Did you know that the entire baby boomer generation is expected to reach retirement by the age of 2030, and retiring at age 65 gives us basically another 21 years to figure out what to do with our lives? These are staggering numbers that have us talking all things retirement on this week’s episode — plus, hear five trends that may have you rethinking your plans.
Episode Notes
Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!
John Hagensen:
Welcome to the Rethink Your Money Podcast, presented by Creative Planning. I’m John Hagensen. And ahead On today’s show, a perspective shift on retirement, why trusting your family is not an adequate estate plan, as well as what the wealthiest Americans do with their investments. If you have a question you’d like me to answer, you can email that to radio@creativeplanning.com. Now, join me as I help you Rethink Your Money.
You are living through what is being called the silver tsunami. According to legal jobs, about 10,000 baby boomers turn age 65 each day, and the entire boomer generation is expected to reach retirement age by 2030. And the number one concern of retirees in every study is running out of money. I’m going to offer ideas for how you can feel confident that you won’t outlive your money. I don’t want you to have to worry about this. I want you to have confidence in your plan.
But it’s important to note that this is a completely different concern, this fear of running out of money, than almost all of human history. So much has changed. Since 1760, productivity has increased almost 30 fold. And now, of course, with AI, it’s expected to exponentially compound as we’ve already seen. Do you realize it took all of human history for our ancestors to control fire and use it for cooking, but only 66 years to go from the first flight to humans landing on the moon?
That is extraordinary progress. If we go back in a time machine even 125 years, to the turn of the century at 1900, it’s mind-blowing what has changed. The first flight, television, antibiotics, the first computer, discovery of DNA, moon landing, internet, smartphones, and now as I just mentioned, artificial intelligence. In the midst of that, let’s look at what has changed regarding retirement in 1900, just before the Wright brothers took flight, the average global life expectancy was just 31 years.
That is shocking to me. That wasn’t that long ago. 31 years? For most of human history, we had short lifespans and were expected to work until death. There was simply no driving societal need for retirement as we know it in 2024 in America. Modern day retirement was necessitated and made possible through lengthening lifespans more than anything else, and then expanding prosperity overlapping with that and population shifts tied to the Industrial Revolution.
In the United States specifically, the first employee contribution plan was established in 1880 by the Baltimore and Ohio Railroad Company. It was pretty ingenious and actually still has some components to what we do today in 401(k) plans. They combined company contributions and employee salary deferral to generate future retirement benefits, giving both parties a stake in the process. And then the American Express Company established the first corporate pension in 1875.
And of course, over the years, pensions grew in popularity as a way for companies to reward long tenured, loyal employees have strong retention while simultaneously opening space to recruit a younger workforce. Then in 1935, the Social Security Act was passed, which established 65 as the official retirement age. Here’s what’s wild about that. It’s only moved from 65 to 67 over the last 90 years. Yet at that time, the average life expectancy was 61 for men and 65 for women.
So you were eligible for social security benefits at an age that was later than average life expectancy. That would be like being eligible for social security benefits today in your 80s. I wonder why we’re underfunded. I wonder why we’re having problems. Well, that’s a complex topic with numerous variables, but the biggest being we’ve moved back full retirement two years and are living 20 years longer. It’s simple arithmetic. MIT AgeLab Director Joseph Coughlin says that retiring at age 65 gives you about another 8,000 days, basically 21 years to figure out what to do with your life.
You are in one of the first generations dealing with this longer retirement. What do you need to know? What are the takeaways? I’ll give you three. Number one, consider first and foremost if retirement, like a full retirement, even makes sense for you. If it does, when? What do you plan to do with your time and your resources to find purpose and find fulfillment over what might be several decades? As a wealth manager who’s had thousands of meetings, I’ve concluded that retirement for many should not be the number one financial goal.
Sure, you want to position yourself for financial independence. That makes a ton of sense. So that way if you don’t like your boss or you’re unable to work or you’re laid off, you have flexibility and you’re not stressed out because you’re on someone else’s terms. That part of saving toward retirement is fantastic, but this idea that the pinnacle of this back half of my life is that day that I can do nothing, be careful.
It may not quite be what you think it is. Second takeaway is to consider where to retire. That decision has a big impact on cost of living, healthcare availability, taxes, leisure activities, climate, and relationships, friends and family. And number three, have a plan. People will spend more time planning out a one-week vacation. Every beach, restaurant, hotel, they’ve got it figured out.
I mean, I was just at Disneyland for a day with my family last week and the depth of planning of some of these Disney fanatics is pretty impressive, matching T-shirts, which stand within the park has the best turkey legs, the order of their lightning passes, when and where exactly they’re going to perch to see the parades. I was like, wow, they got it going on. I’m just walking around trying to avoid having to get on the teacups, get nauseous with the kids.
But so often we do more planning, how crazy is this, for that one week vacation than for over a 1,000-week vacation and one that we have over half our life to plan for? But see, that’s the problem. While planning for financial independence is universally accepted as important, it’s not urgent. It’s not time sensitive. You ever seen that diagram when looking at time management and prioritization?
There are two different circles that overlap: urgent and important. Things that are not urgent and also not important, we just don’t do those. Getting back to a telemarketer, not doing it. But then you have urgent and important where the circles overlap. That’s obvious. That’s an easy one too. That’s filing your tax return. There’s a deadline. You’re penalized sometimes substantially. You get a call to pick up your sick child from school, you drop what you’re doing and you go pick them up.
It’s important and it’s urgent. But here’s the difficult one, the aspects of life that are very important but are not urgent. Think physical fitness and eating right. Super important, not urgent. If I eat 10 Twinkies, I’m probably not going to die tomorrow, and I’m probably not going to gain 30 pounds. I’m going to feel really sick and have a sugar coma, but other than that, I’ll be fine. And these are the tasks that you have to somehow create urgency, manufacture urgency if that’s what it takes for you to get going.
Maybe it’s accountability. Maybe it’s automating it. Maybe it’s creating shorter term goals that you can incrementally knock out. That’s my idea behind my one simple task segment each week to give you opportunities for bite-sized progress. It’s probably some combination of all of those things. But make no mistake, having a game plan to put yourself and your family in a position for success is absolutely important.
And if you’ve been on the fence because maybe it hasn’t felt urgent and you’ve thought about contacting us here at Creative Planning, you listen to the show and you think, “I probably would benefit from having an experienced, credentialed fiduciary review my situation,” everything from taxes to estate planning to investments to retirement planning, whatever is on your mind, but yet you haven’t taken that step, I encourage you to do it now. Visit creativeplanning.com/radio to meet with a local wealth manager just like myself.
We have nearly 500 certified financial planners along with 250 CPAs and over 50 attorneys. We have been helping families for over 40 years in all 50 states and abroad. For your no obligation wealth review, visit creativeplanning.com/radio. Why not give your wealth a second look? This brings me to the stock that everyone is talking about. Of course, I’m referencing Nvidia. Nvidia topped $3 trillion in market value, now leapfrogging Apple. The stocks rallied some 147% this year, adding about $1.8 trillion of market cap.
It’s now the number two stock on the S&P 500, only trailing slightly Microsoft. We’ll see how long the incumbent is able to hold off Nvidia. Kind of reminds me of Caitlin Clark. Creative Planning President Peter Mallouk had a tweet showing Caitlin Clark’s impact and it was pretty eye-opening to see. She’s on a terrible Indiana Fever team that had the number one pick the last two years by being the worst team in the league for a reason, they’re not very good. She’s taken her lumps like most rookies do, and she’s a ratings bonanza.
The Taylor Swift of women’s sports. The WNBA Draft had a 379% increase in ratings. This is even more than Michael Jordan did for the NBA and their ratings were cut nearly in half after his retirement. This is more comparable to Tiger Woods. Caitlin Clark is life where a small group disproportionately move the needle for the broader category, and the stock market and Nvidia are no different. Creative Planning Chief Market Strategist Charlie Bilello and Creative Planning President Peter Mallouk spoke of this recently on Signal or Noise. Have a listen.
Charlie Bilello [Sound Bite]:
Nvidia up over 20,000% in the last 10 years you could see. No one else is even close. No one else is even above 5,000%, and look at the earnings growth, 50% per year annualized over the last 10 years.
Peter Mallouk [Sound Bite]:
Yeah, absolutely jaw-dropping. It reminds me Tesla. It felt overvalued for so long, but it went on years, longer than most people expected, before it corrected. This is an incredible story. Again, it’s wonderful for diversified large cap investors who by definition will have Nvidia and it’s lifting up their returns. And that 12% return you were showing earlier, Nvidia is a top contributor to that. And so it’s a classic example of own the haystack and you get the needle.
John:
We have never seen anything like it. $1.8 trillion in growth just in the last year. To put that in perspective, that’s almost as much as Amazon, the fourth largest company in the S&P 500, is worth entirely. That $1.8 trillion of growth is three times larger than JPMorgan Chase, the largest bank in the index, and seven times larger than Coca-Cola. To be clear, I’m not referencing the size of Nvidia. That’s just the most recent growth is that much larger than those entire companies.
What does it mean for you and your money? It’s a reminder to broadly diversify to ensure that you capture those returns. Now, this is counterintuitive. Most when looking at Nvidia conclude, I need to find the next Nvidia. No, that’s the opposite of what this teaches you. Nvidia is the ultimate exception to the rule. Nvidia is an outlier. It’s an extreme outlier. It’s easy to double when you’re small. But when you are already the 800 pound gorilla, it’s basically unheard of.
Let this be a reminder that to achieve the returns that you desire, you’ll need to own the next Nvidia. And the way that you ensure that is by broadly diversifying across many different asset categories, many different geographies, and many different sectors. I have a special guest today, estate planning attorney Jerry Bell. Jerry focuses on special needs situations and elder law at Creative Planning. It’s a special treat to have Jerry here. I learn something every time we talk. So Jerry, thank you for hopping on to discuss this often confusing topic.
Jerry Bell:
Appreciate it, John. Appreciate the opportunity to talk with you again.
John:
A lot of my kids’ friends call me Mr. Higginson. I think they consider me an elder. Jerry, am I considered an elder per your definition, and what is elder law?
Jerry:
Tell you what, if you’re an elder, John, then I’m not sure what I am. Elder law is one of the few areas of law that’s defined by the age of the client. I guess juvenile law would be similar. It’s expanding and growing. First of all, the number of elder growing, we all know that, but their needs are as well. So elder covers a group of people built upon care-based planning and the legal issues that come with that.
Old people like myself started getting divorced. We have prenuptial agreements. We have cohab agreements. We have standard contracts, things of that nature. So it’s expanded. But I think more than anything else, elder laws defined around the legal issues that go with a class of people.
John:
How do we know when incapacity is real for a loved one?
Jerry:
It’s delicate. That’s the best way to put it. What’s the difference, John, between memory fade and incapacity? Because sometimes people will get pretty excited about mom or dads losing their mind when really they’re just starting to step over that hurdle, if you will. And what if I as your 90-year-old client don’t think I’m losing capacity?
That makes it even more challenging. Obviously if a doctor has went to the task of saying they’re incapacitated, it’s pretty concrete evidence that you can’t really get around. But most of the time I’m not gifted with that. I’m gifted with a concern of the family members and what can we do to protect them.
John:
What steps can a family take as incapacity evolves for a loved one?
Jerry:
An easy answer on that is keep your powers of attorney updated, but most people blow right by that. But the thing we find ourselves doing is talking to the family about how about instead of just mom being the agent for dad and let’s say dad is losing capacity, how about if it’s mom and daughter or mom and son?
And we can put language around what mom can decide and so forth, but it’s adding some depth around the agents with those simple documents called power of attorney that everybody takes for granted. But boy, as clients get older, those become so important to have updated, to have accurate in line with the capacities and the memory situation of the people involved.
John:
Sure. What are some of the big challenges that you see families facing with incapacity?
Jerry:
Well, the biggest challenge by far, and it totally varies by family, is who’s going to help you make decisions, mom and dad with no children? Is there a brother or sister that can help? That’s an easy thing to think about, but guess how old they are? They’re about the same age as your client most of the time. And so every family can be different and it’s really working with them and trying to find out if there is a family member. If there’s not, it doesn’t have to be family.
Good news is on the financial side. You can have some kind of corporate trustee involved there. You can’t really have a corporate trustee involved on medical decisions. They’re not in that game, so finding the right people that they’re comfortable with and that us as attorneys or advisors are comfortable can make decisions is the biggest challenge by far. And also making sure that there’s someone that’s not going to disappear as age and time goes by.
John:
What estate planning documents need to be modified as a result of incapacity?
Jerry:
The biggest ones we’ve already mentioned is power of attorney, but usually it’s more complicated than that. Because let’s say they’ve done a revocable trust, which a lot of clients have. Well, if a lot of things are owned by the trust, then you might want to update your trustee succession because that’s going to govern more than the power of attorney a lot of times.
What if dad is chief partner in a partnership which is their business? That’s probably not a good combination if dad’s losing some capacity issues there. So we just have to look at what the client has, how things are owned, and make sure the corresponding documents are updated accordingly.
John:
I’m speaking with Creative Planning attorney Jerry Bell. If you’d like to speak with Jerry and his team about anything estate planning related, we have 50 plus attorneys here at Creative Planning ready to help. And you can visit our website creativeplanning.com/radio to request a visit with our team. Jerry, along these lines, it can be expensive when medical events occur or incapacity. How can a family go about protecting assets for a surviving spouse when one is ill or one is incapacitated?
Jerry:
That’s a tough one, John. And especially with this generation, they’re so loyal, so much want to do the right thing for their spouse. But you got to get to that pivot point where when does the duty that the spouse feels to take care of their spouse that is ill or has some mental capacity issues, when does it become too strong that it forces the well spouse to run out of money?
And you got to be the unbiased, unemotional advisor or perhaps a family member that says, “Mom, we can’t keep doing this.” And let’s say mom is five years younger. “We have to look out and have money to take care of you too,” and mom is conflicted with, “I want to do what’s right for dad. I want to take care of him. I committed to do that.” It does help if you have long-term care insurance or VA benefits.
That isn’t real common, but it adds some buffers in there that can help work through that with the client. What makes it even worse though is when the client just buries their head in the sand and they just keep waiting, they keep waiting, and then it becomes too long. And if they do nothing, and I’m not trying to hype this too much, but if they do nothing, there’s not as many things for us to do to help them.
John:
Time is of the essence. It’s obviously a very emotional decision because you’re going through this challenge with your spouse. Can you talk about that Medicaid qualification process?
Jerry:
Yeah. For those where Medicaid is something they could pursue, there is federal statute that is there to protect that well spouse. And so Medicaid qualification process, this would be true in any state, has a division of assets process which is designed to protect the other spouse so that she, I’m just going to use she as an example, has sufficient assets to survive once he has gone in a facility. So they call that division of assets.
You’ll hear that term often. And then related to that is a similar process called allocation of income. So if someone’s filing for Medicaid, let’s say dad has the higher social security, perhaps some of his income will go to mom as well. Because the worst thing they want to do is take care of dad, spend down money to get him on Medicaid, and then have an impoverished mom or an impoverished spouse situation because that just creates a new problem there.
John:
It’s important to note, there’s a look back period, so you can’t funnel money out of new and irrevocable trust and then the next day say, “Well, I want Medicaid. I just took $2 million. Put it in irrevocable trust. None of it’s available for our care.” Is it five years, Jerry? I think in most states, is that around the timeline?
Jerry:
Five-year look back for Medicaid qualification. But if you’re trying to qualify for VA aid and attendance, which is for a small group of veterans, that’s a three-year look back.
John:
Okay, not quite as punitive.
Jerry:
We really encourage people to talk to an elder law attorney because it’s not too intuitive. God bless Medicaid for what they do, but tell you, it’s not the most logical intuitive thing to do that planning.
John:
I’ll give you an example of a different angle to this. I had a single client, never married, no kids, 60 years old, and we were going through the planning process. And she basically said, “Well, do I need long-term care insurance?” And we were evaluating the pros and cons. And I said, “Well, do you mind potentially being in a shared room or not as nice a facility in the event you needed to go into long-term care?”
She really had no legacy goals. I mean, she was hoping the check to the morgue would bounce. So we concluded together, why would I make all these premiums for long-term care insurance that often are increasing through the roof that I may or may not need that take income out of my pocket while I’m in my go-go years of retirement so that there’s possibly something preserved down the road.
She’s like, “Oh yeah, that would make no sense to get long-term care insurance. I’m fine if I’m 89 years old and finally my assets are exhausted. I’ll be on Medicaid.” I think people sometimes think they don’t realize you won’t end up on the street. It’s not like you end up on the sidewalk. There is a government program that can intervene in that scenario. All right, last topic, financial exploitation as seniors.
We see elder abuse, whether it’s physical in nursing homes, whether it’s emotional, it’s financial. There are all types commonly found. What do you think we should be aware of to ensure that we limit this?
Jerry:
It’s a tough one to identify a lot of times, John. It really is. And some of that is because whoever’s doing the abusing is trying to cover it up and/or they have control of it. Like a lot of things, follow the money has a tendency to show some of that. But even with that, if you control the money, then they can’t follow the money. I’ve had situations, I had one come up recently where a lady, I would say she was in her 70s or 80s, but she’s such a nice person and she was trying to help some of the neighborhood kids.
And the neighborhood kids realized they had an opportunity to take advantage. Of course, they grew up and they started saying they needed help for legal expenses and she kept contributing to help them get out of whatever legal trouble that they had so-called created. Long story short, they exploited her for over six figures of money. That case, the family started realizing they didn’t have a good watch on the bank account.
They started realizing that things were disappearing much faster than normal. And so anything a family can do to have more than one person keeping track of the cashflow. Because unfortunately, the senior, a lot of times they’re intimidated. They don’t want to have the visits with the grandkids taken away from them if they don’t keep giving something to somebody.
John:
Yeah, how awful is that?
Jerry:
I’m going to stop mowing your grass unless you start paying me 100 bucks per mow.
John:
Yeah.
Jerry:
It’s hard to think of that happening. Unfortunately, it does. We can only do so much and as your neighbors, and I’d encourage people to use their hotline in their respective state. Most states have a hotline to report any concerns about abuse and then the right people can get involved and to look into that.
John:
My grandmother recently passed away at 95 years old. What I found to be true is once their agents acting as their power of attorney… In my grandmother’s case, she’s in a nursing home. She’s a little safer at that point. Where I find it challenging is in that middle stage when you’re trying not to step on their toes and take away their independence, which was so important to my grandmother, but also keeping a watchful eye to ensure there are checks and balances before it’s fully in a scenario where you have the acting power of attorney taking control of those things.
Jerry:
And when they reach that age, John, you know this is true, that $50 check or that $300 check, they forget about the one they wrote the month before, but it’s also important for the senior to feel good about giving back.
John:
When you’re 90 years old, you know that your life is coming to an end. If you have enough money, you want to feel like you’re doing something to make a difference in your final years, right?
Jerry:
No doubt about it. That’s important. Like a lot of the things we’re talking about here, it’s delicate and it takes a lot of patience with the family members.
John:
Your team is doing great work, Jerry, and I appreciate you joining me here on Rethink Your Money.
Jerry:
Thank you, John.
John:
There’s a famous saying, he who dies with the most money wins. No, the more appropriate description is he who dies with the most money still dies. I had epiphany while riding on Pirates of the Caribbean with my family on our Disneyland outing. Now, first of all, that is a crazy ride for no seat belts and no age limit. You’re going through water on a boat down a pretty steep drop to begin the ride, and I knew really quickly that my 4-year-old was going to have nightmares.
She had her little face in my chest saying, “Scary! Scary!” That moment early in the ride where you’re like, oh, parent fail, not sure what we were thinking. But as the ride concludes, the final thing you see is Captain Jack Sparrow sitting on a chair surrounded by treasure. He won the game. Look at all of his plunder. And I had this weird thought that came to me. I guess this is just what happens when you’re a financial advisor.
But I thought, now what? This is what he’s left with, sitting by himself in a room surrounded by gold coins and goblets that are worth a lot. So what? Common wisdom is that money equals happiness, and so we keep chasing it, especially as Americans. Every study that asks, how much do you think you’ll need to feel financially secure, which will ultimately lead to happiness, the answer is usually about double what they currently make.
It’s human psychology. It’s just the way we think. It’s not about the number. And I get it. Many say, “Well, it’s easy for people with money to say that money doesn’t matter.” Maybe that’s in part because people with money have already achieved it. They’ve gotten to the top of the mountain. They’ve looked around and they can tell you firsthand that it’s not what they thought it would be.
Now, of course, up to about $100,000 of income or so, depending upon where you live in the country, it makes a big difference. Earning 100 grand verse 25,000 does improve your happiness because you’re not worried about paying medical bills, can occasionally go grab a hamburger, and sign the kids up for dance class. Those things matter. But from there on up, it simply doesn’t. All the data tells us that it doesn’t.
But so often we’re trying to mimic Captain Jack Sparrow. Think of your life. If you’re doing better than you were 10 years ago, it’s maybe you improved some things. But are you exponentially more happy? How much has it improved your life? I think about my journey. I’m not any happier than I was 10 years ago, even though I have more money. And I think the reason is because many of the most important aspects of your life don’t require money.
Things like your relationships, your health, yeah, there’s a little bit of a tie to nutrition and income, and your faith. These are the things that bring fulfillment. These are the things that matter. Because remember, you can collect all the money you possibly could ever imagine blowing around in the wind, and at some point you’ll find yourself sitting in a room surrounded by your wealth, probably wondering to some extent, what was the point of this pursuit?
Another piece of common wisdom to rethink is that the stock market can’t be trusted. This is one of the driving beliefs behind people not investing and in turn not growing their wealth in an efficient manner to accomplish their goals. They leave it sitting in cash. They only buy CDs. I only trust real estate because I can touch it. Can’t trust that wonky stock market.
The perception that the stock market is rigged often comes from the frustration, and this is my opinion, in seeing massive swings or occasionally hearing about the Martha Stewart insider trading type scenario. However, the reality is that the stock market operates under a rigorous framework designed to promote fairness and transparency. While, of course, no system is perfect, the checks and balances that are in place ensure that the market’s not skewed to favor any single group.
It’s kind of like democracy. Is it perfect? No, but it’s the cleanest shirt in the dirty laundry. What an incredible mechanism we have to own and participate in the profits and growth of some of the greatest companies in the world. How cool is that? And by the way, that’s historically produced eight to 12% per year, which has been significantly better returns than lending money via a bond or saving money at the bank.
You have individual investors with a few thousand dollars all the way up to large institutions trading with one another, and here’s the cool part, all with access to the same information, thanks to regulations requiring public disclosures of company data. There are always some one-off scenarios that grab headlines like meme stocks, crypto. I get it. Sometimes it feels confusing.
But if you know what you’re doing and you’re well diversified and you have a good long-term strategy, simply put, the stock market has been one of the greatest wealth creation tools in your toolbox. And for most, avoiding it entirely because there’s a perception that it’s rigged will dramatically impair your progress toward achieving your goals. But if you feel maybe confused about the market, you don’t have confidence, you’re not sure exactly how it works, it does feel a little bit like you’re speculating and gambling, talk with someone, gain clarity, get answers to your questions.
And if you’re not sure where to turn, we’ve been helping families for 40 years here at Creative Planning and offer a complimentary, no obligation second opinion with a local experienced wealth manager just like myself. Visit creativeplanning.com/radio now to request that visit just as thousands before you have already done. Again, that’s creativeplanning.com/radio.
Because we believe your money works harder when it works together. Our next piece of common wisdom is that I can trust my family, so I don’t need estate planning. They’ll take care of it harmoniously. This is almost always incorrect. I’ve had a client in their 90s whose child just mysteriously went from being estranged to back in the picture and within just a few months was spearheading major changes to his mom’s estate plan for his benefit. He’s the one driving her to all of appointments now.
How can any of the other siblings be upset? This, after all, is what mom wants. I don’t need a prenup. My new spouse knows that the money I had prior that’s mine. Seen that go horribly wrong. Kids fighting over a piano or a piece of jewelry or some other sentimental item. It’s really sad because in many cases these are great families who love one another, and it can fracture an entire family over something that on paper to you and I seems pretty insignificant and petty, but it gets to that point.
It’s particularly tricky when there’s a divorce. Their second marriage is involved, stepchildren, stepparents. I’m telling you, people get weird when you’re gone. You don’t think they will. I’ve got a front row seat. They do. One of the greatest blessings that you can do for your family is have conversations. You don’t need to share the exact dollar amounts if you’re not comfortable doing that or you don’t think it would be to the benefit of your family.
But openly communicate broadly what your intentions are, what your wishes are, where your documents are, who your professionals are, so that it’s organized and clearly stated rather than ambiguous and left up for interpretation. So that the family you have, even if it’s awesome right now, stays awesome once you’re gone. As a side note, remember that your family doesn’t want 99% of your stuff, so you don’t need to accumulate or save a bunch of things for them. One of the first calls your kids make is to a realtor.
They go to sell your house and then they have an estate sale, and then they donate a bunch of stuff. A lot of times that’s all happening barely before there’s dirt on your coffin. They’ll want a few things and most importantly, the memories. If you have a loved one who is aging, I spoke earlier on the show with Creative Planning attorney Jerry Bell who specializes in elder law. If you missed that interview, you can reference it, as well as all past Rethink Your Money episodes at the radio page of our website or wherever you listen to podcasts.
He had some great tips related to estate planning and aging. And our last piece of common wisdom to rethink is that most wealthy people manage their own assets. Nope. Eh! Wrong. Actually the wealthier you are, the more likely you are to seek professional advice. There’s one obvious reason when it comes to wealth management as to why this would be the case.
There is generally a heightened level of complexity that extends beyond the knowledge level of someone who doesn’t do it for a living, who isn’t an attorney, who isn’t a CPA, who isn’t a certified financial planner or a chartered financial analyst. They’re just successful, but now they’re going to rely even more so on those professionals because they want to leverage their time and they have more to lose if a mistake is made. Just got more money. And it’s important to remember wealthy people aren’t idiots.
Why do so many have advisors if it’s just a cost? And man, their fees are going to be higher in total than what someone with less money would have to pay. Because an advisor fee should not be a cost. If you pay 1% to an advisor and everything they do is exactly what you could and would do on your own and you don’t mind doing it yourself, then why would you pay it? Of course, that doesn’t make sense. Notice though that I said you could and would. There are a lot of things in life we could do, but we don’t.
You want to ask yourself realistically, am I going to do this on my own? Theoretically, I could, but will I actually? You see, ideally a good advisor is bringing you ideas, strategies, and then executing on those to improve your situation in a way that you wouldn’t have done on your own. And in doing so, pays for themselves. You know what my colleagues and I are passionate about?
It’s sitting down with you for an hour and sharing ways that you can make progress, that you can improve your situation, affirm the things that are going well, provide clarity on the big picture, and look at all of your projections towards certain goals that you tell us are important to you. And then we offer solutions of how you can more efficiently close the gap on achieving your objectives.
Meeting with an independent fiduciary that isn’t charging you commissions, they’re not selling products that isn’t producing their own investments or receiving large third-party revenue sharing agreements as most of the industry is still doing, this is a totally different experience than what you likely have had before. Well, it’s time for this week’s one simple task where I help you incrementally throughout the year make easy to execute tips for improving your financial situation.
Today, I encourage you to create a care budget. I know you’re wondering, what is a care budget? I’m talking about caring for yourself, in particular, the three most valuable resources you have, your time, your energy, and your money. Spend a few minutes this week identifying, how are you allocating those resources, prioritize what is most important to you in each, and be prepared to put into action next week adjustments that better align with caring for yourself. You’ve maybe done this for your money, traditional budget.
Where are my dollars going? Maybe with your investments, you’re looking at a pie chart of your asset allocation. What does that look like with your time? What does that look like with your energy, which is so often difficult to quantify unless you sit down and are intentional? You can’t help everyone nor contribute to every cause. Time, money, energy, they’re all finite resources that when not balanced, when not managed properly, when not aligned with what we truly care about, that can create stress and anxiety.
I’ve done this for myself and can testify that it is an eyeopening process and can help you make improvements moving forward. Well, it’s now time for listener questions, and one of my producers, Britt, is here to read those questions for us. How are you, Britt? Who do we have up first?
Britt Von Roden:
Doing, fantastic, John. Great show today. So up first we have Nick out of Detroit. Nick was listening to another podcast that referenced a concentrated portfolio. Can you explain more about this and exactly how many stocks does he need to own to really be diversified?
John:
Appreciate the question, Nick. Well, this is one of those there is no right answer, but I’ll give you some general rules of thumb and how I’d be thinking about this if I were you. Anything really over 10% is pretty concentrated and you are at that point increasing your risk. Now, some financial planners may say that’s 5%. Anything over 5% is concentrated and too much. I wouldn’t. Because if you look at even the S&P 500, Microsoft, Nvidia, and Apple, just those three, the three largest stocks in the index, combine to make up about 20% of the entire S&P 500.
They’re in that six to 8% range in terms of weighting of the entire index. So theoretically, if you own an S&P 500 index fund and you said, “Well, I’m pretty diversified. I mean, I’m certainly not concentrated,” you would already have three positions concentrated at more than 5% within your plan, which is why I don’t suggest you only own the S&P 500. To be properly diversified, you want to own large and small stocks, US and international, growth and value, and you can achieve this by owning 10 to 20 index funds and ETFs.
I mean, maybe even less. Fortunately, you don’t need to own 3,000 positions inside of your accounts, which would be incredibly cumbersome. But Nick, the focus shouldn’t just be on quantity of positions you own, but rather how dissimilarly they move from one another. Let’s go back to the S&P 500. You have 500 positions. That solves for individual company risk, but not country specific or size specific risks because they’re all large cap.
Furthermore, there’s a high concentration between most of the largest companies in the index that I just referenced and the tech sector specifically. So what’s moving that index is mostly one sector of one country’s economy. We have offices near you there, Nick, and would be happy to sit down and look at your specific portfolio, your objectives to offer recommendations on how to ensure you’re not overly concentrated. Thanks for that question. All right, Britt, who’s next?
Britt:
Up next, we have Sarah in Florida and her question is actually one that we see a lot. So before I get to the question, John, a little background about Sarah. So Sarah is currently maxing out her 401(k). She says that she’s maxed out her Roth last year and has her emergency fund built up. She feels like she’s saving more than the average American, but isn’t sure that that is enough. Her question today, John, is how does she know if she is saving enough and should she be saving more?
John:
Well, Sarah, there’s one way to know whether you’re saving enough and that is to have a written, documented detailed financial plan. I know it’s a nauseating answer if you are a regular listener because I say this all the time, but it’s true. How do you know if you’re saving enough? Put in every detail of your objectives in life and what you currently own and all the assumptions of how much you’re currently saving and model it out using various scenarios to see where you land.
Is it going to be perfect? Of course, not. It’s not going to show you exactly where you in fact will be 30 years from now, but it gives you a framework, a range as to whether you’re close. And then you and a great advisor can work together to adjust that as those assumptions turn into and that’ll allow you to stay out in front so you’re not reacting too late in the game, which is one of the biggest problems is people realize they’re not saving enough, but now they’re 58.
It’s never too late, but obviously the best time is still now to begin. But if they had run that plan 15 years earlier, the adjustments could have been much less dramatic because they would’ve had so much more time. Related to your question though, if you find that you want to save more, there’s something called a mega backdoor Roth that is often missed. It’s a great tool to get a total of almost $70,000 into your 401(k) or 76,500 if you’re 50 or older. Most people don’t realize this.
They think, “Well, I can put 23,000 into my 401(k) or a little over 30 grand. If I’m 50 or older, plus maybe I’m getting a company match on top of that.” No, you can actually contribute way more to your plan. It’s just that once you’ve hit those limits, you have to contribute after tax dollars. So think of it this way. Instead of taking extra income that you don’t need that you want to save for your future and putting it into a brokerage account or in a CD or a money market, you put those after tax dollars into your 401(k).
You might be thinking, well, why would I do that? What’s the difference? Why would I want it in there? Well, the reason is because within certain types of plans, assuming that your company allows for this, you take that contribution and you immediately convert it into a Roth. It’s a loophole. I don’t know when this will be closed. I don’t even know why it’s available, but it essentially allows higher income earners that have a surplus that want to save more shove around $40,000 into a Roth that they in many cases make too much money to contribute to.
And the irony is it allows them to get way more in than any of the limits ever would allow for a Roth IRA contribution even if they did qualify for it. Do not miss out on this because it’s a way to shift money from your right pocket after tax dollars where you’re going to be hit with capital gains taxes on the growth into a Roth where the growth is tax-exempt. All right, Britt, let’s go to the last question, which is somewhat related to this topic of Roths and Roth conversions.
Britt:
We have Adam from Seattle, and he is wondering if his portfolio is big enough to benefit from Roth conversions. So he’s saying he is single with roughly 500,000 saved in his 401(k) and doesn’t actively contribute to the Roth side. What should he be doing?
John:
I don’t know if the question of whether your portfolio is big enough is necessarily relevant other than the fact that very large retirement accounts tend to have very large required minimum distributions which are fully taxable and can escalate you into a higher tax bracket. But let’s start by looking at the difference between contributions and conversions. A Roth IRA contribution is limited to 7,000. A Roth 401(k) contribution is limited by the same 401(k) limits as the deferred side.
You also need earned income to make Roth contributions, but Roth conversions are transferring money from the deferred side of your account into a Roth and you pay tax at ordinary income rates on the converted amount. And that will stack on top of all the rest of your income. So there must be a calculation in terms of how much you’d like to do in any given year. Generally, the objective is to fill up a bracket you’re already in without exceeding it and jumping you into a bracket that is deemed to be too high.
Conversions are popular in general right now because we’re in one of the lowest tax environments that we’ve seen in decades. And as I just mentioned, that’s over in about a year and a half at the end of 2025. So Adam, this really comes down to what’s your current tax rate today and do you think that will be higher or lower in the future? Most of us expect tax rates to increase with over $33 trillion of national debt. So you’re asking the right question, but whether or not you should is going to be very specific to your financial plan.
Things like, do you have a pension? How much is your social security? Are you going to work part-time? Will you be inheriting money? How much do you have outside of this 401(k)? How much do you spend per month? What are your objectives? And a great certified financial planner can help you answer that question and determine whether or not you should be converting. And if so, what is the right dollar amount to convert this year? Keep in mind, you do not have until April for the conversion.
It’s not the same deadline as the contributions where you’re able to fund accounts for the previous tax year in the new year. These conversions are required to be completed by December 31st. If you have questions, you can submit those to radio@creativeplanning.com. A positive mindset is powerful. It’s no different when it comes to our money mindset. Whatever your financial situation, I’m going to encourage you, find ways to be grateful for it. Yes, even the things that are easy to complain about.
We all have them. More money, less money, they all come with their own set of problems. I meet with clients who have a massive abundance and others whose plan is just barely going to work or maybe even they’re a little behind. I can tell you with absolute conviction, there is no correlation between someone’s net worth and their satisfaction, their happiness, their fulfillment. Not at all. Finding ways to be grateful regardless of your situation will lead to a positive money mindset that can drive positive financial outcomes.
And no, this isn’t a prosperity doctrine. The happier you are and the nicer you are to people, you’re going to make way more money. Maybe, maybe not. But we all understand that a positive optimistic mindset has a positive ripple effect. But here are just a few gratitude examples. I’m grateful that I pay taxes. I know I threw you off with that, didn’t I? Because it’s a reminder of my provision and my income. I had to pay a lot of taxes this year. Well, taxes are directly correlated to your income, so you probably had a pretty good year.
The alternative is paying no taxes, meaning you made nothing. Maybe you’re a little short on your retirement projections. I’m grateful that I get to spend a few more years using my skills and working with people that I care about and that I enjoy and helping people with my gifts. My wife Brittany is amazing at this. It’d be like a rainy day outside and she goes, “Oh, well, this will be an opportunity for us to have a cozy day in. I’m going to make soup.” I’m like, “Huh? You’re beautiful and you this mindset? Like you’re an alien. How am I so blessed to be married to you?”
But it’s true. People like that are contagious in all the best ways. Because remember, it is far less about your circumstances and far more about your perspective because you will see what you look at. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.
Announcer:
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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 Higginson 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. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on the show, will be profitable or equal any historical performance levels.
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