2021 EP1218 Planning Matters Closing The Year

When planning matters when welcome once again to Lanning matters radio show where we shed a little light and shed a little levity on the financial issues of the day and I'm I guess today is the author of understanding your investment options. He is a fiduciary financial investment and retirement planner and he is a Dave Ramsey Smart investor Pro serving his clients throughout the great state of North Carolina. You were shopping for joining us a great to see you again Scott. Thanks for being part of the program and have to change the branding around that Dave Ramsey Smart investor Pro. I think Dave is realizing that at some point time he is also going to retire and sort of rebranding everything it still the Ramsey brand but there taken Dave off of certain things was Ramsey trusted Smart investor Pro now. It'll be an interesting transition. I'm sure that Dave will still be around in the wings but you can hear Donna's 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 sort of trying to groom is his protégés 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 fees like no pins in sight. I know what I want to get out while preacher sustainability in your investment plan.

That's a sustainable plan for his own business.

I guess he practices what he preaches. There got that right, absolutely. And you know he also talked about retirement planning. So why would you want to take the retirement planning advice from someone who never plans to retire yet he's ready to live and give like no one else will. If you want to talk to Peter Rochon. You can call him at 919-300-5886 or not. 919, 358, 86, or you can go to his website www.richenplanning.com www.rochonplanning.com and Peter were were in the thick of the holiday season.

Now it's become kind of a cliché to say that retailers and in certain people start the holiday season, way too early, will guess what is not too early now.

If anything, you're too late.

If you're starting your planning.

At this point year will you know all 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 these supply chain issues in 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 this year if at our last minute shopping. I'm sure that this program is is catching some folks who are out and about and doing those kind of a week before Christmas shopping frenzies.

The madness is upon us. We classmate 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, getting the best of us and in this year's just flown by like it snuck up so quick that Christmas is here.

I blinked my eyes yesterday was Thanksgiving last week was October and then Halloween it and it was just a Fourth of July last month. Yeah, I feel like I'm just getting over last Christmas. Yeah, indeed an end.

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 aware. We've all seen a little bit more stress prices have increased prices that we pay pump 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, earmarking amount that you're willing to spend on uncertain people and and find a gift that means something within that budget.

You mentioned prices going up how much of what's what were seeing in prices going up is like a short term but just be individual retailers and manufacturers raising their prices and how much of that is is baseline kind of inflation that's happening. Well, Econ 101, supply and demand. The demand for the things that were buying itself has increased prices and then the supply side of things being thin is also increase those prices so both of those factors in that Econ 101 equation are working against us when we are buying or purchasing those items, are those things are 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. 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 and my purchasers my customers are still willing to pay those higher prices. What'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 in there saying that a lot of these contracts for delivering goods are being renegotiated right now at significantly higher prices because it cost, not just in 0678% 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 talked about this stage you can you can you can go online and you look at 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 and 2 yards.

1/5 of the money has been freshly minted Nino today they will printed they just digitize it. That means there's 20% more dollars just within the last two years. The dollar that I had two years in a day ago theoretically should be worth about 20 to 25% less and so they water down the supply and so the dollars that we had previously.

They're the ones that have suffered and so II hope that were not like seeing just the tip of the iceberg here in inflation and I hope that what they kind of advertised as temporary or transitory is true, but I just have my concerns and my doubts when we talk about them pumping and 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 can't canceling out fractions or whatever. Yeah I know that's 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 what are they going to do once they taxes they collect it in and then delete the zeros or or burn the pilot cash that really just doesn't happen. We don't see the currency supply shrink and and you know, 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 often times the reaction is well if the value of the dollar is down. Let's just print more of them to make up for and its IIII sometimes take issue with the term vicious cycle. I think cyclist 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 I worry that we are in a 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 here in the news about wages being raised or the environment being made more competitive for the worker is is any of that happening is that having a positive effect on the situation. Short short yummy wages. Raising is a good thing right for those that that impacts but that also impacts the bottom line for what we pay for things because if not, if I'm an employer and I've got 100,000 workers who previously were making eight dollars an hour and now they're making $15 an hour in their work in this 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. There their labor. There there people is the largest expense that most companies have been so a company looks that bottom line and says okay of all of our expenses those expensive it had 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 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 in labor prices increases in wages it it actually tends to trickle-down much more quickly to increase in prices that we pay for goods and services.

This becomes a math problem with the emphasis on the word problem at some point yeah and you know the Fadden 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 like 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 if they begin to raise inflation targets which they did. They did that in 2021 that we began the year the Fed saying were going to target a higher inflation rate well right there their higher inflation rate was about 2%. We ended up the the year here, seeing almost 6% right and so once they they ease those mechanisms. I think the momentum begins to carry and the natural course of the powers of the economy kinda take over.

Yes, we can target that but it does mean more to hit back. And so to counterbalance that they can sort of raise interest rates, but we've got this $30 trillion national debt, and consumers are also in debt and when when we start to raise that interest rate is that going to have a negative impact like on the housing market you in 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 with interest rates start to go up the housing market. All the sudden really starts to slow down and and that's a big impact on the economy. Words of wisdom from Peter Schott if you want to talk to him about your own financial situation, or maybe get your hands on the optimize retirement plan. You can call 919-300-5886 your signal things jumping up Medicare premiums are going to jump by 14.5% from this year and that's again far above the estimated rise that was in cost you a house that can affect the picture for folks out there got week before Christmas and we are full of cheer here, programmer man yet, so prices for Medicare premiums going up in 20 22 x 14.5%. 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 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 5.9% 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 5.9% so that's the good news.

The bad news is kind of to two times the 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 5.9% Social Security increase they take away on the other with a 14 1/2% increase in your Social Security part B premiums. Sorry Medicare part B premiums so you know there's there's an estimate of about up next year. About $21.60 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 how many may say well that's fair you 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 their tears and their layers to this cake, but those with higher incomes will see a larger dollar amount because it's a percentage you know a a 14 1/2% increase on $100 is is less than a 14 1/2% increase on 150 or $200. As far as the actual dollar amount that's interesting. So what you're saying is there, burning the candle at both ends. It was adjusted when the money when it was adjusted.

They want to win the monies coming out so maybe that effects will help you. How fair or how how people feel about this very, very smart stuff from Peter Schott here get if you want to talk to him. It's 919-300-5886 mention Social Security briefly there.

It looks like there to see an automatic increase of 5.9% 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 open my portfolio that I don't have to withdraw drawdown and and generate myself.

My Social Security that I 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 nearly baseline Social Security theoretically is far as past history has only ratcheted up and is designed where it should only ratcheted 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 with my true cost of living goes up 56% in Social Security goes up 56%, well the amount that I'm pulling out of my personal portfolio would also need to go up five or 6% just simple math year if if cost-of-living is $100,000 in a married couple has Social Security of $50,000 and then there pulling $50,000 out of their portfolio and then cost of living goes up. Let's just say 10% just so I can do the math real quick.

Now my cost-of-living is $110,000. Well if Social Security goes up 10%.

That's only $55,000.

I've still only got 50 that I'm pulling out 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 and therefore were going to have to count for the withdrawals and and the adjustments to cost-of-living and inflation from portfolio withdrawals as well. I hope that makes sense does that that's what we with the time that we have left. Maybe we can zoom in and talk about the types of things that people can do ethnic end of the year approaches as there are 2022. Financial and retirement planning should be ramping up or happening at this time Peter were closing 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 31. But the time to begin processing it is 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 401(k), your 403B all those need to be wrapped up and done within the calendar year. So if you want to max out throw a little extra in and you've got another pay cycle between now and the end of the year. Login right now. First thing and make those adjustments that you get what you want in their Roth conversions you may have already passed some financial institution deadlines on that on charitable donations, I mean this is a given 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. I fear over 70 1/2. 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.

I it's one of the very few opportunities for truly tax-free money that exists in this world are you didn't pay tax when you earned it.

You didn't pay taxes grew you don't pay tax when you give it the charity they get a tax-free is a win win win all the way around and next year will still be able to do that but if you're over $100,000.

Not a lot of people that that applies to, but there are a few if you're over 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, 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 separate IRA contributions IRA contributions Roth IRA contributions for 2021 all the way up until April 15 of 2022. So maybe a little little reprieve there if you want to do some of that retirement savings that way. Is there any kind of penalty for doing it at that. Later in the game as opposed to within this calendar year. Now, 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 $2000 in taxes.

What can I do about it.

CPA suggestion is well you can make a 5000 or $6000 contribution to your IRA and it will offset that 2000 that you owe. 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 in and do a cost-benefit analysis and I show them okay if we make a contribution to a tax-deferred account and taxes stay the same in the future versus if we make a contribution to a tax free account and taxes stay the same in 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 yellow I have 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 there not because already law on the books 2026. We revert back to the tax brackets and rates that we had in 2017.

The 12% bracket becomes the 15 the 22 becomes the 25 to 24 becomes the 28 taxes are already slated to go up into the near future is of your 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 and it doesn't make a 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 be so the status quo that's going on right now in 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 it'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 they are 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 arrival passing right now a lot I mean it. It doesn't it doesn't really matter is in office when somebody hears that 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 like a pendulum swinging and there's no middle ground is only extremes and so yeah II 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 it. They have inflation-adjusted the amount that you can contribute to your 401(k). So next year in 2022. Instead of $19,500 going to be $20,500.

However, if you got one of those nasty IRAs.

If your saving for retirement. Personally your limits are the same, only 6000 can you save for retirement Yep Yep employer benefit plan they they they gave us a break there an increase but if your saving privately in your individual retirement account limits are not inflation-adjusted on that site does make any sense to me. That's what the government has come up with what about folks that are to take the standard deduction. What are they affected their there is an increase in the standard deduction as well. Yeah… An inflation adjustment.

It is up $800 from 2021 the new standard deduction for a married couple filing jointly will be $25,900 for individuals, it's up to 12,009 50 so. $400.

So basically, you know, multiply by two that's that's the increase on the on the married filing jointly so yeah nice little chunk of additional deduction than most people actually simply take the standard deduction. I hear a lot of people saying will I keep my mortgage so that I get my tax deduction that does make sense for a couple reasons. First off, you only get to deduct based on the interest that you pay on the loan. So let's say you paid $1000 in interest. The deduction that you would receive is probably like $200-$250 right if if you hate paying the IRS so much that you're willing to pay the bank 4 to 5 times more than 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 it, the standard deduction surpasses it. So we default and take that because it's one or the other either get the standard deduction or you itemizing it that most people actually don't have enough itemized expenses that are deductible to surpass that standard deduction right types of things that don't fall under the umbrella of the standard deduction are few and far between, and there like you said, there is a misunderstanding of kinda common, no homespun knowledge of keeping your your charitable donation receipts and your mortgage in all things like that. It's not quite all it was cracked up to be. Not now. I will say through coded 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 where 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 were saying is talk to your financial advisor. There's lots of moving moving targets in different numbers and if you do want to talk to Peter Mershon directly. You can call him 919300586 or visit his website www.richenplanning.com were about wrapping up your Peter any last words were listeners before we go I just want to mention that I do have this fantastic checklist. It is a quick one page reference the 2022. Financial and retirement planning checklist are several items in each of these categories, but again all on one page income and expenses, taxes, investment analysis, healthcare and insurance and then he 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 2022.

Financial retirement planning checklist just give a call 919300586 or visit online rich on planning.com and if you request my book which happens automatically when you hit that webpage digital availability of understanding your investment options will include this list with it as well. For the remainder of this month and probably into 2022 as well break. There's no free lunches, but there are some free books. If you call that number 919300586 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 is been a pleasure it always is, and I hope it helped. The hope was informative. That is what we are here to do. One of the greatest satisfaction that I have is being able to help people get more confidence with their financial well-being and that's why am in this profession and in love doing this every day. Merry Christmas everybody won't talk to you again, probably until then in less you give me a call, but looking forward to hearing from you.

If so, give a call 919300586. Merry Christmas, happy new year to everyone, including use Thanks so much Peter that does it for another edition of planning matters radio happy holidays have been planning matters radio the content of this radio show is provided for and of any investment strategy you weren't purchasing investment tax or legal advice from an independent professional advisor. Any investment and/or investment strategies mentioned involve risk by three services offered through virtual capital management, a registered investment advisor. Duty extends only to investment advisory advice does not extend to other activities such as insurance or broker-dealer services advisory clients are charged according Peter as a commandment, belligerent, product commission, which may result in a conflict of interest regarding