2021 EP1218 Planning Matters Closing The Year

Welcome once again to Planning Matters Radio, the show where we shed a little light and shed a little levity on the financial issues of the day. And my guest today is the author of Understanding Your Investment Options. He is an intermediary financial investment and retirement planner, and he is a Dave Ramsey SmartVestor Pro serving his clients throughout the great state of North Carolina. Peter Rishon, thanks for joining us. Hey, great to see you again, Scott.

Thanks for being part of the program. I'm going to have to change the branding around that Dave Ramsey SmartVestor Pro. I think Dave is realizing that at some point in time, he is also going to retire. He's rebranding everything. It's still the Ramsey brand, but they're taking Dave off of certain things. So it's the Ramsey trusted SmartVestor Pro now.

That's interesting. It'll be an interesting transition. I'm sure that Dave will still be around in the wings, but you can hear it on his program week to week if you tune into that or the podcast and re-airs that he's had a lot of guests coming and going and he's sort of trying to groom his proteges and who will eventually take the reins, I think, for Dave Ramsey. I don't know if he wants to try to go on forever or if he's like, nope, the end's in sight.

I know when I want to get out. Well, I mean, he preaches sustainability in your investment plans. That's a sustainable plan for his own business. I guess he practices what he preaches there. You got that right. Yeah, absolutely. And, you know, he also talks about retirement planning. So why would you want to take the retirement planning advice from someone who never plans to retire? Yeah, he's ready to live and give like no one else, I'm sure.

Well, if you want to talk to Peter Rishon, you can call him at 919-300-5886 or 919-300-5886 or you can go to his website, www.richonplanning.com, www.rishonplanning.com. And, Peter, we're in the thick of the holiday season now. It's become kind of a cliche to say that retailers and certain people start the holiday season way too early.

Well, guess what? It's not too early now. If anything, you're too late if you're starting your planning at this point. Yeah, well, you know, all the guys rush out on December 23 and start their holiday shopping. This year, that might be a little bit more difficult. I mean, with all of the supply chain issues and stocking of the shelves that we have seen be problematic for the retail stores, it may be something where, hey, a gift card is going to have to cut it this year if you are last minute shopping. And I'm sure that this program is catching some folks who are out and about and doing those kind of week before Christmas shopping frenzies.

The madness is upon us. We hate to procrastinate in any aspect of our life, and yet we do it in almost every aspect of our life. Christmas and the holidays is one of the best examples of procrastination, kind of getting the best of us. And this year's just flown by. It's like it snuck up so quick that Christmas is here.

I blinked my eyes. Yesterday was Thanksgiving. Last week was October and Halloween. And it was just the Fourth of July last month. Yeah, I feel like I'm just getting over last Christmas.

Yeah, indeed. And unfortunately, financially, a lot of people just are getting over last Christmas because we tend to overspend. You know, when we switched from having cash in our wallets to that credit card, that plastic, it made it super easy to just swipe the card and overspend for Christmas. A lot of people enter into the new year, every year in debt, and it takes a while to claw out of that, under good circumstances. And here we are where we've all seen a little bit more stress, prices have increased the prices that we pay at the pump and grocery store. And so now people are having an even tougher time digging themselves out of debt.

One of the things that we should do is make sure that we have a spending plan for the holidays, either save up during the course of the year, I remember those Christmas clubs at work where you could sort of do an automatic contribution to that Christmas savings or set a budget and stick to it, and only buy things for people that are within that budget, you know, kind of earmark an amount that you're willing to spend on on certain people and find a gift that means something within that budget. You mentioned prices going up, how much of what we're seeing in prices going up is like a short term, like just individual retailers and manufacturers raising their prices, and how much of that is baseline kind of inflation that's happening? Well, Econ 101 kind of supply and demand, the demand for the things that we're buying itself has increased prices and then the supply side of things being thin has also increased those prices so both of those factors in that Econ 101 equation are working against us when we are buying or purchasing those items or those things or those services that we need. However, they've talked about how it's transitory and I'm using the air quotes for those just listening on the radio or a temporary inflation. So, you know, prices tend to go up a whole lot quicker than they come back down, and if people are willing to pay the increased prices.

If I'm the retailer or I am the supplier, and my purchasers my customers are still willing to pay those higher prices, that's really my motivation for bringing those prices down. So I don't know how temporary this inflation that we are seeing really is going to be, and that worries me a little bit. A couple other factors, I deal with people in different industries that see kind of boots on the ground what is going on in particular areas of the world, automotive, agriculture, shipping, supply chain stuff and they're saying that a lot of these contracts that are delivering goods are being renegotiated right now at significantly higher prices because it costs, not just, you know, 6, 7, 8% more to get that good to the store but 100, 200, 500% more. And then if you look at the Federal Reserve economic data and I know we've talked about this Scott, you can go online and you look at the FRED, the Federal Reserve economic data, you can look at the currency supply in circulation, the number of dollars, and 20% of all of the dollars currently in existence in circulation were created in the last 24 months in two years, one fifth of the money has been freshly minted, you know, today they don't print it they just digitize it, but that means there's 20% more dollars just within the last two years, the dollar that I had two years and a day ago theoretically should be worth about 20 to 25% less. And so they've watered down the supply and so the dollars that we had previously, they're the ones that have suffered. And so, I hope that we're not like seeing just the tip of the iceberg here in inflation and I hope that what they've kind of advertised as temporary or transitory is true but I just have my concerns and my doubts. When you talk about them pumping in more money that was due to stimulus and lots of different benefits given to different folks, in the event that they wanted to pull that money out of the economy, how does one go about doing that? Yeah, canceling out fractions or whatever.

That's a tougher thing. I mean, once the money is out and in supply reeling it back in, they could do it through taxation but what are they going to do once they tax it? They collect it and then delete the zeros or burn the pile of cash that really just doesn't happen. We don't see the currency supply shrink. And historically, there have been times where we have seen the value of currency significantly devalue, inflation, hyperinflation, stagflation. These are all terms where basically it means the value of the currency diminishes and oftentimes the reaction is, well, if the value of the dollar is down, let's just print more of them to make up for it and I sometimes take issue with the term vicious cycle.

I think cycles can be just cycles without being vicious but in this case, it's a pretty vicious cycle where the cause is the effect is the cause yet again. And so I worry that we are in a place where unless we really increase the productivity, then that money supply is simply watering down the value of the dollars. If we do increase the productivity, then maybe some of that can be absorbed. You hear in the news about wages being raised or the environment being made more competitive for the worker. Is any of that happening? Is that having a positive effect on the situation?

Sure, sure. I mean, wages raising is a good thing for those that that impacts, but that also impacts the bottom line for what we pay for things. Because if I'm an employer and I've got 100,000 workers who previously were making $8 an hour and now they're making $15 an hour and they're working those 40 hour work weeks, that's a huge hit to my bottom line for most companies and corporations. Personnel is their largest line item expense. Their labor, their people is the largest expense that most companies have. And so a company looks at that bottom line and says, okay, of our expenses, those expenses have increased 25, 30%. Well, what do we do to maintain our profit margins? We increase our prices 20 to 30% or more. And so those wage increases, the net effect is it trickles down.

Right? And we had a president, Ronald Reagan, who was famous for his thoughts on the trickle down economy, that if we lower taxes on corporations, the money basically would trickle down to the people. Well, increases in labor prices, increases in wages, it actually tends to trickle down much more quickly to increase in prices that we pay for goods and services. Yeah, I guess it becomes a math problem with the emphasis on the word problem at some point.

Yeah. And the Fed and the government, they have a few, I guess, magic tricks in their back pocket where they can adjust the key interest rates that they are targeting. They can adjust the inflation rates that they are targeting.

But once the toothpaste is out of the tube, mama always said it's really hard to get it back in. And so I worry that if they begin to raise inflation targets, which they did, they did that in 2021, that we began the year with the Fed saying we're going to target a higher inflation rate. Well, their higher inflation rate was about two percent. We ended up the year here seeing almost six percent.

Right. And so once they ease those mechanisms, I think the momentum begins to carry and the natural course of the powers of the economy kind of take over. Yes, we can target that, but it doesn't mean we're going to hit that. And so to counterbalance that, they can sort of raise interest rates. But we've got this 30 trillion dollar national debt and consumers are also in debt. And when we start to raise that interest rate, is that going to have a negative impact like on the housing market? The housing market is one of the main drivers of the economy. Well, because interest rates are so low, I can go out and pay the same payment for a much bigger, more valuable house. And that's what a lot of people have done over the past 10 years as interest rates have continued to creep down. But if interest rates start to go up, the housing market all of a sudden really starts to slow down. And that's a big impact on the economy. Words of wisdom from Peter Rishon.

If you want to talk to him about your own financial situation or maybe get your hands on the optimized retirement plan, you can call 919-300-5886. Peter, speaking of things jumping up, Medicare Part B premiums are going to jump by 14.5 percent from this year. And that's, again, far above the estimated rise that was in cost. How is that going to affect the picture for folks out there?

Scott, week before Christmas and we are full of cheer here on the program. Man. Yeah. So prices for Medicare premiums going up in 2022 by 14.5 percent. Now, the Affordable Care Act several years ago actually linked the increase allowed in Medicare to the increase that was given in Social Security. So a little bit of good news, bad news here is that Social Security, because of inflation, is seeing a historic rise for 2022 recipients that are currently receiving Social Security are going to see a five point nine percent increase in that monthly Social Security check. And for those that are not yet receiving Social Security, the amount that we should be receiving into the future has also increased by that five point nine percent. So that's the good news.

The bad news is kind of two two times. Well, one, they give Social Security increases because the cost of living goes up. So inflation is a factor. And part of probably the biggest expense that retirees have specifically are the Medicare premiums. Well, the Medicare premiums rise accordingly. And so where they give you something on one hand, the five point nine percent Social Security increase, they take it away on the other with a fourteen and a half percent increase in your Social Security Part B premiums. I'm sorry, Medicare Part B premiums. So, you know, there's there's an estimate of about up next year, about twenty one dollars and sixty cents per month on the average Medicare Part B premium, which, by the way, Medicare premiums are income related means assessed.

It's called Irma. The more income that you have coming in in retirement, the higher your Social Security premiums will be. You know, many may say, well, that's fair. You've got more income. You pay more for Medicare. But everybody has paid in about the same thing based on wages and income during their working career as far as a percentage of their income at that point in time. And so those with higher incomes, you know, there are tiers and layers to this cake. But those with higher incomes will see a larger dollar amount because it's a percentage. You know, a a fourteen and a half percent increase on one hundred dollars is is less than a fourteen and a half percent increase on one hundred and fifty or two hundred dollars as far as the actual dollar amount. That's interesting. So what you're saying is they're kind of burning the candle at both ends. It was adjusted when the money went in and it was adjusted.

They want to when the money's coming out. So maybe that affects how, you know, how fair or how how people feel about this. Very, very smart stuff from Peter Rochon here.

Again, if you want to talk to him, it's nine one nine three zero zero five eight eight six. You mentioned Social Security briefly there. It looks like they're going to see an automatic increase of five point nine percent in the next year.

So how does that factor into these different levers that are being pulled here? Well, I mean, again, that's a fantastic thing on one hand, is that my baseline income that I don't have to pull from my portfolio, that I don't have to withdraw and draw down and and generate myself, my Social Security that I've worked to contribute to. I've got that much better of a chance of actually receiving as much as I contributed over my lifetime because they're paying a little bit more next year.

And by the way, that's your new baseline. Social Security theoretically, as far as past history, has only ratcheted up and is designed where it should only ratchet up into the future. Never, never decreasing, only increasing the amount. So we've got a higher baseline for income. It should mean that I don't have to pull as much out of my my personal wealth, my nest egg, my financial security.

But again, things are costing more. So if my true cost of living goes up five, six percent and Social Security goes up five, six percent, well, the amount that I'm pulling out of my personal portfolio would also need to go up five or six percent. Just simple math here, if if cost of living is one hundred thousand dollars and a married couple has Social Security of fifty thousand dollars and then they're pulling fifty thousand dollars out of their portfolio and then cost of living goes up. Let's just say 10 percent just so I can do the math real quick. Now, my cost of living is one hundred and ten thousand dollars. Well, if Social Security goes up 10 percent, that's only fifty five thousand dollars. I've still only got 50 that I'm pulling out of my portfolio.

I need another five. Now my withdrawal from my portfolio has gone up as well. So, you know, a percent of one number plus another number is the same as the percent of the whole thing. Therefore, we're going to have to account for the withdrawals and and the adjustment to cost of living and inflation from portfolio withdrawals as well. I hope that makes sense.

No, it does. That's what with the time that we have left. Maybe we can zoom in and talk about the types of things that people can do as the end of the year approaches, as their 2022 financial and retirement planning should be ramping up or happening at this time. Peter, we're closing in on the end of the year. What are some things that people should be doing in this admittedly already busy time?

Yeah, well, I mean, really, for a lot of things. Yes, the deadline is December 31st, but the time to begin processing it has probably just about passed. I mean, if you get on it Monday, you may be able to do something about this. But contributions to employer sponsored retirement plans like your 401k, your 403b, all those need to be wrapped up and done within the calendar year. So if you want to max that out, throw a little extra in and you've got another pay cycle between now and the end of the year.

Log in right now first thing and make those adjustments so you get what you want in there. Roth conversions, you may have already passed some financial institution deadlines on that. Charitable donations. I mean, this is a giving time of year and a lot of people are out there making charitable donations and contributions.

A fantastic thing to do. One of the best ways to do that is directly out of your IRA. If you're over 70 and a half, you can actually have that be a tax free, completely tax free dollar that you have earned, saved, grown and then donated to your charity or organization. It's one of the very few opportunities for truly tax free money that exists in this world. You didn't pay tax when you earned it. You didn't pay taxes.

It grew. You don't pay tax when you give it to the charity. They get it tax free.

It's a win, win, win all the way around. And next year, we'll still be able to do that. But if you're over one hundred thousand dollars, not a lot of people that that applies to. But there are a few if you're over one hundred thousand dollars in charitable contributions next year, not all of them are going to be deductible the same way they are this year.

So, again, kind of hop on that one if it's last minute, I understand. But however, you know, there are some things that we can actually do to impact this year all the way into next year. So if you've not funded your IRA or your Roth IRA, no rush to do that. You can actually do that all the way up until tax filing deadline.

You are allowed to make SEP IRA contributions, IRA contributions, Roth IRA contributions for 2021 all the way up until April 15th of 2022. So maybe a little a little reprieve there if if you want to do some of that retirement savings that way. Is there any kind of penalty for doing it that later in the game as opposed to within this calendar year?

No, there's really not. I mean, it's it's just something that you can do after the year ends that affects your bottom line for this year when you go to file your tax returns. And so a lot of times people have gone to their CPA and say, hey, you know, I don't want to pay this two thousand dollars in taxes.

What can I do about it? CPA's suggestion is, well, you can make a five thousand or six thousand dollar contribution to your IRA and it'll offset that two thousand that you owe. You know, I would I would weigh the benefits and disadvantages of that very carefully. I'm not in a mindset where I think that long term taxes and the tax rates that we pay are going to go down.

In fact, quite opposite. I believe that future taxes are probably higher than they are today. So maybe just paying the tax on the money and and being done with the tax bill is a good thing.

And I sit down with a lot of folks and do a cost benefit analysis. And I show them, OK, if we make a contribution to a tax deferred account and taxes stay the same into the future, versus if we make a contribution to a tax free account and taxes stay the same into the future and the investments that we make are the same. So the rate of growth is the same.

What's the net net? And bottom line is that the net net is so long as the tax rates stay the same and the growth on the accounts is the same. It's a wash. Pay tax now, pay tax later. If those two things are in a vacuum, the amount that you end up paying or netting is the same.

You know, a higher amount, you have to pay a higher bill, but your net from that ends up being the same. However, I don't know if taxes are going to stay the same. And in fact, I'm quite certain that they're not, because already law on the books, 2026, we revert back to the tax brackets and rates that we had in 2017.

The 12 percent bracket becomes the 15, the 22 becomes the 25, the 24 becomes the 28. Taxes are already slated to go up into the near future. And so if you're saving money now and saying, well, I would like to retire into the future at some point in time, and that future tax rate based on laws that are already on the books is higher than what you would pay today, then it doesn't make a whole lot of sense to defer and delay paying tax on that retirement savings. Go ahead and pay it now in the lower bracket at the lower rate.

Right. So the status quo that's going on right now in the absence of any further action is a raise in the tax rate. It would require literally an act of Congress in order to change what's going to be happening in the future. It would require the current administration to turn around and say, hey, that previous administration actually had things right. Let's continue doing what they were doing and extend their their rules out a little longer.

The likelihood of that, I think, is slim to none. Yeah, we could basically fill in the blanks with any administration speaking about a rival past administration. I mean, it doesn't it doesn't really matter who's in office when somebody hears this show, what administration is in office when that happens.

They just never seem to get along, do they? Like one administration to the next. It's kind of like the pendulum swinging and there's no middle ground.

It's only extremes. And so, yeah, I just I don't foresee that happening now. Tax brackets for 2022. They did give us a little bit more wiggle room in each one of the brackets. They inflation adjusted the tax brackets as well. Also, they they have inflation adjusted the amount that you can contribute to your 401K. So next year in 2022, instead of nineteen thousand five hundred dollars, it's going to be twenty thousand five hundred dollars. However, if you got one of those nasty IRAs, if you're saving for retirement, personally, your limits are the same. Only six thousand can you save for retirement. Yeah.

Yeah. The employer benefit plan, they gave us a break there and an increase. But if you're saving privately in your individual retirement account, limits are not inflation adjusted on that side. Doesn't make any sense to me, but that's what the government has come up with. What about folks that take the standard deduction?

How are they affected? There there is an increase in the standard deduction as well. Yeah, that that got an inflation adjustment. It is up eight hundred dollars from twenty twenty one. The new standard deduction for a married couple filing jointly will be twenty five thousand nine hundred dollars for individuals. It's up to twelve thousand nine fifty. So four hundred dollars.

So basically, you know, multiply it by two. That's that's the increase on the on the married filing jointly. So, yeah, a nice little chunk of additional deduction. And most people actually simply take the standard deduction. I hear a lot of people saying, well, I keep my mortgage so that I get my tax deduction.

That doesn't make sense for a couple of reasons. First off, you only get to deduct based on the interest that you pay on the loan. So let's say you paid. A thousand dollars in interest, the deduction that you would receive is probably like two hundred to two hundred and fifty dollars.

Right. If if you hate paying the IRS so much that you're willing to pay the bank four to five times more, then I guess that makes sense. But for most people, that's not the case.

They want the minimum anyway. And most people actually aren't itemizing their deductions at all. So the standard deductions are so high that many of us don't get any benefit at all from charitable contributions, from mortgage interest tax deduction. It just the standard deduction surpasses it.

And so we default and take that because it's one or the other. You either get the standard deduction or you itemize and get that. And most people actually don't have enough itemized expenses that are deductible to surpass that standard deduction.

Right. The types of things that don't fall under the umbrella of the standard deduction are few and far between. And they're like you said, there is a misunderstanding of kind of common the common homespun knowledge of keeping your charitable donation receipts and your mortgage and all things like that.

It's not quite all it was cracked up to be. Now, I will say through covid, a lot of people actually started their own businesses. A lot of people were working from home. That used to be your company's expense.

Right. They paid and were able to deduct the office space that they provided you to perform your job. Well, now you're paying for that office space. And what I expect, Scott, is that we see a whole lot more deductions for at home businesses and at home offices. And I think that's absolutely appropriate and we should. Unfortunately, I think there's going to be a lot of scrutiny there as well.

Right. Well, that's good advice. Basically, what we're saying is talk to your financial advisor.

There's lots of moving moving targets and different numbers. And if you do want to talk to Peter Rishon directly, you can call him nine one nine three zero zero five eight eight six. Or visit his Web site, www.richonplanning.com. We're about wrapping up your Peter.

Any last words for our listeners? Well, before we go, I just want to mention that I do have this fantastic checklist. It is a quick one page reference, the twenty twenty two financial and retirement planning checklist, several items in each of these categories. But again, all on one page, income and expenses, taxes, investment analysis, health care and insurance, and then key events like some benchmarks that you should be paying attention to in your life and your financial progress. If you'd like to get this handy one page twenty twenty two financial and retirement planning checklist, just give a call nine one nine three zero zero five eight six or visit online rich on planning dot com. And if you request my book, which happens automatically when you hit that Web page, a digital availability of understanding your investment options will include this list with it as well for the remainder of this month and probably into twenty twenty two as well. Right.

There's no free lunches, but there are some free books if you call that number nine one nine three zero zero five eight eight six. Peter, thanks so much for helping us out. I know you're busy this holiday season. I'm busy this holiday season. Everyone's running around. Things are coming at us faster than ever before. We really appreciate having you on the show. It's been a pleasure.

It always is. And I hope it helped. I hope it was informative. That is what we are here to do. One of the greatest satisfactions that I have is being able to help people get more confidence with their financial well-being.

And that's why I'm in this profession and love doing this every day. Merry Christmas, everybody. Won't talk to you again probably until then unless you give me a call. But looking forward to hearing from you.

If so, give a call. Nine one nine three zero zero five eight eight six. But Merry Christmas. Happy New Year to everyone, including you, Scott. Thanks. Thanks so much, Peter. And that does it for another edition of Planning Matters Radio.

Happy holidays and happy New Year, everybody. 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 principle. Advisory services offered through Brooks 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.