More Than Just Investing

Once again it is Mr. Stover's opus John Stillman joined this week by a special guest this week were heading to Chicagoland and were talking today with Jim this shirt founder and CEO of 360 financial group Jimmy D. Always good to talk with you.

Thanks for joining. Absolutely honored that you asked me to do this with you today. I know this is a bucket list item for you to see on Mr. Stone's letter bucket is now full. Johnny well as you know, spent a lot of time talking with you on your radio show which errors in Chicagoland area, W, LS, one of the bigger radio stations will bigger talk radio stations in this country. In fact, yeah, in fact, you know W LS stands for world's largest station.

Yeah, that's what I'm. It was the world's largest station to go.

Good to know. So let's talk about something that's right in your wheelhouse, which is if you say this on the show, if not every week almost every week you're stressing the importance of retirement planning is so much more than picking the right stocks, bonds and mutual funds and so often as you like people are in this securities picking mindset. But that's not planning that's picking up estimates right.

That's exactly right.

And that's that's a small component of the planning process. You know it, especially in with the area of focus that we have for our firm in it and as well as the focus that you have within your own firm you know when we talk about the planning process. Most of our clients.

95% of our clients are approaching retirement within the 3 to 5 year window of retirement or their currently retired so the that the things that you need to take into consideration go to greater detail, then what is going to get me the best return for my dollar that's important. Don't get me wrong, it's important to have good returns. A good solid foundation within your investment portfolio. But that's not the only thing that's gonna help you determine a successful retirement.

You need to take into consideration how you get a position your assets for income. How are you to generate the cash flow so that's a component you need to look at the tax implications.

You know, there are certain types of investments that you want to holding your retirement accounts and there are certain types of investments that you want to hold in your nonretirement accounts. That's it. A simple issue of looking at the turnover ratio within the mutual funds that you own or the tax implications of taking distributions from specific accounts so there's all kinds of different facets that you need to look at from the tax side of things will let's look at a couple specific examples in that topic right there.

Having the right investment in the right types of accounts. If you have a mutual fund in an after-tax account while you're creating a tax bill for yourself every year that's completely out of your control right because that tends out right what happens with that mutual fund was bought and sold its creating short or long-term capital gains for you that right you're going that way about you.

Absolutely. And when you look at, you know, especially if you own mutual funds in the in those types of accounts you want to you want to do a detailed report on the turnover ratio in the turnover ratio is how many new positions within that mutual fund or the number of transactions that you're going to have within that neutral fund and what is going to be the implication you know, in some mutual funds.

You can have a direct correlation of a higher turnover ratio to a higher expense ratio because all that it's not free to have those transactions and then ultimately the tax implication on that you know the tax implication of that can be as much is 1 1/2 to 2% that it reduces your performance by because of the tax that you have to pay. It also because a prospectus shows you that it's returned 8% doesn't mean you keep 8% and so it's it's key. And for a lot of the listeners and a lot of your clients. The key is to understand the fact that you don't necessarily have to go to the whiteboard in the race everything. A lot of times it's a matter of cleaning things up and making sure that attention is paid to the details because he did that. The real key is, is that when you go through and you clean these types of things up. It can have a significant impact why they may seem small and irrelevant. At times it can have a significant positive impact if it's done right so that's not to say you should never have mutual funds in an after-tax account but it leads nowhere of the tax situation you might be creating for yourself. There was look at something in that same vein, but the other way so tax-free bonds or municipal bonds as many people know that the idea of tax-free bonds sounds great right, but I usually there's a trade-off there right usually the yield on those bonds with their paying out is not as great as corporate borrows that you might be evident to invest it. So here's what drives me crazy. That's it. With the tax-free bonds you do want.

If you own those you do want those in your after-tax account because all that interest isn't taxable. The problem is so many people have tax-free bonds but then they have them in an IRA yeah or text for and so you're getting a little return. Then you could get with other bonds, but right it's already tax-free, because already in a tax-deferred account so you're not getting any tax-free benefit. That's up at the rate yeah that and that's one of those those mortal sins that we talk about in the investment world that looked week you spend 30 years in an accumulation and sometimes you make decisions and you forget about the decisions that you made or you don't realize the full impact of those decisions in it. It takes going through a review with somebody who has have the experience of the retirement planning side of things to help get you on the right path. And again, it does mean that you have to change everything that you're doing it means that in most cases, there are things that you need to clean up. I equated to having a fire in your home. If there are things that are going to create a fire you want to eliminate those so you can reduce that risk and you know when we look at the tax implications of our investing far too often we when we when you're making the decision by ourselves for investing.

You typically making that decision with a growth mentality and not looking at the ramifications of everything else that that you know is taken into consideration.

So take the time to to have the everything reviewed properly so you can understand what corrective actions that you need to take in order to put yourself in a better position. I'm curious to hear your take on how to integrate things like pensions and Social Security, you still have the same viewpoint that I do that we can look at those things in a vacuum, we have to look at how those income streams affect the totality of our overall income plan right well and there are some things that you can control and can't control number one Social Security. It's not an asset that you can necessarily control from a lump sum distribution standpoint right, you're not the government get isn't going to give you a lump sum distribution on Social Security so it has to be put. It's one of the first things that have to be planned for. Especially if your high income earner, you need to a plan for Social Security appropriately. It for, and that really is for just anybody. In general, not just the high income earners but everybody needs to plan for Social Security appropriately. The next is as if you are one of the lucky ones to still have a pension.

How do you take that pension and what is the best way where your options that you have available to you.

Do you have a lump sum that's available to you for that pension are you going to take it. Based upon a single life. Are you married even a ticket based upon a spousal benefit if you are going take a spousal benefit what's possible in a three intake because there's typically multiple options so you start with the base of your income. The foundation of your income and then you build from there. But we also have to establish what your goal is for income in retirement. You can't just get to retirement and say okay I want to understand to take whatever I need whenever I need it. You can't do that. It doesn't work like that at this at this point, the last thing I wanted to ask you about, because I know in Chicago you have a lot of really high income clients like people making more than half $1 million a year right certainly more than we have in this area here in the triangle and while we do have some of those folks here Chicago has a lot more people just in that world throughout. What are some of the unique challenges that you see for folks with incomes like that with pretty huge nest eggs that they put away and that what are some of things we can learn from the ultra-wealthy. If we want to call in.

Well when I would tell you first and foremost is that they have the same fears that everybody else have number one. Their biggest fear is that they're going to run out of money so up, you know, planning appropriately. The principles of planning for for somebody who have who has more money than than maybe somebody who doesn't. The principles of the same. The differences is maybe some of the advanced strategies that are available that maybe aren't necessarily applicable to a individual with different set of circumstances but the principles of of planning are constant for for everybody and it's one of the primary reasons that I focused on unit of the individuals that we do focus because you need to have a sound income plan in place. You need to know where your sources of income are going to be coming from different have Social Security if I can have pensions if there's a shortfall.

What are the tax implications of those accounts that you have saved for retirement or the tax implications of those nonretirement accounts power you systematically shift risk from seeking growth all the time to now start seeking income more consistently eat in the interest-rate environment that were in. Everybody faces the same challenge in order to produce yield right so the key is, is that the balances may be higher. The principles are still the same and it takes working with an individual who understands that type of planning, like yourself, John, where you have the foundation in the principles intact and that you can build a plan unique and specific to that individual. Very interesting and always enjoy your feedback and your perspective. By the way, I should mention that you are one of how many St. Louis Cardinals fans living in Chicago cuts country. I think nine and how it is not very many of us appear, that's for sure. Well what a time to be alive. If your Cardinals fan living cuts country and vice versa. While Jimmy always good talking with you buddy up again. Hey you better appreciate the opportunity and look forward to the next time that we do it again very soon. Right here on Mr. Stillman's opus Lexington in