Retirement bucket lists, navigating capital gains taxes, and unraveling concentrated stock positions.
On this week’s Best of Simply Money podcast, Amy and Allworth advisor Bob Sponseller delve into the art of retirement planning beyond just finances. Explore the exciting idea of creating a bucket list to give your retirement life purpose and structure, whether you're planning it alone or with a partner.
They also discuss the importance of diversifying your investments and the risks associated with having too much stock in one company, offering practical advice on managing concentrated stock positions safely.
Lastly, they unravel the complex world of capital gains taxes, providing insights into how smart planning can significantly impact your financial future. Don't miss this episode filled with expert advice for securing a joyful and financially stable retirement.
Download and rate our podcast here.
Amy: Tonight, creating a bucket list for your retirement. Are you guilty of maybe having too much stock in one company? Let's talk about what you can do about that. And from a tax planning standpoint, what can you do about capital gains taxes? You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller.
You know, Bob, you and I have worked with so, so many people who have made that transition into retirement, and oftentimes, the conversation centers around the financial aspects of this. But there is so much more. And for those of you who are not knocking on retirement's doorstep or aren't already retired, stick with us here because I think some of this will be really helpful for you. We're talking about a bucket list and how that might help you get focused on retirement.
Bob: Exactly. And I don't know about you, Amy, but this is one of the most fun parts of what I get to do and I've done for years because I've helped dozens and dozens of people actually retire at this point in my career. And, you know, this comes down to there's a big difference in just retirement planning versus life planning, legacy planning, meaning planning, and it's a great topic that we're going to cover today.
Amy: Yeah. So my husband and I, one of the things we talk about all the time is what retirement looks like for us. And we have this really...well, we did have this really concrete picture in mind of we wanted to move south and be on water. And then my husband always said, "I want to walk through my backyard, get on the boat, and catch dinner. I want to be able to fish every day," right? And that was all well and good until all these hurricanes started hitting.
Bob: And I'm laughing, Amy, because I thought that, I've done that, and I moved back to Cincinnati for reasons I won't go into right now. But it's just funny. Yeah, what we think we're going to do when we're in our 30s, life has a funny way of taking different twists and turns, and it's all good.
Amy: But I think, you know, you start with what's the picture. What is the thing that gets us both excited about retirement if we're a couple? If you're a single person, what's the thing that you hold out there for yourself as, like, "When I get to retirement, this is the thing?" Dream big, think big, brainstorm, and then you can get into the nitty-gritty details of how do you get from where you are right now to where you want to go. But to your point, this is one of the most fun parts of our job is then saying, "Okay, we've got the money. What are we going to do?"
Bob: Yeah. To me, there's a couple of important steps to this. Number one, you know, we first have to get ourselves into a place where we actually can retire, meaning that we have enough income sources and investment assets to actually be able to replace our paycheck so we don't have to work anymore. I mean, that's step one. After you get into a comfortable place where that can happen, that's where all the dreams and fun stuff happens. But to your point, I think, start big. Look at the big picture as you approach this. And what are the big bucket list items where, "If my life ended 6 months from now, 6 years from now, or 26 years from now, what are the things that I really need to do and want to do to put my head on the pillow and know that I lived a good life?" And I think it's important to sit down and write those things down.
Amy: Great perspective.
Bob: And just as important, if you're married, have that same conversation with your spouse. Because what I find is some spouses are willing to talk about this stuff openly and are excited about it. Others aren't. But I could tell you from experience with clients and personal experience, if this is not an ongoing conversation where both spouses are participating, there might be surprises down the road, and they might not be good surprises.
Amy: Well, I'll tell you one other great reason why it makes sense for you to kind of get on the same page for this picture that you have of your future or your major money goals or your goals in retirement is I often find that couples aren't necessarily always on the same page financially. For instance, sometimes you'll have a saver and spender, and in their button heads all the time over, you know, "She did that," or, "He wanted to do this," you know, they're not on the same page. If you can get together with the same goal, then you're not fighting each other. You're simply saying, "That money that you want to spend, that thing that you want to do, is it going to get us closer to this thing that we want to do together or farther away?" So it can be a great tool for just kind of getting two people on the same page financially.
Bob: Exactly. And what I find, Amy, with a lot of the clients I deal with is it's not necessarily that one spouse is the spender and the other is the saver. It's one spouse takes a more active role in the actual financial planning and budgeting and the other spouse doesn't. It doesn't mean one's better or the other. They're just different. Different spouses play different roles oftentimes in the marriage and in the raising of kids and everything else, and that's why God created the institution of marriage. That's a good thing. But I think that's another good reason to sit down with an advisor who has the time and has the interest to actually, not force, but at least encourage some of these discussions. Because you do need to talk about it, to your point, so you can get on the same page. And we always talk to people, you definitely need to be having these conversations within about five years of when you're going to actually pull the trigger, not six months before retirement.
Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. Have you thought about what your retirement looks like? Have you talked to your spouse? Have you gotten on the same page? Does it look like moving south? Maybe, by now, that's what mine always looked like. We've got friends who both work remotely, and so they are living in Destin for January and February. Sometimes it's not just the destination. Sometimes it's, what do I love to do? Is it spending time with the grandkids? Is it volunteering for an organization that's near and dear to your heart? All of those things could be part of this bucket list for you. What do you want to spend time on? And maybe for years now it's been like, "I want to do this thing," or "I love doing this," or "I'm passionate about this," but work is so crazy. But once you get to take work off of the table, you have then the ability to focus on these things. And I think it makes sense to plan for them before you make the transition into retirement.
Bob: Yeah. And as I think back over my career, and again, I've been doing this for over almost 34 years now, so a lot of the first clients I worked with back in the '70s and '80s, I think it was a badge of honor and almost a status symbol to be able to go to somebody and say, "Well, I can retire at 55." "I can retire at 58." I'm finding more and more nowadays, just because you can retire, a lot of these people aren't happy, some of them aren't happy, because they didn't think about what they were actually going to do when they stopped working. And I've been blessed to have a couple of good friends that I can confide in who are a little bit older than me.
Amy: That's great. You learned from them.
Bob: And if you've traveled down roads, I haven't... And I'm thinking of one great piece of advice that I got from one of my best friends, he said, "Bob, you're rapidly moving from a life of achievement to a life period of influence and legacy, and you need to think and plan accordingly." And that's been great advice, an advice that I've embraced and I'm trying to implement.
Amy: That's a good friend. That's great advice. And I do think many people, because you maybe feel like you're on this hamster wheel when you're working, don't think about, what does it look like after I'm gone? And listen, I also have known many, many people too whose sense of self-worth really comes from their job, and they feel very lost, right, when they get to retirement, because there's no meetings, there's no presentations that they're giving, there's no people that are deferring to them anymore, that schedule's gone. And that can be really tough, which is why looking at what's your bucket list in advance can then help you kind of redirect that energy and that focus on something else that's not about necessarily the working and achieving, but what's something else that's going to fill me up in retirement?
Bob: Well, and as you talk about that, Amy, I'm thinking of one client in particular that I've worked with for over 30 years. And this guy was a high-level executive, department manager kind of guy, made a ton of money, heavy influence. He needed something to do. And I'll state this as a universal truth, I think every human being wants to be important to someone else...
Amy: Needs a purpose.
Bob: ...wants to make a difference in someone's life. He is finding incredible meaning now in just going and reading books to special needs children. Now, 20 years ago, that would have never been on his radar screen because that didn't involve making money, rising the corporate ladder, getting stock options, all that. But he's finding incredible meaning and purpose from that today. And if he wasn't doing that, that'd be a major hole in his life.
Amy: Yeah. You mentioned earlier, once you kind of get this bucket list or whatever, obviously, you have to start with the plan, and are we going to have money to fund that? Once you sort of built this wealth, whether you've done the bucket list first and then built the wealth accordingly or you've built the wealth and then you start thinking about it, you've got to have that financial plan that says, "Can we do this? And what does it look like?" One of the things that I love to do with clients who really like to travel and have waited and kind of put off these trips of a lifetime, I'll do multiple travel goals in their plan of maybe they want to spend a little time in Florida or take the family on a trip every year. So we'll put a goal in the plan for that. What is that going to cost likely? How many times do we think we're going to do that? And then, also, maybe every few years, they're going to Europe or they're doing a big trip like that. The sky is the limit, but the key is getting it on paper, figuring out how much it's going to cost, and do we have the resources to do that?
Bob: Yeah. Some of these big bucket list items simply don't happen unless you plan for them and schedule them, put them on the calendar, buy the tickets, because life gets in the way and life passes us on by.
Amy: Yeah. One of the best conversations that I can have with someone in retirement is, "Hey, not only can you travel, go ahead and fly first class." Like, wouldn't those be great words to hear from someone when you get to that place? Here's the Allworth advice, whether your dreams are big or small, close to home or far away, your bucket list is really a chance to kind of fill the stage of your life with purpose, joy, and connection. You've got to plan for it, and certainly, there's a financial component to it too. Coming up next, the moves to make if you need to unwind a heavy stock concentration. I know there's a lot of you locally who love one local company. We see this all the time. Stay tuned. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. If you miss something on the show one night, maybe you want to listen to it again, share it with a friend, or you just had to miss a show, well, we've got a daily podcast for you. Just search "Simply Money," it's right there on the iHeart app or wherever you get your podcast. Coming up next, 6:43, the world of capital gains taxes. If you do not understand this, you're going to want to because this could open up an entire world for you as far as retiring early or being really smart about taking distributions and retirement. So we'll get to that in just a few minutes.
When it comes to investing, I'll often hear like, "Oh, everything looks great for me right now. My stock is up." And I'll say, "Oh, stock, you mean, your ETFs? I'm assuming you're well-diversified." No, people will live and die on, and I'm just going to throw this out there because I know a lot of you are in this boat, Procter & Gamble stock. I love this company. I mean, it is a strong... I grew up here. When I go to Kroger, I cannot not buy Tide or Crest because I am a Cincinnati kid who grew up understanding that Procter & Gamble products are the best. Love the company, but I see so many of you coming into my office who have just such a concentrated position in Procter & Gamble. Or pick your company.
Bob: Well, I'll pick another company, General Electric. My entire life was based on General Electric. My father spent over his entire 35-year career there. And I think on a positive note, I think that's one of the things that makes Cincinnati such a great place. I mean, we've got a lot of wonderful people in this town that are very loyal people. They love where they work. They're blessed to work with great people. That's all a good thing. But, you know, whether we accumulate all this stock through stock grants or options, or we buy shares, or what have you, and we live in our little, for lack of a better word, bubble over 30 years, and we like to invest in things that we know and like and we feel that we have control over, we can end up with a highly concentrated position. And one of the things we got to remember is things do and can change with these companies. And I look back on, you know, if you've got a few spare minutes, pull up a chart of General Electric stock sometime, and it's been quite a ride over the last 30 years. And things happen. You know, GE, for example, went into different businesses. We think of GE as just an aircraft engine company, and it's a great one, probably the best one in the world. But they made forays into GE Finance and GE Energy and all these other things.
Amy: Insurance and appliances. Yeah.
Bob: Appliances. And that didn't work out quite as well. But you've got this loyal bucket of people in Evendale that all they know is how wonderful they are designing aircraft engines. You just got to...you can't put all your eggs in one basket.
Amy: Yeah. And you're talking about stock options and things like that. For those of you who are employees of these companies, what you have to think about is you are relying on that paycheck. Your current self is relying on this company to do well. But also, when you are buying, you know, a lot of company stock or a lot of your retirement is focused on whether that company does well or not. Your future self is also incredibly reliant on that. And I've seen Amazon come into new sectors and decimate companies. I have seen Department of Justice investigations into something that has sent a stock to them. You never know what can be coming.
And this is not me saying any one company here, Procter & Gamble or any of them aren't fantastic, well-built companies that have tried to think of everything, but I've also seen too many times something coming from left field that has had a huge impact. And, you know, you're talking about General Electric. I, years ago, used to always speak to groups of GE retirees. They were so, so proud of that stock. And I think of them all the time now and wonder how they're doing and are they okay because they were so...their retirement was so reliant on that company doing well. And then, to your point, pull up the graph and you've got the answer to how that story plays out.
Bob: So now that we spent a few minutes talking about how we can potentially get there, Amy, talk a little bit about, you know, when you have clients come into your office, they're finding themselves highly concentrated in one position, what are a few things that you're talking to them about?
Amy: I think the first thing is awareness, right, having the conversation that we just had about the fact that that could easily go south. And then, if they are open to diversifying, you know, how can we maybe, over time, right, sell off part of that position and get them in a more diversified place? I have a client who has a large position in Amazon. It's done really great for them. But what if something happens to Amazon? You know, part of the conversation with them is going to be like, you know, "Are we relying on this to create revenue for us?" You know, you can buy options strategies about, you know, if this company tends to go south as a way of protection, if we are really, really tied to the specific company. So there are options. But I think the number one thing is, first of all, being aware. And secondly, asking yourself, what do I then need the stock to do for me if you are reliant on it?
Bob: Yeah. And with the continual evolution of our industry, in a good way, there are managed strategies in place now, and I know we talk to our clients about them all the time, where you can have a managed situation in place to sell covered calls, to buy puts, to do some things in the background. So as an individual investor, you don't have to worry about all the individual trades on that. It's happening for you. But we can set a tax budget each year, we can set an income objective each year, and we can gradually work our way out of that position.
Amy: Yeah. It's going to take time depending on what kind of an account it's in, but you know, we're kind of throwing out, if you work for a company and you're, you know, so loyal to them. But I also have a good friend who her mom inherited stock from grandma, and she just loved that company so much, and even said before she passed away, "Don't ever sell this particular stock." So, many times, it's an emotional connection that, as advisors, we have to help you unravel and say, nothing against grandma, but this, in the future, may not be in your best interest.
Bob: Yeah. I've got a few clients like that where, you know, grandma or Uncle Bill or whatever said, "Don't, under any circumstances..."
Amy: They love that company. Yes.
Bob: Yeah. And there's another word of advice. Don't ever tell your kids that.
Amy: Please. Yes.
Bob: You're putting an emotional and possibly an economic burden on them. That's not fair to saddle them with.
Amy: Here's the Allworth advice, managing stock concentration is really not about making drastic changes overnight. It's finding balance, reducing your risk, and ensuring that your financial plan works for you no matter what happens in the markets or with one particular company. Coming up next, one of the simplest things you can do to make your home more appealing to a buyer. You can do it right now, and it's not really that expensive. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner. Okay, for those of you who are in the market for buying a home and maybe you just want to update the one you're in, what are the trendy colors? What are the new wave things that are coming around the corner? I don't have that answer. I am not so cool and trendy, but I know who does, our real estate expert, Michelle Sloan. Of course, you can hear her great advice right here on 55KRC every Sunday afternoon on her show, "Sloan Sells Homes." She is also owner of RE/MAX Time, and she has her finger on the pulse of all trends when it comes to real estate. Michelle, you know, you're a friend of mine. I went all in on gray several years ago, which is three years ago when I bought my house.
Michelle: Absolutely. I think a lot of people did.
Amy: Is gray still the biggest thing ever? You can tell me the truth.
Michelle: Really, it's not, but it's still neutral enough. And a lot of the grays in new construction and when you're building a home, the choices are limited for a reason because most home builders are not going to give you choices that are going to be so far to the left or right of the world that it's going to take you too far off-trend. The nice thing is trends are fun to look at. So the color trends for 2025 are coming out and you're going to see it, the Sherwin-Williams and all of the different types, the different companies that come out with all of the color of the year. Well, Sherwin-Williams came up with a color of the year that was, like, nine colors or something because it's the anniversary of calling a color of the year.
Amy: Oh, boy.
Michelle: So you know what, but we're seeing some really deep blues, chocolate brown is really hot, these darker violet colors, again, a hammered black in the... When we saw Homearama this year, we saw so much black. I mean, black walls, black ceilings, black trim. That's extremely trendy. That can be very dark and foreboding unless the rest of the house is nice and light and white. So I always take the trendy colors of the year with a grain of salt. And if you're planning and let's say you love that violet color that's out right now, only do that on an accent wall or use it in a way that you know in a year or two...because those colors, you will get tired of them and you'll get tired of them pretty quickly because they're so vibrant or they're so deep and they're so dark. So you know, my advice is, always, if you're planning to sell within the next couple of years, stay neutral.
Paint is the most inexpensive thing that you can do to update your home, make it look fresh, make it look like new. And when you go to paint and you pick a color, and this is my go-to color because everybody wants me to tell them, agreeable gray, and it says gray but it has little tones, it's a really warm gray. Agreeable gray from Sherwin-Williams is, like, that go-to color that I've been recommending for, gosh, almost 20 years, and that's how long I've been in the business, because that particular color is that neutral that seems to go with all of the woodwork that we've had trending over the course of the last 20 years. You know, there are other colors on that palette that are in the same vein, just really nice and neutral, and there's also some beige colors. Warmer tones are definitely in. And even when you picked your gray tone, I'll bet, I don't think I've seen it, but I'll bet you it's a warm gray.
Amy: Yes, it is. And I also like the point that you're making about these colors and the fact that...okay, you go all in, right? Oh, you know, I'm building a house now. We're buying a new house, and we're going to repaint all the things, and we're going for deep blue. We're going for chocolate brown, right? We're going for violet. We're going all in on these trends. And then, in four or five years, you sell your house and people walk in and they're like, "Oh, hello, 2024." You know, it immediately dates your house. So I think you can go kind of in on these trends and buy, like, violet pillows for your couch...
Michelle: Absolutely. I love that. I love that idea.
Amy: ...but not necessarily paint everything. Yeah.
Michelle: Yeah. Because you know, buying pillows, you use them for a year or two, and then they pretty much...if you've slobbered all over them or your dog has slobbered all over them.
Amy: My dog, yep, same. Yep.
Michelle: You can pitch them or wash, throw them in the laundry, and then, you know, they're either fresh and clean or they're not. And you can move on with life, and then you don't have all of the expense. You turn your house into a bit of chaos when you paint because you have to take everything off the walls, pass some paint. And again, it's a process, but it is the most...it really is the least expensive and the best way for you to freshen up your home. And I will always say, if you are starting to paint and let's just say the first floor of your home, kitchen, dining room, family room, living room, just pick one color and stick with it the entire first floor of your home so that you don't have any awkward transitions. You know, the days of red in the dining room, I still walk into homes...
Amy: I had two of those.
Michelle: Yeah, I still walk into homes and see the red dining room, and it makes me cringe a little bit. I see grapes on the wall or maybe some border in the kitchens. And do you remember the border along the top of the wall?
Amy: Uh-huh. Yes. And it was...
Michelle: Wallpaper borders.
Amy: It's either grapes or the leaves, right, always, which kind of leads me to my next question, which is, you know, for those people who are, "Well, I'm not going to repaint my house." I'm sure you've had clients through the years you were like, "But this color everyone hates." Like, it's not an option. If you're going to put... What are the most hated colors when it comes to real estate?
Michelle: Well, I will say red is one of them, number one because it's so difficult to cover up.
Amy: To paint over? Yeah.
Michelle: Yeah. It's going to take two or three coats, or you're going to have to do a primer on it and then paint it a couple of coats. It's going to cost you. If you hire someone to do that, it's going to cost you several thousand dollars, and you're like, "Ah." But it will make a difference if you get rid of it before it comes time to sell. The other colors that make me cringe just a little bit are the yellows that look a little bit like Big Bird. There's been some gold and some yellows over the years that don't weather or have that staying power. And, you know, I always tell the story, this has probably been 10 or 15 years ago. I walked into somebody's house and it looked like a fun house. Every single wall, they had a two-story, great room, every single wall was a different primary color.
Amy: Oh, it looked like a crayon box, huh?
Michelle: Oh, my gosh. And then, you know, up in the bedrooms, they were different colors. And I walk in, and my eyes about popped out of my head. And I said, "Oh, you like color, do you?" You know, I didn't end up getting that listing. But here's the thing, it did end up taking them a heck of a lot longer to sell that property.
Amy: I bet it did.
Michelle: It was a beautiful home. But when I suggested, "You need to repaint this whole house," and they said, "No, I'm not going to do it," I'm like, "Okay, well, you know, that's your decision, but you have to." And I don't like to say, "I told you so," but it was a lot. So when I try to tactfully tell people, "You know, it will help you in the long run," because paint colors, if they are the wrong ones, they can decrease the value of your home, because the buyer is going to look at it and say, "I can't live with that. I can't live with that color." And so best case scenario is neutralize, neutralize, neutralize, if you're planning to sell. Now, some people are like, "But I do love my color. I love this purple-violet color."
Amy: You do. Yeah, right. But maybe someone else won't. Yeah.
Michelle: You're absolutely right. You do, but not everybody may. And then they realize, "Okay, well, then I'm going to have to spend $5,000 or $6,000 to hire somebody to do this." And you always make less on the sale of your home if you don't do it before you put it on the market.
Amy: Yeah. And I'm sure if it's between your house full of Crayola colors and another house that's neutral, probably the neutral house is going to win every time. Great perspective as always from Michelle Sloan, a real estate expert. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. If you have a financial question you need a little help with, there's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us and straight ahead. Speaking of a bucket list, how can you travel the world without maybe sacrificing your financial situation? We'll get into that in a few minutes.
Have you ever made a profit from selling something big? A house, stocks, maybe for those of you who've gone into crypto, it's cryptocurrency. Hopefully, you did time that right. But Uncle Sam, what you have to keep in mind is every time you have one of those big sales with big proceeds, Uncle Sam is going to want his piece of that pie.
Bob: Yeah. People complain to me all the time about having to pay taxes, and I kindly remind them, you only pay taxes when you make money. So let's not complain too much. But let's walk through a little primer here on some of the things that people need to be aware of. So the first thing, short-term capital gains. Anything that you derive a profit from that's been held one year or a year or less is going to be taxed at ordinary income rates, which is taxed the same thing as your paycheck. Long-term capital gains, on the other hand, are assets held for more than one year, and those are taxed at sometimes much lower and much more favorable rates than ordinary income taxes, anywhere from 20%, 15%, sometimes even 0% based on what your overall taxable income is.
Amy: And that can be a great thing to take advantage of. We talk about diversification in your investments, but I would say you also have to be diversified in the kind of accounts that you're saving in. I will come across people pretty often who have significant money saved, but they're all in IRAs or 401(k)s. So if that's all kind of tax-deferred, first of all, you're going to pay taxes on every dollar you're pulling from those accounts at your ordinary income rate, but second of all, I just hit a couple this week that were in my office, 33 years old, and they are on a fantastic track. And I said, "Listen, I don't want to put words into your mouth, or goals, but you guys could potentially retire early. Here's the problem with that. All the accounts you're saving in, you can't access until you're 59.5 unless you're going to pay a 10% penalty. If retiring early is anywhere on the radar or a goal of yours, let's get some money into a joint taxable account." And kind of talking through the tax advantages of once you hold those positions within that account for a year, you're going to be taxed at a lower rate, and this can be a great option for a lot of people when they get to retirement. If I come across someone who's got a taxable account and traditional dollars and then Roth dollars, these are the first dollars that we tap, and they can be incredibly tax efficient, especially if you've been harvesting losses in that account, you can be incredibly tax efficient with these.
Bob: Yeah. And you bring up a whole what I'll call hornet's nest of activity here that is one of the merits of doing good tax planning. We talk about this all the time. There's a tremendous difference between tax preparation and tax planning. And unfortunately, I think about 85% of the people out there only do tax preparation and don't talk about tax planning. And this is where you can effectively diversify your income sources when you retire and then diversify the sources from which that income comes from, and you can layer on income from Social Security, IRA accounts, non-IRA accounts, Roth IRAs, and craft an income strategy that gets you the income you need in the most tax efficient way possible. So good for you, Amy, for asking that 30-year-old client 20-some years ahead of time, "When do you want to retire?" And I mean that seriously because now the conversation has begun and you might have made a huge difference in their life by giving them an opportunity in a 20-year runway to prepare for when they want to retire.
Amy: When I get clients around that age, I'm giddy because there's so much that we can do to help them and to craft their financial situation in a way that gives them all kinds of opportunities when they get old and all kinds of flexibility. On the flip side, I've had far too many come in who want to retire in 6 months and they haven't maybe planned well or everything's in that 401(k) and they didn't understand how that might impact them in retirement. There's not a lot of time to unravel those things. So planning for these things in advance and understanding these different kinds of accounts, right, and how capital gains works, many times it's, "We just bought that position less than a year ago. Let's not sell that, right, because you're going to have to pay ordinary income. Let's wait six months. Let's pull from something else, maybe your emergency fund for now. Then we can wait until we're paying less in taxes on it. We can replenish that emergency fund. So there's a whole strategy involved, but you have to understand how these things work.
Bob: Just switching gears and giving a couple other pieces of practical advice here, some people might want to downsize their home or move to another part of the country. Your husband wants to move where he can catch his own dinner, things like that. Well, when it comes time to sell that house, we got to look at the capital gains exposure there. The first thing that a lot of people don't keep track of is, what is the actual cost basis in your home? You know, so if you've made...
Amy: Upgrades matter. Yeah.
Bob: Yeah. Upgrades matter. It's important to keep those receipts on the major renovations and things that you do because that can raise your cost basis, lower your tax exposure. Just as a reminder here, if you've lived in your home as your primary residence for at least 2 of the last 5 years, you can exclude up to $250,000 of gains as a single taxpayer and up to $500,000 of capital gains if you are married filing jointly.
Amy: Here's the Allworth advice, listen, capital gains taxes, they don't have to be scary or confusing. You need to understand the rules and plan your investments strategically and then keep more of your gains where they belong, which is with you, not necessarily with Uncle Sam. Coming up next, how to travel smart without sacrificing your retirement goals. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. Talking about bucket lists for retirement, what are those dream goals that you've always had? Many times, I work with people, and that's about traveling. But some of these major trips also can come with major price tags.
Bob: Yeah. And that's why you have to build that into your financial plan. And I'll share a quick story, actually, that has a pleasant ending. It's a meeting I had with a client yesterday, and these folks are in their late 70s, early 80s. They've saved well. They've been retired for years, they come in diligently and update their financial plan every year, and these are very reserved, conservative people, very careful with their money. And usually, for people in their 80s, the first question I always ask them is, how's your health? How are you doing? And their faces light up. They talk about the ocean cruise that they took last year. They had a great time. They're both healthy. And the wife, very stoic, dignified lady, because I reviewed the goals with them, at least for the plans I built, we talk about the essential expenses, travel budget, and health care. The health care and the essential expenses are things that, "We got to have that."
Amy: Needs. Their musts.
Bob: Their must. And then the travel is the icing on the cake. We were able to review their plan, show them that they're in great shape. And she says, "Bob, can we look at what it looks like to increase our travel budget from $15,000 a year to $20,000 a year?" And I said, "Absolutely." And we modeled it out. The needle didn't move at all. They're great. And they're like, "We're going to book two cruises this year."
Amy: Good for them.
Bob: And what a great meeting to have. You're healthy. You saved well. You did the planning. And you're able to enjoy the latter years of your life. It was one of the more pleasurable meetings I've had in a long time.
Amy: Of course. But you're talking about building travel into the budget and making sure that it works. That's a key component of this. Some people, maybe you even set up a different account, right, and kind of watch those dollars separately, or at least make sure that your advisor has earmarked those dollars so that you know they're there for the plan. But listen, once you're retired, you have the flexibility to travel whenever you want. And you can save, shoulder season in Europe. Maybe you're not going in the hottest season or the peak travel season, but now you've got the flexibility not to have to deal with kids' spring break or summer vacation.
Bob: Or travel basketball or travel baseball, right?
Amy: Yes, amen.
Bob: Those were our vacations, which weren't really vacations for years, right?
Amy: Yeah. And listen, I'll tell you, my dad is great about this. Ask about senior discounts. He doesn't go anywhere where he's not asking about that, even my son's basketball games to that point. Plan with miles and points. There are ways that you can do these major trips and really enjoy them in retirement and also not break your budget. Thanks for listening. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You know, Bob, you and I have worked with so, so many people who have made that transition into retirement, and oftentimes, the conversation centers around the financial aspects of this. But there is so much more. And for those of you who are not knocking on retirement's doorstep or aren't already retired, stick with us here because I think some of this will be really helpful for you. We're talking about a bucket list and how that might help you get focused on retirement.
Bob: Exactly. And I don't know about you, Amy, but this is one of the most fun parts of what I get to do and I've done for years because I've helped dozens and dozens of people actually retire at this point in my career. And, you know, this comes down to there's a big difference in just retirement planning versus life planning, legacy planning, meaning planning, and it's a great topic that we're going to cover today.
Amy: Yeah. So my husband and I, one of the things we talk about all the time is what retirement looks like for us. And we have this really...well, we did have this really concrete picture in mind of we wanted to move south and be on water. And then my husband always said, "I want to walk through my backyard, get on the boat, and catch dinner. I want to be able to fish every day," right? And that was all well and good until all these hurricanes started hitting.
Bob: And I'm laughing, Amy, because I thought that, I've done that, and I moved back to Cincinnati for reasons I won't go into right now. But it's just funny. Yeah, what we think we're going to do when we're in our 30s, life has a funny way of taking different twists and turns, and it's all good.
Amy: But I think, you know, you start with what's the picture. What is the thing that gets us both excited about retirement if we're a couple? If you're a single person, what's the thing that you hold out there for yourself as, like, "When I get to retirement, this is the thing?" Dream big, think big, brainstorm, and then you can get into the nitty-gritty details of how do you get from where you are right now to where you want to go. But to your point, this is one of the most fun parts of our job is then saying, "Okay, we've got the money. What are we going to do?"
Bob: Yeah. To me, there's a couple of important steps to this. Number one, you know, we first have to get ourselves into a place where we actually can retire, meaning that we have enough income sources and investment assets to actually be able to replace our paycheck so we don't have to work anymore. I mean, that's step one. After you get into a comfortable place where that can happen, that's where all the dreams and fun stuff happens. But to your point, I think, start big. Look at the big picture as you approach this. And what are the big bucket list items where, "If my life ended 6 months from now, 6 years from now, or 26 years from now, what are the things that I really need to do and want to do to put my head on the pillow and know that I lived a good life?" And I think it's important to sit down and write those things down.
Amy: Great perspective.
Bob: And just as important, if you're married, have that same conversation with your spouse. Because what I find is some spouses are willing to talk about this stuff openly and are excited about it. Others aren't. But I could tell you from experience with clients and personal experience, if this is not an ongoing conversation where both spouses are participating, there might be surprises down the road, and they might not be good surprises.
Amy: Well, I'll tell you one other great reason why it makes sense for you to kind of get on the same page for this picture that you have of your future or your major money goals or your goals in retirement is I often find that couples aren't necessarily always on the same page financially. For instance, sometimes you'll have a saver and spender, and in their button heads all the time over, you know, "She did that," or, "He wanted to do this," you know, they're not on the same page. If you can get together with the same goal, then you're not fighting each other. You're simply saying, "That money that you want to spend, that thing that you want to do, is it going to get us closer to this thing that we want to do together or farther away?" So it can be a great tool for just kind of getting two people on the same page financially.
Bob: Exactly. And what I find, Amy, with a lot of the clients I deal with is it's not necessarily that one spouse is the spender and the other is the saver. It's one spouse takes a more active role in the actual financial planning and budgeting and the other spouse doesn't. It doesn't mean one's better or the other. They're just different. Different spouses play different roles oftentimes in the marriage and in the raising of kids and everything else, and that's why God created the institution of marriage. That's a good thing. But I think that's another good reason to sit down with an advisor who has the time and has the interest to actually, not force, but at least encourage some of these discussions. Because you do need to talk about it, to your point, so you can get on the same page. And we always talk to people, you definitely need to be having these conversations within about five years of when you're going to actually pull the trigger, not six months before retirement.
Amy: You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. Have you thought about what your retirement looks like? Have you talked to your spouse? Have you gotten on the same page? Does it look like moving south? Maybe, by now, that's what mine always looked like. We've got friends who both work remotely, and so they are living in Destin for January and February. Sometimes it's not just the destination. Sometimes it's, what do I love to do? Is it spending time with the grandkids? Is it volunteering for an organization that's near and dear to your heart? All of those things could be part of this bucket list for you. What do you want to spend time on? And maybe for years now it's been like, "I want to do this thing," or "I love doing this," or "I'm passionate about this," but work is so crazy. But once you get to take work off of the table, you have then the ability to focus on these things. And I think it makes sense to plan for them before you make the transition into retirement.
Bob: Yeah. And as I think back over my career, and again, I've been doing this for over almost 34 years now, so a lot of the first clients I worked with back in the '70s and '80s, I think it was a badge of honor and almost a status symbol to be able to go to somebody and say, "Well, I can retire at 55." "I can retire at 58." I'm finding more and more nowadays, just because you can retire, a lot of these people aren't happy, some of them aren't happy, because they didn't think about what they were actually going to do when they stopped working. And I've been blessed to have a couple of good friends that I can confide in who are a little bit older than me.
Amy: That's great. You learned from them.
Bob: And if you've traveled down roads, I haven't... And I'm thinking of one great piece of advice that I got from one of my best friends, he said, "Bob, you're rapidly moving from a life of achievement to a life period of influence and legacy, and you need to think and plan accordingly." And that's been great advice, an advice that I've embraced and I'm trying to implement.
Amy: That's a good friend. That's great advice. And I do think many people, because you maybe feel like you're on this hamster wheel when you're working, don't think about, what does it look like after I'm gone? And listen, I also have known many, many people too whose sense of self-worth really comes from their job, and they feel very lost, right, when they get to retirement, because there's no meetings, there's no presentations that they're giving, there's no people that are deferring to them anymore, that schedule's gone. And that can be really tough, which is why looking at what's your bucket list in advance can then help you kind of redirect that energy and that focus on something else that's not about necessarily the working and achieving, but what's something else that's going to fill me up in retirement?
Bob: Well, and as you talk about that, Amy, I'm thinking of one client in particular that I've worked with for over 30 years. And this guy was a high-level executive, department manager kind of guy, made a ton of money, heavy influence. He needed something to do. And I'll state this as a universal truth, I think every human being wants to be important to someone else...
Amy: Needs a purpose.
Bob: ...wants to make a difference in someone's life. He is finding incredible meaning now in just going and reading books to special needs children. Now, 20 years ago, that would have never been on his radar screen because that didn't involve making money, rising the corporate ladder, getting stock options, all that. But he's finding incredible meaning and purpose from that today. And if he wasn't doing that, that'd be a major hole in his life.
Amy: Yeah. You mentioned earlier, once you kind of get this bucket list or whatever, obviously, you have to start with the plan, and are we going to have money to fund that? Once you sort of built this wealth, whether you've done the bucket list first and then built the wealth accordingly or you've built the wealth and then you start thinking about it, you've got to have that financial plan that says, "Can we do this? And what does it look like?" One of the things that I love to do with clients who really like to travel and have waited and kind of put off these trips of a lifetime, I'll do multiple travel goals in their plan of maybe they want to spend a little time in Florida or take the family on a trip every year. So we'll put a goal in the plan for that. What is that going to cost likely? How many times do we think we're going to do that? And then, also, maybe every few years, they're going to Europe or they're doing a big trip like that. The sky is the limit, but the key is getting it on paper, figuring out how much it's going to cost, and do we have the resources to do that?
Bob: Yeah. Some of these big bucket list items simply don't happen unless you plan for them and schedule them, put them on the calendar, buy the tickets, because life gets in the way and life passes us on by.
Amy: Yeah. One of the best conversations that I can have with someone in retirement is, "Hey, not only can you travel, go ahead and fly first class." Like, wouldn't those be great words to hear from someone when you get to that place? Here's the Allworth advice, whether your dreams are big or small, close to home or far away, your bucket list is really a chance to kind of fill the stage of your life with purpose, joy, and connection. You've got to plan for it, and certainly, there's a financial component to it too. Coming up next, the moves to make if you need to unwind a heavy stock concentration. I know there's a lot of you locally who love one local company. We see this all the time. Stay tuned. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. If you miss something on the show one night, maybe you want to listen to it again, share it with a friend, or you just had to miss a show, well, we've got a daily podcast for you. Just search "Simply Money," it's right there on the iHeart app or wherever you get your podcast. Coming up next, 6:43, the world of capital gains taxes. If you do not understand this, you're going to want to because this could open up an entire world for you as far as retiring early or being really smart about taking distributions and retirement. So we'll get to that in just a few minutes.
When it comes to investing, I'll often hear like, "Oh, everything looks great for me right now. My stock is up." And I'll say, "Oh, stock, you mean, your ETFs? I'm assuming you're well-diversified." No, people will live and die on, and I'm just going to throw this out there because I know a lot of you are in this boat, Procter & Gamble stock. I love this company. I mean, it is a strong... I grew up here. When I go to Kroger, I cannot not buy Tide or Crest because I am a Cincinnati kid who grew up understanding that Procter & Gamble products are the best. Love the company, but I see so many of you coming into my office who have just such a concentrated position in Procter & Gamble. Or pick your company.
Bob: Well, I'll pick another company, General Electric. My entire life was based on General Electric. My father spent over his entire 35-year career there. And I think on a positive note, I think that's one of the things that makes Cincinnati such a great place. I mean, we've got a lot of wonderful people in this town that are very loyal people. They love where they work. They're blessed to work with great people. That's all a good thing. But, you know, whether we accumulate all this stock through stock grants or options, or we buy shares, or what have you, and we live in our little, for lack of a better word, bubble over 30 years, and we like to invest in things that we know and like and we feel that we have control over, we can end up with a highly concentrated position. And one of the things we got to remember is things do and can change with these companies. And I look back on, you know, if you've got a few spare minutes, pull up a chart of General Electric stock sometime, and it's been quite a ride over the last 30 years. And things happen. You know, GE, for example, went into different businesses. We think of GE as just an aircraft engine company, and it's a great one, probably the best one in the world. But they made forays into GE Finance and GE Energy and all these other things.
Amy: Insurance and appliances. Yeah.
Bob: Appliances. And that didn't work out quite as well. But you've got this loyal bucket of people in Evendale that all they know is how wonderful they are designing aircraft engines. You just got to...you can't put all your eggs in one basket.
Amy: Yeah. And you're talking about stock options and things like that. For those of you who are employees of these companies, what you have to think about is you are relying on that paycheck. Your current self is relying on this company to do well. But also, when you are buying, you know, a lot of company stock or a lot of your retirement is focused on whether that company does well or not. Your future self is also incredibly reliant on that. And I've seen Amazon come into new sectors and decimate companies. I have seen Department of Justice investigations into something that has sent a stock to them. You never know what can be coming.
And this is not me saying any one company here, Procter & Gamble or any of them aren't fantastic, well-built companies that have tried to think of everything, but I've also seen too many times something coming from left field that has had a huge impact. And, you know, you're talking about General Electric. I, years ago, used to always speak to groups of GE retirees. They were so, so proud of that stock. And I think of them all the time now and wonder how they're doing and are they okay because they were so...their retirement was so reliant on that company doing well. And then, to your point, pull up the graph and you've got the answer to how that story plays out.
Bob: So now that we spent a few minutes talking about how we can potentially get there, Amy, talk a little bit about, you know, when you have clients come into your office, they're finding themselves highly concentrated in one position, what are a few things that you're talking to them about?
Amy: I think the first thing is awareness, right, having the conversation that we just had about the fact that that could easily go south. And then, if they are open to diversifying, you know, how can we maybe, over time, right, sell off part of that position and get them in a more diversified place? I have a client who has a large position in Amazon. It's done really great for them. But what if something happens to Amazon? You know, part of the conversation with them is going to be like, you know, "Are we relying on this to create revenue for us?" You know, you can buy options strategies about, you know, if this company tends to go south as a way of protection, if we are really, really tied to the specific company. So there are options. But I think the number one thing is, first of all, being aware. And secondly, asking yourself, what do I then need the stock to do for me if you are reliant on it?
Bob: Yeah. And with the continual evolution of our industry, in a good way, there are managed strategies in place now, and I know we talk to our clients about them all the time, where you can have a managed situation in place to sell covered calls, to buy puts, to do some things in the background. So as an individual investor, you don't have to worry about all the individual trades on that. It's happening for you. But we can set a tax budget each year, we can set an income objective each year, and we can gradually work our way out of that position.
Amy: Yeah. It's going to take time depending on what kind of an account it's in, but you know, we're kind of throwing out, if you work for a company and you're, you know, so loyal to them. But I also have a good friend who her mom inherited stock from grandma, and she just loved that company so much, and even said before she passed away, "Don't ever sell this particular stock." So, many times, it's an emotional connection that, as advisors, we have to help you unravel and say, nothing against grandma, but this, in the future, may not be in your best interest.
Bob: Yeah. I've got a few clients like that where, you know, grandma or Uncle Bill or whatever said, "Don't, under any circumstances..."
Amy: They love that company. Yes.
Bob: Yeah. And there's another word of advice. Don't ever tell your kids that.
Amy: Please. Yes.
Bob: You're putting an emotional and possibly an economic burden on them. That's not fair to saddle them with.
Amy: Here's the Allworth advice, managing stock concentration is really not about making drastic changes overnight. It's finding balance, reducing your risk, and ensuring that your financial plan works for you no matter what happens in the markets or with one particular company. Coming up next, one of the simplest things you can do to make your home more appealing to a buyer. You can do it right now, and it's not really that expensive. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner. Okay, for those of you who are in the market for buying a home and maybe you just want to update the one you're in, what are the trendy colors? What are the new wave things that are coming around the corner? I don't have that answer. I am not so cool and trendy, but I know who does, our real estate expert, Michelle Sloan. Of course, you can hear her great advice right here on 55KRC every Sunday afternoon on her show, "Sloan Sells Homes." She is also owner of RE/MAX Time, and she has her finger on the pulse of all trends when it comes to real estate. Michelle, you know, you're a friend of mine. I went all in on gray several years ago, which is three years ago when I bought my house.
Michelle: Absolutely. I think a lot of people did.
Amy: Is gray still the biggest thing ever? You can tell me the truth.
Michelle: Really, it's not, but it's still neutral enough. And a lot of the grays in new construction and when you're building a home, the choices are limited for a reason because most home builders are not going to give you choices that are going to be so far to the left or right of the world that it's going to take you too far off-trend. The nice thing is trends are fun to look at. So the color trends for 2025 are coming out and you're going to see it, the Sherwin-Williams and all of the different types, the different companies that come out with all of the color of the year. Well, Sherwin-Williams came up with a color of the year that was, like, nine colors or something because it's the anniversary of calling a color of the year.
Amy: Oh, boy.
Michelle: So you know what, but we're seeing some really deep blues, chocolate brown is really hot, these darker violet colors, again, a hammered black in the... When we saw Homearama this year, we saw so much black. I mean, black walls, black ceilings, black trim. That's extremely trendy. That can be very dark and foreboding unless the rest of the house is nice and light and white. So I always take the trendy colors of the year with a grain of salt. And if you're planning and let's say you love that violet color that's out right now, only do that on an accent wall or use it in a way that you know in a year or two...because those colors, you will get tired of them and you'll get tired of them pretty quickly because they're so vibrant or they're so deep and they're so dark. So you know, my advice is, always, if you're planning to sell within the next couple of years, stay neutral.
Paint is the most inexpensive thing that you can do to update your home, make it look fresh, make it look like new. And when you go to paint and you pick a color, and this is my go-to color because everybody wants me to tell them, agreeable gray, and it says gray but it has little tones, it's a really warm gray. Agreeable gray from Sherwin-Williams is, like, that go-to color that I've been recommending for, gosh, almost 20 years, and that's how long I've been in the business, because that particular color is that neutral that seems to go with all of the woodwork that we've had trending over the course of the last 20 years. You know, there are other colors on that palette that are in the same vein, just really nice and neutral, and there's also some beige colors. Warmer tones are definitely in. And even when you picked your gray tone, I'll bet, I don't think I've seen it, but I'll bet you it's a warm gray.
Amy: Yes, it is. And I also like the point that you're making about these colors and the fact that...okay, you go all in, right? Oh, you know, I'm building a house now. We're buying a new house, and we're going to repaint all the things, and we're going for deep blue. We're going for chocolate brown, right? We're going for violet. We're going all in on these trends. And then, in four or five years, you sell your house and people walk in and they're like, "Oh, hello, 2024." You know, it immediately dates your house. So I think you can go kind of in on these trends and buy, like, violet pillows for your couch...
Michelle: Absolutely. I love that. I love that idea.
Amy: ...but not necessarily paint everything. Yeah.
Michelle: Yeah. Because you know, buying pillows, you use them for a year or two, and then they pretty much...if you've slobbered all over them or your dog has slobbered all over them.
Amy: My dog, yep, same. Yep.
Michelle: You can pitch them or wash, throw them in the laundry, and then, you know, they're either fresh and clean or they're not. And you can move on with life, and then you don't have all of the expense. You turn your house into a bit of chaos when you paint because you have to take everything off the walls, pass some paint. And again, it's a process, but it is the most...it really is the least expensive and the best way for you to freshen up your home. And I will always say, if you are starting to paint and let's just say the first floor of your home, kitchen, dining room, family room, living room, just pick one color and stick with it the entire first floor of your home so that you don't have any awkward transitions. You know, the days of red in the dining room, I still walk into homes...
Amy: I had two of those.
Michelle: Yeah, I still walk into homes and see the red dining room, and it makes me cringe a little bit. I see grapes on the wall or maybe some border in the kitchens. And do you remember the border along the top of the wall?
Amy: Uh-huh. Yes. And it was...
Michelle: Wallpaper borders.
Amy: It's either grapes or the leaves, right, always, which kind of leads me to my next question, which is, you know, for those people who are, "Well, I'm not going to repaint my house." I'm sure you've had clients through the years you were like, "But this color everyone hates." Like, it's not an option. If you're going to put... What are the most hated colors when it comes to real estate?
Michelle: Well, I will say red is one of them, number one because it's so difficult to cover up.
Amy: To paint over? Yeah.
Michelle: Yeah. It's going to take two or three coats, or you're going to have to do a primer on it and then paint it a couple of coats. It's going to cost you. If you hire someone to do that, it's going to cost you several thousand dollars, and you're like, "Ah." But it will make a difference if you get rid of it before it comes time to sell. The other colors that make me cringe just a little bit are the yellows that look a little bit like Big Bird. There's been some gold and some yellows over the years that don't weather or have that staying power. And, you know, I always tell the story, this has probably been 10 or 15 years ago. I walked into somebody's house and it looked like a fun house. Every single wall, they had a two-story, great room, every single wall was a different primary color.
Amy: Oh, it looked like a crayon box, huh?
Michelle: Oh, my gosh. And then, you know, up in the bedrooms, they were different colors. And I walk in, and my eyes about popped out of my head. And I said, "Oh, you like color, do you?" You know, I didn't end up getting that listing. But here's the thing, it did end up taking them a heck of a lot longer to sell that property.
Amy: I bet it did.
Michelle: It was a beautiful home. But when I suggested, "You need to repaint this whole house," and they said, "No, I'm not going to do it," I'm like, "Okay, well, you know, that's your decision, but you have to." And I don't like to say, "I told you so," but it was a lot. So when I try to tactfully tell people, "You know, it will help you in the long run," because paint colors, if they are the wrong ones, they can decrease the value of your home, because the buyer is going to look at it and say, "I can't live with that. I can't live with that color." And so best case scenario is neutralize, neutralize, neutralize, if you're planning to sell. Now, some people are like, "But I do love my color. I love this purple-violet color."
Amy: You do. Yeah, right. But maybe someone else won't. Yeah.
Michelle: You're absolutely right. You do, but not everybody may. And then they realize, "Okay, well, then I'm going to have to spend $5,000 or $6,000 to hire somebody to do this." And you always make less on the sale of your home if you don't do it before you put it on the market.
Amy: Yeah. And I'm sure if it's between your house full of Crayola colors and another house that's neutral, probably the neutral house is going to win every time. Great perspective as always from Michelle Sloan, a real estate expert. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. If you have a financial question you need a little help with, there's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us and straight ahead. Speaking of a bucket list, how can you travel the world without maybe sacrificing your financial situation? We'll get into that in a few minutes.
Have you ever made a profit from selling something big? A house, stocks, maybe for those of you who've gone into crypto, it's cryptocurrency. Hopefully, you did time that right. But Uncle Sam, what you have to keep in mind is every time you have one of those big sales with big proceeds, Uncle Sam is going to want his piece of that pie.
Bob: Yeah. People complain to me all the time about having to pay taxes, and I kindly remind them, you only pay taxes when you make money. So let's not complain too much. But let's walk through a little primer here on some of the things that people need to be aware of. So the first thing, short-term capital gains. Anything that you derive a profit from that's been held one year or a year or less is going to be taxed at ordinary income rates, which is taxed the same thing as your paycheck. Long-term capital gains, on the other hand, are assets held for more than one year, and those are taxed at sometimes much lower and much more favorable rates than ordinary income taxes, anywhere from 20%, 15%, sometimes even 0% based on what your overall taxable income is.
Amy: And that can be a great thing to take advantage of. We talk about diversification in your investments, but I would say you also have to be diversified in the kind of accounts that you're saving in. I will come across people pretty often who have significant money saved, but they're all in IRAs or 401(k)s. So if that's all kind of tax-deferred, first of all, you're going to pay taxes on every dollar you're pulling from those accounts at your ordinary income rate, but second of all, I just hit a couple this week that were in my office, 33 years old, and they are on a fantastic track. And I said, "Listen, I don't want to put words into your mouth, or goals, but you guys could potentially retire early. Here's the problem with that. All the accounts you're saving in, you can't access until you're 59.5 unless you're going to pay a 10% penalty. If retiring early is anywhere on the radar or a goal of yours, let's get some money into a joint taxable account." And kind of talking through the tax advantages of once you hold those positions within that account for a year, you're going to be taxed at a lower rate, and this can be a great option for a lot of people when they get to retirement. If I come across someone who's got a taxable account and traditional dollars and then Roth dollars, these are the first dollars that we tap, and they can be incredibly tax efficient, especially if you've been harvesting losses in that account, you can be incredibly tax efficient with these.
Bob: Yeah. And you bring up a whole what I'll call hornet's nest of activity here that is one of the merits of doing good tax planning. We talk about this all the time. There's a tremendous difference between tax preparation and tax planning. And unfortunately, I think about 85% of the people out there only do tax preparation and don't talk about tax planning. And this is where you can effectively diversify your income sources when you retire and then diversify the sources from which that income comes from, and you can layer on income from Social Security, IRA accounts, non-IRA accounts, Roth IRAs, and craft an income strategy that gets you the income you need in the most tax efficient way possible. So good for you, Amy, for asking that 30-year-old client 20-some years ahead of time, "When do you want to retire?" And I mean that seriously because now the conversation has begun and you might have made a huge difference in their life by giving them an opportunity in a 20-year runway to prepare for when they want to retire.
Amy: When I get clients around that age, I'm giddy because there's so much that we can do to help them and to craft their financial situation in a way that gives them all kinds of opportunities when they get old and all kinds of flexibility. On the flip side, I've had far too many come in who want to retire in 6 months and they haven't maybe planned well or everything's in that 401(k) and they didn't understand how that might impact them in retirement. There's not a lot of time to unravel those things. So planning for these things in advance and understanding these different kinds of accounts, right, and how capital gains works, many times it's, "We just bought that position less than a year ago. Let's not sell that, right, because you're going to have to pay ordinary income. Let's wait six months. Let's pull from something else, maybe your emergency fund for now. Then we can wait until we're paying less in taxes on it. We can replenish that emergency fund. So there's a whole strategy involved, but you have to understand how these things work.
Bob: Just switching gears and giving a couple other pieces of practical advice here, some people might want to downsize their home or move to another part of the country. Your husband wants to move where he can catch his own dinner, things like that. Well, when it comes time to sell that house, we got to look at the capital gains exposure there. The first thing that a lot of people don't keep track of is, what is the actual cost basis in your home? You know, so if you've made...
Amy: Upgrades matter. Yeah.
Bob: Yeah. Upgrades matter. It's important to keep those receipts on the major renovations and things that you do because that can raise your cost basis, lower your tax exposure. Just as a reminder here, if you've lived in your home as your primary residence for at least 2 of the last 5 years, you can exclude up to $250,000 of gains as a single taxpayer and up to $500,000 of capital gains if you are married filing jointly.
Amy: Here's the Allworth advice, listen, capital gains taxes, they don't have to be scary or confusing. You need to understand the rules and plan your investments strategically and then keep more of your gains where they belong, which is with you, not necessarily with Uncle Sam. Coming up next, how to travel smart without sacrificing your retirement goals. You're listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Bob Sponseller. Talking about bucket lists for retirement, what are those dream goals that you've always had? Many times, I work with people, and that's about traveling. But some of these major trips also can come with major price tags.
Bob: Yeah. And that's why you have to build that into your financial plan. And I'll share a quick story, actually, that has a pleasant ending. It's a meeting I had with a client yesterday, and these folks are in their late 70s, early 80s. They've saved well. They've been retired for years, they come in diligently and update their financial plan every year, and these are very reserved, conservative people, very careful with their money. And usually, for people in their 80s, the first question I always ask them is, how's your health? How are you doing? And their faces light up. They talk about the ocean cruise that they took last year. They had a great time. They're both healthy. And the wife, very stoic, dignified lady, because I reviewed the goals with them, at least for the plans I built, we talk about the essential expenses, travel budget, and health care. The health care and the essential expenses are things that, "We got to have that."
Amy: Needs. Their musts.
Bob: Their must. And then the travel is the icing on the cake. We were able to review their plan, show them that they're in great shape. And she says, "Bob, can we look at what it looks like to increase our travel budget from $15,000 a year to $20,000 a year?" And I said, "Absolutely." And we modeled it out. The needle didn't move at all. They're great. And they're like, "We're going to book two cruises this year."
Amy: Good for them.
Bob: And what a great meeting to have. You're healthy. You saved well. You did the planning. And you're able to enjoy the latter years of your life. It was one of the more pleasurable meetings I've had in a long time.
Amy: Of course. But you're talking about building travel into the budget and making sure that it works. That's a key component of this. Some people, maybe you even set up a different account, right, and kind of watch those dollars separately, or at least make sure that your advisor has earmarked those dollars so that you know they're there for the plan. But listen, once you're retired, you have the flexibility to travel whenever you want. And you can save, shoulder season in Europe. Maybe you're not going in the hottest season or the peak travel season, but now you've got the flexibility not to have to deal with kids' spring break or summer vacation.
Bob: Or travel basketball or travel baseball, right?
Amy: Yes, amen.
Bob: Those were our vacations, which weren't really vacations for years, right?
Amy: Yeah. And listen, I'll tell you, my dad is great about this. Ask about senior discounts. He doesn't go anywhere where he's not asking about that, even my son's basketball games to that point. Plan with miles and points. There are ways that you can do these major trips and really enjoy them in retirement and also not break your budget. Thanks for listening. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
