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RETHINK YOUR MONEY

Is Your Financial Plan Incomplete?

Published on January 15, 2024

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

A complete financial plan is the road map for all your financial decisions and informs the actions you take today to help achieve your future financial goals. But if that plan is incomplete, your financial security is at risk. Join John as he guides you through the critical components of a financial plan so that you can find out what you may be missing. (Hint: A financial plan is more than just investments and taxes.)

Episodes 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: Welcome to the Rethink Your Money Podcast, presented by Creative Planning. I’m John Higginson. And ahead on today’s show, the script for a complete financial plan. Why avoiding risk may not be less risky after all, and the criteria for who to listen to when seeking financial advice. Now, join me as I help you rethink your money.

Now, there are times in life where good enough just simply isn’t enough. Now I recall when my wife Brittany and I first got married, we had absolutely no money. And every piece of furniture that she bought came in about 4,000 pieces and put a set of instructions that were as thick as the Bible with that little free Allen wrench that they give you trying to make sense of the pictures to get this thing built. And I remember telling her one of my biggest financial goals is not retirement, it’s not to have a vacation house, it’s not to drive a nice car or pay for the kids’ college. I just want to be able to afford furniture that doesn’t come in a million pieces from China. That’s really what my goal is here.

And if you’re wondering the conclusion of that, some of our furniture comes assembled now, but I still occasionally am building furniture, so I haven’t quite made it. It’s great to have things to continue to shoot for financially. You probably have some as well.

A while back, here at Creative Planning we had our annual Connect23 big conference in Kansas. For one of the days it said, “Dress smart casual” on the invite. And that’s another one of those where you’re like, “Hey, can I get a little more info? Because I don’t want to show up looking like Lloyd Christmas in his orange suit at the Snow Owl Gala in Dumb and Dumber. So is this jeans and loafers? Is this a sport coat? Maybe a polo shirt? Can I get a little more info because good enough, again, is just not enough, giving me this smart casual description.”

And good enough is certainly not enough when it comes to your entire life savings. But I think so often if you’re like most people, you don’t know what should you be looking for. What is a complete financial plan? No one wants their plan to be incomplete, missing pieces, missing instructions. But how do you ensure that you’re on track? And I want to be clear, this is not me saying that all roads lead to Creative Planning, but I want to provide you the detailed instructions, the exact steps that you should expect from a real financial advisor, as I refer to them. Not a salesperson masquerading as an advisor. A legit, valuable, credentialed financial advisor who can build you this complete financial plan.

And before I unpack these, let me remind you what should not be a step in the planning process or a priority within your plan. And that is expecting forecasts, predictions, none of that has value within the planning process. And I bring this up because a very common question I receive in a first appointment with a prospective client relates to, “What do you think the market’s going to do this year?” Or some variation of that question. And of course I answer it by saying, “I have absolutely no idea,” and then I just pause and I’m quiet. It gets a little awkward because they’re like, “Okay, why is this guy not answering me?” And my point is that if you’re looking for that from me, you’re never going to get it. But you also shouldn’t be expecting that from anyone because what you’re asking for is not only irrelevant but impossible for anyone to answer with any degree of certainty.

I mean, look at the housing market predictions from a year ago. Housing and economic researchers were largely aligned in their predictions. There was going to be a looming recession. Some economists even said 100% chance of a recession. But 12 months later, wow, it’s weird. This recession, it’s taken a long time to arrive. I’m not saying it won’t ever come, it will because the economy expands and contracts. It’s very normal. Recessions are part of the cycle, but good luck figuring out when they will occur. So that’s my quick interlude to ensuring that nothing about your financial plan, the process, the conversation with your advisor should center ever around what either of you think or even other smart people that you’ve read or that tweet are saying about their expectations for the future. They’re almost always wrong. And if they were right, it was because they got lucky.

Here are the seven steps in a complete financial planning process. First, you’ll have your initial visit. In that visit, your advisor will typically, as I do, outline this process that I’m about to share with you so you know what to expect. And also you are able to share what you’d like to accomplish and how you think that advisor might be able to help you. Here at Creative Planning, we do tens of thousands of tax returns every year and have well over a hundred CPAs, over 70 attorneys, and are our largest estate planning law firm as well as a trust company along with countless other services in addition to financial planning and wealth management and investment management. But this first visit is where you are able to understand what are the things that you can help me with. And it’s a good time for you to also assess, “Are there areas of expertise, things that I care about? Are these priorities to me, what they’re good at and who they help? Are they people like me?”

I would be asking in that first meeting a very important question, “Do you make commissions on annuity sales? Like, how are you paid? Are there any conflicts of interest?” So that’s the first meeting.

Second step, now the financial planning process begins, and the entire key is understanding your current situation. So once you’ve agreed to the scope of the financial planning engagement, this is where you want to gather all the information related to your current finances and your overall personal circumstances. You may discuss things in this visit like risk tolerance and exposure to longevity, how secure is your job and healthcare risks and whatever else, but this is a time where your financial planner should be getting to know all about you.

Let me be clear. If you receive in this visit recommendations or certainly product or strategy pitches in the second visit, prior to you providing all of your financial information and prior to a financial plan being built out like a written documented, a detailed financial plan being built out, do not walk in the other direction out of that advisor’s office. Run. This should be all about figuring out like at the mall like you are here, how do you know directionally how to improve your existing situation if there’s not consensus and a firm grasp on exactly where in fact you are?

Step three out of seven, setting your goals. And I’m not talking about whimsical ideas and hopes and dreams. I mean those are fine too, but what I’m referencing is the fact that you are unique. I mean, I’ve met with clients over the last month who want to pay 100% of their kids’ college and others who say, “I didn’t get any help with it. I want my kids to take out loans and scholarships and I’m not going to pay a penny. I’ve got others who want everything to go to charities and others who don’t want a single penny to go to a charity.” Or they want to spend 100% of their assets by the day they die. Someone retire at 50, others never want to retire. That sounds boring to them.

So your plan must be unique to your priorities and objectives. But the key takeaway related to setting your goals is that every single dollar within a financial plan should have a stated purpose. Money’s a tool. And so you need to understand first of all way before you determine the investment strategy, “What am I even trying to do with this money?”

Steps four and five really depend on the quality of your advisor and the firm that you’re working with because those involve analyzing your financial strengths and vulnerabilities and developing and communicating all of the financial planning recommendations. We have a visit here at Creative Planning called the Recommendations Meeting. It’s after your entire written documented financial plan has been built out. We then move from there and say, “Let’s look at every single category of your plan.” In detail, analyze your situation and we’ll get back together and share with you exactly where we think you’re strong, where you’re weak, and what adjustments potentially could be made to better align with those priorities that we have discussed together.

The sixth step in a complete financial plan is putting that plan into action. It’s great to have all of that information and understand exactly where you sit and what adjustments need to be made to improve your situation, but obviously it has absolutely zero value if nothing is implemented. And if you are being helped by a firm like us at Creative Planning that are independent fiduciaries, we put that plan into action without any upfront retainer costs, without any upfront commissions, but rather an approach that says, “Let’s get started.” If your accounts grow, we make more money. If your accounts decrease in value, we make less money and you can fire us at any time along the way. And there are no long-term contracts or lockups or backend charges to our investment fees. Work with us as long as we are providing value.

And that is the final and seventh step, is to monitor performance and expect a collaborative approach. Your job is not complete and over once the financial plan is built out and the initial recommendations are implemented, because as you and I both know, life is ever-changing. And so not only will your objectives and your concerns change along the way, but your situation and the external circumstances such as tax laws will inevitably adjust along the way and you will need a plan and a relationship that provides ongoing support and guidance and education so that you can feel confident that your plan works for not a year ago or four years ago, but for right now.

Now I know I went through a lot there, seven different steps to a complete financial plan, but let me end this with one easy to answer question. Do you currently have a written, documented, detailed, dynamic financial plan that was put together by a certified financial planner not charging commissions, not receiving third party kickbacks, but an independent advisor working directly for you? If you don’t have that detailed financial plan and you want one, request to meet with a local wealth manager like myself by visiting creativeplanning.com/radio or by calling 1-800-CREATIVE.

My special guest today is Creative Planning managing director in our Omaha office, certified financial planner professional and 2023 Barron’s Top 100 Independent Financial Advisor, Ryan Swartz. Ryan, thank you so much for joining me here on Rethink Your Money.

Ryan Swartz: I’m so glad to be here. Thanks for having me, John.

John: We’re sitting here in January. We just turned the page on 2023. As you reflect on this past year, what stands out to you, Ryan?

Ryan: In a lot of ways, it was a big rebound for a lot of people coming out of 2022 with a lot of uncertainty. The market’s really finishing the first calendar year close to a bear market in some time and people don’t really remember what that feels like, and then you move forward into really what a bear market is in a languishing comeback or it takes a very long time to do that. We saw a traditional snapback. Markets don’t typically move at five or 6% a year, but they tend to do rubber band effects. There’s still a lot of uncertainty as we go into the year, but generally, it was a really good year for people to see that bounce back after a pretty discouraging year in 2022.

John: Thankfully, 2023 was a reminder that these things do pass given enough time. So we’re in an election year. I know nobody knew that, right? But I’m just reminding you, it’s an election year. So we’re going to see the political yard signs and the bumper sticker and the primary debates with 68 people on the stage all yelling over the top of one another. So we know we can expect that, Ryan, but what do you think from an investor standpoint they can expect in 2024?

Ryan: Well, I think a lot of investors do put a lot of weight on politics, and an election year as a banner for that.

John: Sure.

Ryan: It becomes polarizing through the year. The market really doesn’t care a lot in the long run about who’s in the executive branch. Since 1964, the S&P 500 in the 12 months leading up to an election has averaged 8.4%. And the 12 months after that election, it’s averaged a little better, about 9.3%. But generally over time since 1964, the S&P 500 has done 8% a year. So I think it might surprise a lot of people to know that in an election year leading up and after, the market actually does a fair amount better at least in recent history. And I know that sounds counterintuitive, but if you look at what markets do after bear markets over time, the higher expected returns come with the silver lining of the pullback that’s there.

We don’t know when that happens, but we know that over time it’s been inevitable and it’s been 100% of the time where the market has gone on eventually to higher highs. And so for that investor that doesn’t really look at those environments with fear but they look at that more as a strategy, and that’s one of the benefits obviously working close with our clients, is they know that their income is set aside for their needs in the short and intermediate terms, we can actually take advantage of those pullbacks like we saw in 2022 and reap the benefits faster to speed up the breakeven rate by buying more into those diversified stocks as the market continues to improve. And that really sets the investor up over cycles for a lot more success where they’re having more predictable outcomes. And eventually, it’ll make sense to replenish that safe pool of assets. And maybe by then interest rates are up five to six times what they were two years ago.

John: I think so often people see bonds or whatever safe vehicle they’re using as a drag on the overall performance. And in a vacuum, that may be true, but you have to approach your plan in a way that acknowledges there are going to be periods of time where your stocks are down in value. And if it’s a period of time where you need income from the portfolio, your overall return will actually be improved by not needing to interrupt compound interest unnecessarily as the late Great Charlie Munger once said by having some of those safe assets.

I’m speaking with 2023 Barron’s Top 100 Independent Advisor, Ryan Schwartz. Proud to say you are one of seven, here at Creative Planning, Ryan, that made that list, which is pretty awesome. And you’re meeting with clients in real life, and so it’s great to hear some of your experiences that aren’t hypotheticals. They’re happening in the real world. I want to transition over to those conversations centering on resolutions. We know that health and wealth are the big New Year’s resolutions. You go into the gym in March and it’s only half full already because we’re humans and I’m grabbing waffle fries from the bag on the way home in the car from Chick-fil-A, and it’s not at all what I had planned at the beginning of the year. Ryan, what do you think people can do, first off, to set realistic expectations? And the second part of this question, what financial resolutions do you think are meaningful for people to even be pursuing?

Ryan: I think it’s a great opportunity. And it is cliche the first of the year starting here in January, and everybody wants to have good intentions about what they’re going to do with their livelihood, whether it’s health or wellness, whatever it may be. But with finance, it can be a topic that you and I discuss this every day. It’s not in the normal wheelhouse for most people. And I think to have success in this, it’s taking small bites and picking two to three things that you can take action on and move toward meeting those expectations for the year. Once you have that traction and success, it really does allow you to continue to build on that year over year and have a high likelihood of taking clear and simple resolutions that have a chance to towards sustainability and making them habits.

When we look at 2024, some of the areas that I see with clients that can be really actionable right out of the gate, and they don’t take a lot of capital time intensiveness but they have the ability to make a big impact, is number one, I think it’s clearing the slate and establishing a budget. A lot of times you went through the holiday season and you saw a lot of spending and things and you’re trying to keep up and keep things on pace. After the first year, it’s a good time to look back and establish, “Okay, what are we budgeting for? What are our fixed costs and what are things that are maybe more discretionary?” And a big one I see is credit card usage and looking at subscriptions. It’s a good time to go through and actually write down-

John: That’s a great tip.

Ryan: … all of your expenses and do that with a planning partner, whether that’s the advisor or it could be your spouse or your significant other. Establishing that budget and tracking your monthly income expenses can really set you off on the right foot to know that you’re going to be in a process to make things better.

John: That’s a great tip. A really good starting place for those listening who feel a little bit lost on the budget, what are you saving on a monthly basis? How much is going into your retirement plans? What’s going into your brokerage accounts? And then at the end of a quarter, at the end of the year, whatever interval you want to use, do you have more money in your checking account? Do you have higher credit card balances? Are they all paid off? Do you have a surplus now in your checking account? And that’ll give you a little gauge on, “I’m making this. This is what’s being saved. Here’s what’s leftover,” or in some cases unfortunately what’s not leftover, and you start getting a bit of a feel and you can reverse engineer back into what you’re spending.

Ryan: Absolutely. And that’s the key, is part of that budget, I think one of the first four or five items you can add is paying yourself first and how you’re doing that, whether it’s through an employer plan or what you’re taking off the top before everything else. Successful investors do over long periods of time, they save early, they save often, and they find a way to automate it. Just like your Amazon subscription, it’s automated. You don’t miss it because it’s gone and it’s working for you day in day out. The way that you can really impact that is by understanding where all the cash flow’s going.

And you made a great point. We do annual reviews with all of our clients as you know. And in that annual review, we’re going through every balance of their bank accounts, savings and checking. And if it’s somebody that’s actually taking income from their portfolio to sustain a supplement to whatever retirement income that they have, we’re actually looking at what that balance was a year ago, what that balance is today, and what they drew out of the portfolios because we can see that, and what that does is allows for the ability to them to see that, “Oh, I’m a net saver or I am staying on budget,” or, “Maybe I told you I was going to spend 160,000 last year or whatever the number is, but I actually took out 200. Well, why was that? Did we have a project? Something that we were doing there?”

I think that is a big part of the budget, is to have an intentional way to save and pay yourself first where you don’t miss it out of the gate and then look back and see, “Did I actually accomplish that on some kind of repeatable basis, quarterly, annually, semi-annually?”

John: I like your suggestion, the James Clear Atomic Habits approach of saying, “Make these actionable and small so that you can have wins along the way, that over time they aggregate into some great accomplishments.”

As I mentioned earlier, you’re meeting with clients on a regular basis. What are you finding to be productive conversations and how that can apply to a listener who’s not working with us at Creative Planning but has an advisor and says, “I’m tired of the status quo. I want to have more productivity this year. I want to have more improvements in my plan. I want to be proactive”? Maybe you could provide us with some tips for helpful, useful conversations that investors can be having with their advisor here in the first quarter of the year.

Ryan: Yeah, I think it’s a great opportunity to revisit, getting ahead of things so you’re not putting that all at the end of the year. One of the great things about our process is we’re doing the planning early and often. And the best time to trade a portfolio isn’t always in December. And the best time to gift money to your kids may not be at the end of the year. It could be early in the year. And if you do that over many years, there’s more compounding to that or to contribute to a 529 or to maximize your retirement plan. And so-

John: Or maybe the market’s just down in February, right?

Ryan: Right.

John: And so if you’re like, “Oh, we don’t rebalance until the end of the year,” maybe do your Roth conversion in February, the markets are down.

Ryan: Exactly. And it’s a big benefit to be intentional versus being reactive. A good checklist for advisors or to go through is evaluating, one, your financial plan, evaluating if there’s changes to your life or the goals that you have, health, that kind of thing, and making sure that you’re accounting for that in the plan as you go into the new year. Maximizing all the retirement contributions. That’s something you should ideally be doing in the November when you go look at benefits before the year. But if you haven’t done it, making sure you’re maximizing that and making sure there isn’t a rebalancing opportunity.

In our portfolios, we’re looking at that every day. Our traders run submissions throughout the day and they’re looking at the opportunities to trade. But the market has changed significantly over 2023 and up, and so making sure that those asset classes are where they need to be in alignment with your goals. And then checking in on your insurance coverages, whether that’s home, auto, and umbrella, risk management, life insurance and healthcare. Making sure all those needs are assessed. You can do all this work to save and put money together, but if you don’t protect what you have and make sure that something doesn’t derail you, that’s a big issue. And part of that is revisiting estate planning goals and documents.

As we go into 2024 and in 2025, there are some tax laws that are sunsetting, and so it gives you a good opportunity to get ahead of that no matter what your situation is, to know that your estate plan is still relevant, people that you have in place that are going to be your agents are the ones that you want, and making sure that everything is in a good position to hit everything you can control in terms of your financial plan.

The last thing I would say is, if you wanted some more actionable items, one of the things we talk a lot about is protecting some of the easy pieces to check annually. And so, one thing I would encourage people to do is set a calendar item. I have a calendar item every year on my calendar and there’s four things that I do. It’s one is, freecreditcheck.com. Go and check your credit. It’s a quick five-minute thing where you see, “Okay, are there any new lines of credit that I don’t recognize?” If you froze your credit, making sure that that’s still active. Do a quick deed search on any properties that you have to make sure the titling looks good, there’s no misspellings.

And then looking at unclaimed checks. So for family members, www.unclaimed.org, anyone can go there in your particular state and you can look at unclaimed checks that are there. And finally, doing a walkthrough of your house with just a short video with your phone. Looking at contents of the house, everything from your garage to your living room and what you have. That can really help. If something were to happen, you had a loss on some of your property, you would have some timestamp way to verify that. And that’s a short way to knock out four really big things as you start the new year. And then just set that recurring reminder on your calendar to go and do those. That could take maybe 20 minutes all in. It’s a really big impact to setting yourself up to be protected in regards to the new year.

John: I appreciate you sharing those with us. And if someone’s listening and thinking to themselves, “I want to get this done and I want to do it right, but man, that just feels like there’s a lot going on in my life,” that’s why you hire a team, a great team that can help you. And if you’re not sure where to turn, we’re happy to help you at Creative Planning. We have attorneys, CPAs, wealth managers, just like Ryan and myself, and we will proactively quarterback all of these steps on your behalf so that you don’t have to try to come up with all of this on your own. That’s the purpose and the value of hiring a great advisor. And yes, I’m biased, but if you are in the Omaha area and you have not met with Ryan and his team, you may be missing out on a lot of opportunities. Reach out if you’re in that area, creativeplanning.com/radio. Ryan or someone on his team will sit down with you and meet directly. Thanks for joining me and hope you’re having a great first part of the new year, Ryan.

Ryan: Same to you. Happy New Year. We’ll talk to you soon.

John: It wasn’t that long ago that inflation was the dominant conversation when talking about the markets or the economy. And it wasn’t that long prior to that conversation that we didn’t think much about inflation at all for a decade plus. Kind of out of sight, out of mind.

But inflation does to our money what boiling water does to a frog, where if you set them in lukewarm water and slowly turn up the heat to a boil, they’ll sit in there until they’re dead. Which is a great reminder that just because something happens slowly, subtly, progressively over potentially a long period of time, it can still have damaging results, and that is inflation.

Historically, about every 20 to 25 years, your money has to double just to keep up with inflation. Fortunately though, the stock market increases. But what this means is that you’ll need more dollars to buy the exact same thing. In 10 years, when you go to Chipotle, the chicken burrito is likely to be well over $15. And what’s interesting is that at that time, it won’t feel expensive. I mean it might a little bit. But relative to everything else, it will seem normal. Well, if tomorrow you walked into Chipotle and their chicken burrito was not $19, you’d think, “Am I in New York City? What just happened here?” It would be shocking because it would be sudden. But if you want to protect your purchasing power, invest in stocks for the long run because in my example of Chipotle, but use Apple or McDonald’s, when you are a shareholder of a company, that company is expected to protect their profits by raising prices to outpace inflation and maintain profits.

Examining the past 30 years, which outside of a couple years was a relatively low inflationary environment, the US Consumer Price Index is down over 52.5%. Put another way, if you had stacks of Benjie’s in a safe at your house and the last 30 years you were just pulling money out as you needed to spend it, it would buy you today less than half than it did when you initially put the money in there. By contrast though, the S&P 500 index has increased. And I don’t want you to miss this. It hasn’t increased 100% or 280% or even 400%, no. The S&P 500, inflation adjusted, total return, is up 764% during that same period of time, which is why the common wisdom, that it’s prudent to avoid risk. That’s savvy, that’s smart, avoid risk. Certainly is something to rethink.

The definition of risk is a situation involving exposure to danger. I want to encourage you, embrace risk. Now, embrace risk in a thoughtful strategic way. I’m not suggesting you put 90% of your life savings in penny stocks or even in a handful of the largest, most well-known companies. That’s also not a risk I would accept. But for longer term monies that you don’t need for the next 5, 7, 10 plus years, you’ll almost certainly need to be invested in asset categories like stocks that are volatile if you hope to outpace inflation, accomplish your goals, and not have your purchasing power eroded like the frog in the pan on the stove.

Now, if we go back not 30 years, but nearly 100 years, and look at the annualized total returns, the stock market, the S&P is up 9.8% per year. A 10-year treasury bond, up 4.6%. And cash measured by three month treasury bills is up just over 3% per year. If you’re unsure how to implement risk, where to accept risk and be most importantly consistent with the priorities that you and your family have with what you’ve worked so hard to save, sit down with an advisor that can help you. And if you’re not sure where to turn, contact us here at Creative Planning.

Our next piece of common wisdom to rethink together is that mortgage rates are sky-high right now. I mean, that’s all we’ve been hearing about, right? The mortgages are so high. That’s recency bias more than anything else. The average 30-year mortgage rate since the 1970s, believe it or not, it’s close to 8%. Now, if you’re a boomer, you remember having a 10 plus percent mortgage on your first home. So that may not be as surprising, but Gen Xers, millennials, these rates seem really high, and that average rate may come as a surprise. From the late 1970s and the early ’80s as I just referenced for those boomers, it was an outlier. But even if you look at the average since the year 2000, it’s been more like 5%. So the sub 3% pandemic rates were an absolute historical outlier as well.

But one question interesting to ponder is, could you afford to buy your own home right now back that you live in? Like if it were on the open market, could you purchase it? For example, look at a $700,000 home right now. With 20% down, your current payment’s probably around $2,000. To purchase it right now at today’s rates, it’d be double, about $4,000 per month, and that’s on a 30-year fixed rate mortgage.

But that’s not even the full story, because home prices have appreciated so much over the last five years in addition to the interest rate jumps. So let’s suppose you bought a house before the COVID surge, maybe a 2018 for a million dollars. Now I get it, that’s a really nice house, like a very nice house. Now it’s probably worth about 1.8 million depending upon where you’re at. But if you look at overall real estate appreciation, that’s probably conservative. Well, that home in 2018 with 20% down is about $3,700 a month. Right now, to buy that $1.8 million house put 20% down financed at today’s rates, the payment would be approximately $10,000 per month. Making it quite possibly unaffordable even for the current homeowner who’s living there. They couldn’t repurchase their same home if they had to today.

So you can see where this environment is really tough on first time home buyers. Because if you owned a home, hopefully you’re transferring some of that appreciation from your previous property into the new one. My advice, if you’re feeling frustrated about your home purchase options, remain disciplined and don’t overextend yourself banking on rates falling. But assuming that you can afford to get into a home, you’re married to the purchase price, but you’re only dating the mortgage. And so I think it’s reasonable to assume that mortgage rates may fall over the next several years. When you do, you’ll have the opportunity to refinance. And on top of that, when they fall, it’s not perfectly correlated, but very likely that home prices will also increase. And so while rates might feel astronomically high, historically they’re not that far above the average.

Well, it’s time for this week’s one simple task. Each week in 2024, I’ll be providing you an easy to execute item so that when you enter 2024, you’ll have made serious progress on your financial goals, because you will have knocked out 52, and I promise, very doable steps to improve your financial life. Today’s one simple task, get a second opinion from an advisor. There will be 8,760 hours in 2024. And we all have the same amount. It doesn’t matter how much money we have, doesn’t matter where we live, we all have a little less than 9,000 hours. And even if you sleep 3000 of those, that means you have nearly 6,000 waking hours. A second opinion takes one or two of those hours.

And think about this another way. You’ll spend about 2,400 hours working this year and earning money. Spend an hour or two double checking that things are handled right regarding the thousands of hours you’re working. And here’s the key, if you get the second opinion from an insurance agent, their second opinion is going to be, “Buy insurance. You are underinsured.” If you get the second opinion from a registered representative, it’ll probably involve proprietary investments or ones that they receive kickbacks on or get sent on fancy vacations if they sell. If it’s a broker, it’ll likely come with commissions. I mean, the wealth management industry is the wild west, so get a second opinion from an advisor. It does not need to be Creative Planning. We’re happy to help obviously. But regardless, look for an independent, experienced registered investment advisor from the firm. And then for the advisor themselves, are they credentialed? Have they been doing this a long time? Are they a good communicator? Are they someone that you connect with? Are they somebody that you can trust? Find that firm and that advisor and get a second opinion.

It’s time for listener questions and one of my producers, Lauren, is here to read those. Hey Lauren, who do we have up first?

Lauren Newman: Hi John. Our first question is Nina from Indianapolis. She writes, “Hi John. I’ve recently heard more about private credit when it comes to an investment option. Can you tell me what the benefits of this would be?”

John: Great question. And private credit has become much more popular in recent years and much more accessible to everyday investors. Private credit’s a type of lending that uses private capital instead of banks to provide the financing often for companies on occasion for individuals. Private credit lenders may include institutional investors, it might be family offices. In some cases, it’s high net worth individuals. And most private credit loans aren’t publicly traded, which means the borrower and the lender deal directly with each other instead of via a conduit or a marketplace like the stock exchange.

What’s essentially happened is that coming out of the great financial crisis, there were much more stringent regulation and lending standards on traditional banks. And so for certain businesses looking to borrow capital, even healthy businesses or a business that needed more customization, they just didn’t have anywhere to turn, which is what led to the growth of private credit over the last decade plus. So that’s the advantage for the institution or individual looking to borrow money.

The opportunity for you as an investor is that private credit can offer, in many cases, higher yields compared to traditional fixed income investments such as bonds, which can make it an attractive asset category for you if you’re seeking income. Additionally, private credit investments generally have lower volatility compared to public markets because there isn’t daily liquidity. Now, that’s also one of the big negatives. Private credit often locks up your money for a longer period of time. And while there may be some liquidity provisions, it very rarely would offer daily liquidity as you would find in municipal bonds or treasuries or corporate bonds traded on an exchange.

My suggestion is to position size it correctly and work with your advisor on that relative to your goals, your risk tolerance, and in particular, your need for liquidity. All right, Lauren, next question.

Lauren: Next, Justin from Ohio wrote in. He says, “I’m 57 years old and realized I haven’t contributed as much as I’d like to my retirement accounts. I’ve heard about catch-up contributions, but I’m not sure if I’m allowed to make them to both traditional and Roth accounts. Are catch-up contributions limited to Roth accounts only or will I be able to use them for both traditional and Roth retirement accounts? What do you usually look at when making these recommendations to your clients?”

John: If you’re 50 years of age or older, you’re allowed to contribute additional monies beyond the standard limit to effectively catch up, as the term says, on your retirement savings. For context, the 2024 limits increased a bit from 2023. So in an IRA, traditional Roth, self-directed, the annual contribution limit is $7,000, but if you are 50 or older, you can add 1,000, increasing the total to 8,000. 401(k)s, 403(b)s, 23,000 is the limit for those age 49 or younger. If you’re 50 or older, you can catch up an additional $7,500, taking your total contribution to $30,500. And remember, that does not include whatever match you may receive from an employer. That would be on top of your contribution limits. For a simple IRA, it is $16,000 per year. And if you’re 50-year-old, the catch-up is another 3,500, taking it to $19,500.

The second part of your question refers to forced Roth contributions. That is starting in 2026. So you still have a couple more years to stuff those catch-up contributions into the deferred side of your account. And even that Roth mandate will only apply to individuals that make over $145,000 in wages. So if you make over $145,000 in a couple of years, assuming nothing changes, you will still be able to make that catch up contribution, but you won’t receive a tax deduction for it. Instead, it will be made with after tax dollars, but the silver lining, it’ll be in a Roth. So the growth and distributions will be tax-exempt. If you’re wondering why would they force this, it’s because we’re running at a perpetual deficit and they don’t want to wait to collect their tax dollars down the road. They want them now from who they perceive to be higher income earners, likely in higher tax brackets creating more revenue. All right, Lauren, next question.

Lauren: So, we’ve gotten a lot of questions recently on IRAs and I’ve compiled a list of some of the top ones. First being, “What are the different types of IRAs and how do I know which one is right for me?” Another one we get a lot is, “What are my IRA investment options?” Finally, “Can I withdraw funds from my IRA before I retire?”

John: So great questions here, a lot to unpack. I’ll just run through them quickly. Different types of IRAs, you have a traditional IRA, which are the most common and well-known where your contributions are deducted on your tax return and investment earnings grow tax deferred within the account. When you take the money out, you pay ordinary income rates.

There are also Roth IRAs, which are the exact opposite. Your contributions are made with post-tax dollars, but then the growth and distributions, assuming you follow a few basic rules are tax-exempt. Oh, and by the way, distributions to beneficiaries post-mortem are also tax-free as well.

There are SEP IRAs, which is a simplified employee pension IRA. They’re a type of the traditional IRA that I just described, but they’re established and funded by an employer. Employees are not allowed to make contributions to these types of accounts.

There are also simple IRAs, which stands for a savings incentive match plan for employees. And it’s a type of retirement savings vehicle sort of similar to a 401k used by both business owners and their employees, but they do have lower contribution limits than SEP IRAs and 401(k)s and are intended more for small businesses with fewer than a hundred employees who don’t want the administrative hassle of setting up a 401(k), but do want an employer-sponsored retirement plan for their company.

And there are a few others like spousal IRAs and rollover IRAs that I won’t get into right now. And the answer to the question what are your IRA investment options, sky’s the limit. If you open an account at Fidelity or Schwab or one of the big custodians, you have free rein over what to invest the money in. And yes, you can withdraw funds from your IRA before you retire. But if you are pre 59 and a half, it’ll be subject to a 10% early withdrawal penalty. And if you’re still working but you are 63 years old, you’re technically not retired yet, but you can withdraw those funds without any penalty because again, you’re over the age of 59 and a half.

All right, Lauren, next question.

Lauren: John in Houston, Texas wrote us asking, “I get marketing emails and flyers regularly and see commercials for financial firms daily. With so many advisors out there, how should I discern the right one to listen to?”

John: Oh, John, I feel your pain. I was mentioning a few months ago on the show, I can’t remember who I was interviewing, in fact I think it was for Medicare supplements, that my wife somehow got on a list. They think she’s in her ’60s. So she gets all sorts of AARP, Medicare supplement, annuity, steak dinner workshops, like all sorts of marketing goes to my wife who is 37 years old from these types of financial firms. And it can be confusing. I mean there are over 300,000 financial advisors in America. And even if they just sling a bunch of insurance, they’re not CFPs. Their business card says financial advisor. Like, I don’t know. It’s the same as theoretically the best financial advisor of all 300,000. How do you tell the difference?

Let just pull back the curtain. I’ll tell you what I think is important from my experience over the years as an advisor. I would look for a certified financial planner at a registered investment advisory firm. So basically, a credentialed advisor not working for a broker dealer, that is not a registered representative, that doesn’t even have the capability of charging you commissions. Those would be non-negotiable. Are you a CFP? Are you at an RIA? I know a bunch of acronyms, but that’s what I’d be looking for.

Once you check those boxes, now I’d start looking at experience. How long has this firm been around? Decades or five years? Is there a solid reputation? Are they trying to push you into insurance products? Are they charging you upfront costs or commissions to get started? I mentioned earlier the process at the top of the show for a complete wealth plan. Are they following that type of process? Or are they pitching you strategies and ideas before you even have a detailed written documented financial plan in place?

I would inquire about who is on their team. Is it one person that you’re talking to and that’s who your go-to is for everything? And if that’s the case, they better be incredibly sharp and well-versed in, in my opinion, taxes and estate planning. I mean, are they an attorney? Are they a CPA along with being a certified financial planner? Or do they have other people on their team that work collaboratively with them? I mean, obviously that’s a huge advantage for us at Creative Planning. To my knowledge, we’re the largest company and the first at any sort of scale across the country to build a firm over 100 CPAs, over 70 attorneys. We’re a large tax practice and a large estate planning law firm if that was all we did, even if we didn’t manage or advise on a combined $245 billion. So what else can they help you with? Taxes? Estate planning? Risk management? Trust services? Business consulting and valuations? Liquidity events?

Another thing I’d ask is, “How much money do you manage?” Not the end all be all, but I’m not certain I’d want to work with somebody who said, “Well, I managed $25 million” or “I manage $100 million.” If you’re somebody with two or $3 million, you start thinking to yourself, “Wait, how much of their overall revenue and business do I represent? How many people do they really work with that are like me and how much experience do they have working with those types of people?” Because fresh baked cookies in the lobby and a warm smile, I mean that’s a great start, but that’s not all that important when it comes to managing your life savings. Those sort of marketing components are great personal touches but do not demonstrate the real important aspects of what you’re looking to achieve when you hire a financial advisor.

And to continue that on, it is a new year. And I’ve been saying it all throughout the show, but we have our New Year’s resolutions, we have the best intentions, we want to accomplish those things. And if you’re like John and you’re confused and asking these same sorts of questions, make getting your financial situation reviewed a priority.

Creative Planning Director of Financial Education and longtime Wall Street Journal columnists, Jonathan Clements, who’s also the editor in chief at the HumbleDollar, had a great article to kick off the new year over at his website, the HumbleDollar, titled More Than Money.

I mean, money, despite being the centerpiece of most retirement literature, it’s certainly not the sole answer to your retirement, or if you’re not retired yet, your pre-retirement life’s needs. I think we’d all agree, instead there are many ingredients that are required for fulfillment and for happiness. Not just money. Even though we tend to as a society, and in some cases individually, focus a lot of our attention and a lot of our aspirations and fears on the almighty dollar. And I’m not suggesting it doesn’t matter, it’s just one ingredient.

And so I want to ask you as we wrap up today’s show, what do you think makes some resilient and happy, while others struggle? It’s not an easy question to answer because all of our situations are different. So there’s certainly no standard prescription that’ll work for everyone. But Clements’ right. Still based on what I’ve observed over the past few years and on my own experience over the past few months, I believe these four pillars presented in order of importance are crucial ingredients for a happy retirement. And I want to share those with you.

The first is health. There is no value being the richest person in the graveyard. I had a health situation right around New Year’s and I was down and out for a few days. And wouldn’t you agree, when you are feeling sick and just awful, you’re not worried about anything else? All the concerns are on how you feel and getting better. If you’re looking for something that is meaningful to invest in 2024, it is your health. I know it’s cliche. Everybody says, “I want to get in better shape and eat right and diet and the new year,” but there’s a reason.

Secondly, it is wealth. I’m certainly not suggesting that having a lot of money is one of the most important things in life, but having enough money to provide for yourself and for your family, and even to pay for healthcare or eating healthy, which is more expensive, I mean, there are many of the most important aspects of your life that are propped up by having enough money to advance those causes.

Number three is a social and support network. How are your family relationships? Friendships? Are they deep? Are they meaningful? Are you living life with people who make you better?

And the fourth pillar for a happy retirement is found in purpose. If you have your health and you have your wealth and you have great friends and family, yet you look up and wonder, “What’s the point in any of this? What am I doing with my life? How am I contributing to those around me?”, then you won’t have maximum fulfillment.

So again, health, wealth, relationships, and purpose are the four key ingredients for you to start 2024 on the right track. 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 the 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 podcasts.

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 Higginson 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 this station. This commentary is provided for general information purposes only, 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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