Retirement planning doesn't have to be overwhelmingly complicated and it certainly doesn't have to be as complicated as a lot of people make it. So today we're going to try to break down some of these unnecessary complexities that you'll often find in retirement advice and do that all with John Stillman from Rosewood Wealth Management.
Coming up next. As a chartered retirement planning counselor, John, I know you're not a simple man. You might seem simple on the surface. I know you got many layers to you, though, but I like the simple multitudes.
Yes. Do you like the simple approach to financial planning? That is my preferred way to go.
And I would actually dispute you. I am pretty simple fellow. There are some things in the financial world that can be complex and hard to understand, but not everybody needs that complexity in their financial life. So the simpler we can make it the better. I want to do that today with you to just kind of get into the simplicity of things and how you make it easier for people, how you break it down, take out some of these complexities and really kind of who's muddying up the process.
And I want to start there with you. Who do you think is responsible for this, John? Is it more advisors, people in the financial world that are to blame for making it complicated for people? Who would you kind of pin that on?
Well, there are probably a lot of people you could pin it on. In some cases, it's just the tax law. The tax code is complicated. And so anytime you're dealing with things in that realm, there's a lot of nuance. I mean, the tax code, when they first created the income tax in 1917, 1918, whatever it was, basically to finance World War One, when they first created the tax code, it was just a couple of pages.
There wasn't much to it. And now it's hundreds and hundreds and hundreds of pages. And so there is some inherent complexity in knowing that and understanding all that and being able to take advantage of the tax code. There are some investment vehicles that are just a little complex to understand in terms of how they work. But just because you're invested in something like that doesn't mean you necessarily need to understand the nuances of it. You just kind of need to have a big picture idea of what it's doing.
So I think there are a couple of things that happen in the industry. There are some people, and this is more of an old school approach. I don't know that this happens as much now. But I think maybe 20, 25 years ago, it happened more, where there was almost this strategy from a lot of the big financial companies, which was like, look, you just have to make this sound as complicated as possible when you're dealing with your clients. Because if they're so lost that they can't comprehend anything you're talking about, then they have no choice but to just say, all right, well, you're the expert. This is really hard.
I'm going to listen to you. I think that's a terrible way to go about it. But that was a strategy that was employed in the industry. Again, I don't know how much that happens now.
But certainly, it was a thing that happened a lot more. The other issue, and this is probably more common now, is that there are some people that are just bad communicators. So they're not trying to do something inherently evil. It's just that they're not good at explaining things in a way that the typical person can understand. And it is easy to lose sight of the fact that, all right, well, if I've been wallowing around in this stuff for 20 years, you take for granted things that you know that the average person isn't going to know. And so it can be hard for some people, I think, to talk at a level that anybody understands. So I think in this day and age, more than anything, that's going to be the cause of complexity in people's plans. It's just bad communicators who don't do a good job of explaining what's going on. Yeah, and that's not exclusive to the financial world either.
I mean, you know, you can look at pretty much any professional. They'll try to make it overly complicated for you to make you trust them a little bit more, or they'll use a lot of jargon to try to prove something to you. So it's not different. Maybe it's more exaggerated in finance because there's so many different levels to it. And there's a lot more to try to wrap your mind around, which can make it a little more difficult. But as you try to make sure, I'll give you an example of that from home maintenance, right?
So we have a water softener system, a water treatment system in our crawl space. And every time these guys come out to work on the water, like these dudes know more about water chemistry than anything, than anybody I've ever met. And every time they start talking about it, I'm lost in 15 seconds. And I don't think they're trying to showcase how smart they are. But that is the impression I walk away with as well.
I don't know anything about this. I got to do whatever they say. Yeah. And maybe we come across that way.
I know Walter probably does, as he's talking with people, you know, speaking about equipment and different levels of video and audio and just the nuances of what we do in this recording session probably comes off on people. So I get it. But we want to make things more simple for people and make this process a little more streamlined. So if someone's trying to do that, they feel like, okay, maybe I'm a little overwhelmed.
Maybe it's a little too complex for me. What are some steps they can take to start making things more simplified? Well, one of the biggest causes of complexity for people is just too many accounts. So a lot of times, consolidation of accounts can be a big help.
So I was working with somebody recently. When they first came in, they had 11 accounts. They did not need 11 accounts. Some of those were inherited, and they just kept them in the account that they were in when they inherited them. And when I say 11 accounts, that was 11 investment accounts. They also had five bank accounts, two different banks, each with a checking and a savings account, plus a money market account at one of the banks. So 11 investment accounts, five bank accounts.
It was just unnecessary. And so what we did was we consolidated a lot of those investment accounts, and they went from 11 accounts to five just by putting similar types of money together in the same account. So instead of the wife having three IRAs and the husband having two, now they each just have one IRA. That makes it easier. Less accounts, less statements, less logins to keep up with. And so consolidation can be a big help for a lot of people. And again, it's usually not that they went out and intentionally opened all these different accounts.
It's more like, well, I left a job. I never rolled the 401k over. So I have that account there.
My nephew was in the business for a while, and I wanted to open something up to help him. So I opened up a Roth, and I maxed it out. So I've got like $5,000 in this Roth from several years ago. I inherited a couple pieces and just left them in the account they were in.
It's usually that. It's by accident, you end up with all these accounts, and consolidating will make it. Consolidating will make a big difference. Another thing you can do is just organize your paperwork. So a lot of times people will come in with a binder of statements and old tax returns.
And some of this stuff isn't even relevant anymore. A lot of times they'll come in with statements from accounts that don't exist, but they felt like they needed to keep this statement from six years ago. I don't know why they feel that way, but they just keep all the paper. And when you come in with all this big old stack of paper, I mean, very little of it is needed usually. So just understanding what you need to keep, what you need to hold on to versus what can be shredded will help people as much as anything. Because psychologically, when you see all this paperwork, you think, wow, there's a lot going on here.
This is really complex. Well, maybe you just need to keep the most recent statement from all of your current accounts. You definitely don't need to keep statements from accounts that don't exist anymore and haven't existed seven years. There would be no reason to keep that paperwork.
Now, I think people probably operate from what they've heard about. Well, you need to keep tax returns for at least three years because you can get audited up to three years in the past. And so people say, well, if it's good to keep it for three years, it's even better to keep it for 11 years. And if it's good to keep tax returns for 11 years, then we should keep all of our paperwork from everything for 11 years.
It's just unnecessary. So don't do that to yourself. So the first step is to try to consolidate, organize your accounts and some of the statements, that sort of thing. What about investments? Is there anything you can do to keep these things organized, make them a little simpler and easy to understand?
Yeah. So one thing I like to do is break money down into three categories for people. So you have your not yet taxed bucket, you have your taxed as you go bucket, and you have your tax free bucket.
We can start thinking about it in those terms that helps people see more clearly how much they have in each of these different tax treatment buckets. And then they say, okay, well, just because I have $300,000 in this 401k and $150,000 in this IRA. And this other IRA that I opened and stuck a little money in, it's got $15,000 in it. That's all the same type of money. When we talk about consolidating, all of those dollars could end up in the same IRA because it's the same type of money for tax purposes.
And so then when you start to understand, okay, while there's really no difference in all of this money, it becomes a little more clear. Then when we say taxed as you go, so this is your brokerage account. This is anything where you might have to pay capital gains or you have dividends that are being taxed. Your bank accounts technically would fall in this taxed as you go category because you do get a 1099 from the bank for any interest that you earn on your bank accounts during the year.
So that would be the taxed as you go bucket. It's not a retirement account. It's just bank accounts or after tax investment accounts. Tax-free would be mostly just the Roth IRA is what would go in that category. Now you might have some cash value life insurance. Technically, we can consider the cash value of that life insurance to be in the tax-free bucket.
That's not going to apply to most people though. For most people, it's going to be the Roth is the only thing that's in that bucket. And when you start to divide it up that way, you say, wow, okay, so out of a million dollars, I have 835,000 of it in the not yet taxed bucket. Again, in all different forms, different types of accounts, IRAs, 401ks, 403Bs, SEP IRAs, 457, all this stuff that you have not yet paid taxes on. 835,000 of my million is in that. And then I have 50,000 in a Roth in the tax-free bucket. And then I have the remaining little over 100,000 is in bank accounts and brokerage accounts.
Well, we're kind of unbalanced here, right? We have a lot of money in that not yet taxed bucket. When you start to understand that, then it starts to open up your eyes to, okay, well, how can I, with my future contributions, start to build up some of these other buckets?
How can I start to move money from the not yet taxed bucket to the other buckets? So grouping it by tax treatment, I have found is the easiest way to help people really understand, really simplify what's going on with their money. I love it. You can see the beauty of simplicity. And I think it's not only more effective, I think, it makes you feel better probably too. It kind of serves two purposes.
I think a lot of us kind of feel like we need to be complex with our money and maybe do more than we need to. And really, the truth is you can be just as effective, maybe even more so, by keeping it simple. That's a theme and a strategy for just about anything in life, right?
Yeah. I mean, the simpler you can make it, the more confidence you're going to have in your command of the subject, your command of the topic. And the more confidence you have, the more easily you'll make decisions because you feel like you know what you're doing. Now, obviously, we don't want you overconfident to the point that you're just making decisions left and right and you don't really know what you're doing. Now, obviously, you need to slow down and make sure you're making the right decision. But I've seen people that lack so much confidence because of the complexity in their picture. They just can't make a decision. They're frozen.
And they'll miss their window to make decisions that they should have made because they didn't have enough confidence. Very good. Well, if you have questions for Jon, I want to sit down and look at the complexity within your financial plan or begin that planning process, whatever it might be. You can always reach out. By going to meetwithjon.com, you can schedule a time that works for you. Pick out a time on Jon's calendar. You'll see it right there at meetwithjon.com.
Begin that process or you can call 800-545-2991 for Rosewood Wealth Management. All right, Jon, you're not a simple man. I know you like to think you are, but you've got a lot of depth to you, Jon. We appreciate that here. I'm glad you think that. At least you played it off that way very well. We appreciate your time as always, Jon. We'll do it again soon. Have a good week.
