Estate Planning, Investment Strategies & Retirement Timing: Your Money Questions Answered
On this week’s Money Matters, Scott and Pat break down headlines shaping your money—from housing gridlock and interest rate anxiety to the risks of letting politics guide your investments. A fiery caller sparks a raw debate on using options, leading to honest talk on risk, returns, and financial reality. Scott and Pat also cover AI in financial advice, smart tax strategies for business owners, and when a simple trust is all you need. Plus, real listener questions on Social Security timing and estate planning—drama included (just a little).
Join Money Matters: Get your most pressing financial questions answered by Allworth's co-founders Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here. You can also be on the air by emailing Scott and Pat at questions@moneymatters.com.
Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now, at 833-99-WORTH. That's 833-99-W-O-R-T-H.
Scott: Welcome to Allworth's "Money Matters." Scott Hanson.
Pat: And Pat McClain. Thanks for joining us.
Scott: We're glad to be sitting in the studio, chatting with each other, taking your calls, answering your questions, and talking about some of the latest things in the financial markets.
Pat: Yes, and are there things. You know, so, I was thinking about this. I normally, because I'm old now, get up at, like, 4:00 in the morning and...
Scott: Do you really?
Pat: Yes, but [inaudible 00:00:54]
Scott: Do you set an alarm, or you just wake up?
Pat: I wake up. And I'll read the...
Scott: Actually, I get emails from you sometimes at, like, 4:05. And I know, Pat must not have slept well.
Pat: And I'll read "The Wall Street Journal," and "New York Times" and a couple other things. But my intent is to go back to sleep by 5:30 and then get up at 7:00, so it's a really odd... But thank you for sharing that with everyone, Pat.
Scott: Yeah. Yeah. Where are we going with this?
Pat: But when I was reading this morning, I thought, "What a strange time this is." But then I thought, you know, I've been doing this for 35 years. I've been doing this radio show/podcast for almost 30 years. And I thought, how many times over that have you and I said what strange times there are? And it's been hundreds.
Scott: Oh, yeah. And to try to predict, have some sort of prediction of how this is gonna impact the financial markets is ludicrous.
Pat: It's impossible. It's impossible. So, and I don't care whether you like Trump or don't like Trump, or you think the world's coming to an end, or there's nothing but growth, and it's all framed by your political or social beliefs. That's not how the markets work. The markets work on profitability, and to finding a way to the marketplace.
Scott: Right.
Pat: And you think about all the things that are happening. The growth of private equity and venture capital was a result of overregulation on the public markets. The private credit is because of some of the lending practice.
Scott: Tight banking rules, yeah.
Pat: Even the use of stablecoins or bitcoins was a result of an environmental change. So, I just had to...I remind myself constantly.
Scott: I get most concerned when you see government intervention in, too deep in areas. And I was reading some legislature trying to, we need to push for more home ownership. And I thought, well, that worked out brilliant last time.
Pat: Didn't it? Didn't it?
Scott: Right? I mean, you think of the financial...and the housing crisis. That was, it was man-made.
Pat: Yes.
Scott: We created that housing crisis.
Pat: And, and it affected employment, in many cases, because people weren't as mobile to chase better opportunities, because they were tied to a home.
Scott: Which is the housing market now.
Pat: It is.
Scott: I have a good friend that left California and went to Nashville area, three, four years ago. I think during the early COVID lockdown days. They're, like, "We're outta here." And his job is a remote job, so he can be anywhere. Doesn't really matter. And they're talking about coming back to California. I had a conversation with him this week. And I said, "So, what's the plan? You guys come back to California?" and he said, "Well, with the way interest rates are," he says "we're kinda taking a wait-and-see. We're gonna wait..." He said, "We're gonna wait till interest rates come down." Now, he's been a good friend of mine for 50 years.
Pat: And he knows this, the [crosstalk 00:03:59]
Scott: Well I didn't say...I didn't respond. Like, they may never go down, in your lifetime.
Pat: Yes. Correct.
Scott: They're actually, historically...
Pat: Closer to a historical norm than not, yes.
Scott: ...in last 50 years... Yeah. They may never go down. You're like... But there are so many people, if you look at the housing market in general, it's a very slow housing market, because there's so many families just like that.
Pat: Yes. And you're not seeing a lot of movement unless there's life situations that force them.
Scott: Right. And even if you think somebody gets a job offer to go move to a different city, move to a different state, there's one thing about a relocation package, but if you've got a $300,000 mortgage at 2.75%, and you're moving somewhere where it's gonna require you a $400,000 mortgage at 7%, that's a big [crosstalk 00:04:47]
Pat: It's gotta be a big bump in pay.
Scott: To break even.
Pat: Yeah, and opportunity. Yeah.
Scott: Yeah.
Pat: So, I have to remind myself, because... And remember, your investment advisors, I don't care who they are or who you're getting advice from, everyone has an emotional bent to it. They're biased.
Scott: Well, they're human too.
Pat: That's right. That's right. That's why the algorithms will actually be able to fix everything.
Scott: There'll be no more volatility in the stock market [crosstalk 00:05:21]
Pat: The AI will actually tell us [crosstalk 00:95:23] exactly how to act. That's coming. Although it's already here. But I wouldn't bet on that.
Scott: Well, there's certain... Well, it'll be interesting. I was actually, I had a conversation with a psychologist the other day, and we were talking about AI, and I said, we were talking about at what point are our careers replaced? At what point do you trust the machine more than you do an individual to figure out your marriage issues, or your own personal issues or whatever you've got going on?
Pat: Oh.
Scott: We're not there yet.
Pat: I don't know how I feel about that. Well, I don't listen to other people. Why would I listen to a machine? I continue to make bad decisions all by myself. Joke.
Scott: But I must say, the way the market... If you look, since the beginning of this year, we had a 19% decline.
Pat: When?
Scott: A bear market, technically a 20% decline. That's whoever makes up these definitions, that's the definition.
Pat: But it was like...
Scott: If you took a three-week vacation, you would have missed it.
Pat: Yeah, correct. Like, when? Like, when? The S&P is what, up 9.5% for the year? [inaudible 00:06:41]
Scott: Is it that much?
Pat: Yeah.
Scott: That's nuts.
Pat: Yeah.
Scott: Yeah. We don't have to look it up. It's kind of irrelevant at this point. I know it is. I guess it's very relevant, but it doesn't really matter.
Pat: I gotta look it up.
Scott: Okay. Pat's looking. As Pat looks up the, what the return is on the... Do you even know how to look it up in an easy [crosstalk 00:07:02]
Pat: 9.44%.
Scott: Oh, there we go. As of the close of business this last Monday.
Pat: Yeah.
Scott: That is kinda crazy, when you think about...
Pat: So, there's a 20, there's a 20 [crosstalk 00:07:16]
Scott: The last two calendar years were both really good years.
Pat: Twenty-eight percent swing, in a relatively short period of time, from bottom to top. Twenty-eight percent. [crosstalk 00:07:30] not quite that high. Not quite that high.
Scott: It's been interesting. And well, and the European markets, many of the European markets have done, and other foreign markets, have done better than the U.S. this year.
Pat: Yeah.
Scott: Couple that with the decline in dollar, which we haven't talked much about on this program, but it's been a significant decline this year, the dollar, and so, if you hold foreign currencies, it's been, foreign stocks...
Pat: Good for you.
Scott: ...it's been good for you, [crosstalk 00:07:51]
Pat: As long as you weren't hedged.
Scott: Yeah. Good for you currently.
Pat: Yeah, it has been.
Scott: Doesn't mean it's gonna be...
Pat: Yes, [crosstalk 00:07:58] Remember, we're talking about what the market did, not what it's doing or what it will do.
Scott: Yeah, because who knows what it's gonna do.
Pat: Yeah. But it did.
Scott: Yeah. Anyway, if you wanna be part of our program, love to hear from you and take your calls, you can join Allworth's "Money Matters" at 833-99-WORTH, or you can send us an email at questions@moneymatters.com. And we're starting out in Pennsylvania with John. John, you're with Allworth's "Money Matters."
John: Hi, how you doing?
Scott: We're great.
John: How come most financial advisors don't advise using options to hedge their positions, or for extra income?
Scott: Oh? Why do most not? Those are helpful when somebody has a concentrated position, where the majority of their assets are in a concentrated position, maybe a company they worked for, or they bought Apple stock years ago or Amazon stock years ago, and now it comprises the majority of their portfolio. Options can be helpful as a way to protect that portfolio, and I think... I don't know what most advisors do. I certainly know at Allworth, we use options in times like that.
Pat: And it helps protect the portfolio, or/and you could sell options [crosstalk 00:09:22]
John: You know, I understand that. I understand that. All I'm asking why don't they mention that to the client?
Scott: Are you asking me why other people do... I don't know.
John: Okay. Okay.
Scott: Well, let me [crosstalk 00:09:37]
Pat: Okay.
Scott: So, they're complicated, and it's very difficult to scale.
Pat: And it's hard to understand.
Scott: So, let's say you're an advisor and you have 100 clients, and let's say 50... Let's say that all your clients came to you with concentrated stock positions...
John: Okay.
Scott: ...and you had 50 clients with 50 different portfolios, 50 different companies, that you're trying to put some collars on, or some downside protection. It's a lot of labor. Still...well, technology in the last couple years have made it easier, but for the most part, it's still gonna require some manpower, or womanpower, human...
Pat: Human power.
Scott: ...to monitor these portfolios.
Pat: But Scott, so maybe... So, are you asking, John, why are not advisors doing it against broad portfolios, or just heavily concentrated positions?
John: Well, even against concentrated.
Pat: No, no. Against concentrated, you can make an argument for, but let's talk about just doing it against broad positions in the marketplace.
John: Well, no, no, no, no, no, no. The question was, okay, we'll do it at concentrated, and I could see your point. I could see your point as far as concentrated positions. But, if you're a client out there, it's still, most financial advisors do not mention that.
Pat: Well, I don't I can't speak to that.
Scott: I don't know that most do.
Pat: But I can tell you that if we have concentrated positions, heavily concentrated, just not minorly concentrated, and you have a strategy in order to get out of those heavily concentrated positions over time, either through gifting or spend down, or liquidation at a lower marginal rate, then...
Scott: Options can make sense to help protect.
Pat: Yes. But you [crosstalk 00:11:29]
Scott: Well, I mean, if your question is why don't they [crosstalk 00:11:30]
Pat: [crosstalk 00:11:30] Most people don't have heavily concentrated positions of stocks, outside IRAs. Most people do not.
Scott: That's right.
Pat: And sometimes, it's just better to take the tax hit than it is to option those portfolios around there, because...
Scott: There's no...they're not free. It's like buying insurance. There's a cost to it.
Pat: Yeah. So, whether you collar, which is you buy and then you sell, right, and you're collaring that price...
Scott: But then you're, you could get called away.
Pat: You're buying [crosstalk 00:12:00] Yes. And then you're selling, right. So, you've got...
Scott: And there's the risk the stock goes up and you're either forced to sell it or buy that position back...
John: It all depends on which side you're on.
Pat: No, but, understand that, but that's defined by the client's objectives. Right? So, options... And I can't speak to other advisors. I mean, I just, I know what we do at Allworth, which is, yes, we will use options...
Scott: When appropriate.
Pat: ...on a heavily-concentrated position.
Scott: We don't bring it up with everybody.
Pat: Why would you?
Scott: It's like, I don't go to the [crosstalk 00:12:30]
John: That's what I mean. Nobody brings it up. We don't bring it up with everybody, but nobody, you know, the advisors that I talk to do not even mention.
Pat: Are you an advisor?
John: No.
Scott: Do you...is your portfolio, are you concentrated, highly concentrated in one particular stock?
John: [inaudible 00:12:50] No.
Pat: Okay, well then [crosstalk 00:12:51]
Scott: Well, that's why they didn't bring it up.
John: [crosstalk 00:12:53] one particular [crosstalk 00:12:53]
Scott: Just like when I go to the doctor, the doctor doesn't talk to me about physical ailments that I don't have.
John: [crosstalk 00:12:57]
Pat: All right, Scott. Let's [inaudible 00:12:58] Okay, John, keep talking.
John: Okay. I have a heavily concentrated position. All right? And I do sell calls against it.
Pat: Okay.
John: All right? Then, you know, there's other positions out there that I'll sell puts against...
Pat: Okay.
John: ...that if I wanna buy it, if I wanna buy, I'll sell a put against it.
Pat: Mm-hmm.
John: All right. Instead of buying it.
Pat: Okay.
John: So, that's what I'm saying. Most financial advisors don't do that.
Scott: Well, so, I don't know your portfolio, but if I were a betting man, I'd put money on it that on a risk-adjusted basis, over the long period of time, you have not outperformed a relative index.
John: Yes, I have.
Pat: Okay.
Scott: Okay.
John: Yes, I have.
Pat: Okay.
Scott: Okay.
John: Year to date, could I mention on how much I made?
Pat: Sure. If it makes [crosstalk 00:13:51]
Scott: Sure. Doesn't matter.
Pat: Yes. How much did you make?
John: Okay, it doesn't matter. Okay.
Pat: No, no. But...
John: Sixty-nine grand. Sixty-nine grand, so far year to date.
Pat: And on how much money?
John: That's used in a quarter of a million.
Pat: Okay. Well, that's...you've underperformed the markets. The markets are up 9.55%, and you made $69,000 on a quarter of a million dollars.
John: That's year to date.
Scott: Okay. John, I don't... Look, I don't know where this conversation's going. I do appreciate the call, and I...
John: Well, I don't know either. You know, because [crosstalk 00:14:20]
Scott: Well, why are you yelling at us?
John: ...twisting and turning it. I just asked you [crosstalk 00:14:24]
Pat: We don't... But why...
Scott: John, I'm sorry...
John: ...just a simple question, and you turned this into a whole freaking nightmare.
Pat: Okay. All right.
Scott: Wow. I don't know...
Pat: All right. Well, thank you. I don't know what that was...
Scott: You know, essentially, we've been doing the show 30 years, and every once in a while you get a call that's just...
Pat: I can't speak to what other advisors do.
Scott: Well, it was a bit of an anger. [crosstalk 00:14:42] he was angry at us. I don't know what he's angry about.
Pat: But, I did, I said he underperformed the markets on a risk-adjusted basis, not underperformed the markets. It's on a risk-adjusted basis. Everything is based on a risk-adjusted basis, which is, someone could say, "I doubled my money." And you're like, "You did this time, but the last three times you lost it all."
Scott: Yeah. And most people, as they go through life, at least the most of the people we work, with financial advisors working with clients, they're more concerned about not becoming poor than they are becoming more wealthy. And it's really about having probability of outcomes. So, you get to retirement age, you've got a million, you've got 5 million, you got 10 million, whatever the number is. It's about designing a portfolio to gives you the highest probability of success, regardless of what the markets throw at you. That's what most people want. There might be others out there that are willing to bet it all, and I'm gonna hope I can buy a mega yacht, and if that blows up, I'll go live with my sister. Whatever, right? Like, everyone has their own objective. So, most financial advisors' clients are looking for the highest probability of outcomes.
Pat: Yeah. And by the way, the put options, the only way that you should probably use them, unless you have some sort of great insight into the marketplace, is along large positions, where you actually have an exit plan of exiting the large position over...
Scott: Because otherwise, it's gonna cost you a lot of money.
Pat: That's right.
Scott: They're not free.
Pat: Yeah.
Scott: And it's a zero-sum game. When you buy options, it's not like the overall stock market. When we invest... We all invest in companies. If companies continue to grow, the economy grows, we can all benefit. An option market, it's no different than a casino. It's a zero-sum game, less...
Pat: The transaction.
Scott: ...the transaction costs.
Pat: So...
Scott: The house costs, as a casino example. That's how they work. There's no...you're not...not everybody can make... There's gonna be an equal number of winners as there are losers [crosstalk 00:16:51]
Pat: Minus...and minus the transaction cost.
Scott: Minus the transaction cost. So, now it's probably 55% chance of loss, or whatever it is.
Pat: Yeah, yeah. Yeah. Yes. Fifty-two, 53. Somewhere in there. Right. But...
Scott: Depending on the, what you're trying to edge.
Pat: That's right. That's right.
Scott: Because the more esoteric the stock...
Pat: So, that's why it's used predominantly with highly-concentrated positions in a brokerage account. Right? And there's other ways around that. You can modify index portfolios in order to exclude certain industries. You can put a strategy in which you liquidate that portfolio that's heavily concentrated. You gift them. You can put them in a charitable remainder trust. There are lots and lots of things to do with those positions. But, to John's point, why do people not talk about that is because, quite frankly, it applies to probably less than 1% of all portfolios, where you see these heavily-concentrated [crosstalk 00:17:48]
Scott: Well, I think he uses them to theoretically juice his returns.
Pat: That's...yes. Yeah. I got that.
Scott: And when you look at the average... When you're in your home office, making trades, just to ask yourself, who is on the other side of that trade? Because some of these quant shops, they hire the brightest people in the world, from the very top universities. I mean, super smart math folks. Those are the people you're competing against.
Pat: Yes. And oftentimes they're momentum stocks. Momentum up or momentum down.
Scott: Anyway.
Pat: All right.
Scott: That's why [inaudible 00:18:33] feel too early in the morning to get yelled at. [crosstalk 00:18:34] I don't know, when I get yelled at, I could have stayed home and got yelled at.
Pat: Feels like high school. [inaudible 00:18:38]
Scott: High school. Oh, my gosh. Oh, [inaudible 00:18:43]
Pat: Go.
Scott: My... and we're gonna go to Wendy here in a second. My 17-year-old graduated high school. She's going to college in a month, Lord willing. And not too soon for all of it, but everybody. But my wife took...
Pat: I take it she doesn't listen to this.
Scott: My wife took her and a few friends down to Orange County, Newport Beach, for a few days, to, kind of a senior trip or whatever.
Pat: Yes?
Scott: And just, the girl drama. It's...
Pat: You weren't there, though.
Scott: I was there for less than 24 hours [crosstalk 00:19:21]
Pat: But you had to...but you heard about it.
Scott: Oh, yes.
Pat: Right?
Scott: And other mothers calling, to figure out...all that.
Pat: Oh, oh. The drama went up...
Scott: Oh, yeah.
Pat: The drama went downstream.
Scott: The drama, the drama. Anyway.
Pat: Oh. Last weekend, I was in Lake Tahoe, Nevada, with four of my friends from high school. We had a little weekend up there.
Scott: You're kidding.
Pat: No. Had a nice time. Nice time. There were six of them that were, seven of them were gonna make it. One couldn't because his calendar conflicted with a hundred-mile trail run, which is what we always expected out of Tom. The other couldn't...
Scott: Do I know this guy? Does he live in town?
Pat: No, no. He lives in Oregon. And then another guy that, his wife was ill, and another guy had to work. But the four of... And I tell you what [crosstalk 00:20:07]
Scott: It's, like, an old group that you used to hang out with?
Pat: You know, we kinda hung out together. We were friends. We worked...three of us worked together at the same restaurant. But what a great time. I mean, what a, you know, at 60 [inaudible 00:20:20] we were in bed every night by 10:00.
Scott: All right. Let's go to Ohio. Talk with Wendy. Wendy, you're with Allworth's "Money Matters."
Wendy: Hi.
Scott: Hi, Wendy.
Wendy: Hello. Can you hear me?
Pat: Yes.
Scott: Yes. How can we be of any sort of help?
Wendy: I'm gonna keep this drama-free.
Pat: Oh, thank you.
Scott: Okay. Thanks for not yelling at us, too.
Wendy: So, I've been even... I'm 59 years old and I'm healthy, and so I'm not worried about the end of my life right now, but I was thinking that this is the best time that I should probably put all of my assets in some sort of a trust. And I just wanted to... I've never done this, obviously, and I just wanted to know what you think about that, and what the steps might be.
Pat: And how much money is in IRAs versus non-IRAs? Or 401(k)s, qualified money?
Wendy: Do you want a dollar amount?
Pat: Yes.
Wendy: So, I'd say, like, half a million in a qualified and half a million in a non-qualified.
Pat: Okay. And how much in real estate?
Wendy: Oh, probably... Well, I think half a million.
Pat: Okay. And are you married?
Wendy: No.
Scott: You have kids?
Wendy: Yes. Three.
Scott: Oh.
Pat: Look, I like it.
Scott: Well, [inaudible 00:21:53] the state of Ohio, I don't know what the probate rule... Every...because probate is a state-by-state things. In some states, probate is so quick and easy that a lot of attorneys, and we're not attorneys, we're not gonna give legal advice, or... A lot of attorneys will recommend not getting a trust. Just go through the simple probate process, it's so quick and easy. California, where I live, probate's a nightmare, so if you even have modest assets, it makes sense to have a trust. I have no idea what it's like in the state of Ohio.
Pat: But even if it was easy, Scott, and the trust was easier, the cost of establishing a living trust...
Scott: [crosstalk 00:22:28] and age.
Pat: ...it's, you see the advertisements constantly. I mean, it's a couple hundred dollars now. You do it online. It's not a complicated... Right? You don't [crosstalk 00:22:37]
Scott: I mean, when it gets complicated, second marriages, with multiple kids, things can get very complicated, and you definitely wanna sit down with an attorney. But if you are my sister, I'd say use one of those online ones. Set up a basic trust. Don't worry about it being perfect. I know where there's... [inaudible 00:22:56] if you were 89, it'd be a little different. You're 59.
Wendy: Yeah.
Wendy: Right?
Scott: And the odds are... I mean, no one gets out of here alive, so at one point in time, at some point in the future, this will be an important document. But there's a good chance you'll modify it between now and the time you actually pass away. And, if you're gonna die young, it's most likely as a result of some illness that gives you a little time to prepare. I mean, just statistically, right, so...
Pat: Yes.
Wendy: Right.
Scott: You want something in case you get in a car accident or something along those lines, that...
Pat: And they're... You don't even need to leave your house now. They're just easy.
Wendy: Okay. So, you can trust the online services?
Pat: Oh, yes. A hundred percent.
Wendy: Okay. Okay. And...
Scott: This isn't professional advice we're giving. We're not attorneys, and this wouldn't be [inaudible 00:23:46]
Pat: If she were my sister, I'd tell her to do the same.
Scott: [crosstalk 00:23:48] That's what I [crosstalk 00:23:49]
Pat: I'm not an attorney. But yet, there are three or four big, reputable...that are designed around the laws in the state in which you live, which, supposedly, have an attorney review. I imagine it's a attorney reviews them with the use of AI.
Scott: Super quickly.
Pat: It's super, super easy. Absolutely recommend it.
Wendy: Okay.
Scott: And I think, what's probably more important than the probate [inaudible 00:24:17] is what other documents you get when you do a living trust, which is typically a power of attorney, and an advanced health care directive. So, what happens if you end up having some massive stroke, let's say? Who's gonna make those decisions on your behalf, both the financial ones as well as the medical ones? And, you want something in there that says, "Hey, if I have a massive stroke, throw everything at it to keep me alive," or "pull the plug," right? Like, those sort of decisions typically come along with this process.
Wendy: Yeah. Yeah. Yeah.
Scott: And those are probably more important than, or as important, as the financial, what happens to the assets when you pass?
Wendy: Okay. And then, what, once you establish all that, do you need to then take those documents to an attorney, or, like, or get that notarized? What...
Pat: You may have to get it notarized, and they'll show you how to do that. And then you make sure that your assets are actually put into the trust themselves. And so, your IRAs, you might just wanna name your three children as primary beneficiaries, one third, one third, one third, in the IRAs, and then make a provision if one of them predeceases you, then how you change that. But the trust program will actually bring you through that.
Wendy: Okay.
Pat: They're not hard. You just gotta do a little bit more legwork than if you were using an attorney's office.
Wendy: Yeah. And if I use an attorney, it's, like, what, $500 [crosstalk 00:25:47]
Scott: No, no. Couple...
Wendy: Less than that?
Pat: I don't know what it's like in Ohio, but a few thousand.
Scott: A few thousand dollars.
Wendy: Okay.
Pat: Yep. Yep.
Wendy: Okay. Well, that's great.
Scott: All right, Wendy.
Wendy: Thank you.
Pat: Thanks. Sorry to all my attorney friends out there.
Scott: I know. I'm saying that, and someone's cursing us.
Pat: Oh, I know. It's okay. There'll be [crosstalk 00:26:05]
Scott: There's also, I mean...
Pat: ...the second person that cursed us today.
Scott: And then you're, theoretically, you're supposed to put every asset that you own titled in the name of the trust. I remember years ago talking to an estate planning attorney. He had a ski boat. You remember the [crosstalk 00:26:17] looked at each other like... And he was a young man. And married young man. Like, what's the chance of you, like...?
Pat: He put a Sea Ray in there.
Scott: Okay.
Pat: It was a 24-foot. No, 21-foot Sea Ray.
Scott: It was an $18,000 boat or something. Right? That he put in the...
Pat: I still remember we were having lunch with him. He was explaining why he did it, and I thought, "Okay."
Scott: So, I don't have my car... Like, I'll just be very transparent here. All my major assets, I've got in a trust. I go to buy a car. I'm usually buy myself, sign the paperwork, it's in my name only.
Pat: Yes.
Scott: I've got, my wife and I have a checking account. It's in a joint name.
Pat: Yes.
Scott: And should I die, it would be a little more work.
Pat: Yes.
Scott: But the statistical chances of me dying are pretty small.
Pat: I'm never gonna put one in my...never gonna put a car in my trust name.
Scott: I just...
Pat: Or my checking account. It's too much hassle.
Scott: Well, sometimes they wanna see the trust certification...
Pat: That's right.
Scott: ...so you gotta give them the first couple pages of the trust.
Pat: Yeah.
Scott: And it just slows things up, and then...
Pat: There's... It's okay if my family does a little bit of work to get to my money when I die.
Scott: My father passed away five years ago, five and a half years ago. His will was, I kid you not, one and a half pages.
Pat: Handwritten?
Scott: No, it was typed.
Pat: Okay.
Scott: And it was, I don't know, like, 30 years old. And his wife, my stepmother, had passed away several years prior. Never even bothered dealing with it. And it actually wasn't that big of a deal to... I mean, he had a pretty modest... But he had a home down in Los Angeles that was worth quite a bit.
Pat: [crosstalk 00:27:53] but all the siblings got along.
Scott: Oh, yeah.
Pat: You and your sisters weren't fighting over it.
Scott: No.
Pat: That's when it becomes a problem.
Scott: That's when probate can drag on.
Pat: That's when it becomes a problem.
Scott: But it can become a problem with a trust, when siblings don't get along.
Pat: No, there's no question. That's correct. It could become a problem with a trust, or a will. Or lack of a will, if the people receiving the money don't agree that it's appropriate.
Scott: Yeah.
Pat: So...
Scott: Okay, let's talk with Linda. Linda, you're with Allworth's "Money Matters."
Linda: Hello.
Scott: Hi, Linda.
Linda: Hi, how are you?
Scott: We're great. Thanks for joining us.
Linda: Good. Question about Social Security. I am 66. I have my own business. I own my home. I do well. Should I wait until it gets a little more, or should I start collecting?
Scott: When is your full retirement age? Sixty-six and some-odd months?
Pat: Or 67?
Linda: I think it's higher than that. It's either 68 or... I'd have to check.
Pat: Okay.
Linda: But I'm just concerned about the, what's going on in [crosstalk 00:29:15]
Pat: How much income do you make?
Scott: Sixty-seven [crosstalk 00:29:16]
Pat: Yeah, it's probably around 67. How much income do you make?
Linda: Three hundred.
Pat: Oh, you're absolutely not gonna take it until after you reach your full retirement age.
Scott: What... Her full retirement age is when she set her full retirement age, though.
Pat: Correct. If you were at your full... And what...
Linda: You don't think I should take it early.
Pat: No, [crosstalk 00:29:32]
Scott: Well, not before your full retirement age.
Pat: You can. You can, but you're just gonna, they're gonna take it back from you. It's just a... It doesn't make any sense. So, what happens...
Scott: What year were you born?
Linda: '58. The end of December '58.
Pat: Let's go to ChatGPT, Scott.
Scott: Well, I'm just typing in super quick on my phone with my fingers. Because my kids tease me, I'm slow. Sixty-six years and eight months is your full retirement age.
Pat: There we go. Sixty-six years and eight months. So...
Scott: When do you hit the eight-month mark?
Linda: I think probably August?
Scott: Then you would...
Linda: I think [crosstalk 00:30:12]
Scott: All right. We're there, so...
Pat: Okay.
Linda: We're there.
Scott: Yeah. The reason you wouldn't wanna take it ahead of time is because you're limited on how much earned income you can have before they... Yeah. Yeah.
Linda: So, that's the full retirement age? There's nothing after that?
Scott: You can wait till age 70 to collect your Social Security [crosstalk 00:30:29]
Pat: You can wait till 75, but it only accrues until age 70.
Pat: [crosstalk 00:30:32] you could never claim it if you want, I suppose.
Pat: Yeah. So, it only continues to go up till age 70.
Linda: Right.
Pat: So, the thing that you think about with Social Security is, one is, so, you always... Well, the longer you wait, the more money you get. Well, kind of, right? But there's risk there. There's...
Scott: And every month that goes by you don't receive a check...because...
Pat: Yes.
Scott: ...you're betting that you're gonna live longer.
Pat: So, our thesis is that at some point in time, based upon the economics of what we're seeing in the environment, and the [crosstalk 00:31:03]
Scott: It's statutory. As soon as the Social Security trust fund depletes its phony reserves [inaudible 00:31:11] which is, they're stating now it's 2032 or '33, depending on what the... So, we're talking seven, eight years from now. We're not talking about 20 years.
Pat: What is statutory, Scott? That they have to reduce...
Scott: A cut across the board to everybody, of, like, 22%.
Pat: And so, the idea being is, for you...
Scott: Well, what... I mean, Linda, so, if you say, if you're making $300,000 a year, and you say you have nothing saved for retirement, we would say...
Linda: Oh no. I have. I do have. I have savings.
Pat: Okay.
Scott: What is your ballpark net worth?
Linda: About a million.
Scott: Okay.
Linda: I just don't know if I should take the Social Security when I'm at 66 and 8 months, and invest it, or whether I should wait till I'm 70...
Scott: Well, that's why we're asking [crosstalk 00:31:58]
Linda: ...to get the max.
Pat: Well, how long do you plan to work for?
Linda: I love working. I have my own business, so I don't know. As long as I can.
Pat: How many years have you made in the ballpark of $300,000?
Linda: I'd say the last five.
Pat: Okay. You need to save more for retirement.
Linda: Mm-hmm.
Pat: I mean, significantly more, if your ballpark investable assets are a million dollars, and you're living on $300,000 a year.
Linda: Mm-hmm.
Scott: So, and I would defer...
Linda: [inaudible 00:32:30]
Scott: I would defer... If I were in your situation, I would defer Social Security until age 70.
Pat: I would as well.
Scott: Because it's gonna give you the biggest check.
Linda: You would? Okay.
Scott: Yes. Unless you said you had...
Linda: Okay.
Scott: ...you knew your life expectancy was gonna be shorter.
Pat: So, when you look at it, and let's assume you live a normal life expectancy, you're... What you, if you said your ballpark net worth, excluding real estate, is a million dollars, you won't be able to replace even a small portion of your income if you're making $300,000 a year.
Linda: Mm-hmm.
Pat: And so, one of the things you could do is you can, you know, start a Uni-K... Do you have employees?
Linda: No.
Pat: Okay. You start a Uni-K, or a defined benefit pension plan or something. You should...
Scott: [crosstalk 00:33:16] okay, you could funnel a ton of this money, and reduce your taxes this year.
Pat: And reduce your taxes this year.
Linda: [crosstalk 00:33:23] Okay.
Pat: So, the answer to your question is, the little we know about you today, I'd defer Social Security till 70.
Linda: Okay.
Pat: But I would be highly concerned about the money, amount of money you have set aside to replace the income that you're... And you may love to work. And...
Scott: Hopefully, you can do it another decade. Or more.
Pat: Hopefully, you can work till you're 85 or 90, but maybe you won't be able to. And that's what we have to save for.
Scott: Yes.
Linda: Okay.
Pat: So, but, you know, and then good for you. You're 66 and making $300,000 a year [crosstalk 00:33:54]
Scott: And the way the numbers work, actually, if you live to a normal life expectancy, and ignore taxes and other things, it's a wash whether you take it on your full retirement age or wait till age 70. It's gonna...it's a wash. Matter of fact, you can, even if you take it early, the numbers are a wash if you lived a normal life expectancy, and you exclude other factors such as taxation. But then when you look at our own personal situations, kind of a rule of thumb for us is, the more you're gonna need that Social Security, or you may, we say, the more you may need that Social Security in retirement, the more likely you should defer till age 70. Conversely, the more assets you have today, and the less you may likely need the Social Security, you're more apt to take it at your full retirement age, or early if you're fully retired.
Linda: Okay. [crosstalk 00:34:45]
Scott: But you're working, you've got a good wage...
Pat: Yeah. And you've got a good wage. And you would benefit by sitting down with a qualified advisor and discussing different methodologies of taking some of this taxable income and pushing it in... It would work perfectly... A defined benefit pension plan...
Scott: For you.
Pat: For you, is just, it's like gold. Because the fact that we know that, based upon your investible...
Scott: They call [crosstalk 00:35:07] something different now. The names change. But it's the same concept. You set up a pension for yourself, just like a company would set up a pension for their employees. And you're the only employee.
Linda: [crosstalk 00:35:13]
Scott: You're 66 years old, so you're [inaudible 00:35:17] you can say, well, I wanna have a $2,000-a-month pension, they're gonna say, "Well, you need to funnel a bunch of money in this every year." And you could structure it so that it's flexible, and you could, if you have a bad year, you don't have to fund it that year. You can set it up in a very flexible manner, but it enables you to funnel a ton of money at... Right now, you're in a high tax bracket, [crosstalk 00:35:35] and if you quit working today, you would be in a low, much lower tax bracket the next couple years.
Pat: Which is why they work perfectly for someone like you.
Scott: Right. It would be perfect for you. From what we know about you.
Linda: Okay. There you go.
Scott: All right.
Pat: All right.
Linda: Perfect. I appreciate it.
Pat: Appreciate it.
Scott: Thanks. You know, it's interesting about this. The Big, Beautiful Bill... Is that what it's called?
Pat: The Big, Beautiful Bill. Which is... If the, bills like that with it called, yeah, a PATRIOT Act? Like, the PATRIOT Act. Well, it means if I don't agree with it, I'm unpatriotic? Is that...?
Scott: Yeah. Or the inflation.
Pat: Oh. Reduction Act?
Scott: Yeah. The Inflation Reduction Act. There was nothing in there about reducing inflation. [crosstalk 00:36:17] spending bill. [inaudible 00:36:19] I mean, the Congress wonders why their [inaudible 00:36:22] approval rating is so low, right?
Pat: [crosstalk 00:36:24] we mislabel...
Scott: We just lie to everybody, yeah.
Pat: We mis... Not only that, we put lipstick on pigs all day long. That's what [inaudible 00:36:31]
Scott: Yeah. And why is our approval rating 17%? Gee, I wonder. Anyway, the big, beautiful bill...
Pat: The big...
Scott: One Big, Beautiful Bill Acts? Is that what it's [crosstalk 00:36:42]
Pat: You gotta give them credit, though. You just, you can't.
Scott: Regardless of how you feel about it... What, I mean, in that package, there's nothing about balancing the budget there.
Pat: Oh, far from it.
Scott: So, unless we have some screaming economy the next several years,
Pat: Which, supposedly, is going to be the fix...
Scott: [inaudible 00:37:06] okay. That's what the Big, Beautiful Bill is designed to do, to have this...
Pat: Yeah [crosstalk 00:37:12]
Scott: I mean, it would have to be an economy similar to what we had in the '90s, the latter part of the '90s, particularly, right? In order for us... Because, we can't, just like our families, we can't keep spending more than we bring in every year. At some point in time, you're gonna run out of credit.
Pat: Yep. Yes. Yes. And now they're talking about timing the market of when to issue debt, either short or long-term, based upon where interest rates are, rather than a predictable manner.
Scott: Yeah, they're talking about just doing all short-term debt, to wait till the rates come down.
Pat: Yes. Yes.
Scott: And even if the Fed's lower, even if Trump, you know, beats on Powell to the point where...which is a whole bizarre thing. Do you see when he just ridiculed him about the cost of the.... Whatever you think about Powell, or think about Trump, I mean, watching the whole thing, you're like, I probably would have resigned if someone did that to me. Anyway.
Pat: I don't think you'd have the patience to be the Federal Reserve...
Scott: No. Are you kidding me? It sounds like a terrible job.
Pat: The Federal Reserve chair.
Scott: Yeah. Sounds like a terrible job.
Pat: Yes. Yeah. Anyway...
Scott: Open market committee, everyone's opinions and all that, and then you gotta come to consensus. No one agrees.
Pat: [inaudible 00:38:29] Consensus, in an organization? Are you nuts? Okay, keep going.
Scott: Well, [inaudible 00:38:35] about the future of the economy. Like, anyone...
Pat: Which is [crosstalk 00:38:37] yeah, like anyone knows.
Scott: Like anyone knows, right? So, back to Social Security. And Medicare.
Pat: Yes.
Scott: Like... Oh, for good financial planning, for financial security, it's best that you plan...
Pat: That there will not be Social Security there.
Scott: Best that you plan there's no Social Security, and best that you plan that you're gonna carry a bigger portion of your medical costs.
Pat: Yes.
Scott: I mean, in a perfect world, perfect environment, you get to retirement, you have sufficient assets such that if Social Security is not providing you an income, and you're meant, you have share the burden of your medical costs, that you've got the assets to do that. And, if Social Security keeps coming in the way it's been coming, and Medicare still covers the vast majority of your expenses, then you're like, "Wow, this is good. I don't have to worry [crosstalk 00:39:32]"
Pat: Then it's a bonus.
Scott: But I think that's probably where you'd...
Pat: Yes.
Scott: ...place you're wanna...
Pat: Well, if your net worth is even moderately high, don't plan on Social Security. My wife, when she turned 62, and I don't know if she's gonna appreciate me saying this, but that's how old she is, we got a Social Security check last month. She was telling me.
Scott: Oh, is that right?
Pat: Yeah. That's... Yeah.
Pat: Kind of a [inaudible 00:39:56]
Scott: [crosstalk 00:39:56] feeling pretty good about it.
Pat: Kind of a [crosstalk 00:39:58] My wife hasn't been in the workforce for years and years, so the check was not very large. In the workforce. Didn't say she didn't work...
Scott: Yes, yes, I get it. Yeah.
Pat: She has not been in the workforce. She works plenty hard.
Scott: My wife stayed, when she was pregnant with our first child, she decided to stay home and raise kids, and she never went back into paid work. And every few years you get the Social Security... I could see, it's like, she did jury duty a couple times.
Pat: Really?
Scott: That's the only wage she's had in the last...
Pat: Oh, is that...
Scott: ...29, 30 years.
Pat: Oh, I never thought about that, that there would be tax withholdings on jury duty.
Scott: It's [crosstalk 00:40:35]
Pat: [crosstalk 00:40:36] did this Big, Beautiful Bill. Scott, back to this. It made your tax return so much more complicated...
Scott: Oh.
Pat: So much more complicated. Right? Fortunately, technology will consume a lot of that, but made planning even harder, more difficult around it.
Scott: Correct.
Pat: I was reading about the charitable contributions.
Scott: Yes. So complicated. Yes.
Pat: [crosstalk 00:40:55] so complicated, I was hard time tracking. And I have a fairly good understanding of how this works.
Scott: It gets complicated in a few different ways.
Pat: The one, the limits.
Scott: One is the SALT cap, that went from $10,000 to $40,000. That's actually not gonna impact that many people, because there's a phase-out. So, the higher...the people that pay the higher state and local taxes are the higher-income people.
Pat: Yes.
Scott: And that's gonna end up phasing out, so...
Pat: It doesn't matter.
Scott: ...they're giving it to you in one hand and taking away in the other. On the charitable deduction, your charitable deductions are only if you itemize and are in excess of 0.5% of your adjusted gross income. So, if you made, let's say, $100,000, and your adjusted gross income is $100,000, and you give $600 to charity, well, you don't get to take a deduction on the first $500. It's only that last...
Pat: Hundred.
Scott: ...hundred. Now, that might not have been a fair example, because they did throw in there, in addition to itemized deductions, [crosstalk 00:41:59]
Pat: [crosstalk 00:41:59] cash.
Scott: Is this in 2026 or '7?
Pat: I don't remember what year it was, but they called it the [crosstalk 00:42:04] cash contribution.
Scott: You can make a contribution, even if you don't itemize, and I think it's $2,000 deduction if you're married and $1,000 if you're single. But if you're, let's say you're, let's say this is the year...or, this begins next year, so there's a lot of planning this year, but set up a charitable remainder trust, or a big transaction, you wanna give a bunch of money that you... Your charitable deductions are gonna have to be in excess of 0.5%, number one. Number two is the top tax rate. So, the current top tax rate is 37%. But you're only allowed to take a deduction at 35% equivalent. So, there's some limitations on that.
Pat: Which made it just so much more complicated, which is, if you're doing charity, you're, first of all, the best place ever to take it is in your required minimum distributions, right? That, by far.
Scott: Maybe.
Pat: Right? Or you bulk it.
Scott: Yes. So, right now, I mean, less than...
Pat: Or you bulk it.
Scott: ...less than...
Pat: And what is... Explain what bulking means [crosstalk 00:43:11]
Scott: Well, first of all, I think it's 11% of Americans itemize deductions. Most have taken the standard now, because...
Pat: It's so high.
Scott: Yeah. Standard deductions are so high. And let's say that's you. And you might have significant assets and all that, but just the way things work, you've been itemized. And let's say you like to give X dollars a year to your charities or church or [inaudible 00:43:30] whatever it is. Rather than do it on an annual basis, maybe do three years' worth of contributions in one year to a donor-advised fund. And then from there, over the next couple calendar years, you make your contributions to these charities. And it accomplishes the objectives that you had anyway, and it provides you a tax benefit in the current year when you bunch these together.
Pat: And it allows you to get rid of some of your highly-concentrated positions. Right? Because you can actually take the shares themselves and move it in, to the donor-advised fund.
Scott: Yes.
Pat: So, if you've got highly-concentrated positions, it all works out into this program.
Scott: And this is, this year, I mean, if you are planning some charitable contributions, you're gonna wanna seriously look at doing some things in 2025, and not push into 2026. That was just one example. But let's say you're a small business owner, with a pass-through entity, an LLC or S Corp or something. And there's this, you get some additional benefits that phase out at higher income levels, and you're trying to balance that, and the Medicare premium tax, and should you do a Roth conversion because you're nearing retirement, and the charitable reductions, and the SALT limits.
Pat: It makes planning that much more difficult. It makes it... It did not do anything to even slightly simplify the tax code. Which was, if you remember six, seven, eight years ago, it was, "We need to simplify the tax code." That never came up.
Scott: Yeah. What happened to the postcard? Who was the one promoting that?
Pat: Who was the postcard? I don't remember.
Scott: Was that Trump? I don't think so.
Pat: It was.
Scott: Trump was proud of his 8-feet-tall stack of [crosstalk 00:45:14]
Pat: His [crosstalk 00:45:15]
Scott: ...documents. [inaudible 00:45:16] It's been great having you with us today as we've been talking about financial issues and taking some calls. And again, if you'd wanna be part of...if you've got a question for us you'd like us to answer, would love to hear from you, questions@moneymatters is the best way to reach us, questions@moneymatters. And if you like the show, make sure you hit the follow button on Apple and Spotify, so you don't miss any of our upcoming shows. See you next week. This has been Scott Hanson and Pat McClain of Allworth's "Money Matters."
Announcer: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.
Scott: Welcome to Allworth's "Money Matters." Scott Hanson.
Pat: And Pat McClain. Thanks for joining us.
Scott: We're glad to be sitting in the studio, chatting with each other, taking your calls, answering your questions, and talking about some of the latest things in the financial markets.
Pat: Yes, and are there things. You know, so, I was thinking about this. I normally, because I'm old now, get up at, like, 4:00 in the morning and...
Scott: Do you really?
Pat: Yes, but [inaudible 00:00:54]
Scott: Do you set an alarm, or you just wake up?
Pat: I wake up. And I'll read the...
Scott: Actually, I get emails from you sometimes at, like, 4:05. And I know, Pat must not have slept well.
Pat: And I'll read "The Wall Street Journal," and "New York Times" and a couple other things. But my intent is to go back to sleep by 5:30 and then get up at 7:00, so it's a really odd... But thank you for sharing that with everyone, Pat.
Scott: Yeah. Yeah. Where are we going with this?
Pat: But when I was reading this morning, I thought, "What a strange time this is." But then I thought, you know, I've been doing this for 35 years. I've been doing this radio show/podcast for almost 30 years. And I thought, how many times over that have you and I said what strange times there are? And it's been hundreds.
Scott: Oh, yeah. And to try to predict, have some sort of prediction of how this is gonna impact the financial markets is ludicrous.
Pat: It's impossible. It's impossible. So, and I don't care whether you like Trump or don't like Trump, or you think the world's coming to an end, or there's nothing but growth, and it's all framed by your political or social beliefs. That's not how the markets work. The markets work on profitability, and to finding a way to the marketplace.
Scott: Right.
Pat: And you think about all the things that are happening. The growth of private equity and venture capital was a result of overregulation on the public markets. The private credit is because of some of the lending practice.
Scott: Tight banking rules, yeah.
Pat: Even the use of stablecoins or bitcoins was a result of an environmental change. So, I just had to...I remind myself constantly.
Scott: I get most concerned when you see government intervention in, too deep in areas. And I was reading some legislature trying to, we need to push for more home ownership. And I thought, well, that worked out brilliant last time.
Pat: Didn't it? Didn't it?
Scott: Right? I mean, you think of the financial...and the housing crisis. That was, it was man-made.
Pat: Yes.
Scott: We created that housing crisis.
Pat: And, and it affected employment, in many cases, because people weren't as mobile to chase better opportunities, because they were tied to a home.
Scott: Which is the housing market now.
Pat: It is.
Scott: I have a good friend that left California and went to Nashville area, three, four years ago. I think during the early COVID lockdown days. They're, like, "We're outta here." And his job is a remote job, so he can be anywhere. Doesn't really matter. And they're talking about coming back to California. I had a conversation with him this week. And I said, "So, what's the plan? You guys come back to California?" and he said, "Well, with the way interest rates are," he says "we're kinda taking a wait-and-see. We're gonna wait..." He said, "We're gonna wait till interest rates come down." Now, he's been a good friend of mine for 50 years.
Pat: And he knows this, the [crosstalk 00:03:59]
Scott: Well I didn't say...I didn't respond. Like, they may never go down, in your lifetime.
Pat: Yes. Correct.
Scott: They're actually, historically...
Pat: Closer to a historical norm than not, yes.
Scott: ...in last 50 years... Yeah. They may never go down. You're like... But there are so many people, if you look at the housing market in general, it's a very slow housing market, because there's so many families just like that.
Pat: Yes. And you're not seeing a lot of movement unless there's life situations that force them.
Scott: Right. And even if you think somebody gets a job offer to go move to a different city, move to a different state, there's one thing about a relocation package, but if you've got a $300,000 mortgage at 2.75%, and you're moving somewhere where it's gonna require you a $400,000 mortgage at 7%, that's a big [crosstalk 00:04:47]
Pat: It's gotta be a big bump in pay.
Scott: To break even.
Pat: Yeah, and opportunity. Yeah.
Scott: Yeah.
Pat: So, I have to remind myself, because... And remember, your investment advisors, I don't care who they are or who you're getting advice from, everyone has an emotional bent to it. They're biased.
Scott: Well, they're human too.
Pat: That's right. That's right. That's why the algorithms will actually be able to fix everything.
Scott: There'll be no more volatility in the stock market [crosstalk 00:05:21]
Pat: The AI will actually tell us [crosstalk 00:95:23] exactly how to act. That's coming. Although it's already here. But I wouldn't bet on that.
Scott: Well, there's certain... Well, it'll be interesting. I was actually, I had a conversation with a psychologist the other day, and we were talking about AI, and I said, we were talking about at what point are our careers replaced? At what point do you trust the machine more than you do an individual to figure out your marriage issues, or your own personal issues or whatever you've got going on?
Pat: Oh.
Scott: We're not there yet.
Pat: I don't know how I feel about that. Well, I don't listen to other people. Why would I listen to a machine? I continue to make bad decisions all by myself. Joke.
Scott: But I must say, the way the market... If you look, since the beginning of this year, we had a 19% decline.
Pat: When?
Scott: A bear market, technically a 20% decline. That's whoever makes up these definitions, that's the definition.
Pat: But it was like...
Scott: If you took a three-week vacation, you would have missed it.
Pat: Yeah, correct. Like, when? Like, when? The S&P is what, up 9.5% for the year? [inaudible 00:06:41]
Scott: Is it that much?
Pat: Yeah.
Scott: That's nuts.
Pat: Yeah.
Scott: Yeah. We don't have to look it up. It's kind of irrelevant at this point. I know it is. I guess it's very relevant, but it doesn't really matter.
Pat: I gotta look it up.
Scott: Okay. Pat's looking. As Pat looks up the, what the return is on the... Do you even know how to look it up in an easy [crosstalk 00:07:02]
Pat: 9.44%.
Scott: Oh, there we go. As of the close of business this last Monday.
Pat: Yeah.
Scott: That is kinda crazy, when you think about...
Pat: So, there's a 20, there's a 20 [crosstalk 00:07:16]
Scott: The last two calendar years were both really good years.
Pat: Twenty-eight percent swing, in a relatively short period of time, from bottom to top. Twenty-eight percent. [crosstalk 00:07:30] not quite that high. Not quite that high.
Scott: It's been interesting. And well, and the European markets, many of the European markets have done, and other foreign markets, have done better than the U.S. this year.
Pat: Yeah.
Scott: Couple that with the decline in dollar, which we haven't talked much about on this program, but it's been a significant decline this year, the dollar, and so, if you hold foreign currencies, it's been, foreign stocks...
Pat: Good for you.
Scott: ...it's been good for you, [crosstalk 00:07:51]
Pat: As long as you weren't hedged.
Scott: Yeah. Good for you currently.
Pat: Yeah, it has been.
Scott: Doesn't mean it's gonna be...
Pat: Yes, [crosstalk 00:07:58] Remember, we're talking about what the market did, not what it's doing or what it will do.
Scott: Yeah, because who knows what it's gonna do.
Pat: Yeah. But it did.
Scott: Yeah. Anyway, if you wanna be part of our program, love to hear from you and take your calls, you can join Allworth's "Money Matters" at 833-99-WORTH, or you can send us an email at questions@moneymatters.com. And we're starting out in Pennsylvania with John. John, you're with Allworth's "Money Matters."
John: Hi, how you doing?
Scott: We're great.
John: How come most financial advisors don't advise using options to hedge their positions, or for extra income?
Scott: Oh? Why do most not? Those are helpful when somebody has a concentrated position, where the majority of their assets are in a concentrated position, maybe a company they worked for, or they bought Apple stock years ago or Amazon stock years ago, and now it comprises the majority of their portfolio. Options can be helpful as a way to protect that portfolio, and I think... I don't know what most advisors do. I certainly know at Allworth, we use options in times like that.
Pat: And it helps protect the portfolio, or/and you could sell options [crosstalk 00:09:22]
John: You know, I understand that. I understand that. All I'm asking why don't they mention that to the client?
Scott: Are you asking me why other people do... I don't know.
John: Okay. Okay.
Scott: Well, let me [crosstalk 00:09:37]
Pat: Okay.
Scott: So, they're complicated, and it's very difficult to scale.
Pat: And it's hard to understand.
Scott: So, let's say you're an advisor and you have 100 clients, and let's say 50... Let's say that all your clients came to you with concentrated stock positions...
John: Okay.
Scott: ...and you had 50 clients with 50 different portfolios, 50 different companies, that you're trying to put some collars on, or some downside protection. It's a lot of labor. Still...well, technology in the last couple years have made it easier, but for the most part, it's still gonna require some manpower, or womanpower, human...
Pat: Human power.
Scott: ...to monitor these portfolios.
Pat: But Scott, so maybe... So, are you asking, John, why are not advisors doing it against broad portfolios, or just heavily concentrated positions?
John: Well, even against concentrated.
Pat: No, no. Against concentrated, you can make an argument for, but let's talk about just doing it against broad positions in the marketplace.
John: Well, no, no, no, no, no, no. The question was, okay, we'll do it at concentrated, and I could see your point. I could see your point as far as concentrated positions. But, if you're a client out there, it's still, most financial advisors do not mention that.
Pat: Well, I don't I can't speak to that.
Scott: I don't know that most do.
Pat: But I can tell you that if we have concentrated positions, heavily concentrated, just not minorly concentrated, and you have a strategy in order to get out of those heavily concentrated positions over time, either through gifting or spend down, or liquidation at a lower marginal rate, then...
Scott: Options can make sense to help protect.
Pat: Yes. But you [crosstalk 00:11:29]
Scott: Well, I mean, if your question is why don't they [crosstalk 00:11:30]
Pat: [crosstalk 00:11:30] Most people don't have heavily concentrated positions of stocks, outside IRAs. Most people do not.
Scott: That's right.
Pat: And sometimes, it's just better to take the tax hit than it is to option those portfolios around there, because...
Scott: There's no...they're not free. It's like buying insurance. There's a cost to it.
Pat: Yeah. So, whether you collar, which is you buy and then you sell, right, and you're collaring that price...
Scott: But then you're, you could get called away.
Pat: You're buying [crosstalk 00:12:00] Yes. And then you're selling, right. So, you've got...
Scott: And there's the risk the stock goes up and you're either forced to sell it or buy that position back...
John: It all depends on which side you're on.
Pat: No, but, understand that, but that's defined by the client's objectives. Right? So, options... And I can't speak to other advisors. I mean, I just, I know what we do at Allworth, which is, yes, we will use options...
Scott: When appropriate.
Pat: ...on a heavily-concentrated position.
Scott: We don't bring it up with everybody.
Pat: Why would you?
Scott: It's like, I don't go to the [crosstalk 00:12:30]
John: That's what I mean. Nobody brings it up. We don't bring it up with everybody, but nobody, you know, the advisors that I talk to do not even mention.
Pat: Are you an advisor?
John: No.
Scott: Do you...is your portfolio, are you concentrated, highly concentrated in one particular stock?
John: [inaudible 00:12:50] No.
Pat: Okay, well then [crosstalk 00:12:51]
Scott: Well, that's why they didn't bring it up.
John: [crosstalk 00:12:53] one particular [crosstalk 00:12:53]
Scott: Just like when I go to the doctor, the doctor doesn't talk to me about physical ailments that I don't have.
John: [crosstalk 00:12:57]
Pat: All right, Scott. Let's [inaudible 00:12:58] Okay, John, keep talking.
John: Okay. I have a heavily concentrated position. All right? And I do sell calls against it.
Pat: Okay.
John: All right? Then, you know, there's other positions out there that I'll sell puts against...
Pat: Okay.
John: ...that if I wanna buy it, if I wanna buy, I'll sell a put against it.
Pat: Mm-hmm.
John: All right. Instead of buying it.
Pat: Okay.
John: So, that's what I'm saying. Most financial advisors don't do that.
Scott: Well, so, I don't know your portfolio, but if I were a betting man, I'd put money on it that on a risk-adjusted basis, over the long period of time, you have not outperformed a relative index.
John: Yes, I have.
Pat: Okay.
Scott: Okay.
John: Yes, I have.
Pat: Okay.
Scott: Okay.
John: Year to date, could I mention on how much I made?
Pat: Sure. If it makes [crosstalk 00:13:51]
Scott: Sure. Doesn't matter.
Pat: Yes. How much did you make?
John: Okay, it doesn't matter. Okay.
Pat: No, no. But...
John: Sixty-nine grand. Sixty-nine grand, so far year to date.
Pat: And on how much money?
John: That's used in a quarter of a million.
Pat: Okay. Well, that's...you've underperformed the markets. The markets are up 9.55%, and you made $69,000 on a quarter of a million dollars.
John: That's year to date.
Scott: Okay. John, I don't... Look, I don't know where this conversation's going. I do appreciate the call, and I...
John: Well, I don't know either. You know, because [crosstalk 00:14:20]
Scott: Well, why are you yelling at us?
John: ...twisting and turning it. I just asked you [crosstalk 00:14:24]
Pat: We don't... But why...
Scott: John, I'm sorry...
John: ...just a simple question, and you turned this into a whole freaking nightmare.
Pat: Okay. All right.
Scott: Wow. I don't know...
Pat: All right. Well, thank you. I don't know what that was...
Scott: You know, essentially, we've been doing the show 30 years, and every once in a while you get a call that's just...
Pat: I can't speak to what other advisors do.
Scott: Well, it was a bit of an anger. [crosstalk 00:14:42] he was angry at us. I don't know what he's angry about.
Pat: But, I did, I said he underperformed the markets on a risk-adjusted basis, not underperformed the markets. It's on a risk-adjusted basis. Everything is based on a risk-adjusted basis, which is, someone could say, "I doubled my money." And you're like, "You did this time, but the last three times you lost it all."
Scott: Yeah. And most people, as they go through life, at least the most of the people we work, with financial advisors working with clients, they're more concerned about not becoming poor than they are becoming more wealthy. And it's really about having probability of outcomes. So, you get to retirement age, you've got a million, you've got 5 million, you got 10 million, whatever the number is. It's about designing a portfolio to gives you the highest probability of success, regardless of what the markets throw at you. That's what most people want. There might be others out there that are willing to bet it all, and I'm gonna hope I can buy a mega yacht, and if that blows up, I'll go live with my sister. Whatever, right? Like, everyone has their own objective. So, most financial advisors' clients are looking for the highest probability of outcomes.
Pat: Yeah. And by the way, the put options, the only way that you should probably use them, unless you have some sort of great insight into the marketplace, is along large positions, where you actually have an exit plan of exiting the large position over...
Scott: Because otherwise, it's gonna cost you a lot of money.
Pat: That's right.
Scott: They're not free.
Pat: Yeah.
Scott: And it's a zero-sum game. When you buy options, it's not like the overall stock market. When we invest... We all invest in companies. If companies continue to grow, the economy grows, we can all benefit. An option market, it's no different than a casino. It's a zero-sum game, less...
Pat: The transaction.
Scott: ...the transaction costs.
Pat: So...
Scott: The house costs, as a casino example. That's how they work. There's no...you're not...not everybody can make... There's gonna be an equal number of winners as there are losers [crosstalk 00:16:51]
Pat: Minus...and minus the transaction cost.
Scott: Minus the transaction cost. So, now it's probably 55% chance of loss, or whatever it is.
Pat: Yeah, yeah. Yeah. Yes. Fifty-two, 53. Somewhere in there. Right. But...
Scott: Depending on the, what you're trying to edge.
Pat: That's right. That's right.
Scott: Because the more esoteric the stock...
Pat: So, that's why it's used predominantly with highly-concentrated positions in a brokerage account. Right? And there's other ways around that. You can modify index portfolios in order to exclude certain industries. You can put a strategy in which you liquidate that portfolio that's heavily concentrated. You gift them. You can put them in a charitable remainder trust. There are lots and lots of things to do with those positions. But, to John's point, why do people not talk about that is because, quite frankly, it applies to probably less than 1% of all portfolios, where you see these heavily-concentrated [crosstalk 00:17:48]
Scott: Well, I think he uses them to theoretically juice his returns.
Pat: That's...yes. Yeah. I got that.
Scott: And when you look at the average... When you're in your home office, making trades, just to ask yourself, who is on the other side of that trade? Because some of these quant shops, they hire the brightest people in the world, from the very top universities. I mean, super smart math folks. Those are the people you're competing against.
Pat: Yes. And oftentimes they're momentum stocks. Momentum up or momentum down.
Scott: Anyway.
Pat: All right.
Scott: That's why [inaudible 00:18:33] feel too early in the morning to get yelled at. [crosstalk 00:18:34] I don't know, when I get yelled at, I could have stayed home and got yelled at.
Pat: Feels like high school. [inaudible 00:18:38]
Scott: High school. Oh, my gosh. Oh, [inaudible 00:18:43]
Pat: Go.
Scott: My... and we're gonna go to Wendy here in a second. My 17-year-old graduated high school. She's going to college in a month, Lord willing. And not too soon for all of it, but everybody. But my wife took...
Pat: I take it she doesn't listen to this.
Scott: My wife took her and a few friends down to Orange County, Newport Beach, for a few days, to, kind of a senior trip or whatever.
Pat: Yes?
Scott: And just, the girl drama. It's...
Pat: You weren't there, though.
Scott: I was there for less than 24 hours [crosstalk 00:19:21]
Pat: But you had to...but you heard about it.
Scott: Oh, yes.
Pat: Right?
Scott: And other mothers calling, to figure out...all that.
Pat: Oh, oh. The drama went up...
Scott: Oh, yeah.
Pat: The drama went downstream.
Scott: The drama, the drama. Anyway.
Pat: Oh. Last weekend, I was in Lake Tahoe, Nevada, with four of my friends from high school. We had a little weekend up there.
Scott: You're kidding.
Pat: No. Had a nice time. Nice time. There were six of them that were, seven of them were gonna make it. One couldn't because his calendar conflicted with a hundred-mile trail run, which is what we always expected out of Tom. The other couldn't...
Scott: Do I know this guy? Does he live in town?
Pat: No, no. He lives in Oregon. And then another guy that, his wife was ill, and another guy had to work. But the four of... And I tell you what [crosstalk 00:20:07]
Scott: It's, like, an old group that you used to hang out with?
Pat: You know, we kinda hung out together. We were friends. We worked...three of us worked together at the same restaurant. But what a great time. I mean, what a, you know, at 60 [inaudible 00:20:20] we were in bed every night by 10:00.
Scott: All right. Let's go to Ohio. Talk with Wendy. Wendy, you're with Allworth's "Money Matters."
Wendy: Hi.
Scott: Hi, Wendy.
Wendy: Hello. Can you hear me?
Pat: Yes.
Scott: Yes. How can we be of any sort of help?
Wendy: I'm gonna keep this drama-free.
Pat: Oh, thank you.
Scott: Okay. Thanks for not yelling at us, too.
Wendy: So, I've been even... I'm 59 years old and I'm healthy, and so I'm not worried about the end of my life right now, but I was thinking that this is the best time that I should probably put all of my assets in some sort of a trust. And I just wanted to... I've never done this, obviously, and I just wanted to know what you think about that, and what the steps might be.
Pat: And how much money is in IRAs versus non-IRAs? Or 401(k)s, qualified money?
Wendy: Do you want a dollar amount?
Pat: Yes.
Wendy: So, I'd say, like, half a million in a qualified and half a million in a non-qualified.
Pat: Okay. And how much in real estate?
Wendy: Oh, probably... Well, I think half a million.
Pat: Okay. And are you married?
Wendy: No.
Scott: You have kids?
Wendy: Yes. Three.
Scott: Oh.
Pat: Look, I like it.
Scott: Well, [inaudible 00:21:53] the state of Ohio, I don't know what the probate rule... Every...because probate is a state-by-state things. In some states, probate is so quick and easy that a lot of attorneys, and we're not attorneys, we're not gonna give legal advice, or... A lot of attorneys will recommend not getting a trust. Just go through the simple probate process, it's so quick and easy. California, where I live, probate's a nightmare, so if you even have modest assets, it makes sense to have a trust. I have no idea what it's like in the state of Ohio.
Pat: But even if it was easy, Scott, and the trust was easier, the cost of establishing a living trust...
Scott: [crosstalk 00:22:28] and age.
Pat: ...it's, you see the advertisements constantly. I mean, it's a couple hundred dollars now. You do it online. It's not a complicated... Right? You don't [crosstalk 00:22:37]
Scott: I mean, when it gets complicated, second marriages, with multiple kids, things can get very complicated, and you definitely wanna sit down with an attorney. But if you are my sister, I'd say use one of those online ones. Set up a basic trust. Don't worry about it being perfect. I know where there's... [inaudible 00:22:56] if you were 89, it'd be a little different. You're 59.
Wendy: Yeah.
Wendy: Right?
Scott: And the odds are... I mean, no one gets out of here alive, so at one point in time, at some point in the future, this will be an important document. But there's a good chance you'll modify it between now and the time you actually pass away. And, if you're gonna die young, it's most likely as a result of some illness that gives you a little time to prepare. I mean, just statistically, right, so...
Pat: Yes.
Wendy: Right.
Scott: You want something in case you get in a car accident or something along those lines, that...
Pat: And they're... You don't even need to leave your house now. They're just easy.
Wendy: Okay. So, you can trust the online services?
Pat: Oh, yes. A hundred percent.
Wendy: Okay. Okay. And...
Scott: This isn't professional advice we're giving. We're not attorneys, and this wouldn't be [inaudible 00:23:46]
Pat: If she were my sister, I'd tell her to do the same.
Scott: [crosstalk 00:23:48] That's what I [crosstalk 00:23:49]
Pat: I'm not an attorney. But yet, there are three or four big, reputable...that are designed around the laws in the state in which you live, which, supposedly, have an attorney review. I imagine it's a attorney reviews them with the use of AI.
Scott: Super quickly.
Pat: It's super, super easy. Absolutely recommend it.
Wendy: Okay.
Scott: And I think, what's probably more important than the probate [inaudible 00:24:17] is what other documents you get when you do a living trust, which is typically a power of attorney, and an advanced health care directive. So, what happens if you end up having some massive stroke, let's say? Who's gonna make those decisions on your behalf, both the financial ones as well as the medical ones? And, you want something in there that says, "Hey, if I have a massive stroke, throw everything at it to keep me alive," or "pull the plug," right? Like, those sort of decisions typically come along with this process.
Wendy: Yeah. Yeah. Yeah.
Scott: And those are probably more important than, or as important, as the financial, what happens to the assets when you pass?
Wendy: Okay. And then, what, once you establish all that, do you need to then take those documents to an attorney, or, like, or get that notarized? What...
Pat: You may have to get it notarized, and they'll show you how to do that. And then you make sure that your assets are actually put into the trust themselves. And so, your IRAs, you might just wanna name your three children as primary beneficiaries, one third, one third, one third, in the IRAs, and then make a provision if one of them predeceases you, then how you change that. But the trust program will actually bring you through that.
Wendy: Okay.
Pat: They're not hard. You just gotta do a little bit more legwork than if you were using an attorney's office.
Wendy: Yeah. And if I use an attorney, it's, like, what, $500 [crosstalk 00:25:47]
Scott: No, no. Couple...
Wendy: Less than that?
Pat: I don't know what it's like in Ohio, but a few thousand.
Scott: A few thousand dollars.
Wendy: Okay.
Pat: Yep. Yep.
Wendy: Okay. Well, that's great.
Scott: All right, Wendy.
Wendy: Thank you.
Pat: Thanks. Sorry to all my attorney friends out there.
Scott: I know. I'm saying that, and someone's cursing us.
Pat: Oh, I know. It's okay. There'll be [crosstalk 00:26:05]
Scott: There's also, I mean...
Pat: ...the second person that cursed us today.
Scott: And then you're, theoretically, you're supposed to put every asset that you own titled in the name of the trust. I remember years ago talking to an estate planning attorney. He had a ski boat. You remember the [crosstalk 00:26:17] looked at each other like... And he was a young man. And married young man. Like, what's the chance of you, like...?
Pat: He put a Sea Ray in there.
Scott: Okay.
Pat: It was a 24-foot. No, 21-foot Sea Ray.
Scott: It was an $18,000 boat or something. Right? That he put in the...
Pat: I still remember we were having lunch with him. He was explaining why he did it, and I thought, "Okay."
Scott: So, I don't have my car... Like, I'll just be very transparent here. All my major assets, I've got in a trust. I go to buy a car. I'm usually buy myself, sign the paperwork, it's in my name only.
Pat: Yes.
Scott: I've got, my wife and I have a checking account. It's in a joint name.
Pat: Yes.
Scott: And should I die, it would be a little more work.
Pat: Yes.
Scott: But the statistical chances of me dying are pretty small.
Pat: I'm never gonna put one in my...never gonna put a car in my trust name.
Scott: I just...
Pat: Or my checking account. It's too much hassle.
Scott: Well, sometimes they wanna see the trust certification...
Pat: That's right.
Scott: ...so you gotta give them the first couple pages of the trust.
Pat: Yeah.
Scott: And it just slows things up, and then...
Pat: There's... It's okay if my family does a little bit of work to get to my money when I die.
Scott: My father passed away five years ago, five and a half years ago. His will was, I kid you not, one and a half pages.
Pat: Handwritten?
Scott: No, it was typed.
Pat: Okay.
Scott: And it was, I don't know, like, 30 years old. And his wife, my stepmother, had passed away several years prior. Never even bothered dealing with it. And it actually wasn't that big of a deal to... I mean, he had a pretty modest... But he had a home down in Los Angeles that was worth quite a bit.
Pat: [crosstalk 00:27:53] but all the siblings got along.
Scott: Oh, yeah.
Pat: You and your sisters weren't fighting over it.
Scott: No.
Pat: That's when it becomes a problem.
Scott: That's when probate can drag on.
Pat: That's when it becomes a problem.
Scott: But it can become a problem with a trust, when siblings don't get along.
Pat: No, there's no question. That's correct. It could become a problem with a trust, or a will. Or lack of a will, if the people receiving the money don't agree that it's appropriate.
Scott: Yeah.
Pat: So...
Scott: Okay, let's talk with Linda. Linda, you're with Allworth's "Money Matters."
Linda: Hello.
Scott: Hi, Linda.
Linda: Hi, how are you?
Scott: We're great. Thanks for joining us.
Linda: Good. Question about Social Security. I am 66. I have my own business. I own my home. I do well. Should I wait until it gets a little more, or should I start collecting?
Scott: When is your full retirement age? Sixty-six and some-odd months?
Pat: Or 67?
Linda: I think it's higher than that. It's either 68 or... I'd have to check.
Pat: Okay.
Linda: But I'm just concerned about the, what's going on in [crosstalk 00:29:15]
Pat: How much income do you make?
Scott: Sixty-seven [crosstalk 00:29:16]
Pat: Yeah, it's probably around 67. How much income do you make?
Linda: Three hundred.
Pat: Oh, you're absolutely not gonna take it until after you reach your full retirement age.
Scott: What... Her full retirement age is when she set her full retirement age, though.
Pat: Correct. If you were at your full... And what...
Linda: You don't think I should take it early.
Pat: No, [crosstalk 00:29:32]
Scott: Well, not before your full retirement age.
Pat: You can. You can, but you're just gonna, they're gonna take it back from you. It's just a... It doesn't make any sense. So, what happens...
Scott: What year were you born?
Linda: '58. The end of December '58.
Pat: Let's go to ChatGPT, Scott.
Scott: Well, I'm just typing in super quick on my phone with my fingers. Because my kids tease me, I'm slow. Sixty-six years and eight months is your full retirement age.
Pat: There we go. Sixty-six years and eight months. So...
Scott: When do you hit the eight-month mark?
Linda: I think probably August?
Scott: Then you would...
Linda: I think [crosstalk 00:30:12]
Scott: All right. We're there, so...
Pat: Okay.
Linda: We're there.
Scott: Yeah. The reason you wouldn't wanna take it ahead of time is because you're limited on how much earned income you can have before they... Yeah. Yeah.
Linda: So, that's the full retirement age? There's nothing after that?
Scott: You can wait till age 70 to collect your Social Security [crosstalk 00:30:29]
Pat: You can wait till 75, but it only accrues until age 70.
Pat: [crosstalk 00:30:32] you could never claim it if you want, I suppose.
Pat: Yeah. So, it only continues to go up till age 70.
Linda: Right.
Pat: So, the thing that you think about with Social Security is, one is, so, you always... Well, the longer you wait, the more money you get. Well, kind of, right? But there's risk there. There's...
Scott: And every month that goes by you don't receive a check...because...
Pat: Yes.
Scott: ...you're betting that you're gonna live longer.
Pat: So, our thesis is that at some point in time, based upon the economics of what we're seeing in the environment, and the [crosstalk 00:31:03]
Scott: It's statutory. As soon as the Social Security trust fund depletes its phony reserves [inaudible 00:31:11] which is, they're stating now it's 2032 or '33, depending on what the... So, we're talking seven, eight years from now. We're not talking about 20 years.
Pat: What is statutory, Scott? That they have to reduce...
Scott: A cut across the board to everybody, of, like, 22%.
Pat: And so, the idea being is, for you...
Scott: Well, what... I mean, Linda, so, if you say, if you're making $300,000 a year, and you say you have nothing saved for retirement, we would say...
Linda: Oh no. I have. I do have. I have savings.
Pat: Okay.
Scott: What is your ballpark net worth?
Linda: About a million.
Scott: Okay.
Linda: I just don't know if I should take the Social Security when I'm at 66 and 8 months, and invest it, or whether I should wait till I'm 70...
Scott: Well, that's why we're asking [crosstalk 00:31:58]
Linda: ...to get the max.
Pat: Well, how long do you plan to work for?
Linda: I love working. I have my own business, so I don't know. As long as I can.
Pat: How many years have you made in the ballpark of $300,000?
Linda: I'd say the last five.
Pat: Okay. You need to save more for retirement.
Linda: Mm-hmm.
Pat: I mean, significantly more, if your ballpark investable assets are a million dollars, and you're living on $300,000 a year.
Linda: Mm-hmm.
Scott: So, and I would defer...
Linda: [inaudible 00:32:30]
Scott: I would defer... If I were in your situation, I would defer Social Security until age 70.
Pat: I would as well.
Scott: Because it's gonna give you the biggest check.
Linda: You would? Okay.
Scott: Yes. Unless you said you had...
Linda: Okay.
Scott: ...you knew your life expectancy was gonna be shorter.
Pat: So, when you look at it, and let's assume you live a normal life expectancy, you're... What you, if you said your ballpark net worth, excluding real estate, is a million dollars, you won't be able to replace even a small portion of your income if you're making $300,000 a year.
Linda: Mm-hmm.
Pat: And so, one of the things you could do is you can, you know, start a Uni-K... Do you have employees?
Linda: No.
Pat: Okay. You start a Uni-K, or a defined benefit pension plan or something. You should...
Scott: [crosstalk 00:33:16] okay, you could funnel a ton of this money, and reduce your taxes this year.
Pat: And reduce your taxes this year.
Linda: [crosstalk 00:33:23] Okay.
Pat: So, the answer to your question is, the little we know about you today, I'd defer Social Security till 70.
Linda: Okay.
Pat: But I would be highly concerned about the money, amount of money you have set aside to replace the income that you're... And you may love to work. And...
Scott: Hopefully, you can do it another decade. Or more.
Pat: Hopefully, you can work till you're 85 or 90, but maybe you won't be able to. And that's what we have to save for.
Scott: Yes.
Linda: Okay.
Pat: So, but, you know, and then good for you. You're 66 and making $300,000 a year [crosstalk 00:33:54]
Scott: And the way the numbers work, actually, if you live to a normal life expectancy, and ignore taxes and other things, it's a wash whether you take it on your full retirement age or wait till age 70. It's gonna...it's a wash. Matter of fact, you can, even if you take it early, the numbers are a wash if you lived a normal life expectancy, and you exclude other factors such as taxation. But then when you look at our own personal situations, kind of a rule of thumb for us is, the more you're gonna need that Social Security, or you may, we say, the more you may need that Social Security in retirement, the more likely you should defer till age 70. Conversely, the more assets you have today, and the less you may likely need the Social Security, you're more apt to take it at your full retirement age, or early if you're fully retired.
Linda: Okay. [crosstalk 00:34:45]
Scott: But you're working, you've got a good wage...
Pat: Yeah. And you've got a good wage. And you would benefit by sitting down with a qualified advisor and discussing different methodologies of taking some of this taxable income and pushing it in... It would work perfectly... A defined benefit pension plan...
Scott: For you.
Pat: For you, is just, it's like gold. Because the fact that we know that, based upon your investible...
Scott: They call [crosstalk 00:35:07] something different now. The names change. But it's the same concept. You set up a pension for yourself, just like a company would set up a pension for their employees. And you're the only employee.
Linda: [crosstalk 00:35:13]
Scott: You're 66 years old, so you're [inaudible 00:35:17] you can say, well, I wanna have a $2,000-a-month pension, they're gonna say, "Well, you need to funnel a bunch of money in this every year." And you could structure it so that it's flexible, and you could, if you have a bad year, you don't have to fund it that year. You can set it up in a very flexible manner, but it enables you to funnel a ton of money at... Right now, you're in a high tax bracket, [crosstalk 00:35:35] and if you quit working today, you would be in a low, much lower tax bracket the next couple years.
Pat: Which is why they work perfectly for someone like you.
Scott: Right. It would be perfect for you. From what we know about you.
Linda: Okay. There you go.
Scott: All right.
Pat: All right.
Linda: Perfect. I appreciate it.
Pat: Appreciate it.
Scott: Thanks. You know, it's interesting about this. The Big, Beautiful Bill... Is that what it's called?
Pat: The Big, Beautiful Bill. Which is... If the, bills like that with it called, yeah, a PATRIOT Act? Like, the PATRIOT Act. Well, it means if I don't agree with it, I'm unpatriotic? Is that...?
Scott: Yeah. Or the inflation.
Pat: Oh. Reduction Act?
Scott: Yeah. The Inflation Reduction Act. There was nothing in there about reducing inflation. [crosstalk 00:36:17] spending bill. [inaudible 00:36:19] I mean, the Congress wonders why their [inaudible 00:36:22] approval rating is so low, right?
Pat: [crosstalk 00:36:24] we mislabel...
Scott: We just lie to everybody, yeah.
Pat: We mis... Not only that, we put lipstick on pigs all day long. That's what [inaudible 00:36:31]
Scott: Yeah. And why is our approval rating 17%? Gee, I wonder. Anyway, the big, beautiful bill...
Pat: The big...
Scott: One Big, Beautiful Bill Acts? Is that what it's [crosstalk 00:36:42]
Pat: You gotta give them credit, though. You just, you can't.
Scott: Regardless of how you feel about it... What, I mean, in that package, there's nothing about balancing the budget there.
Pat: Oh, far from it.
Scott: So, unless we have some screaming economy the next several years,
Pat: Which, supposedly, is going to be the fix...
Scott: [inaudible 00:37:06] okay. That's what the Big, Beautiful Bill is designed to do, to have this...
Pat: Yeah [crosstalk 00:37:12]
Scott: I mean, it would have to be an economy similar to what we had in the '90s, the latter part of the '90s, particularly, right? In order for us... Because, we can't, just like our families, we can't keep spending more than we bring in every year. At some point in time, you're gonna run out of credit.
Pat: Yep. Yes. Yes. And now they're talking about timing the market of when to issue debt, either short or long-term, based upon where interest rates are, rather than a predictable manner.
Scott: Yeah, they're talking about just doing all short-term debt, to wait till the rates come down.
Pat: Yes. Yes.
Scott: And even if the Fed's lower, even if Trump, you know, beats on Powell to the point where...which is a whole bizarre thing. Do you see when he just ridiculed him about the cost of the.... Whatever you think about Powell, or think about Trump, I mean, watching the whole thing, you're like, I probably would have resigned if someone did that to me. Anyway.
Pat: I don't think you'd have the patience to be the Federal Reserve...
Scott: No. Are you kidding me? It sounds like a terrible job.
Pat: The Federal Reserve chair.
Scott: Yeah. Sounds like a terrible job.
Pat: Yes. Yeah. Anyway...
Scott: Open market committee, everyone's opinions and all that, and then you gotta come to consensus. No one agrees.
Pat: [inaudible 00:38:29] Consensus, in an organization? Are you nuts? Okay, keep going.
Scott: Well, [inaudible 00:38:35] about the future of the economy. Like, anyone...
Pat: Which is [crosstalk 00:38:37] yeah, like anyone knows.
Scott: Like anyone knows, right? So, back to Social Security. And Medicare.
Pat: Yes.
Scott: Like... Oh, for good financial planning, for financial security, it's best that you plan...
Pat: That there will not be Social Security there.
Scott: Best that you plan there's no Social Security, and best that you plan that you're gonna carry a bigger portion of your medical costs.
Pat: Yes.
Scott: I mean, in a perfect world, perfect environment, you get to retirement, you have sufficient assets such that if Social Security is not providing you an income, and you're meant, you have share the burden of your medical costs, that you've got the assets to do that. And, if Social Security keeps coming in the way it's been coming, and Medicare still covers the vast majority of your expenses, then you're like, "Wow, this is good. I don't have to worry [crosstalk 00:39:32]"
Pat: Then it's a bonus.
Scott: But I think that's probably where you'd...
Pat: Yes.
Scott: ...place you're wanna...
Pat: Well, if your net worth is even moderately high, don't plan on Social Security. My wife, when she turned 62, and I don't know if she's gonna appreciate me saying this, but that's how old she is, we got a Social Security check last month. She was telling me.
Scott: Oh, is that right?
Pat: Yeah. That's... Yeah.
Pat: Kind of a [inaudible 00:39:56]
Scott: [crosstalk 00:39:56] feeling pretty good about it.
Pat: Kind of a [crosstalk 00:39:58] My wife hasn't been in the workforce for years and years, so the check was not very large. In the workforce. Didn't say she didn't work...
Scott: Yes, yes, I get it. Yeah.
Pat: She has not been in the workforce. She works plenty hard.
Scott: My wife stayed, when she was pregnant with our first child, she decided to stay home and raise kids, and she never went back into paid work. And every few years you get the Social Security... I could see, it's like, she did jury duty a couple times.
Pat: Really?
Scott: That's the only wage she's had in the last...
Pat: Oh, is that...
Scott: ...29, 30 years.
Pat: Oh, I never thought about that, that there would be tax withholdings on jury duty.
Scott: It's [crosstalk 00:40:35]
Pat: [crosstalk 00:40:36] did this Big, Beautiful Bill. Scott, back to this. It made your tax return so much more complicated...
Scott: Oh.
Pat: So much more complicated. Right? Fortunately, technology will consume a lot of that, but made planning even harder, more difficult around it.
Scott: Correct.
Pat: I was reading about the charitable contributions.
Scott: Yes. So complicated. Yes.
Pat: [crosstalk 00:40:55] so complicated, I was hard time tracking. And I have a fairly good understanding of how this works.
Scott: It gets complicated in a few different ways.
Pat: The one, the limits.
Scott: One is the SALT cap, that went from $10,000 to $40,000. That's actually not gonna impact that many people, because there's a phase-out. So, the higher...the people that pay the higher state and local taxes are the higher-income people.
Pat: Yes.
Scott: And that's gonna end up phasing out, so...
Pat: It doesn't matter.
Scott: ...they're giving it to you in one hand and taking away in the other. On the charitable deduction, your charitable deductions are only if you itemize and are in excess of 0.5% of your adjusted gross income. So, if you made, let's say, $100,000, and your adjusted gross income is $100,000, and you give $600 to charity, well, you don't get to take a deduction on the first $500. It's only that last...
Pat: Hundred.
Scott: ...hundred. Now, that might not have been a fair example, because they did throw in there, in addition to itemized deductions, [crosstalk 00:41:59]
Pat: [crosstalk 00:41:59] cash.
Scott: Is this in 2026 or '7?
Pat: I don't remember what year it was, but they called it the [crosstalk 00:42:04] cash contribution.
Scott: You can make a contribution, even if you don't itemize, and I think it's $2,000 deduction if you're married and $1,000 if you're single. But if you're, let's say you're, let's say this is the year...or, this begins next year, so there's a lot of planning this year, but set up a charitable remainder trust, or a big transaction, you wanna give a bunch of money that you... Your charitable deductions are gonna have to be in excess of 0.5%, number one. Number two is the top tax rate. So, the current top tax rate is 37%. But you're only allowed to take a deduction at 35% equivalent. So, there's some limitations on that.
Pat: Which made it just so much more complicated, which is, if you're doing charity, you're, first of all, the best place ever to take it is in your required minimum distributions, right? That, by far.
Scott: Maybe.
Pat: Right? Or you bulk it.
Scott: Yes. So, right now, I mean, less than...
Pat: Or you bulk it.
Scott: ...less than...
Pat: And what is... Explain what bulking means [crosstalk 00:43:11]
Scott: Well, first of all, I think it's 11% of Americans itemize deductions. Most have taken the standard now, because...
Pat: It's so high.
Scott: Yeah. Standard deductions are so high. And let's say that's you. And you might have significant assets and all that, but just the way things work, you've been itemized. And let's say you like to give X dollars a year to your charities or church or [inaudible 00:43:30] whatever it is. Rather than do it on an annual basis, maybe do three years' worth of contributions in one year to a donor-advised fund. And then from there, over the next couple calendar years, you make your contributions to these charities. And it accomplishes the objectives that you had anyway, and it provides you a tax benefit in the current year when you bunch these together.
Pat: And it allows you to get rid of some of your highly-concentrated positions. Right? Because you can actually take the shares themselves and move it in, to the donor-advised fund.
Scott: Yes.
Pat: So, if you've got highly-concentrated positions, it all works out into this program.
Scott: And this is, this year, I mean, if you are planning some charitable contributions, you're gonna wanna seriously look at doing some things in 2025, and not push into 2026. That was just one example. But let's say you're a small business owner, with a pass-through entity, an LLC or S Corp or something. And there's this, you get some additional benefits that phase out at higher income levels, and you're trying to balance that, and the Medicare premium tax, and should you do a Roth conversion because you're nearing retirement, and the charitable reductions, and the SALT limits.
Pat: It makes planning that much more difficult. It makes it... It did not do anything to even slightly simplify the tax code. Which was, if you remember six, seven, eight years ago, it was, "We need to simplify the tax code." That never came up.
Scott: Yeah. What happened to the postcard? Who was the one promoting that?
Pat: Who was the postcard? I don't remember.
Scott: Was that Trump? I don't think so.
Pat: It was.
Scott: Trump was proud of his 8-feet-tall stack of [crosstalk 00:45:14]
Pat: His [crosstalk 00:45:15]
Scott: ...documents. [inaudible 00:45:16] It's been great having you with us today as we've been talking about financial issues and taking some calls. And again, if you'd wanna be part of...if you've got a question for us you'd like us to answer, would love to hear from you, questions@moneymatters is the best way to reach us, questions@moneymatters. And if you like the show, make sure you hit the follow button on Apple and Spotify, so you don't miss any of our upcoming shows. See you next week. This has been Scott Hanson and Pat McClain of Allworth's "Money Matters."
Announcer: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.