2022 EP0827 | Planning Matters Radio | Retirement

Plan planning matters radio program. This is Rich on planning planning matters radio.

I am Peter Rochon, founder advisor at Rochon Lanning independent fiduciary investment, retirement plan, or 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 in 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 Rochon planning 919-300-5886 919-300-5886 today 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 Rochon planning channel where every week we are putting out new segments on important financial topics such 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 gonna feature a few segments on recent market volatility in 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 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 Rochon planning.com on our YouTube channel. YouTube Rochon planning lots of great resources out there so give us a call or just give us a search online. It looks like Rich on planning.com it's one word. Though Rochon planning.com hope you enjoyed today's program take some great information from it and again give us a call if you have any questions 919-300-5886. We all needed a little bit of good news. That's what today is about. We do terrible about the economy but that's actually good is working to break it down but you know Americans never felt this bad about economy University of Michigan consumer sentiment index cratered. You know this 58.4 to 50.2. That's the lowest level since data collection began in the 70s. I know you're hearing from a lot of clients are concerned. Let's think about pessimism. Yeah, the fact that we are pessimistic is good news. The fact that our confidence in sentiment about the economy is bad is good news right it seems contradictory. So I did. 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 401(k) balance about the value of their home being skyhigh that in fact the moment that I get concerned and worried that they may need. This party is going a little too well and is also the moment when their profits on the table so if you are invested during those moments, rebalancing, capturing some of those profits and 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 investor stated to move in and realize opportunity amongst the chaos right.

That's why consumer sentiment is known as a contrary indicator you're laying out that case Celestine into this is a little bit more because watching I think they should be reminded that you are backed by a team of investment experts that includes Brixton capital management CIO Mark Diorio who crunched 50 years of data and gave us this crafter, Peter, what are we looking at your will. You're looking at a graph that basically overlays the consumer sentiment with the following 12 months worth of SNP 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 is not nothing 24.9% before. It's not about timing the markets but time in the market and because data is helpful to not make these emotional decisions. Let's testing out show one more breath that I think really resonates with us. Peter is missing the 10 best day so if you have $10,000 invested over a 15 year. If you pull your money out just missed 10 days over that 15 year. What you have significantly reduced your outcome and have a rate of return and the thing is that those best days in the market often directly follow some of the worst days in the right. That's 90 for consumers to get jitters and feel nervous and scared after we have seen losses in the market or experience some of those worst days, but if you jump out at those moments, then often times 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 is a study of investor returns versus the market returns every year. They do this study, and they 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 right of the wrong moments right and it's not that sticking out or set it and forget it is what we should be doing in indicator you mentioned your time horizon also needs to be a very important consideration yet that absolutely is not timing the market.

It is more your time in the market but it also is your time in life. And so if you're a young investor looking for aggressive growth. You know, sticking 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 now. I will set again since talking is there is a very helpful with the best fairytale. Sure you can give me a call at the office 919-300-5886 919-300-5886.

You can visit online rich on planning.com it's my last name Rochon planning.com but looks like Rich on planning.com you can email me peter@rochonplanning.com and we do offer to put back optimized retirement plan together for any of our viewers or listeners air and it looks at income investments, taxes, healthcare, 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 some part night here think you absolutely always a pleasure to see you today. We are doing a little 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 often ignored facet of holistic planning, and it can have major ramifications, a lot of us assume that in retirement. We are not making income anymore, and therefore were not going to be in his private tax bracket, but that's not necessarily true.

Right. It is not true doesn't mean that the expenses go away.

It means that the paycheck goes away. But I still have income. I mean, the majority of Americans have Social Security and tax-deferred savings and so the 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 an 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 run. That's why Ronald Reagan got into politics. 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 then he didn't like that so we ran for governor in and then subsequently for president, obviously, but yet we are today in a much lower more friendly tax environment. However, the writings on the wall here. In fact it's already in the law tax rates will be going up in 2026. Unless this administration turns around and says hey the policies about last administration work the way that we should handle things which I don't care who's in the White House, written 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% 22% bracket is slated to go up to 25%. The 24 slated to go up to 28 so it's not just on the REIT are 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.

Aaron, you mentioned it. If you don't have a tax plan, you don't really have a retirement plan is not what you have in those retirement accounts of 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 great areas because there are some fantastic opportunities to control manager tax liability right anything you write. Everybody is in agreement essentially that taxes are going to go up.

We talked about the US debt before rights over 30 trillion right now so you mentioned some options that you 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 is 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 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 reverse mortgage is a place where you can essentially get tax-free income. I've seen people use that planning strategy a couple different ways. I mean ideally I like to continue to let tax-free dollars grow for as long as possible and become 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 utilizes as a stopgap measure in the doughnut hole and and building up nonretirement assets. If you are looking to retire before 59 and especially is very important in your planning process so that's a goal for you were 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.

This is really helpful. I think it helps me understand why having that tax plan has to be part of your retirement plan if somebody would like your help creating that tax plan with the best way to reach you yet 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 right 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 verse. If you were a little bit proactive in identifying these opportunities now, and the difference is often staggering. A lot of times Aaron if if I'm talking to like a 60 to 65-year-old and they're looking at that retirement account in an IRA or 401(k). The ultimate tax bill if they just default to the IRS's plan is often times more than the account value is today and 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 call 919-300-5886 919-300-5886. You can go online Rochon planning.com it looks like Rich on planning.com rich on planning.com email me Peter Sean planning and I wrote an article last year that was featured in 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 overlook taxes so it it means that really everybody needs to look at this, but specifically if you have more affluence, more wealth in those tax-deferred accounts that make sense. I can thank you thank you Peter. It is very good to see you and today we have a very important topic how to fight inflation. Of course, inflation was a story of last year. It will be inflation this year. The summary this year and I want to see some interesting numbers because this is good news. US inflation rate dipped 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 pressure is remain Peter. The question is 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 were certainly not past the pain by any right, 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 everyday routine expenses rightly has not seen any decrease and yeah at an end 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 were 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 sell 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 tumbled they missed earnings but a lot of that was due to the fact that they cannot face prices fast enough on consumers to offset the cost that they are having to pay to buy more goods to replenish their supplies and so I am 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 right well and I'm it does hurt to go grocery shopping to fill up the car. You are so right about what we sing on the markets be seen breaking yields as investors move out of stocks and into treasuries. Are there any actions that we should be taking now to guard our investment against inflation will that's a move that I think is sort of a natural reaction when we see market volatility wants to leave the party when everything is going really well and everybody have a good time and in 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 often times it's a little too late and it's kind of just locking in losses.

Now what we do well there are options out there. You know the market and inflation do not always coincide in an agreeable way. If we flashback to like the 1970s and early 80s where inflation was a big factor market did not help us to offset inflation during that time, and so were 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 the 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 limitations 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 so what is actionable advice for you know people have maybe a longer time horizon, but I'm sure that advice is a little bit different for somebody who is in or near retirement said during this period of high inflation. What should pre-retirees and retirees be doing right yet. It's deftly gotta be different because during your earning years during your working career. Hopefully your wages adjust with the cost of right you can negotiate pay raises or or or work into better higher-paying jobs, whereas during retirement. You got a fixed income and a set finite amount of money on day one.

You gotta make it last.

Therefore, Aaron, we gotta 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 plan or 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 a fact. That's inevitable the value the purchasing power of the dollar has dropped considerably over the years, and that's nothing 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 segmentation's 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 and during good periods. We can sort of harvest some of that growth money to supplement those other book. While 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 are some of those again hedged equities and structured notes that you mention is the best way to reach you call the office 919-300-5886 919-300-5886. You can email me peter@seanandin.com. It looks like Rich on plannings my last name of Peter. It was Sean planning.com go online, which on planning.com on the base. I think you always a pleasure to see a very pertinent question today. How to turn your stock losses into tax gain.

Humans have been so tricky for investors. Everything from stocks to bonds of falling and it's hard to know whether we stick it out or cut our losses and you can't sell at a loss is often called a capital loss or tax loss.

So how does the investors use, not to their benefit.

It will I'm not sure you can never 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 appreciated in value and you sell off at again. Now there are a couple caveats here. This is not working. Retirement accounts right because all transactions with in an IRA or 401(k).

Those are completely tax-deferred. You don't have to worry about tax gains, capital gains or 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 Vardy 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 $3000 per year. Good news is that tax losses can actually carry forward so you gotta 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 have the stock market is a little bit that I had to put a finer point on it.

Take a look at that kind of breaks your heart a little bit see you talk to which investments we can sell the claim the loss but I think about crypto because a lot of people have lost quite a bit of money recently made that claim.

For example, I just hate you so crypto currency has been basically categorized by the government by the IRS as an investment. So if you purchased 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 crypto currencies. Whether it's, you know, go Chicoine or bitcoin or theory number rip 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 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 with in a calendar year, then that is an ordinary income of that if you wait a year and a day, then that is a capital gain kind of event and and so there is a time horizon issue here as well, but with crypto currencies. 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 you know a lot of transactions a lot of activity may mean a lot of taxation that you did not intend right there the unknowns when you're using one of those trading apps sometimes so pure as anytime I know that we should be aware of and is there a good time to what 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 sold out of the position, but we actually like that position. We did it just to two to realize the gain that we had, or the loss that we had to use it offset the gain then you can repurchase back into those positions within a matter of you know, a few days there mean it's gotta be 31 days and then you can get back into that position but have a realize transaction that creates that gain without loss scenario, and in theory, this is kind and easy to understand but when it comes down to it it's very advanced math that way to make to me somebody has questions for you what the best way to retail. We can give me a call 919-300-5886 919-300-5886. You can give a visit the website Rich on planning.com is what it looks like Rochon plan. It's my last name was Sean planning.com it was like Rich on planning.com you can email me peter@rochonplanand.com just dealt with a general in the other day that had a whole lot of transactions in an account and working some of you think you think you are always matters. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy you were encouraged to think 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 is a registered investment advisor.

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