2021 EP1120 Planning Matters Radio - Happy Thanksgiving

We want you to plan for success. Welcome to Planning Matters Radio.

And welcome into the program. This is Planning Matters Radio. I am Peter Rishon, founder, advisor at Rishon Planning. You can always reach us with your financial, your investment, your retirement related questions at 919-300-5886. That's 919-300-5886. You can visit us online at richonplanning.com. That's what it looks like.

It's my last name, Rishon, but it looks like richonplanning.com. And back with me again today, just an all-around good guy, captivating storyteller, somebody I just really enjoy talking with, Johnny Mayfield. Johnny, welcome back in. Oh, thank you very much. I always appreciate your insights. You've got an interesting way of looking at life, and I think that comes through a lot of different experiences all over the world. Well, true. Not exactly all over, but over a good portion of it.

And face it, with one eye, I have to look at everything twice. Well, you always keep a good sense of humor as well. And you know, we've been through a lot this year, but we still all have a lot to be thankful for. And as we are preparing for the Thanksgiving week ahead, I thought we would spend a little time talking about that, and maybe, Johnny, some of the family traditions and the things that we do over the holidays, and then also focusing on some things that deserve some time and attention from a financial perspective. Personally, with eight children, six girls and two boys, and now it's the grandkids and a couple of great-grands, believe me, there's a lot of fun and a lot of things going on during the holidays at the Mayfield home. Now, how many of y'all are going to be able to get together over the holidays? Right now, we don't know.

Because there's in-laws and out-laws and all the problems and associations and requirements for all the rest of the family, extended and otherwise. So we don't know the final count yet. In most cases, we really don't know the final count until the end of the day on Thanksgiving and Christmas and all the other holidays in between.

The invitation is opened, and you'll see who shows up. Exactly. That's the way it works at our household too. It's always a lot of fun though. We enjoy the time around the table, a little nap somewhere, maybe watch some football. We like to play games for all of our holiday gatherings, so those are kind of our traditions. This year, no different in that aspect, I don't believe, but we are going to be getting together with a different side of the family that we don't get to see too often.

So we'll see how it goes. Well, that's always a surprise. The one thing you tie everything together when you have portions of the family that haven't been with you, you always find a common point and everything branches out from there. In most cases, you find commonality with parents, aunts, uncles, somewhere in between in a meeting or a trip where everybody was together.

Then you can fill in the blanks from there. It really gets kind of fun and really funny at the time, especially when the grandkids are looking at you saying, really? You did that?

You didn't have a color TV? What happened to your computer and all the things that didn't exist 50, 60 years ago? Well, again, Johnny, I appreciate you being on the program and we'll talk a little bit more about Thanksgiving and all that it means and all that we do have to be thankful for. But I did want to talk a little bit about the fact that during this last year, a lot of people have really had to change their retirement timelines, whether it was because their employer mandated or required it of them or we've had more time at home to kind of get to enjoy our time away from the office. And a lot of people that I'm talking to have actually realized that they've they've really enjoyed that time. Well, it's amazing when you spend your entire life working for a living and then you're at home and then you realize that you've been not so much working for a living, it's just been living to keep working.

Yeah. Like a job and work. A job is. But work is something that you voluntarily do.

A job is something that is necessary, but not enjoyable. Well, I've heard it called the 40 40 40 retirement plan. You work for 40 dollars an hour, 40 hours a week for 40 years of your life.

And hopefully one day you get to retire. But a lot of people have realized that their time is actually more valuable than money. So we we really need to begin to plan proactively to make the most of the money so that we can enjoy more of our time. Well, because a lot of people, they have the money, but they never plan for the time when they don't have the money.

And it comes to them as somewhat of a rude shock, to say the very least. Well, if you are planning on retiring early, there are a few things that you can do. And I thought I'd share a few of those today. Number one is to understand your income and expenses and start to formulate that spending plan. And many of us have been lucky enough or blessed or worked hard enough, Johnny, that we can be in a position of financial confidence that we don't have to pinch every penny till we see two impressions on our fingers. We don't have to stretch every dollar. And therefore we may not pay as much attention to the cost of things. We just know that the money comes in, we pay all of our bills, we live our lifestyle, and then there's some left over.

And that's a very fortunate place to be in. But for those same individuals, the change in income when you retire and walk away from the paycheck is that much more substantial. It is more impactful and we haven't paid as much attention to expenses, so we may end up spending a little too freely once we retire if we don't get in the habit of really thinking about our spending plan, our expenses, and our budget.

And part of what we do at Rashaan Planning is mapping that out for you ahead of time and then maintaining a pulse on it throughout retirement. It's always nice to have money left at the end of the week, but all too many of us have a lot of week left at the end of the money. And therein lies the difference in the people that plan and don't plan. And in times like today, when prices are constantly going up, it's difficult to plan for the necessities, let alone the surprises. And the more surprises are everywhere.

They are, unfortunately. I am not hearing super positive things about all of this supply chain news. I am not hearing a lot of things that instill confidence in me that this inflation that we're seeing is transitory, as they've called it. I have talked to people in the automotive industry that run sales of fleet vehicles. I have run into people who manage lots.

I have talked to people in agriculture supply, ag supply, and various elements of the ag supply chain. And all of them are saying that we've not only not seen the worst of it, we've barely scratched the tip of the iceberg because a lot of contracts that were in force prior to COVID that set prices are getting ready to expire and where it would have cost them $2,000 to ship their supply somewhere. Now, it's costing in excess of $15,000 to $20,000, so a thousand percent increase in those prices that a lot of contracts have been canceled due to the force may or acts of God, things that are outside the control of anybody who had entered into that contract. And so things are not clicking along nor regaining the momentum and traction very smoothly. And to some extent, that should have been expected and anticipated when you completely shut down the global economy, first and foremost.

Well, it gets much, much worse. I've been a amateur radio operator. I've been ham since I was 13 years old. And I speak to people all over the world. And this is not just a United States issue.

This is a worldwide issue. And that's something that's affecting everyone everywhere in all manners of life. And therein lies the difference in this particular situation where you can plan for everything, but you can't plan for everything. You can plan for everything you know, but you can't plan for what you don't know. And in the experiences of most of us, the idea that fuel prices go up is something that is totally off the wall.

And that's something that we all have to understand. And we all have to have to make accounting for. You go to the gas station. Gasoline is 20 cents a gallon more this month than it was last month.

You can't account for that. If you heat with fuel oil, if you heat with propane or even natural gas, prices are up. And they said, well, how come natural gas prices are up? Because pipeline's differential, pipeline construction. You can't get the people to work in the refineries. You can't get the people you need to do jobs across the board.

Net result is for the material that you need and want, everything goes up. And health care, same reason. But at my age, I'm 70.

A lot of my bills have doctor in front of them. And you have to be able to be, to allow for even that. And that takes all kinds of bites. You have a pie that's only so big. How many fingers are in it?

And you can't lick your fingers after the fact either. Well, we talked about the same thing as far as retirement accounts. When you save for your retirement and we feel like we're getting the benefit of deferring on taxes, not paying those taxes upfront, there's extra fingers and hands in that retirement account, in your cookie jar, as I like to say it, for retirement that you may not anticipate nor realize the size of the bite that they are going to take. And inflation is an insidious form of silent tax. We see inflation happening around us because of forces that were outside of many's control, but we also see some self-inflicted damage there. If you look at the Federal Reserve economic data, for the last 18 months, we have created 20% of the total monetary supply of all of the dollars that exist anywhere in the world.

20% of them have been created in the last 18 months. So essentially, that's watered down the value of the existing dollars that were there before by about 20%, 25%. And we're seeing inflation at 5% to 6% is what they're stating, but things like heating and power and doctor's bills, healthcare, Johnny, unfortunately, those are the things that everybody has to pay for or, in the case of doctor and healthcare, that affects those on a fixed income or with only a finite amount of money more than almost anything else.

And it actually gets worse because they're telegraphing the idea that we're going to be paying much, much more for electricity, for instance. You hear green and renewable. Well, green and renewable is not free.

And the reason why is you have 10,000 different sources in 10,000 different places. And in the case of solar, solar doesn't work at night and the wind does not always blow. Therefore, your green renewable energy sources are not 100% reliable, which means you have to have more expensive standby fossil fuel powered backups. Then you have another problem. If you use battery storage, megawatt sized batteries to store the extra energy, if you have any, from your solar or wind farms, let's just say I wouldn't want to be in the neighborhood when one of these megawatt sized batteries goes up in flames.

It's a scary thought to say the very least. And that's one of the things that they're not thinking of is these extra added costs. Look at Germany, where they're over 60% of the electricity in Germany is generated by green renewable energy. But they're also paying, depending on what source you read, anywhere from 35 to 45 cents per kilowatt hour for the electricity from these green sources. That's three to four times as much as we pay for electricity here in North Carolina. There's nothing free about this green energy.

Yeah. The backup necessity of the reliance on fossil fuels for the electronic EV vehicles that are out there, most of them have a backup reserve with gasoline. You know, they've got the battery power, they've got the ability to run for a little while off of that, but it clicks over and turns over to a traditional gasoline fossil fuel power vehicle at some points if power supplies run low. And if we look at this on the grand scale of the infrastructure to implement that same kind of thing across the country, this infrastructure build back better bill with $3.5 trillion, that's not the true cost of these things. They've only funded the near future of it. That's basically the price tag for the first three years of implementation that they are proposing. And guess what? They don't just have that money lying around.

That money comes from you and mine and everybody listening to this program's pocket in the form of either taxes or printing additional dollars, which waters down the value of our current dollars. So these are things that we do need to be aware of. Again, I don't want to be completely negative and pessimistic here.

I think we all still have a tremendous amount to be thankful for. But there are at the same time very concerning things that I think will be the topics of a lot of conversations, hopefully civil conversations around the holiday table with family this year. Well, it's easy to have a conversation with parties, you know, with family, you know, the difficulty is making sure that that conversation doesn't turn into a one sided shouting match in an argument. I've seen a lot of videos of food fights and table flipping and stories of very ugly disputes among families, because not everybody in a family always is seeing things on the same page in alignment.

And in fact, you choose your friends, you can't choose your family, it's been said, but you got them and you're stuck with them. So let's find an agreeable way. And maybe just a few ideas for that, you know, talk about the food, talk about family memories, talk about some future goals, end of year to do some things that we need to take care of resolutions, talk about the shopping. And that all has some elements where we're going to see a little bit of a different year. But if you need any help with a few of those, the end of the year to do the planning, the achieving future goals, that's what we're here for.

Give a call 919-300-5886, 919-300-5886. And from a financial and investment and retirement side of things at the at the very least, we can help you out there. Johnny, we've got some tax deadlines coming up too.

And I wanted to spend a moment talking about a few of those. You know, the end of the year is fast approaching. And I can't believe where we are already in the year. It seems like we just turned the calendar page to 2021. And it's about to be over with already.

It's a blink of an eye. But we're moving close to the end of the year. And before the end of the year, we've got some tax moves that we need to take care of contributions to employer sponsored plans. You've got a deadline at the end of the year. Yes, with your individual retirement accounts, you can actually make contributions up until the tax filing deadline. So including about three and a half months through April 15th or whatever the date is going to be in 2022, you can make IRA contributions. But your employer sponsored plan, you've got to do it by the end of the year. If you're considering Roth conversions by the end of the year, if you have to take those RMDs by the end of the year, if you want to make charitable contributions and get a deduction, it's got to be by the end of the year.

So a number of things there we've got to move on now. Well, I keep harping with this, especially with the charitable charitable deductions by the end of the year. The wife and I did this for many decades because we had eight children and they were always constantly growing and constantly growing out of their out of their clothing. So we make charitable deductions to Goodwill and Salvation Army. And that way we knew that what they could not wear went further down to help someone else in need. And we got to help on our taxes, too, which is something everyone should consider, because the idea that the government is going to take care of us is a bogus one.

All things considered, let's put it this way. And from personal experiences, I can tell you government takes care of itself first. The people in many ways get in the way of their government. We should be in control of it, but all too many of us don't exercise our right to control it.

And you have to do the same thing when we're planning, planning out what we're going to spend, how we're going to spend it and allowing for modifications, variations and always surprises. And that's not a good, not a good thing. Surprises are never a good surprise in too many cases.

No, indeed. Well, when it comes to government, I feel like there is a shift when they, when they are campaigning, they talk about what they're going to do for the people and they seem to understand that they work for the people. And as soon as they get up to that elected office or position, it seems that they forget and they feel as though we work for them somehow. So personal statement. And hopefully that doesn't offend anyone. I suspect only politicians would be offended by that, actually. Well, we talked about the changing retirement timeline.

Let's circle back to that, Johnny. The retirement budget, determining the type of lifestyle that you want, that would be very important. Another thing that people could do if they do want to retire early specifically is really consider where they are saving their money. If you've got a retirement account, you probably understand that there are taxes. And if you touch that retirement account before 59 and a half, there's are also additional potential penalties. So if you're thinking, yeah, and if you're thinking about retiring before 59 and a half, you may need to really examine the benefits of saving in an outside of retirement account, a non-qualified, just a regular brokerage or investment account. That certainly would be helpful to be able to access the money if you are thinking of retiring specifically before 59 and a half and without the penalties. And then a Roth account may be helpful as well for the tax benefits that that can provide. I have seen two schools of thoughts on Roth. One is to leave that till the very last asset that you would touch because it's got the advantage of tax-free growth and income. And I totally understand that. But there's also a time and a place for a case to be made for a Roth or Roth income to be used if you are retiring, say, before Medicare and Social Security age, because you can keep your income on the books relatively low if you're pulling those assets, those dollars, that income from a Roth account.

Yes, it does work out quite well. And also, once again, you have to do the planning in advance because I can remember watching Alfred Hitchcock Presents. And the theme song from Alfred Hitchcock was called The March of the Marionettes. And all too many of us get into a retirement plan with our employer. And we're marching with the rest of the marionettes as our strings are being pulled as we march along, totally oblivious and completely ignorant of what the puppet masters are doing while they're pulling our strings. We have no idea of what's going on in the background.

As I said earlier, how many fingers are actually in your pie that you can't even test? Well, I also like to remind people that just because the 401k or the retirement savings is done automatically, it shouldn't be out of sight, out of mind. And that's sort of the double-edged sword with the way that a lot of people are preparing for retirement is that the 401k is beautiful because it gets done. You can set it up so that it automatically comes out and goes to those retirement accounts before you even see your money.

Fantastic that those contributions are being made. It's obviously going to be beneficial in the long run. However, because it's automatic, a lot of the routine maintenance, the paying attention to your money that should be done is not because it's out of sight, out of mind, and people forget to look at it, to rebalance, to assess if they are making progress, to see how much is growth due to the market versus growth due to the new contributions that they are making. And even more importantly, when you get to a point where you have maybe transitions jobs or even retired, some of it is so out of sight, out of mind that people forget about those accounts completely and leave them behind at previous employers where they may not be appropriately invested at all.

Well, not only so much appropriately invested, but totally ignored. And then you have the case of where they might be looted or misapplied. I've seen too many of my friends with accounts with, say, union retirement funds and this and that and the other, where they have no earthly idea of what's happening to the money until they hear that someone involved in the union accounting was arrested for various and sundry misdemeanors. But they have no idea of what it is, where it's gone, how much is involved, how long it's been going on. All of these things are going on in the background when they were told and assured that everything was safe and on the level. And that's definitely not the case. Generally speaking, if you don't keep your nose in their business, they'll definitely keep their nose in your business.

I recently talked with a couple and it's not a unique circumstance whatsoever. I've seen this many times, but there was an older 401k account that had rolled over to another institution that they were really not aware even existed and they thought it may be some type of phishing scheme when they were even notified of the account's existence. I don't know if you've ever seen those commercials on TV, but the ones that say, are you entitled to found money? Is there lost money out there with your name on it?

A lot of that found, lost and found, lost and maybe not found yet, money is actually older retirement dollars that people have left behind and the company that they were with closed or stopped the plan, transitioned those assets over because they don't want to hold them forever. In essence, they're taking on some liability by doing so and if they reach a point where they don't want that liability, they'll transfer your account out to a third party carrier. You may not receive a whole lot of communication about that. And so we want to keep track of our money. 95 times out of 100, when you leave a job, you should roll your money out with you. You are a participant in their plan, which means they get to set all the rules over there. You don't have total choice of the investment options.

You don't have nearly as much control. You should take that money with you and it usually is not recommendable to roll it into your new employer's plan. Typically you want to roll it into an IRA because again, you are the owner.

You have more control and say so. You can choose whatever investments you like. You can begin to do some proactive tax planning.

There are a few exceptions. If that account is something that is tied with your years of credit and building toward other retirement benefits like a pension, then you may not want to roll it out immediately. If you've got company stock inside of the 401k plan, there's something called NUA, net unrealized appreciation, where you want to be very careful when you roll it out.

You may lose some tax benefits. The other thing that I see inside 401ks, Johnny, is the popularity of these target date funds. Yet another layer of autopilot and it's done for you. I like the concept of target date funds. They lower the amount of risk as you get closer to some targeted date out in the future, but they do not adjust for real world conditions.

My analogy is that if I'm driving on a sunny, dry day, I feel pretty comfortable going the posted speed limit. But if it's raining or the weather is one of our famous North Carolina ice storms where we've got a quarter inch sheet of ice on the ground, then I don't want to go the posted speed limit and the target date fund is going to continue going that posted speed limit. In fact, in 2007, the largest fund by volume was a 2010 target date fund. So this is a fund intended to have people retire in three years. Well, in 2008, that calendar year, the fund lost almost one third of its value, 32% because it didn't adjust for conditions. The scary part about all of the traditional retirement planning, most people, they say, okay, I'll put this aside in the bank account.

I'll put this aside with my, with my company. I'll set this aside, you know, when for a pension plan or with an insurance company, I call them inflation, the big bad Wolf, because it's helping it's puffing. And when you need it, it will definitely blow your house down because in 30 years will be a fraction of what you need. But you're thinking about 30 years ago, not 30 years in the future and therein lies the danger and the difference.

Well, I think that we can agree that when it comes to the holidays, traditions are fantastic and a lot of them we really value and we will probably stick to them. But when it comes to retirement planning, some of the traditions, some of the traditional approach really needs to be rethought. We need to revisit that and think about where we are in today's world and planning is proactive.

It is forward looking, looking into the future. Are the things that we're doing today and the things that have been done for 20, 40 years, really the best for our financial future. And if you'd like to examine that, pick up the phone, give me a call. I'm happy to help you look over your investments, your retirement plan, your total financial situation, the taxes you may be liable for, the risks that you are taking and many of these concerning topics that we've addressed today on the program.

Now, not to be disheartening and depressing here, we do have a lot to be grateful for. Many of us are in a fantastic financial situation, but many of us still have those concerns and there is an opportunity to address them. So give me a call, 919-300-5886, 919-300-5886. You can visit online at richonplanning.com.

It's rishonplanning.com, my last name, but it looks like richonplanning.com. And Johnny, all out of time for today's edition of the program, but always a pleasure to see you have you along for the ride. Thank you for being here with me.

Thank you very much. And by the way, you guys are rich on planning for you. This has been planning matters radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to take investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooke's own capital management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.