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RETHINK YOUR MONEY

8 Non-Negotiable Money Moves in 2024

Published on January 8, 2024

John Hagensen
MSFS, CFP®, CFS, CTS, CIS, CES

It’s 2024, and you want to get your finances started on the right foot. Join John as he guides you through his eight non-negotiable money moves for the new year. (2:50) From tried-and-true advice to strategies with a new perspective, learn how to jump-start your finances and set yourself up for financial security. Plus, rethink what life insurance can safeguard in your life. (30:06)

Episode Notes:

Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!

John Hagensen: Happy New Year and welcome to the Rethink Your Money Podcast presented by Creative Planning. I’m John Hagensen. And ahead on today’s show, what you can learn from the Santa Claus rally. Senior Tax Director, Candace Varner on practical tax savings tips for 2024, as well as the impact of technology on the labor market. Now, join me as I help you rethink your money.

Legendary college football coach at the University of Miami, as well as multiple Superbowl winner with the Dallas Cowboys, as their head coach, Jimmy Johnson has famously said, “The team who consistently wins, isn’t the team who makes the most great plays. It’s the team who commits the fewest dumb ones.”

And while there are many nuances throughout a football game, as well as in life with your money, it can be incredibly helpful to adhere to a set of, what I call non-negotiables, that if followed, they can help you avoid that big miss, or that dumb play. And identifying them clearly is an important step for you to have a successful 2024.

A non-negotiable is defined as not open to discussion or modification. If you want to be in better shape, which is a typical New Year’s resolution, you could broadly focus on diet, working out. You could set goals for how often you’re going to ride your Peloton Bike. “I’m going to get up and do that hit ride.” Or how many days per week you’re going to get to the gym. But those general ideas are the reason why the gym often is half full by the end of February.

How about instead saying the non-negotiable in 2024 is eating after 8:00 PM. And I know this is going to be tough. You have the little Ben & Jerry’s pints of ice cream in the freezer. Half Baked, that’s my favorite. Chocolate chip, cookie dough, fudge brownie, it’s all swirled in there. Maybe you’re a Cherry Garcia fan. I know. My mouth is watering too. Those are more specific. I’m not even going to think about it. I’m not even going to consider it. It’s not open to discussion or modification. I’m not eating, especially ice cream, at night.

What are some other non-negotiables? Well, for me, the day that I hit 40, I made the decision, I wasn’t going to drink alcohol anymore. Now, it’s obviously a very personal decision, unique to each person. But for me, it’s been a non-negotiable that continues to pay dividends. I feel healthier. I wake up with energy. I still need multiple cups of coffee, so maybe that’s the next vice that I’ll work on.

What are your non-negotiables? What are things here in the new year, related to your health, spiritual growth, academic pursuits, maybe it’s career aspirations. And this very same principle can be applied to your money, and your financial goals as you move throughout the new year.

In fact, I have a 2024 non-negotiable list that I’m going to throw at you. Now, there are several, but I promise you don’t need to be overwhelmed, because they’re all manageable. None of them are overly complicated. But remember, simple things aren’t always easy things. The knowing and the doing are two very different sides of the same coin.

The first non-negotiable financial move in 2024, is not living beyond your means. The best way to kill financial future, financial progress, financial success, is with high interest credit card debt.

Next, no emotional decisions. I want you to step back, think clearly. And never, and I don’t mean sometimes, rarely. No. Never make money moves out of emotion.

Another non-negotiable, no emergency fund depletion for non-emergencies. Do not tap into that emergency fund unless it’s in fact what you have it saved for. And no, a trip to Aruba, as nice as it might sound, is not a good use of your emergency fund.

Next non-negotiable, maintaining the contributions for your retirement savings to ensure you receive an employer match. Now, if your objective is to max out a retirement plan, you could extend that non-negotiable further to say, “Not only am I going to save up to the match, I’m not going to waver and negotiate whatsoever on fully maxing out that retirement plan available.”

Next non-negotiable, is checking your accounts more often than once per month. Do not put yourself through that sort of aggravation. The data is clear. The more frequently you look at your accounts, the lower your returns. In many cases, because it erodes your peace of mind and leads to unwarranted trades. And what I mentioned earlier, emotional money moves.

Next non-negotiable, avoiding financial envy. You see, it’s not often greed that derails our financial security, but instead it’s envy and our comparison to others that push us towards spending money on things we may not afford or may not really even want, other than to impress those around us.

And my final three non-negotiable financial moves for 2024 are having an estate plan, have a tax plan, meaning have a tax projection run, maybe based upon the numbers for 2023. Get that done in 2024, so you are looking forward at your tax strategies, rather than doing what most all Americans do, which is to report, hopefully accurately, what you previously did the year before. And unfortunately that does not reduce your taxes.

And my final and certainly the most important non-negotiable of this entire list, is to have a written, documented, detailed, tailored, customized financial plan. Cash flow, taxes, insurance, retirement projections, investments, estate planning. And if you don’t have that financial plan, you’ve never met with an independent credentialed fiduciary, to have them review your situation, answer your most important questions, and develop with you, collaboratively a comprehensive financial plan.

Well, how you do know if you’re on track for your financial goals? How do you know if you’re minimizing taxes? Or if your estate plan is constructed for today’s laws and your wishes? How can you be certain if you don’t even have a plan? If you’re not sure where to turn, we’ve been helping families for 40 years here at Creative Planning. Why not give your wealth a second look? At creativeplanning.com/radio or by calling 1-800-creative.

This last holiday season was pretty consistent in giving us, as investors, that gift that we all love. And that’s the Santa Claus rally that brought the Dow Jones to all-time highs, the S&P just below all-time highs. And certainly finished off 2023 with incredibly strong gains.

However, there was an article by MarketWatch, that I found interesting. It said, in the same way that filling up a much anticipated holiday meal can often leave you feeling uneasy and a bit overindulgent. Too much of a December rally looks like it might pull from our January returns.

Dating back to 1950, the average performance of the S&P 500 in December, has brought gains of 1.57%, which is pretty good. January hasn’t been quite as good, but also a pretty good month overall, with the average gain being a little over 1.25%. But MarketWatch points out that the advance gets nearly halved when December is positive or even above average. The summary of this article was that better Decembers lead to weaker Januarys, but still positive annual returns in the following year, about 80% of the time.

Wait, that’s near what typically annual returns are. The market’s up historically, about 75% a calendar year. So the impact basically is maybe a little bit on January, probably just happenstance, and once extrapolated out over the next 12 months, it doesn’t tell us anything. It doesn’t inform any moves that should be made. It’s like, “Oh, yeah. It’s kind of interesting and totally random. Thank you for that information.”

Other interesting and useless facts, December’s been the best month since 1950, as I mentioned, averaging a little over 1.5% per month. November’s close behind. 1.49%. April comes in at third for the month, at an average return of 1.37%. The worst month is September. The next worst month is August, followed by June. But even with that, if you said, “Well, I’m going to move to cash every September, since I know that it’s often negative,” there have been plenty amazing Septembers. 21 times since 1950, the month earned north of 2%, while several times earning well over 4%. You certainly don’t want to be in cash, missing out on those returns.

But don’t we love finding patterns? It’s so fun to look through data and find a pattern that either doesn’t exist, or has no relevance. September has been a really bad month. Well, 9/11 happened in September. October hasn’t been a great month. Well, Black Monday happened in October. In 1987, October was down 21%. In 2008, October was down 16%. During the peak drop of the Great Financial Crisis. If those two years of October aren’t there, and you replace then with somewhat positive returns, they may potentially be the best month since 1950.

That is how random this data is. And oftentimes, and I’m not picking on MarketWatch, but oftentimes these articles are written, you click on them and you think, “Wow, that’s pretty crazy. I maybe should adjust my equity exposure, because we had a good December, and it’s telling me, this article is saying, Januarys often aren’t quite as good if Decembers are better.”

You see, this is why the financial news is so often closer to financial pornography, as Carl Richards has dubbed it, certainly than financial education. Here’s the meaningful data that I think is important for you to know. 53% of calendar days in the stock market, are positive. It doesn’t sound like much. Go ask a Vegas casino owner how often they need to win in a high volume activity like gambling, to become a billionaire, with hotel casinos up and down the strip. Approximately 70% of calendar months are positive. 75% of the time over one year periods, the market is up. 90% of the time over five year periods, the market is up. 98% of the time over 10 year periods, the market is up. And historically speaking, 100% of all rolling 15-year periods, the market has been positive.

The lesson? Ignore the noise. Forget the short-term data, with the knowledge that the longer you stay invested, the more likely you are to achieve positive returns.

My special guest today is certified public accountant and senior tax director at Creative Planning, Candace Varner. Candace, thank you for joining me here on Rethink Your Money.

Candace Varner: Thank you for having me back.

John: Since 2018, for the tax cuts and jobs act, also known as the Trump Tax Reform, there were a lot of things that benefited us as taxpayers, but believe it or not, we’re here in 2024, just have a couple of years left. So I thought that would be a great place to start, Candace. What do you see as the biggest changes here in these last couple of years for taxpayers?

Candace: Well, I think for any individual taxpayer, the thing I see they apply most universally, would be the standard deduction changes. The standard deduction used to be significantly smaller. Right now, I think it’s 25,000 almost if you’re married. And at 25,000, when you combine that with the limitation on the state and local income tax deduction, it creates a situation where, from year-to-year, you may or may not itemize. And that presents a lot of opportunities, but creates a lot of confusion for taxpayers as well.

A lot of people think taking the standard deduction as a bad thing if I say that, but if we think about it, it’s free deductions. You didn’t have to spend that money to get it. I think the standard deduction changes is probably the biggest one, combined with, if we all think back to pre-2018, there were also these things called personal exemptions, which haven’t existed since. Those kind of thing linger in people’s minds and cause confusion.

John: A lot of folks used to itemize. They’d give 5,000 or Habitat For Humanity. And they love their church, but they also liked getting the tax benefit. And all of a sudden, they’re way below the standard. They’re getting no tax benefit to make that donation.

Do you have any tips or strategies in these last couple of years while the standard deduction is as high as it is?

Candace: The biggest thing we’ve been doing with clients since this has been in place, and we still have the opportunity for a couple of more years, is to just bunch your deductions. And again, this is going to depend on their particular situation, but if we take for granted you have 10,000 of the deduction for state and local taxes, which most people get over that, you may or may not have a mortgage interest deduction, and then we add on that charitable, what we want to do is say, “Okay, for a normal year you get right around the standard deduction. Well, let’s double up how much you’re donating this year. Or push it to next year.”

Just double up in one year, so that you get over the standard deduction and get the full benefit for all the donations you’re making. And then in the other year, take the standard deduction, which like I said is a free deduction, you’re getting to deduct stuff without having to spend the cash. You end up in the same place as far as what you’re donating, it’s just a timing difference. But it can make a really big difference in your overall tax liability.

John: Essentially, when you’re taking the standard, you want to be as low as possible, below the standard.

Candace: Right.

John: And then when you’re starting, and the years where you itemize, you’d rather be way over the standard.

What other changes do you think are going to surprise people when this expires at the end of 2025, that there’s still time to make some proactive moves on?

Candace: There’s a lot of things I think will suspire people.

I think planning for the standard deduction is the biggest piece. And then the other one that you can do a lot of planning around will be the estate tax exemption change, which at the moment is almost 13 million per taxpayer. And it will revert to five million. That’s a huge difference. And even if you aren’t someone who is worth $5 million, it’s still important to do planning and have an idea of what that’s going to be. And it would still make sense to utilize more of that exemption now, that might not exist in the future.

A lot of these things are unknown. Okay, I guess we didn’t start by explaining this. But if congress does nothing, so no action, which is sort of their jam, this will all change at the end of 2025, so December 31st, 2025. So going into 2026 taxes, that’s when you’ll see a bunch of changes. Between now and then, we’ve got a presidential election. So a lot of this is going to be unknown.

I think the key is knowing, what are your goals, what is the charitable you want to do, what is the estate tax, things we want to gift in our lifetime, and things like that. Knowing what our goals are, will make it a lot easier to react quickly when we do finally have these.

John: Well, and tax policies are unpredictable, and it’s certainly a political yo-yo that will be used. And it impacts specific people’s situation differently, as to how it changes. Do you think it’s reasonable, from a broad assumption, to say it’s more likely over the next 10 or 20 years with $35 trillion of national debt, and currently in a very low tax environment, relative to history, that people can operate under the assumption that likely rates won’t be a lot lower than they are now?

Likely the estate exemption probably won’t be way higher than it is at $13 million per person. Do you think that’s reasonable for people to make assumptions, knowing that they could be wrong, but saying, “Let’s plan,” sort of assuming that 2024 here and 2025 are probably going to be some of the better years over the next foreseeable future for us to make some tax moves?

Candace: Yeah, I think that’s totally fair. And if we’re wrong and it’s lower later, it’s still a win.

John: Yeah, absolutely.

Candace: If we just be conservative and think these are some years of opportunity. What can we do to take some advantage of it? And over 10 years or in the long-term, that rates will be higher. Again, looking at your individual situation, because when we look at things like the child tax credit, or the mortgage interest limitation, or things like that, they’re very specific to how that’s going to effect you. But overall, when you’re thinking about decisions, if we’re thinking on a long horizon, especially if you compare it now to when you’re going to be retired or things like that, I think it’s a very safe assumption to say, “Yeah, we should assume rates are going to go up.”

John: I’m speaking with Creative Planning CPA partner, Managing Tax Director, Candace Varner.

And one of the ways that I see people, maybe failing is the wrong word, but not being quite as proactive as I would like them to be, is blindly contributing to the deferred retirement accounts. Even though they’re not in a high tax bracket right now, but we’ve been trained to say, “You’re going to get the match,” which by the way, totally correct, it’s free money. A 100% return on your money. You should do that.

But it’s amazing to think about, that a married filing jointly couple right now, is still in the 24% bracket, all the way up to $360,000 of income. So you may have a physician saying, “Well, I’ve always maxed out my SEP-IRA. I’m a doctor. I make all kinds of money.” And you’re like, “Yeah, but you’re in the 24% tax bracket right now.” Which, if you go back to the Bush tax cut years, the 25% bracket started at about $76,000. And so you’re going to have to make a lot less money to get under 24 in the future. But I think that’s very counterintuitive because you can earn a lot of money these last couple of years, and still not be in a high marginal tax bracket.

Candace: I saw that even when it changed in 2018, it’s just really hard to compare one to the other, because it’s a different rate, it’s over a different income bracket. And again, all their deductions might have changed. AMT, effectively went away for most people.

John: Yeah, it did.

Candace: But the impact of that or the possibility of that effecting a lot of people will be back. So there’s a lot of those things. But what you’re describing is the psychology of taxes, which is really hard to get over for people. And I think in all things money related, where you’re thinking, “I want the deduction now. I want my money now. I want all of that now.” You’re not wrong. And that’s really hard to overcome. But again, like you were saying, if we think rates are going to go up, then the deduction now is not that great, maybe we contribute to a Roth instead, or something like that. Because I’d rather pay tax today at 24%, than in the future at 37% or 39.6, or whatever it’s going to be. But I also have to mentally get over the hump of, “I want to pay taxes right now,” which is-

John: Candace, you’re telling me to voluntarily, proactively make a decision that is going to increase my taxes that I have to pay when I file these, it is very counterintuitive. I think the confusing thing for people related to retirement accounts is you’re not saving those tax dollars. It’s the wrong terminology. And I think that’s thrown people off. You are deferring. And we use those two words interchangeably, but they’re not the same.

Candace: They’re not.

John: Theoretically, if your rate never changed, and you deferred in a 24% bracket and then down the road in retirement, 30 years later you took out that money and you paid 24% taxes, because somehow magically your rate had never changed, it wouldn’t have mattered if you did a Roth, or a traditional. It would’ve been identical. So all you’re asking yourself is, do I think today’s rate is higher or lower than what I think it will be down the road? Which obviously is an unknown, and there are a lot of variables. But that’s where you just play the game of saying, “Well, if I’m in 32,” and for me, I look at that from 24% to 32, as the jump for a lot of people.

Once you’re in 32 or higher, you go, “You know what? It’s probably reasonable to think in retirement we can get this out at less than 32. We might not be able to, but that’s probably worth deferring.” At 24, or 22, or certainly 12, I see people deferring into a retirement account in a 12% bracket. I’m like, “When are you taking this out in retirement at less than 12%? When is that ever going to happen? Put it in the Roth, take your medicine today, and you’re going to almost certainly be better off down the road.”

But do you think that 24 to 32% jump is at least a nice general rule for listeners to plan for?

Candace: Yeah, absolutely. I’d have been the same. And I think it’s, what is there, a 22% as well. The way the brackets fall right now, where rates are, that 24% to me, is a mental cliff to me of just, this is very different than 32%.

John: I agree.

Candace: And just a much higher spread on what you can probably get. And like you said, it’s not just what do we think rates are going to be in the future, or what’s my income going to be in the future. Because when I’m in retirement, the rated might be way higher, but my income is going to be a lot lower, assuming you’re accounting for what your required distributions are going to be. And you have a lot more wiggle room to make your rate lower, even if the overall tax rates are higher.

John: Yeah, it would be very clear too if your employer offers a match that will still be granted, even if you’re contributing on the Roth side of your 401(k). Sometimes that throws people off thinking, “Well, I want the match.” No, you’ll still get the match, un regardless.

Candace: Right. You’ll still get that. And you should definitely take all of that, yes. The first line of defense, make sure we’re getting all the free money we can get. But then, what buckets do we want it to end up in, is the bigger piece.

John: All right. I want to talk about something really niche, to end. We’ve talked about a lot of general things, like standard deduction. But let’s talk qualified opportunity zones and the deferral coming to you. There’s only going to be a fragment of people, a sliver of people listening right now that are like, “Oh, I want to know about this. I’ve read about this. Or I’m involved in this.”

Can you speak a little bit to opportunity zones?

Candace: Well, for those specific people, I’m hoping they know who they are, because they’ve participated it in before. But this is one of those things where it could be a really big number, and they essentially deferred a capital gain that they had at some point in the past. That deferral, just like you were talking about the retirement accounts, that wasn’t an exclusion, that was a deferral, I’m just kicking the can down the road, well that comes due in 2026. And so if you have not yet sold the replacement property, so say I deferred a gain, I bought something else, and I’ve already sold that. Well, you already recognized the gain, so you don’t apply here. If you have not, you’re still holding that replacement property, that tax is going to come due in 2026.

John: Let’s talk two tax changes that impact more people, as we wrap this up, Candace. How about the child tax credit amount?

Candace: The child tax credit right now is $2,000 per kid, and that has changed a few times over the last couple of years. At some point it was prepaid, which confused everybody.

John: Yeah, I’ve got seven kids, Candace. Come on, give me some good news here.

Candace: I don’t know if that’s going to be good news, because the income limits changed for it as well. I think that’s one that it will interest to see, again, psychologically how that plays out, because it’s taken into account when you do withholding.

So we get to 2026, that credit, let’s just pretend that goes away, the withholding charts that your employer are using, will actually change as well. So that one you will see your paycheck change quickly if that goes away. How if affects each taxpayer again, is going to be different. But it’s been expanded and that one will hurt, I think, a lot of people when it lapses.

John: How about QBI? Let’s talk corporate tax rates. What’s going on with that in 2026?

Candace: So we’re talking about all this stuff that was put in place in 2018, and was always going to lapse at the end of 2025, assuming congress doesn’t agree on something else. The exception to that is the corporate tax rate, which was changed to a flat 21% and that was permanent. So that part isn’t changing.

John: That’s important to note, yeah.

Candace: Unless they decide to change it. But that’s the only thing.

John: It’s permanent until they make it not permanent.

Candace: Yes, as is everything in tax law. So that’s for corporations. The parity for that was for flow-through entities, there was a new deduction called Qualified Business Income Deduction. We’re five, six years into it. So to us, that seems kind of normal now, but that was just a newly invented deduction in 2018. And that part would also lapse, so there wouldn’t be parity between the corporate rate and the pass-through income, ultimate tax rate again.

That’s another thing that we can plan around. Actually, this is one I really, really stress with taxpayers to look at every single year anyway, because there are limitations based on the wages that they pay, or the income that they have, or the fixed assets that they own. There’s a lot of planning around that. And that one, if it actually lapses, would have a huge impact on a lot of small business owners.

John: Thank you so much for joining me here on Rethink Your Money, Candace.

Candace: Yeah, thanks for having me.

John: A couple of weeks back, a bettor laid down $5 and won nearly 500 grand, as Christian McCaffrey, the 49ers running back had a TD and finished a 14-leg parlay. Now, for those of you who are not sports gamblers, a parlay means that you hit on every single one of your bets. They’re all combined. If even one of them misses, you make nothing. The odds, certainly on a 14-legger, are astronomical. In fact, in this case it was about 100,000 to one odds.

This gambler went into the 49ers Monday night football match up, having already gotten touchdowns from Najee Harris, Gabriel Davis, Jahmyr Gibbs, DK Metcalf, Jerome Ford, Chris Rodriguez Jr., Jonathan Taylor, Calvin Ridley, James Conner, Raheem Mostert, Javonte Williams, Isiah Pacheco and D’Andre Swift. Now, for someone like me who is pretty risk-averse, I would’ve gone on and found a bet that Christian McCaffrey would not score a touchdown. And I would’ve put like a $100,000 just to hedge. Just to make sure that no matter what, I made a $100,000.

This person, they’re not worried about it. They’re like, “Let it ride. Let’s go. Come on Christian McCaffrey.” When McCaffrey scored, that $5 bet into $489,378 and the all-important one cent. Now, this started a conversation with my family over holiday saying, “Isn’t it worth it? Why not bet $5 for the chance to win a half a million?” It’s the same concept of why not play the Lottery. It’s not that much money if you lose it, and if you happen to win, you’re set for life.

If you’re maxing out your 401(k), and your financial plan works, and you want to spend $20 a month on lottery tickets and scratch-offs and crazy 14-leg parlays, go for it. It’s entertainment. It’s no different than a movie. But if you’re taking these 100,000 to one odd bets, spending a $100 a week without an emergency fund, without a financial plan, without anything, or a little safer retirement, then no. You’re an idiot. Of course, don’t do that.

So how does this apply to your personal finances. There will always be an outlier who gets rich quick. But here’s the key. It’s not repeatable. We understand this with a 14-leg parlay on NFL games. But often when it comes to the stock market, we believe that a level of skill or expertise or knowledge will provide out sized returns. It’s simply just not the case when you look at data and when you look at history.

Look at the rise and fall of ARKK investments. Cathie Wood’s incredibly popular flagship fund. Went through the roof and then came crashing back down. And unfortunately, as we know, a fund flows from the top managers. Most of the money raised came in after the huge returns, which is what attracted new investors who had FOMO, only to unfortunately get their money in too late. And there are plenty of examples of this. The Magellan Fund at Fidelity, just absolutely crushed it with Peter Lynch for a couple of decades. And came back to Earth. And the list goes on and on.

Think about this. If Warren Buffett in 1999 knocked on your door. “Oh. Hey, Mr. Buffett. What are you doing here?” And he said, “It’s your lucky day. I’m going to invest your money for you. Get rid of your financial advisor. You’ve got me now.” Any rational person would say this is the greatest gift imaginable. One of the most respected investors of all time, as of today worth nearly a $100 billion, is offering to invest my personal hard-earned money.

Do you know what the downside is? From 1999 to 2020, over the couple of decades, Warren Buffett trailed the S&P 500 by trailing 5 year, 10 year, and 15 year periods. That’s not to take anything away from Warren Buffett. He’s a legend. Incredibly brilliant. But if you’d given him capital in 1999, and you checked back in on your accounts 20 years later, you unfortunately would’ve concluded that you would have made more money closing the front door on Warren Buffett’s face, putting it in an S&P 500 index fund, for essentially zero expenses.

And maybe this is why Buffett has famously prescribed that 90% of his fortune to be allocated to index funds when he’s gone, and the remaining 10% in US treasuries. He has been on the record as saying, really hard to accomplish what he did in the ’70s and ’80s here in in 2023. There’s no longer an informational advantage. The kid in his parents’ garage in Malaysia, has access to the exact same information as the top analysts on Wall Street have.

Think of it this way. Michigan, here in the college football playoff final, their home stadium in Ann Arbor, is called The Big House. It seats over a 100,000 fans. Now, let’s assume that on one of these Wolverine home game days, the PA announcer said, “Everyone, rise to your feet.” No, not for the national anthem, to flip pennies. And every single person in the stadium flipped a penny. And the instructions were, “If your coin lands on tails, sit back down in your seat. If it lands on heads, stay standing.”

Well, after 15 flips, would it surprise you if one person in The Big House were still standing? They’d been able to flip heads 15 straight times? It wouldn’t surprise me, when considering the law of large numbers, you had a 100,000 people to start with. It’s not that crazy that one person would flip heads 15 straight times.

Now, it would be incredibly improbable for any single person to have been identifies in advance. And I don’t think any of us, if they were to replay the game, that we’d put our life savings on that single person, to again flip heads 15 straight times. Somebody maybe would, but it’d be about 1 in 100,000 that it would be that person again.

You see, when there are billions of people, it’s inevitable that a handful will produce crazy, huge, outlandish market returns. But that’s why those managers ebb and flow. And if anywhere in your head you feel like the answer to financial success is hitting the home run and getting rich quickly, well that’s an idea you certainly want to rethink.

I met with a prospective client in December and as we were building out their financial plan, I asked about life insurance. And he said, “Oh, I’ve got enough for end-of-life and covering the funeral cost.” And I said, “Well, that’s great. But what about to replace your income. You’re only 50. You’re not planning to retire for 15 to 17 more years. You’re the primary breadwinner. You have enough to pay for your funeral. I mean, I hope that doesn’t happen for 40 or 50 more years.”

And so the common wisdom that you need life insurance just to cover your final expenses, that is definitely one that we need to rethink. Generally, the best use cases for life insurance is to replace income, pay off debt, cover child care cost, pay for kids or grandkids college education. For estate planning purposes, if you’re in a scenario where you may owe some estate taxes and don’t want your beneficiaries to have to liquidate, illiquid investments like a business or real estate, as well as to fund buy-sell agreements. So it’s important to note, how much life insurance you need, should be dictated by your financial plan.

There are plenty of scenarios where you may need zero life insurance. There’s no insurable risk on your life any longer. And a great certified financial planner can help you determine exactly how much life insurance you need to protect those whom you love.

In fact, here at Creative Planning, during the financial planning process, we will provide for you an insurance needs analysis so that you don’t have to wonder, “Do I have too much life insurance? Am I severely under-insured?” Remember, risk management is a central component to a well-built financial plan. And my suggestion, do not go and ask an insurance salesperson if you need insurance. Because that analysis often is going to say, “Oh, yeah. You need a lot of insurance. Here’s a great whole life policy that will pay me an enormous commission if you buy it.”

Don’t do that. Go see an independent credentialed fiduciary, and if you’re not sure where to turn and you’d like our help, visit creativeplanning.com/radio, or call 1-800-creative right now to speak with a wealth manager, just like myself. Again, that’s creativeplanning.com/radio, or by calling 1-800-creative.

The next piece of common wisdom that I’d like to rethink together, is that technology kills jobs. No, technology and innovation does not kill jobs, they expand them. Creative Planning President, Peter Mallouk, wrote in his most recent book, Money Simplified, that technology has given us more options, improving our quality of life and delivering it to us at a lower cost.

If we look at the computational power of a $1,000 and we look at where we were a 100 years ago, we’ve gone from the analytical engine, to the Macintosh, to the Dell Pentium PC, to the iPhone, to the PlayStation. We’re borderline on a place where AI and technology are smarter than the computational power of the human brain. And that’s an advancement that will happen in our lifetime.

And I have posted an interesting chart to the radio page of our website, if you’d like to view it, showing the US unemployment rate, as well as a line showing the average unemployment rate, and mixed in the invention of the light bulb, telephone, automobile, aircraft, radios, televisions, VHS, cell phones, Amazon, and all sorts of other weigh points throughout history. And what you’ll notice about the chart is the lack of correlation between unemployment and these advancements of technology.

In fact, when you look at it from a GDP per capita standpoint, technology has not only not killed jobs, it has improved dramatically our quality of life.

I have a new segment for you, that will be running each week here in 2024. We’ll see how it goes. Maybe we’ll continue it in 2025 as well. But it’s centered around the idea of one simple task. So often you hear a sermon at church, or an interesting TED Talk, maybe it’s a radio show like mine. And in the end you think to yourself, “Yeah, there’s a lot of great information. But I don’t know, it was 30 minutes and I’m trying to pull away one or two things that practically I can benefit from.”

So, as mentioned, over the course of this year, I’m going to be giving you one simple task to complete each week. Now, it’s going to be a simple task, I promise, that you can accomplish quickly, and that will help you improve your finances and your money habits. The goal here is that you enter 2025 being able to proudly say that you’ve completed 52 things to improve your finances. And if you follow each of these, I promise you, you will be in a better financial situation.

Your one simple task for today’s show, meet your employer match on your 401(k). Talk to HR, log into your HR portal, depending on the size of your company and the structure of your plan, confirm what employer match is and exactly how much you need to contribute to receive all of it. There’s no other spot where you can earn a guaranteed 100% return on your investment, as you can with an employer match. Do not leave that free money on the table. Accomplish this one simple task, and next week I’ll have a brand new simple task for you to accomplish.

It’s time for listener questions, and as always, even in a new year, we have one of our producers, Lauren, here to read the questions. Happy New Year, Lauren. Who do we have up first?

Lauren Newman: Hi John. Happy New Year.

Our first question is from Chad in Laguna Hills, California. He says, “Our homeowner’s insurance seems to be skyrocketing, year over year. And my wife and I are looking into potential options. What are your thoughts on self insuring? I’ve read a little about this on some other financial sites. Any advice on the best options if we don’t want to keep paying an arm and a leg?”

John: To answer this question, Chad, think worst case. And I’ll expand in a moment. But it is not advised that you self-insure. But you are correct. Premiums have absolutely skyrocketed, in particular in places like California and Florida and a few other states. We own a property in San Diego, and it wasn’t easy finding a carrier that would even insure it. And when I did, it wasn’t cheap, so I feel your pain there.

Essentially carriers have sustained heavy losses in recent years, and so a lot of them have just completely pulled out of high-risk states. And the remaining insurers in those states, don’t have as much as competition. And they are charging high premiums, often with limited coverage.

But even if your personal balance sheet is in good shape, and I know nothing about your situation, Chad, but let’s say you have a $5 million net worth, and your home is $1 million, to rebuild that entire home would still drain 20% of your portfolio. Or let’s suppose that you are someone with a $1 million net worth and a $500,000 house. A total loss would eat up half of your retirement savings. Not to mention the fact that you may have to pull that 500 grand from a tax deferred retirement account, which is most Americans have saved their money, meaning it would blast you through various tax brackets into one of the top tax brackets.

According to Verisk Analytics, the average annual losses could reach $133 billion for insurance carriers on homeowner’s insurance. And we did see something similar with long-term carrier insurance, which is why so many carriers had to completely pull out of that business altogether.

In North America, about 51% of the economic loss from natural disasters is covered by insurers. So from individual homeowners, all the way to the insurance giants, it’s a challenge managing these expanding risks that seems to be growing each year. But another reason I would not advise self-insuring, is that home insurance often extends to relatives who live at home, such as your children, who can cause… Trust me, I’ve got plenty of them, property damage or bodily injury. And if you’re sued over an accident, liability coverage helps pay for lawyers and settlements that may be against you.

So self-insuring against a total loss is one of the components, but having coverage to protect litigation is an important one as well. For higher net worth individuals who often buy umbrella policies, for added liability protection, with most carriers you can’t own an umbrella policy without having it attached to an underlying homeowner’s policy.

And so even often what would be considered minor components of a homeowner’s policy, can produce real value in the event a total loss occurs. Imagine truly sifting through the rubble of your home, looking around going, “Well, I have to rebuild this entire thing, all out of pocket.

And on a side note, of course, if there’s a mortgage on the property, none of this conversation matters, because lenders require you to provide proof of homeowner’s insurance to protect their collateral. So while I understand you do not want to burn money each year on homeowner’s premiums, I highly recommend you maintain your policy. Sorry, if that wasn’t the answer you want to hear. But it’s far too risky to not have coverage.

All right, Lauren, who’s next?

Lauren: Mike from Wisconsin says, “I’m considering Roth conversions as part of my retirement strategy, but I’m unsure about the optimal timing. When is the best time or situation to consider Roth conversions and how can it benefit my overall plan? Can I initiate a Roth conversion before reaching age 59 and a half? And if so, what are the considerations and potential implications? How might the changing tax landscape impact the decision to contribute to or convert to a Roth IRA in the coming years?”

John: Good question. So when can or should you convert to a Roth? You can convert at any time and there are no income restrictions or age restrictions. The answer of should you Roth convert, obviously should be done within the context of an individualized financial plan, but in short, you Roth convert when you believe your current tax rate is lower today than what your future one will be.

Because remember, in a traditional IRA, you’re not eliminating tax. It feels like you are when you make that contribution and your CPA says, “Hey, great job. That 10 grand in your retirement plan, that just saved you $2,400 on your taxes, because you’re in a 24% tax bracket.” And it’s totally wrong. Uh, incorrect. You didn’t save $2,400 on your taxes. You simply deferred that $10,000 of income with down the road, the assumption being that when you finally withdraw that $10,000 you’ll be in a lower tax bracket than 24%, thus paying less than $2,400 in taxes.

The only thing you potentially save by deferring money, is whatever that difference is. The question on whether you can convert pre-59 and a half, yes you can. And many do. But there’s one major consideration that I’ve seen trip people up, and I do not want you to miss this. You must pay the tax owed from another account. You cannot withhold from the Roth conversion itself if you’re under 59 and a half. Or I mean you can, but you’ll be forced to pay a 10% early withdrawal penalty on that portion being sent to pay the taxes.

Let me give you an example. You think you’re in a low bracket today, because maybe your business didn’t have a great year, or you took an early retirement and so you’re in your late 50s, you haven’t turned on social security yet. Your taxable income is really low. And you think to yourself, “I’m going to do a Roth conversion.” So you convert a $100,000. Or let’s suppose you’re in a 22% tax bracket. You’re going to owe $22,000 in federal taxes.

So if you’re under 59 and a half, you need to have 22 grand outside of retirement accounts to send to the IRS to pay your tax bill. And even if you’re over 59 and a half, you’d still prefer to pay the taxes owed with outside moneys, because Roth accounts are the golden goose. The goal is to get as much money into the Roth as possible, because it’s a ghost moving forward. No tax on growth, no tax on distributions. No required minimum distributions once you’re in your 70s. And it passes to your heirs tax free.

And to answer, with tax rates going up in 2025, are Roths even worth it, if you believe taxes are going up and you think your income will either be similar or possibly even higher as well, well, then that’s the very reason you would convert here in 2024 and next year in 2025. To be clear, they sunset at the end of 2025, so beginning of 2026. So there’s still two more years of what will likely be the lowest tax rates you or I will ever see. The expected tax rate increases are why you’ve likely heard more about Roths than you ever have in your life.

As a wealth management firm, and certainly for me as a certified financial planner, I have had more conversations, received more questions from clients, pertaining to Roth accounts, since the tax cuts and jobs act lowered tax rates in 2018. And it’s for good reason. A lot of people are picking their head up, asking themselves why they’re deferring rather than paying the tax today, at what is historically extremely low rates.

If you have not discussed Roth conversions with your financial advisor, if you’ve not made a Roth conversion, if your CPA and your financial advisor do not discuss your plan proactively together, you haven’t had a tax projection run for you in the last 12 months, you haven’t had your tax return reviewed by your financial advisor in the last 12 months, and you’d like to ensure that you’re not missing anything, that you’re not paying the IRS one penny more than legally requires, then reach out to us now. Here at Creative Planning, we’ve been helping families for 40 years. We’re a law firm with over 70 attorneys, a tax practice with over 100 CPAs, over 300 certified financial planners. We help clients in all 50 states in over 75 countries around the world, as we manage or advise on a combined $245 billion.

Meet with a local wealth manager, just like myself, by visiting creativeplanning.com/radio or by calling 1-800-creative. Why not give your wealth a second look as there is no cost and no obligation to become a client. Our mission is simple. How do we help provide clarity and empower you to make wise financial moves, with the moneys that you’ve a life time to save? One more time. That’s creativeplanning.com/radio to speak with an independent credentialed fiduciary.

For Christmas, my wife and I gifted our 20-year old, Shay, two different books. My favorite personal finance book, The Psychology of Money, by Morgan Housel. And another book from James Clear titled, Atomic Habits. New York Times bestseller. You’ve probably heard of it. And I’m really proud of Shay. Coming to America from Ethiopia as a 10-year old, learning English, a million other things that were easy for other 10-year olds. And he loves learning. I’m proud of him.

And those are two great books. If you’re looking to gift your teenagers or young adults helpful books, I think those are two fantastic reads. In Atomic Habits, Clear suggests that the difference between not saving and saving money, might sometimes be as simple as a mindset shift. A shift in our perspective and our thinking is really powerful. And by doing so, you can make hard habits more attractive, especially if you associate them with a positive experience.

Here are a handful of tips that Atomic Habits can teach you about managing your finances. And I’ll leave you with this to close out today’s show. Be patient. Setting up a budget and starting to take a closer look at your finances, can be overwhelming. But Atomic Habits highlights this 1% rule. And the idea is that, if you get better at something by just 1% per day, every single day, and that compounds. Remember, it’s growing exponentially, not linear, that results in an improvement of 37 times over the course of just one single year. Don’t worry about getting there immediately. Just focus on small, incremental progress.

Next, Clear focuses on financial systems, not financial goals. So when considering what you would like to accomplish financially, start by looking at your current situation, then where you want to be, and then develop a good system that will probably include components of a budget, an investment strategy, certainly a written, documented, as I talk about each week, financial plan. Probably a good financial advisor to help you develop that system and to hold you accountable. Having a goal, this whimsical idea, it’s a wish. It’s not a game plan. And so the structure you build around that, will be critical to your achievement.

Next, track your progress. So once that system’s in place, what gets measured, gets improved. You’re also going to have to embrace complete and utter boredom. Clear said in the book, the only way to become excellent, is to be endlessly fascinated by doing the same thing over and over. You have to fall in love with boredom. I tell my clients often, what I’m doing with you, shouldn’t be exciting. You don’t want to get home from the doctor and your spouse says, “How was it?” You go, “Oh, it’s crazy. It was nuts. So exciting.” No. You want to say, “It was uneventful.” And that’s what you want when it comes to your finances. Doing the right thing, the same way, day in and day out.

Next, make your habits obvious, attractive, easy and satisfying. If you want to make a new habit stick, it needs to meet this four criteria. So making a habit obvious, means you might a reminder or a cue, with a magnet to your fridge. Or something written on your bathroom mirror. Front and center. It also needs to be attractive. We’re humans. We don’t like pain. So if you’re trying to save money, do it in a way that doesn’t feel like you’re depriving yourself. Or you will not do it over the long-term, because it’s not attractive. It needs to be easy. We live busy lives. The more friction, the less likely to stick to it.

This is why I’m a huge advocate of automating all savings. If you’re still dropping a check that you write in the offering plate at your church as it goes around, rather than giving online, you’re probably not going to give as much. It takes effort. It takes work. It doesn’t mean you don’t want to, it means you’re a human. Make it easy, according to Clear, and satisfying. This is where you get to see the results of your hard work. You need to enjoy, periodically, the fruits of your labor. Along the way, you have to celebrate your successes, no matter how small they may seem. And that’s actually part of the key. Celebrate the very small wins.

And then lastly, stay motivated with the Goldilocks rule. In Atomic Habits, Clear describes the Goldilocks rule for staying motivated, as finding the right amount of pleasure and pain. What this means is, if you create a budget and you say, “I’m not going to take a vacation for 29 years, but man, look at how much I’ll have saved for retirement,” you’re probably not going to stick to it. There must be some level of balance between today and the future. And finding that happy medium is critical for you to be able to enjoy life and also be mindful about your long-term financial future.

So as you kick of 2024, may you apply these principles beyond just your money, so that this can be one of the most fulfilling years of your entire life. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.

Announcer:        Thank you for listening to Rethink Your Money presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on this show, go to creativeplanning.com/radio. And to make sure you never miss an episode, you can subscribe to Rethink Your Money, wherever you get your podcast.

Disclaimer:          The proceeding program is furnished by Creative Planning, an SEC registered investment advisory firm that manages or advises on a combined $245 billion in assets, as of July 1st, 2023. John Hagensen works for Creative Planning and all opinions expressed by John or his guests, are solely their own and do not represent the opinion of Creative Planning or the station.

This commentary is provided for general information purposes only and should not be construed as investment, tax, or legal advice, and does not constitute an attorney-client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable, but is not guaranteed.

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