The impact of politics and taxes on your IRA and 401(k), why wealth goes beyond money, and the 4 pillars of a successful financial life.
On this week’s Money Matters, Scott and Pat address common fears about IRAs and 401(k)s amidst the changing political landscape. They also discuss the impact of tariffs on the economy and guide an investor through what they believe are the four pillars of a fulfilling life. Finally, they help a caller navigate her options for where to live now that her husband is in assisted living.
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.
Man: 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-WORTH.
Scott: Welcome to Allworth's "Money Matters." Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: Glad to be here in the studio with my longtime partner, Pat McClain, talking about financial matters, taking your questions, talking about some current things in the marketplace. And we're excited you're with us today.
Pat: Yes. And we are recording this Thursday, February 20th at 10:30 in the morning, Pacific. And the reason I like to say that is because in this environment...
Scott: There could be some major news by the time you hear this.
Pat: Halfway through the show.
Scott: It's a pretty rich news environment.
Pat: Yes, it is. It is. It's an interesting place. But, Scott, I did want to bring this up. I had a client reach out to me and wanted to know what was happening to their IRA and all these terrible things that the new administration and legislation would do to it that would ruin it. And then I started thinking, I'm going to... Normally, when I get my emails in my personal box, I just hit the edit button, just go through and clink, clink, clink.
Scott: Delete, delete, delete.
Pat: Delete, delete.
Scott: Are you one of those that empties your email box? Everything's filed or emptied?
Pat: Yes.
Scott: Me too. And my wife's got, like, 80 million unread emails.
Pat: Oh, no, I can't. I'm a big list guy and I love crossing things off lists.
Scott: And I don't like someone... If email feels like someone's putting something on my list, that's why I move them off.
Pat: So the reason I bring this up is I decided this morning I was just going to look at some of these emails rather than just completely delete them, these solicitations.
Scott: How many do you get? Don't you have a good spam filter that sucks them all in?
Pat: I don't know. I get maybe 25 a day.
Scott: Of junk emails?
Pat: Yeah. I'm a popular guy.
Scott: Everyone's vying for your attention.
Pat: Lots and lots of people want to talk to me, Scott. You probably didn't know that about me. So I decided to look at a couple of them, and this one, I'm just going to go to it. It's called the Sunrise Brief, and it starts... This law is set to significantly reduce the value of your 401(k), your IRAs, and even your Roth IRAs, even your pension. If you have one of those, look at what "The Wall Street Journal" reported. And then I clicked through, just like, "Okay, what are they trying to do here?" You know, other than just knowing that they want to communicate with me...
Scott: What are they selling?
Pat: ...what are they selling? So you click through, and out of the 25 emails that I received this morning, maybe from last night at 8:00, was the last time I checked it, 4 or 5 of them had basically the same, like, tone to them, which is...
Scott: What are they selling? Gold?
Pat: They're selling...there's an alternative to your Roth 401(k) and IRA.
Scott: Which is?
Pat: You tell me what you think it is.
Scott: Gold.
Pat: Gold, life insurance.
Scott: Oh, life insurance.
Pat: Life insurance, you know, first in, first out, LIFO.
Scott: In a retirement account?
Pat: Well, it would take your money out and put it in.
Scott: Oh, don't have it in there to begin with.
Pat: Don't have it in there to begin with or use life insurance rather than...
Scott: Is that primarily what these are about?
Pat: Many of them. Yeah. What they're trying to do is just engage you in a conversation.
Scott: Through fear. It's just using fear.
Pat: And the reason they use the IRAs and 401(k)s is because that's where a vast majority of the liquid wealth of the United States, Middle America, lives.
Scott: Yes. Almost all people's retirement accounts.
Pat: Yes. Yes.
Scott: Retirement savings, I should say, are in IRAs or 401(k)s.
Pat: So the reason I point this out is because I had clients reach out to me and say, "Should I be worried?" And I said, "Well, not about this." Not about the IRAs and 401(k)s. They're not doing anything to your IRAs or 401(k)s. They're going to endanger it. They're not going to all of a sudden put a surplus.
Scott: Who's they? The people who get elected?
Pat: The existing administration.
Scott: They only have so much power. They can't legislate. They might be trying right now.
Pat: Well, they can.
Scott: But, I mean...
Pat: And I just thought I'd point it out that if you see...
Scott: But you've had clients reach out to you.
Pat: That's why I started looking at these things. It's like, where's this coming from? And the client says, "Well, I'm getting emails."
Scott: Think of a client who reached out to you. How many years has that person been a client of Pat McClain?
Pat: Twenty-five?
Scott: Twenty-five years. You think after 2020...maybe they're just looking for an excuse to talk.
Pat: Well, yes.
Scott: I mean, just thinking, after 25 years, it's like, if there's an issue, you'll reach out to them. Part of the reason someone hires an advisor is they don't have to worry about this noise.
Pat: Yes, yes, yes. Some clients reach out for non-financial things.
Scott: Yeah, I get it. Yeah, I get it. Yeah, yeah.
Pat: Right? They've got a trusted advisor friend that they're looking for some help. But anyway, I wanted to throw it down there. Don't pay any attention to that garbage. It's just all marketing.
Scott: You know, it's surprising, this market cycle, with how much gold has risen the last few years. The fact that there's not...I haven't had...usually, we get calls on the program about gold. We get clients saying, "Why don't we have more gold in the portfolio?" It's different this time, and maybe it's because the stock market has been so much on fire that you haven't missed out on anything. Like, yeah, gold's up, but so is everything else. So, who cares?
Pat: Yeah, another asset.
Scott: Not everything. I mean, real estate is not up during the last couple of years. But stock market has been on a tear the last couple of years. And gold has, but it hasn't been a time where...it's usually...financial markets are the only markets that I know of where people like to buy more when it gets expensive, right? And they like to sell when things are on sale.
Pat: The thing that I...
Scott: When prices go up, they think, "Oh, isn't that good? Maybe I should buy some." When prices go down, they go, "Oh, this is bad. I should get out." It's the opposite of everything else.
Pat: But, Scott, look, the thing about gold, which I just truly have never, ever understood, I just don't understand it, and I just flat out don't understand it, is that the price of gold ultimately is actually based on the cost of getting it out of the ground and refining it.
Scott: Because there's plenty of gold actually in...
Pat: In the world.
Scott: Who knows how much there is, right? There might be... I mean, I heard the other day, someone said there's probably enough oil for 500 years. It was my lifetime. It was supposed to run out.
Pat: Forty years ago.
Scott: I was a child. I was terrified of it. Existential threat.
Pat: Right now, yes. So I just don't understand it. I just don't understand it.
Scott: Well, you do understand it.
Pat: I understand that there's lots of emotion behind it that's running it.
Scott: And people will build their own case for it if they want to. We can build a case for anything as humans. That's what we'd like to do.
Pat: Yeah, yeah. I mean, we all create our own cognitive biases.
Scott: I mean, the only time you really want to have a bunch of gold is if the entire world blows apart. But then you really want more guns and a bunch of young people to fight for you.
Pat: And bullets.
Scott: Yes. I mean, let's...
Pat: Caches of food.
Scott: That's right.
Pat: Places in the mountains.
Scott: And a bunch of young people willing to fight for you.
Pat: Okay.
Scott: I mean, if it gets that bad. Someone's going to come steal your gold, take it from you.
Pat: That's right.
Scott: I mean, people try to look at, "How do I eliminate every single risk in my financial future?" Well, it's impossible. Yes. We can do our best to minimize as much as we can, which is one of the things we like to do here. I mean...
Pat: Pay off your mortgage.
Scott: Some really basic things, right?
Pat: Buy some life insurance. Save some money. Keep it well diversified. There we go, show's over.
Scott: All right. Let's take some calls. If you want to join us, you have a question for us, we always love taking calls. It's part of our favorite thing of the program. And to join us, you can send us an email, questions@moneymatters.com. We'll schedule a time to get you on the show. We're talking now with Jimmy. Jimmy, you're with Allworth's "Money Matters."
Jimmy: Hi. How are you doing?
Scott: Fantastic.
Jimmy: Yeah. I just have a simple question, actually. On the current tax bill, talk about the tax cuts for the no tax on Social Security and also extending the TCJA. What do you think is the chance to pass this year? And also, what's the impact on Social Security?
Scott: What's a TCJA?
Pat: What's a TCJA?
Jimmy: Tax Cuts and Jobs Act, the Trump tax bill in 2016.
Scott: Okay.
Pat: So, what's the chance?
Scott: Yeah, we'll address that, Jimmy, and also kind of talk about just a broader approach to investing based upon future tax law legislation one night. So he's speaking, I think, it was '16 or '17, maybe, the Trump tax cuts that are set to expire December of this year. The Republicans, it sounds like they're trying to have one big, beautiful bill. It's been the best bill ever. I mean, it sounds like they're trying to cram everything into one bill and somehow...
Pat: Run it through the sausage machine.
Scott: The reconciliation process or something. I'm not a political expert. There's probably...I mean, right now, the amount of power this administration has is more than I've seen in my lifetime.
Pat: It's mind-blowing. And by the way, they're pushing stuff through.
Scott: Whether you like it or not, we're just talking about reality.
Pat: Yeah. And they're doing things that are outside their legislative scope, this administration is, knowing that it's going to get tossed out in the courts. But by that point in time, most of the...
Scott: The cat is out of the bag.
Pat: Right? Most of whatever they wanted to get done is done.
Scott: So if I were a betting man, I'd tend not to bet. But there's an extremely high likelihood that we'll have an extension of the tax cuts. I think the elimination of tax on Social Security...
Pat: I don't know. That just goes against everything over the last 40 years that has been in motion. Across the board tax, no tax on Social Security, Scott. Across the board. I make $2 million a year. Maybe. Because the people that actually...so, so little.
Scott: I don't know how much revenue we're talking there.
Pat: Yes, it's so little.
Scott: Relative to the overall, it is, relatively. Because, right now, if your income is low, you don't pay any tax on your Social Security. And there's a lot of retirees. Look, the majority of retirees rely upon Social Security for the majority of their income. There's a lot of retirees that aren't paying tax on it anyway. And if your income is middle class or higher in retirement, up to 85% of your benefits become taxable.
Pat: It incomes over $44,000, including a municipal bond.
Scott: Provisional income, which is a crazy formula. So I don't know if that's going to happen. The tax on tips, I don't...
Pat: I can't see how that could happen. I can't see how it could happen. Maybe it will happen, but I don't know how they could absolutely administer it. I go to my lawyer and I say, "Hey."
Scott: I know you're 600 bucks an hour. I'll pay you for...I'll give you a little tip.
Pat: That's right. You're $600. I'm going to pay you 300. Oh, and by the way, I'm just going to tip you out $200 an hour. Right? I mean, I don't know how that could happen. Would I be building? I guess the question is, what's the probability of the tax? Am I doing anything differently with myself or my clients in anticipation of...? What I know I'm not doing is pushing to fund their estate.
Scott: Yeah, most people are waiting right now because...and one of the big planning opportunities, particularly with people that have accumulated a lot of wealth during their lifetime, is on estate planning because the exemption amount is scheduled to reduce back to about 6 million bucks a person or something like that.
Pat: From 13, 14 million.
Scott: That was 14, yeah.
Pat: Yes, somewhere around there.
Scott: So a couple right now could pass on $28 million at their death or while they're living. And if the tax laws aren't extended, that number is going to revert to about 12 million.
Pat: And we talked about this last October, November, about how you should...depending upon what administration gets in here, that you should actually be thinking about that. I'm not...my clients, I'm like...
Scott: I don't have any clients that are concerned. Right now, it's like, we'll just wait and see.
Pat: We'll wait and see.
Scott: Because the planning opportunity is let's get the money out of our estate today while we can. Let's set up a trust or give to our kids or whatever. Get it out of estate today and take advantage of that before it gets reduced. But no one's concerned about that right now.
Pat: That's right. What other thing are you doing?
Scott: But it's still relatively early in the calendar year.
Pat: What other things are you doing with clients around this administration for tax purposes?
Scott: No one's expecting capital gain taxes to go up.
Pat: No, no.
Scott: I mean, I think most people are betting that that's going to continue.
Pat: The SALT, but there's nothing you can do about that.
Scott: There's some discussion about the increase in the SALT limits. I wouldn't be surprised actually if the SALT limit went from 10,000. This is the state and local tax deduction.
Pat: Deduction against.
Scott: Moves from 10,000 to 20,000. I don't think it'll be unlimited like it was in the past.
Pat: What planning could you do around that? It is what it is. Would you tell someone to make less money because of the SALT?
Scott: I mean, let's say someone's got a family business they've been running for 30 years, and they're in the process...they're going to be selling it. To your point, it is what it is. We don't have any real clarity on what... We know what's going to...well, we don't even know what's going to happen in 2025 for that matter.
Pat: Yeah. So there is nothing...the question goes, what is the probability? The question is, what are the chances that this thing is going to change? And even if...those are the only things I can think of that are playing into the financial planning realm. Maybe I'm missing a couple.
Scott: There's a few other little things here and there that are a little more esoteric. But the pass-through is small businesses with a certain amount of revenue, and there's a few little things here and there that could change. I think the bigger thing to pay attention to on your own portfolio, how can you best diversify your tax strategy with your life savings?
Pat: Put your bonds in the qualified, things that distribute very little dividends or capital gains.
Scott: I mean, who's the new...? I can't keep track of all the new people in Trump's administration, but the guy who's...Mr. Tariff guy. Lutnick, something like that? Whatever.
Pat: Yeah. Peter. Peter.
Scott: So he was talking about replacing the income tax with the tariff tax.
Pat: Yeah, Peter Navarro.
Scott: Is that him?
Pat: Peter Navarro, yeah. I listened to a podcast with him two days ago.
Scott: Okay. So one of the things he was saying is we can use tariffs to get rid of the income tax. I'm just saying. I don't think that's where we're going to go. But you could clearly picture a world in the future where there's a combination of value-added tax, what Europe does.
Pat: Yes. Income tax.
Scott: And actually, much of Europe, their income tax rates are lower than the United States. The top income tax rates are lower than the United States. And they have this value-added tax.
Pat: And actually, you could see that a value-added tax is regressive, not progressive. Do you want to explain what the difference between regressive and progressive?
Scott: Well, I mean, income tax rates are the opposite. Progressive, the higher your income, the higher percentage you end up paying, the lower your income, the lower percentage, or nothing. You pay nothing. Regressive hits the opposite. So regressive, if you don't make much money, all of your income is going to meet your basic needs.
Pat: So a value-added tax means that you're actually paying taxes a larger percentage of your income than the rich fat cat.
Scott: Who spends almost nothing either way. I don't think Warren Buffett spends much.
Pat: He's not spending...
Scott: Net worth.
Pat: Yeah, he's probably spending 0.0001% of his net worth to live, right?
Scott: Costs him nothing compared to what he's got.
Pat: Right. And they own Berkshire Hathaway, so he probably gets a discount on the NetJets. Yeah, I can't... So there will be changes in the tax strategy, but I don't think that the portfolio...
Scott: When you look at things like Roth conversions...
Pat: Every year.
Scott: ...step up basis in your planning...
Pat: Every year.
Scott: I mean, it's important to look at...and particularly, the younger you are and the longer you're looking at, like, how do we plan to have the most diversified tax strategies possible?
Pat: And the idea of putting income, producing in your IRA, and people are, "Well, that's for the long term." Well, look, you got to, you know...you want that thing that delivers the income inside the IRA because it's the most tax efficient.
Scott: And the thing that has more capital gain outside the retirement accounts.
Pat: As long as we have a step-up in basis. If they change the step-up in basis, which is the step-up in basis is...
Scott: A deficit.
Pat: Yeah. And who did we have on a couple of weeks ago from our show that told us about the step-up in basis?
Scott: I don't know.
Pat: Because the record-keeping was so poor years ago that no one could actually figure it out. But that may change because the record-keeping is pretty right on today. Pretty right on. What am I, from the '70s?
Scott: It's right on.
Pat: Right on. Hang loose.
Scott: Anyway.
Pat: Anyway.
Scott: Who knows what will happen with tax law?
Pat: I don't know.
Scott: But you get to retirement, you have some money in a brokerage account, maybe you have some individual stocks or you have some ETFs in there. You've got some money, some cash in savings, maybe some treasury bills, or it's in a money market account, earning something. You've got money in your 401(k) or IRA, traditional 401(k), tax-deferred. You've got some money in your Roth. And perhaps you have some real estate as well. You don't want to manage the real estate, take that out for a second. I mean, if you can get into retirement and have pretty good-sized buckets of each of those...
Pat: You're fine.
Scott: ...it gives you tremendous flexibility because when it's like, "Hey, we need to replace our car. It's going to cost us 50 grand to replace our car," whatever a new car costs.
Pat: You can manage the tax efficiency, deciding what bucket to pull it out of.
Scott: And as tax law changes on a year-to-year basis, you can say, "Oh, they don't like us doing this? I won't pull that lever this year. I'm going to pull this lever this year."
Pat: And bunching charitable contributions.
Scott: Yeah, there are some planning opportunities, for sure. Anyway.
Pat: But there's always been. Well, prior to the Roth, it was much more difficult.
Scott: There's always been planning opportunities. There always will be.
Pat: But prior to the Roth IRA, the Roth IRA just opened up a whole new book of planning opportunities.
Scott: For people who saved well. Or not saved well. I was talking with my son. He's a pilot with JSX. He's a co-pilot. So he's got... I talked to him last night. He's got 900 hours, 900-some hours with him. So it's a good thing to have an experience, someone with a lot many more hours next to him. But that's how the game goes, right? That's how... We all have to start in our careers somewhere. So he's a pilot in the growing ranks. And they pay him next to nothing. I mean, it's...
Pat: Because they can.
Scott: Because they can. And he's trying to get enough hours by the end of March so his pay will go up quite a bit. It's still...
Pat: Not a lot?
Scott: I calculated like, "Oh, man, that's nothing."
Pat: I'll recap you on education, six years, seven years.
Scott: Well, yeah. But a couple of years from now, he'll be making good money. So he's funneling the maximum he can into his Roth 401(k).
Pat: Yes.
Scott: And so he's telling me how much he's got saved already. He says, "My challenge is I'm watching my personal bank account decline." And I said, "Yes, that's okay," you know. And he understands that concept. It's no different than him saying, "I'm going to take 20 grand, 25 grand, whatever numbers, out of my savings and stick it into."
Pat: Yes. But the Roths also have more liquidity than a regular IRA, too.
Scott: Yeah. For many reasons, yeah.
Pat: Yes.
Scott: Anyway. All right, let's continue on. Enough of this.
Pat: Have you and Valerie booked a flight on one of this?
Scott: No. And I've not flown with him.
Pat: Ever?
Scott: My wife has. My sister-in-law has. And I said to him, he's in Phoenix, I said, "I got to at least fly out there for the day someday and have you rent a small plane and take me up or something." I got to fly, I have to fly with my son, because I'm starting to feel like a bad dad. I haven't seen where he lives.
Pat: He's renting. You don't have to see where the kid rents. You don't. My wife, we went to San Diego. I have two kids living in San Diego. My wife was like, "Oh, we need to go see where they live." I go, "They're renting. They're renting. We don't need to see where they live."
Scott: Did you not?
Pat: No, we don't know where they lived.
Scott: I like how that argument goes.
Pat: And then they talked about decorating ideas of which my kids listened patiently and then did nothing. But they're renting. You don't have to. That's just a written rule. Unwritten rule.
Scott: Anyway, I've not flown with him. I'd like to fly with him.
Pat: That would be nice.
Scott: Yeah. All right. Let's talk. And by the way, he's become a fan of the program.
Pat: Your son has.
Scott: Yes, he's listened to many episodes.
Pat: Thanks, Blake. Blake, if you enjoy the show, will you please rate us? And there's something else we're supposed to do. Rate and follow so that it comes to your feed every week.
Scott: Oh, yeah. We're told by the marketing people to bring that up.
Pat: Rate and follow so that it comes to your feed. Blake, if you could do that, and anyone else that happens to be listening.
Scott: Yeah, follow, because that's how...I follow several.
Pat: I do.
Scott: And every day, I get a handful of podcasts. I listen to some, and I don't listen to others. All right. Let's continue on with calls. We're talking with William. William, you're with Allworth's "Money Matters."
William: Hello, Scott and Pat.
Scott: Hi, William.
William: Hi. In lieu of the recent announcement by Walmart due to the tariffs, and now I see the stock markets really tanking, what sectors of the economy do you think I should avoid investing in?
Pat: What sectors do you think you should avoid?
William: Well, for one, automobiles.
Pat: Okay.
William: I heard retail wasn't going to be affected, but now Walmart seems to feel that way. It's okay. And then I understand lumber because all the lumber comes from Canada. And that's all I can think of. I'm just wondering what hidden ones that I should be aware of.
Pat: And what do you think is going to happen because of these tariffs?
William: Well, I think Trump is using them as a bargaining chip, for sure. They might go lower. They might go higher. I think myself is going to tank the economy, but that's just my opinion. I'm wondering what yours is.
Pat: I'm not worried about it even a little.
Scott: Neither am I.
William: Really?
Pat: Not even a little. And I think that you said the key word right there, which is bargaining chip. Right? Like him or don't like him, right? I don't. Look, I am not a huge Trump fan, just flat out. But I like many of his policies. But I got to tell you, what I'm impressed by is he brings people to the table for a conversation.
William: That's for sure.
Pat: Look, you cannot negotiate a deal unless you're sitting at a table having a conversation. And he forced countries to the table to have conversations by coming in and saying, "I've got a huge hammer, and I'm not afraid to use it." And he will use it. I mean, he's already used it. And so because of that, look, here's...I listened to this podcast with Peter Navarro a couple of days ago, and I think it was on "The Daily." And he said something that was really, really interesting. My older brother, Chris, and I actually had this conversation about this two or three weeks ago, which is, look, if we as a country lose our manufacturing capabilities, we are in great risk in a war. You think about how we won World War II. How did we win it?
Scott: Lots of tanks.
Pat: Lots of tanks.
Scott: Planes, ships.
Pat: Planes, ships, those things, right? That's how we won it. And obviously, we put people on the ground. But we had a manufacturing base that they deployed. Boom, like, just, you know, Rosie the Riveter, the whole country.
Scott: We got phenomenal natural resources.
Pat: Unbelievable natural resources. So, you know, will there be some pain getting there? Yes. But the reality is we need to re...we need to bring back much of our manufacturing so that we actually have a stable, not only in economy, but the middle class and lower class actually can be employed in manufacturing. Is it going to drive prices? Yes, it's going to drive prices. I mean, there's no question. Are people still going to consume?
Scott: And maybe there'll be...tariff is put in a place where we go into recession.
Pat: Right? But the counter of that is that if the cost of oil comes down, that will, you know, offset a lot of this, right? So...
Scott: And for a long-term investor...
Pat: This is good.
Scott: They don't really care about this year or next year. You care about what things are like five years plus.
Pat: And listen, there's people that are listening to this program.
Scott: They think we're idiots.
Pat: And hate Trump, right? And hate Trump. Whether it was Trump or someone else doing this, I love the fact that there are now...there's conversations. People were at the table saying...
Scott: Well, there's lots of conversations on lots of different topics that many Americans think, "These are conversations we need to be having." And we wish our government had been having these conversations that haven't and are finally happening now, whether it has to do with our health as a nation, right?
Pat: And who knows where that's going to go.
Scott: Not healthcare. I'm talking about just our basic health, whether you or not you like, you know...
Pat: So we don't want to turn this completely into political, but...
Scott: It's an obviously very political time right now.
Pat: But these policies are going to affect us in the short term. There's no question. There will be some pain. But as a long-term investor, right, it could go the other way too.
Scott: But here's a couple of things to think about. Let's assume, William, that you're convinced that the markets are going to have some sort of sell-off. There'll be a bear market. The stocks are going to fall. And historically, stocks have fallen 20% or more about every 4 years in the last 100 years. So we're kind of due for 20% drop or more. And historically, the markets have always recovered and went higher than they were before. So let's assume those two things are accurate again. First, if you're going to get on the sidelines, you have to be right on two areas. One is, when do you get out? The second is, when do you get back in? And that's really difficult.
Pat: In the market as a whole, sector rotation is even more difficult. Because what you're talking about is sector rotation.
Scott: Let's move out of this industry into this industry, into that industry. And there's been some studies and there's enough ETFs out there right now that specialize in just specific sectors.
Pat: Exchange-traded funds.
Scott: Yeah, exchange-traded funds. And so you can look at flows, money that people put into those sectors. And if you look at how the performance of the sectors have done relative to how the people who've owned those sectors, they would have been better off not trying to allocate their money. Because most of them underperform had they just bought everything and went to sleep.
Pat: What that means is they put the money in after the run-up. So you look at the flows and you look at the returns, most investors underperform the sectors they invest in because of when and how they invest in it.
Scott: Yes, they buy when things are high.
Pat: So, how much of your portfolio is in the stock market, William?
William: Most of it.
Pat: How old are you?
William: I'm 70 and a half.
Pat: Are you living on any of it?
William: I'm still working. I'm afraid to retire.
Pat: How much, approximately, if I may? What's the size of your investments?
William: Right now, they're half a million, but when I retire, I'll be getting my pension, which would be about a million.
Pat: And how much do you earn at your job?
William: Over 120 a year.
Scott: And are you afraid of retiring from only financial issues or from a variety of issues? Let me say reluctant to retire or hesitant to retire.
William: Yeah, well, I am hesitant because I like the people I work with at my job.
Scott: Okay.
Pat: Okay. No one said you had to retire.
Scott: I don't think so. Maybe they have.
Pat: I don't work with you. I don't work with you. Have you visited HR lately?
William: Well, I would say that the climate has changed as far as older workers.
Pat: That's right. They're more valued.
Scott: There's not as many...
William: Yeah, more values, but not by HR.
Pat: Okay. So you know what, you might benefit from sitting down with a financial advisor.
Scott: There's no question. I just think, a financial plan, there's studies on this, those that have gone through a financial planning process, when they meet with a financial advisor, have a financial plan, whether it's written or it's just something on a computer screen you're looking at together, having a financial plan that looks at your probabilities of success in the future, they can go through a variety of different scenarios.
Pat: What if the market falls by 20%? What if inflation moves to 8%?
Scott: If we have another great recession like we had, how is this going to impact?
Pat: And they'll tell you, "Okay, you have a 97% probability of having money until you're 110." But there are four things.
Scott: And the studies have shown, those that have gone through that process have much more confidence about their financial future, and it's not relative to their net worth either.
Pat: My point, Scott, there are four things that make for a successful retirement. One is money, the confidence in it, not the amount, the confidence that you have enough, right? The other is people, purpose, and health. Those are the four. If you look at what makes a successful, and we actually hired a firm and we did studies and we actually did workshops all around, what makes for successful retirement, those four things, right? People, purpose, health, and confidence in your money, right? So what you just said, right, your job sounds like it's fulfilling it right now. It's people and purpose, right?
William: Right.
Pat: So if you're being satisfied, then don't feel the need to retire. But at some point in time, if you're like every other person on this earth, your health will become an issue in whether you continue to work, which is why you want to go through a financial plan. You want to go through a financial planning process so that you're confident, at least, with the amount of money that you have. And I would recommend highly. They'll charge you a couple thousand dollars and bring you through the process. You could do it either in person or by Zoom. Just hire a qualified advisor.
Scott: And to get to the point where you're not thinking about Walmart. What's going on with Walmart?
Pat: Of course, Walmart's going to say...they're going to come out and say that there's headwinds ahead because of this. Look at where they get most of their products from.
Scott: That's right.
Pat: Naturally. If I was the CEO of Walmart, I would say it too. I would say I'd push back on tariffs.
Scott: But also think, William, you're 70 years old, right? So your life expectancy, if you have a normal life expectancy, is probably, I don't know, 15, 20 years. Twenty years. Probably 20 years.
William: Right, 20 years.
Scott: So 20 years is a long time. We're going to have many different administrations over that time. Congress is going to...actually, they'll probably be the same people. I mean, we let them in.
Pat: We hope to have many different administrations. We hope to have many different administrations.
Scott: That's right. Because Trump's the healthiest president that's ever lived. Anyway.
Pat: It's incredible.
Scott: Yeah, it's unbelievable.
Pat: It's all the doctors say. All the doctors.
Scott: But my point is, like, things are going to change. Things are going to come and go. There's going to be other concerns. There's going to be other threats. That's a normal part of life. And you could either...from a financial standpoint, you can choose to get caught up in that and have it impact your daily life or you can structure things in such a way, have a plan in place, and live your life. And the reality is most investors do much better by having a plan in place, a strategy in place, and not reacting on a daily basis or weekly or even an annual basis to what's happening out there. Because most professional money managers can outsmart the market. They would be better just buying and holding long term. And on the ones that pick stocks, most of them don't do better than just owning the index. All their teams of smart analysts are working for them.
Pat: So anyway, it was a pleasure speaking with you. I'm glad you enjoy your job. How many hours a week do you work?
William: Forty.
Pat: Are you married?
William: Not right now, no.
Pat: That leads me to believe that you might be soon.
Scott: Not right now.
Pat: Not right now.
Scott: Are you married? Not right now.
Pat: Not right now. All right.
Scott: Ask me in a couple of weeks. You never know. Appreciate the call, William. Yeah. We wish you well.
William: All right. Thank you for your time.
Scott: You know, Pat, it's...
Pat: That's funny, Scott. Not right now.
Scott: Confidence about...
Pat: I wonder how many times he's been married. It's like...
Scott: It reminds me of the time, Pat. Someone called, they started the call. I said...you're asking about the questions. I think I was, like, 40-something. Well, I live with my mother. And they went on to explain that he moved into care for his mom. And we went through the whole plan. At the very end, you said, "Hey, one little piece of advice. If someone asked where you live, tell them your mother lives with you. It sounds much better than you live with your mom."
Pat: It does. It does.
Scott: And William, he's just not married right now.
Pat: Not right now. I'm on the apps.
Scott: Gosh.
Pat: I'm swiping right, left, up, down. I'm waiting for the A.I. to find the right girl for me. Or man. I don't know what William does.
Scott: The algorithm.
Pat: The algorithm will take me out. The algorithm.
Scott: But back to the confidence in money. Oftentimes, as people's net worth increases, they don't necessarily have more confidence about their finances. They might have even greater concern about their assets. And you've seen that, Pat. Like, people, as their net... Did you point to yourself?
Pat: I'm the poster child.
Scott: I feel the same way. It's the most amazing thing.
Pat: And I have a plan, right? I'm really confident in it. But everyone...you know, it creeps in. There's doubt. There should be doubt. Being skeptical and senescent and having cynicism in your investments...
Scott: Wise thing.
Pat: ...is a really, really good thing.
Scott: Agreed. But having a plan, certainly, you know, intellectually, you're fine financially.
Pat: That's right.
Scott: I know, intellectually, I'm fine financially. But there's something weird that goes on with the mind, and I think it's similar for those that have saved well, because the reason you have assets is because, probably, for the vast majority of people who have assets, this is how they got their assets. They were young. They're like, "Holy crap, I got to figure out how to make some money, support myself, support my family. I'm going to start this. I'm going to get really good at my career, or I'm going to start this business. And I'm going to make sure I can make some money to take care of my family. And I'm going to save along the way. I'm going to live below my means. I'm going to save, save, save." And then, all of a sudden, one day, your business is sold or you've got so much saved.
Pat: You retire.
Scott: You're like...
Pat: What do I do?
Scott: I've got way more than I ever thought I was going to have. But that kind of feeling I had of "I better make sure I save for tomorrow and better accumulate for tomorrow" doesn't really go well.
Pat: Well, you show me someone that doesn't worry about money, and I'll show you someone that doesn't have any.
Scott: But 85...how old is my mom? Eighty-five or 86. I think she'll be turning 86. She still thinks...
Pat: She's appreciating that you've told everyone how old your mother is. Does she listen to the show?
Scott: No.
Pat: Okay. So it's all right.
Scott: She never has. Well, I think people can pretty much guess. I'm almost 60. Like, how old do you think my mom is?
Pat: I don't know.
Scott: I've got three older siblings.
Pat: Okay. So your point being that she worries about money?
Scott: I'm not going to mention it now because after this...
Pat: Does she worry about money?
Scott: She saves on a monthly basis. She's got, like, a savings count.
Pat: For?
Scott: She doesn't travel anymore, so I don't know.
Pat: It's for something. Just dip in the market?
Scott: That's just her whole life, and she can't really change that.
Pat: She's buying in in the dips.
Scott: She doesn't follow the markets much.
Pat: No. Not probably her thing.
Scott: Because she always told me that she'll just move in with me if things didn't work out.
Pat: That's right.
Scott: Which I was excited about.
Pat: Could you imagine?
Scott: Yeah.
Pat: All right. But the line of the year so far is William, "I'm not married right now." That's so far the line of the year.
Scott: Not currently. That was not currently.
Pat: Not currently.
Scott: I mean, not right now.
Pat: What did he say, Pietro? Did he say currently or not right now?
Scott: Same kind of concept.
Pat: Anyway, we're going to clip that one. The line of the year.
Scott: Married, not right now. Were you just divorced last week? I mean, whatever. Not right now.
Pat: Seventy years of age.
Scott: All right. Let's talk to Yvonne in California. Yvonne, thanks for holding as we've been chatting away, but thanks for joining Allworth's "Money Matters."
Yvonne: Hi. I can't beat that line, so.
Pat: No kidding.
Yvonne: So my question is...I'm 76. I'm selling my house. My husband is in assisted living. So I'm selling the house and providing half of the income from the house to him or proceeds of the house to him for his assisted living. And then I'll have the other half after I pay capital gains on it. I live in San Diego. I won't be able to afford much.
Pat: Why? Wait, is this a primary residence?
Yvonne: Yes.
Pat: And why do you have...?
Scott: Because she pays more than 500,000 of gain.
Pat: What are you selling the house for?
Yvonne: Because I need to pay for my husband.
Pat: No, no.
Scott: No, no, no.
Pat: How much are you selling the house for?
Yvonne: Oh, probably about one-six or one-seven.
Pat: Okay, there's the answer. And what did you pay for the home?
Yvonne: A hundred and ten.
Pat: Okay. That's why we've got... Okay, so your question is what? You have $600,000 after taxes.
Yvonne: Yes.
Scott: And sorry you're in this situation with your husband. And how long has he been...?
Yvonne: Thank you.
Scott: Yeah. I mean. And you're relatively young.
Yvonne: Since April. But now, he's telling me his son is trying to poison him, so.
Pat: Oh, this, I'm so sorry.
Yvonne: Yeah. It's interesting.
Pat: Oh, I've seen this. It is awful. It's awful.
Yvonne: Yeah. Yeah.
Scott: And what's the cost on a monthly basis for this?
Yvonne: I'm sorry. I don't understand your question.
Scott: How much is it costing, or on an annual basis, for your husband's care at this point?
Yvonne: It's about 8,000 a month.
Scott: All right.
Pat: And so you've split the assets. That's what you told us. And what else is there?
Yvonne: Yes. I have about 600,000 in various investments and about 60,000 in cash. So my financial planner, who I've had for, like, 30 years and I really trust, said that I might be interested instead of buying a condo to rent. There's a specific area in San Diego that I want to live in. If I buy something there, I can get a condo the size of a garage. But if I rent, I can do better.
Scott: Yeah.
Pat: Where do your children live?
Yvonne: Chicago. So at some point...
Scott: That's quite different than San Diego.
Yvonne: I'm going to have to go back there because they're not coming here. I don't know why.
Pat: How many children do you have?
Yvonne: Just one.
Pat: And they live in Chicago. And are you close to the child?
Yvonne: Yes.
Pat: And what is the child...what are the discussions with the child?
Yvonne: She wants me to come when I'm ready. I have a lot of friends here, and I'm very social. So if I went back there, I wouldn't know anybody besides her.
Scott: How long has your husband been ill?
Yvonne: Well, he's been in assisted living since April. He's been ill for probably longer than that.
Scott: I'm going to ask a difficult question. But how much longer do you expect him to live?
Yvonne: He's very healthy.
Pat: Is he?
Yvonne: Yeah, except for his mind.
Pat: Yeah. It is...
Scott: The cruelest.
Pat: Oh, it is. You know, at that point in time, you're just like, "What's the point?" Right?
Scott: Yeah.
Yvonne: Yeah, yeah.
Pat: Yeah. And it's hard to talk about, but it's true. It's like, why are we doing this? You know.
Scott: Have you considered a reverse mortgage on this house to stay in the house to stay in the house for longer?
Yvonne: I don't really want to. I've thought about it, but I don't really want to stay there.
Scott: You don't want to stay in the house. Okay.
Yvonne: Yes. It's too big for me. It needs a lot of work.
Pat: So your financial advisor said rent. I'm actually in...
Scott: I would agree.
Pat: I'm in the camp. And have you sat down with an attorney? You've obviously figured out how to split these assets in case you blow through all the money and you need some state aid, correct?
Yvonne: Yeah.
Pat: I'm in the camp with your financial advisor.
Scott: I am, too.
Pat: And the reason is the next 12 to 24 months, right, if you look at the average stay of a patient, especially in a full skilled assisted living, the average length of time that they stay in there, obviously, it's a bell curve, it's not that long. It truly isn't that long. It's typically less than, what, 23 months.
Scott: Skilled care facilities, for males, it's less than a year.
Pat: Yeah.
Scott: But he's not in skilled care.
Pat: He's going to be soon, though.
Scott: Probably.
Yvonne: Yeah, yeah.
Pat: He's going to be soon. I'm in the camp with your advisor.
Scott: I agree. I think staying in your community is highly important.
Pat: It is so important.
Scott: Much more important than a return on investment.
Pat: It's so important because, look, you just said it. You live in San Diego. I live in Sacramento. You make me move to Chicago? Come on. I mean, right? Other than the pizza and the hot dogs.
Yvonne: My plan would be that I would go there and then come and stay with a friend during the winter in San Diego.
Pat: Yeah, I'm with your financial advisor. And I'm sure you've had these in-depth conversations with your advisor. By the way, I'm glad you and your advisor have each other.
Yvonne: Yeah, yeah. And like I said, I've known her for 30 years, and I trust her implicitly. So I had never thought about renting because I was a real estate appraiser, residential for 20 years. So I've always been in that, you know, buy a house.
Scott: You don't know what your time frame is.
Pat: We're not saying forever.
Yvonne: No.
Pat: Yvonne, we're not saying forever, right? Look, that's the...
Scott: It's like, right now, we don't know if it's going to cost 100 grand a year for 18 months or 10 years, right?
Yvonne: That's true.
Scott: That's your concern. That's your concern. That's why you split some assets, and you're ready to move out of the house. I totally agree with your advisor.
Pat: Yeah. And remember, it's not forever.
Yvonne: Okay.
Pat: So in a year, you might say, "Okay, now is the time to buy a house," or, "Maybe now's the time to..." Are there co-ops that you've looked at in San Diego?
Yvonne: Not really. No. Not where I want to be.
Pat: Got it.
Scott: Yeah. And it could be that you invest in a rental in a different part of town or somewhere else. So you have some money invested in real estate.
Pat: So you have a placeholder.
Scott: You have a placeholder. Good way to put it.
Yvonne: Yeah. Yeah, that makes sense.
Scott: I mean, I wouldn't be in any rush to do that.
Pat: I wouldn't. Yeah, I agree with your advisor.
Yvonne: Okay.
Pat: And I'm happy that you have an advisor to walk with you through this part of life because it is not easy. It is awful. It is. My heart goes out to you. It's terrible. You know, there's no other way around it.
Yvonne: Yeah, it's hard.
Scott: Oh, my gosh, yes.
Yvonne: All right.
Scott: All right. Bless you, Yvonne.
Yvonne: I appreciate your advice. Thank you.
Pat: Thanks.
Scott: All right, yeah. Yeah.
Pat: How many times have you...? I've seen this so many times. It's just awful.
Scott: Well, it's so rare that, like, a couple dies within a couple of days of each other.
Pat: Yes.
Scott: You hear those stories and...
Pat: You're like, "Okay."
Scott: I had a friend of mine passed away. He's 85. He was in great health. And my wife called me, shocked, "Bryce had passed away." And he was 85. I said, "What happened?" He loved the Sierras, the High Sierras. Loved them. Hiked up. He was with his sons on a camping backpacking trip. They were fishing, and he went for a walk around the side of the lake and died out. And I said to my wife...
Pat: Well, how great is that?
Scott: I said, "What a way to go." She's like, "What?" I'm like, "What a way to go." No one gets out of here alive. You look at that versus what poor Yvonne's husband is going through.
Pat: Yes.
Scott: And not just the impact that he's...I mean, he doesn't even know where he is anymore. But the whole family and the friends and everyone that they have, it's tremendous stress for everybody.
Pat: Yes. Yeah, it's an issue.
Scott: And 20 years ago, 30 years ago, a lot of people were buying long-term care insurance to deal with these things. The marketplace is such that it's almost cost-prohibitive.
Pat: Yes.
Scott: I mean, if you have enough money to pay for the long-term care insurance, you probably don't need...
Pat: You probably have enough to insure it. Yes, you have enough that you can self-insure.
Scott: By the way, we're about to finish up here. But let's pivot to a different topic really, really quick.
Pat: Okay.
Scott: Insurance.
Pat: I love talking about insurance.
Scott: Fire insurance.
Pat: Unbelievable. I just told my wife three days ago, expect a 50+% increase in our cost of fire insurance.
Scott: My insurance premium is up triple from where it was 10 years ago.
Pat: Okay.
Scott: Triple from 10 years ago. But the interesting thing, I mean, I just read a paper at the California market, everything's so highly regulated. And State Farm says, "We need to increase our premiums X amount." And the insurance commissioner said, "No, you can't."
Pat: There you go. Well, they were one of the few that actually stayed in the marketplace. They were one of the few that stayed in the marketplace because they poorly underwrote this. And they're my insurer, by the way.
Scott: State Farm?
Pat: Yes.
Scott: You haven't been canceled yet.
Pat: No.
Scott: I got a notice of nonrenewal a couple of years ago.
Pat: From State Farm?
Scott: No, different.
Pat: Yeah, I expect it any day now. And then I get to go to a state plan.
Scott: The FAIR plan.
Pat: I don't know.
Scott: That's what they call it, the FAIR plan.
Pat: Okay.
Scott: It's one of those areas that I look at it and I say, if the government just got out of the business of trying to regulate it, like, there's certain ground rules. You can't defraud anybody. Let the market decide what the price is. Let companies compete. They can run risk scenarios and set a premium, and another company can come along and say, "This shouldn't be 15 grand a year. I think we can underwrite it for 12 grand."
Pat: Or maybe we get these people to harden their houses against a wildfire. And, Scott, I'm in the middle of...my pool man is actually converting. I have a built-in pool. He's putting a fire hose on it, and there's a valve that we could switch, and there's the fire hose.
Scott: And you have a generator?
Pat: And I have a generator.
Scott: And pal will be there at the last minutes. Well, if you look at the Palisades, properties were saved.
Pat: That's right.
Scott: Caruso saved his entire strip mall.
Pat: Yes. I'm in the process of replacing all the bark around my house. I had the tree trimmers come out. They're taking everything six feet away from the house. I'm in the middle of it.
Scott: What about plants right next to the house?
Pat: I talked to the guys about that. As long as the bark is...we're putting a rock around everything. They said if the plants are green and healthy, we should be okay. But I've cut those two feet away from the home. I'm in the middle of it.
Scott: Well, because you know you're going to...
Pat: Oh, it's going to happen. At some point in time, the insurance companies are going to come out, look at my house where I live, and just say, you know, "Okay, you can do this to be insured."
Scott: You do a lot of oak trees around your house.
Pat: I do have a lot. But oaks aren't the problem. It's the underbrush.
Scott: Yeah, apparently.
Pat: Yeah.
Scott: Anyway, I don't know why we've got on that topic. Just talking about insurance.
Pat: Because I've been thinking about it.
Scott: Oh, I have, too. Yes. I told my wife a couple of...and I don't know if there's a bill that passed in California, new homes now, at least in the county where we reside, you can't have any vegetation within five feet of the house. So landscapes are designed so there's nothing... I told my wife the other day, I said, "I think we're probably going to have to get rid of all of our plants that are within five feet of our house."
Pat: So let me...I'll tell you a story.
Scott: And she's like, "What?"
Pat: So I'll tell you a story. So in Sacramento, there's this company called Sierra Pacific, and they installed my solar hot water for my pool, right?
Scott: Look at you. First of all, Pat's got a built-in pool.
Pat: Well, it's not above ground.
Scott: It's a built-in pool. Now, he's showing off. And he's got solar heating for the pool.
Pat: Like one out of three people in California. So they sell generators, too. And they sell this, and they're a plumbing company. So I was trying to find a company for hardening. So I'm Googling fire escape, and it's all about clearing the landscape. None that could put sprinklers on the house, right? So if you look at the Palisades fire and you look at the ones that were saved...
Scott: They had water.
Pat: They had water. And they were mostly off the swimming pools. So I called the company, Sierra Pacific. This was two weeks ago.
Scott: It was a lack of water, for the most part. Granted, there was a high windstorm, some homes would have burned regardless. But the vast majority, if there was enough water there, they would have been saved. And people, you can see by the houses where people stayed, it had the pool pumps.
Pat: Yes. So I'm trying to find a company that will harden because I've got a swimming pool. I've already got a backup generator. It just needs connection. So I called this Sierra Pacific, and I said, they had some guy answer, and I said, "Do you do this?" And he said, "No, I don't even know what you're talking about." I said, "These are the components you need to harden a home in Sacramento. You might want to talk to someone in your company and see if this is something you should do." The owner of the company called me back in four hours and said...and this is a fairly decent-sized company.
Scott: It's a big company.
Pat: He said to me, "Tell me what you're thinking." And I said, "Look, if you look at the Palisades fire..."
Scott: If you're remotely involved in that industry, you could make a killing in the next few years in Sacramento. Are you kidding me?
Pat: I said to him...
Scott: This is an opportunity. Massive. Not just the next...in perpetuity.
Pat: That's what I said. I said, "Look, in the foothills of..."
Scott: Things are changing.
Pat: In the foothills of California, we live in the first foothill of the Sierra Nevadas, right? And 100 years ago, there were fires that would come here every 3 or 4 years, and they would just burn all the underbrush. But that doesn't happen anymore.
Scott: In Southern California, I read this interesting...they said that most fires, forest fires, started, and brush fires, by lightning. They have so few lightning storms in Southern California. They said it might be 100 years before there was a fire, and the brush would get so thick, it'd be like a nuclear bomb went off. And when the Native Americans arrived, the Indians arrived, they would burn it. It took care of the problem. And then when, I guess, the white men came and slaughtered all the natives or sent them away, then they said, "We got no more forest fires," and then created the problem again.
Pat: Yeah. Watch the movie "The Big Burn" or read the book. It talks about the forest fires. But anyway, so this guy calls me back, and we spend an hour on the phone or so talking. And I said, "Look, you know, these are, I think, all the components." And then he said, "Well, you're going to need an actuator here and an actuator there."
Scott: What's an actuator?
Pat: To change the valve from the solar, going through the solar, to the sprinklers on the roof. I'm like, "You're talking about something I know nothing about. All I know is that I think you need a generator to generate electricity, you need pumps, you need a water source, and you need a place to stay." And he said to me, "I'm going to call you back in a week or so." He said, "I'm going to bring it to my team." And he said, "And they're going to say, 'Oh, not another crazy idea from this old man.'"
Scott: Oh, good for him.
Pat: Yeah, I thought it was interesting.
Scott: Anyway, we're out of time. It's been fun chatting with you. We'll see you again next week. This has been Scott Hanson and Pat McClain of "Money Matters," presented by Allworth here.
Pat: If you like the show, please rate and follow so that it comes into your feed on a weekly basis.
Man: 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: Pat McClain. Thanks for joining us.
Scott: Glad to be here in the studio with my longtime partner, Pat McClain, talking about financial matters, taking your questions, talking about some current things in the marketplace. And we're excited you're with us today.
Pat: Yes. And we are recording this Thursday, February 20th at 10:30 in the morning, Pacific. And the reason I like to say that is because in this environment...
Scott: There could be some major news by the time you hear this.
Pat: Halfway through the show.
Scott: It's a pretty rich news environment.
Pat: Yes, it is. It is. It's an interesting place. But, Scott, I did want to bring this up. I had a client reach out to me and wanted to know what was happening to their IRA and all these terrible things that the new administration and legislation would do to it that would ruin it. And then I started thinking, I'm going to... Normally, when I get my emails in my personal box, I just hit the edit button, just go through and clink, clink, clink.
Scott: Delete, delete, delete.
Pat: Delete, delete.
Scott: Are you one of those that empties your email box? Everything's filed or emptied?
Pat: Yes.
Scott: Me too. And my wife's got, like, 80 million unread emails.
Pat: Oh, no, I can't. I'm a big list guy and I love crossing things off lists.
Scott: And I don't like someone... If email feels like someone's putting something on my list, that's why I move them off.
Pat: So the reason I bring this up is I decided this morning I was just going to look at some of these emails rather than just completely delete them, these solicitations.
Scott: How many do you get? Don't you have a good spam filter that sucks them all in?
Pat: I don't know. I get maybe 25 a day.
Scott: Of junk emails?
Pat: Yeah. I'm a popular guy.
Scott: Everyone's vying for your attention.
Pat: Lots and lots of people want to talk to me, Scott. You probably didn't know that about me. So I decided to look at a couple of them, and this one, I'm just going to go to it. It's called the Sunrise Brief, and it starts... This law is set to significantly reduce the value of your 401(k), your IRAs, and even your Roth IRAs, even your pension. If you have one of those, look at what "The Wall Street Journal" reported. And then I clicked through, just like, "Okay, what are they trying to do here?" You know, other than just knowing that they want to communicate with me...
Scott: What are they selling?
Pat: ...what are they selling? So you click through, and out of the 25 emails that I received this morning, maybe from last night at 8:00, was the last time I checked it, 4 or 5 of them had basically the same, like, tone to them, which is...
Scott: What are they selling? Gold?
Pat: They're selling...there's an alternative to your Roth 401(k) and IRA.
Scott: Which is?
Pat: You tell me what you think it is.
Scott: Gold.
Pat: Gold, life insurance.
Scott: Oh, life insurance.
Pat: Life insurance, you know, first in, first out, LIFO.
Scott: In a retirement account?
Pat: Well, it would take your money out and put it in.
Scott: Oh, don't have it in there to begin with.
Pat: Don't have it in there to begin with or use life insurance rather than...
Scott: Is that primarily what these are about?
Pat: Many of them. Yeah. What they're trying to do is just engage you in a conversation.
Scott: Through fear. It's just using fear.
Pat: And the reason they use the IRAs and 401(k)s is because that's where a vast majority of the liquid wealth of the United States, Middle America, lives.
Scott: Yes. Almost all people's retirement accounts.
Pat: Yes. Yes.
Scott: Retirement savings, I should say, are in IRAs or 401(k)s.
Pat: So the reason I point this out is because I had clients reach out to me and say, "Should I be worried?" And I said, "Well, not about this." Not about the IRAs and 401(k)s. They're not doing anything to your IRAs or 401(k)s. They're going to endanger it. They're not going to all of a sudden put a surplus.
Scott: Who's they? The people who get elected?
Pat: The existing administration.
Scott: They only have so much power. They can't legislate. They might be trying right now.
Pat: Well, they can.
Scott: But, I mean...
Pat: And I just thought I'd point it out that if you see...
Scott: But you've had clients reach out to you.
Pat: That's why I started looking at these things. It's like, where's this coming from? And the client says, "Well, I'm getting emails."
Scott: Think of a client who reached out to you. How many years has that person been a client of Pat McClain?
Pat: Twenty-five?
Scott: Twenty-five years. You think after 2020...maybe they're just looking for an excuse to talk.
Pat: Well, yes.
Scott: I mean, just thinking, after 25 years, it's like, if there's an issue, you'll reach out to them. Part of the reason someone hires an advisor is they don't have to worry about this noise.
Pat: Yes, yes, yes. Some clients reach out for non-financial things.
Scott: Yeah, I get it. Yeah, I get it. Yeah, yeah.
Pat: Right? They've got a trusted advisor friend that they're looking for some help. But anyway, I wanted to throw it down there. Don't pay any attention to that garbage. It's just all marketing.
Scott: You know, it's surprising, this market cycle, with how much gold has risen the last few years. The fact that there's not...I haven't had...usually, we get calls on the program about gold. We get clients saying, "Why don't we have more gold in the portfolio?" It's different this time, and maybe it's because the stock market has been so much on fire that you haven't missed out on anything. Like, yeah, gold's up, but so is everything else. So, who cares?
Pat: Yeah, another asset.
Scott: Not everything. I mean, real estate is not up during the last couple of years. But stock market has been on a tear the last couple of years. And gold has, but it hasn't been a time where...it's usually...financial markets are the only markets that I know of where people like to buy more when it gets expensive, right? And they like to sell when things are on sale.
Pat: The thing that I...
Scott: When prices go up, they think, "Oh, isn't that good? Maybe I should buy some." When prices go down, they go, "Oh, this is bad. I should get out." It's the opposite of everything else.
Pat: But, Scott, look, the thing about gold, which I just truly have never, ever understood, I just don't understand it, and I just flat out don't understand it, is that the price of gold ultimately is actually based on the cost of getting it out of the ground and refining it.
Scott: Because there's plenty of gold actually in...
Pat: In the world.
Scott: Who knows how much there is, right? There might be... I mean, I heard the other day, someone said there's probably enough oil for 500 years. It was my lifetime. It was supposed to run out.
Pat: Forty years ago.
Scott: I was a child. I was terrified of it. Existential threat.
Pat: Right now, yes. So I just don't understand it. I just don't understand it.
Scott: Well, you do understand it.
Pat: I understand that there's lots of emotion behind it that's running it.
Scott: And people will build their own case for it if they want to. We can build a case for anything as humans. That's what we'd like to do.
Pat: Yeah, yeah. I mean, we all create our own cognitive biases.
Scott: I mean, the only time you really want to have a bunch of gold is if the entire world blows apart. But then you really want more guns and a bunch of young people to fight for you.
Pat: And bullets.
Scott: Yes. I mean, let's...
Pat: Caches of food.
Scott: That's right.
Pat: Places in the mountains.
Scott: And a bunch of young people willing to fight for you.
Pat: Okay.
Scott: I mean, if it gets that bad. Someone's going to come steal your gold, take it from you.
Pat: That's right.
Scott: I mean, people try to look at, "How do I eliminate every single risk in my financial future?" Well, it's impossible. Yes. We can do our best to minimize as much as we can, which is one of the things we like to do here. I mean...
Pat: Pay off your mortgage.
Scott: Some really basic things, right?
Pat: Buy some life insurance. Save some money. Keep it well diversified. There we go, show's over.
Scott: All right. Let's take some calls. If you want to join us, you have a question for us, we always love taking calls. It's part of our favorite thing of the program. And to join us, you can send us an email, questions@moneymatters.com. We'll schedule a time to get you on the show. We're talking now with Jimmy. Jimmy, you're with Allworth's "Money Matters."
Jimmy: Hi. How are you doing?
Scott: Fantastic.
Jimmy: Yeah. I just have a simple question, actually. On the current tax bill, talk about the tax cuts for the no tax on Social Security and also extending the TCJA. What do you think is the chance to pass this year? And also, what's the impact on Social Security?
Scott: What's a TCJA?
Pat: What's a TCJA?
Jimmy: Tax Cuts and Jobs Act, the Trump tax bill in 2016.
Scott: Okay.
Pat: So, what's the chance?
Scott: Yeah, we'll address that, Jimmy, and also kind of talk about just a broader approach to investing based upon future tax law legislation one night. So he's speaking, I think, it was '16 or '17, maybe, the Trump tax cuts that are set to expire December of this year. The Republicans, it sounds like they're trying to have one big, beautiful bill. It's been the best bill ever. I mean, it sounds like they're trying to cram everything into one bill and somehow...
Pat: Run it through the sausage machine.
Scott: The reconciliation process or something. I'm not a political expert. There's probably...I mean, right now, the amount of power this administration has is more than I've seen in my lifetime.
Pat: It's mind-blowing. And by the way, they're pushing stuff through.
Scott: Whether you like it or not, we're just talking about reality.
Pat: Yeah. And they're doing things that are outside their legislative scope, this administration is, knowing that it's going to get tossed out in the courts. But by that point in time, most of the...
Scott: The cat is out of the bag.
Pat: Right? Most of whatever they wanted to get done is done.
Scott: So if I were a betting man, I'd tend not to bet. But there's an extremely high likelihood that we'll have an extension of the tax cuts. I think the elimination of tax on Social Security...
Pat: I don't know. That just goes against everything over the last 40 years that has been in motion. Across the board tax, no tax on Social Security, Scott. Across the board. I make $2 million a year. Maybe. Because the people that actually...so, so little.
Scott: I don't know how much revenue we're talking there.
Pat: Yes, it's so little.
Scott: Relative to the overall, it is, relatively. Because, right now, if your income is low, you don't pay any tax on your Social Security. And there's a lot of retirees. Look, the majority of retirees rely upon Social Security for the majority of their income. There's a lot of retirees that aren't paying tax on it anyway. And if your income is middle class or higher in retirement, up to 85% of your benefits become taxable.
Pat: It incomes over $44,000, including a municipal bond.
Scott: Provisional income, which is a crazy formula. So I don't know if that's going to happen. The tax on tips, I don't...
Pat: I can't see how that could happen. I can't see how it could happen. Maybe it will happen, but I don't know how they could absolutely administer it. I go to my lawyer and I say, "Hey."
Scott: I know you're 600 bucks an hour. I'll pay you for...I'll give you a little tip.
Pat: That's right. You're $600. I'm going to pay you 300. Oh, and by the way, I'm just going to tip you out $200 an hour. Right? I mean, I don't know how that could happen. Would I be building? I guess the question is, what's the probability of the tax? Am I doing anything differently with myself or my clients in anticipation of...? What I know I'm not doing is pushing to fund their estate.
Scott: Yeah, most people are waiting right now because...and one of the big planning opportunities, particularly with people that have accumulated a lot of wealth during their lifetime, is on estate planning because the exemption amount is scheduled to reduce back to about 6 million bucks a person or something like that.
Pat: From 13, 14 million.
Scott: That was 14, yeah.
Pat: Yes, somewhere around there.
Scott: So a couple right now could pass on $28 million at their death or while they're living. And if the tax laws aren't extended, that number is going to revert to about 12 million.
Pat: And we talked about this last October, November, about how you should...depending upon what administration gets in here, that you should actually be thinking about that. I'm not...my clients, I'm like...
Scott: I don't have any clients that are concerned. Right now, it's like, we'll just wait and see.
Pat: We'll wait and see.
Scott: Because the planning opportunity is let's get the money out of our estate today while we can. Let's set up a trust or give to our kids or whatever. Get it out of estate today and take advantage of that before it gets reduced. But no one's concerned about that right now.
Pat: That's right. What other thing are you doing?
Scott: But it's still relatively early in the calendar year.
Pat: What other things are you doing with clients around this administration for tax purposes?
Scott: No one's expecting capital gain taxes to go up.
Pat: No, no.
Scott: I mean, I think most people are betting that that's going to continue.
Pat: The SALT, but there's nothing you can do about that.
Scott: There's some discussion about the increase in the SALT limits. I wouldn't be surprised actually if the SALT limit went from 10,000. This is the state and local tax deduction.
Pat: Deduction against.
Scott: Moves from 10,000 to 20,000. I don't think it'll be unlimited like it was in the past.
Pat: What planning could you do around that? It is what it is. Would you tell someone to make less money because of the SALT?
Scott: I mean, let's say someone's got a family business they've been running for 30 years, and they're in the process...they're going to be selling it. To your point, it is what it is. We don't have any real clarity on what... We know what's going to...well, we don't even know what's going to happen in 2025 for that matter.
Pat: Yeah. So there is nothing...the question goes, what is the probability? The question is, what are the chances that this thing is going to change? And even if...those are the only things I can think of that are playing into the financial planning realm. Maybe I'm missing a couple.
Scott: There's a few other little things here and there that are a little more esoteric. But the pass-through is small businesses with a certain amount of revenue, and there's a few little things here and there that could change. I think the bigger thing to pay attention to on your own portfolio, how can you best diversify your tax strategy with your life savings?
Pat: Put your bonds in the qualified, things that distribute very little dividends or capital gains.
Scott: I mean, who's the new...? I can't keep track of all the new people in Trump's administration, but the guy who's...Mr. Tariff guy. Lutnick, something like that? Whatever.
Pat: Yeah. Peter. Peter.
Scott: So he was talking about replacing the income tax with the tariff tax.
Pat: Yeah, Peter Navarro.
Scott: Is that him?
Pat: Peter Navarro, yeah. I listened to a podcast with him two days ago.
Scott: Okay. So one of the things he was saying is we can use tariffs to get rid of the income tax. I'm just saying. I don't think that's where we're going to go. But you could clearly picture a world in the future where there's a combination of value-added tax, what Europe does.
Pat: Yes. Income tax.
Scott: And actually, much of Europe, their income tax rates are lower than the United States. The top income tax rates are lower than the United States. And they have this value-added tax.
Pat: And actually, you could see that a value-added tax is regressive, not progressive. Do you want to explain what the difference between regressive and progressive?
Scott: Well, I mean, income tax rates are the opposite. Progressive, the higher your income, the higher percentage you end up paying, the lower your income, the lower percentage, or nothing. You pay nothing. Regressive hits the opposite. So regressive, if you don't make much money, all of your income is going to meet your basic needs.
Pat: So a value-added tax means that you're actually paying taxes a larger percentage of your income than the rich fat cat.
Scott: Who spends almost nothing either way. I don't think Warren Buffett spends much.
Pat: He's not spending...
Scott: Net worth.
Pat: Yeah, he's probably spending 0.0001% of his net worth to live, right?
Scott: Costs him nothing compared to what he's got.
Pat: Right. And they own Berkshire Hathaway, so he probably gets a discount on the NetJets. Yeah, I can't... So there will be changes in the tax strategy, but I don't think that the portfolio...
Scott: When you look at things like Roth conversions...
Pat: Every year.
Scott: ...step up basis in your planning...
Pat: Every year.
Scott: I mean, it's important to look at...and particularly, the younger you are and the longer you're looking at, like, how do we plan to have the most diversified tax strategies possible?
Pat: And the idea of putting income, producing in your IRA, and people are, "Well, that's for the long term." Well, look, you got to, you know...you want that thing that delivers the income inside the IRA because it's the most tax efficient.
Scott: And the thing that has more capital gain outside the retirement accounts.
Pat: As long as we have a step-up in basis. If they change the step-up in basis, which is the step-up in basis is...
Scott: A deficit.
Pat: Yeah. And who did we have on a couple of weeks ago from our show that told us about the step-up in basis?
Scott: I don't know.
Pat: Because the record-keeping was so poor years ago that no one could actually figure it out. But that may change because the record-keeping is pretty right on today. Pretty right on. What am I, from the '70s?
Scott: It's right on.
Pat: Right on. Hang loose.
Scott: Anyway.
Pat: Anyway.
Scott: Who knows what will happen with tax law?
Pat: I don't know.
Scott: But you get to retirement, you have some money in a brokerage account, maybe you have some individual stocks or you have some ETFs in there. You've got some money, some cash in savings, maybe some treasury bills, or it's in a money market account, earning something. You've got money in your 401(k) or IRA, traditional 401(k), tax-deferred. You've got some money in your Roth. And perhaps you have some real estate as well. You don't want to manage the real estate, take that out for a second. I mean, if you can get into retirement and have pretty good-sized buckets of each of those...
Pat: You're fine.
Scott: ...it gives you tremendous flexibility because when it's like, "Hey, we need to replace our car. It's going to cost us 50 grand to replace our car," whatever a new car costs.
Pat: You can manage the tax efficiency, deciding what bucket to pull it out of.
Scott: And as tax law changes on a year-to-year basis, you can say, "Oh, they don't like us doing this? I won't pull that lever this year. I'm going to pull this lever this year."
Pat: And bunching charitable contributions.
Scott: Yeah, there are some planning opportunities, for sure. Anyway.
Pat: But there's always been. Well, prior to the Roth, it was much more difficult.
Scott: There's always been planning opportunities. There always will be.
Pat: But prior to the Roth IRA, the Roth IRA just opened up a whole new book of planning opportunities.
Scott: For people who saved well. Or not saved well. I was talking with my son. He's a pilot with JSX. He's a co-pilot. So he's got... I talked to him last night. He's got 900 hours, 900-some hours with him. So it's a good thing to have an experience, someone with a lot many more hours next to him. But that's how the game goes, right? That's how... We all have to start in our careers somewhere. So he's a pilot in the growing ranks. And they pay him next to nothing. I mean, it's...
Pat: Because they can.
Scott: Because they can. And he's trying to get enough hours by the end of March so his pay will go up quite a bit. It's still...
Pat: Not a lot?
Scott: I calculated like, "Oh, man, that's nothing."
Pat: I'll recap you on education, six years, seven years.
Scott: Well, yeah. But a couple of years from now, he'll be making good money. So he's funneling the maximum he can into his Roth 401(k).
Pat: Yes.
Scott: And so he's telling me how much he's got saved already. He says, "My challenge is I'm watching my personal bank account decline." And I said, "Yes, that's okay," you know. And he understands that concept. It's no different than him saying, "I'm going to take 20 grand, 25 grand, whatever numbers, out of my savings and stick it into."
Pat: Yes. But the Roths also have more liquidity than a regular IRA, too.
Scott: Yeah. For many reasons, yeah.
Pat: Yes.
Scott: Anyway. All right, let's continue on. Enough of this.
Pat: Have you and Valerie booked a flight on one of this?
Scott: No. And I've not flown with him.
Pat: Ever?
Scott: My wife has. My sister-in-law has. And I said to him, he's in Phoenix, I said, "I got to at least fly out there for the day someday and have you rent a small plane and take me up or something." I got to fly, I have to fly with my son, because I'm starting to feel like a bad dad. I haven't seen where he lives.
Pat: He's renting. You don't have to see where the kid rents. You don't. My wife, we went to San Diego. I have two kids living in San Diego. My wife was like, "Oh, we need to go see where they live." I go, "They're renting. They're renting. We don't need to see where they live."
Scott: Did you not?
Pat: No, we don't know where they lived.
Scott: I like how that argument goes.
Pat: And then they talked about decorating ideas of which my kids listened patiently and then did nothing. But they're renting. You don't have to. That's just a written rule. Unwritten rule.
Scott: Anyway, I've not flown with him. I'd like to fly with him.
Pat: That would be nice.
Scott: Yeah. All right. Let's talk. And by the way, he's become a fan of the program.
Pat: Your son has.
Scott: Yes, he's listened to many episodes.
Pat: Thanks, Blake. Blake, if you enjoy the show, will you please rate us? And there's something else we're supposed to do. Rate and follow so that it comes to your feed every week.
Scott: Oh, yeah. We're told by the marketing people to bring that up.
Pat: Rate and follow so that it comes to your feed. Blake, if you could do that, and anyone else that happens to be listening.
Scott: Yeah, follow, because that's how...I follow several.
Pat: I do.
Scott: And every day, I get a handful of podcasts. I listen to some, and I don't listen to others. All right. Let's continue on with calls. We're talking with William. William, you're with Allworth's "Money Matters."
William: Hello, Scott and Pat.
Scott: Hi, William.
William: Hi. In lieu of the recent announcement by Walmart due to the tariffs, and now I see the stock markets really tanking, what sectors of the economy do you think I should avoid investing in?
Pat: What sectors do you think you should avoid?
William: Well, for one, automobiles.
Pat: Okay.
William: I heard retail wasn't going to be affected, but now Walmart seems to feel that way. It's okay. And then I understand lumber because all the lumber comes from Canada. And that's all I can think of. I'm just wondering what hidden ones that I should be aware of.
Pat: And what do you think is going to happen because of these tariffs?
William: Well, I think Trump is using them as a bargaining chip, for sure. They might go lower. They might go higher. I think myself is going to tank the economy, but that's just my opinion. I'm wondering what yours is.
Pat: I'm not worried about it even a little.
Scott: Neither am I.
William: Really?
Pat: Not even a little. And I think that you said the key word right there, which is bargaining chip. Right? Like him or don't like him, right? I don't. Look, I am not a huge Trump fan, just flat out. But I like many of his policies. But I got to tell you, what I'm impressed by is he brings people to the table for a conversation.
William: That's for sure.
Pat: Look, you cannot negotiate a deal unless you're sitting at a table having a conversation. And he forced countries to the table to have conversations by coming in and saying, "I've got a huge hammer, and I'm not afraid to use it." And he will use it. I mean, he's already used it. And so because of that, look, here's...I listened to this podcast with Peter Navarro a couple of days ago, and I think it was on "The Daily." And he said something that was really, really interesting. My older brother, Chris, and I actually had this conversation about this two or three weeks ago, which is, look, if we as a country lose our manufacturing capabilities, we are in great risk in a war. You think about how we won World War II. How did we win it?
Scott: Lots of tanks.
Pat: Lots of tanks.
Scott: Planes, ships.
Pat: Planes, ships, those things, right? That's how we won it. And obviously, we put people on the ground. But we had a manufacturing base that they deployed. Boom, like, just, you know, Rosie the Riveter, the whole country.
Scott: We got phenomenal natural resources.
Pat: Unbelievable natural resources. So, you know, will there be some pain getting there? Yes. But the reality is we need to re...we need to bring back much of our manufacturing so that we actually have a stable, not only in economy, but the middle class and lower class actually can be employed in manufacturing. Is it going to drive prices? Yes, it's going to drive prices. I mean, there's no question. Are people still going to consume?
Scott: And maybe there'll be...tariff is put in a place where we go into recession.
Pat: Right? But the counter of that is that if the cost of oil comes down, that will, you know, offset a lot of this, right? So...
Scott: And for a long-term investor...
Pat: This is good.
Scott: They don't really care about this year or next year. You care about what things are like five years plus.
Pat: And listen, there's people that are listening to this program.
Scott: They think we're idiots.
Pat: And hate Trump, right? And hate Trump. Whether it was Trump or someone else doing this, I love the fact that there are now...there's conversations. People were at the table saying...
Scott: Well, there's lots of conversations on lots of different topics that many Americans think, "These are conversations we need to be having." And we wish our government had been having these conversations that haven't and are finally happening now, whether it has to do with our health as a nation, right?
Pat: And who knows where that's going to go.
Scott: Not healthcare. I'm talking about just our basic health, whether you or not you like, you know...
Pat: So we don't want to turn this completely into political, but...
Scott: It's an obviously very political time right now.
Pat: But these policies are going to affect us in the short term. There's no question. There will be some pain. But as a long-term investor, right, it could go the other way too.
Scott: But here's a couple of things to think about. Let's assume, William, that you're convinced that the markets are going to have some sort of sell-off. There'll be a bear market. The stocks are going to fall. And historically, stocks have fallen 20% or more about every 4 years in the last 100 years. So we're kind of due for 20% drop or more. And historically, the markets have always recovered and went higher than they were before. So let's assume those two things are accurate again. First, if you're going to get on the sidelines, you have to be right on two areas. One is, when do you get out? The second is, when do you get back in? And that's really difficult.
Pat: In the market as a whole, sector rotation is even more difficult. Because what you're talking about is sector rotation.
Scott: Let's move out of this industry into this industry, into that industry. And there's been some studies and there's enough ETFs out there right now that specialize in just specific sectors.
Pat: Exchange-traded funds.
Scott: Yeah, exchange-traded funds. And so you can look at flows, money that people put into those sectors. And if you look at how the performance of the sectors have done relative to how the people who've owned those sectors, they would have been better off not trying to allocate their money. Because most of them underperform had they just bought everything and went to sleep.
Pat: What that means is they put the money in after the run-up. So you look at the flows and you look at the returns, most investors underperform the sectors they invest in because of when and how they invest in it.
Scott: Yes, they buy when things are high.
Pat: So, how much of your portfolio is in the stock market, William?
William: Most of it.
Pat: How old are you?
William: I'm 70 and a half.
Pat: Are you living on any of it?
William: I'm still working. I'm afraid to retire.
Pat: How much, approximately, if I may? What's the size of your investments?
William: Right now, they're half a million, but when I retire, I'll be getting my pension, which would be about a million.
Pat: And how much do you earn at your job?
William: Over 120 a year.
Scott: And are you afraid of retiring from only financial issues or from a variety of issues? Let me say reluctant to retire or hesitant to retire.
William: Yeah, well, I am hesitant because I like the people I work with at my job.
Scott: Okay.
Pat: Okay. No one said you had to retire.
Scott: I don't think so. Maybe they have.
Pat: I don't work with you. I don't work with you. Have you visited HR lately?
William: Well, I would say that the climate has changed as far as older workers.
Pat: That's right. They're more valued.
Scott: There's not as many...
William: Yeah, more values, but not by HR.
Pat: Okay. So you know what, you might benefit from sitting down with a financial advisor.
Scott: There's no question. I just think, a financial plan, there's studies on this, those that have gone through a financial planning process, when they meet with a financial advisor, have a financial plan, whether it's written or it's just something on a computer screen you're looking at together, having a financial plan that looks at your probabilities of success in the future, they can go through a variety of different scenarios.
Pat: What if the market falls by 20%? What if inflation moves to 8%?
Scott: If we have another great recession like we had, how is this going to impact?
Pat: And they'll tell you, "Okay, you have a 97% probability of having money until you're 110." But there are four things.
Scott: And the studies have shown, those that have gone through that process have much more confidence about their financial future, and it's not relative to their net worth either.
Pat: My point, Scott, there are four things that make for a successful retirement. One is money, the confidence in it, not the amount, the confidence that you have enough, right? The other is people, purpose, and health. Those are the four. If you look at what makes a successful, and we actually hired a firm and we did studies and we actually did workshops all around, what makes for successful retirement, those four things, right? People, purpose, health, and confidence in your money, right? So what you just said, right, your job sounds like it's fulfilling it right now. It's people and purpose, right?
William: Right.
Pat: So if you're being satisfied, then don't feel the need to retire. But at some point in time, if you're like every other person on this earth, your health will become an issue in whether you continue to work, which is why you want to go through a financial plan. You want to go through a financial planning process so that you're confident, at least, with the amount of money that you have. And I would recommend highly. They'll charge you a couple thousand dollars and bring you through the process. You could do it either in person or by Zoom. Just hire a qualified advisor.
Scott: And to get to the point where you're not thinking about Walmart. What's going on with Walmart?
Pat: Of course, Walmart's going to say...they're going to come out and say that there's headwinds ahead because of this. Look at where they get most of their products from.
Scott: That's right.
Pat: Naturally. If I was the CEO of Walmart, I would say it too. I would say I'd push back on tariffs.
Scott: But also think, William, you're 70 years old, right? So your life expectancy, if you have a normal life expectancy, is probably, I don't know, 15, 20 years. Twenty years. Probably 20 years.
William: Right, 20 years.
Scott: So 20 years is a long time. We're going to have many different administrations over that time. Congress is going to...actually, they'll probably be the same people. I mean, we let them in.
Pat: We hope to have many different administrations. We hope to have many different administrations.
Scott: That's right. Because Trump's the healthiest president that's ever lived. Anyway.
Pat: It's incredible.
Scott: Yeah, it's unbelievable.
Pat: It's all the doctors say. All the doctors.
Scott: But my point is, like, things are going to change. Things are going to come and go. There's going to be other concerns. There's going to be other threats. That's a normal part of life. And you could either...from a financial standpoint, you can choose to get caught up in that and have it impact your daily life or you can structure things in such a way, have a plan in place, and live your life. And the reality is most investors do much better by having a plan in place, a strategy in place, and not reacting on a daily basis or weekly or even an annual basis to what's happening out there. Because most professional money managers can outsmart the market. They would be better just buying and holding long term. And on the ones that pick stocks, most of them don't do better than just owning the index. All their teams of smart analysts are working for them.
Pat: So anyway, it was a pleasure speaking with you. I'm glad you enjoy your job. How many hours a week do you work?
William: Forty.
Pat: Are you married?
William: Not right now, no.
Pat: That leads me to believe that you might be soon.
Scott: Not right now.
Pat: Not right now.
Scott: Are you married? Not right now.
Pat: Not right now. All right.
Scott: Ask me in a couple of weeks. You never know. Appreciate the call, William. Yeah. We wish you well.
William: All right. Thank you for your time.
Scott: You know, Pat, it's...
Pat: That's funny, Scott. Not right now.
Scott: Confidence about...
Pat: I wonder how many times he's been married. It's like...
Scott: It reminds me of the time, Pat. Someone called, they started the call. I said...you're asking about the questions. I think I was, like, 40-something. Well, I live with my mother. And they went on to explain that he moved into care for his mom. And we went through the whole plan. At the very end, you said, "Hey, one little piece of advice. If someone asked where you live, tell them your mother lives with you. It sounds much better than you live with your mom."
Pat: It does. It does.
Scott: And William, he's just not married right now.
Pat: Not right now. I'm on the apps.
Scott: Gosh.
Pat: I'm swiping right, left, up, down. I'm waiting for the A.I. to find the right girl for me. Or man. I don't know what William does.
Scott: The algorithm.
Pat: The algorithm will take me out. The algorithm.
Scott: But back to the confidence in money. Oftentimes, as people's net worth increases, they don't necessarily have more confidence about their finances. They might have even greater concern about their assets. And you've seen that, Pat. Like, people, as their net... Did you point to yourself?
Pat: I'm the poster child.
Scott: I feel the same way. It's the most amazing thing.
Pat: And I have a plan, right? I'm really confident in it. But everyone...you know, it creeps in. There's doubt. There should be doubt. Being skeptical and senescent and having cynicism in your investments...
Scott: Wise thing.
Pat: ...is a really, really good thing.
Scott: Agreed. But having a plan, certainly, you know, intellectually, you're fine financially.
Pat: That's right.
Scott: I know, intellectually, I'm fine financially. But there's something weird that goes on with the mind, and I think it's similar for those that have saved well, because the reason you have assets is because, probably, for the vast majority of people who have assets, this is how they got their assets. They were young. They're like, "Holy crap, I got to figure out how to make some money, support myself, support my family. I'm going to start this. I'm going to get really good at my career, or I'm going to start this business. And I'm going to make sure I can make some money to take care of my family. And I'm going to save along the way. I'm going to live below my means. I'm going to save, save, save." And then, all of a sudden, one day, your business is sold or you've got so much saved.
Pat: You retire.
Scott: You're like...
Pat: What do I do?
Scott: I've got way more than I ever thought I was going to have. But that kind of feeling I had of "I better make sure I save for tomorrow and better accumulate for tomorrow" doesn't really go well.
Pat: Well, you show me someone that doesn't worry about money, and I'll show you someone that doesn't have any.
Scott: But 85...how old is my mom? Eighty-five or 86. I think she'll be turning 86. She still thinks...
Pat: She's appreciating that you've told everyone how old your mother is. Does she listen to the show?
Scott: No.
Pat: Okay. So it's all right.
Scott: She never has. Well, I think people can pretty much guess. I'm almost 60. Like, how old do you think my mom is?
Pat: I don't know.
Scott: I've got three older siblings.
Pat: Okay. So your point being that she worries about money?
Scott: I'm not going to mention it now because after this...
Pat: Does she worry about money?
Scott: She saves on a monthly basis. She's got, like, a savings count.
Pat: For?
Scott: She doesn't travel anymore, so I don't know.
Pat: It's for something. Just dip in the market?
Scott: That's just her whole life, and she can't really change that.
Pat: She's buying in in the dips.
Scott: She doesn't follow the markets much.
Pat: No. Not probably her thing.
Scott: Because she always told me that she'll just move in with me if things didn't work out.
Pat: That's right.
Scott: Which I was excited about.
Pat: Could you imagine?
Scott: Yeah.
Pat: All right. But the line of the year so far is William, "I'm not married right now." That's so far the line of the year.
Scott: Not currently. That was not currently.
Pat: Not currently.
Scott: I mean, not right now.
Pat: What did he say, Pietro? Did he say currently or not right now?
Scott: Same kind of concept.
Pat: Anyway, we're going to clip that one. The line of the year.
Scott: Married, not right now. Were you just divorced last week? I mean, whatever. Not right now.
Pat: Seventy years of age.
Scott: All right. Let's talk to Yvonne in California. Yvonne, thanks for holding as we've been chatting away, but thanks for joining Allworth's "Money Matters."
Yvonne: Hi. I can't beat that line, so.
Pat: No kidding.
Yvonne: So my question is...I'm 76. I'm selling my house. My husband is in assisted living. So I'm selling the house and providing half of the income from the house to him or proceeds of the house to him for his assisted living. And then I'll have the other half after I pay capital gains on it. I live in San Diego. I won't be able to afford much.
Pat: Why? Wait, is this a primary residence?
Yvonne: Yes.
Pat: And why do you have...?
Scott: Because she pays more than 500,000 of gain.
Pat: What are you selling the house for?
Yvonne: Because I need to pay for my husband.
Pat: No, no.
Scott: No, no, no.
Pat: How much are you selling the house for?
Yvonne: Oh, probably about one-six or one-seven.
Pat: Okay, there's the answer. And what did you pay for the home?
Yvonne: A hundred and ten.
Pat: Okay. That's why we've got... Okay, so your question is what? You have $600,000 after taxes.
Yvonne: Yes.
Scott: And sorry you're in this situation with your husband. And how long has he been...?
Yvonne: Thank you.
Scott: Yeah. I mean. And you're relatively young.
Yvonne: Since April. But now, he's telling me his son is trying to poison him, so.
Pat: Oh, this, I'm so sorry.
Yvonne: Yeah. It's interesting.
Pat: Oh, I've seen this. It is awful. It's awful.
Yvonne: Yeah. Yeah.
Scott: And what's the cost on a monthly basis for this?
Yvonne: I'm sorry. I don't understand your question.
Scott: How much is it costing, or on an annual basis, for your husband's care at this point?
Yvonne: It's about 8,000 a month.
Scott: All right.
Pat: And so you've split the assets. That's what you told us. And what else is there?
Yvonne: Yes. I have about 600,000 in various investments and about 60,000 in cash. So my financial planner, who I've had for, like, 30 years and I really trust, said that I might be interested instead of buying a condo to rent. There's a specific area in San Diego that I want to live in. If I buy something there, I can get a condo the size of a garage. But if I rent, I can do better.
Scott: Yeah.
Pat: Where do your children live?
Yvonne: Chicago. So at some point...
Scott: That's quite different than San Diego.
Yvonne: I'm going to have to go back there because they're not coming here. I don't know why.
Pat: How many children do you have?
Yvonne: Just one.
Pat: And they live in Chicago. And are you close to the child?
Yvonne: Yes.
Pat: And what is the child...what are the discussions with the child?
Yvonne: She wants me to come when I'm ready. I have a lot of friends here, and I'm very social. So if I went back there, I wouldn't know anybody besides her.
Scott: How long has your husband been ill?
Yvonne: Well, he's been in assisted living since April. He's been ill for probably longer than that.
Scott: I'm going to ask a difficult question. But how much longer do you expect him to live?
Yvonne: He's very healthy.
Pat: Is he?
Yvonne: Yeah, except for his mind.
Pat: Yeah. It is...
Scott: The cruelest.
Pat: Oh, it is. You know, at that point in time, you're just like, "What's the point?" Right?
Scott: Yeah.
Yvonne: Yeah, yeah.
Pat: Yeah. And it's hard to talk about, but it's true. It's like, why are we doing this? You know.
Scott: Have you considered a reverse mortgage on this house to stay in the house to stay in the house for longer?
Yvonne: I don't really want to. I've thought about it, but I don't really want to stay there.
Scott: You don't want to stay in the house. Okay.
Yvonne: Yes. It's too big for me. It needs a lot of work.
Pat: So your financial advisor said rent. I'm actually in...
Scott: I would agree.
Pat: I'm in the camp. And have you sat down with an attorney? You've obviously figured out how to split these assets in case you blow through all the money and you need some state aid, correct?
Yvonne: Yeah.
Pat: I'm in the camp with your financial advisor.
Scott: I am, too.
Pat: And the reason is the next 12 to 24 months, right, if you look at the average stay of a patient, especially in a full skilled assisted living, the average length of time that they stay in there, obviously, it's a bell curve, it's not that long. It truly isn't that long. It's typically less than, what, 23 months.
Scott: Skilled care facilities, for males, it's less than a year.
Pat: Yeah.
Scott: But he's not in skilled care.
Pat: He's going to be soon, though.
Scott: Probably.
Yvonne: Yeah, yeah.
Pat: He's going to be soon. I'm in the camp with your advisor.
Scott: I agree. I think staying in your community is highly important.
Pat: It is so important.
Scott: Much more important than a return on investment.
Pat: It's so important because, look, you just said it. You live in San Diego. I live in Sacramento. You make me move to Chicago? Come on. I mean, right? Other than the pizza and the hot dogs.
Yvonne: My plan would be that I would go there and then come and stay with a friend during the winter in San Diego.
Pat: Yeah, I'm with your financial advisor. And I'm sure you've had these in-depth conversations with your advisor. By the way, I'm glad you and your advisor have each other.
Yvonne: Yeah, yeah. And like I said, I've known her for 30 years, and I trust her implicitly. So I had never thought about renting because I was a real estate appraiser, residential for 20 years. So I've always been in that, you know, buy a house.
Scott: You don't know what your time frame is.
Pat: We're not saying forever.
Yvonne: No.
Pat: Yvonne, we're not saying forever, right? Look, that's the...
Scott: It's like, right now, we don't know if it's going to cost 100 grand a year for 18 months or 10 years, right?
Yvonne: That's true.
Scott: That's your concern. That's your concern. That's why you split some assets, and you're ready to move out of the house. I totally agree with your advisor.
Pat: Yeah. And remember, it's not forever.
Yvonne: Okay.
Pat: So in a year, you might say, "Okay, now is the time to buy a house," or, "Maybe now's the time to..." Are there co-ops that you've looked at in San Diego?
Yvonne: Not really. No. Not where I want to be.
Pat: Got it.
Scott: Yeah. And it could be that you invest in a rental in a different part of town or somewhere else. So you have some money invested in real estate.
Pat: So you have a placeholder.
Scott: You have a placeholder. Good way to put it.
Yvonne: Yeah. Yeah, that makes sense.
Scott: I mean, I wouldn't be in any rush to do that.
Pat: I wouldn't. Yeah, I agree with your advisor.
Yvonne: Okay.
Pat: And I'm happy that you have an advisor to walk with you through this part of life because it is not easy. It is awful. It is. My heart goes out to you. It's terrible. You know, there's no other way around it.
Yvonne: Yeah, it's hard.
Scott: Oh, my gosh, yes.
Yvonne: All right.
Scott: All right. Bless you, Yvonne.
Yvonne: I appreciate your advice. Thank you.
Pat: Thanks.
Scott: All right, yeah. Yeah.
Pat: How many times have you...? I've seen this so many times. It's just awful.
Scott: Well, it's so rare that, like, a couple dies within a couple of days of each other.
Pat: Yes.
Scott: You hear those stories and...
Pat: You're like, "Okay."
Scott: I had a friend of mine passed away. He's 85. He was in great health. And my wife called me, shocked, "Bryce had passed away." And he was 85. I said, "What happened?" He loved the Sierras, the High Sierras. Loved them. Hiked up. He was with his sons on a camping backpacking trip. They were fishing, and he went for a walk around the side of the lake and died out. And I said to my wife...
Pat: Well, how great is that?
Scott: I said, "What a way to go." She's like, "What?" I'm like, "What a way to go." No one gets out of here alive. You look at that versus what poor Yvonne's husband is going through.
Pat: Yes.
Scott: And not just the impact that he's...I mean, he doesn't even know where he is anymore. But the whole family and the friends and everyone that they have, it's tremendous stress for everybody.
Pat: Yes. Yeah, it's an issue.
Scott: And 20 years ago, 30 years ago, a lot of people were buying long-term care insurance to deal with these things. The marketplace is such that it's almost cost-prohibitive.
Pat: Yes.
Scott: I mean, if you have enough money to pay for the long-term care insurance, you probably don't need...
Pat: You probably have enough to insure it. Yes, you have enough that you can self-insure.
Scott: By the way, we're about to finish up here. But let's pivot to a different topic really, really quick.
Pat: Okay.
Scott: Insurance.
Pat: I love talking about insurance.
Scott: Fire insurance.
Pat: Unbelievable. I just told my wife three days ago, expect a 50+% increase in our cost of fire insurance.
Scott: My insurance premium is up triple from where it was 10 years ago.
Pat: Okay.
Scott: Triple from 10 years ago. But the interesting thing, I mean, I just read a paper at the California market, everything's so highly regulated. And State Farm says, "We need to increase our premiums X amount." And the insurance commissioner said, "No, you can't."
Pat: There you go. Well, they were one of the few that actually stayed in the marketplace. They were one of the few that stayed in the marketplace because they poorly underwrote this. And they're my insurer, by the way.
Scott: State Farm?
Pat: Yes.
Scott: You haven't been canceled yet.
Pat: No.
Scott: I got a notice of nonrenewal a couple of years ago.
Pat: From State Farm?
Scott: No, different.
Pat: Yeah, I expect it any day now. And then I get to go to a state plan.
Scott: The FAIR plan.
Pat: I don't know.
Scott: That's what they call it, the FAIR plan.
Pat: Okay.
Scott: It's one of those areas that I look at it and I say, if the government just got out of the business of trying to regulate it, like, there's certain ground rules. You can't defraud anybody. Let the market decide what the price is. Let companies compete. They can run risk scenarios and set a premium, and another company can come along and say, "This shouldn't be 15 grand a year. I think we can underwrite it for 12 grand."
Pat: Or maybe we get these people to harden their houses against a wildfire. And, Scott, I'm in the middle of...my pool man is actually converting. I have a built-in pool. He's putting a fire hose on it, and there's a valve that we could switch, and there's the fire hose.
Scott: And you have a generator?
Pat: And I have a generator.
Scott: And pal will be there at the last minutes. Well, if you look at the Palisades, properties were saved.
Pat: That's right.
Scott: Caruso saved his entire strip mall.
Pat: Yes. I'm in the process of replacing all the bark around my house. I had the tree trimmers come out. They're taking everything six feet away from the house. I'm in the middle of it.
Scott: What about plants right next to the house?
Pat: I talked to the guys about that. As long as the bark is...we're putting a rock around everything. They said if the plants are green and healthy, we should be okay. But I've cut those two feet away from the home. I'm in the middle of it.
Scott: Well, because you know you're going to...
Pat: Oh, it's going to happen. At some point in time, the insurance companies are going to come out, look at my house where I live, and just say, you know, "Okay, you can do this to be insured."
Scott: You do a lot of oak trees around your house.
Pat: I do have a lot. But oaks aren't the problem. It's the underbrush.
Scott: Yeah, apparently.
Pat: Yeah.
Scott: Anyway, I don't know why we've got on that topic. Just talking about insurance.
Pat: Because I've been thinking about it.
Scott: Oh, I have, too. Yes. I told my wife a couple of...and I don't know if there's a bill that passed in California, new homes now, at least in the county where we reside, you can't have any vegetation within five feet of the house. So landscapes are designed so there's nothing... I told my wife the other day, I said, "I think we're probably going to have to get rid of all of our plants that are within five feet of our house."
Pat: So let me...I'll tell you a story.
Scott: And she's like, "What?"
Pat: So I'll tell you a story. So in Sacramento, there's this company called Sierra Pacific, and they installed my solar hot water for my pool, right?
Scott: Look at you. First of all, Pat's got a built-in pool.
Pat: Well, it's not above ground.
Scott: It's a built-in pool. Now, he's showing off. And he's got solar heating for the pool.
Pat: Like one out of three people in California. So they sell generators, too. And they sell this, and they're a plumbing company. So I was trying to find a company for hardening. So I'm Googling fire escape, and it's all about clearing the landscape. None that could put sprinklers on the house, right? So if you look at the Palisades fire and you look at the ones that were saved...
Scott: They had water.
Pat: They had water. And they were mostly off the swimming pools. So I called the company, Sierra Pacific. This was two weeks ago.
Scott: It was a lack of water, for the most part. Granted, there was a high windstorm, some homes would have burned regardless. But the vast majority, if there was enough water there, they would have been saved. And people, you can see by the houses where people stayed, it had the pool pumps.
Pat: Yes. So I'm trying to find a company that will harden because I've got a swimming pool. I've already got a backup generator. It just needs connection. So I called this Sierra Pacific, and I said, they had some guy answer, and I said, "Do you do this?" And he said, "No, I don't even know what you're talking about." I said, "These are the components you need to harden a home in Sacramento. You might want to talk to someone in your company and see if this is something you should do." The owner of the company called me back in four hours and said...and this is a fairly decent-sized company.
Scott: It's a big company.
Pat: He said to me, "Tell me what you're thinking." And I said, "Look, if you look at the Palisades fire..."
Scott: If you're remotely involved in that industry, you could make a killing in the next few years in Sacramento. Are you kidding me?
Pat: I said to him...
Scott: This is an opportunity. Massive. Not just the next...in perpetuity.
Pat: That's what I said. I said, "Look, in the foothills of..."
Scott: Things are changing.
Pat: In the foothills of California, we live in the first foothill of the Sierra Nevadas, right? And 100 years ago, there were fires that would come here every 3 or 4 years, and they would just burn all the underbrush. But that doesn't happen anymore.
Scott: In Southern California, I read this interesting...they said that most fires, forest fires, started, and brush fires, by lightning. They have so few lightning storms in Southern California. They said it might be 100 years before there was a fire, and the brush would get so thick, it'd be like a nuclear bomb went off. And when the Native Americans arrived, the Indians arrived, they would burn it. It took care of the problem. And then when, I guess, the white men came and slaughtered all the natives or sent them away, then they said, "We got no more forest fires," and then created the problem again.
Pat: Yeah. Watch the movie "The Big Burn" or read the book. It talks about the forest fires. But anyway, so this guy calls me back, and we spend an hour on the phone or so talking. And I said, "Look, you know, these are, I think, all the components." And then he said, "Well, you're going to need an actuator here and an actuator there."
Scott: What's an actuator?
Pat: To change the valve from the solar, going through the solar, to the sprinklers on the roof. I'm like, "You're talking about something I know nothing about. All I know is that I think you need a generator to generate electricity, you need pumps, you need a water source, and you need a place to stay." And he said to me, "I'm going to call you back in a week or so." He said, "I'm going to bring it to my team." And he said, "And they're going to say, 'Oh, not another crazy idea from this old man.'"
Scott: Oh, good for him.
Pat: Yeah, I thought it was interesting.
Scott: Anyway, we're out of time. It's been fun chatting with you. We'll see you again next week. This has been Scott Hanson and Pat McClain of "Money Matters," presented by Allworth here.
Pat: If you like the show, please rate and follow so that it comes into your feed on a weekly basis.
Man: 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.