The start of a new year is often a time of personal or professional change. But before you dive into making changes, it’s important to understand their tax consequences so that you can avoid making tax blunders in 2025 that could have a long-term impact on your financial future. We also welcome back to the show a guest favorite and remember and celebrate former President Jimmy Carter and his legacy.
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 on the show you always hear the phrase death and taxes, but what about change in taxes? On this episode, I’m making the correlation between the two as it’s important to recognize their long-term impact. I’m also welcoming back to the show a favorite guest and remembering the late Jimmy Carter, and the legacy that he left. Now join me as I help you rethink your money.
When thinking about the decisions that you make throughout your life, they’re almost always accompanied by pros as well as cons. But for every door that you walk through, there’s often another that you leave behind. Every choice has trade-offs. For instance, you might envy the person with a higher paying job than you. It seems like their life is great, but what you might not see is the 20 days per month they spend traveling, missing their kid’s soccer game, or perhaps someone has ultimate flexibility in their work schedule. There’s no 9:00 to 5:00 grind. They’ve got it great, but you don’t realize that their income varies dramatically. Maybe they’re operating entirely on commissions and when times are good, they’re really good. But other times they might have a lot of flexibility because they’re basically unemployed. They’re not making anything, which can create financial stress.
As the great philosopher Mick Jagger once said, “You can’t always get what you want,” and retirement planning is no different. The career path you choose today shapes your financial future, and each path it brings its own set of challenges as well as opportunities. My colleague, AJ Kratz wrote a fantastic article on this very topic, the impact of your career on retirement planning, and I’ll post the article in its entirety to the radio page of our website at creativeplanning.com/radio, which is where you can also request a second opinion with one of my nearly 500 certified financial planner colleagues ready to help answer your most important questions.
Let’s break down some of the tradeoffs when it comes to retirement planning, looking at four distinct career paths, which one do you fall into? The first would be the traditional path. In the past, it was common to stay with one employer for your entire career. Some people still do that today, but it’s less frequent, steadily climbing the ladder, working your way up. And while that stability has its perks, it often leads to an over-concentration of assets, maybe in particular within your employer’s stock. So the challenge with the traditional path becomes if your retirement savings is tied too heavily to your company’s performance, you’re over leveraged, you’re anti-diversified because you’re subjecting your well-being to significant risk.
Imagine what happens if your company’s stock plummets right as your preparing to retire, or maybe you’re getting laid off. Why are you getting laid off? Because the company’s not doing well. The company’s not doing well? Is the stock price going to be at an all-time high? No, not likely. So the solution here if you are in this traditional path is to remember and emphasize diversification. So for example, if you’ve accumulated employer stock in your 401(k), you might consider an in-service rollover to an IRA, which allows you to diversify without triggering taxes, or maybe you utilize the strategy of net unrealized appreciation. You’ll often hear it referred to as NUA, where you remove company stock from the 401(k) and pay capital gains instead of ordinary income rates.
Now, there are nuances to this strategy when it makes sense when it doesn’t. So certainly consult with a certified financial planner and, or your CPA prior to an NUA election, but that may be the right play as well. So there’s the traditional path. Next, you have the opportunity seeker. Many professionals today aren’t afraid to take risks, whether that’s changing jobs or even industries in pursuit of fulfillment. I personally did this. I was an airline pilot when my wife and I first were married and I love flying airplanes, but I didn’t like how often I had to be gone, so I went and got my licenses and a master’s degree and professional designations and completely changed course on what I had already invested a lot of time and money and energy into as a pilot. But I’m not alone. A lot of folks aren’t working today in the same thing they were 20 years ago. In fact, that’s quite common. And while these career pivots can be rewarding, they can often come with disruptions to salary and benefits.
During that transitional time when I didn’t know what I was doing as a brand new financial advisor, but I also wasn’t an airline pilot anymore, there were definitely moments where I was making no money and thinking to myself, “What have I done?” Looking at my wife saying, “Well honey, this might’ve been the worst idea of my entire life, but thanks for supporting me.” The challenge is if you leave a corporate job for something that is less stable, less guaranteed, less predictable, whatever you want to say, you may lose not only that income, but access to employer sponsored health insurance, 401(k) contributions, maybe the match to those 401(k)s case and other benefits.
So the solution is before making a leap, not telling you not to, that’d be hypocritical, but before you do, I want you to ask yourself, how will I replace those benefits? Maybe also, what are those benefits worth really when I quantify them, and how is that going to impact my long-term retirement goals? You want to understand what are the pros and cons? What’s my potential sacrifice for this new opportunity? Next is the job Hopper. Sounds similar, but it’s different. Changing jobs frequently to chase new challenges or higher salaries, that’s become increasingly common.
I have a friend who started at one tech company, went to a different tech company, went to another tech company, went to a small tech company, went back to the very first tech company, which is one of the giants that you’ve heard of, and every single time he moved, he was essentially promoted, every time. He was working his way up and does extremely well for himself. He’d be the job hopper. One of the challenges with that can be that you hop jobs so frequently, you have these small balances in employer-sponsored plans, they become scattered. They’re difficult to track, they’re difficult to manage. There’s no cohesiveness. You end up with 19 different accounts at 14 different custodians, and that can mean very little or no centralized strategy. So consolidating your retirement accounts can simplify your financial life greatly.
For instance, just roll over multiple 401(k) balances into one single IRA account, that might make sense. It might make sense to take your old 401(k) case if your current plan allows for it and roll those into your current employers 401(k). In general, that can help streamline your strategy and when you do so, make sure you do direct transfers. Trustee to trustee transfers to avoid any rollover rules or taxes or penalties due to you taking receipt and then trying to redeposit it within the required window. So there’s the traditional path, the opportunity seeker, the job hopper, and finally the entrepreneur.
Starting your own business is the ultimate act of independence. It comes with unique blessings and some unique retirement planning challenges as well. Your business often becomes, you hope it does, if it’s successful, your largest retirement asset and planning for its eventual sale or transition is crucial. It may or may not surprise you. A lot of people with small businesses have done very well with it, and in many cases are making really good money from the business, but at some point they want to stop working and how are they going to replace that income unless they know who’s taking it over and what would the company even be worth? Is there a market for it? Does that market change depending on if it’s an intra-family transfer or being acquired by one of your competitors? Would you be required to stay on and work for a while following that transition to make sure that it’s successful? And that would be dealt with in the terms of the agreement.
So the challenge oftentimes is just the most basic. What is this business worth? Have you considered how you’ll exit and how the logistics of that would work? How long in advance would you need to begin constructing that plan? And that is my solution for the entrepreneur is to not avoid it, not procrastinate, start planning early, way earlier than you actually think relative to when you intend to stop working or transition the business. At Creative Planning, we have an entire business services team, attorneys, CPAs, certified financial planners that work together and part of that process is to provide you a valuation of your business. What is it worth and would that be different depending upon who would be buying it and how far in advance do you need to begin that transition?
Let’s shift gears to taxes. Kiplinger recently published an article on the top tax stories of 2024 along with key updates to watch for in 2025. Taxes are always evolving and staying informed can help you avoid costly surprises. And my number one tax tip, be proactive. Have a tax plan. Sure, most Americans file their taxes. That’s not tax planning. That’s being an accurate historian, putting the right numbers in the right boxes. Does your CPA and your financial advisor meet regularly to discuss your situation? Do you receive tax projections from them? Has your financial advisor reviewed your tax return in the last year and then offered solutions for how to improve your tax efficiency moving forward? How to potentially reduce taxes moving forward? If you are not getting that, that’s something I would put near the top of your financial priority list for 2025 because it probably moves the needle as much or more than anything else you could be doing and it’s within your control. So again, have a tax plan.
The top tax stories of 2024, number one, income the IRS doesn’t tax. Now the tax code has its complexities, but some categories of income are surprisingly untaxed. For example, gifts below the annual limit. This really throws people off. You can give anyone, “Hey, here’s 15 grand. Hey, here’s $8,000. Here’s $17,000.” In 2025, you can give any individual up to $19,000 and when you give that to them, they’re not taxed. It’s not income to them. Now, you’re having to use after tax dollars because it’s not as if you get a deduction to send it to them, but to the receiver, like if you happen to be the person receiving the gift, by the way, congrats. It’s awesome. Somebody in your life loves you and has enough money to throw you 10 G’s. That’s pretty nice. And what’s even better? You are not taxed on it.
Municipal bond interest, not federally taxed, potentially not state taxed. If you’re in a state that has state income tax and it’s a bond within that state, generally not taxed. Life insurance proceeds, in most cases not taxed. Another top tax story from 2024, the extra standard deduction. So if you’re 65 or older, the tax code provides a little extra relief in the form of an additional standard deduction. This extra amount can reduce your taxable income, keeping more of your retirement income in your pocket. It’s just a great reminder that small adjustments like taking advantage of this little deduction can add up to big savings over time.
Ben Franklin was right when he said, “Beware of little expenses. A small leak will sink a great ship.” That’s how taxes are if they are neglected. Now, what can you be watching out for in 2025? Well, the biggest storyline by far is the expiration of the Tax Cuts and Jobs Act. So the Trump tax reform as it’s referred to, went into effect in 2018 and was written in to sunset at the end of 2025. And the expiration of many of these key provisions certainly looms large. What does it mean for you? Potentially higher rates and a reduction in the standard deduction.
But because Trump has been re-elected and Republicans have the clean sweep right now, albeit a very thin majority in the House, the likelihood they actually sunset is now a lot less likely, which is a really good thing because if you have not taken advantage of everything you should have the last seven years, you may and I do say may because we’re not sure, but you may have just been thrown a really valuable lifeline to minimize taxes, especially if you have large deferred balances in retirement accounts. That at some point between now and the day you die will be taxed at ordinary income rates and stacked on top of all the rest of your income.
Today, we’re diving into costly tax blunders for 2025, and joining me is special guest Ben Hake. He is the director of tax services at Creative Planning. He leads our team of CPAs and we have over 265 of those. Ben has more than 15 years of experience working with high net worth clients with trusts, estates, and closely held businesses. He earned both his bachelor’s and master’s degrees in accounting from Kansas State University, graduating summa cum laude. Ben’s not only a CPA but also serves as the treasurer of KC CAN!, a nonprofit organization serving children’s needs in Kansas City, and he sits on the board of the Jewish Community Center. Ben, welcome back to Rethink Your Money.
Ben Hake: Thank you very much. Thanks for having me and that fantastic intro.
John: You are welcome, well-earned. All right, Ben, I’m going to start simple. What’s the single biggest tax mistake you see high earners make year after year?
Ben: The high earners tend to be people that have really great advisors, so a lot of the times they’re really well positioned, but what happens is they think there’s something else. They think there’s something big out there that they’re missing out on. Those are the clients who get involved in maybe things that are a little more aggressive than we’d recommend and a lot of times a year or two after the fact they get involved in an IRS audit and what they thought was going to be a huge tax savings ends up costing them quite a bit. So a lot of the times it’s not a specific item, it’s just trying to be a little more aggressive than maybe a lot of us would advise for those clients.
John: For someone with a business, what’s the one tax saving strategy they should absolutely not ignore?
Ben: Right now the biggest one, this has been the case since the Tax Cuts and Jobs Acts of 2018 is most of the states for all of the taxpayers are limited to a $10,000 deduction for their state and local taxes. So that’s real estate taxes and income taxes, and almost every state that has an income tax now has a work around where you can pay your taxes through the business treated as a business deduction, and no longer get that limit. So if you’ve got some people making a couple of $100,000, the savings of electing into that can be 5, 10, $15,000 and that’s every single year. And unlike that other item, this is something that is non-aggressive. The IRS is acquiesce, so this is something they totally allow and it’s something that they don’t have to spend an extra dollar. The states get the same amount they’re always going to, but they can dramatically reduce how much they pay to the IRS.
John: Well, that’s nice. You’re giving them a tip that actually will hold up in an audit. That’s very generous of you, Ben. I like that. I like that better than the ones that won’t work should the IRS look. That’s good advice. Why do you think people wait until April to think about taxes? I mean, obviously the deadline is there, but how much do you see that procrastination costing people?
Ben: I feel a lot of people just think that the tax outcome is what it is. That maybe they feel like they don’t have a lot of agency and how that actually works out. So that’s why they look at it in April and they’ll be like, “This year I write a check. This year I get a refund.” And what I’ve found is a lot of the times it’s really hard to do planning after the fact. So more often than not, you get there and you look and you’re like, “I had really low income. I only had $20,000 of income.” And I look at that and think, “Man, that’s a missed opportunity because we didn’t do that discussion or take a look at that earlier in the year, we lost an opportunity to use those lower brackets.” Or again, you find other items where because of the large standard deduction, “My charitable contribution didn’t really give me anything. I still took the standard deduction this year,” versus maybe some grouping or some larger discussions could have gotten the best of both worlds.
John: You spoke of deductions. What’s one deduction people are still missing out on that drives you crazy, man?
Ben: The big one is probably, so if it’s both an employer provided plan and others though, if you’ve got the opportunity to save and do an HSA, that has got to be the easiest slam dunk opportunity for anybody. You get a tax deduction as you put it in. You can invest in there, so it grows tax-free and you can take out the funds at any point in time in the future as long as it’s for medical expenses, even medical expenses that occurred in earlier years and you get that out. So it’s one of the few areas where there’s almost no downside to it, and it is one of the things that you could do after the end of the calendar year.
So pretty commonly, I work with the client I see on their W-2 that they only put in $600, they could have put in 8,000, and that’s a real easy opportunity to be like, “Hey, you’ve got until April 15th to fund it. We’re going to save you some money immediately, and for the medical cost you could just do it. Or what we’re recommending is leave it in there, invest it and have it grow a lot like a Roth IRA over the years.”
John: Well, and that’s great. Someone listening that maybe feels, “I missed out. It’s after December 31st.” No, not with that. So that’s a great tip, Ben, for investors tax loss harvesting can sound confusing. How big of a deal is it and when does it make sense for most to use?
Ben: Tax loss harvesting is definitely a little counterintuitive when you first get that first 1099 and show a bunch of realized losses, but I advocate for tax loss harvesting every time there’s an opportunity and it makes financial sense to do so. It’s one of those, it’s building up an asset that you can use over time and I tell a lot of clients, it doesn’t have to be used against your brokerage account gains. We’ve got a number of clients who have tax lost harvested end up selling a piece of real estate, a rental property or maybe a house that’s appreciated significantly. And those losses that we accumulated in the earlier years able to offset those gains and create measurable tax savings.
The other piece is a lot of our investments are going to realize capital gain distributions at the tail end of the year. They look a lot like a dividend, but it’s treated like a capital gain, and those tax loss harvesting can offset that in addition to giving you a $3,000 deduction year-over-year. So I advocate for doing tax loss harvesting all the time. There’s really no downside to doing it, and it can only help you even if you don’t think it’s going to happen in the year the tax loss harvesting occurs.
John: What’s the biggest blunder you’ve seen with charitable giving and how can people do it smarter?
Ben: The big one is going to be a lot of the times my clients are giving cash, when you could give $100 to the charity, they say thank you, when the alternative would be, “Let’s give them $100 of appreciated stock.” Let’s say you bought Nvidia a couple of years ago, it’s now worth $1,000. Your basis is 10. When you make that donation, you get that $1,000 donation still, you never pay tax on the gain and most charities are tax exempt as well, so they’re never paying tax on the gain as they sell that to fund their mission or do what they’re going to with it. So that’s going to be number one. And the big thing I always point out, I have had a couple of clients stub their toe on this, the security you donate needs to be a long-term holding. So if you have those Nvidia shares that are held for a year less, then your deductions only your basis not the fair market value.
John: That’s a really good detail to remember.
Ben: Yeah.
John: For those people that have tripled their money on a specific investment over four months, sorry, you won, but you cannot win when it comes to giving it to a charity. That’s a good tip. Especially if somebody’s at 350 days or has held it for almost a year and doesn’t realize that. Why does it, matter short-term or long? That’s an important one for them to remember. With tax laws always changing, what’s the best way for someone, Ben, to stay ahead without losing their mind trying to keep up?
Ben: I normally advocate for two things. The first is working with a professional who you have a relationship with, and you don’t want to have somebody that’s a transaction where I drop off my tax information in February, finish it up in March and say bye. So you want to have somebody you work with regularly and the vast majority of tax law changes are not retroactive. They’re not going to change what’s happened prior to the passage of the law. So I’m working with a lot of my clients, this is how it would impact you, but we don’t want to take a single permanent action that we can’t undo until we know what the actual law is going to be and how that’s going to impact us. Because again, a lot of the things that are discussed now aren’t going to be what made it into the final bill, and we want to make sure we don’t accidentally make a mistake or cause undue tax because we were trying to be too preemptive.
John: Well, we’re in a historically low tax rate environment with the Trump tax cuts that may now potentially go on longer depending on what happens, but what are the impacts of current rates and $36 trillion of national debt and a lot of expectations that at some point down the road there’ll be higher. The word Roth, that’s been the tax buzzword for investors over the last 5 plus years since 2018. For someone considering a Roth conversion, Ben, what’s the one thing they need to know before pulling the trigger?
Ben: Well, for most clients, the big consideration is that you’re going to be moving funds from your IRA to the Roth account, which is a taxable event. Most of the time we’re planning to use outside assets to pay the tax due on that. So the big thing is the most common person we’re targeting to do this is going to be that early retiree, somebody who hasn’t hit social security, hasn’t started taken RMDs, and so they may be looking, especially if you’ve got 2, $3 million in a pre-tax account, they might want to do a large conversion maybe in the 22% bracket, which should have you a couple of $100,000.
And the big surprise there if it’s not considered is going to be that Medicare premiums go up as your income goes up. And that’s just you go a dollar over and you’ve gone over and now you’ve triggered that higher Medicare premium. So with a lot of our clients, we wanted to consider both the income tax consequence and possibly that Medicare change, and sometimes the answer is the higher Medicare is something we’re willing to incur and we’re going to be fine with that, but it’s definitely something we want to talk about beforehand because you don’t really get notified about that until 10 months after the return is filed. So it could be a bit of an unfortunate surprise.
John: All right, Ben, final question. If you had to name one habit, not your bad habits, don’t worry, I’m not going there, but one habit that would make someone a better taxpayer in 2025, what would it be?
Ben: The easy one, just keep good documentation or records. I got clients, I tell them they love to make charitable donations, but it comes to December and they’re like, “I can never remember what I did.” Throw it in an envelope. Shoot me the emails every time you happen.
John: Well, Ben, this has been fantastic, great tips. Thanks for walking us through some of the biggest tax blunders and how to avoid them here in 2025. I’m sure the listeners took a lot of great insights from it, so thanks for coming again on the show.
Ben: Thank you, John.
John: This past week I was playing catch with my second grader, Jude. Kid is an absolute sports nut. He finally just started playing football. He’s excited about that. We play a lot of catch. My left shoulder, I’m a southpaw. My left shoulder is definitely tired between Cruz, my seventh grader and Jude, but it’s a lot of fun. I know this is a short season that will end quickly. When I was trying to teach Jude not to catch the ball with his body, turn your palms toward me, catch the ball with your hands and he’s getting the hang of it. Then he started running some go routes and I’m throwing him the lollipops down the sideline, the deep throws over the shoulder and when he tried to catch the way I taught him with his palms out, fingers spread, it didn’t work. It made the catch a lot harder. He was almost trying to turn his entire body while running full speed, like a back shoulder catch.
So I explained to him, for that kind of pass, he needs to turn his arms almost like making a basket. Jude was confused and he said, “Wait, but dad, you just told me to catch the ball with my hands.” And I realized this is a great teaching moment. Yes, there are general rules, but they have to be adaptable and they change based upon the situation. And that’s true in life and it’s especially true when it comes to personal finance. We want black and white answers. We want everything to fit in a box. We want one rule because that makes us comfortable, but it’s simply not the case.
Today, I want to look at four different pieces of conventional wisdom that seem like solid advice on the surface but need some nuance to be applied effectively. So let’s dive into the first and that is that we’re entering the era here in 2025 of student loan refinancing. It’s finally arrived. We’ve all heard it. Interest rates are finally coming down. Refinance your student loans now to save thousands. And yes, it is tempting to believe that in 2025 this is going to be the golden year for refinancing. In general, cost of service loans is a lot higher the last few years than it was in the previous, but before you rush to lock in a new rate, specifically when we’re talking about student loans, let’s rethink this because it’s important to remember that federal student loans already come with some of the best terms out there.
And often when you’re refinancing into a private loan with a private lender, it might mean losing access to benefits like income driven repayment plans, deferment or even potential forgiveness programs down the road. So it’s like trading in your reliable old truck for a shiny sports car. Yes, sure, it’s nice, it drives faster, it looks cool in the driveway, but how about during the next blizzard? Is it going to get you from point A to point B? Second, refinancing doesn’t always mean saving money. If you’ve got federal loans at a rate of 5% and private lenders are offering 4.8, the savings might just not be enough to justify the risk, especially if rates could even drop further. And don’t forget that refinancing often involves fees which can eat into those slim margins.
Finally, consider where you are in life. Are you planning to buy a house soon? Refinancing could add a hard inquiry to your credit report temporarily lowering your score. Too often people leap into refinancing without understanding all of the long-term implications. So while refinancing might make sense for some borrowers, it’s certainly not a one-size-fits-all solution and commercials that are out there make it sound like it is, but it is not.
Our next piece of common wisdom is that you should switch banks to chase higher yields. I mean we’ve all heard this one too. Move your money to bank X, Y, Z. We’re offering 5% on your savings accounts, and we’ll throw in a new iPad and a toaster. It reminds me of hearing about the great coffee shop that just came to your town and I ask a friend, where is it? I realize it’s 30 minutes across town. Now, it would have to be the greatest coffee in the entire world, just as Buddy Elf found out in New York to justify driving that far, the juice ain’t worth the squeeze. And here’s the thing, switching banks isn’t always as simple as it sounds. If you’re just moving money between savings accounts, it might be straightforward, but moving your entire banking relationship, checking accounts, auto payments, mortgage withdrawals can be a logistical nightmare and for what? A slightly better yield.
So let’s break it down. Let’s say you’ve got $10,000 in savings and you switch from a bank offering 4% to one offering 5%. Okay. That’s an extra $100 a year before taxes. Now, if it takes you several hours to set up your new account, update your payment details and navigate any hiccups, you can’t tell me that was honestly worth your time, and this is where opportunity cost comes into play. What is your time worth? Could you have used those hours to work or spend time with your family or shoot, just relax? That said, there are exceptions. If you’ve got a large balance, we’re talking $200,000 and it’s already in just a money market account and you move it from one to another electronically online and you are making 2% better yield, that probably would make sense, but for most people, the hassle outweighs the benefits. As Warren Buffett likes to say, “The most important investment you can make is in yourself,” and sometimes that means valuing your time over chasing pennies.
Our next piece of common wisdom is that tales drive everything, and this idea was popularized by Morgan Housel and it’s one of my favorites. Housel argues that in life and finance, the outcomes we see are often driven by a small number of extreme events, what he calls tales. Think about it, take the stock market. A tiny percentage of companies account for the majority of returns. According to an ASU study, 96%, you didn’t mishear this. It said 96, not 9, not 50, not 70, 96% of stocks over the past century have collectively returned, wait for it, drum roll please, nothing, 0, nada. All the gains have come from just 4% of companies. It’s wild, isn’t it? The aggregation to the bottom, 96% of all stocks have returned 0. Everything has come from the top 4%. So let’s broaden this.
Tales drive everything in life too. For example, in sports, think about Tom Brady being drafted in the sixth round. That’s a complete tale event. Nobody expected him to become the Goat. Yet his success reshaped the NFL and changed how teams evaluate talent. Changed the entire New England Patriot organization. How we think about Bill Belichick? Is Bill Belichick the greatest coach ever, if he doesn’t have one guy that they happen to draft in the sixth round? No, he doesn’t. I think about my life. Everything is different if I don’t decide to email my spouse at the prodding of my mother-in-law and mom, who were friends who were trying to set us up, I didn’t do it at first. They said, “Hey, do it. Come on. You didn’t send it to her. All right. Fine. You guys are serious? All right. I will. Okay. I’ll send her a quick email. All right. I will.”
That tiny thing that took almost no time relative to my entire life was one of those tail events that changed everything moving forward. The same principle applies to entrepreneurship. Jeff Bezos didn’t launch Amazon. He launched it at the perfect time when the internet was exploding and people were ready to embrace online shopping, and that tail of it catapulted him into the history books. For you as an investor, the takeaway is clear. You don’t need to pick the winners, and this is what I want you to rethink because so often once it’s accepted that these tail events or these outlier, these handful of stocks are going to drive market returns, well, then I want to just own those. John, I don’t want to own everything else. I don’t want to own the losers. Now, why do I want to own that another 96%?
The answer is that you’re not going to be able to find Apple in 1983 before its Apple, unless you’re broadly diversified. You’re not going to be able to tell the difference between Facebook and MySpace. You’re not going to know the difference between Chase and Washington Mutual in 2007. This is the problem, which is why the great late Jack Bogle said it best when he said, “Why try to find the needle in the haystack when you can buy the entire haystack,” when alluding to index investing, and that’s why broad diversification is so powerful.
Yes, it means you will own that other 96%, but you know what? More importantly, it means, you will always own the next Amazon, the next Apple, the next Microsoft, the next Nvidia, you’ll never miss on them. And that’s the key because if you do, and as we know they make up the lion’s share of the returns, you will suffer dramatically in a potentially unrecoverable way by not participating in their profits, earnings and growth over the following decades. As Housel puts it, “A lot of success can be attributed to simply staying in the game. It’s about patience and resilience, not just brilliance.”
And our last piece of common wisdom is that market reliance on a handful of names creates risk. This piggybacks on the previous topic. Critics often argue that the market’s reliance on a few tech giants like Apple and Microsoft and Amazon, they make it fragile, but history actually tells us a different story. Let’s start with a little perspective. Concentration isn’t new. In the 1960s, IBM dominated. In the eighties, it was Exxon. The players change. The names are different, but the market continues to grow and the reason is there’s innovation and there’s adaptability. Take Apple for example, yes, it’s a dominant player, but it’s also incredibly diversified. It’s not just selling iPhones, it’s in software and services and wearables and even healthcare. This isn’t a company with a single point of failure. It’s a fortress with multiple modes.
Here’s something else. Market corrections are normal. They’re like pit stops in a long race. They don’t derail the journey. They keep the engine running smoothly. The real risk isn’t concentration. It goes back to what I just talked about. It’s missing out. If you are not invested, you’re sitting on the sidelines in cash because you’re worried the market’s near all time highs or there’s just too much concentration, or I don’t understand it and totally trust the stock market, so I’m going to stay uninvested. I’m over here buying CDs or burying it in the backyard, even worse, you’re not capturing the innovation and growth these companies represent. As Peter Lynch, one of the most famous historical money managers we’ve ever seen, famously said, “Far more money has been lost by investors preparing for corrections than has been lost in the corrections themselves.” Keep this in mind. The next time you think it feels really concentrated, man, maybe it’s too risky to be an investor.
Happy New Year. We’re just entering that point of the year where you’re not really allowed to say it, but I’m going to say it for one more week, and my tip for you this week piggybacks on that topic. It’s a fresh start, a blank slate, and it’s an opportunity to reimagine what 2025 could look like for you financially and more broadly. I want you to clean sweep for a fresh start. That’s my tip. There’s nothing magical about the sun setting December 31st, and then the sun rising on January 1st. It’s just another day. But mentally that reset can be powerful. It’s a chance to reevaluate, for you to recalibrate and let go of things that aren’t serving you well. Think about your relationships, your habits, your finances, are they helping you become the person that you want to be? Are they moving you closer to where you’re trying to get or further away? Or are you maybe holding onto some of these things because of momentum, habits, inertia, that idea that I don’t know, this is how it’s always been?
Let’s get practical. Professional organizers often say the best way to clean a space, let’s take your closet for example, it’s not to rearrange. It’s to take every single thing out and only put back what you truly want. So declutter the space, empty it out. Now just get the important things back in. What if you did that with your financial life? What if you started the year by asking, “If I had a blank slate, would I choose X, Y, Z again, like whatever it might be?” For example, think about the professionals that you work with, your estate attorney, maybe you’re CPA, you’re financial advisor. If you didn’t already have your current CPA, you just warped to your city, arrived in your town, you needed a CPA, would you hire the current one you have again?
If you interviewed five different CPAs or three or whatever, maybe five’s not practical, but you really did your research. Are you pretty certain that the current CPA you work with would clearly be the winner? If your answer is yes, fantastic, you have someone forward thinking who adds real value and interacts with your financial advisor and gives you tax projections and is helping provide efficiency and optimize your situation. But if your answer is no, ask yourself, “Why am I staying with this CPA?” It’s transitioned to your financial habits. Maybe you’ve been contributing to the same accounts or using the same budgeting app for years or the same savings rate, or the same mutual fund that’s too expensive and antiquated and not efficient and maybe is underperforming, but it’s just the one you’ve always done. I’m certainly not excluding myself from this.
As humans, this is very normal, which is why you can use the new year to disrupt potentially negative patterns because you want to be asking yourself, “Are these habits still aligned with your goals or have you outgrown them?” The clean sweep is about more than finances. How about your relationships? Again, if you were dropped into your town today, would you cultivate the same friendships? Are those people helping you grow? Are they holding you back but you hang out with them because of your history or obligation? I’m not saying every relationship, by the way has to be transformative. Sometimes you might be the one providing support and helping someone else, but if the relationship is draining you or pulling you away from your values, this is a really good time to reevaluate. So in this beginning of the year here in January, I challenge you to take everything out of your financial and your relational and your spiritual closets, and only put back in what truly adds value to your life.
Well, it’s time for one of my favorite parts of the show, your questions and to help me with those, as always, one of our producers, Brit, is here to read those. Hey, Brit. How’s it going? Who do we have up first?
Britt Von Roden: Up first, today we have Lisa from San Diego and she’s wondering, John, what social security benefits are available to a minor who has just lost a parent?
John: Lisa, I’m sorry to hear about your difficult situation. Social security does offer survivor benefits for minors which can provide really important financial support. If a parent who worked and paid into social security passes away, their children may qualify for survivor benefits and here are the basics. A minor can receive up to 75% of the deceased parent’s full retirement benefit. Benefits are available to children under 18 or up to age 19 if they’re still in high school. In some cases, benefits may also be available to a disabled child over 18 if their disability began before age 22. There are some other nuances that I won’t get into today on the show, but we’d be happy to talk with you about if you need more clarity on a specific situation.
But to claim these benefits, you’ll need to provide proof of the parent’s death as well as the child’s birth certificate and social security number. The application process is handled through your local social security office. And one thing to note is that there’s a family maximum benefit, which can limit the total amount paid to all family members, if there are multiple children, for example, of the deceased parent or a surviving spouse also receiving benefits, the total amount will be capped. All right. Let’s go to Justin in Minneapolis.
Britt: Yeah. So Justin shared that he retired a few years back and he is decided he wants to return to work. His question is if there are any drawbacks he needs to consider if he does?
John: Well, Justin, congrats. Sounds like you are ready to pursue a new challenge, which is exciting. There are definitely some positives to going back to work. For one, you’ll reduce the amount you need to withdraw from your portfolio, giving your investments more time to grow. On top of it, you may be receiving some group benefits through your employer or a match. Some of those perks that you certainly aren’t getting once you’re retired. Many retirees also find that working provides a sense of purpose and connection as well as an opportunity to use your skills in meaningful ways. I mean, I’m sure a lot of these different factors played into your decision to go back to work, but there are drawbacks that you can consider.
If you’ve already started collecting social security and now you’re going to be earning more than $21,240 here in 2025, your benefits will be reduced. For every $2 you earn above that threshold, $1 is withheld and once you reach full retirement age, those reductions stop. But if you’re basically in that window between 62, you took an early retirement and 67, you will want to be mindful of how much you’re earning and how that impacts and correlates to your social security benefits. Now, important to know you don’t lose that money. So I’ve had a few people go, “I have to pay it back. No, I’m never going to receive it again.” It just goes back in deferring as if you didn’t take it.
I had a client several years ago now who took a similar approach. They retired, decided they didn’t want to retire, but had already turned on social security, went back to work. The plan was work part-time as a consultant, make about $40,000 a year, collect the 25,000 or so per year of social security benefits, and his plan was to live on about $65,000 a year. That strategy sounded great in his head, but what he didn’t realize was that by making 40,000 per year, he was way over the earnings restrictions. He wouldn’t be able to keep all $25,000 of social security benefits. A lot of it had to get paid back, and that surprised him because his budget was set basically on that 65K that he now wouldn’t have coming in and would have to pull in his mind unexpectedly from his portfolio. But that would be one thing to look at.
Another consideration is taxes. Going back to work may push you into a higher bracket, which might affect strategies like Roth conversions or other tax planning moves that you’ve been strategizing or already implementing and executing while retired. Those might not work anymore or be efficient. Lastly, there’s the time factor. Retirement gives you freedom. Going back to work’s going to limit that. If you’re okay with that trade off, it could be a great decision and my guess is you are. Maybe you were actually bored or had too much time, which is why you’re enjoying the thought of getting back to work. But make sure that the way you’re spending your time really well aligns with your goals. All right. Well, I’ve got time for one final question. It’s from Karen in South Carolina. Britt, let’s go to Karen’s question.
Britt: Great pick, John. It sounds like Karen is a long time listener. She shares that she has always appreciated your point of view and perspective over the past several years, and she wants to know what are you going to be focusing on in 2025?
John: Thanks, Karen. For me, 2025 is all about being present. I have seven kids, two already out of the house. My youngest is three. Every year that passes reminds me how short this season of life really is, and I’m focused this year on soaking up the moments I have with my kids and my wife, not just rushing toward the next goal. I tend to be very motivated by achievement and goal accomplishment, which can be good, but it can be too much and it can put my focus way out into the future and I can miss what’s right in front of me.
From a financial perspective, it’s about balance. I’m very grateful that the career I’m in has provided me a lot of knowledge and insight to hopefully make pretty savvy financial moves from a technical standpoint, but it doesn’t prevent me from all the same emotional and behavioral issues and biases that we all deal with. And that I often talk about here on the radio show, I struggle to not move the goalposts, to set finish lines and not constantly plagued by that idea of more. Gratitude, presence, using my money intentionally, those are my priorities for 2025. Appreciate all of those questions. If you have questions, you can email those to [email protected].
Well, Jimmy Carter once said, ‘Too many of us now tend to worship self-indulgence and consumption.” Pretty true of society today, isn’t it? Well, this was from his crisis of confidence speech in 1979, when he challenged Americans to reflect on how materialism was reshaping our identity. He reminded us that, “Owning things and consuming things does not satisfy our longing for meaning.” If only we’d listen. Today, materialism isn’t just present, it’s pervasive. And Carter’s words really feel more relevant today than they even did in 1979.
So as you start this new year, I encourage you to ask yourself, “How much is enough and how can you use your resources to align with what truly matters in your life here in 2025?” It’s about striving together for a life of purpose and intentionality, and I’ll be there right alongside you, challenging myself with this same mentality that Carter so eloquently communicated over 50 years ago. 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. This show is designed to be informational in nature and does not constitute investment, tax or legal advice.
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