2022 EP0827 | Planning Matters Radio | Retirement

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

And welcome into the program. This is Rich on Planning, Planning Matters Radio. I am Peter Rishon, founder advisor at Rishon Planning, an independent fiduciary investment and retirement planner. If you have questions or concerns about your money and how to navigate this complex financial world to make sure that you are doing the right things with your investments and your retirement accounts to make sure you're making progress toward those important financial goals, I do invite you to give us a call. We can have a phone conversation or a consultation to look over what you have going on. If you'd like to take advantage of that opportunity, just give a call to the office at Rishon Planning, 919-300-5886, 919-300-5886. They on the program wanted to highlight some of our recent YouTube video content that we have been putting together. Now, if you go to YouTube, you can subscribe to the Rishon Planning channel where every week we are putting out new segments on important financial topics. So it's just a resource for information for you, ladies and gentlemen. And if you'd like to interact or have more questions about anything that you see on there, again, you're welcome to be in touch.

Just give a call, 919-300-5886, 919-300-5886. But I'm going to feature a few segments on recent market volatility and consumer sentiment and what that may mean for the outlook moving forward on tax loss harvesting. This may be an opportunity for many investors this year that we can offset some taxable income with some of the market volatility and the losses that we've seen in some portfolios. The myth of retiring in a lower tax bracket.

How we can go ahead and manage our taxes to pay the least amount possible over our lifetime on retirement accounts. And several other subjects. Again, new content every week on our website, RishonPlanning.com, on our YouTube channel, YouTube Rishon Planning. Lots of great resources out there. So give us a call or just give us a search online. It looks like richonplanning.com. It's one word though, RishonPlanning.com. Hope you enjoy today's program.

Take some great information from it. And again, give us a call if you have any questions, 919-300-5886. Talk to you soon. Hi, Peter.

Good to see you. I think we all needed a little bit of good news. So that's what today's about. We do feel terrible about the economy, but that's actually good news. We're going to break it down, but you know, Americans have never felt this bad about the economy. The University of Michigan Consumer Sentiment Index cratered, Peter, you know this, from 58.4 to 50.2.

That's the lowest level since data collection began in the seventies. I know you're hearing from a lot of clients who are concerned. What's contributing to our pessimism?

Yeah. The fact that we are pessimistic is good news. The fact that our confidence and sentiment about the economy is bad is good news, right?

It seems contradictory, self predicted. However, the American public knows something. They know when they have experienced pain, when they've seen losses in their investment accounts, when the economy isn't going their way.

We know and understand that, except that that is actually historical. It means that we've already been through it. And the fact is that the market is cyclical. It goes through bad times and good times. And generally when we feel the pain, we have already been going through and have experienced a bad time.

And guess what? Those points where we are low in our confidence, where our sentiment is at a low point, usually indicate that the following 12 months in the market have above average rates of return. When everybody's euphoric about the 401k balance and about the value of their home being sky high, that's in fact the moment that I get concerned and worried that, hey, maybe this party is going a little too well. And it's also the moment when there are profits on the table. So if you are invested during those moments, rebalancing, capturing some of those profits and backing out a little bit may make sense. But during times like this where sentiment is low, where confidence is low is a great time as the whale investors say to move in and realize opportunity amongst the chaos. Right. That's why consumer sentiment is known as a contrary indicator. You were laying out that case. So let's dive into this just a little bit more because everybody watching, I think they should be reminded that you are backed by a team of investment experts that includes Brookstone capital management, CIO, Mark Diorio, who crunched 50 years of data and gave us this graph here.

Peter, what are we looking at? Yeah, well, you're looking at a graph that basically overlays the consumer sentiment with the following 12 months worth of S and P stock market returns. And generally what you're seeing is that every time it reaches a high point, consumer sentiment and confidence in the economy reaches a high point. The following 12 months are actually below average market returns. Whereas every time it reaches a low point, the following 12 months seem to be above average stock market returns averaging about 25% returns in the following 12 months after we reach a low point.

Yeah, that's not nothing, 24.9%. So as we said before, it's not about timing the markets, but time in the markets. And because data is helpful to not make these emotional decisions, let's just show one more graph that I think that really resonates with us, Peter. This is missing the 10 best days. So if you have $10,000 invested over a 15 year period, if you pull your money out and just miss 10 days over that 15 year period, what happens? Yeah, you have significantly reduced your outcome and your rate of return. And the thing is that those best days in the market often directly follow some of the worst days in the market. It's easy for consumers to get jitters and to feel nervous and scared after we have seen losses in the market or experienced some of those worst days. But if you jump out at those moments, then oftentimes you remove dollars ability to participate in some of the best days in the market and your results therefore would not be nearly as good. Dow Bar Institute does a study of investor returns versus the market returns.

Every year they do this study and they've looked back for the last 35 years in these studies and show that the average investor actually underperforms the market pretty significantly on a regular basis. And mostly they attribute that difference to investor behavior and psychology and emotion driving our decision making and making the wrong moves at the wrong time, trying to jump in when everything's going well and jumping out when things are going poorly. And that's natural. I understand why we would feel that way and how those emotions can lead our decisions. But unfortunately for financial fundamentals, those are usually the wrong things to do it right at the wrong moments. Right.

And it's not that sticking it out or set it and forget it is what we should be doing. And Peter, you often mentioned your time horizon also needs to be a very important consideration. Yeah, absolutely. It's not timing the market. It is more your time in the market, but it is also is your time in life. And so if you're a young investor looking for aggressive growth, you know, sticking it out good times, bad times and just investing as much as possible as early as possible and as often as possible is the key. However, if you are more conservative or nearing retirement or nearing the time in your life where you're going to utilize your investments to live off of and create income, well, you should address that ahead of time and you should have a plan that only exposes the assets that you can afford to risk to the directions and to the risk of the market. And therefore you should have a time optimized approach to the investment selection and exposure that you have. Right.

Very well said. Well, again, since talking this through is very helpful, what's the best way to reach you? Sure. You can give me a call at the office.

Nine one nine three zero zero five eight eight six nine one nine three zero zero five eight eight six. You can visit online rich on planning dot com. It's my last name, Roshan planning dot com. But it looks like rich on planning dot com. You can email me Peter at Roshan planning dot com. And we do offer to put that optimized retirement plan together for any of our viewers or listeners. Aaron, it looks at income, investments, taxes, health care, legacy, lots of subtopics and categories under each one of those. But if your plan has not addressed each of those five topics, at the very least, you probably don't have a complete plan.

And we try to help people identify where their plan may not be complete and then completed along with them. Yeah, so important. All right, Peter, thank you.

Absolutely. Always a pleasure. And thank you.

Hi, Peter, good to see you today. We are doing a little myth busting, which is always fun. And today is the myth of retiring in a lower tax bracket. I've heard before that if you don't have a tax plan, you do not have a retirement plan, right?

It's an often ignored facet of holistic planning, and it can have major ramifications. A lot of us assume that in retirement, we are not making an income anymore. Therefore, we're not going to be in as high of a tax bracket, but that's not necessarily true, right?

It is not true. Retirement doesn't mean that expenses go away. It means that the paycheck goes away, but you do still have income. I mean, the majority of Americans have social security and tax deferred savings. And so I wouldn't call it a myth necessarily, but I think that it is an older way of thinking that we need to readdress and reconsider that taxes will be lower in retirement. I think that this came about as we were in a previously much higher tax environment, but today rates have fallen.

And I think that the thinking up to this point was pretty spot on and accurate, but looking forward, not going to be the case. Social security was once a tax free stream of income, but most Americans are going to pay tax on their social security. 50% or 85% of social security can be taxable. And most Americans who have done some proactive savings for retirement have done so in tax deferred accounts.

So when we create income from those in retirement, it also is taxable income. Now historically, we are in a comparably low and attractive tax environment today. Tax rates have been much, much higher in times past than they are today at one point up to as high as 94%. In fact, I've heard that's why Ronald Reagan got into politics is that he realized that if he made more than two movies within one year, basically he was only going to net 6% of his pay for acting in that third movie.

And he didn't like that. So he ran for governor and then subsequently for president, obviously. But we are today in a much lower, more friendly tax environment. However, the writings on the wall here, and in fact, it's already in law, tax rates will be going up in 2026 unless this administration turns around and says, hey, the policies of that last administration were the way that we should handle things, which I really don't care who's in the White House or in the administration.

It almost never happens, but certainly not with these two dynamically different groups. So the 2026 tax rate will be the expiration of the Tax Cut and Jobs Act that went into effect in 2017. And the 12% bracket is slated to go up to 15%. The 22% bracket is slated to go up to 25%.

The 24 is slated to go up to 28. So it's not just on the evil rich millionaires or those making more than 400,000. This is really an across the board tax increase on just about everyone, which makes it a great time to do some proactive tax planning.

Erin, you mentioned it. If you don't have a tax plan, you don't really have a retirement plan. It's not what you have in those retirement accounts. It's how much of it you get to keep. And for most Americans, that involves some amount of proactive tax planning, very careful, very prudent to keep as much as possible without getting into any gray areas because there are some fantastic opportunities to control and manage your tax liability. Right.

And I think that you've hit the nail on the head, right? Everybody's in agreement essentially that taxes are going to go up. We've talked about the US debt before, right?

It's over 30 trillion right now. So you mentioned some options then to prepare for those hikes now. Is there anything that I can or should be doing? Well, I think that if you can harvest dollars out of those tax deferred accounts and convert them to Roth, it's a fantastic time to do that and let no crisis go to waste. Identify opportunities where you have them. I know that everybody's really nervous and focused on the market right now, but for savvy, proactive planners, they may be looking at this as an opportunity to convert over dollars, get them into that Roth account where any recovery that we do see is going to happen tax free rather than tax deferred. There are other places that you can generate some tax free income as well. I mean, we've heard of tax free municipal bonds. There is the opportunity for cash withdrawals. You can access the equity in your home. I think that that is a measure of last resort, but the, the reverse mortgage is a place where you can essentially get tax free income.

And I've seen people use that planning strategy in a couple of different ways. I mean, ideally I like to continue to let tax free dollars grow for as long as possible and be kind of the last thing that we access. But if you are retiring before age 65, then building up some kind of tax free income to utilize as, as a stop gap measure in the donut hole and building up non retirement assets, if you are looking to retire before 59 and a half, especially is very important in your planning process. So if that's a goal for you or a situation that you are facing, you need to think about taxes and penalties on accessing your money and how to go about doing that in the most efficient, effective manner possible.

Well, this was really helpful, Peter. I think it helps me understand why having that tax plan, it has to be part of your retirement plan. If somebody would like your help creating that tax plan, what's the best way to reach you? Yeah, definitely reach out whether you're saving on an ongoing basis or you already have a sizable amount built up in those tax deferred accounts. Now is the time to plan proactively and we can run some side by side comparisons and show people the numbers, quantify how much it would cost if you simply defaulted to the IRS's plan versus if you were a little bit proactive in identifying these opportunities now. And the difference is often staggering.

A lot of times Aaron, if I'm talking to like a 60 to 65 year old, and they're looking at that retirement account in an IRA or a 401k, the ultimate tax bill, if they just default to the IRS's plan is oftentimes more than the account value is today. And we can pay it for a fraction of that price if we plan effectively. So get in touch. I can run those numbers for you, ladies and gentlemen. Give me a call, 919-300-5886, 919-300-5886. You can go online, richonplanning.com. It looks like richonplanning.com, richonplanning.com.

Email me, peter at richonplanning. And I wrote an article last year that was featured in several magazines about proactive tax planning. But the gist of it was the more wealth that you have, the more expensive this is to overwhelming taxes. So it means that really everybody needs to look at this, but specifically if you have more affluence, more wealth in those tax deferred accounts. Yeah, that makes sense. All right, Peter, thank you.

Thank you. Hey, Peter, it is very good to see you. And today we have a very important topic, how to fight inflation. Of course, inflation was the story of last year. It's still the inflation this year, the story of this year.

Now I want to show you some interesting numbers because this is maybe kind of good news. The US inflation rate dipped to 8.3% in April, marking the first slow down in eight months. Some experts say we are past the peak of inflation, but the upward pressures remain. So Peter, the question is, is there anything that we can do now to guard against inflation? I unfortunately am skeptical about the insights of those experts on whether we are past the peak.

And we're certainly not past the pain by any stretch. We are seeing prices increase, it seems like almost on a daily basis. And I know that the CPI has adjusted slightly downward, but the real life expenses that we pay in the grocery store and at the pump and for medical bills or every day routine expenses certainly has not seen any decrease and the fact that these companies have been able to charge prices that people have up to this point been willing to pay doesn't really give any company incentive to drop those prices either. And what we're seeing is with the shortage that we have seen with the supply chain issues that we have incurred, a lot of companies are just now renegotiating prices for their supply chain for the goods that they are receiving that they in turn owe to consumers. And those renegotiations of the contracts and the storage and the shipping and the trucking and the supplies, those are getting more expensive as well. I mean, we saw Walmart and Target stocks tumble, they missed earnings, but a lot of that was due to the fact that they cannot raise prices fast enough on consumers to offset the costs that they are having to pay to buy more goods to replenish their supplies. And so I'm hoping, I'm hoping that we see some type of stabilization in inflation, but I don't see it going away or being a non-issue anytime soon. Oh, all right.

Well, it does hurt to go grocery shopping to fill up the car. You are so right. So let's talk about what we've seen though in the markets. We've seen a break in yields as investors move out of stocks and into treasuries. Are there any actions that we should be taking now to guard our investments against inflation? Well, that's a move that I think is sort of a natural reaction when we see market volatility. No one wants to leave the party when everything's going really well, when everybody's having a good time and the stock market is rising, everybody wants to be in it. But as soon as we see volatility in the markets, it's sort of the natural reaction for many investors to try to exit what they think is early, but ultimately oftentimes it's a little too late and it's kind of just locking in losses.

Now, what can we do? Well, there are options out there. The market and inflation do not always coincide in an agreeable way. If we flash back to like the 1970s and early 80s where inflation was a big factor, the market did not help us to offset inflation during that time. And so we're looking to things like structured notes, defined outcome investing. I bonds are a fantastic option right now because they do reflect what the Fed advertises as the inflation rate. So as of right now, you can get as much as anything can be said to be guaranteed or risk-free in the financial world, a rate of 9.62 from your federal government, government backed on I bonds. Now, anytime the government gives us something good, they limit how much we can take advantage of. So you can only do $10,000 per year per person.

I wish we could do more, but those are the options. I don't see inflation going away anytime soon. So while that rate can adjust, I don't see it falling precipitously or dramatically in the course of the next year or so. Okay. Well, that was some good actionable advice for people who have maybe a longer time horizon, but I'm sure that that advice is a little bit different for somebody who is in or near retirement. So during this period of high inflation, what should pre-retirees and retirees be doing? Right.

Yeah. It's definitely got to be different because during your earning years, during your working career, hopefully your wages adjust with the cost of living. You can negotiate pay raises or, or, or work into better higher paying jobs. Whereas during retirement, you've got a fixed income and a set finite amount of money on day one. You've got to make it last.

Therefore, Aaron, we've got to be proactive. You can't wait until periods of high inflation to plan for high inflation. You've got to plan for higher inflationary periods, even during periods of low and relatively, relatively stable inflation. Those are conversations that really a prudent planner, a cautious experienced advisor is going to have pre-retirement or in the very first planning years of retirement, because costs do go up over time. That's, that's a fact that's inevitable. The value, the purchasing power of the dollar has dropped considerably over the years, and that's not going to stop.

It's going to continue that trend. And so we need to plan for retirement in a way that either has increasing ability to generate more income throughout the years or separate segmentations of money that can be kicked on over time throughout the years or identifying basically a time optimized portfolio that has now money, soon money, later on down the road money and growth money. Then during good periods, we can sort of harvest some of that growth money to supplement those other buckets. Well, these are really important considerations and you brought up some specific investment opportunities. If somebody would like your help to design a portfolio that can withstand these periods of high inflation or some of those, again, hedged equities and structured notes that you mentioned, what's the best way to reach you?

Yeah. Call the office 919-300-5886, 919-300-5886. You can email me, peter at rishanplanning.com. It looks like rich on planning. It's my last name, peter at rishanplanning.com.

Go online, rishanplanning.com. All the ways. All right, Peter, thank you. Always a pleasure, Erin. Thank you. Hi, Peter.

Good to see you. A very pertinent question today, how to turn your stock losses into tax gains. The past few months have been so tricky for investors.

Everything from stocks to bonds are falling and it's hard to know whether we should stick it out or cut our losses and you can sell at a loss. It's often called a capital loss or a tax loss. So how do savvy investors use that to their benefit? Yeah, well, I'm not sure you can ever have tax gains, right? But you can use investment losses to offset taxable investment gains. And so tax loss harvesting is what this is called. When positions that you have purchased are down in value, there is a loss. And if you realize that loss, you can use some of that to offset the taxes that you may incur on other positions that you have bought and then appreciate it in value and you sell off at a gain.

Now, there are a couple of caveats here. This does not work in retirement accounts, right? Because all transactions within an IRA or a 401k, those are completely tax deferred. You don't have to worry about tax gains, capital gains or capital losses because all of that net amount is going to be taxed as income. What we are talking about is your after tax investment account. So money you've already paid tax on once and then you invested.

And when you purchase those positions, they either gain value or lost value. You can use losses to offset investment gains dollar per dollar. Now, if you don't have investment gains, you can actually offset some of your ordinary income as well. But that is limited to only $3,000 per year. Good news is that tax losses can actually carry forward.

So you've got a 20 or $30,000 loss, you may be able to offset some of your ordinary income for the next 10 years or so. And then just hope the stock market does a little bit better. Yeah. Just to put a finer point on it, take a look at that.

Just kind of breaks your heart a little bit. So you talk to which investments we can sell to claim the loss, but I think I want to ask about crypto because a lot of people have lost quite a bit of money recently. I mean, Bitcoin, for example, has just tanked big time.

Yeah. So cryptocurrency has been basically categorized by the government, by the IRS as an investment. So if you purchase your crypto with after tax dollars, which most people have, then gains or losses are taxed essentially just like if you were to have purchased a stock. And so if you buy cryptocurrencies, whether it's Dogecoin or Bitcoin or Ethereum or Ripple or whatever coin it is, and it goes up in value or down in value, then you sell it, you realize a capital event, a gain or a loss.

You've either made money or lost money in an after tax account, and therefore it is subject to taxation. Now, another important point, Aaron, is the hold time of investments, because if you buy a position and then sell it within a calendar year, then that is an ordinary income event. If you wait a year and a day, then that is a capital gain kind of event. And so there is a time horizon issue here as well. But with cryptocurrencies in particular, I think people are buying and selling and trading them a lot more often, and you may have just gotten into this. So buyer beware, all of those transactions can create tax implications that you need to understand the full ramification of, because a lot of transactions, a lot of activity may mean a lot of taxation that you did not intend. Right. Those are the unknowns when you're using one of those trading apps sometimes.

So Peter, is there any timeline that we should be aware of? I mean, is there a good time to take a tax loss? Well, I usually look to wait till like the fourth quarter of the year, unless there is some big indicator flag saying, hey, here is the low point or the high point for the year, which you're getting a little bit into timing the market there, really kind of waiting till the fourth quarter of the year to see where things have settled out, what positions are up in value, what positions you can offset that gain that are at a loss, and then do a mutual wash sale. So you sell the gains, you sell the losses, those two cancel each other out as far as the tax implications. And then you can purchase back into the positions that you like and you want to keep and hold some 31 days later, right? If we've sold out of a position, but we actually liked that position, we did it just to realize the gain that we had or the loss that we had to use it to offset the gain, then you can repurchase back into those positions within a matter of a few days there.

I mean, it's got to be 31 days. And then you can get back into that position, but have a realized transaction that creates that gain or that loss scenario. Okay.

Well, so in theory, this is kind of easy to understand, but when it comes down to it, it's very advanced math, at least it seems that way to me. So Peter, if somebody has questions for you, what's the best way to reach you? Well, you can give me a call, 919-300-5886, 919-300-5886. You can give a visit to the website richonplanning.com. That's what it looks like, Rishon Planning. It's my last name, rishonplanning.com. It looks like richonplanning.com.

You can email me peter at rishonplanning.com. Just dealt with a gentleman the other day that had a whole lot of transactions in an account and we're working on some tax loss harvesting to address some of the issues that were created there. Yeah. Yeah. That's great.

So important. Peter, thank you. Thank you, Aaron.

Always a pleasure. 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 seek 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.