Four Hidden Forces That Shape Every Money Decision, Plus Estate & Investment Mistakes Heard at the Dinner Table
Ever wonder why even the smartest financial plans sometimes fail in real life? On this week’s Best of Simply Money podcast, Bob and Brian unpack the four invisible forces—emotional, social, generational, and logical—that quietly drive every financial decision you make. From keeping up with friends at dinner parties to the money scripts you inherited from your parents, they’ll reveal how these hidden influences can sabotage your best-laid plans—and how to get back in control.
Bob and Brian also dive into common estate, investment, tax, and insurance mistakes high-net-worth families. Plus, what divorcing couples often overlook financially, and how to avoid being one of them.
Download and rate our podcast here.
Bob: Tonight, four hidden forces that shape every financial decision. You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James.
All right, you've done the modeling, the plan checks out, the spreadsheets say you can retire early, make that gift, or finally buy that vacation home. And yet, you pause, you hesitate, you freeze. This isn't because you're bad with money, it's because financial decisions aren't made in a vacuum. Let's explore four hidden forces that often guide high stakes, high-dollar financial decisions, especially for those with significant wealth, and how to bring some of these decisions into alignment. Brian, let's get into these four major...let's just call it what it is, it's emotions.
Brian: Yeah, these are obstacles, Bob. So, the first one, first big one here is emotional, right? The gut reaction. So, anytime we talk about money, you really can't do that without some kind of emotion setting in somewhere usually between fear and greed. And this happens even for people who really manage these things well, we're all human beings. If somebody has a lot of money, then often, we get really wound up about the fear of loss. This is the kind of thing when our clients will tell us that, you know, call us and say, "I really can't afford to lose any of this at all. I can't handle a market downturn, and so therefore, I want to protect, protect, protect." And that's fine, except what that brings into is the risk of inflation over time. "Will a market downturn fall apart? Will I live longer than expected? What happens if I give a generous gift today that I really want to do and that screws up my future independence? How do I know when I'm going to be okay?"
And sometimes it's not fear, but the emotion is guilt. So, some investors struggle with just that idea of, "I have way too much. I'm too fortunate. Others have too little." And that causes them to freeze and not really make any decisions at all because they simply can't get over the notion that they've been too blessed and others are suffering out there. And sometimes there's anxiety about whether they've earned it or it was given it to them. And how will those choices be perceived by family? All of this stuff, Bob, gets in the way of good, intelligent decision making that we all have to do at some point.
Bob: Yeah, I see this come into play, you know, this fear part, you know, when folks first retire. And I think what happens is, when people are building their wealth, they're at work every day. They're working very hard, focused on a business or a high-end executive or what have you. They're buried in their work for 8 to 12, sometimes 14, 16 hours a day working at their job. They don't have time to look at the markets, and they don't have the emotional capacity to worry about the markets. Yet when all that stops, and all they have left to do is think about and worry about their pile of money, even a 2% to 3% pullback in the market, you know, translated into dollars and cents, which could be big at times, that really freaks people out. And that's something that we got to talk with folks about, especially in those early stages of retirement.
Brian: Yeah, I think of an example there that I'm sure you'll relate to, too. But for our Procter & Gamble friends out there, everybody remembers the Dirk Jager years, 20-some years ago. And we always talk about how the market, basically, did not like the CEO that was put in place and his plan. And it took about half the value of the company away in approximately six weeks. That does happen to Procter & Gamble as wonderful as it is. It's a stock like any other. But I always tell people, remember, you remember that, but at the time, it wasn't a big deal because you were working, you were raising kids, you were building your career. It wasn't that scary. And you knew, "Hey, I got a long time frame ahead of me. It'll recover. It'll move on. Always has." And that's still pretty much been the case. However, the next time that kind of thing happens to any stock out there that you might own, you'll be paying a lot more attention to it because you've got the time, and it's going to hurt a little more. So, let's move on here to the social side of things, Bob, that keeping up with the Joneses.
Bob: Yeah, the quiet pressure to keep up. Brian, here's what I think about this one. I think in some way, shape, or form, we all start to make decisions based on the people we surround ourselves with. That becomes our normal. And I can remember just my college days, and this is a good thing, being in the business school at Miami and being in a fraternity, the people that I spent four years with and processed life with and kind of set some initial career goals with, you know, you all kind of get in alignment and you get a sense of what's normal. And I think sometimes that translates later in life. You start to look at, "Well, how's this guy doing? How's that guy doing? Does he have two homes?" Or, "What kind of car does he drive?" Or, "What kind of vacations do they take?" And the quiet social pressure can creep in like, "Well, hey, I work really hard, too. I deserve to have this. I deserve to have that." And it can lead to making decisions based on that quiet pressure or that social pressure, rather than making decisions based on deeply-held values that you have.
Brian: Yeah, FOMO is a nasty thing, fear of missing out. And we all tend to focus on, you know, those questions that you just ask. What are the visible things that I can see about this person? Whether I know, maybe I don't even know them, but maybe I'm just vaguely aware of their existence or whatever. It's just something to compare myself against. So, I think one way to deal with that is, whenever you find yourself going down that path, always ask yourself, "I wonder what the conversations at their dinner table is like. Is everything going okay in that household? Is it not?" And it may very well be. But my point is, somebody made it makes a sacrifice somewhere. We all cannot have it all except in extremely rare, rare cases. But in a lot of cases where somebody appears to be very, very successful in the outside, that comes with a massive, massive investment of time.
So, I can think of clients that I know who have very successful businesses, and they rarely make it to their kids baseball games. And, you know, the family just isn't quite as tight. Versus other people who wish they had a little bit more, but sure enough, they're the ones out there, you know, coaching the little league games and just being more involved in their families. Both of them, they're both just different lifestyle choices. Nothing right or wrong with either one of them. But neither one of those examples in what I gave there is truly happy. They all feel like they're missing something. So, just make sure, if you feel like you're missing out on something, that you understand what that other person has sacrificed to get where they are, because it may be something that you've taken for granted. How about generational issues? You inherited some kind of mindset, didn't you?
Bob: Yeah, I think this is a big one, Brian. I mean, we all have parents, we all grow up in families. And then the challenging part is, for those of us that get married, all of a sudden, now you inherit a spouse and their upbringing and their values and the way their families handled money, and that can just become a big conundrum of values, you know, how families operate. So, you know, one way of thinking is you can never have enough. Folks that are coming from a holdover mindset, from the Depression, where scarcity was the thing, just getting by, you can never have enough. And those kind of people tend to be afraid to spend any money whatsoever. Other families never talked about money at all, ever, ever, ever. And the lack of being willing to have conversations about money with your kids and grandkids and spouses and other family members, that can shut down important planning conversations that really need to happen.
And then a third one that we run into from time to time, Brian, is that unspoken quote that we help family no matter what. Meaning if anybody needs anything at any time, we must, must, must pull the checkbook out and write a check for that. And sometimes that is warranted and sometimes it isn't, because it can enable unhealthy behavior and some habits that need to change, quite frankly, for family members.
Brian: Yeah. And it's not only changing how we think about supporting people too much, it can also be supporting yourself not enough. So, a few bullets ago, you mentioned that, can never have enough, depression era thinking. I'll never forget this story from my youth. So, I used to work in Northgate Park Retirement home over in Colerain Township, and I worked in the kitchen. I was a waiter. And one of us always had to be on duty to guard the salad bar, because these folks who grew up in the depression would go get their salad, they'd sit down, eat a little bit of it, and by God, you weren't going to throw any of that away, right, if you didn't want it. They weren't by their refrigerator. So, they would go back to the salad bar and put the lettuce back in the lettuce thing and the cottage cheese back in the cottage cheese thing. If that happened, the health department, of course, would require that we break down the whole salad bar. So, one of us had to play goalie at the salad bar to make sure it didn't happen. And God forbid, if they got away with it, the whole place would erupt watching us throw all this food away. But that's the rules we had to follow.
That mindset is good in terms of not overspending, but it can also work extremely against you in terms of always worrying that the world is going to end, and I have to be paranoid. I got to always be looking over my shoulder. That causes family conflicts, too. So, know what you can get away with. And that's what financial planning does.
Bob: Well, and I'll share mine. I mean, I can remember being sat down at the dinner table at the age of 9 and my parents said, "Hey, Bobby, the allowance is over. You want money, you want to buy a candy bar, you want to go to a movie or whatever, you need to go get a job." And this is at age 9. So, I mean, I went out and got two paper routes, and it was just a mindset drilled into me, the only person that's going to take care of you is you. And, you know, it led to a great work ethic, obviously, and all that. But there are some things that are not so good that come from that as well. So, it's very interesting how those early experiences kind of hardwire our brain and cause us to make financial decisions.
Brian: Bob, my paper out was on Jessup Road. There were four candy stores. I didn't make a dime, but I worked a lot.
Bob: All right, well, let's get into the fourth hidden one here. And that's just the logical, the analysis paralysis. I know you're really good at this, the spreadsheets, the projections, the tax model. They're all crucial, but they can often just confirm rather than drive decisions because, let's face it, at the end of the day, people want to make decisions based on emotion. And we have this happen often, Brian. People come in, and I can tell, they've already made the decision. They already know what they're going to do. They want me to run the numbers to rationalize how this is all going to work out in the spreadsheet, say, "See, honey, Bob told us we can do this." And whether I told them they can or can't, they're already going to do it. Do you have any meetings like that?
Brian: Oh, yeah. And for whatever reason, this comes up with people who are going to help their kids, you know, come hell or high water, that's the first thing that they're going to do. And there's, of course, nothing wrong with that. That's just the reality today that that needs to happen a little more than it used to. But a lot of times people will come in with one goal, "This is going to happen no matter what, and it will dictate all the other things, but here is my number one priority." And that's perfectly fine. I mean, at least, it's happening in the guise of a planning conversation where they're, at least, asking, "Is this going to work or is it going to totally sink our ship?" And that's our job, so I don't mind that at all. And we enjoy it. That's kind of how we put the puzzle pieces together, you know. So, it doesn't mean that it's a bad idea at all. But, again, it does mean, step back and look at all the trees. Don't stare at one of them.
Bob: Yeah. So, there's just a few questions we'll run through here quickly, you know, in terms of aligning your forces before you make a decision, a large dollar decision. Number one, what am I feeling? Is this decision rooted in fear, excitement, anxiety, or relief? Get your arms around what you're feeling. Number two, who might I be trying to impress or match by making this decision? Three, what...?
Brian: You know what? I'll add one there, and does this person think about me at all in turn?
Bob: Exactly. Because the answer is usually, no. Three, what money stories did I inherit that's driving this decision? Four, what did the numbers actually say? Does the plan actually work? Five, have I discuss this with an objective third party. Oftentimes, an objective third party, whether it's us, other family members, or trusted friends, that can be worth its weight in gold, getting a non-emotional, second or third opinion. Six, does this decision align with my broader goals and values? And then seven, am I rushing, or am I giving this the time and the thought that it deserves? Big decisions benefit from a brief pause and deeper reflection. Here's the Allworth advice, the most effective plans are built not just on spreadsheets, but on self-awareness, meaningful conversations, and a clear understanding of what matters most to you.
Coming up next, what to learn from financial mistakes that successful investors admit behind closed doors. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you can't listen to "Simply Money" every night, subscribe to get our daily podcast. You can listen the following morning during your commute or at the gym. Just search "Simply Money" on the iHeart app or wherever you find your podcast.
Straight ahead at 6:43, we're going to tackle the real life questions and decision making that you're facing in your real life, the questions that you've submitted to us in today's Ask the Advisor segment. Have you ever sat around the dinner table with friends, people like you, successful people who built something, professionals, entrepreneurs, maybe a partner in your firm? And after that second or third drink, the conversation shifts. An opinion on the markets, a quick comment about real estate prices, or maybe that new advisor or attorney someone just hired. Then come the financial confessions. Brian, let's get into some of these that often come up and it's just signals, maybe we need to dust off our financial plan and get some things updated.
Brian: Yeah, I think these are great opportunities if you find yourself in a situation where that, what the blank, question comes up from somebody else, jot it down because it's probably going to affect you at some point at some point, too. So, one big one that happens all the time is somebody has an estate plan that was put together when the kids were in diapers, and now, their kids have kids in diapers. So, "We did our estate plan way back in the kids a little. I think it's fine, right? Should be fine, right? Nothing changes." Well, of course, things change. You have documents, which is better. That means it's not the state that's going to dictate what happens to your kids and your assets after you're gone. But that structure, you know, usually doesn't reflect the family's reality anymore or the stuff you own. Your balance sheet probably has changed. Tax laws for sure have changed and always will. And probably your priorities have changed.
You may be thinking, you know, maybe you only worried about, "I want to get my stuff to my kids." Well, maybe now, you've more recently had a thought of, "I will let this charity, this group. I want to support somebody else." That's fine. You got to get it on paper or it doesn't really matter. So, make sure that you're thinking about all these kinds of things. And there are structures out there. There's grant or retained annuity trust, spousal lifetime access trust. There are a lot of more complicated things that may not have been appropriate or applicable when you were first discussing this, but might now. This is where lawyers bring a lot of value in terms of putting structures in place that can accomplish the things that you want. Now, how about this one, Bob? What about too much in one basket?
Bob: Yeah, yeah, you'll hear people sit around and say, "Well, I've always done really, really well with real estate. That's where most of my net worth is. And I guess I never thought about risk," or, you know, what have you, you know. Or too much money in one single company or maybe a business. And let's face it, most people that build some real wealth do it because they've worked extremely hard. They've taken some risk and they like control, Brian. They like to control the outcome and they have the ability and the resources and the intellect to control the outcome.
What I see happen is when people get older and they start to think about retirement, they might be able to still be engaged, but they don't want to have that much control. They want to be able to do some other things with their time and energy. And that's a good time to sit down and take a look at the whole package here and say, "What are some things that we can do to diversify a little bit and still have my fingers in it, but maybe not be have this whole world, the whole orbit focused on what I get done every day." Because that that wears people out when they get into their late 50s or 60s.
Brian: Yeah, another topic I think comes up all the time every year, of course, it comes up every year on account is taxes. So, a lot of people tend to only think of taxes as a thing I worry about in the first quarter. And I really worry about it in April. And then I forget about it until the next year. That's not really the case. And I think some of this comes from the people that we use for tax prep. Tax prep firms are extremely busy. They get more and more work every year. I swear, when we partner with a local firm and we make referrals to them, eventually it almost feels like sometimes we shut them down because we give them too much business. But so, I kind of understand.
But the point of all this is to say that tax planning is very different from tax prep. Tax planning means, how do I think about what I should be doing two, three, four or five years from now? Maybe should I be doing Roth conversion? Should I plan on doing those over time? But my tax preparer can really only focus on getting my tax return done by the tax deadline because he or she has a bunch more to do right behind mine, so the time doesn't get put in there, and we don't come back after that tax return is filed. This could be a summer or early fall thing maybe to kind of have that discussion. Tax preparers like to do tax planning in the summer. But anyway, the point is do it.
Also, another concern, Bob, I'm going to ask you about this here. So, what about somebody who says, "Well, we've been fortunate. We've got plenty of money. That's enough to fund retirement. So, we really haven't put any much else thought into things." What do you think? Is that a good idea?
Bob: Well, that having plenty of money, thinking about just the total dollar value of the pile, and using a simple formula like, "Well, if I take 4% out of this pile, I'm going to have enough, so I'm good. I'm ready to go. I'm not going to think about it anymore." And it goes back to your last point. There is a huge difference between tax preparation and tax planning. And there are so many strategies out there. You know, the saying holds, it's not what you make, it's what you keep.
And there are so many opportunities out there to craft an actual income strategy that's very tax efficient. You know, think about things like Roth conversions, how to handle your required minimum distributions, where to take your monthly income from. There's a lot of things you can factor in that really put dollars back in your pocket and your family's pocket rather than the IRS's pocket. And then the fifth one we want to touch on, Brian, is insurance planning, that policy, that insurance policy that might be sitting in the dress drawer that hasn't been looked at for 20, 30, 40 years.
Brian: Yeah. So, there's a lot of cases where we bought a life insurance policy because the kids are little. We need to make sure they have what they need. But then all of a sudden, we realize, "You know what? We've kind of made it. They're up on their own. They don't really need the death benefit anymore." And then we just ignore the policy. There are other things you can do. You might be able to pivot that to cover long-term care, for example. So, look into other opportunities. Don't let it die on the vine.
Bob: Here's the Allworth advice. So, if you've ever left a dinner party thinking, "Maybe it's time we looked at that." You've just uncovered the moment many people miss. That's where real planning can start. Next, the costly mistakes divorcing couples often make and how you could protect your long-term wealth, especially if you built a healthy nest egg. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Divorce obviously is a legal proceeding, but it's a highly emotional process as we all know. But it's also, at its core, a massive financial transaction. And for couples that have established a healthy nest egg, the stakes can be very, very high. Brian, we're going to get into some of the mistakes that people don't often, or sometimes don't think about in the midst of this high-stake, highly emotional process. Mistake number one, not understanding the full financial picture.
Brian: Yeah, so I'm actually taking a client through this right now. So, I'm going to jump on you.
Bob: So am I.
Brian: And, yeah, okay, well, then I'll be sure to leave you some time, too. But so, even the happiest married couples don't often sit down and have the same, clear picture, because it's usually one spouse takes over the finances and provides an update. And then that usually morphs into the other spouse never knows anything that's going on. That's even the happiest couple in that situation. Somebody who has gotten divorced probably hasn't been talking about anything in a long time, or somebody who's on the path to divorce rather, hasn't been talking to each other for a long time. So, when you actually get to the point where you're doing the discovery of assets and all that, one spouse usually just has no idea. So, make sure you know how and where to look for things. Get used to the idea of pulling that tax return from a couple years ago. Look for 5498 off of IRAs. These are the things that show up in your mailbox that will confirm the existence of an account. What have you seen out there, Bob?
Bob: Well, the main thing, in the situation I'm dealing with, I'm acting kind of as the forensic accountant here. I know what questions to ask, and therefore, I'm asking them of the attorney. And in this case, the attorney, she is going out and getting this information. So, oftentimes, for that spouse that is not financially involved and has no clue what's going on, it's knowing the questions to ask.
Mistake number two, keeping the house for emotional reasons. Brian, this has reared its head in a big way for this situation I'm dealing with. One spouse just left. The other spouse is home with three kids. Two of them are out of high school and they're in college. There's one still in high school. And this is where all the family memories are. And the one spouse still living in the home deeply wants to stay there. There's huge emotional ties. Wants that son to finish high school at their current high school.
But when you start to look at the bills, the mortgage, the property taxes, the insurance, the upkeep, the maintenance, the numbers just don't just add up. It's just not going to work. And so, the sad news here is, eventually, this house is going to have to be sold and the equity is going to have to be divided up. You just got to pick. With all the other stuff going on here, you got to help guide people on when the right time to pull the trigger on this is, and it can be very difficult.
Brian: Yeah, one of the thought I throw out there, if you're going to do it, do something with the house. One of the factors that probably needs to play a role is making sure, or being aware that if they've been in that house that long, that interest rate, if there is a mortgage, is probably really low, and they're not going to get that treatment again. So, that will offset some of the negative numbers. All the outcomes are a little bit scary, but that can be something that comes up as well.
So, taxes, right? So, overlooking tax implications, meaning a $500,000 IRA or Roth IRA is not the same as a $500,000 brokerage, regular taxable account. One is tax sheltered. The other is post tax completely, meaning it receives a 1099, gets taxed every single year. Both of these have pros and cons. There isn't one better than the other, but they have different impacts. So, a lot of times clients will say, "You know, we're going to split things 50/50 in this account. This IRA is roughly this size, so I'll take that. And this taxable account is roughly the same size, so you can have that." Only to realize that they've, basically, not spread the tax treatment out. Maybe the dollars are spread equally, but not the tax treatment. A $500,000 IRA is more like a $350,000, $400,000 assets once you take taxes into account,
Bob: You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Let's move into mistake number four. And Brian, unfortunately, we see this way too often, failing to update estate planning documents and beneficiaries on retirement accounts. After that divorce is done, your ex could still inherit everything, you know. Because let's face it, most of the times the spouse is named as 100% primary beneficiary, and then the kids are contingent beneficiaries. If you've named them, you've got to get that stuff fixed. Otherwise, this spouse that you no longer are going to be married to could unintentionally inherit everything. And what a mess that would be. So, you've got to make sure you update those beneficiary forms and estate planning documents where appropriate.
Brian: Yeah, we log into people's 401(k)s, we're in that situation, and we look at that, and then the new spouse will be sitting there looking at the ex-spouse's name on the screen as the beneficiary. The eyeballs get real big when that happens. Quick fix, though. So, one last one here. Ignoring the long term impact on your retirement. So, divorce will really cut that nest egg in half, right? There's lots of jokes about that, but obviously, serious situations. If you're in your 50s or 60s, there's really not a lot of time to rebuild that. So, make sure, if this is a step you have got to take, and there's more to this than money for sure, but don't underestimate the impact your assets that's going to have, and then therefore, your retirement viability.
Bob: Here's the Allworth advice. When love ends, your financial life does not have to completely unravel. Slow down, get good advice, and be sure to protect your future self. What's on your mind when it comes to investing retirement or passing wealth to the next generation? We're going to dive into your questions in our Ask the Advisor segment coming up next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Do you have a financial question you'd like for us to answer? There's a red button you can click while you're listening to the show right there on the iHeart app. Simply, record your question and it will come straight to us. All right, Mark from West Palm Beach, Florida leads us off tonight and he says, Brian, I'm a Cincinnatian now living in Florida. He loves listening to the show, but can you please explain what a wash sale is, and when it makes sense to do one?
Brian: God bless the internet. That is so cool, that people all over the world really now can hear the show, which is great. Anyway, yeah, so a wash sale, wash sale,, basically means that you sold an asset and you took a loss on it, and then you buy it back right away. So, the reason this might come up is because somebody might want to do what's called a loss harvest. Meaning, maybe you bought a stock, you know, maybe you put $10,000 into it. It is now worth $8,000. And if you don't know this, you can actually take a deductible loss off of that if you sold it at $8,000. So, when people get wind of this, sometimes what they'll do is they'll say, "Well, I still want to own the stock, but I want to take that tax benefit. So, I'm going to sell it today on Tuesday, and then I'll buy it back on Wednesday." That's a wash sale because you were not out of the position for longer than 30 days. The IRS will disallow that that deduction. So, if you're going to do that, you need to stay out of the stock for 30 days, then you can buy it back in.
There isn't really when it makes sense to do one, really, I'd say, as part of an overall tax loss harvesting plan. And if you're absolutely in love with the stock and you just don't want to be out of it for any moment in time because it could go any day now and that's why you bought it, well, hopefully, that's not a big party portfolio anyway, then you might not want to do a wash sale because, again, you got to stay out of that 30 days, and it doesn't it makes no sense to do that within the 30 day plan.
So, let's move on to a Jack and Madeira. Jack was wondering about annuities in his portfolio. Do I need annuities if I already have a big pile of money? What do you think of that, Bob?
Bob: Well, Jack, in general, I look at annuities. You know, they basically do two things, two reasons to own one. One, is people like it in non-qualified accounts for tax deferred growth. That's one reason to own them. The other is, when you want some guaranteed income out of a piece of your portfolio. I think with how this industry has evolved over the years with tax loss harvesting and other tax strategies in taxable non-qualified accounts, most of the time, my opinion is, these annuities can cause more harm than good. Because once you started to grow money in an annuity, when you pull it out, it is all taxed at ordinary income rates, and that stinks. So, there's usually always a better way to skin the cat from a tax standpoint other than annuities. In terms of...
Brian: Yeah, hey, Bob...
Bob: Yeah, please.
Brian: If I could share one thought.
Bob: Do it.
Brian: So, you're right. But people do look at annuities and they realize that, "Hey, this is a way. It's not an IRA." You know, maybe I've got a pile of money I inherited or I sold a business or some asset or something, and I want to tax defer so I can stick it in my IRA, right? Well, no, of course, not, that you can only put a very limited amount every year. You can't do a couple hundred thousand. So, the next thing people discover is, I can use an annuity and invest in things that look like stock market-type growth. And it's all tax sheltered. And that is kind of true. But what you've done in that case, as Bob just mentioned, you have changed relatively-favorable capital gains taxation to ordinary income taxation on the on the back end. Ordinary income taxation is marginal. The more you have, the more you make, the more you pay in taxes. And that can just really set up a negative situation years down the road when it's far too late to do anything about it. Annuities are wonderful during life. They're terrible to die with. If your kids inherit it, they're really going to be unhappy when they hear how much of a chunk the IRA is going to take.
Bob: Yeah, because you don't get that stepped up cost basis at death. You limit your charitable giving opportunities. You can probably tell I'm not a big fan. All right, let's move on here. Betsy and Indian Hill. Is there a point where I should stop trying to grow my portfolio and just protect it?
Brian: Yeah, I think a great question, Betsy. There's a lot of people get to this point where they realize, "You know what? I've grown. I've worked my rear end off. I have a big pile of money and I'm pretty stable. Should I just not have to worry anymore?" I always tell people that that is a personal decision. First of all, this assumes that you sat down with a fiduciary adviser and done a full financial plan, which is to say, "Here are my resources. Here's what I'm trying to do with it. And then here's what comes out the back end." Then you need to stress test it if there is risk, you know, because you have some kind of unexpected major expense or poor investment results, something like that. If all of that looks good, then you're looking at a decision of, "Okay, I'm on one end of the spectrum. I don't have to take any risk. Maybe I shouldn't." And I think this is what Betsy is thinking. I could park all this stuff in super safe investments. I know I've got enough to make it. And therefore, I wouldn't have to read the headlines anymore.
The flip side of that is, and I've seen people do this, eventually, you'll conclude that, "My, gosh, most of this money is going to sit here for the remaining 30 years of my life. Am I taking it out of my kids mouths if I don't allow it to grow since I'm not going to need it?" So, that's where people usually land somewhere in the middle. I don't need the go, go growth that I needed when I was 20 and 30 years old just trying to get the thing off the ground. But at the same time, it's a lost opportunity if I lock it all down and make it perfectly secure. So, very personal decision. Your thought there is reasonable. But at the same time, there's a flip side.
Let's move on to Charles and Deerfield Township, who desperately wants to know Bob's opinion on diversification. Bob says... Or Charles says, "I'm already diversified with stocks and bonds. When does private credit actually make sense to kind of complement a portfolio?"
Bob: Well, I'd say Charles, I mean, private credit, private equity, those are sexy terms. It makes us all feel like we're cutting edge and we're out there doing something exotic that other people don't know about or don't have access to. And sometimes that's true. But look, private credit, you're basically loaning money to companies that want to go to the private credit markets, in most cases, because they can't get loans from traditional banks because the things that they're borrowing money for and to do come with higher risk, higher interest rates, higher yield for the investors. So, that's the reason why as an investor, you like to get involved with private credit, you could potentially earn a higher yield or higher return on your money. But you've got to understand, that comes with more credit risk and more risk of default. So, I'd say, if you're going to venture into that space, make sure that you're in a diversified, well-managed portfolio, with some professionals that know how to do the actual credit evaluation to make sure you're not putting all your eggs in one basket here to chase yield and really get burned in the process. That'd be my answer.
All right. Let's end here with Bill and Fort Thomas. Brian, Bill asks, "What's the number one mistake you see people with a few million dollars making today?"
Brian: You know, when I saw Bill's question, my first reaction was, well, you know, obviously, it's taking your eye off the ball, just kind of checking the box and, you know, going, "I got enough and I don't have to think anymore." That does happen. But sometimes, especially in a case like this, it can be keeping your eye on the ball too much. And what I mean by that is, and I'm thinking of a client who also lives in Fort Thomas who did this to themselves, tagging some number out there. Let's say you're worth $1.8 million, and it's got to get to $2 million before you retire. And I had a client that had some health problems and lots of things going on. But by God, he was going to get to that $2 million before he pulled the trigger and retired. He wound up listening to me and his spouse, and finally, realized that, "It really doesn't matter, it's just a number, and I've got bigger things to worry about." So, don't take your eye off the ball, but don't have your eye on the ball too much either.
Bob: All right, next, I've got my two cents just to add to how we started the show tonight, how to make some of these key decisions where emotion and feelings come into play here. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. All right, I want to go back and revisit something, Brian, we talk about all the time. And that's all the factors, whether it's emotional, financial, family dynamics, all that that come into making major decisions. And I just want to share a story that I had the privilege of being a part of here with a family here recently. And, you know, this is a married couple in their mid-50s, and they're dealing with how to handle, in this case, the wife's mother, who really, they needed to move her down to Cincinnati. She needed to get into a long-term care situation and money is tight. Money is scarce. There's some emotional ties that are keeping her from wanting to move down to Cincinnati, but it needs to be done. This family didn't have a lot of extra money to throw at it. And the mother in this case was being a bit irrational.
And, I guess, it just comes down to, you know, you can run spreadsheets to your blue in the face. You can talk about all the emotional things. And at some point in time, you got to look at your family's values. And I don't want to get too inappropriate or off the rails here. But the nice thing in this case is, this family has a deeply-held Christian faith. I happen to be in the same boat. And we were able to talk about that. And my point in bringing this topic up is, you know, you can run these spreadsheets all day long, but you've got to look at the end of the day on what are your core values? What's your true north? What's guiding these decisions? And believe it or not, some people might not be aware of this, the Bible has more to say about money than any other topic. And we were able to talk about that as a family, as a team here, and actually spend some time praying about the situation, because we didn't have a lot of easy answers.
And I'm happy to report that I got a text from this client, I got a message about a week ago, because I had no idea how this whole situation was going to work out, and he said, "You know what, Bob, I just wanted to let you know that mom decided to come down and move five minutes from us in this exact nursing home that you mentioned we look at, looked at. She's happy about it. We're happy about it. Thanks for talking through this with us." And it was one of the best outcomes that I've had in a meeting so far in 2025. And it had nothing to do with buffered ETFs, loss harvesting, any of these techniques we talked about. It was just getting the family in a room and realigning decision making with what I knew was the family's deeply-held values, and then sometime, good, old prayer, asking God to intervene and give us a little guidance here ended up winning the day. And it was a good outcome.
Brian: Yeah, those are those outcomes and those moments where you go, "You know, I really am still a little mad that Major League Baseball did not recognize my talents at the age of 10. But I'm kind of glad for where I landed, and what we what we get to do in this job." But, yeah, you're right. A lot of people tend, we tend to hide behind the numbers. It's a lot easier to talk about the numbers than it is to talk about the emotional stuff and the making sure I'm on the same page with my loved ones. So, people will go down a lot of rabbit holes over money and dollar amounts and accounts and investments and all that kind of stuff. Meanwhile, there's somebody staring them straight in the face that has something else on their mind that they're not bringing up because we can't take our eyeballs off the money. That happens very, very frequently. So, I think the easiest thing to do is get it out of the way. The numbers are black and white. Here's some spreadsheets. Let's quit talking about spreadsheets and talk about what's really in your minds that you're not bringing up right now.
Bob: Yeah. And that's where trusted friends and families, and just running these things by people, whether it's a professional advisor or just trusted close friends, oftentimes, they can give you the answers that you know deep down are the answers in the course of action you need to take, something's just holding you back from pulling the trigger. And that's the value of having close family, close friends, close advisors to help you out here. And prayer comes in all the time, too.
Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
All right, you've done the modeling, the plan checks out, the spreadsheets say you can retire early, make that gift, or finally buy that vacation home. And yet, you pause, you hesitate, you freeze. This isn't because you're bad with money, it's because financial decisions aren't made in a vacuum. Let's explore four hidden forces that often guide high stakes, high-dollar financial decisions, especially for those with significant wealth, and how to bring some of these decisions into alignment. Brian, let's get into these four major...let's just call it what it is, it's emotions.
Brian: Yeah, these are obstacles, Bob. So, the first one, first big one here is emotional, right? The gut reaction. So, anytime we talk about money, you really can't do that without some kind of emotion setting in somewhere usually between fear and greed. And this happens even for people who really manage these things well, we're all human beings. If somebody has a lot of money, then often, we get really wound up about the fear of loss. This is the kind of thing when our clients will tell us that, you know, call us and say, "I really can't afford to lose any of this at all. I can't handle a market downturn, and so therefore, I want to protect, protect, protect." And that's fine, except what that brings into is the risk of inflation over time. "Will a market downturn fall apart? Will I live longer than expected? What happens if I give a generous gift today that I really want to do and that screws up my future independence? How do I know when I'm going to be okay?"
And sometimes it's not fear, but the emotion is guilt. So, some investors struggle with just that idea of, "I have way too much. I'm too fortunate. Others have too little." And that causes them to freeze and not really make any decisions at all because they simply can't get over the notion that they've been too blessed and others are suffering out there. And sometimes there's anxiety about whether they've earned it or it was given it to them. And how will those choices be perceived by family? All of this stuff, Bob, gets in the way of good, intelligent decision making that we all have to do at some point.
Bob: Yeah, I see this come into play, you know, this fear part, you know, when folks first retire. And I think what happens is, when people are building their wealth, they're at work every day. They're working very hard, focused on a business or a high-end executive or what have you. They're buried in their work for 8 to 12, sometimes 14, 16 hours a day working at their job. They don't have time to look at the markets, and they don't have the emotional capacity to worry about the markets. Yet when all that stops, and all they have left to do is think about and worry about their pile of money, even a 2% to 3% pullback in the market, you know, translated into dollars and cents, which could be big at times, that really freaks people out. And that's something that we got to talk with folks about, especially in those early stages of retirement.
Brian: Yeah, I think of an example there that I'm sure you'll relate to, too. But for our Procter & Gamble friends out there, everybody remembers the Dirk Jager years, 20-some years ago. And we always talk about how the market, basically, did not like the CEO that was put in place and his plan. And it took about half the value of the company away in approximately six weeks. That does happen to Procter & Gamble as wonderful as it is. It's a stock like any other. But I always tell people, remember, you remember that, but at the time, it wasn't a big deal because you were working, you were raising kids, you were building your career. It wasn't that scary. And you knew, "Hey, I got a long time frame ahead of me. It'll recover. It'll move on. Always has." And that's still pretty much been the case. However, the next time that kind of thing happens to any stock out there that you might own, you'll be paying a lot more attention to it because you've got the time, and it's going to hurt a little more. So, let's move on here to the social side of things, Bob, that keeping up with the Joneses.
Bob: Yeah, the quiet pressure to keep up. Brian, here's what I think about this one. I think in some way, shape, or form, we all start to make decisions based on the people we surround ourselves with. That becomes our normal. And I can remember just my college days, and this is a good thing, being in the business school at Miami and being in a fraternity, the people that I spent four years with and processed life with and kind of set some initial career goals with, you know, you all kind of get in alignment and you get a sense of what's normal. And I think sometimes that translates later in life. You start to look at, "Well, how's this guy doing? How's that guy doing? Does he have two homes?" Or, "What kind of car does he drive?" Or, "What kind of vacations do they take?" And the quiet social pressure can creep in like, "Well, hey, I work really hard, too. I deserve to have this. I deserve to have that." And it can lead to making decisions based on that quiet pressure or that social pressure, rather than making decisions based on deeply-held values that you have.
Brian: Yeah, FOMO is a nasty thing, fear of missing out. And we all tend to focus on, you know, those questions that you just ask. What are the visible things that I can see about this person? Whether I know, maybe I don't even know them, but maybe I'm just vaguely aware of their existence or whatever. It's just something to compare myself against. So, I think one way to deal with that is, whenever you find yourself going down that path, always ask yourself, "I wonder what the conversations at their dinner table is like. Is everything going okay in that household? Is it not?" And it may very well be. But my point is, somebody made it makes a sacrifice somewhere. We all cannot have it all except in extremely rare, rare cases. But in a lot of cases where somebody appears to be very, very successful in the outside, that comes with a massive, massive investment of time.
So, I can think of clients that I know who have very successful businesses, and they rarely make it to their kids baseball games. And, you know, the family just isn't quite as tight. Versus other people who wish they had a little bit more, but sure enough, they're the ones out there, you know, coaching the little league games and just being more involved in their families. Both of them, they're both just different lifestyle choices. Nothing right or wrong with either one of them. But neither one of those examples in what I gave there is truly happy. They all feel like they're missing something. So, just make sure, if you feel like you're missing out on something, that you understand what that other person has sacrificed to get where they are, because it may be something that you've taken for granted. How about generational issues? You inherited some kind of mindset, didn't you?
Bob: Yeah, I think this is a big one, Brian. I mean, we all have parents, we all grow up in families. And then the challenging part is, for those of us that get married, all of a sudden, now you inherit a spouse and their upbringing and their values and the way their families handled money, and that can just become a big conundrum of values, you know, how families operate. So, you know, one way of thinking is you can never have enough. Folks that are coming from a holdover mindset, from the Depression, where scarcity was the thing, just getting by, you can never have enough. And those kind of people tend to be afraid to spend any money whatsoever. Other families never talked about money at all, ever, ever, ever. And the lack of being willing to have conversations about money with your kids and grandkids and spouses and other family members, that can shut down important planning conversations that really need to happen.
And then a third one that we run into from time to time, Brian, is that unspoken quote that we help family no matter what. Meaning if anybody needs anything at any time, we must, must, must pull the checkbook out and write a check for that. And sometimes that is warranted and sometimes it isn't, because it can enable unhealthy behavior and some habits that need to change, quite frankly, for family members.
Brian: Yeah. And it's not only changing how we think about supporting people too much, it can also be supporting yourself not enough. So, a few bullets ago, you mentioned that, can never have enough, depression era thinking. I'll never forget this story from my youth. So, I used to work in Northgate Park Retirement home over in Colerain Township, and I worked in the kitchen. I was a waiter. And one of us always had to be on duty to guard the salad bar, because these folks who grew up in the depression would go get their salad, they'd sit down, eat a little bit of it, and by God, you weren't going to throw any of that away, right, if you didn't want it. They weren't by their refrigerator. So, they would go back to the salad bar and put the lettuce back in the lettuce thing and the cottage cheese back in the cottage cheese thing. If that happened, the health department, of course, would require that we break down the whole salad bar. So, one of us had to play goalie at the salad bar to make sure it didn't happen. And God forbid, if they got away with it, the whole place would erupt watching us throw all this food away. But that's the rules we had to follow.
That mindset is good in terms of not overspending, but it can also work extremely against you in terms of always worrying that the world is going to end, and I have to be paranoid. I got to always be looking over my shoulder. That causes family conflicts, too. So, know what you can get away with. And that's what financial planning does.
Bob: Well, and I'll share mine. I mean, I can remember being sat down at the dinner table at the age of 9 and my parents said, "Hey, Bobby, the allowance is over. You want money, you want to buy a candy bar, you want to go to a movie or whatever, you need to go get a job." And this is at age 9. So, I mean, I went out and got two paper routes, and it was just a mindset drilled into me, the only person that's going to take care of you is you. And, you know, it led to a great work ethic, obviously, and all that. But there are some things that are not so good that come from that as well. So, it's very interesting how those early experiences kind of hardwire our brain and cause us to make financial decisions.
Brian: Bob, my paper out was on Jessup Road. There were four candy stores. I didn't make a dime, but I worked a lot.
Bob: All right, well, let's get into the fourth hidden one here. And that's just the logical, the analysis paralysis. I know you're really good at this, the spreadsheets, the projections, the tax model. They're all crucial, but they can often just confirm rather than drive decisions because, let's face it, at the end of the day, people want to make decisions based on emotion. And we have this happen often, Brian. People come in, and I can tell, they've already made the decision. They already know what they're going to do. They want me to run the numbers to rationalize how this is all going to work out in the spreadsheet, say, "See, honey, Bob told us we can do this." And whether I told them they can or can't, they're already going to do it. Do you have any meetings like that?
Brian: Oh, yeah. And for whatever reason, this comes up with people who are going to help their kids, you know, come hell or high water, that's the first thing that they're going to do. And there's, of course, nothing wrong with that. That's just the reality today that that needs to happen a little more than it used to. But a lot of times people will come in with one goal, "This is going to happen no matter what, and it will dictate all the other things, but here is my number one priority." And that's perfectly fine. I mean, at least, it's happening in the guise of a planning conversation where they're, at least, asking, "Is this going to work or is it going to totally sink our ship?" And that's our job, so I don't mind that at all. And we enjoy it. That's kind of how we put the puzzle pieces together, you know. So, it doesn't mean that it's a bad idea at all. But, again, it does mean, step back and look at all the trees. Don't stare at one of them.
Bob: Yeah. So, there's just a few questions we'll run through here quickly, you know, in terms of aligning your forces before you make a decision, a large dollar decision. Number one, what am I feeling? Is this decision rooted in fear, excitement, anxiety, or relief? Get your arms around what you're feeling. Number two, who might I be trying to impress or match by making this decision? Three, what...?
Brian: You know what? I'll add one there, and does this person think about me at all in turn?
Bob: Exactly. Because the answer is usually, no. Three, what money stories did I inherit that's driving this decision? Four, what did the numbers actually say? Does the plan actually work? Five, have I discuss this with an objective third party. Oftentimes, an objective third party, whether it's us, other family members, or trusted friends, that can be worth its weight in gold, getting a non-emotional, second or third opinion. Six, does this decision align with my broader goals and values? And then seven, am I rushing, or am I giving this the time and the thought that it deserves? Big decisions benefit from a brief pause and deeper reflection. Here's the Allworth advice, the most effective plans are built not just on spreadsheets, but on self-awareness, meaningful conversations, and a clear understanding of what matters most to you.
Coming up next, what to learn from financial mistakes that successful investors admit behind closed doors. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to presented by Allworth Financial. I'm Bob Sponseller along with Brian James. If you can't listen to "Simply Money" every night, subscribe to get our daily podcast. You can listen the following morning during your commute or at the gym. Just search "Simply Money" on the iHeart app or wherever you find your podcast.
Straight ahead at 6:43, we're going to tackle the real life questions and decision making that you're facing in your real life, the questions that you've submitted to us in today's Ask the Advisor segment. Have you ever sat around the dinner table with friends, people like you, successful people who built something, professionals, entrepreneurs, maybe a partner in your firm? And after that second or third drink, the conversation shifts. An opinion on the markets, a quick comment about real estate prices, or maybe that new advisor or attorney someone just hired. Then come the financial confessions. Brian, let's get into some of these that often come up and it's just signals, maybe we need to dust off our financial plan and get some things updated.
Brian: Yeah, I think these are great opportunities if you find yourself in a situation where that, what the blank, question comes up from somebody else, jot it down because it's probably going to affect you at some point at some point, too. So, one big one that happens all the time is somebody has an estate plan that was put together when the kids were in diapers, and now, their kids have kids in diapers. So, "We did our estate plan way back in the kids a little. I think it's fine, right? Should be fine, right? Nothing changes." Well, of course, things change. You have documents, which is better. That means it's not the state that's going to dictate what happens to your kids and your assets after you're gone. But that structure, you know, usually doesn't reflect the family's reality anymore or the stuff you own. Your balance sheet probably has changed. Tax laws for sure have changed and always will. And probably your priorities have changed.
You may be thinking, you know, maybe you only worried about, "I want to get my stuff to my kids." Well, maybe now, you've more recently had a thought of, "I will let this charity, this group. I want to support somebody else." That's fine. You got to get it on paper or it doesn't really matter. So, make sure that you're thinking about all these kinds of things. And there are structures out there. There's grant or retained annuity trust, spousal lifetime access trust. There are a lot of more complicated things that may not have been appropriate or applicable when you were first discussing this, but might now. This is where lawyers bring a lot of value in terms of putting structures in place that can accomplish the things that you want. Now, how about this one, Bob? What about too much in one basket?
Bob: Yeah, yeah, you'll hear people sit around and say, "Well, I've always done really, really well with real estate. That's where most of my net worth is. And I guess I never thought about risk," or, you know, what have you, you know. Or too much money in one single company or maybe a business. And let's face it, most people that build some real wealth do it because they've worked extremely hard. They've taken some risk and they like control, Brian. They like to control the outcome and they have the ability and the resources and the intellect to control the outcome.
What I see happen is when people get older and they start to think about retirement, they might be able to still be engaged, but they don't want to have that much control. They want to be able to do some other things with their time and energy. And that's a good time to sit down and take a look at the whole package here and say, "What are some things that we can do to diversify a little bit and still have my fingers in it, but maybe not be have this whole world, the whole orbit focused on what I get done every day." Because that that wears people out when they get into their late 50s or 60s.
Brian: Yeah, another topic I think comes up all the time every year, of course, it comes up every year on account is taxes. So, a lot of people tend to only think of taxes as a thing I worry about in the first quarter. And I really worry about it in April. And then I forget about it until the next year. That's not really the case. And I think some of this comes from the people that we use for tax prep. Tax prep firms are extremely busy. They get more and more work every year. I swear, when we partner with a local firm and we make referrals to them, eventually it almost feels like sometimes we shut them down because we give them too much business. But so, I kind of understand.
But the point of all this is to say that tax planning is very different from tax prep. Tax planning means, how do I think about what I should be doing two, three, four or five years from now? Maybe should I be doing Roth conversion? Should I plan on doing those over time? But my tax preparer can really only focus on getting my tax return done by the tax deadline because he or she has a bunch more to do right behind mine, so the time doesn't get put in there, and we don't come back after that tax return is filed. This could be a summer or early fall thing maybe to kind of have that discussion. Tax preparers like to do tax planning in the summer. But anyway, the point is do it.
Also, another concern, Bob, I'm going to ask you about this here. So, what about somebody who says, "Well, we've been fortunate. We've got plenty of money. That's enough to fund retirement. So, we really haven't put any much else thought into things." What do you think? Is that a good idea?
Bob: Well, that having plenty of money, thinking about just the total dollar value of the pile, and using a simple formula like, "Well, if I take 4% out of this pile, I'm going to have enough, so I'm good. I'm ready to go. I'm not going to think about it anymore." And it goes back to your last point. There is a huge difference between tax preparation and tax planning. And there are so many strategies out there. You know, the saying holds, it's not what you make, it's what you keep.
And there are so many opportunities out there to craft an actual income strategy that's very tax efficient. You know, think about things like Roth conversions, how to handle your required minimum distributions, where to take your monthly income from. There's a lot of things you can factor in that really put dollars back in your pocket and your family's pocket rather than the IRS's pocket. And then the fifth one we want to touch on, Brian, is insurance planning, that policy, that insurance policy that might be sitting in the dress drawer that hasn't been looked at for 20, 30, 40 years.
Brian: Yeah. So, there's a lot of cases where we bought a life insurance policy because the kids are little. We need to make sure they have what they need. But then all of a sudden, we realize, "You know what? We've kind of made it. They're up on their own. They don't really need the death benefit anymore." And then we just ignore the policy. There are other things you can do. You might be able to pivot that to cover long-term care, for example. So, look into other opportunities. Don't let it die on the vine.
Bob: Here's the Allworth advice. So, if you've ever left a dinner party thinking, "Maybe it's time we looked at that." You've just uncovered the moment many people miss. That's where real planning can start. Next, the costly mistakes divorcing couples often make and how you could protect your long-term wealth, especially if you built a healthy nest egg. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Divorce obviously is a legal proceeding, but it's a highly emotional process as we all know. But it's also, at its core, a massive financial transaction. And for couples that have established a healthy nest egg, the stakes can be very, very high. Brian, we're going to get into some of the mistakes that people don't often, or sometimes don't think about in the midst of this high-stake, highly emotional process. Mistake number one, not understanding the full financial picture.
Brian: Yeah, so I'm actually taking a client through this right now. So, I'm going to jump on you.
Bob: So am I.
Brian: And, yeah, okay, well, then I'll be sure to leave you some time, too. But so, even the happiest married couples don't often sit down and have the same, clear picture, because it's usually one spouse takes over the finances and provides an update. And then that usually morphs into the other spouse never knows anything that's going on. That's even the happiest couple in that situation. Somebody who has gotten divorced probably hasn't been talking about anything in a long time, or somebody who's on the path to divorce rather, hasn't been talking to each other for a long time. So, when you actually get to the point where you're doing the discovery of assets and all that, one spouse usually just has no idea. So, make sure you know how and where to look for things. Get used to the idea of pulling that tax return from a couple years ago. Look for 5498 off of IRAs. These are the things that show up in your mailbox that will confirm the existence of an account. What have you seen out there, Bob?
Bob: Well, the main thing, in the situation I'm dealing with, I'm acting kind of as the forensic accountant here. I know what questions to ask, and therefore, I'm asking them of the attorney. And in this case, the attorney, she is going out and getting this information. So, oftentimes, for that spouse that is not financially involved and has no clue what's going on, it's knowing the questions to ask.
Mistake number two, keeping the house for emotional reasons. Brian, this has reared its head in a big way for this situation I'm dealing with. One spouse just left. The other spouse is home with three kids. Two of them are out of high school and they're in college. There's one still in high school. And this is where all the family memories are. And the one spouse still living in the home deeply wants to stay there. There's huge emotional ties. Wants that son to finish high school at their current high school.
But when you start to look at the bills, the mortgage, the property taxes, the insurance, the upkeep, the maintenance, the numbers just don't just add up. It's just not going to work. And so, the sad news here is, eventually, this house is going to have to be sold and the equity is going to have to be divided up. You just got to pick. With all the other stuff going on here, you got to help guide people on when the right time to pull the trigger on this is, and it can be very difficult.
Brian: Yeah, one of the thought I throw out there, if you're going to do it, do something with the house. One of the factors that probably needs to play a role is making sure, or being aware that if they've been in that house that long, that interest rate, if there is a mortgage, is probably really low, and they're not going to get that treatment again. So, that will offset some of the negative numbers. All the outcomes are a little bit scary, but that can be something that comes up as well.
So, taxes, right? So, overlooking tax implications, meaning a $500,000 IRA or Roth IRA is not the same as a $500,000 brokerage, regular taxable account. One is tax sheltered. The other is post tax completely, meaning it receives a 1099, gets taxed every single year. Both of these have pros and cons. There isn't one better than the other, but they have different impacts. So, a lot of times clients will say, "You know, we're going to split things 50/50 in this account. This IRA is roughly this size, so I'll take that. And this taxable account is roughly the same size, so you can have that." Only to realize that they've, basically, not spread the tax treatment out. Maybe the dollars are spread equally, but not the tax treatment. A $500,000 IRA is more like a $350,000, $400,000 assets once you take taxes into account,
Bob: You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Let's move into mistake number four. And Brian, unfortunately, we see this way too often, failing to update estate planning documents and beneficiaries on retirement accounts. After that divorce is done, your ex could still inherit everything, you know. Because let's face it, most of the times the spouse is named as 100% primary beneficiary, and then the kids are contingent beneficiaries. If you've named them, you've got to get that stuff fixed. Otherwise, this spouse that you no longer are going to be married to could unintentionally inherit everything. And what a mess that would be. So, you've got to make sure you update those beneficiary forms and estate planning documents where appropriate.
Brian: Yeah, we log into people's 401(k)s, we're in that situation, and we look at that, and then the new spouse will be sitting there looking at the ex-spouse's name on the screen as the beneficiary. The eyeballs get real big when that happens. Quick fix, though. So, one last one here. Ignoring the long term impact on your retirement. So, divorce will really cut that nest egg in half, right? There's lots of jokes about that, but obviously, serious situations. If you're in your 50s or 60s, there's really not a lot of time to rebuild that. So, make sure, if this is a step you have got to take, and there's more to this than money for sure, but don't underestimate the impact your assets that's going to have, and then therefore, your retirement viability.
Bob: Here's the Allworth advice. When love ends, your financial life does not have to completely unravel. Slow down, get good advice, and be sure to protect your future self. What's on your mind when it comes to investing retirement or passing wealth to the next generation? We're going to dive into your questions in our Ask the Advisor segment coming up next. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. Do you have a financial question you'd like for us to answer? There's a red button you can click while you're listening to the show right there on the iHeart app. Simply, record your question and it will come straight to us. All right, Mark from West Palm Beach, Florida leads us off tonight and he says, Brian, I'm a Cincinnatian now living in Florida. He loves listening to the show, but can you please explain what a wash sale is, and when it makes sense to do one?
Brian: God bless the internet. That is so cool, that people all over the world really now can hear the show, which is great. Anyway, yeah, so a wash sale, wash sale,, basically means that you sold an asset and you took a loss on it, and then you buy it back right away. So, the reason this might come up is because somebody might want to do what's called a loss harvest. Meaning, maybe you bought a stock, you know, maybe you put $10,000 into it. It is now worth $8,000. And if you don't know this, you can actually take a deductible loss off of that if you sold it at $8,000. So, when people get wind of this, sometimes what they'll do is they'll say, "Well, I still want to own the stock, but I want to take that tax benefit. So, I'm going to sell it today on Tuesday, and then I'll buy it back on Wednesday." That's a wash sale because you were not out of the position for longer than 30 days. The IRS will disallow that that deduction. So, if you're going to do that, you need to stay out of the stock for 30 days, then you can buy it back in.
There isn't really when it makes sense to do one, really, I'd say, as part of an overall tax loss harvesting plan. And if you're absolutely in love with the stock and you just don't want to be out of it for any moment in time because it could go any day now and that's why you bought it, well, hopefully, that's not a big party portfolio anyway, then you might not want to do a wash sale because, again, you got to stay out of that 30 days, and it doesn't it makes no sense to do that within the 30 day plan.
So, let's move on to a Jack and Madeira. Jack was wondering about annuities in his portfolio. Do I need annuities if I already have a big pile of money? What do you think of that, Bob?
Bob: Well, Jack, in general, I look at annuities. You know, they basically do two things, two reasons to own one. One, is people like it in non-qualified accounts for tax deferred growth. That's one reason to own them. The other is, when you want some guaranteed income out of a piece of your portfolio. I think with how this industry has evolved over the years with tax loss harvesting and other tax strategies in taxable non-qualified accounts, most of the time, my opinion is, these annuities can cause more harm than good. Because once you started to grow money in an annuity, when you pull it out, it is all taxed at ordinary income rates, and that stinks. So, there's usually always a better way to skin the cat from a tax standpoint other than annuities. In terms of...
Brian: Yeah, hey, Bob...
Bob: Yeah, please.
Brian: If I could share one thought.
Bob: Do it.
Brian: So, you're right. But people do look at annuities and they realize that, "Hey, this is a way. It's not an IRA." You know, maybe I've got a pile of money I inherited or I sold a business or some asset or something, and I want to tax defer so I can stick it in my IRA, right? Well, no, of course, not, that you can only put a very limited amount every year. You can't do a couple hundred thousand. So, the next thing people discover is, I can use an annuity and invest in things that look like stock market-type growth. And it's all tax sheltered. And that is kind of true. But what you've done in that case, as Bob just mentioned, you have changed relatively-favorable capital gains taxation to ordinary income taxation on the on the back end. Ordinary income taxation is marginal. The more you have, the more you make, the more you pay in taxes. And that can just really set up a negative situation years down the road when it's far too late to do anything about it. Annuities are wonderful during life. They're terrible to die with. If your kids inherit it, they're really going to be unhappy when they hear how much of a chunk the IRA is going to take.
Bob: Yeah, because you don't get that stepped up cost basis at death. You limit your charitable giving opportunities. You can probably tell I'm not a big fan. All right, let's move on here. Betsy and Indian Hill. Is there a point where I should stop trying to grow my portfolio and just protect it?
Brian: Yeah, I think a great question, Betsy. There's a lot of people get to this point where they realize, "You know what? I've grown. I've worked my rear end off. I have a big pile of money and I'm pretty stable. Should I just not have to worry anymore?" I always tell people that that is a personal decision. First of all, this assumes that you sat down with a fiduciary adviser and done a full financial plan, which is to say, "Here are my resources. Here's what I'm trying to do with it. And then here's what comes out the back end." Then you need to stress test it if there is risk, you know, because you have some kind of unexpected major expense or poor investment results, something like that. If all of that looks good, then you're looking at a decision of, "Okay, I'm on one end of the spectrum. I don't have to take any risk. Maybe I shouldn't." And I think this is what Betsy is thinking. I could park all this stuff in super safe investments. I know I've got enough to make it. And therefore, I wouldn't have to read the headlines anymore.
The flip side of that is, and I've seen people do this, eventually, you'll conclude that, "My, gosh, most of this money is going to sit here for the remaining 30 years of my life. Am I taking it out of my kids mouths if I don't allow it to grow since I'm not going to need it?" So, that's where people usually land somewhere in the middle. I don't need the go, go growth that I needed when I was 20 and 30 years old just trying to get the thing off the ground. But at the same time, it's a lost opportunity if I lock it all down and make it perfectly secure. So, very personal decision. Your thought there is reasonable. But at the same time, there's a flip side.
Let's move on to Charles and Deerfield Township, who desperately wants to know Bob's opinion on diversification. Bob says... Or Charles says, "I'm already diversified with stocks and bonds. When does private credit actually make sense to kind of complement a portfolio?"
Bob: Well, I'd say Charles, I mean, private credit, private equity, those are sexy terms. It makes us all feel like we're cutting edge and we're out there doing something exotic that other people don't know about or don't have access to. And sometimes that's true. But look, private credit, you're basically loaning money to companies that want to go to the private credit markets, in most cases, because they can't get loans from traditional banks because the things that they're borrowing money for and to do come with higher risk, higher interest rates, higher yield for the investors. So, that's the reason why as an investor, you like to get involved with private credit, you could potentially earn a higher yield or higher return on your money. But you've got to understand, that comes with more credit risk and more risk of default. So, I'd say, if you're going to venture into that space, make sure that you're in a diversified, well-managed portfolio, with some professionals that know how to do the actual credit evaluation to make sure you're not putting all your eggs in one basket here to chase yield and really get burned in the process. That'd be my answer.
All right. Let's end here with Bill and Fort Thomas. Brian, Bill asks, "What's the number one mistake you see people with a few million dollars making today?"
Brian: You know, when I saw Bill's question, my first reaction was, well, you know, obviously, it's taking your eye off the ball, just kind of checking the box and, you know, going, "I got enough and I don't have to think anymore." That does happen. But sometimes, especially in a case like this, it can be keeping your eye on the ball too much. And what I mean by that is, and I'm thinking of a client who also lives in Fort Thomas who did this to themselves, tagging some number out there. Let's say you're worth $1.8 million, and it's got to get to $2 million before you retire. And I had a client that had some health problems and lots of things going on. But by God, he was going to get to that $2 million before he pulled the trigger and retired. He wound up listening to me and his spouse, and finally, realized that, "It really doesn't matter, it's just a number, and I've got bigger things to worry about." So, don't take your eye off the ball, but don't have your eye on the ball too much either.
Bob: All right, next, I've got my two cents just to add to how we started the show tonight, how to make some of these key decisions where emotion and feelings come into play here. You're listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller along with Brian James. All right, I want to go back and revisit something, Brian, we talk about all the time. And that's all the factors, whether it's emotional, financial, family dynamics, all that that come into making major decisions. And I just want to share a story that I had the privilege of being a part of here with a family here recently. And, you know, this is a married couple in their mid-50s, and they're dealing with how to handle, in this case, the wife's mother, who really, they needed to move her down to Cincinnati. She needed to get into a long-term care situation and money is tight. Money is scarce. There's some emotional ties that are keeping her from wanting to move down to Cincinnati, but it needs to be done. This family didn't have a lot of extra money to throw at it. And the mother in this case was being a bit irrational.
And, I guess, it just comes down to, you know, you can run spreadsheets to your blue in the face. You can talk about all the emotional things. And at some point in time, you got to look at your family's values. And I don't want to get too inappropriate or off the rails here. But the nice thing in this case is, this family has a deeply-held Christian faith. I happen to be in the same boat. And we were able to talk about that. And my point in bringing this topic up is, you know, you can run these spreadsheets all day long, but you've got to look at the end of the day on what are your core values? What's your true north? What's guiding these decisions? And believe it or not, some people might not be aware of this, the Bible has more to say about money than any other topic. And we were able to talk about that as a family, as a team here, and actually spend some time praying about the situation, because we didn't have a lot of easy answers.
And I'm happy to report that I got a text from this client, I got a message about a week ago, because I had no idea how this whole situation was going to work out, and he said, "You know what, Bob, I just wanted to let you know that mom decided to come down and move five minutes from us in this exact nursing home that you mentioned we look at, looked at. She's happy about it. We're happy about it. Thanks for talking through this with us." And it was one of the best outcomes that I've had in a meeting so far in 2025. And it had nothing to do with buffered ETFs, loss harvesting, any of these techniques we talked about. It was just getting the family in a room and realigning decision making with what I knew was the family's deeply-held values, and then sometime, good, old prayer, asking God to intervene and give us a little guidance here ended up winning the day. And it was a good outcome.
Brian: Yeah, those are those outcomes and those moments where you go, "You know, I really am still a little mad that Major League Baseball did not recognize my talents at the age of 10. But I'm kind of glad for where I landed, and what we what we get to do in this job." But, yeah, you're right. A lot of people tend, we tend to hide behind the numbers. It's a lot easier to talk about the numbers than it is to talk about the emotional stuff and the making sure I'm on the same page with my loved ones. So, people will go down a lot of rabbit holes over money and dollar amounts and accounts and investments and all that kind of stuff. Meanwhile, there's somebody staring them straight in the face that has something else on their mind that they're not bringing up because we can't take our eyeballs off the money. That happens very, very frequently. So, I think the easiest thing to do is get it out of the way. The numbers are black and white. Here's some spreadsheets. Let's quit talking about spreadsheets and talk about what's really in your minds that you're not bringing up right now.
Bob: Yeah. And that's where trusted friends and families, and just running these things by people, whether it's a professional advisor or just trusted close friends, oftentimes, they can give you the answers that you know deep down are the answers in the course of action you need to take, something's just holding you back from pulling the trigger. And that's the value of having close family, close friends, close advisors to help you out here. And prayer comes in all the time, too.
Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.