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Preparing Your Financial Plan for an Unpredictable Future

Published on March 27, 2023

John Hagensen

Whether it’s a bank failure, an overseas war or a pandemic, you never know when the next market shock will happen — but you CAN prepare your financial plan. This week, John walks us through minimizing the threat to our portfolio so that we can rest easier (1:15). Plus, with March Madness in full swing, Wealth Manager Dr. Dan Pallesen and Chartered Financial Analyst Kenny Gatliff join the show to analyze their NCAA brackets and examine how the biases we use in sports betting can bleed into investing (11:45).

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: Welcome to the Rethink Your Money Podcast presented by Creative Planning. I’m John Hagensen and ahead on today’s show, Estate Planning Mistakes that Can Derail Your Future, the personal finance lessons We can learn from March Madness and the NCAA Tournament, as well as where you can invest money when you’re looking to maximize your happiness. Now, join me as I help you rethink your money.

As I turned 40 a couple of weeks ago, I was reflecting back on the last couple of decades of my life and almost had to chuckle at how impossible it would’ve been for 20 year old John Hagensen to have predicted, even sort of predicted where I would be two decades later. I was an undergrad in the state of Oregon. How could I have possibly predicted that at that very moment, I actually had a two-year-old in Ethiopia that would later be my son and a newborn also in a small village in rural Ethiopia. I can tell you one thing for sure, while I was in college that was not on my radar. If you warped in a time machine back 20 years ago, your future was similarly unpredictable. But here’s an interesting aspect of this. It’s our lives. We actually have quite a bit of control and power and influence through our decision making as to where we end up in life, but we still couldn’t predict the future. It’s unknown.

Frustration in life and with our money, it comes when we attempt to control things that we in fact have no control over. Well, why do we fool ourselves into believing this is possible? Because it gives us peace of mind if we think we have more control over outcomes than maybe we actually do when it comes to the stock market or when it comes to March Madness. This crazy tournament, no one ever gets every game right. I remember back in 2014, Warren Buffet said he’d pay $1 billion if any fan got a perfect March madness bracket. Now you think of the millions of brackets. Wouldn’t somebody be able to pull it off? Nope, didn’t happen. Doesn’t happen. It’s too hard. There are far too many variables. And the same is true when it comes to the stock market, future interest rates, the economy, unemployment rates, and a thousand other inputs that impact the stock market.

The difference is I’ve never met someone who actually thinks they’re going to get a perfect bracket. They’re filling it out and they’re like, “Man, I mean I should just start spending the billion dollars because I fully expect I’m going to get all these games correct.” No, you fill it out laughing, reading the little blurbs on Yahoo or ESPN, realizing your bracket won’t be perfect for 24 hours, let alone the entire tournament. But yet often as investors, we fool ourselves into thinking that we actually can pull this off if we just research enough or our advisor has the best research or they’re smart enough, they’ll essentially have a perfect bracket when it comes to my investment strategy and nothing could be more of a mirage. Let’s take 2020 and the Global Pandemic as an example.

What if you came into one of our offices here at Creative Planning and we said, “You know what? This is your lucky day. I have a crystal ball, and here’s what’s going to happen over the next year. Global pandemic world shut down. No one traveling. In light of that information, how should we invest your money?” Most people would’ve shorted the market or if nothing else said, “Put me in cash. That’s where I need to be, somewhere safe.” Do you know what? One of the worst possible places to invest your money in 2020 was? Cash. Well, if you shorted the market, you got clobbered because it was up nearly 20%. As we navigated COVID, in hindsight we say, “Well look at all the government stimulus and easing monetary policy.” I mean, of course now in hindsight I get why this happened, but that would’ve been impossible for you to forecast in advance. And so here are a few quick tips for how to prepare your financial plan for an unpredictable future.

First off, acknowledgement is the first step in recovery. Admit that you don’t have an ability to accurately and predictably forecast the future because that will then allow you to build a plan that accounts for contingencies and that isn’t built on a faulty premise. Then properly ensure the risks that are known to ensure that no tail risk event that could have been avoided, that could have been insured, wasn’t accounted for. And lastly, broadly diversify your investments. No big bets in any one spot. Own various investments that have dissimilar price movement to one another. Nowadays, with the advent of low-cost ETFs with low-cost direct indexing opportunities, you can build a portfolio that eliminates any concentrated bets, essentially where you’re a part owner of thousands of the largest companies all around the world, and for that to go to zero, it would essentially take the world to end because it would mean that 7 billion people no longer needed to purchase goods and services.

And so if you’re feeling anxiety around the future when it comes to your money, run your situation through the filter I just provided. Is part of your plan success built on you are an advisor being right about the future? Do you have a written, documented, measurable, dynamic financial plan that accounts for taxes, that accounts for estate planning? Do you have proper levels of insurance and are you broadly and strategically diversified in a way that is consistent with your goals and your time horizons?

If you have questions about any of this and aren’t sure where to turn, we have over 300 certified financial planners here at Creative Planning and have been helping family since 1983. If you’d like to speak with one of our local wealth managers just like myself, go to creativeplanning.com/radio now to schedule a complimentary second opinion. I want to transition over to something I added kind of last minute to the show, and it was because I’ve now had over five instances just recently with prospective clients who have come in and done an overall fantastic job when it comes to saving, diversifying, properly investing, handling their tax strategies, and then as I ask them about their estate plan, they say, “Well, no, no, that’s something I need to knock out. That’s why I’m here. You guys are a law firm, right? With like 50 attorneys, that’s part of what I need.”

Now, these are people, mind you, that have financial advisors, which shows you the difference right there between wealth management and investment management. I bring this up because estate planning is foundational to a financial plan. I want to share briefly with you seven estate planning mistakes that I’ve seen derail otherwise good financial plans. The first is simply failing to plan and procrastinating. Estate planning isn’t like taxes. You don’t get a penalty if you put this off so there’s really no urgency because most of us think we’re pretty healthy. Unlikely anything’s going to happen to me, I’ll take care of this later. It’s that idea, why do today what you could put off until tomorrow? I love that quote. It’s so true so often in our lives.

And let me remind you, estate planning isn’t for the uber rich only, okay? It’s a priority for everyone and if you fail to plan, it means an expensive public process where the courts will determine where your money goes, who has custody of your minor children and other really important decisions. We make this at Creative Planning, very simple. It is part of our process when you become a client. Our attorneys will build a diagram of exactly what your current estate plan would dictate, and if you determine that changes should be made because that’s not aligned anymore with your wishes or with current laws, we are a law firm and we execute all of those documents for you, which you’re then able to place in your client binder. Second mistake I see is getting too specific. So many people I’ve met with say, “John, I know I need to do this, but I’m just not exactly sure who I should have be my children’s godparents. It’s between two people, so I’m waiting.”

And then a year later, they still haven’t figured that out. So what do you think’s happened with the estate plan? Yeah, they still haven’t done it. Even in areas where you’re not 100%, get something in place because it’s likely a heck of a lot more accurate than letting a random court who doesn’t know you or your family at all making those decisions in a vacuum. Remember, you can change and amend your estate plan along the way. Number three, not coordinating beneficiaries. Don’t make the mistake of changing your will, but failing to update the beneficiaries in your retirement accounts, which are often the largest assets in your estate because the beneficiary forms for those such accounts are legally binding documents and they will supersede anything in your will. The fourth estate planning mistake that can derail your future for getting about powers of attorney or healthcare representatives.

Naming a power of attorney, whether we’re talking medical or financial and or a healthcare proxy is really important. These are the people who will make decisions for you should you become incapacitated. Number five, forgetting about final arrangements. If there aren’t end of care life plans, maybe such as hospice assisted living, how I’d like my memorial to be, these are the practical things that family members, usually the children of the decedent are navigating and trying to discuss together. How much should we even spend on this? Should we go over the top because we really love this person and celebrate them or they were more frugal? Should we spend a little less on this? So don’t forget about those final arrangements. The sixth mistake that I see, forgetting about your digital assets. Now, this type of estate planning is relatively new, but obviously it makes sense given the technological world that we now live in.

You need to have stored somewhere the passwords to access your life online. And number seven, forgetting about taxes, because understanding that will inform where you drive income from or which assets go to charities or organizations that would be able to bypass income tax versus which accounts should be earmarked for individuals. And so to recap the seven estate planning mistakes that can derail your future, procrastination, trying to get too specific, not coordinating beneficiaries, forgetting about powers of attorney, forgetting about final arrangements, not providing passwords for digital assets and failing to strategize the tax implications of your passing.

If you are listening to this and do not have an estate plan, we can help you with this. It’s not ridiculously expensive. It’s not unnecessary because you don’t have $35 million. If you have loved ones and you have some assets, please for their sake, knock this out and do it with a consideration of your overall financial plan. If you have an estate plan but it was done in a state that you no longer even live in, or was done eight years ago and it hasn’t been updated or it was done 15 years ago when you had minor children that are no longer in your home or before you had grandchildren, life is happening all around us and your estate plan needs to keep up with that. Visit us now at creativeplanning.com/radio.

Well, I’ve got two extra special guests. They’re colleagues of mine here at Creative Planning as well as good friends. Dr. Dan Pallesen is a doctor of psychology. He’s also a certified financial planner and a great wealth manager, and he’s joined by Chartered Financial Analyst and one of our investment managers here at Creative Planning, Kenny Gatliff, and I asked them to join me today so that we could discuss some college hoops and what we can learn while watching March Madness when it comes to our money. So thank you Dr. Dan and Kenny Gatliff, welcome to Rethink Your Money.

Dan Pallesen:

Thanks for having us, John.

Kenny Gatliff:

Yeah, thanks John.


Dan, I’ll start with you. What are cognitive biases and why are they worth us discussing?


Cognitive biases are actually pretty helpful when it comes to decision making. We make thousands of decisions every single day, so it’d be impossible to put our full attention to into every single decision we make. So these cognitive biases act as like mental shortcuts when it comes to making decisions. They’re helpful in letting us navigate the day-to-day, but when it comes to big decisions, sometimes they can get in the way. And so I have some ways that we see these cognitive biases play out as we might be making picks in a March madness bracket. And I know Kenny can talk about the financial impact of some of these biases.


Oh, I like it. This will be great. What’s the first thing you two want to banter about?


So the status quo bias, I mean this idea that what has always happened will continue on forever, and it’s this idea of higher seeds do not lose to lower ranked seeds. No one picks 16 seeds to beat a number one seed, but we saw this a few years back with Virginia losing and we just saw it this year again with Purdue getting upset. But when most of us are setting up our brackets, we ignore this. We just assume that the status quo will happen, the higher seeds will always win.


How do you see it, Kenny, from a portfolio standpoint?


I actually think this is one of the most dangerous risks out there. We feel very comfortable with what the status quo is, what has happened in the past, and talking about the brackets, I think before Virginia won, it was something like 150 consecutive. One seeds had beat 16 seeds. So we do have this mental bias saying, I don’t expect that that would ever happen. And we have this same idea with an investment, if some risk hasn’t happened in a long time or ever, we tend to think it’s not a true risk. If you guys watch the movie The Big Short talking about the financial crisis, that’s why they talk about this black swan, this tail risk event that we may have not seen before. Something more recently is interest rates getting jacked up from basically zero all the way up 4 or 5%, and that has this cascading effect on our economy because so many were banking on low interest rates, and so that risk was not built into a lot of plans and some large institutions and some personal investors are being harmed because of it.


We know that March Madness brings about an active Las Vegas crowd, lot of gamblers out there. There’s also a cognitive bias that’s referred to as the gambler’s fallacy. Dan, how would you relate that to March Madness and then I’ll shoot it over to you Kenny the Jet, on what that means for our investments.


The gambler’s fallacy is this idea that past results will impact the next results. So if you’re at a roulette table and you get red, you think, well, because I got red last time, the next one will be black. We see this when it comes to making picks with March Madness, right? I’ll use Kansas as an example. Because they won last year, they’re more likely to win it again this year. Kansas got upset, they’re watching from home. It doesn’t matter what happened last year, they had to play the tournament again this year. It was its own results.


Hey, you better be careful. Rock Chalk. I mean, we’ve got our headquarters in Oberland Park, Kansas with a whole lot of Jayhawk fans out there, so they’re not going to like this. Hearing this from you, you’re pouring salt in the wound right now. Kenny, how would you relate this from an investment standpoint, the gambler’s fallacy?


This is probably the most relevant fallacy or bias that does influence the investing industry, and if you ever see any commercial on TV or reading any sort of prospectus, the one thing that they always have to put in there is past performance is not indicative of future results. But with that said, every advertising piece that you do see, what are they saying? Our funds have beat their Lipper average for seven of the last 10 years. Oftentimes what we see is something does really well for a long time. Someone gets in at the end of that, and I’ll give you the example of US stocks in the ’90s, especially those large growth tech stocks, did really well for an entire decade.

That became the only thing people wanted to buy, and that was immediately followed by 10 years where US large growth stocks did very poorly. This has kind of a double edged sword in that not only can you give into this fallacy by being under diversified, but you can actually buy something once it’s already been run up because of what has happened recently and that gets you hurt even further.


Let’s talk about the overconfidence bias. Every year when I fill out my bracket, I try to pick a team that has a decent shot at winning it, like a one or a two seed that will be the least picked one or two seed by everyone else so that when I’m inevitably terrible on the early games, I still have a shot. This year that pick was Marquette, won the Big East regular season, won the Big East tournament, and then they lose in the second round and there goes my bracket. I tend to think though, my picks are going to be very good, even though I’m not sure if I’ve ever won ever in my entire life, one of these brackets. How do you see this play out overconfidence bias, Dan?


Like you, John, I don’t watch a lot of college basketball throughout the season, but I love the conference tournament week, the Champs Week, and so I’ll watch a few games in the conference tournaments and because I watched a few of those games, I feel like I know what’s going to happen in March Madness because I put a little bit of time into watching some basketball. So when I fill out my bracket every year, I’m pretty confident, but at the end of the day, I have no more insight than anyone else filling out these brackets. And so when I’m making my picks, it’s fun. I feel great. Again, stakes are really low when it comes to March Madness, but that’s how the overconfidence bias can play out when I’m filling out a bracket.


I love the scouting report. I know the seventh man’s name on Alabama, so I’m going to totally win our office pool because of that.




Yeah, that’s definitely overconfidence. Kenny, we see this obviously with our money. How does this relate to our portfolios?


There’s kind of a two-pronged dancer here, whether you saw a team just win the tournament or if I’m talking about myself personally, John, you mentioned you’ve never won. I actually did win the pool last year. I won Dan’s bracket, and so I’m [inaudible 00:18:10]


Oh, congratulations.


Yeah, I got to throw that in there.


You had to slip that in there.


So that was really my whole point for this speech now, no, so because I won it last year, I’m like, okay, I’m going to use that exact same strategy, and I think I know more than everyone, and inevitably I won’t win again for another 20 years because that’s about how long it had been since I won my last one, translating this to investing. If I picked a stock and I researched it and I was like, “You know what? I think I see something here.” One of the most dangerous things that could happen to me is I’m right because then all of a sudden I have this overconfidence and I think every stock that I’m going to pick is going to do well. And we see this time and time again where someone has a really good performing portfolio that they created themselves for a short period of time, they get overconfident, and then all of a sudden things come crashing down.

Having that past success or that overconfidence can actually harm you as an investor. The second idea is what you guys were referring to is, you know, watched some of these games or you listen to analysts and they say they can’t lose. Here’s why. They’ve got a seven foot four center that is unguardable. They’ve got better guard play. They play against zones all the time, and that’s exactly what they’re accustomed playing against. So what you end up hearing are all these things that might be true, and the phrase I like to hear, this is plausibility. And that’s what we see in investing all the time. And you see the same idea when we’re listening to investing shows. They give this plausibility of saying, here’s why this company is poised to break out. They only own 1% in the market share, but by the end of next year, they should own 10%. Here’s why.

And you’re starting to listen to this and you’re like, well, yeah, all of that makes sense. It’s plausible that this company is going to be the next big thing. And you talk to yourself into it saying, not only is it plausible, it’s probable and now it’s going to happen. And you get so overconfident that you push all your chips into one or two companies or one segment of the market that you think is poised to do really, really well. And that’s where you can get yourself into a lot of trouble by under diversifying, putting all your eggs in one basket and then just as it turns out with basketball. Just because something’s plausible or seems probable doesn’t mean it’s going to actually play out the way you think it is.


That’s a really good point. What I like to do with March Madness is I never actually pick the teams that I want to win or that are my teams. I pick them to lose because I already know that if they win, I won’t be upset that my bracket’s not doing well because they’ll be winning. But if they lose, at least I’m beating my office mates in the bracket and I feel a little bit better. So I don’t like to basically concentrate in a way that will make me really sad and I potentially lose an office pool. How do you see though, Dan, the home bias play out in March Madness and just broader in our lives?


Yeah. Well, as the name suggests, a home bias is our likelihood to choose things that are closer to home. John, you’re kind of exhibiting a reverse home bias, but I would still say you’re making decision based off of a region regardless of likelihood or statistics or probabilities of outcomes.


Oh, 100%, right.


When you look at a map of the United States in March Madness and who is picking what team to win? If you look at California, UCLA is the big pick in that region. In the Pacific Northwest, it’s Gonzaga. In North Carolina, it’s Duke, even though Duke was what, a four or a five seed this year, they still are picking Duke to win in the state of Texas.


Bad pick.


Yeah, exactly. The Midwest is all Kansas, Rock Chalk Jayhawks, right? But it’s just we see these different picks based off of the region. So a home bias is our likelihood to make decisions based on things that feel more familiar to us or that are closer to home. And you can see where this might get people in trouble.


K State fans are so upset right now. They’re like, it’s all about KU. We went further than them. Can we get a little love here? Kenny, how does this play from an investment standpoint?


Yeah, so this is a great one because all these other biases we’re talking about, they’re really hard to quantify. So although we have a lot of anecdotes of, oh, we met with this client, or I have a friend that did this, people tend to think that they’re kind of bulletproof saying, eh, I don’t give into this bias, but this one, there’s actually a lot of data showing that it is true, and where we see this is people only want to invest in the country that they live in. About 75% of all US investors are investing in US companies. That’s a large portion of your portfolios all within that one region, which has its own unique risk. We’ve seen this in the past. We’ve had clients come from Australia or Canada that have 100% of their portfolios in Australian stocks or Canadian stocks. And an example is a little bit more sad actually, is there’s a study that came out after last year when Russia invaded Ukraine.

Basically their stock market got shut off from the rest of the world, and almost every Russian fund or Russian stock went very close to zero or dropped significantly, and this study came out that showed 95% of Russians invested their entire investment portfolio in Russian stocks. You’re taking on this risk of your home team and maybe you feel really good about it. I believe that America’s going to go on forever. I believe that we’re the leading economy, and that’s great, but that doesn’t mean we’re going to outperform other stock markets forever. And that doesn’t mean that we can’t have an extended time period where US stocks lose to international stocks, which we have seen over five, 10 plus year periods many times over in history.


Well, in 2000 to 2009, you referenced it earlier where a diversified portfolio did okay, and an all US portfolio basically was flat for a decade.


Yeah, and that’s a great example of that, and that hadn’t happened since the Great Depression and kind of going back to some of our former biases, because there hadn’t been a down 10-year period in so long, people just anticipated US stocks would go on well forever, and we have this home team bias.


Well, these are all great tips. I hope that everyone else’s brackets are doing better than mine because I’m already out of it, but as human beings, it’s incredibly helpful for us to acknowledge our cognitive biases because they impact our decision making more importantly than March Madness with things like relationships and certainly with our money. So I appreciate you two coming on, sharing your expertise and wisdom with us here on Rethink Your Money.


Thanks, John.


Thanks. Thanks, John.


And while I can’t make you promises that any of us here at Creative Planning can help you achieve better results when it comes to your March Madness brackets, we can help you develop and monitor a tailored financial plan that fits your needs. Visit creativeplanning.com/radio today. Why not give your wealth a second book?

Even if you could read a book every day for the rest of your life, you wouldn’t even begin to scratch the surface of getting through every book that’s been written on how to save and invest money. They’re everywhere, but there’s very little out there on the art of spending money, which can be even a more difficult skill to master than saving and investing. The big challenge in particular that I see are retirees who have done a good job saving and over many years and decades, they’ve watched their money accumulate and they’ve felt comfort in seeing that number get larger and that pot be added to.

And now they’ve made it. They’re up at the top of the mountain, they’ve planted the flag, they’re retiring. We build out their financial plan and say, all right, well time to start spending some of this money. Flipping the switch from accumulation to decumulation is often not as easy as one might think, but it’s important because how you spend your time and how you spend your money are two of the best indicators of what in fact you value, not what you say you value, but what you actually value, time, money.

And so a great question to consider is who do you want to spend your time with in retirement? How do you want to be remembered when you’re gone by those that were close to you? And unlike saving, which is mostly in the shadows, do you really know how your neighbor has saved or what exactly the balances are in their investment accounts? No, it’s hidden, but you can see on Facebook the vacation they just took. You can see the new car that’s parked in their garage. When it comes to your spending, remember what makes life meaningful is ultimately a purpose, like to have a goal and then struggle for that goal, have a battle to achieve that goal. Even if you fall short, you don’t fully accomplish that goal. You don’t entirely win the championship. What brings joy is the journey. And when it comes to spending money, what brings joy often is that gap between struggle and what you ultimately end up having.

One of my favorite financial writers, Morgan Housel, recently wrote about this parallel of your family background and your past experiences and how those will have a major influence on how you spend money. If you grew up in a home that was extraordinarily frugal, sometimes you lean more frugal. Other times you grew up and thought to yourself, I want to be the family that goes out to eat occasionally and even is allowed to order a dessert. So you become an adult and you go, I’m going out to eat and I’m getting one of those milkshakes at the restaurants where they give you the little metal tin with it. You know what I’m talking about? It’s the best. You’re like, I get a milkshake and a half. I love it. Give me the extra ice cream. Keep in mind though, there’s a false belief that spending money in and of itself will make you happy.

It doesn’t. We know this from all the data. Take the lockdown during the pandemic. There was a lot of revenge spending at that time, and the spending wasn’t about getting value out of it. It was about healing a wound. I couldn’t go out to eat, so I’m going to go out to eat. I couldn’t take a vacation. I don’t even care if I really want to take a vacation, but I’ve been cooped up. I’m going to take a vacation. That was a past experience that impacted your spending. The only way that that spending will in fact bring joy is if it’s aligned with something deeper and meaningful that you value and care about. So if you’re spending money and you’re feeling dissatisfied, unfulfilled, your reaction might be to double down and spend more hoping that it will eventually bring you joy. It will not instead look to redirect that money to something in your life that’s more lasting and meaningful.

Also, inertia can be incredibly powerful. A lifetime of saving habits can be very hard to transition into a spending phase. Often this is because the focus on money may be a big part of who you are, a piece of your identity, watching that net worth grow and when you’re younger, saving was winning. But if you continue doing that into retirement, is it still winning? You need to recognize you’ve met your goal. One of the most rewarding things as a financial planner that I’m able to do is share with a client that’s approaching retirement, maybe even into retirement. You’ve made it. Job well done. You’re there. All the things that you value and prioritize and would like to do over the next 30 years, you no longer have to work and earn a paycheck if you don’t want to accomplish those things.

If you’re in those last five years of work, you’re approaching retirement and you’re wondering, am I there? Have I made it? Can I start spending money on the things that I’ve been ultimately saving for? The answer to that question is found in a written, documented, detailed, dynamic financial plan. If you don’t have a financial plan, maybe you’ve never met with a financial planner that’s a fiduciary, not looking to sell you products, but rather offer you guidance and planning. That’s what we’ve been doing for families all across this great country and in 85 countries around the world since 1983 here at Creative Planning. Why not give your wealth a second look by visiting creativeplanning.com/radio to speak with a local advisor? Continuing on with a theme of spending money in retirement. Let’s kick off a game of rethink or reaffirm where I’ll break down common wisdom or a hot take from the financial headlines, and together we’ll decide if we should rethink it or reaffirm it.

How about the conventional wisdom that your retirement expenses will decline as you get older? While that does tend to be the standard view by most surveys, it’s not my experience and it may not be yours or those that have been close to you as well. The nature of expenses are going to change as you age, but they’re not necessarily going to go down. Things like travel, entertainment, helping children, supporting grandchildren, medical expenses, long-term care and even inflation can have a huge impact on your expenses. You say, “Well, John, inflation, I mean that’s affecting young people and folks in retirement.” Yes, but disproportionately, because as a retiree begins to take withdrawals from their accounts, that spending will necessitate a more conservative asset allocation with less growth oriented vehicles for the more money that is being distributed on a monthly or annual basis from the investment accounts.

Cash, CDs, and bonds, the more traditional stable investments inside of a retiree’s portfolio, are hit the hardest in inflationary environments. By contrast, if you’re younger, generally you’ll be positioned almost entirely in stocks, maybe some real estate, but very little bonds, very little cash because you have a long runway before you need to take distributions in retirement. Those investments traditionally do quite well over the long haul, even during inflationary times. So the arc of retirement spending begins over the first five to 10 years, and I’m painting with a broad brush here. Those are called your go-go years. That’s when you finally have the time, and if you’ve done a good job saving, you finally have the money to do many of the things that you’ve been dreaming of doing, and if your plan supports it, I encourage you to do this. I have seen far too many people wait and wait and wait, and then one spouse sadly passes away or one of those spouse’s best friends that they love to travel with or go tour baseball stadiums with or play tennis with, they’re no longer around to do those things with you.

So again, without being reckless, those go-go years early in retirement can be an incredible season to make memories and see the world with those that you love most. The next 10 years, your retirement expenses tend to go down a little bit because those are called the slow-go years, where you’d spend money but on less expensive big ticket items. But while the next 10 years are considered the no-go years, medical and long-term care expenses tend to skyrocket during that period. According to Fidelity Investments 2022 retiree healthcare cost estimate, the average American couple expected the total cost of healthcare and retirement to be about $41,000. In actuality, the average 65-year-old couple retiring this year can expect to spend an average of $315,000 on healthcare expenses throughout retirement, out of pocket. Average cost of a long-term care facility for less than one year, 108 grand. First year of your Medicare premiums, about $2,000 a year.

The max premium if you’re means tested, making too much money, all the way up to $6,700 per year. And so as we evaluate whether retirement expenses decline as you get older, the verdict is a rethink because while retirement expenses do decline after about the first decade of retirement, they then increase and ultimately spike later in life due to medical expenses. Our second piece of common wisdom to evaluate an LLC is not as important after you sell your business. I will post an article with this answer to the radio page of our website creativeplanning.com/radio where you can also schedule to meet with a local advisor if you’d like that complimentary second opinion. But actually an LLC matters a lot even after you sell your business because judgements against the LLC will be protected from your personal assets. Personal creditors of the LLC members cannot seize LLC assets.

If the LLC needs to file bankruptcy, its members are not required to use personal assets to cover that bankruptcy. From a legacy planning standpoint, it’ll help protect and control assets in your lifetime, but it’ll also keep assets in the family after you die. It may even reduce your loved one’s tax liability by leaving it inside of that LLC. So the verdict to an LLC not being important once you sell the company is a rethink. Make sure before you close down all the LLCs bank accounts and liquidate any remaining holdings and dissolve the corporation with the state commissioner, speak with your financial planner, with your CPA, with your accountant, to ensure that you’re not relinquishing valuable protections, both from a liability and tax standpoint. Last piece of common wisdom. When the yield curve inverts, it’s a sign that a recession is coming. I’m going to start by giving the answer that yes, this is generally the case, but there is a bit of a caveat for this one in particular.

I know it’s dangerous to say this time is different, but this might be the most telegraphed baked into the market recession we’ve ever seen. Can you recall hearing for over two years that in the next six months we were going to have a recession? And then just continuing to say that in six months we are going to have a recession with the Fed continuing its aggressive rate hikes to combat inflation again on Wednesday, all the factors seemingly necessary to create a recession seem to be marshaled in, but one hasn’t materialized and so we keep coming back to this. Well, the yield curve’s inverted. Don’t we have to see a recession? Well, the counterargument to that is can we have a recession with 50 year low unemployment rates? You see, you’ve got conflicting information. So let me briefly unpack what the basics of an inverted yield curve are.

Unlike a normal yield curve, where you receive more interest for longer durations, an inverted yield curve means that you earn more interest on shorter term bonds than even longer term bonds. And since July, this inversion has been in effect, where two year treasuries are yielding more than 10 year treasuries. And if the opposite of an inverted yield curve that we’re seeing right now is happening, that would be considered a steepening yield curve, and that signals that expectations for stronger economic activity are there. Higher inflation, higher interest rates. While a flattening yield curve can mean that investors expect near-term rate hikes and are overall pretty pessimistic about economic growth further ahead. And so this type of inversion suggests that while investors expect higher short-term rates, they may be growing nervous about the fed’s ability to control inflation without significantly hurting long-term growth. The reality is the way this yield curve has moved is not like previous movements, but the biggest difference is how actively involved the Fed is.

The market seems to move multiple percent on days where the Fed speaks. I mean that’s really never how the system was set up to work, where one person or a group of people had that much influence on the economy and movement in the stock market, but that’s where we’re at. That active role could also help soften a potential recession with rates being as high as they are now, the Federal Reserve has never had more arrows in their quiver by reducing rates to re-stimulate the economy. So to answer, when the yield curve inverts, it’s a sign that a recession is coming. Historically speaking, that is a reaffirm, but TBD here in 2023 as to whether this one comes to fruition,

I began last week’s show speaking of the Silicon Valley bank situation. If you’d like to listen to that in its entirety, you can visit the radio page of our website or wherever you listen to podcasts and search Rethink Your Money. But I have an update. A lot has changed in a week. The government and other banks have stepped in and made depositors whole. The reality is banks don’t want other banks to go down, and this was on full display with Swiss bank UBS acquiring fellow Swiss bank Credit Suisse in a $3.5 billion acquisition. Could be called a bailout, some are saying it’s not a bailout, but it sure looks like one. And meanwhile, on this side of the pond, Bank of America, Wells Fargo, Citigroup, and JP Morgan Chase have all experienced a significant increase in deposits as folks have fled regional banks for the seemingly safe haven of the larger banks.

A client this week said to me, “John, seems weird that all these people are getting bailed out again by the government.” And I would push back a little bit on this because do we really want to have to go through some significant due diligence process to qualify whether a bank is going to be safe to hold our deposits? These weren’t people out there speculating and taking risks. They were business owners and depositors that had money at a bank. You say, John, well, they were over the $250,000 FDIC limit. I understand that, but for some of these businesses that had $5 million there, they’re running daily operations. They can’t practically do that at 30 different banks. And the fallout from them losing in that example $4.75 million because bank executives mismanaged their balance sheet and risk exposure ultimately would lead to layoffs for employees of that company, and that’s who would in the end be hurt.

So I think in this situation, especially because this assessment is going to be passed on to the other banks rather than taxpayers, it was important to keeping consumer confidence and not having an even more significant and widespread run on banks all across the country. Our first question today comes from Eddie in Chicago. “I’m a 50-year-old, married with two adult children. I’ve been offered whole life insurance by an advisor. Should I just be considering term life insurance or does whole life make sense?” So first off, what are the differences between whole and term life insurance? Well, whole life insurance is exactly like it sounds. You never lose it. It is permanent. And along with the life insurance, depending upon how it’s structured, you often also have a cash value that is growing over time. So it’s a quasi bank account, investment account that’s accompanying this life insurance benefit.

And without going too far into the weeds on how the cost of insurance works and what the interest rate is on that cash value and how the dividends are either reinvested or buy more insurance, I’ll just leave it at that for now. Term life insurance by contrast, is insurance that if you die during a certain amount of years, it will pay. But if you live beyond that, again, it is exactly as you would think with the word term. It terms out. If you have a 10 year term life insurance policy and you die in year 11, you get nothing. So while I don’t know a lot else about your situation, Eddie, I would almost never recommend whole life insurance because it’s significantly more expensive. And if the purpose is to protect loved ones who would suffer from you losing your income potential, then buy term life insurance for the amount of years remaining that others would suffer if you were to pass away.

You say here that you’re 50 years old, so let’s just assume that your financial plan has you retiring at 65 years old and your plan works and is sustainable if you earn income at your job or business for the next 15 years. But, and by the way, here at Creative Planning, when we run your financial plan, one of the things that we will provide is an insurance needs analysis, meaning we’ll actually look, if you die Eddie at 52 and that income ceases, does your plan still work for the rest of your family, or is someone else needing to go back to work or never able to retire? Is there not enough income available? Starting at age 80, somebody’d have to go back to work. We don’t want that. So in some cases, there is in fact a need for life insurance, but let’s buy the cheapest life insurance possible to fit the specific gap where you need coverage.

It is highly unlikely, Eddie, that it would make sense as a 50-year-old to buy whole life insurance, even though many insurance agents, especially captive insurance agents selling these on behalf of their companies for massive commissions, would lead you to believe that these are some of the best investments out there. They are not. Next question comes from Janet in Scottsdale, Arizona who asked, “If I have a living trust, do I still need a will?” The answer is yes, but most trust packages are drafted as pour-over wills, and those are basically a safety net for your trust. A pour-over will will transfer assets to your trust if something were to happen to you. And so as a reminder, once you establish the living trust, you need to make sure that you transfer assets into that trust, right? So you want to ensure that things like your home are now owned by the trust, not you personally.

You might be surprised. People spend a couple thousand dollars, they get a trust done and then the entity set up, but it owns none of the bank accounts, no real estate, none of the after-tax brokerage accounts. You’ll also hear that referred to as funding your trust. So that’s an important step because assets that are not in your trust that do not have direct beneficiary designations like you can do on say a 401K or an IRA, and are also not jointly titled with another individual, may still be subject to probate and probate’s terrible. It’s expensive, it takes a long time. The entire thing is public. Probate’s a nightmare. So the big value of establishing that living trust is that if E established correctly and funded properly, it’ll help you avoid probate.

And there is a bit of nuance in terms of transferring tax-deferred assets or beneficiary in those assets such as IRAs, pension plans. Talk with your attorney, with your financial planner, with your accountant, Janet, about that. If you’re not sure where to turn, we have offices in the Biltmore area, Phoenix, as well as Gilbert, and we’re happy to help you out if you have additional questions on that.

My final question comes from George in Minot, North Dakota. My wife was a Bismarck Demon, by the way. She also went to Arizona State University, the Sun Devils. I’m not sure. Maybe I should be concerned about this. But really though, the Demons and the Devils. It’s kind of freaky if you stop and think about it. I guess it’s a good thing that she is amazing in every other way outside of her school mascot choices, but why not the Minot Magicians?

George from Minot asks, “I’m 45 years old, married with two elementary school children. My employers updated their benefits, and we now have the option of an HSA. Is it better to have an HSA or a PPO plan?” Well, George somewhat depends upon your health situation, but from a tax standpoint, the HSA health savings account is a unicorn. You get triple tax advantages. The money you contribute to that HSA is tax-deferred, so you’re able to deduct those premiums from your current income. It grows tax-deferred, and by the way, it can be invested in mutual funds. So stocks, bonds, depending upon your time horizon.

And then if you withdraw that money for qualified medical expenses, it comes out tax-free and the HSA pairs with a high deductible health insurance plan. It’s not a use it or lose it like an FSA, so it’s very flexible, it’s portable. If you switch employers, it can actually be used as a quasi retirement savings vehicle. My wife Brittany and I have an HSA, but pay for all of our medical expenses with just our checking account so that we can compound essentially a medical Roth for later in life when our medical expenses are expected to be higher.

So I absolutely love an HSA. Now, since I don’t know George, he might be in a unique situation where a low deductible PPO plan or specific providers inside of that network are really critical to his health. So again, it’s not a one size fits all, but most of the time you want to utilize an HSA if at all possible because of the massive tax benefits that it provides.

If you have questions like Eddie, Janet or George, email those to radio@creativeplanning.com and I will answer them either on the air or one of our wealth managers will answer your questions directly. I want to conclude today’s show by circling back to our conversation on the art of spending money. And what I have observed will ultimately bring you the most satisfaction, and that is investing in the eternal, not the temporary, not the here and now.

What do I mean? What am I talking about? Well, think about how you use your money in the same way that we think about appreciating and depreciating assets. When I’m explaining money principles to my kids, one of the basic foundational concepts is that if you buy a car, it becomes less valuable. Assuming it’s not a collectible, the longer that you own it. So while you need transportation, know that essentially the nicer the car you buy, the worse financial decision it is because it’s just going to depreciate. Now, that doesn’t mean you shouldn’t have a really nice car if you’ve got a ton of money and you enjoy driving nice cars, but it’s not a good investment. But by contrast, if you buy piece of real estate or you broadly invest in the market, those of course, we expect to appreciate and value over time and compound.

The same is true in how we spend our money. My experience is that when you spend on things that depreciate, things like clothes … I know my wife, she’s not happy right now. She’s listening to this going, “That brings me a lot of joy, John.” I know. I’m not trying to be judgey. I’m just sharing with you a concept as food for thought. Or maybe it is a vehicle or a piece of furniture that you spend $20,000 on a couch instead of a nice couch for $3,000. Like, I don’t know, is it going to give you that much more joy? Maybe. But here are the appreciating expenses that from both all available financial studies as well as anecdotal from my experience, meeting with thousands of people, do in fact add joy, and they are things like memories with family. See, these are the eternal things. Giving to organizations that you care about, social outings with friends, as well as travel.

These are expenses that the longer that you drift away from those, the more you reflect back with fond memories and they remain with you until the day you die and then continue on with your legacy with those whom you made those memories by spending that money. That’s the type of ongoing ripple effect and eternal benefit of spending money on appreciating experiences. Life is short. Material goods are fleeting. I’ve never seen a hearse pulling a U-Haul. Keep that in mind as you go about spending the money that you’ve worked so hard to save. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.


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 podcast.


The preceding program is furnished by Creative Planning an SEC registered investment advisory firm that manages or advises on $225 billion in assets. John Hagensen works for Creative Planning and all opinions expressed by John’s guests are solely their own and do not represent the opinion of Creative Planning. This show is designed to be informational in nature and does not constitute investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on this show, will be profitable or equal any historical performance levels.

Clients of Creative Planning may maintain positions in the securities discussed on this show. For individual guidance, please speak with an attorney, CPA or financial planner directly for customized legal tax or financial advice that accounts for your personal risk tolerance objectives and suitability. If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning tax and legal are separate entities that must be engaged independently.

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