2021 EP0220 PETER RICHON - MONEY MOVING

You fail to plan, plan to fail. We want you to plan more since the planning matters radio and welcome to the show daily planning map.

The registered financial advisor and also the author of a great book. Understanding your investment options today will be discussing eight times when you really should consider moving your money in the three biggest expenses in retirement plan to control that Michelle Peter appreciated that year topic about their money and a lot of times I think there's a problem with her. Something I should and then it sort of just goes to the back burner since it gets forgotten about and then all my investors never gets improve and then you look back and gosh I wish I should've done something 10 years ago that I would've been so much better situation now well these are the moments to identify the hay.

You're right, you know, let's confirm that feeling that you got that now is sort of timed about moving some money around so you know when should I consider NY and also what's the first thing you would recommend in moving money before you move your money understand where you're moving it to okay so that's the first thing is, if you've identified that yes there is a reason to move your money. Where is it going to go to. Don't just have it out there in limbo. Identify the destination and also consider both where Zach currently and what that destination is and weigh pros and cons of both is the destination going to show you a measurable benefit grades and so once I know I'm going to bring it to what some other things that I need to consider as when I when I decide to move it to that new place that identified will generally it's not really a difficult process to move money but you don't want to make any mistakes while you're doing it right so as I cause more problems. Yes, in the long run. In the short term to those retirement accounts, especially anything that's got tax implications. It's been tax-deferred. Don't want to make any mistakes because he got the tax implications. You got the potential penalties plus whatever has happened and transpired in between the source and the destination. Okay that's good to know.

And so when you know you one of the steps is rebalancing. So when should I decide to rebalance or how do I rebalance and visit all the accounts at the same time or just the ones that I'm moving my money to you know it. It can be all of the accounts at the same time. Rebalancing is a fundamental financial principle and basically this boils down to maintaining the proper risk tolerance and the proper asset allocation so this actually is the only one on this list that doesn't necessarily mean you're moving your money from one account to another.

This can actually be done within the same account and most often is within the same account is not moving your money to a completely different destination is moving your money with in the current account and the reason why you want to do this is because the markets move and your positions within your account, therefore, are going to change over time. So for instance if we wanted a balanced portfolio that was 50% in equities and 50% conservative in bonds or fixed income and we started with that mix. Back in 2010.

Where would we be today at be a big difference is a big difference Think Different because the equity side of the market has done so well that as we been putting more money in that side has grown and grown and grown and now we might be 80% in equity and only 20% in the more conservative fixed income side while we are way off of what we decided 10 years ago was our proper risk tolerance and so that needs rebalancing as you go.

Also, let's take a smaller example, let's say during 2020. In the midst of the onset of covariate when the market went down 30%. Now the equity side is lower. That's an opportunity to buy in at a lower price. The side of your portfolio that was conservative that didn't lose so much value now you got a higher weight on that side. It's time to rebalance again and buy-in when the prices are low, so that when the markets do recover.

You can make more profit. So rebalancing Kim is the process of capturing gains when there there and available and making sure you're not overexposed to risk along the way. Based on your risk tolerance sends what you want. Going forward your time horizon. Your examinations return and your balance should change over time to so maybe is a 20-year-old. I'm balancing to 80% equities and 20% bonds or fixed income, but as a 50-year-old. I'm closer to 50-50. And as I get to 60 or 65. I'm closer to 60% in bonds and more conservative and and only 40% in equities because it becomes more important as we get closer to not earning new money not to lose the money that we have exactly. So not only you know, does this need regular monitoring you should be rebalancing your account every quarter every three months at least look at it more often than just once a year just to make sure. But then that the mix that you are targeting should also change over time right and here's the thing most people are saving for their retirement in 401(k)s wire 401(k)s so great because their automatic they happen without us having to do anything in their out of sight out of mind. So guess what people forget to rebalance exactly the last time a lot of people looked at their 401(k)s when they signed up for the 401(k) and the added lines up to 100% yes I've had some experiences some family members that have done things like that and it was all in cash and I was like oh no what you do right. So for years and you because they didn't look at it and pay attention rebalancing just the discipline of doing this, at least on a quarterly basis, forces us into a routine of actually paying attention to what's going on with our money. It's good to now very important and I've heard a lot about the next thing which is Roth conversions. I know that the Roth IRA but once you start making certain amount of money you can, can't contribute to a Roth IRA anymore, but you can take some of that traditional 401(k) money and convert it to a Roth your allotted so they know that I was you're making. There's a hot opportunity there so and this would have help with tax purposes down the road so how do we do that and what he have to do to be able to do that yet, so this one does involve moving money to a different account. Although maybe not necessarily like a different institution. If you're happy with where your money is and who's managing it. It doesn't necessarily involve moving it out from that institutions control were or that advisors oversight, but what it does involve is changing tax status and there's a little bit of pain here for the benefit right because when you move money from an IRA or a traditional tax-deferred 401(k) over to Roth.

Guess what Uncle Sam wants his slight losses money now you have an end. That's okay because the reason you would consider doing this is not to save money this year is to save money in all the years down the road out Albert Einstein's of the most powerful force on the planet was the power of compounding interest and when the IRS decided to let us defer and delay paying taxes is like they were paying attention. And nobody else was they they understood that if an account grows.

That's tax-deferred. I'd rather have $200,000, but I'd rather pay tax on $100,000. Sally Ira said well why don't we let them keep the hundred thousand now and charge the tax on the 200,000 down the road. The act of converting to Roth is taking what you have in tax-deferred accounts and changing over switching pockets and putting it in a pocket where all the growth is yours. You've already paid your tax bill and we are in a historically low tax environment. I don't believe that we will see a lower tax environment in our lifetimes. So this is definitely something you want to look at and consider to do now. If you have that extra cash to go ahead and pay the taxes on that money, now get and that deficit all the spending that were doing that money has to be paid for from somewhere and it will be collected at some point in time.

Current spending his future taxes. Did you know that after World War II the highest tax bracket was 96% on my current federal 96%.

Ronald Reagan got into politics because he made $100,000 per movie that he made. He realized that he if he made 1/3 movie he only got $6000 out of his hundred thousand dollars on my goodness, I never did that. He said something's wrong with yeah, I'm going to do something to change, and so he got in the politics he was governor of California and then eventually made it to the White House where he was famous for trickle-down economics. Trickle-down economics was let's lower the tax rates and more money will flow through the economy well today we are in a very low tax environment. In 1984 in the early 80s you could be in a 38% tax bracket. If you made $68,000 today to be in a 38% tax bracket. You have to be making over 600,000 allow access roads is a huge difference lower than they have been there. Going back up but if I'm wrong about that.

Here's a thing that is an assumption if I'm wrong about that and we go ahead and prepay our taxes now and were done with them, and then taxes stay the same or are lower in the future. Guess what, we have more money than we thought we were going to have you not listen to not losing any menu can prepare for both scenarios because he just unfortunately we can't predict the future and we have the hope for the best and hopefully know the best is where where it is right now and you'll be good to go and take advantage think advance on sale exactly like something on sale exactly again when he with Peter Rochon from Sean planning. You can reach him at 919, 305 86 are on Mershon planning.com give them a call and he'll help you figure this all out. I know it's out sometime.

Sounds like overwhelming and you just don't know where to start but that's where Peter comes in and helps you get that plan in place so what what age should we start looking at all this she is there a certain age that we should move money into certain accounts to make sure that we are set up for retirement so I think that everybody hopefully knows about age 59 1/2 right. That's when you hear that age often over and over it and you can start touching your retirement money without the 10% penalty and start withdrawing it without the 10% which is good.

That may be a reason why you want to consider moving your money is that I can get my hands on it without penalty, but more importantly a lot of people don't actually need their money yet at 59 1/2 and a lot of people are still working and saving in those 401(k) plans well beyond 50 9/2, maybe they're going to 65. Maybe they're going to 70 years old, but being in the 401(k) plan might not offer you the best options that are available, so most 401(k) plans actually offer you the opportunity to do what's called an in-service distribution that is if I've got my life savings inside of my 401(k) plan I can actually take that out.

Take personal control over it roll into an IRA.

But then continue contributing to the 401(k) plan. If I keep working in the company's matching I can keep putting new money away, but with the old money that I've already built up. I can take it out and take personal control over and begin to do things like better position for retirement. Maybe consider those Roth conversions. We just talked about a lot more choice a lot more(s) more control.

I never knew that I didn't know that you could take it out of that account. When you turn 59 1/2 and do what you want with it.

I like the idea of having choice and be able to control it more. Sometimes in those 401(k) that's very limited as to what investments you can invest it. Yeah, a lot of times these days 401(k) has a bunch of these target date funds are these lifecycle funds to me those are not the best option they they do the job. To some extent, but they don't react to conditions in the world. So when a tidal wave is coming.

They're not getting out of the way. They're not going to cash they're not being actively manage their sort of just a preconceived formula for how to get closer and closer to a date and reduce the risk.

The analogy I get for that is in North Carolina on a bright sunny day. I'm pretty comfortable going the posted speed limit on the day were we got our quarter inch sheet of ice. I still winter storm, a target date fund is still going the posted speed limit.

It's not safe in those conditions. It's like having your automatic speed limit on and then you hit the rain. It keeps going yeah yeah doesn't break for you yet so 59 1/2 is a big opportunity and a lot of people don't know about, but more and more companies are offering the opportunity to take control of your money because they are technically fiduciaries for your money when you are part of a group plan.

You are a participant in their plan and it is their responsibility to offer you the best options. The reason why more and more companies are letting people take their money out of the plan at 59 1/2 is because typically their plan doesn't offer the best options interesting, and then they reduce their risk of getting that's right you getting upset with them as well or been a number of lawsuits where employees have turned around and sue their employer for not offering the best options in the 401(k) and to my knowledge, not a single one of those lawsuits has been lost by that group of employees. So yeah be in their best interest to let you have your money and do what you want way that what you want with it. Then he had us and talking about a company is and you know sometimes in more and more people over the years. Don't stay the same job yet year after year and most companies do have some kind of retirement plan.

So there is an account with that company's name on it in your name and when you leave that job.

What what you need to do well. About 95 times out of 100, you should take that money with you should roll it, not into your new employer's 401(k) plan, but you should take personal control and will roll it over to an IRA for all of the same reasons that we listed before more choice, more options, more control if you roll it from from one employer just to the next. You're trapped back in a just a different 401(k) jail, but you want to roll it to an IRA and you can even if you had five or six previous employers you can consolidate them take things easier to track and keep track of, but also there are some exceptions to that. So if you plan on retiring before or age 59 1/2. There's a provision that does allow you to pull money out of the 401(k) starting at age 55 without the 10% penalty and so that may be a reason why to not roll the money you want to leave it in an old 401(k). Also, if you have company stock inside of your 401(k). That's another one of those exceptions that you need to look at very carefully before just rolling money over so almost every time your hero take your money with you. Take your money with you.

Take your money with you and most of the time that's correct, but there are few exceptions, they are huge. You just need to be careful and again someone like you, where you kick help these people look at all their accounts and decide what to do and leave in a job and I have all these for other accounts.

What I do.

Should I leave it where it is. I take it with me and if you need help like that you can give Peter a call 919, 305 86 and look up online with Sean planning.com so there was an old commercial around here for a mental health facility and the tagline on it was if you don't get help here.

Please get help somewhere and so I sort of feel like that in the financial world, like I feel like I do a very good job. I am a fiduciary. I look out for my clients best interest, but there are a lot of good financial bottom line, you gotta go with your gut. You gotta make sure that you're dealing with somebody who you do believe has your best interest in mind.

But if these matters are things that are on your mind or you have concern. Talk to a professional about them somewhere right if he I'm happy to help. I offer a free consultation. We can do it virtually wherever you are in the world we can get it done. But if you got questions that are lingering on your mind if you got concerns about your financial future. Talk to someone about them and it doesn't take long. You take a couple hours out of your day and make an appointment, then it can look at it real quick and figure it out and I don't have account minimums. I don't require that somebody has $1 million or $500,000 to work with me. I am willing to help anyone who wants to improve their financial outlook. Now will will decide if it makes sense to work together thereafter. But I couldn't get anybody headed in the right direction and tell them what I would want to know or what I would think they need to know if I was in there should and really it's never too early or too late to do this plan or have a look at all of your accounts or have someone else look at it with you and help you come up with a future plan so we've talked about sunken rebalancing Roth conversions what HD you need to look at it when moving your money leaving a job and now I did this a few years back wife.

I looked at this, but the fees of the account that you're using right now. It may be the brokerage that you're using.

It could be the accounts, the investments that you're invested in, but what fees can be yeah and fees eat away at progress fees matter. I heard an analogy for this when I like analogies because a lot of people when you talk about money. The eyes glaze over. They tend to ignore it but if you can give a good story that gives the example of teachers lesson so if there's a plane taking off from LAX and it's 1° off of its flight path when it's passing over Nevada. It's not too far off of of its destination. But if it was headed for New York City and it was 1° off of its flight path. By the time it got to the East Coast. It would end up in Washington DC right it's it's a big difference. The longer you let fees eat away 1° difference 1% difference in fees can make a big difference over time, and so yeah if the fees are too high.

A lot of times people really don't know this either until they get a review or an in detail evaluation. It's not like it's printed in red, right on the front cover your paying 2% in fee how you have to search for those fees and what you're looking for. And even then a lot of timing. 60 Minutes did a long exposé a number of years ago about how 401(k)s are laced with hidden fees and a lot of people don't realize that they're like oh no my companies offering this to me for free. I promise you that there fees and their financial institution that's holding those funds is not doing that out of the goodness of their heart. They are not denying their employees to have so fees are hidden there like layers of the onion you know you find one back and there's another one inside and and they do make a difference. So it you discover fees are too high or you feel like fees are too high or you want to check your fees were happy to do that and I commonly find where people have been investing in a mutual fund account and for every hundred dollars. They put in only 95 actually gets invested. There's an upfront commission.

They are not aware of it aware of it. Variable annuities in particular. Sometimes the fees on those can be three, four, 5% or more.

So there's a lot of vehicles out there that have high fees.

That's good to know when talking about investments but sometimes investments and your accounts really deal what you want them to do for you right under performance they have the big one if if you're like well I should have gained 5%, 10%, 15%. Whatever it is this year, but I only got to where I ended up losing money. That's underperformance.

Likewise, a lot of people have money in the market but maybe it's in bonds or bond funds or fixed income right now. The interest rates are so low that you're not making a whole lot on that side. There are alternatives that can help give you a little bit more horsepower a little bit more growth on that and still be on the conservative end of the spectrum. So yeah, I dig into the portfolios. I do what I call the portfolio analysis. I pull back every piece of reinvestment say is this performing based on the amount of risk that it's exposed to, and I find a lot of times mutual funds that we could look back for last 10, 15, 20 years and the value of the fund is no higher than when it started that somebody had invested hundred thousand dollars back in the year 2000 and just let it ride.

They would have the same amount of money today, and yet during that period of time. This fund may have lost at times 30 or 40 or 50%. That's a huge amount of risk that you're taking not to get a reward.

Yes, yes, especially with the you know the time means money. And if you're not making money in that time. It really yeah you really should we look at that accounts or that investments and other things happen in life again were talking about when you should consider moving your money from one account. The other rebalancing in your accounts, but just talking about moving your money in your investments. You know sometimes things change in life you so like dry only thing constant disk. It can be good or bad, but it changes. I saw this a lot in 2020. Actually I saw it, one of two ways. I saw where people got notice from their employer that hey, your services are no longer needed, and Shea had planned on working for another five or 10 year time horizon has changed right and now your money should reflect that change. If you are planning on working another 10 years and now you're prematurely retired. You don't need to be taking as much risk with your money that that the paycheck was what gave you the ability to take the risk with your investment and it when you don't have a paycheck, at least temporarily, pull back on that risk a little bit. I also saw people that decided that they weren't as ready as they thought and so they're going to work longer.

I was planning on retiring at 60 but you know what I think I'm to go to 65 or 70 well your time horizon has changed. Let's make the adjustment.

Because if you're going out longer.

Maybe we should shoot for a little bit more growth and be a little bit more aggressive with her friends make sense it makes sense and in the last thing is possibly consolidating those accounts that when you do hit retirement like I was thinking there be fewer username and passwords to have to remember if you have your accounts is only it, there's less accounts and we have to log into so what sure what your recommendations when it comes to consolidating accounts you know a lot of people say will I want diversity so I don't I don't want to keep all my eggs in one basket and I totally get that. But that doesn't mean that you have to have five different IRAs. You can have diversity within one IRA, you can you can spread out the investments inside of that and make it so much easier to track also I see people that have their brokerage account over here there IRA over there. There Roths somewhere else and they didn't statements from four or five different places you can have all of those accounts at one institution, and on one statement it will break out here is your nonqualified money. Here's your IRA money. Here's your Roth money so there is no law that says you only have to have one IRA, but there's also nothing that says that five IRAs offer you more protection and a lot of times I find that they don't actually your your duplicating the investments or you got some investments in in two of them that are actually working against each other. It seems like it would simplify things for you see could see all your money are most your money in one spot and know exactly what my risk is showing her what my balances are looking like a lot of times toward retirement. People want to simplify right were downsizing our houses may be right and and likewise do a little spring cleaning of your financial affairs and if you got five different banks that you've been squirreling money away at that's another one I see a lot of off that bank ever since I was 20, and that's why keep it as it is sentimental is like a Christmas ornament that you gotta pull out and put on the tree. Every isn't providing you and you love when you go in there. Maybe it is so use that one.

But there's no other reason to have the four or five others right you find the one with the best rates the best offerings.

The best services where they know your name when you walk in like those are the things to look at when considering what bank to keep but don't have five of them for no reason and here's here's another window. I do see people who say will I got five bank accounts because I have over the FDIC's limit in them I wouldn't that be nice it would be a very nice situation I run into this before, but why is that money all in bank account. Ding ding ding correct right okay I get I get it you you have enjoyed the safety of banks ready and you've been wise enough not to overexpose yourself above that FDIC's limit.

Why do you have so much that in cash. Yeah it in this day and age, with low low interest rate you're making absolutely nothing.

I actually ran into a situation where they want. I was able to earn more for an account holder by repositioning that excess money that she was going to make in the next two years.

Yeah, I though I can't imagine having five accounts at 250 K. It looks good on paper but again to know that could be it could have been to Vermont absolute will really well if you breach any of these points are need help identifying if you have Peter call reach out to him again, it's Peter Mershon at Mershon planning and you can find them online Mershon planning.com are via phone at 919, 300-5886. It looks like Rich on planning.com is and that a great last name financial planner who made my last shot at.

It was like Rich on planning.com and if you go to the website.

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