I followed some people on podcasts and YouTube.

And so one of the things I learned as an ex-pat, if you want to be an ex-pat and you live in California, is that you absolutely need to not just move to the foreign country. You need to move somewhere else. First, you actually need to change your domicile because there's people that are over in Costa Rica.

Europe and other places that California is still taxing them because the person moved directly from California to these other states and California argues that when you come back to the country, you're coming back to us. And so a lot of ex-pats I've said you actually have to move to a state like Texas establish established domicile, which I think we're ready to get into what domicile is, but established domiciles and then move overseas or California will continue to reach out to you across the world.

Rob: I love it. Love it. Let's get into it. What's what is the domiciles?

Kevin: I'm gonna, I'm going to try to explain this and then help me. You've done a lot of research on this as well, but domiciles, you really only have one domicile. So domiciles is the state, which you live and expect to return to, and that expect to return to that's intent, right?

And intent. Is very hard to know like what's your intention, Rob? I don't know your intention, . But I can, if I'm a taxing authority, I can tell you what I think your intention is. And that's where we come back to. You need to prove your intention. So at domiciles, you really only have one domicile.

That's the place that you. That you are, and you expect to return to, whereas you may have multiple residents what do we call someone with multiple residents, Rob,

Rob: a rich person. Snowbird

Kevin: or a snowbird? Yeah. Yeah. Snowbird is good. So yeah, if you have multiple residences there's let me find the verbiage here.

There's something that states will do, and they will try to say that you are a statutory, and they in any state in which an individual has a residence has a right to tax individuals, worldwide income. I always love that worldwide income. That sounds like you're making money all over the world.

But if you are in a state for a certain period of time and every state has their own rules, They can try to say that you are a statutory resident and they can say that your domicile is in their state. So although there's only one Dom domiciles more than one state can say you have a dominant style in their state and start tackling.

Domiciles is one thing. Residents, you may have multiple residents, but again, the issue is that multiple states will say that your domicile is in their state, then help me.

Ben: One, one thing that I was reading is that it basically, it does change to the definition of what domiciles is from different states.

And so maybe that's why California has maybe more strict rules, but I've got here two concepts that these states generally agree on. And the first one is that a domicile is a person's fixed permanent and principle home that they reside in. And then there's number two that they intend to return to or remain.

 I guess if you intend to be there for long term, and you also have a home there that you live in, even if you have multiple residences they can still say you intend to return back to this. So this is your home.

Rob: I think it's important for folks that are thinking about changing their domicile or moving that they think, there's some things that they can do.

To help make sure that their domiciles established in that new state, right? Yep. Yep. Absolutely. If you sell a house, if you move from, for our airline pilots who move from Oakland to Denver or Oakland to Dallas or wherever, if you're moving from California or wherever you sell the house that you have there, and you buy a new one, that's obviously going to go a long way towards establishing your domicile.

It gets a little trickier. If you keep that. And you have a house in Colorado and in, in California, then that's where it gets a little tougher, but they get, I even heard one example where a guy moving from New Jersey to Texas, he was a big hedge fund guy. And he, I think he had $400 million of income that year in a huge tax bill.

And New Jersey obviously didn't want that. And the judge. I think if if I heard this correctly, the judge actually used where his pet was, where his dog was to establish what was his domicile. It went that far as the, his intent was established because his pet was intact.

Ben: Yep. Yeah. Moving is not just enough.

We've we've seen and learned that you've got to, you've got to basically prove that you're in it for the long haul, many different ways. And we have a pretty robust checklist that we we got that it goes through kind of some of those things that you should go into.

And it's pretty funny how many different things they, they talk about in here? Are we ready to maybe jump in. I think so, guys. Perfect. All right. Let me let me pull this up because I think it's worth showing if you're on the, if you're on the YouTube check this out, but if not, you can check out our website.

We'll post this on here, but first of all, it talks about taking residents. Obviously owning a place in a different state and having your physical presence. So this is a, having six. At least six months in a day or the majority of your time in that new state. So if you do keep

Kevin: 183 days spend

Rob: 183

Ben: days, magic number was 365 divided by two plus one.

Perfect. Yeah, file for tax benefits. There's a, I guess you can declare that this is my domicile. I didn't know about that one. Do you any idea what that is? Is that some type of fancy form.

Kevin: No I don't have any idea. The big D I'm trying to figure out ways to remember that domicile is really the key.

It's not just residents. Declaration of domicile, that really sounds that your intent is to be in a new place. So I would definitely do that.

Ben: Yep. Yep. And like you said, it is the intent, that seems to be what really matters, but maybe it's like in the office where you just say, I declare domicidal Michael Scott, but yeah, I think maybe that's what that is.

I don't know.

Kevin: Michael Scott. Yeah.

Ben: Yeah, but this goes into things, things that you may not think about, your voter's registration, if you have a, if you're trying to establish residency in Texas, but, and you also have a home in California and you're registered to vote in California, it's not, that's not gonna fly just because you have that home.

Even if you, even, if you lived in Texas for the majority of the time, , you gotta have all of these little things in place. Your estate planning documents is a big one. Make sure that those are changed with the new addresses. Insurance a big, that's another big one that, that this goes into detail on your banking accounts your checks, making sure the checks, there's little things like that.

And this is all just building that evidence to prove that your intent is to not only just be there, but be there for the longterm and stay there and be able to prove that,

Rob: That, that estate planning one is huge too, because different, obviously the death taxes that we talked about in a previous episode, Go back and look at that.

And our I'm dead now. What series? That's great. Great series, I think. Yes. And

Kevin: No. Ben, let me make a comment here with all of this. Because people will say it's very obvious. I. Okay. It's very obvious. And I've heard that quite a bit. The problem is not that some of the people we're working with are not actually leaving a state.

The problem is there, there are some people, just a few, maybe in New York that will buy second homes elsewhere. And of course, where do you want to be domiciled? You want to be domiciled in the low tax state. And these auditors, again, we always think of these auditors as either. Devious not good people, but they are dealing with some people that actually are skirting tax loss.

So I think that's always something to remember. So they are going to look for ways to, to nail you. And this is the good get caught up in the bad sometimes. And the thing that I really like is that pilot pilots, like checking. And here's the cool thing where you can actually use your check, not a checklist knowledge to to just make sure you do all of these checklists

Rob: discipline.

Kevin: Yes. That's it?

Ben: Yeah. We'll give some access to this. . This goes as far as saying, even your memberships, join a club, just join a club in your new state charitable giving the chair give to charities in your state.

So this really goes into to a lot of detail. I won't go through all of it here, but it really goes through all the different details and it shows just to the extent of how you have to prove that you intend to not only live there but stay there and be there for the long haul.

And, yeah, it's not just about being there.

Kevin: Yeah. So what you just said is not just about 183 days. New York, actually, I saw some statistics online. They when greater than 50% of the cases against people, so greater than 50% of the time they win, they also have five years on average that these audits last, or I shouldn't say on average up to five years, these audits will.

So this is not just about money. It's also about annoyance and frustration and all these other issues. So one of the things that I think is extremely important is for you to is for you to have a a divorce date or a date that you are gonna be actually have left the state and come to a new state.

So picking a date of divorce and that's actually what they say in a number of the articles is that you need to treat the state like. Where you severed everything. So I even think, like people will say I'm going to buy another house in Tennessee. I've heard this recently and I'm going to move to Tennessee, but I'm going to keep my old place in my other state.

Again, it's very easy for that state to argue that's a second home in Tennessee or Florida or wherever. So I actually think selling your old home, although you don't have to do that, selling your old home might actually be a good one. Selling all real estate and then some of the other gotchas, you mentioned the dog, Rob social media is a very powerful tool when you're standing next to a New York building with your dog.

 And all your friends and you just got out of the cigar bar or whatever. And the auditor shows you a picture of yourself from your Facebook page. They are going to use cell phone records. They're going to use social media. So again just be careful with that. And if you really have left the area, you, and I would say that she shouldn't have problems, but multiple states right now,

Rob: Yeah.

And that's a a key point too. When you talk about, if you're there in the social media aspect, a state, I believe most states treat you as being there. If you're there for one second of the day. So for the pilots that bounce around, have their own airplanes and bounce around. If you're there for one second, you could be considered.

That could be one. 183 days as far as they're concerned. And so if you have credit card receipts and that kind of thing from that state, that's gonna be used against you for that. Potentially if you are an airline pilot, maybe using cash again, not trying to skirt the rules, but just making sure you've established that domiciled correctly.

Ben: Yeah, I wish it was as easy as, you could live in California and buy just like a apartment Tennessee and say that's where you live, but it's just. Yeah, they've got to figure it out and they know that people do that. And so they're looking out for people doing that and that's why it's, they've made it very difficult for you to do stuff like that.

So definitely something to be aware of when you're trying to trick them tricked system,

Rob: And I've heard there's now, with the social media and all the apps that are out there, that there are apps out there that you can actually buy to help you establish that you were in a state. For a certain amount of time.

So some, sometimes the states will be like you said you were there 185 days. We don't believe you, but there are apps, one it's called tax bird. It tracks your GPS location. And you can use that as, Hey, I was in this state for 190 days or whatever you were. Very interesting. Kind of mind blowing to me.

Yeah. That is

Kevin: As long as your app says that you've moved around a little bit and you didn't stay in one location for 183 days straight, Rob that is something that I read is that people have lost, caught court cases because they left their app and their phone. At one location and we're traveling all over the place.

Rob: So

Ben: God, it's amazing what these people people are doing. They're trying everything, but making it more difficult for those that are maybe if you're trying to do it the right way too. So

Kevin: for sure final thing I have Rob concerning. This whole issue is. I will tell you there's a, and you might not know this Rob there's 50 states in the U S and there's 50 different and there's 50 different taxing authorities and there's 50 different set of rules.

And even as a tax person when we have to look at different states it's even challenging for us. So you have to know the rules of an individual state and never asked soon. That, what the rules are going to be because they do change.

And sometimes like the 183 days, that's not the rule. So maybe seeking some, somebody that, that knows interstate tax and all the rules around tax in this case, I really think it's money well spent because if you wait until tax time and you've already been hit on the radar it might be too late.

Rob: Yeah. That's a good point. And if you're married, And you leave your, you may be moving to a new state and you leave your wife behind to fix things up or whatever. But of course the state's going to try the higher tax state is going to try to use that is, Hey, you're not really leaving you after wife here for crying out loud.

You didn't move. So just something to think about

Kevin: everybody laughs at that. Sorry.

Rob: Awesome. Awesome guys. We've got anything else?

Ben: I th I think this is this is good. We don't want to bore anybody too much about this stuff,

Rob: but yeah. Yeah. Something to think about for sure. Check out the checklist.

That'll be in the show notes, the link for sure. Leading edge planning.com. You can find it there as well. And that's it. We have reached our final destination on this special domiciles changing episode with the professor and Mr. Kelly. Thanks for joining us. I'll leave you with a couple of quotes by Robert Scheller famous.

Robert Schiller, the ability to focus attention on important things is a defining characteristic of intelligence. Think about that for a second. It amazes me. And the second one, it amazes me how people are often more willing to act based on little or no data than to use data. That is a challenge to assemble Robert Shiller brainiac.

That's it. That's all I've got. If you like what you heard, hit the subscribe button and let us know what you think by emailing me, robert@leadingedgeplanning.com or info@leadingedgeplanning.com. Give us good compliments bad suggestions, whatever you want to say to us, we're willing to hear you and make the show better.

So that's what we're here for. Remember, as Emerson said, the world makes way for those who know where they're going. So make so plan accordingly. We're out of here. Thanks Kevin. Thanks Ben.

 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this Podcast will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 09/07/2021 and are subject to change at any time due to the changes in market or economic conditions.

Categories
Education Rob

The Fiduciary.

The Fiduciary.

The first time I heard the term “fiduciary,” I said to myself, “fidu…what? Sounds fancy.” Then I fell asleep. Admittedly, this topic appears boring and could put my 16-year-old boy all hopped up on Mountain Dew to sleep. But, here is a wake-up call – knowing who is and who is not a fiduciary is the first step in finding someone actually to help you with your money.
So, what is a fiduciary?
A fiduciary is someone who acts on behalf of another person and has a fundamental obligation to put their clients’ interests ahead of their own, with a duty of undivided loyalty and utmost good faith. Fiduciaries are bound both legally and ethically to act in the client’s best interests.
SEC Chairman Jay Clayton defined the fiduciary responsibility this way, “This duty – comprised of both a duty of care and a duty of loyalty – is principles based and applies to the entire relationship between the investment adviser and the client.”
When someone is a fiduciary, it applies to the “entire relationship,” not parts of it. It is the highest standard in the financial world. You may be saying, “Okay. Great! Aren’t all financial advisors fiduciaries?”
I would say, “NO!”
Unfortunately, the term financial advisor is very nebulous and can apply to brokers (registered representatives), IARs (Investment Advisor Representatives), or hybrid advisors who are dual-registered and can act as both a broker and IAR. The bottom line is only IARs who are only IARs (not dual-registered) are fiduciaries always. They must do what is in your best interest, even if it hurts them. They are like financial knights, putting your kingdom before their own monetary gain.
You, “Great Rob, what about Bernie Madoff? Wasn’t he a fiduciary?”

You are absolutely correct!

Yes, Madoff was a fiduciary advisor  (before that, he was a highly successful broker). I am definitely not saying that just because someone is a fiduciary, they will do what is best for you and your money. However, I am saying, by law, they are supposed to do precisely that (Madoff was sentenced to 150 years in federal prison). There are criminals in the world, and you need to take steps to make sure they are not defrauding you. Fortunately, many changes have taken place since Madoff and, perhaps one of the most important was the shift to a custodian system. A custodian system is where your advisor does not hold your money. Instead, a custodian like Charles Schwab retains it, and you can independently check your accounts to make sure it is where you think it is…not off in a Ponzi scheme. So, make sure your fiduciary IAR has a third-party custodian, and they don’t hold your money themselves.
You, “How did you gather this knowledge?”
I have been interested in investing ever since I was knee-high to a grasshopper. However, I acquired this fiduciary knowledge several years ago when I was a newly minted first officer before becoming an IAR and before Reg BI (discussed below). At that time, I began a journey to find a trustworthy financial advisor for myself. As a military officer, money had not been a primary concern, and, to be honest, I didn’t have enough of it to matter. But as I began my major airline career (2013), I realized I would soon have enough money that I had better start thinking about how to manage it.         I knew I needed help. My focus was on learning how to be a First Officer while still juggling my Air Force Reserve career.
Many questions ran through my head. The biggest and most important was, “How can I protect my money?” The money I had worked so hard to accumulate. What I found surprised me.
Many investment advisors wanting my business were brokers. Some of these brokers were very intelligent and could sell with the best. One problem, they only had a “suitable” duty of care to me and my money.
What does “suitable” mean? It means they only had to put my money into investments they deemed…wait for it…adequate. They did not need to give me advice that was best for me. To be clear, I am sure there are many respectable, ethical brokers out there; I am not saying there aren’t. But, with a suitable standard, they had no legal obligation to do right by me and my money.
For example, say I had two financial advisors: an IAR (fiduciary) and a broker
(suitable in 2013). Let us say they both had the option to put me in one of two identical funds, except one fund has higher fees. The IAR, legally, could not put me in the higher fee fund. The broker could legally put my money into the higher fee fund and likely would if they were getting paid to do so, as long as they deemed it adequate. You, “Okay, but that was then, right? What about now and Reg                 BI?”Regulation Best Interest (Reg BI – effective January 1st, 2020), has attempted to change the relationship and move the ethical bar higher for brokers. Instead of only having a suitable duty, they are now supposed to have a “best interest” duty. The regulation takes several steps to raise the bar (like having to disclose conflicts of interest); however, it does not change the dynamics of how a broker operates. A broker is still paid by a 3rd party to put their client’s money in certain funds. This relationship has not changed. Now, however, the SEC expects them to use the client’s best interest.
You, “How can they do what’s in my best interest if they are getting paid by someone other than me to put my money into particular funds?”
Great question; you are not alone asking this. Some say Reg BI hardly moves the bar; some say it moves it a lot. Here is my take…
The regulation does not and cannot change the dynamics of how a broker operates via a 3-party exchange. The broker will still have the broker, the client, and the entity paying the broker to put the client into their particular funds (3 parties). This higher standard is potentially good, but brokers still get paid by people other than the client. IARs, on the other hand, are fee-only, meaning the client is the only one who pays them (i.e., IARs are not paid by mutual funds or companies to get you to invest with them).
Per the Investment Advisors Act of 1940, IARs have always had a higher fiduciary standard and deal with this 2-party exchange. There is the client and the IAR, that’s it (2 parties). There is no incentive for an IAR to put your money into funds that may not be in your greatest interest.
You, “So how are IARs paid?”
Typically, IARs are paid by you quarterly. They get paid a percentage of how much money they manage for you. In the business, this is called AUM (Assets Under Management). It means, if you do well, they do well (Leading Edge charges pilots 0.85 % up to the first $1 million). So out of every $1,000 you have invested, you will pay us $8.50 per year (paid quarterly – $2.13) or less than 2 cups of Captain lattes per year (This is different from a broker who is paid to sell you a product and gets paid regardless if your money does well or not).
You, “Why would I pay someone a percentage of AUM?”
Well, think about having a wingman, co-pilot, or workout buddy. You are more likely
to get where you want to go if you have someone helping you and encouraging you to get there. IARs help you stay the course when times get tough (Extremely wealthy people pay hedge funds similarly, but a much higher percentage of AUM). You do it because of the value you get from it.
Vanguard has studied certain financial advisors’ value and determined that advisors can add 3% to the client’s portfolios. This sounds like a pretty good investment to me!
You, “Okay, so I pay you $8.50 per $1,000, but you can add value of $30 per $1,000?” Although this is not guaranteed, this is precisely the idea. Generally speaking, if an advisor starts guaranteeing returns, tell them you’ll call them back, but our job is to add value.
You, “How or why is this?”
Morgan Housel (the author of The Psychology of Money) has a great point – Napoleon once said, “a genius is the man who can do the average thing when everyone else around him is losing his mind.” A good advisor is someone who can help you be average when everyone else is losing their mind. If you can do this, you can make a lot of money. Good advisors help you do just that.
Think of being an airline pilot; much of our training deals with emergency training. What is the goal? To get us to do the average thing when most people are losing their minds. IARs can help instruct you through these market emergencies.
Furthermore, IARs give you comprehensive financial planning. Comprehensive financial planning may include Estate Planning, Tax Planning Strategies, Risk Management, College Savings, Employee Benefits Optimization, Insurance Planning, Career Planning, and Financial Independence Planning. These services can help you sleep better at night knowing you have taken care of your future self and loved ones, which in my book is priceless.
You, “So I get access to all of these types of planning with my 0.85% payments?”
Yes, most IARs offer many of these services, included with your quarterly fee. If you are familiar with a retainer, this is similar. You pay quarterly fees and have access to all kinds of advice/planning all year long. At Leading Edge, all of these services, and more, are offered and are included with your quarterly 0.85% payment.
In airline terms, when passengers pay for a ticket, that ticket includes deviations around thunderstorms, ATC delays, de-icing costs, etc. When you pay an advisor, you get almost all of the fixings with investment advice.
You, “Sounds great, but what does fee-only mean?”
Fee-only means you are paying both commission (and other custodial fees) and advisor fees. Simply put, when any trade is made establishing an investment position, there are commissions paid to brokers. Brokers make the trades but are simply the mechanism for buying and selling. In this capacity, they do not act as advisors and are not part of the decision making process. They do not get paid by the IAR and do not pay the IAR. These trades are separate from a broker selling you a product for a fee.

Now brokers giving advice, not acting as fiduciaries, may come up with all kinds of reasons why they are better for you than an IAR. It should only remind you of a quote by Upton Sinclair, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
I believe this is what Reg BI attempts to do. It tries to get brokers to act in the client’s best interest, but their salary often depends on him not doing so. I fear that many brokers will continue finding ways to put clients in funds that pay the brokers. Even in the regulation itself, the term “best interest” is ill-defined and very open to interpretation. Time will tell how the SEC enforces Reg BI, but it will not change the dynamics of a 3-party (broker) relationship vs. a 2-party (IAR) relationship.
A fiduciary IAR is the highest standard and likely will be for the foreseeable future.
Reg BI does take steps to ensure brokers disclose conflicting relationships, which is a good thing. However, the fact they have to admit the relationship is irrelevant, in my opinion.
It makes me think of getting hit with a rock by a bully. His parents have come along and told him he has to tell me he is hitting me with a rock before he does it…but he can still hit me with the rock.
Understand, the bully can be quite crafty when explaining why hitting me with the rock is best for me, but I still get hit with a stone at the end of the day. Why would I sign up for that? I wouldn’t, and I didn’t.
Now, if you have fallen prey to some of these brokers, take comfort in knowing you aren’t alone. Many hardworking people have trusted these people to do what was in their greatest interest, not knowing these brokers had no such obligation. Several studies have shown that most investors don’t understand their financial advisor’s duty (or lack thereof). Many people believed their brokers were always legally bound to do what was best for them. Unfortunately, this was and is not the case. Again, only IARs (Investment Adviser Representatives), who do not wear broker hats ever, have a fiduciary duty to you at all times.

Back to my hunt for an advisor (pre-Reg BI)… Armed with this newfound fiduciary/suitable knowledge, I arranged a meeting with an advisor through my airline company’s 401k plan.
During the conversation, I asked, “Do you have a fiduciary duty to me?”
What should have been a simple yes or no, was instead a bunch of hemming and hawing, but no real answer. Not to be deterred, I asked again. This time I received another vague response, so I asked again. Finally, this advisor told me he only had a suitable responsibility (today, he would have told me he had a best interest responsibility).
Case closed. He may have been a great advisor, but he had no legal obligation to do what was right for me. If he put me in a poor investment and lost all of my money, I had very little to no recourse.         Today, instead of deeming that same investment “suitable,” there will likely be brokers who find ways to make those same investments “best interest.”
What I wanted was someone who had a legal obligation to me and my money. I wanted my financial advisor to do what was in my highest interest. Furthermore, I wanted someone who had no incentive to put me in a particular fund. For me, the fiduciary is the answer.
You may be saying, “Great Rob, but how do I find out if someone has a fiduciary responsibility to me?”
This one is easy, ask.
Ask the following question, “If I hire you as my advisor, do you always have a fiduciary duty to me?”If the answer isn’t a fairly quick, “Yes.” I advise looking elsewhere.
If it is, follow it up with, “To be clear, you never put on a broker hat and always have a fiduciary responsibility to me?”
The answer should again be, “Yes.”
Beyond asking, you should also be able to find out by looking at the disclosures on their website or looking at their Form ADV Part 2A/Firm Brochure or the new Client Relationship Statement (CRS) mandated by Reg BI.
When I became an advisor, I knew I wanted to do it the right way and only become an IAR (fiduciary). Thankfully, Leading Edge Financial Planning (LEFP) shares this belief. Our Form ADV Part 2A says this:

Item 10: Other Financial Industry Activities and Affiliations
No LEFP employee is registered, or has an application pending to register as a broker-dealer or a registered representative of a broker-dealer.
LEFP only receives compensation directly from our clients. We do not receive compensation from any outside source nor do we pay referral fees to outside sources for client referrals.

If you have gotten this far and not fallen asleep, I thank you. As you now know, I am a fiduciary and vow to protect my clients’ hard-earned money with the highest devotion to their goals. If you want to chat further about this or any other subject, please give me a buzz at (707) 712-9387 or shoot me an email at robert@leadgingedgeplanning.com. Until next time, I hope you have only tailwinds and blue skies!

Robert Eklund
Leading Edge Financial Planner

Robert Eklund

Financial Planner

Rob is a Southwest Pilot and soon to be retired Air Force Lieutenant Colonel. He grew up working on his family’s ranch in Colorado and went to high school in Alaska.  In 2000, he graduated from the United States Air Force Academy, earning a Bachelor of Science degree in Legal Studies.  Rob has served over twenty years in the Air Force, ten years on active duty, and over ten in the Reserves. During his military career he flew the C-130 while stationed in Germany and the KC-10 in California. Rob has accumulated over 700 hours of combat flying hours and participated in multiple Operations.  He was hired by Southwest Airlines in 2013 and became a staff officer at USNORTHCOM’s Domestic Operations Division in 2016. While holding this position as an Air Planner, Rob helped areas recover from Hurricane disasters; specifically, he was called to active duty to aid in recovery efforts following Hurricane Maria.

While studying at the Academy, Rob discovered his enthusiasm for the study of personal finance and investing.  As his military service comes to a close, he is excited to combine his passion for helping and protecting others with his enthusiasm for personal finance.  This culminated in 2020 with Rob passing the Series 65 Uniform Investment Advisor Law Exam and joining the Leading Edge team as a fiduciary advisor.  A fiduciary’s role comes naturally to him as he enjoys helping people whether that benefits him or not.  Rob knows the tremendous trust clients place in their financial advisors, and it is his goal to grow that trust through the highest level of transparency and integrity.  In his personal life, Rob married up to the love of his life and has been married for 18 years. He is overwhelmingly proud of his son, whom he recently donated a kidney.
]Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 03/18/2021 and are subject to change at any time due to the changes in market or economic conditions.

Categories
Retirement Rob

What Does Fiduciary Mean and Why is it Important?

Leading Edge Financial Planning is growing!  Thanks to you for spreading the word about Leading Edge, we’re adding new advisors to increase our capacity and continue to improve the quality of our service for current and future clients.   

We’ve been tremendously fortunate to have added three new advisors over the last few months.  Many of you already know Ben Dickinson as he’s been with us for almost two years now.  However, he’s moving into more of an advisory role as he’s increased his knowledge base, experience and met the SEC’s requirements to become an Investment Advisor Representative (IAR).   

We’ve also added Mark Covell as an IAR.  Mark is a soon-to-be-retired Marine fighter pilot as well aan American Airlines pilot And yeshe’s brilliant and talented in addition to being a Marine warrior for our country!   

For many of you, this article may be your first introduction to Rob Eklund.  He’s one of our latest additions to the team.  We’re very excited to add Rob to our team of advisors because of his passion and excitement for helping people with their personal finances.  Mguess is his enthusiasm will come through in this article. He tells his story of searching for a trusted, fiduciary financial advisor to help him and his family with their personal financebefore becoming an IAR himself.  Click here tlearn more about Rob’s background and experience, and please check out his article below... 

 

What Does Fiduciary Mean and Why is it Important

The first time I heard the term fiduciary, I said to myself, fidu…what? Sounds fancy. Then I fell asleep. Admittedly, this topic appears boring and could put my 16-year-old boy all hopped up on Mountain Dew to sleep! But here is a wake-up callknowing who is and who is not a fiduciary is the first step in finding someone to help you with your retirement and investment planning.   

I have been interested in investing ever since I was knee-high to a grasshopper. However, I acquired this fiduciary knowledge several years ago when I was a newly minted first officer for a major airline, before becoming an investment advisor myself.  At that time, I began a journey to find a trustworthy financial advisor for myself and my family. As a military officer, money had not been a primary concern, and to be honest, I didn’t have enough of it to matter. But as I began my major airline career in 2013, I realized I would soon have enough money that I had better start thinking about how to manage it. I knew I needed help. Furthermore, my focus was on learning how to be a first officer while still juggling my Air Force Reserve career.  

Many questions ran through my head. The biggest and most important was, How can I protect my money? The money I had worked so hard to accumulate. What I found surprised me.  Many financial advisors wanting my business were not fiduciaries. Some of these advisors were very intelligent and could sell with the best. One problem, they only had a suitable duty of care to me versus a fiduciary standard.   

The Suitability Standard 

The suitability standard means an advisor or broker only had to put my money into investments they deemed adequate. They did not need to give me advice that put my interests ahead of their own.    

The Fiduciary Standard 

A fiduciary is someone who acts on behalf of another person and has a legal and ethical obligation to put their clients’ interests ahead of their own.  SEC Chairman Jay Clayton defined the fiduciary responsibility this way, This duty  comprised of both a duty of care and a duty of loyalty  is principlesbased and applies to the entire relationship between the investment adviser and the client. When someone is a fiduciary, it applies to the entire relationship, not parts of it. It is the highest standard in the financial world.  

You may be saying, Okay. Great! Aren’t all financial advisors’ fiduciaries? Unfortunately, the term financial advisor is very nebulous and can apply talmost anyone.  In fact, most financial advisors are not fiduciaries.  Furthermore, more than half of respondents (53 percent) to a 2017 Financial Engines survey mistakenly believe that all financial advisorare already legally required to put their clients’ best interests first.    

Regulation Best Interest, aka “Reg BI”? 

Reg BI, effective January 1st, 2020, attempted to improve upon the suitability standard and move the ethical bar higher for anyone who calls themselves a financial advisor.  Instead of only having a suitable duty, they are now supposed to have a best interest duty. The regulation takes several steps to raise the bar (like having to disclose conflicts of interest); however, it does not change the dynamics of how a non-fiduciary advisor operates or receives compensation  

It is difficult to get a man to understand something when his salary depends upon his not understanding it.” ~Upton Sinclair  

I believe this is what Reg BI attempts to do. It tries to get brokers to act in the client’s best interest, but their salary often depends on him not doing so. I fear that many advisors will continue finding ways to put clients in funds that pay them a commission. Even in the regulation itself, the term best interest is ill-defined and very open to interpretation.  

Fee-Only versus Fee-Based 

The critical distinction is that an advisor operating under Reg BI castilbe paid by a 3rd party tpuclient’s money in certain investments or insurance products.  In other words, if an advisor gets paid by a third party (mutual fund company or insurance/annuity company) to put your money in certain investments or insurance products, then there is a conflict of interest.  And athat moment, the advisor needto disclose that they arNOT acting in a fiduciary capacity.      

Most fiduciaries operate in a fee-only manner.  This means the client’s fees are the onlsource of income for the advisor, and they are not paid commissions from third parties or outside sources that could bring into question the objectivity of the advice given.  Be sure to understand thdistinction between a fee-based financial advisor who may earn a commission and a fee versus a fee-only advisor.  The languagis very nebulous and confusing for a reason.   

Back to my personal journey in search of a trustworthy financial advisor; During one conversation, I asked, Do you have a fiduciary duty to me? What should have been a simple yes or no, was instead a bunch of hemming and hawing, but no real answer. Not to be deterred, I asked again. This time I received another vague response, so I asked once more. Finally, thiadvisor told me he only had a suitable responsibility (today, he would have told me he had a best interest responsibility).  Case closed! He may have been a great advisor, but he had no legal obligation to dwhat was best for my family and me 

 I wanted my financial advisor to do what was in my highest interest. Furthermore, I wanted someone whose advice was objective and had no incentive to put me in a particular mutual fund. For me, the fiduciary advisor is the answer.  

“How do you find out if someone has a fiduciary responsibility to you? This one is easy, ask.  

Ask the following question, If I hire you as my advisordo you always have a fiduciary duty to me?” If the answer is not a fairly quick, “Yes” I advise looking elsewhere. If it is, follow it uwith this question“To be clear, you never put on a broker hat and always have a fiduciary responsibility tme? The answer should again be, yes. 

Beyond asking, you should also be able to find out by looking at the disclosures on their website or looking at their Form ADV Part 2A/Firm Brochure or the new Client Relationship Statement (CRS) mandated by Reg BI. 

When I became an advisor, I knew I wanted to do it the right way and act as a fiduciary for my clients.  Thankfully, Leading Edge Financial Planning (LEFP) shares this belief. Our Form ADV Part 2A says this: 

Item 10: Other Financial Industry Activities and AffiliationsNo LEFP employee is registered or has an application pendinto register as a broker-dealer or a registered representative of a broker-dealer. LEFP only receives compensation directly from our clients. We do not receive compensation from any outside source, nor do we pay referral fees to outside sources for client referrals.” 

 If you have gotten this far and not fallen asleep, I thank you. As you now know, I am a fiduciary and vow to protect my clients’ hard-earned money with the highest devotion to their goals. Until next time, I hope you have only tailwinds and blue skies! 

Robert E. Eklund, CRD # 7317768 
Investment Advisor Representative  
www.leadingedgeplanning.com 

Robert Eklund

Financial Planner

Rob is a Southwest Pilot and soon to be retired Air Force Lieutenant Colonel. He grew up working on his family’s ranch in Colorado and went to high school in Alaska.  In 2000, he graduated from the United States Air Force Academy, earning a Bachelor of Science degree in Legal Studies.  Rob has served over twenty years in the Air Force, ten years on active duty, and over ten in the Reserves. During his military career he flew the C-130 while stationed in Germany and the KC-10 in California. Rob has accumulated over 700 hours of combat flying hours and participated in multiple Operations.  He was hired by Southwest Airlines in 2013 and became a staff officer at USNORTHCOM’s Domestic Operations Division in 2016. While holding this position as an Air Planner, Rob helped areas recover from Hurricane disasters; specifically, he was called to active duty to aid in recovery efforts following Hurricane Maria.

While studying at the Academy, Rob discovered his enthusiasm for the study of personal finance and investing.  As his military service comes to a close, he is excited to combine his passion for helping and protecting others with his enthusiasm for personal finance.  This culminated in 2020 with Rob passing the Series 65 Uniform Investment Advisor Law Exam and joining the Leading Edge team as a fiduciary advisor.  A fiduciary’s role comes naturally to him as he enjoys helping people whether that benefits him or not.  Rob knows the tremendous trust clients place in their financial advisors, and it is his goal to grow that trust through the highest level of transparency and integrity.  In his personal life, Rob married up to the love of his life and has been married for 18 years. He is overwhelmingly proud of his son, whom he recently donated a kidney.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this post will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 02/10/2021 and are subject to change at any time due to the changes in market or economic conditions.

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Charlie Kevin Video

Retirement: Everything is Different Now!

You may be the type of person that enjoys managing your own investments.  And there’s nothing wrong with that.  However, as you approach or are in retirement things can be very different.  In fact, when your investment goal switches from accumulation to producing retirement income it may seem as though everything is different now!  

 

In this video, Kevin explains why managing your own investments is different when you are retired, and why a fiduciary financial planner may be worth the investment.  

 

Key Points:

We believe a globally-diversified investment approach is still the best plan for capturing positive returns in the long run. Furthermore, chasing the top-performing asset classes and changing your portfolio based on news headlines or current events has been shown to produce lower returns over the long run.  In other words, if you find yourself wanting to change your portfolio as soon as investment headlines turn negative, having a fiduciary financial planner may help you stay focused on your goals instead of abandoning your investment plan during a downturn.  

 

Whether you manage your investments yourself or you have a trusted advisor, here are three things everyone should do to increase your chances of success in retirement.  

  1. Write down an Investment Policy Statement to help you stay focused on your investment goals when everything in the news is negative.
    • For example; “I will invest this way to reach my goals in retirement….”
  2. Be careful chasing the high performing asset classes.
    • A diversified portfolio should stay diversified.
  3. Have someone who will hold you accountable in order to help you focus on your long-term goals when the going gets tough.

 

We appreciate your feedback! Please leave a comment on the video or reach out at https://www.leadingedgeplanning.com/ if you have any thoughts on the video!

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 10/31/2020 and are subject to change at any time due to the changes in market or economic conditions.