Have you ever said, “That will never happen to me”? But what if it does? Every day, people are faced with the unexpected. On this week’s episode, we share five financial crises and three things you can do today to be better positioned should you ever find yourself in such a situation. Plus, we welcome Creative Planning’s Managing Director of Business Services, Lee Roberts, for a discussion that puts the importance of strong year-end business planning into real perspective.
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!
Episode Notes
John Hagensen: Welcome to the Rethink Your Money Podcast, presented by Creative Planning. I’m your host, John Hagensen. And today, I’m going to tackle questions like, is the stock market’s record-breaking run finally coming to an end? One listener question on, what’s the real deal with annuities? And later in the show, I’ll be joined by Lee Roberts, managing director of business services, to discuss hot-button issues for business owners as we approach year-end. Now, join me as I help you rethink your money.
“That won’t happen to me.” Have you ever said that or thought that? In 2020, we all know what was going on. The entire world was focused on COVID. Every news channel, every conversation, it was all COVID all the time. Yet, somehow in my mind, it was the thing that happened to other people. And then one night, I woke up completely drenched in sweat. It took me an entire day to realize, “Oh, I have COVID.” Every single symptom that I’m experiencing is exactly what happens when you have COVID-19.
How did I miss it? Because in my head, it was something that happened to other people. And so often, isn’t that even how you think about your finances? “I’ll never lose my job. I’ll never go through a divorce. I won’t be impacted by a natural disaster.” You push off these possibilities because there is an assumption that they won’t actually happen to you, and then of course they do, and they can completely throw off your financial plan. So let’s dive into five of these, “Oh, they happen to other people,” type events and the financial challenges and huge consequences that they produce if you’re not prepared.
So the first is the loss of a job. Here’s the thing about job security. It’s never 100% guaranteed. You could be crushing it in your career, delivering amazing results, and you can still lose your job. I’ve worked with clients who’ve been let go because, quite frankly, they were too good at their job. They were making too much money. And you’d think that’s a good thing, right? “Oh, they’re great. They’re successful.”
But in a corporate world, where their employers were able to hire younger employees for less money, suddenly, my clients were expendable. If you’re in your 50s or 60s, you might not have time to fully recover from a job loss. That’s why having a robust emergency fund is critical. I’d like you to aim for six months of living expenses set aside in cash, because when the paycheck stops, the bills don’t. It’s a little bit of a silly cliché, but it fits perfectly that idea of planning for a rainy day.
Imagine you’re building a house, and someone tells you, “There’s no chance of rain. Don’t worry about a roof.” Obviously, you’d be crazy. You need a roof. At some point, it’s going to rain, even if it’s sunny today, and that’s your emergency fund. Second unexpected financial event that can occur, yes, to you are natural disasters. We’ve just seen the absolute devastation of the most recent hurricanes.
I remember the massive flood in my wife’s hometown of Bismarck, North Dakota, about 15 years ago. And we watched the news, and we maybe give some money to the Red Cross, and we think that it’s terrible, but it won’t happen to me. And so, while no one likes insurance, and I’m not advocating that you are overinsured by any means, make sure you are properly insured. I don’t just mean a basic homeowners policy. Do you need flood insurance? Do you need earthquake insurance? Do you need hurricane insurance? If you aren’t sure, talk to a professional, because being underinsured can be just as dangerous as not having any insurance at all.
Another risk you may experience: poor investment returns. Not to your own fault. I’m not saying because you’re invested improperly. It just may be a scenario that you cannot control, like you go to retire in January of 2008. You’ve done a great job saving. And over the next year and a half, your portfolio goes down over 50%, at least the stock portion, if you were broadly diversified, which was the worst drop in the markets since the Great Depression.
It wasn’t your fault. You just happened to retire worst possible time. I mean, go back actually and blame your parents for when they decided to procreate and get pregnant with you, because that probably dictated more of when you were going to retire than anything else. But there is a way to be proactive and protect against that event that very much can happen to you, and that is to buffer your more volatile, long-term growth investments in the stock market with a five- to seven-year safety net of low-volatility investments, like short-term, high-quality bonds.
Yes. In a vacuum, they won’t earn as high a return, but that will allow you to weather these unpredictable bear markets or even crashes so that you’re not forced to sell stocks at the wrong time. Here’s another factor you can’t control: industry changes. Think about Kodak. Man, that used to be a great company. They dominated the photography industry for decades, and then digital cameras came along, and then we have really nice cameras right on our cell phones, and wiped them out.
I think about a story I’ve heard Creative Planning President Peter Mallouk share before. He’s always been entrepreneurial, even back in college, when he owned record stores. And he was doing really well with them, and he was expanding, and then Napster and digital downloads took over, and his sales very quickly plummeted. The interesting thing is, his competition wasn’t the store across the street. It wasn’t who he thought he was competing against. It was an entirely new technology that he didn’t even know existed.
And this is the case for diversification. Things change, and when they change, they change very quickly. So things that don’t just happen to others but can, in fact, happen to you are job loss, natural disasters, poor investment returns, industry changes, and lastly, it’ll happen to about half of all Americans, and that is divorce. It’s a tough one.
No one ever goes into a marriage thinking, “Well, I’m going to get divorced.” But from a financial perspective, it’s one of your biggest risks. Imagine you’ve spent 30 years building up a retirement fund. You have a great financial plan. You’ve saved diligently. And then suddenly, half of it is gone. I mean, sometimes it’s, you’re losing out on a pension benefit or part of that.
You’re giving up one Social Security benefit, half the assets, potentially your home. Your tax rates increase as a single filer, and your expenses don’t get cut anywhere near in half, because those core expenses are fixed. So what can you do? I want to give you three really simple, practical, and proactive steps that you can take right now to help safeguard your finances against these unexpected challenges, because as I’ve been saying, these things can happen to you.
Number one, plan for the unexpected. Now, this may sound really obvious, but think of yourself as a financial prepper, like one of your friends who has an entire room in the basement filled with canned goods, water bottles, and, shoot, after COVID, toilet paper. Be that person when it comes to your finances, whether it’s having the right insurance and emergency fund, a diversified portfolio, as I just mentioned. You want to be ready for whatever comes your way. The best time to plan is before disaster strikes.
After the hurricane, you don’t board up your windows that are already broken. That’s not helpful. You don’t sandbag after all the water is in your house. You have to be proactive. Number two, minimize debt. Debt can be useful when times are good, especially proper leverage, a low fixed rate, mortgage being an example. But when things go south, when the unexpected occurs, when you lose your job, when the market turns down, debt can be become an enormous burden and a huge risk, which is why debt is always dangerous.
The less debt you have, the more margin you have to handle the unexpected. And speaking of margin, that’s number three, build in margin. I can’t emphasize this enough. Just like in life, you need to build in margin for your finances. I have a huge family. If we don’t arrive to church 20 minutes before service starts, we will be late. I’ll be walking in on the third song. I have to build in more margin than that to check them all in. And in all fairness, I like to get my coffee and go get the seat that I like, but you have to work backward.
If you’re constantly late, and half the time, you’re late somewhere, you’re going, “Well, I hit traffic,” you didn’t build in enough margin. You’ve got to prepare that you may hit traffic. And with your finances, it might be something like an unexpected medical event, something with your home, “I need to reroof the house. I need new air conditioners.” It may be your car breaking down, “Oh, well, I guess we’re going to need to buy a new car. It finally gave out.” You don’t want to be scrambling.
So the key is to have enough margin built into your financial life that these inevitable bumps in the road don’t throw you completely off track, because here’s the reality: Life happens to all of us. It’s really not a question of if something unexpected will occur. It’s when. You can’t predict everything. You can’t prepare for everything. And so, just like when we show up to church late, I’m stressed out. I’m kind of annoyed, kind of the grumpy dad telling everybody they need to get ready quicker next time. Scrambling in a financial crisis is a whole different level of stress that you absolutely want to avoid.
We’ve talked a lot about keeping things simple, managing your finances with a practical mindset. Want to shift gears to something equally important for businesses, and that is year-end planning. Today, I’m joined by Lee Roberts, managing director of business services here at Creative Planning. Lee has a strong background and record, having worked with growth-oriented companies all over the United States to help them boost their top and bottom lines, reduce risk, and create enterprise value. Lee, thank you for joining me on Rethink Your Money.
Lee Roberts: Absolutely. Happy to be here.
John: As we approach the end of the year, what’s the number one mistake you see business leaders and executive teams making when it comes to their year-end planning?
Lee: It’s focusing on too many things. Consistently, we’ll go into meetings or conversations with clients, and there’s 10 to 15 key initiatives that they’re going to work on over a year. And just in my simple mindset, you said back to keeping it basic, the really good leadership teams are focusing a little bit on the less is more, and they’re really focused on executing on what they commit to.
John: Yeah. Year-end planning often can feel like you’re running around putting out fires, especially in companies where everyone’s busy and you’ve got quarterly goals and budgets that you’re trying to keep. How do you think someone can be more proactive rather than reacting toward the end of the year?
Lee: The good leadership teams are always thinking about, “What is the theme that we can really get the whole enterprise to rally around, and what is the single most important thing that we’re going to do?” Bringing a planning mindset to anything is going to give you a chance to separate yourself from the rest of the competition.
John: Yeah. Well, speaking of growth, you’ve worked with a lot of different companies at various stages of growth. What’s a common blind spot you see when businesses are trying to scale, and how can they avoid it?
Lee: When you look at some IRS data from 2022, less than 2% of the tax returns filed during that period were actually over 3 million in annual revenue in the United States. So when you hear the politicians talk about we are a nation of small businesses, those are the stats that are being fed to them. And when you’re in that dreamer phase, and you’ve got to that revenue period, I just like to always pause every entrepreneur or leader that I’m talking to, and it’s like, “Hey, high five. You’ve done something statistically that’s pretty special.”
Just knowing that is important, because the shift in the mindset goes from creating to not only continuing to build, but there’s got to be a little bit of a thinking of, how do we protect or how do we de-risk this thing as well? Because entrepreneurs love the growth side of the equation. That’s what makes them great, is they want to go out and create. They want to build. But thinking about that risk side, no one likes to pay for insurance and all those types of things. It becomes important.
Certainly want to focus on continuing to capture market share and do great client work and all those types of things. But when it comes to the valuation, which my background has been working with and in entrepreneurial companies as a build-to-sell entrepreneur, there is a huge premium being placed on the valuation multiple as far as how risky that business is. And I think that’s one of the blind spots that is often missed, is making sure you’ve got people focused on the growth, but also that you’ve got key leaders and part of that team that are focusing on the de-risking side as well.
John: The presidential election is right around the corner. A recent survey showed that nearly 81% of CEOs have expressed concerns, not about necessarily the election specifically, but the regulatory uncertainty that surrounds it. How should businesses be planning for that?
Lee: The first thing is just having historical context. We have and always will be in a constant state of change in terms of the regulatory process. But the two things I would think about, you’ve got to plan for what we know. So there’s been a lot of organizations that I’ve talked to over the last 12 to 18 months that have been hoping that Congress is going to do something regarding research and development credits, and hoping that they’re going to do something about certain provisions to give a little bit more clarity on what the future is going to be so that they can build into their plans.
And as we all know, hope is not a very good strategy, and hoping that Congress is going to be the answer to anything is a huge mindset shift in the entrepreneurs, and I’m actually very proud of this. With all the chaos and all the uncertainty, it has been so energizing to see people say, “Hey, here’s what we know. Here’s what we can control,” and focusing on those things. So I think you need a plan based on what we know. And then probably never in our history as business leaders have we had better tools to model what the forward might be.
John: One thing that we do know is that taxes are set to sunset at the end of 2025. Taxes are always a big one, especially with these potential changes looming. What are some tax-saving strategies business owners should consider right now before the year closes out?
Lee: We talk a lot about the personal side of this equation, and I know you guys have covered that at length. But specific to business, we just did a huge training to all of our consultants on Section 179, which is a tax deduction that basically allows businesses to write off all or part of the cost of qualified property and equipment, and there are limits associated with it, and there are a number of nuances, but that is a big one.
That can be a huge opportunity for businesses, so much so that some of the auditors and what they’re allowing is that conflict with what the code has. So if you haven’t looked into that, if you think that’s something of interest, that would definitely be one. There are also a ton of tax credits and incentives that, every time I engage with a business, are just not being looked at.
If you’re going to do or are thinking about any sort of capital expenditure, investing in any equipment, putting in formalized training programs that are going to raise the skills of your workforce, there are a lot of opportunities from a credits and incentives perspective where you might be able to get sales tax considerations, some utilities considerations, some property tax considerations. And the key thing there is you have to be proactive in doing it before the event is done, and that is the number one miss. Don’t be afraid to continue to ask your provider about any of these opportunities, and ask them twice. Ask them three times. And if you’re not getting what you need, I certainly have to do that.
And then, of course, the last one, and I’m surprised by the lack of proactivity on this, but is of course the sunsetting of the estate and gift tax. There’s been a lot of people that are engaging in this, but if I was to rough-cut it, I’d say 75% of the people that I think should be starting this process are once again waiting for Congress to rescue the day, kick it out, extend it, or whatever they might think. It seems like 2025 is a long ways away, but it’s here.
John: Let’s talk leadership. You’ve worked closely with executive teams. What advice do you have for leaders who are looking to develop their teams in a way that promotes long-term success, especially in a business climate where talent can be tough to retain in a tight labor market?
Lee: The number one thing that we continue to hear is everyone unanimously feels that they pay too many taxes, too much in taxes. How do we do taxes? But the second thing that I hear consistently is a frustration with business owners, entrepreneurs, and leadership teams about the mid-level management in their particular organizations. And then at the same time, the inverse of that is, those mid-level managers or those up-and-coming leaders are frustrated that the senior leadership is not providing them the tools that they need.
We have a massive leadership crisis in the business world today, and one of the things, we spend a lot of time helping businesses develop leadership teams. We spend a lot of time helping businesses recruit and secure leaders that are going to help them move forward. But one of the things that I find interesting is, most leaders today were put in a leadership position because they were better at their job, and the leadership opportunity of recruiting, training, and managing people is incredibly different than being a consultant or a skilled person that was better at their job.
And I think the number one mindset, if I was to just give a free nugget away, is you’ve got to get leaders to understand that the way they’re going to increase revenue, gain market share, and increase profitability, it doesn’t matter how good they are. Every leader that gets into a new role wants to work, work, work, and they generally burn themselves out. The only way they’re going to really hit their goals is if they commit a small shift in mindset in that their job as a leader is to grow their team in quality and quantity, which will, in turn, do all of the increases in financial things.
But the punch line is, you have to have good leaders in order to be able to compete moving forward now more than ever. We have a labor crisis in this country as far as number of jobs open. If you look at the Indeed data, still way in advance of the number of unemployed people to be able to fill those jobs. And this labor crisis is not being talked about enough in my opinion, and leaders need to really focus on getting individuals in roles that have a people focus, that can develop people and raise the floor of their teams.
John: Cash flow is the heartbeat of a business. How can business owners manage that more effectively?
Lee: So there’s a lot of tactics as far as the micro of how to do it. I think the good news is the financial planning and analytics software tools that have the ability to actually connect the different data sources of a business. You have the ability now more than ever to model out what your cash flow might be, and you actually have a awesome opportunity to even shock-test what that might look like.
So, for example, we’ve got a couple of clients that are considering acquisitions, “What might that do to my cash flow 12 months out, 18 months out? What might that look like if we were to pull this off?” And in a couple of cases, the answer was not good. And in other cases, it was overwhelmingly possible. But I think you can use data now more than ever to be able to do that.
We’ve got certain clients that we are doing the FP&A work for, we’re doing the modeling, we’re doing the cash flow analysis for, where we can literally get down to the day and the hour that they are going to run out of money if nothing changes in the strategy. That is what the best of the best are able to do today. That’s probably overkill, just to be open and honest, for a lot of the business listeners. But moving towards that is very much a possibility, and it does not cost as much as you think to have peace of mind that number one killer of business isn’t going to come knocking at your door.
John: Well, you mentioned acquisitions and some of the complications that surround those. One of them can be a disruption to culture. I think a lot of business owners are thinking about this as they still navigate this hybrid work environment or work-from-home environment. How have you seen companies successfully adapt to this new way of working to keep their teams engaged?
Lee: This is one of the greatest sociological experiments that happened in the snap of a finger. No one was prepared for this. And I think when you go back to your leadership question, think about it. The leaders of today, many of them that are leading people, they didn’t grow up in this environment. So this is all new for everybody.
One of the failures we have seen now that we’ve got a couple of years to look back at the data is a lot of companies tried to buy their way out of this. If you remember the stay bonuses, “Give John some money if he stays here.” Right? That was a big thing they tried to do. We know that compensation is incredibly important. Obviously, people want to build wealth. They want to be moving forward. It’s definitely a way that people use that to keep score.
But when you listen and you talk about culture, the businesses that are winning do have a good culture. Even the venture capital firms and private equity, that’s one of the first things that they analyze. So everyone thinks that this is all a data-driven formula. If it is not a good culture that they’re investing in today, they’re not doing that. Why? Because when you look at surveys, and I could list off a bunch of them, but generally, compensation is somewhere between the fifth and eighth reason why employees actually stay.
John: That’s really good for business owners to remind themselves of.
Lee: It’s basic things. They want the ability to make a difference. They want to feel valued. They want to become a better professional, and is there a mentoring program? Being told “thank you” when they do something really well. They want the ability to have flexibility to work from home, work in different geographical regions, maybe start their career in the Midwest, retire in a warmer climate, and then you get to competitive pay.
But I think the businesses that are winning in this regard are focusing on those things. And there’s two other quick nuggets. Payscale had a survey that they just put out. And in the spirit of not being able to buy your way out of it, they surveyed employees. And the sample size was a lot of people, but the top third who Payscale actually said was overpaid based on the job that they were doing, so the business was overpaying these people, two-thirds of those people still thought they were underpaid. And then employees just aren’t accepting jerks as bosses, and any toxicity that exists in those cultures are going to be drivers that are going away.
So those are some of the nuggets of insight I’m seeing the businesses that are winning this do better. To summarize, I think it’s asking questions to your people, listening to them, and then making them feel like they are part of something special that they’re actually contributing to. And then compensation’s got to be in line. If it’s not, they’re going to leave. I think it was almost around 40% turnover in calendar year ’23 in the United States in business-to-businesses environments as far as employees leaving. So, again, it’s a big, big problem.
John: Well, Lee, you are valued. I’m telling you thank you, and you are a special part of this program of Rethink Your Money. So thank you for joining me and sharing some of your wisdom with us for business owners.
Lee: Awesome. Appreciate it, man.
John: Good things come to those who wait. And in some areas of life, it’s true. Patience is a virtue, especially when it comes to investing. Time in the market, not timing the market, is the secret sauce for building wealth over the long term. I’m not denying that, but there’s a paradox here. While patience is crucial after you’ve invested, you can’t afford to wait when it comes to starting. You need to be very impatient when it comes to your savings rate and proactive financial planning.
Many people hesitate. They’ll say, “I’ll wait until I’m ready,” or “I’ll start when the market looks better,” or “I’ll invest when I make more money.” But let me tell you, the clock is ticking whether or not you’re making a move. So the sooner you start, the more time you give your investments to grow, and that is the entire key.
Waiting can clobber you. Ask Ohio State Buckeye fans about the game a week ago against the Oregon Ducks. Killed too much time getting the ball snapped, and then, eventually, took too long to scramble, took too long to slide, missed being able to get the time-out by one second. That would’ve set up a potential game-winning field goal. Now, Buckeye fans are like, “I’m never listening to Rethink Your Money again. Thank you for opening this fresh wound.” And our listeners out in the Pacific Northwest are like, “Man, I love this show. This guy is great.”
I think you’ll both be just fine come the 12-team playoff. So don’t kill the messenger. But with your money, you can’t wait and hope for an Aaron Rodgers Hail Mary that he seems to keep pulling off on every play. You’ve just got to take action. Let me put some numbers around this. If you invest $10,000 at age 20, “John, I’m way older than that,” just to conceptualize this, go with me, because the principle applies at whatever age you currently are, and you earn 8% per year, but you never invest another dollar.
10 grand gets dropped in. Maybe you got a gift from a rich relative, and it just sits there. You have an account with a balance of nearly $220,000. But if you wait just until age 30, you’re kind of a knucklehead from 20 to 30, you finally get yourself together, “I need to start saving money.” You drop the $10,000 in at 30 instead of 20. You earn the same 8%. You’ll only have around $100,000 at age 60, more than double just by starting a little earlier.
The same logic applies to your taxes. If you’re proactive, you actually have an advisor looking at your return, strategizing with your CPA, coordinating your investments and your broad financial plan with your taxes, and let’s say that saves you $5,000 a year on your taxes. Now, for those of you who are high-income earners or business owners or have a higher net worth, it can often be a lot more than that. But let’s just say $5,000, and you took that savings that would have been vectored over to the IRS, and you just dropped it into your investment account.
Your dollar-cost averaged five grand per year. You made 8% per year. 30 years later, $566,000 at the end of the run. That’s the power of getting started. Now, here’s where Warren Buffett’s wisdom comes in. He has so many great quotes and zingers. He once said, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
And this is one of the reasons why it’s so important to get started when the opportunity arises. And right now, it’s here. You are in the lowest tax environment you’ll likely see for the rest of your life. In 2018, when the Trump tax reform went into effect, which sunsets, by the way, depending upon what happens here in November, at the end of 2025, and the rates will revert back to the previously higher Bush tax cut rates. We have $35 trillion of national debt, meaning most people don’t think taxes are going to go down over the next 10, 20, 30 years.
And so, what that means is, yeah, it may not be the perfect conditions or the perfect timing. But from an opportunity standpoint here at the end of the year, related to taxes, it’s raining gold, as Buffett put it. We live in a world that values quantity, unfortunately even at the expense often of quality. And that’s my next piece of common wisdom to rethink together, and that is that more is better. The more stuff you own, the more successful you are, the better off you’ll be in all circumstances.
But is that really true? The idea that more is always better doesn’t hold up when you look a little closer. In fact, sometimes it’s the opposite. Less is more. Less is better. Have you ever cleaned out your garage or decluttered your closet, get rid of a bunch of things, take it down to the donation drop, put some of the bad stuff out in the bulk trash, take it down to the dump? There’s a reason why you feel better afterward.
An organized space with less things represents clarity. With less clutter, you can focus on what actually matters. I mean, shoot, there have been times where I clean up my closet and I go, “I forgot that I had this item that I actually love,” because it was covered up by a bunch of things I haven’t worn in three years. You don’t have to look further than social media to understand this quantity-over-quality component. 2,500 Facebook friends. Does that mean that you’re rich in relationships?
Try to manage all of those friendships. You can’t even wish each person a happy birthday, and it’s the same with your finances. I’ve seen clients who think they need more investments. So they accumulate accounts at multiple custodians, thinking that they’re more diversified and that they’re hedging their bets. But what they’re really doing is creating unnecessary complexity, leading to overlap in investments, confusion during tax season, and a lack of cohesion in their overall strategy.
You don’t need 50 different investments to be diversified. Simplicity, in many cases, is the key to success. It’s not a hindrance. It’s not neutral. It’s actually a catalyst. We’re sitting here approaching the World Series. Imagine a baseball pitcher who threw 15 different pitches. Are they going to be great at any of them? They’ve got curveball, sliders, changeup, knuckleballs, obviously a fastball. Maybe they’ve got four-seamer. They’ve got a two-seamer. They’ve got a screwball. They’ve got a sinker. They’ve got a cutter.
Are all of those options going to give them an advantage? I guess if they’re all phenomenal pitches, but are they going to be able to master 15 different pitches and locate all of them? No. What usually happens? They lose control. Maybe two or three of their pitches are really great pitches, and the rest are not. Mariano Rivera is one of the most perfect examples of this. He threw a cutter.
He would tell the batter, metaphorically, before the at bat, “I’m going to sit here and throw cutters over and over and over. And lefties, about half the time, your bat’s going to be broken, even though you know it’s coming, and I’m going to be one of the best closers in Major League history.” Get focused so that you can consistently deliver, and this applies to financial advisors as well.
These aren’t the days where you hire 10 different people because they’re different brokers who are offering different products and different suggestions and different perspectives, and now you’ve got five or 10 different money managers, because they’re all running different strategies. You want one wealth manager, one quarterback that you trust, that is credentialed, that’s independent, that’s held to a fiduciary standard of care 100% of the time, and collaborate with them.
Let them loop in, as we do at Creative Planning, your attorney, who’s in-house, in our case, your CPA, who is in-house, all of your risk management strategies, your retirement planning, your income planning, your business planning. You don’t want two or three or four different wealth managers, because then you lack coordination, and it complicates your life.
So when it comes to your finances, less is often more. You want a clean, streamlined strategy that focuses on your specific goals, not one that’s cluttered with too many unnecessary moving parts. So I want you to rethink the idea that more is better when it comes to your accounts, your investments, your advisors. You just really need the right approach.
The last piece of common wisdom to rethink is that life gets easier when you retire. Oh, the dream. Right? Trust me, there are days, as a parent to seven, crazy schedule, and I just think, “Oh, man. When I can just be out on the golf course, like those guys over there that I see, who are playing every single day, I mean, just, man, life is just going to be so much easier. I’m just going to ride off into the sunset, laying on a beach somewhere, good book, and nothing to worry about.”
Well, I hate to break it to you and to myself and this vision, this dream, it’s not easier. It just shifts the challenges, and I’ve seen this firsthand. I’ve gotten a rude awakening helping many people that are in their 50s and 60s and 70s and 80s, and hearing their perspective as my clients. I mean, I have a family member, been retired for a few years now. He’s busier than ever, way busier than he ever was while working, between managing doctors’ appointments, which are not fun, but ask anyone who’s getting up in age, a lot of times spent in doctors’ offices, then you’re dealing with insurance claims.
You want to keep up with the grandkids. You want to be at everything that they’re doing, then you got to get in some pickleball time. If you’re retired right now and you’re not playing pickleball three, four days a week, you are not up with the crowd. You don’t know what’s going on, because that is the go-to right now. I love the quote that says, “Retirement is when you stop living at work and start working at living.” It’s just not always a breeze. You’ve got to think about your health, your finances, and maintain your relationships.
By the way, this isn’t to depress you if you’re leading up to retirement or be controversial, or to be argumentative if you’re someone who’s in retirement and loves it, and you’re like, “Life is easier.” Obviously, I’m painting with a broad brush. But if you just think life is going to magically get easier because you stop your job, you might be in for a surprise about how many aspects of life are the same. For one, you. You’re still there.
So whether it’s planning for long-term care or adjusting your spending habits, or considering your housing situation, retirement brings its own set of challenges. And so, while I hope that you have an amazing retirement, I hope it’s everything that you had worked hard for, and it may be. But if you’re in a different season now, looking at retirement with this whimsical outlook, enjoy the season you’re in today, because some of those blessings you’ll miss, believe it or not, once you’re in retirement.
This week’s one simple task is a very practical one, define your solo max spending limit. Now, what do I mean by that? Well, the question is, what’s the dollar amount at which you need to stop and discuss a purchase with your spouse or a partner or a financial advisor, a mentor before moving forward? If you’re married, this is simple. You’re going to talk with your spouse about it. But if you’re single, do you have an accountability partner, someone that you can run things by when making large spending decisions?
And here’s where I think this becomes important, and it might be a bit counterintuitive. We often think, “This is applicable. I really need to do this when I have less money, to make sure that I don’t overspend, to make sure that I’m really wise with where my purchases are.” But I can tell you from experience, as someone who was a broke newlywed, as most people are at the beginning, and now having a little bit more resources, a little more flexibility, having a good framework to be a great steward of your money becomes actually more crucial, the more financial flexibility you have.
“Should I make this purchase? Should I spend this money?” These questions become a lot tougher when you have the means to make those purchases. Sometimes the more money you have, the more confusing these questions get. So this week’s task is simple. Figure out your spending limit above which you’ll consult with someone else, whether it’s your spouse, an advisor, or a trusted friend.
And by the way, if you’re married, this can lead to deeper conversations about values, about the future, about what really matters to both of you. You might start the conversation talking about money or a specific purchase, but you’ll often find that these conversations turn into discussions that actually help your relationship grow, and you can get to the heart of things that are actually a lot more intimate than that singular money decision.
And that is an amazing by-product of this simple, practical habit. You can view this week’s one simple task along with all of our 2024 weekly tasks on the Radio page of our website at creativeplanning.com/radio. Well, it’s time for listener questions. Britt is here to read those. Britt, let’s go to Jake, not from State Farm, but Jake from Bismarck.
Britt Von Roden: Yeah. Sure thing. So Jake shares that he saw an article where billionaire investor Bill Gross says the stock market’s record-breaking run is set to slow, and recommends that investors reposition towards defensive, high-yielding stocks, including his favorite investments at the moment, MLP pipelines and municipal income funds. So, John, Jake is wondering what your thoughts are on this.
John: All right. Thanks, Jake. Let’s break this down. Billionaire investors and so-called experts are always going to have their opinions, just like you and I, and they generally have a bigger megaphone with which to project those. But the first question you want to ask yourself is, are their recommendations even relevant? Because in most cases, the answer is no. These people don’t know your goals. They don’t know your time horizons. They don’t know your specific situation.
And so, big-picture, generalized advice: You can go find four other billionaires who say different things. What does that mean for you? The reality is, Jake, that you can spend your entire life listening to the market forecasters and trying to time the market, but history tells us it’s nearly impossible to do so consistently, and these billionaires didn’t make their money because they timed the market perfectly. That’s the irony. They generally created all of this wealth through different means, not because they knew something that no one else was aware of.
It’s almost nauseating the amount of predictions that they throw out all the time, because some of them are going to be right, not because they were smart, but it’s simply the law of large numbers. If you have thousands of people making predictions every day about what they think is going to happen, you are mathematically, with near certainty, going to have a handful at the end of a decade who look brilliant, and who point back to their predictions and go, “See, I’m a genius,” when actually, the answer is more found in you were lucky.
It’s like a bad sports team. I mean, think about the Chicago White Sox, historically awful Major League Baseball team this year. If all year long, before every game, I just kept predicting that the White Sox are going to win, eventually, they will win a game. Even though they had a terrible season, they managed to win 41 of their 162 games. So I would be right some of the time. Does that mean I’m a brilliant sports analyst? No.
And by the way, it’d be very reasonable for you, after I was right and I was pounding my chest, to go, “The last nine games you said they were going to win as well, and they lost all of them.” We get this with every other aspect of life. But for some reason, I think it’s because with our money, it gives us security to feel like we’re following somebody who has the answers to an unpredictable, uncertain world.
But just remember, a broken clock tells the right time twice per day. Stay invested. Stay diversified. Ignore the noise. That’s all this is, entertainment, and stick to your plan. Thank you for that question. Britt, let’s go to Bob, who I met at CONNECT24.
Britt: Yeah. So one of the questions that Bob had for you is regarding annuities, and he wants to know if there is a role for, as he stated, those evil, high-fee, high-commission insurance products.
John: Thanks, Bob. And yes, annuities do often get a bad rap, and sometimes rightfully so. Most of the time, I would say rightfully so. But there are some scenarios where they can make sense. Let me give you a couple examples of where I think they can work. Number one, if you already have an annuity, it might make sense to do what’s called a 1035 exchange, which means you move the funds inside of that annuity to a different annuity without any taxes owed, because the IRS says that that’s a like-kind exchange. You’re moving from one annuity to another. Therefore, you can continue to defer taxes.
At Creative Planning, for example, we have access to a few no-commission, no-surrender penalty annuities. Now, why would you want to utilize this? Well, if these are non-retirement dollars, so it’s a nonqualified annuity, and you put $100,000 into an annuity 10 years ago, and it’s grown to 150,000. Now, maybe you look back on that, and in most cases, this is what happens. You go, “Man, I should’ve had 200,000,” but it’s only at 150 because of all these fees and inefficiencies.
But you don’t want to basically rip the Band-Aid off, because annuities are last in, first out, meaning the first 50 grand that you withdraw from that annuity is going to be taxed, and not just taxed at capital gains rates. This is one of the things that can be problematic about annuities. It’s taxed at ordinary income rates.
Well, you may not want to take that trigger, especially if you already have a bunch of income in that year. But simultaneously, you may not want to stay in this annuity that you wish you hadn’t purchased. This is where a 1035 exchange into one of these annuities that triggers no commissions, no new surrender schedules, but gets you invested in potentially index funds that are lower cost and more consistent with how you invest with the rest of your money. Those can be really a nice option.
A second viable reason for an annuity is if you just can’t handle market volatility, and are committed to staying in cash or CDs, and annuity might actually offer you a little better return than those alternatives, while still providing that sense of security that person’s looking for. And then number three, someone who does not care at all about beneficiaries. Maybe they don’t have any kids, or their kids are very wealthy, or they think it’s going to be an issue to pass on a lot of money to them, and they just want to maximize their income.
And in that type of scenario, they may buy an annuity if they’re more interested in getting the highest possible income during their lifetime without any risk of longevity or running out of money or a bad sequence of returns, or a lot of times, it’s just people that aren’t comfortable with the markets, as I just mentioned, and they’re like, “Oh, this is simple. I can just basically get this check every single month. Nothing will be left over at the end. I don’t care that nothing will be left over.” They keep just enough out for liquidity outside of the annuity, and everything else goes into the annuity.
Those are scenarios where they can work, and they can have a place, but they really need to be used in the right context with the right advice, and this is the big problem. The conflicts of interest are so massive with the sale of an annuity that they’re rarely, in my experience, actually done within the context of a plan, and properly.
But Bob, if you have an annuity, or anyone listening, you have an annuity, or you’re considering one, you’re wondering the merits, you’re wondering some of the drawbacks, I recommend getting a second opinion from someone who doesn’t stand to gain financially from the advice they give. At Creative Planning, we can help you evaluate your annuity, as we’ve done for thousands before you, through the lens of an independent fiduciary who’s not going to make a big, fat commission if you purchase it.
By the way, you don’t want to go back to the person who already made $70,000 when your million dollars was placed in that annuity three years ago. You don’t want to go back to them and say, “What do you think of this annuity?” What do you think they’re going to say? “This is the best thing ever,” or in some nefarious cases, they may say, “You know what? We’ve got a better one now that offers a bonus. So you’ve got a penalty to get out of this one. But actually, we’ll make that back up in this bonus, and it’s a better product.” And they take your current annuity. They put it in a different annuity, and they make another $70,000 commission.
The reason you want to be so darn careful with annuities is that many come with very long lock-up periods, meaning if you change your mind, or you feel like you missed something, or you shouldn’t have put as much of your portfolio into that annuity, and you wish you hadn’t, the consequences can be massive to try to unravel it. If you have questions, email [email protected] to submit those questions, and I will answer them either on the air or directly to you. And if you’d prefer to speak with myself or one of nearly 500 Certified Financial Planner colleagues here at Creative Planning, you can submit that request by visiting creativeplanning.com/radio.
I want to close today with something that I think often about as a father, and that’s the relationship between patience and growth. Raising kids takes patience, so much patience. Unfortunately, I am naturally a quick start and not someone who has patience. I run a million miles an hour. I do think sometimes God is laughing at me parenting seven children.
But in addition to patience, there’s growth with your children, whether it’s physical, emotional, spiritual, and that growth happens slowly, and it happens subtly. It’s not something you notice day-to-day, but then one day, you look up, and your teenager is as tall as you, and you’re like, “When did this happen?” Well, it didn’t happen overnight. It’s been happening all along consistently and patiently. The exact same principle is true with your money.
The value of your investments or your net worth, it doesn’t grow in a straight line. It’s not about hitting these big wins or seeing immediate returns. It’s about being patient and allowing time to do its magic. Compounding interests, slow and steady contributions. These are the things that make the biggest impact. And just like with parenting, you won’t see the results right away. But one day, you’ll look at your account balance, and you’ll realize all those little efforts added up to something substantial.
The patience you showed in the beginning paid off, and that’s true in our relationships, as parents, as spouses. The little decisions that you wait patiently on, they compound. They’re a snowball rolling down the hill, gaining momentum, and that’s seen through deeper relationships and maturity with your children. So remember, it’s not about quick results. It’s about steady progress. It’s about staying the course, and trusting time and patience will ultimately bring that growth that you’re looking for. 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 preceding program is furnished by Creative Planning, an SEC-registered investment advisory firm. Creative Planning, along with its affiliate, United Capital Financial Advisors, currently manages or advises on a combined $300 billion in assets as of December 31st, 2023. John Hagensen works for Creative Planning, and all opinions expressed by John or his guests are solely their own and do not necessarily represent the opinion of Creative Planning.
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