10 Tough Money Lessons Every Investor Needs to Hear
On this week’s episode of Simply Money, Bob and Brian put on their “tough teacher hats” to deliver some advice you may not want to hear, but absolutely need to hear. Just because you’ve saved $2 million, $3 million, or even $5 million doesn’t mean you’re automatically set for life. Their lessons cover why retirement isn’t a vacation but a paycheck replacement plan, why your kids don’t need another check but a financial strategy, how treating your portfolio like a casino can wreck decades of hard work, and why taxes could cost you more than your house. Plus, they dive into the real spending patterns of retirees, scams targeting families, and listener questions on concentrated tech stock, charitable remainder trusts, and how to plan for estate taxes on illiquid assets like real estate.
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Bob: Tonight, some advice you don't want to hear, but you might need to hear. You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller, along with Brian James.
We meet a lot of families who've done an incredible job saving. Maybe they sold a business, maybe they were diligent 401(k) savers for years, if not decades. And now, they're sitting on $2 million, $3 million, $5 million, maybe even more. The natural thought is, "Well, we're rich, we're good, we're set for life." But here's where we put the tough teacher hat on tonight and say, "Not so fast, you're not automatically in the clear." So, staying with that whole teacher theme, Brian, let's get into lesson number 1.
Brian: All right, Bob, lesson 1, retirement isn't a vacation, it's a paycheck replacement plan. Now, some of the things we're going to talk about here this evening are going to sound kind of almost wet blankety, kind of depressing, but retirement should be a happy time. Here's how you start that way and keep it that way. So, a retirement is a vacation, not a paycheck replacement plan, basically means that you have to figure out what you were living off of before. This is kind of where it all starts. If you were making $150,000 while you were working, well, where's that money going to come from now?
Now, let me back off that question a little bit by saying, if you were grossing $150,000, you were not netting $150,000. You had taxes coming out of that, you had federal income taxes, state income taxes, payroll taxes, which are three different flavors, by the way. And you had your 401(k) contributions coming out of it. Maybe you were putting money systematically into savings that you don't have to anymore. You had a mortgage, maybe that's gone. So, you don't necessarily need to replace your entire salary, but that also means you need to do a little bit of work and figure out what it is exactly that you spend so that you know what target you're shooting for. You can't spend what you don't have no matter how well you've done. So, even $3 million to $5 million can run dry if you don't manage those withdrawals, inflation, taxes, and all that. We've got clients that have $250,000 who are going to be just fine because their budget is below their Social Security checks and that's kind of all they have. We have clients who have $5 million who live like they have $25 million. Guess which one has the problem? What's our second lesson, Bob?
Bob: Well, lesson 2 is stop chasing headlines. In other words, the market doesn't care what you read and consume in the way of media all day. Stop chasing headlines. Brian, I'm running into this more and more, I mean let's face it, in this divided media culture that we're living in right now, depending on where we go in terms of sources for our news and headlines, we can have a completely different narrative swimming around in our head. And for folks that just retire and don't maybe have enough to do, they're glued to CNBC or TikTok or wherever they get their news, and they want to act on what they hear or see in headlines rather than have an actual plan. And again, the market does not care what you read, it doesn't move because of your favorite newsletter or Twitter feed.
Brian: Yeah, Bob, I can't remember the last time I heard, and I don't think I ever have the last time I heard our Chief Investment Officer, Andy Stout, say, "Hey, I read this," or, "I saw this headline on the crawl, I better go do something with our $30 billion that we manage." These are not things, this is financial pornography. We really never react to those kind of headlines. It's just something to talk about. So, let's...
Bob: And it comes from both sides of the political aisle, let's face it. I mean, the news media is a business. They know what we want to consume and they feed us what we want to read. So, yeah, thank God we got Andy Stout just looking at data and running our good, old recession scorecard to keep us up to date. All right, lesson 3, Brian.
Brian: Yeah, your kids don't need another check, they need a plan. So, we've seen this pretty often. So, we write checks for houses, cars, vacations, and this feels generous, but it can actually hurt them if you're helping them at this level. And, yeah, it's tough out there. And this doesn't mean to abandon them to the wolves. But at the same time, if we're building the expectation is the money just drops out of the sky and my problems are solved, then they're not going to learn how to scrimp and save the way that you did to build your ability to help them this way in the first place. So, this can fuel lifestyle inflation, makes them completely dependent on somebody else, and robs them of any financial discipline, which is presumably, what you got along the way from your forebears because you had the ability to build this kind of a nest egg in the first place that supports them to do this. So, what might be a better gift if I'm going to help my kids? Bob, what do you think? What are some good ideas?
Bob: Well, the best gift is financial education and communication. And, you know, it's sitting down... Especially, you know, approaching and into retirement, you got more time to do this. Equip your kids and grandkids to handle money. And, yes, if there's a dire need that comes along, I mean, helping them get out of a jam today for a little bit of money is going to be a game changer, versus giving them a whole pile of money when they're in their late 60s or 70s. But to your point, Brian, we can't enable bad behavior just because we feel like we got a whole boatload of money to throw around. And it's counterintuitive, but we're oftentimes hurting our kids more than we're helping them by bailing them out or enabling irresponsible behavior.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Brian, let's get into another lesson. Stop treating your portfolio like a casino. We don't run across this too often with our clients, but every once in a while we do.
Brian: Yeah, a lot of times, you know, people get an idea. And this comes from cocktail parties or somebody's brother-in-law or, you know, somebody's friend, or at the office water cooler. You got a hot tip on something and it paid off. And so, now, all of a sudden, we want to chase things. And so, some investors are doing just that, treating their portfolio like a casino. It's something where I'm supposed to take a little bit of money and turn it into a big pile of money. When we talk about these on these airwaves all the time, memes, stocks, crypto, hot funds, 25 years ago, it was any technology stock. That's not investing. That's just gambling. Like Vegas, the house always wins. Portfolios are not for thrill seeking, it's for building financial security, discipline beats luck every time. So, if you find yourself having this itch and needing to scratch it, carve out a little bit of money.
Don't do it in a Roth IRA. A lot of people say, "I'm going to make my bazillion dollars out of this penny stock in a Roth IRA. That way, I'll be Peter Thiel with $5 billion off of this $1,000 investment I made in a penny stock." Well, more likely what's going to happen is the $1,000 dollars is going to go to $100 or $0. And because you did it inside of a Roth IRA, you don't even get a deduction out of it. So, bear in mind the risk that you're taking with these little corners of your portfolio and do it in a taxable account if you have to.
Bob: Yeah, and I love the concept, again, for those that love to play, you know, and there's nothing wrong with doing this, but again, my message is always, let's make sure we separate your serious money from your play money. If you've got enough serious money set aside in a good, responsible financial plan and you want to go take some risk and speculate on some things for fun or to compete or just feel like you're winning, treat it as a hobby, it's totally fine. But you don't want to do that with your serious money for obvious reasons, you'll mess up your retirement that you've spent decades building just because you're bored and seeking excitement. All right, Brian, lesson 6. I think this is a big one, and I think this one this is one of the biggest value adds we provide for our clients, and that's not letting taxes shock you.
Brian: Taxes should be somewhat predictable if you're paying attention. So, they're going to be one of your biggest lifetime expenses if you add them all up, probably even bigger than your house. So, Roth conversions, charitable trust, direct indexing plans, planning ahead saves millions of dollars. These are all ways of simply understanding how the tax code works and taking advantage of all those little, subtle details. So, if you're going to do a Roth conversion, you're simply taking pre-tax money and you're turning it into after-tax, tax-free money forever. That sounds awesome. And a lot of people roll in and they say, "Of course, I'm going to convert my entire traditional IRA to a Roth. Why wouldn't I? It's going to be tax free forever." We got to look at what that's going to cost you out of pocket and how you're going to pay the pay the taxes, for example, in that case. Charity, direct indexing, all these other things are definitely helpful strategies, but if you ignore taxes, you're going to give the IRS more than your kids over time.
Bob: All right. Lesson 7, don't confuse busy work with a true financial plan. And Brian, we run into this from time to time. People are checking their accounts every day, multiple times a day. That's not a plan. Neither is collecting 15 statements from different advisors, you know, feeling like you're diversified and you've got all this information to manage and play with. True planning means coordination, investments, estate planning, taxes and insurance, all working together in concert in one coordinated plan.
Brian: Yep. And so, we'll move on then to lesson 8. If we think that retirement starts at 65, that might be another mistake. A lot of us get hung up on Medicare age. 65 is the go time for Medicare age. Matter of fact, this might be a great time to talk about the other ages because we tend to get confused. 62 is when you can first sign up for Social Security. That doesn't mean do it. That just means you're that's the first time you can. It'll be the smallest check you ever get, which isn't necessarily a bad thing, need to understand the impact. Then there's something called full retirement age, which is between 66 and 67, depending on when you were born. For anybody born after 1960, it's now 67. And then the other age related to Social Security is 70. 62, 66, 67, and 70 are the four Social Security relevant ages. The longer you wait, the bigger of a check you're going to get.
Now, a lot of people get hung up on 65, and we tend to start here, too. I think we probably as financial advisors tend to rely on 65. It's just a good starting point for those who don't know. But that is the age at which you become eligible for Medicare, which obviously, is important because you need to have some kind of health insurance plan when you are retired. Some people are fortunate to retire from companies that offer retiree health benefits, most are not. You might have Cobra, meaning you could go at, say, 63 and a half and get a slightly better deal by maintaining your existing health care insurance through your ex-employer. But some people will simply have to go on the exchanges.
And for an individual, you're probably paying a $1,000, $1,200 a month for insurance. Double that for a married couple if you're on the exchanges. But that causes a lot of people to believe retirement starts at 65, and I have no way to choose differently than that. And that is simply not the case. You can retire earlier. You just have to do some planning on the health care side. And just because you don't want to write a $2,000 check for health insurance, doesn't mean you can't. So, own your life first, figure out what you want to do, and then make the math work around it. You got to write a fat check, then write a fat check as long as the plan works.
Bob: All right. Lesson number 9, you can't outsmart longevity. We run into people sometimes that underestimate how long they're actually going to live. One spouse for a married couple often outlives the other by, you know, almost a decade. You got to plan as though you're going to live longer than you think, because chances are one of you probably will. And that leads to lesson number 10, stop thinking that estate planning is just for the wealthy, it's for the responsible. And Brian, I see this way too often. Too many families put off doing wills and trusts. And without it, the courts, not you, decide what happens to your assets. And the big one that I see overlooked a lot of times, and this is becoming more and more prevalent for folks that I work with is powers of attorney. You got to have these things set up in case cognitive impairment, you know, dementia, things like that happen. You got to have somebody named to step in your place to handle things if you can't do it anymore.
Brian: And you might do what's called a durable power of attorney, which, you know, if you trust the person that you are naming as your power of attorney, then you can put them in charge right now. Give them the ability now while you are of perfectly clear mind. You don't need them to do anything. But if you want them to be able to step in quickly, then a durable power of attorney might be a good idea. That enables them not to have to go through the process of getting you in front of a doctor to have a doctor declare you incompetent officially. You can simply act for them now. There are many moving parts to this. That's not a quick answer, but it's something to consider if you're in that situation.
Bob: Here's the Allworth's advice. No matter how much you saved or how smart you think you are, money doesn't just take care of itself, discipline, planning, and a clear-eyed approach are the only things that keep wealth from just slipping away. There's a big lie about retirement that most people out there still believe. We'll tell you what that is 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. If you can't listen to "Simply Money" every night, subscribe and get our daily podcast. Just search "Simply Money" on the iHeart app or wherever you find your podcast. Straight ahead of 6:43, we are diving into more of your questions, everything from smart investing moves to protecting your retirement. One of the most common assumptions we hear from people approaching retirement is this, "Oh, I know I'm going to spend way less money when I'm retired. Less commuting, less need for work clothes. The mortgage might be paid off. So, naturally, expenses are going to go down, right?" But the reality, and Brian, we see this all the time, research shows that many retirees actually spend more in the early years of retirement, not less. Let's dig into this, because this happens a lot, and it's an important topic to cover.
Brian: This research comes from the EBRI, Employee Benefit Research Institute. We get a lot of good information out of them. They've been tracking and they found for the first five to 10 years of retirement, spending often rises. Well, the reason behind this, it kind of makes sense. This is when we're healthiest, most energetic, and finally ready to do the things they've been putting off. This is bucket list time, right? For those of us who kept a bucket list all those years, "Here's all the awesome things that I'm going to do when I have the time to do it." Well, that's really the first 5 to 10 years' worth of retirement. When we have time, we tend to fill it. When there's a vacuum of time, we tend to fill that vacuum with spending. So, that's not necessarily a bad thing, but for sure, we have to get our sea legs when it comes to being actually retired and understanding what our lifestyle is going to be like. So, this can include vacations, home remodels, maybe even an entire second home. And let's be honest, a lot of people just want to spike the football and celebrate the fact that they don't have to clock in on a Monday morning anymore.
Bob: Yeah, spike the football and write a half million dollar check for whatever, an RV or a second home. I think the point we're trying to make here is, and we and we talk about this in reverse, telling people not to just hoard all their money and not spend it and not have any fun and leave a whole boatload of money to their heirs, you know, when they're in their 80s and 90s. But, you know, this point, you have to plan for this stuff. If you're thinking about doing these major big ticket items, the cruise, the second home, the home remodel, the RV, talk about it in advance of retirement, and make sure that's factored in to your retirement plan. Because you only want to retire once and you don't want to come up, you know, in your late '70s and '80s and say, "Shoot, I'm about to run out of money."
Brian: Yeah. So, we want to make sure that we're on top of things. And this all starts with, sit down with your spouse if you're married or even if you just need to go sit on the porch and stare off into the sunset and think about what you want as an individual. It just has everything to do with, "What is it going to be like when I don't have to adhere to someone else's schedule." So, the big thing to pay attention to...
Bob: Brian, you just brought up an excellent point here. And that's, it is so critical to have both spouses in the room talking about financial goals, especially in retirement. Because let's face it, whether one spouse is working in a job and the other is stay at home or if both spouses are working, everyone has in their mind what retirement looks like to them. And oftentimes, when you're raising kids and working hard and you're busy and you're in the office all day, you're not communicating with your spouse on what he or she thinks retirement should look like. So, it's really important when you're talking about goals, have both spouses in the room to talk about this stuff. So, when you start attaching dollars and cents to these goals, you got to make sure the plan's going to work, and do that in advance so one or both spouses aren't disappointed in the end.
Brian: That's really important. And this all comes through. We have some data to support this, too. So, a '22 J.P. Morgan study showed that about 6 and 10 retirees spent the same or more in the first decade of retirement. So, there's a kind of exclamation point to this whole topic here of making sure we understand what's coming. And by the way, we're not talking about medical costs. We're not talking about the unfund stuff. That comes later. We're talking about people just living their lives once they finally accomplish some level of freedom.
Bob: Yeah, and for those that do have a good amount of wealth, the risk isn't necessarily running out of money, but misaligning your wealth with your lifestyle. You don't want to live the first 10 years in retirement way under budget only to pass away with more money than you ever intended to leave behind. Or worse, live it up early and then find yourself tightening the belt when you're 80. Again, it's good to take advantage of those go-go years, as you call them, the first few years of retirement. But talk about it. Talk about it with both spouses and plan ahead.
Brian: And talk about it with an adviser. I mean, this is something where the common question that I bring up when I can see that I'm in a situation where these folks are going to be okay. You know, after 30 years of doing this, Bob, I feel like my job, every meeting is going to be one of two outcomes. It's me pushing someone to be more responsible because they're about to run their train off a cliff, or pushing them to go out and enjoy what they've built. Every meeting fits in one of those two categories.
So, one of the first things that I ask people when we're building a financial plan is, you know, we need to know your goals. What do you have in mind? What is it that you want to do? And they'll say, "Well, we really want to kind of make sure it works. So, we're just going to keep it simple. And we're going to build a garden and we're going to eat vegetables out of the garden and we're just not going to leave the house." And that sounds like a terrible way to exist for the rest of someone's life. So, I kind of try to turn them around the other way. If you ever kind of sort of thought maybe you wanted to do something, that's going in the plan.
Let's throw every last goal in here. Remodel the house, the second house, the around the world retirement trip. Do all of those things. Let's run the math. Assuming we've done that, if it works, cool. Now, you got to get out of your own way and decide which of these things you're really going to pull the trigger and write a check for. If it doesn't work, that's okay, because we were throwing the kitchen sink into it. Now, we prioritize, what are the things that are most important? What are the things we can live without? That way, when we do those extra fun things that maybe aren't necessary to retirement, but sure are a heck of a lot of fun, we don't have to feel guilty about it because we planned ahead.
Bob: Exactly. And what you just talked about there is being proactive and communicating clearly. I love it. That's what good financial planning is all about. Here's the Allworth's advice, plan for retirement that matches your lifestyle, not just a formula. All right. Scams, the scammers out there are getting smarter, and we'll show you the latest tricks con artists are using and how to spot them before they spot you. 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, joined tonight by our good friend, Jocile Ehrlich, President of the Cincinnati Better Business Bureau. Jocile, thanks as always for spending some time with us tonight. Hope you're doing well. And I know you want to talk. There's a whole bunch of scams out there. We're always on the lookout on these latest scams and preventing our clients from getting exposed to them. I know you got a lot to talk about. Walk us through some of this latest stuff we need to be aware of.
Jocile: Well, let's start out with fantasy football. There are so many people that play fantasy football. It's very popular. We have seen a spike in online gaming scams as a result of that. You know, it's really easy to end up on an illegal betting site, especially if you're scrolling through social media. If you're somebody who relates to betting influencers, and that's a lot of young people, you can find gambling influencers all over TikTok and Instagram. They pose as betting gurus, but their goal is more to go viral than to give genuine betting advice. They hype themselves big time by claiming things like, "I made $10,000 in a day." And they post things like, "Guaranteed Sunday football wins," or, "NFL lockpicks."
And, you know, these claims are how they're going to lure you into clicking the link in their post. This link is supposedly, going to direct you to some secret betting site, but it's really a fake site, or it's a cloned version of a legitimate betting site. Think a URL that's spelled slightly different than the real site is spelled. The games on these sites are usually rigged so you have no chance of winning. And even if you do win, the site won't allow you to withdraw your winnings. Not only are you going to lose the money you deposited into the site, but the scammers now have your personal financial information to either use themselves or they'll sell it on the dark web. Now, if you want to try your luck, make sure you're using a legitimate betting website and check it out first at bbb.org.
Brian: That's great that you track those types of sites. I didn't know that the gambling sites was something that's... Has that always been there? Has BBB always tracked that?
Jocile: Wherever the scams are, we're tracking it. And we track legitimate businesses across all industries, and the ones that are causing people headache and heartache.
Bob: All right, Jocile, you've also got some updates on passport scams and timeshare scams.
Jocile: Right. So, you got this big trip next month, and you just realized that your passport is going to expire. So, you go online to find a solution and you come across a website that promises to expedite your renewal passport for a fee. Unfortunately, this is not your solution. It's going to be your nightmare, because this scam can cost you hundreds of dollars, not to mention possibly, having to cancel your trip. These fake passport sites are designed to look exactly like the official U.S. Department of State site, which is travel.state.gov. That's important. And these guys are counting on your desperation to keep you from thinking clearly. You could end up paying for forms that you can get for free on the government site. And in the process, you'll also be giving up sensitive information like your Social Security number. If you need an expedited passport, there are steps you can take, but you can only do it through official channels. You can pay for expedited processing by mailing in your paperwork and fees. Or if this is a really close window, you can go to a passport agency. And the closest ones to us right now are Chicago and Detroit, although there will be one opening up in Cincinnati next year, so that's good news.
And the timeshare scams you mentioned, you know, people have gotten involved in timeshares. Many of them are just fine and they are enjoying them. But there are a lot of people that are just over their timeshares. The fees are piling up. You don't use it. You just want out. Then you get a call, or you see an ad online for timeshare legal consulting or an exit company. And they say they have a team of lawyers on staff, and they've helped thousands of people exit their timeshare. That's all part of the scam to get you to trust them. They'll demand a huge upfront fee, claiming it's for legal services, filing fees, or even to guarantee your exit. And they'll use high pressure tactics, of course, claiming you have to sign up right now because of a limited time deal, or maybe there's an upcoming change in the law, according to them. After you pay up, they're going to stop returning your calls, and all those lawyers you were told about are nowhere to be found. They've got your money and probably passed your timeshare onto a broker. You are still the owner of that timeshare. You're still responsible for all the fees. And now, you're stuck waiting to see if the broker finds a buyer, which could be years if they ever do.
Bob: All right, Jocile, I'm sure you and your team monitor reputable companies versus questionable companies. And I hear these timeshare ads quite often on the radio. Are you able to name specific companies? Maybe they don't... Are there specific companies out there that you already know, "Hey, watch out for that company, do not contact them?"
Jocile: There are specific companies that BBB is aware of, but you as the consumer need to go to our website and check the company that you are considering doing business with. And the report will be there that this is either a company that you can trust, or it's a company that you should stay away from.
Brian: So, I want to change the subject here a little bit. You also have mentioned in the past, social media account takeovers in the ways that your life can be dominated if somebody gets a hold of your password or hacks into your account. How does this work, and how can we protect ourselves from these kinds of things?
Jocile: Well, one of the prime targets of a scammer is to get access to your social media account log in information. If they have that information, they can log into your social media account and impersonate you. Once they're in, they could message your family and friends, usually asking for money in some fashion. Maybe they will claim that you've had an emergency. In one case, a man reported that he saw his friend listed his car for sale on Facebook. He then went to message his friend about you know, "How much is it going to cost for your car?" And the scammer who had taken over the account said he would only accept cryptocurrency. So, the man got suspicious and called his friend, who knew nothing about it, didn't have a car for sale. And he realized that he couldn't log into his Facebook account. Now, his account had been hijacked.
So, losing access to your account, all your pictures and your contacts is bad enough, but it's even worse if somebody you know falls for the scam and sends these crooks money. To protect yourself and your family and friends, make sure you use a strong password. I cannot emphasize that enough. And turn on multifactor authentication. And if a friend suddenly messages you on social media asking for money either directly or indirectly, be careful because it might not be your friend at all.
Bob: Jocile, this impersonation scam actually happened. You know, my wife and I didn't get scammed, but somebody thought they were renting our condo and actually sent money to someone only to find out that the whole thing was fake. They didn't impersonate our account, but they created an account to try to rent our condo out to somebody. And thankfully, a neighbor, you know, discovered what was going on. So, this is a real thing out there. And we really appreciate you coming on tonight to share some of this stuff with us. You're listening to "Simply Money" presented by Alward Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money" presented by Alward 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 big, fat red button you can click while you're listening to the show right on the iHeart app. Simply record your question and it will and always comes straight to us. All right, Brian, let's lead things off tonight with Tom and Hyde Park, who says, "I know my portfolio is too concentrated in tech, especially NVIDIA stock. Should I be looking at hedging strategies, or just start selling now, even if the tax bill is painful?"
Brian: Well, congratulations, Tom, you've put yourself in a good, solid position with some of these strong technology positions that have been driving the market for the better part of several decades. But also glad to hear you're willing to maybe step outside the casino with some coins left in your in your little bucket. So, let's talk about how you can get out of this. First thing would be, obviously, you can simply sell it, and you can spread it over time. Maybe it's a situation where you buy enough time to sell a little bit in the current tax year and move some into the second tax year. That's one option just to think about.
Another would be, you can you can potentially look at it using something called an exchange traded fund. If this position, and you mentioned in video, if that position is over a million dollars, then you may very well be able to put that into an exchange fund, and in response, receive a diversified portfolio of other people's stocks who have the same problem. So, you're basically committing your overly large position in exchange for a portion of everyone else's overly large position. That is not a taxable event. Lots of moving parts to that, though. You can also hedge with options. You can do something called collars or protective puts, which is basically putting a floor and a ceiling above your position so that it can't hurt you too much if it goes the wrong direction.
And then finally, and something else to look for is if there are any positions elsewhere in your portfolio that are sitting at losses, you might sell those at the same time. Those losses will net out against the big gain you have in your technology portfolio. Perhaps there's some out there that you can take advantage of. Rachel in Fort Mitchell says she's invested and interested in charitable remainder trust, but she's wondering whether they really provide an income as well as a benefit for charity or is this just a tax gimmick that CPAs and lawyers try to sell us? Bob, what do you think?
Bob: Well, it's definitely not a tax gimmick, Rachel. I mean, these things are real. They've been used for years and years and years. And in the right situation, they work remarkably well. There's just a lot of options and a lot of moving parts with these things. So, one thing to keep in mind is when you do give that stock away, the benefit is you avoid all the capital gains taxes on the stock that you gifted into that trust, and it leaves your taxable estate. It is an irrevocable gift to charity. And the charity will receive what's left in that trust after you and your husband pass away.
The key is figuring out how much income you want or need to retain and for how long. And you can dial that period up and down based on a period of years or over both lifetimes. And then the tax deduction for doing all this varies based on how much income you're going to retain during your life. So, it's definitely a situation where you want to sit down with a good fiduciary financial advisor and CPA and map this out to make sure you customize this if you're going to utilize this strategy for your and your husband's needs and goals down the road. But it's not a gimmick. These things are real, in the right situation, they work very, very well. All right. Brian and Blue Ash says most of our net worth is in investment real estate. How do we create liquidity for estate taxes so our heirs don't have to sell property under pressure, you know, presumably after we pass away?
Brian: You know, this reminds me of a story that comes up all the time when we talk about estate planning. So, I don't know if you remember, Bob, you remember Joe Robbie Stadium where the Dolphins used to play?
Bob: Yep, yep.
Brian: The Robbie family, Joe passed away without a will, and did not have estate plans in place. That team and that stadium were worth an awful lot of money. But you can't carve out a chunk of a team or a building or whatever and pay estate taxes. So, they were basically forced to liquidate the team, and hence, there is no Joe Robbie Stadium.
Bob: I also remember the Jim Carrey movie where they stole the dolphin. Remember that?
Brian: Yes, that was not related at all to estate planning. But I'm glad to see you've had a spark of a memory, Bob. That's something in your advanced age, that's something to be proud of and celebrate. Big moment for Bob. The reason I brought that up is because... Because I wanted to make fun of Bob. Anyway, no. So, this is a family that didn't do any planning, and they were forced to sell their family's big asset. And that's probably, real estate is illiquid wealth. So, your heirs might inherit that valuable property, but Uncle Sam's going to come knocking for estate taxes within about nine months, and that money has got to come from somewhere. You might be able to borrow against it. You might be able to sell off some parcels of it. Who knows? But regardless, the taxes are come and do.
So, what you might consider, there are solutions out there. Properly structured life insurance policy held in an irrevocable life insurance trust makes money drop out of the sky. Obviously, you have to be insurable and healthy enough to do this. But that can cause or that can cover those kind of needs. Entity planning, meaning what entity owns this property. It can be held by an LLC or a partnership. You can and you can take advantage of minority interest discounts to reduce the taxable estate value. You can also look at gifting strategies during life using the annual gift tax exclusion to reduce what's left to be taxed later. Charitable giving, strategic borrowing, there are a number of things that you can do in this particular case. Okay, we're going to hog a bunch of time from our other questioners, so we're going to move on to Joseph and Marymont. Joseph has some birds in the nest who don't get along very well. And he's worried about that their estate actually could tear the family apart based on everybody's own perception of what they're going to get out of this. So, how do they build a plan, Bob, that keeps money from becoming a wedge?
Bob: Well, when I think about your question, Joseph, you know, the two things that come to mind is if you own a business and you're trying to figure out who's going to take over that business, or you own a vacation property that in, you know, a perfect world, we say, "Well, we're going to leave this to our kids and they'll enjoy it with the grandkids, you know, on generation after generation." And if the kids don't get along, you really got to sit down and figure out how to divide these assets up ahead of time. So, you know, in a business situation, let's face it, usually one kid or at the most two is really interested in being involved in the business, and others aren't because they have other interests.
Communication up front. And again, it doesn't have to be fair, but you've got to communicate to try to avoid some of these this family discord down the road. Same thing with these vacation properties. Don't just pass it down and hope it all works out, because oftentimes, it creates a big problem. All right. Coming up next, I've got my two cents on how to plan ahead for some of these big ticket items that we all want to spend during our retirement years. 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, Brian, we just went through a whole laundry list of lessons here on how to plan to enter retirement and plan out spending and all this. So, I'm just going to share one of my pet peeves that comes up from time to time. And I'm talking about... And this is really, as we talked about before, this has nothing to do with your net worth. It has to do with what you plan to spend. And here's what I'm talking about, for folks that have their retirement plan in place and they have a certain amount of income they want to have coming in every month. And we've run the numbers and we know that it's going to work, but there's not a ton of margin for error in the plan. In other words, we've got to be disciplined and follow the plan in order for it to work. What invariably happens from time to time is I get this email or phone call that says, "Well, we've always wanted to take the kids on a cruise and the grandkids and all that. And Bob, I need you to pull 50 grand, 60 grand and send it to us."
And, you know, when people do that, you know, just on a whim, and they don't factor it into their plan and they don't communicate it with their advisor in advance, you leave some opportunities on the table, in my opinion. Number one, we want to make sure the plan is going to work if you do these kind of things. And then second, you know, especially as the dollar amounts go up, I gave the example of a cruise, but, you know, let's say $200,000 home remodel, you want to give your advisor in our team a chance to get some of this money out of harm's way to avoid market volatility. So, I'm real big on communication when it comes to these big ticket items. Don't just spring it on us through an email or a phone call, because that really can throw the whole plan out of whack and not in a good way.
Brian: Yeah. And sometimes there's no choice with this, right? Life happens and life intervenes and we just don't get the chance to plan. But Bobby, I recognize what you're talking about. These are situations where maybe we've talked about, maybe we're going to do this for years. I don't know. We're going to decide. Maybe it's a low priority goal. We just got it on the back burner. And then suddenly over a weekend, it launches itself to the front burner. And on Monday, we're scrambling to cut a check as soon as possible because a commitment has been made somewhere. This is our clients' money and it can and will and should be spent the way that they want it. It doesn't matter. We're simply pointing out that we lose the chance to be efficient and as well thought out as possible if there's not enough time to kind of plan things out. You know, maybe if...
Bob: Well, yeah, but Brian, you gave, in my opinion, the perfect example of how this is supposed to work in the earlier segment, where you described a situation where you were sitting down with your clients and saying, "Hey, let's dream a little bit. Let's throw everything into the plan that we might want to do from cruises to vehicles to home remodeled to vacations to RV. And let's make sure the plan's going to work in advance." That's exactly what I'm talking about. Unfortunately, we run into some people that won't have those kind of discussions with their advisor. That's really what I'm talking about here.
Brian: Yeah, I think you're right. And it's just, if you're going to have an advisor in the mix, then everything is on the table. Otherwise, you're not getting your money's worth.
Bob: All right. Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.
We meet a lot of families who've done an incredible job saving. Maybe they sold a business, maybe they were diligent 401(k) savers for years, if not decades. And now, they're sitting on $2 million, $3 million, $5 million, maybe even more. The natural thought is, "Well, we're rich, we're good, we're set for life." But here's where we put the tough teacher hat on tonight and say, "Not so fast, you're not automatically in the clear." So, staying with that whole teacher theme, Brian, let's get into lesson number 1.
Brian: All right, Bob, lesson 1, retirement isn't a vacation, it's a paycheck replacement plan. Now, some of the things we're going to talk about here this evening are going to sound kind of almost wet blankety, kind of depressing, but retirement should be a happy time. Here's how you start that way and keep it that way. So, a retirement is a vacation, not a paycheck replacement plan, basically means that you have to figure out what you were living off of before. This is kind of where it all starts. If you were making $150,000 while you were working, well, where's that money going to come from now?
Now, let me back off that question a little bit by saying, if you were grossing $150,000, you were not netting $150,000. You had taxes coming out of that, you had federal income taxes, state income taxes, payroll taxes, which are three different flavors, by the way. And you had your 401(k) contributions coming out of it. Maybe you were putting money systematically into savings that you don't have to anymore. You had a mortgage, maybe that's gone. So, you don't necessarily need to replace your entire salary, but that also means you need to do a little bit of work and figure out what it is exactly that you spend so that you know what target you're shooting for. You can't spend what you don't have no matter how well you've done. So, even $3 million to $5 million can run dry if you don't manage those withdrawals, inflation, taxes, and all that. We've got clients that have $250,000 who are going to be just fine because their budget is below their Social Security checks and that's kind of all they have. We have clients who have $5 million who live like they have $25 million. Guess which one has the problem? What's our second lesson, Bob?
Bob: Well, lesson 2 is stop chasing headlines. In other words, the market doesn't care what you read and consume in the way of media all day. Stop chasing headlines. Brian, I'm running into this more and more, I mean let's face it, in this divided media culture that we're living in right now, depending on where we go in terms of sources for our news and headlines, we can have a completely different narrative swimming around in our head. And for folks that just retire and don't maybe have enough to do, they're glued to CNBC or TikTok or wherever they get their news, and they want to act on what they hear or see in headlines rather than have an actual plan. And again, the market does not care what you read, it doesn't move because of your favorite newsletter or Twitter feed.
Brian: Yeah, Bob, I can't remember the last time I heard, and I don't think I ever have the last time I heard our Chief Investment Officer, Andy Stout, say, "Hey, I read this," or, "I saw this headline on the crawl, I better go do something with our $30 billion that we manage." These are not things, this is financial pornography. We really never react to those kind of headlines. It's just something to talk about. So, let's...
Bob: And it comes from both sides of the political aisle, let's face it. I mean, the news media is a business. They know what we want to consume and they feed us what we want to read. So, yeah, thank God we got Andy Stout just looking at data and running our good, old recession scorecard to keep us up to date. All right, lesson 3, Brian.
Brian: Yeah, your kids don't need another check, they need a plan. So, we've seen this pretty often. So, we write checks for houses, cars, vacations, and this feels generous, but it can actually hurt them if you're helping them at this level. And, yeah, it's tough out there. And this doesn't mean to abandon them to the wolves. But at the same time, if we're building the expectation is the money just drops out of the sky and my problems are solved, then they're not going to learn how to scrimp and save the way that you did to build your ability to help them this way in the first place. So, this can fuel lifestyle inflation, makes them completely dependent on somebody else, and robs them of any financial discipline, which is presumably, what you got along the way from your forebears because you had the ability to build this kind of a nest egg in the first place that supports them to do this. So, what might be a better gift if I'm going to help my kids? Bob, what do you think? What are some good ideas?
Bob: Well, the best gift is financial education and communication. And, you know, it's sitting down... Especially, you know, approaching and into retirement, you got more time to do this. Equip your kids and grandkids to handle money. And, yes, if there's a dire need that comes along, I mean, helping them get out of a jam today for a little bit of money is going to be a game changer, versus giving them a whole pile of money when they're in their late 60s or 70s. But to your point, Brian, we can't enable bad behavior just because we feel like we got a whole boatload of money to throw around. And it's counterintuitive, but we're oftentimes hurting our kids more than we're helping them by bailing them out or enabling irresponsible behavior.
You're listening to "Simply Money", presented by Allworth Financial. I'm Bob Sponseller, along with Brian James. Brian, let's get into another lesson. Stop treating your portfolio like a casino. We don't run across this too often with our clients, but every once in a while we do.
Brian: Yeah, a lot of times, you know, people get an idea. And this comes from cocktail parties or somebody's brother-in-law or, you know, somebody's friend, or at the office water cooler. You got a hot tip on something and it paid off. And so, now, all of a sudden, we want to chase things. And so, some investors are doing just that, treating their portfolio like a casino. It's something where I'm supposed to take a little bit of money and turn it into a big pile of money. When we talk about these on these airwaves all the time, memes, stocks, crypto, hot funds, 25 years ago, it was any technology stock. That's not investing. That's just gambling. Like Vegas, the house always wins. Portfolios are not for thrill seeking, it's for building financial security, discipline beats luck every time. So, if you find yourself having this itch and needing to scratch it, carve out a little bit of money.
Don't do it in a Roth IRA. A lot of people say, "I'm going to make my bazillion dollars out of this penny stock in a Roth IRA. That way, I'll be Peter Thiel with $5 billion off of this $1,000 investment I made in a penny stock." Well, more likely what's going to happen is the $1,000 dollars is going to go to $100 or $0. And because you did it inside of a Roth IRA, you don't even get a deduction out of it. So, bear in mind the risk that you're taking with these little corners of your portfolio and do it in a taxable account if you have to.
Bob: Yeah, and I love the concept, again, for those that love to play, you know, and there's nothing wrong with doing this, but again, my message is always, let's make sure we separate your serious money from your play money. If you've got enough serious money set aside in a good, responsible financial plan and you want to go take some risk and speculate on some things for fun or to compete or just feel like you're winning, treat it as a hobby, it's totally fine. But you don't want to do that with your serious money for obvious reasons, you'll mess up your retirement that you've spent decades building just because you're bored and seeking excitement. All right, Brian, lesson 6. I think this is a big one, and I think this one this is one of the biggest value adds we provide for our clients, and that's not letting taxes shock you.
Brian: Taxes should be somewhat predictable if you're paying attention. So, they're going to be one of your biggest lifetime expenses if you add them all up, probably even bigger than your house. So, Roth conversions, charitable trust, direct indexing plans, planning ahead saves millions of dollars. These are all ways of simply understanding how the tax code works and taking advantage of all those little, subtle details. So, if you're going to do a Roth conversion, you're simply taking pre-tax money and you're turning it into after-tax, tax-free money forever. That sounds awesome. And a lot of people roll in and they say, "Of course, I'm going to convert my entire traditional IRA to a Roth. Why wouldn't I? It's going to be tax free forever." We got to look at what that's going to cost you out of pocket and how you're going to pay the pay the taxes, for example, in that case. Charity, direct indexing, all these other things are definitely helpful strategies, but if you ignore taxes, you're going to give the IRS more than your kids over time.
Bob: All right. Lesson 7, don't confuse busy work with a true financial plan. And Brian, we run into this from time to time. People are checking their accounts every day, multiple times a day. That's not a plan. Neither is collecting 15 statements from different advisors, you know, feeling like you're diversified and you've got all this information to manage and play with. True planning means coordination, investments, estate planning, taxes and insurance, all working together in concert in one coordinated plan.
Brian: Yep. And so, we'll move on then to lesson 8. If we think that retirement starts at 65, that might be another mistake. A lot of us get hung up on Medicare age. 65 is the go time for Medicare age. Matter of fact, this might be a great time to talk about the other ages because we tend to get confused. 62 is when you can first sign up for Social Security. That doesn't mean do it. That just means you're that's the first time you can. It'll be the smallest check you ever get, which isn't necessarily a bad thing, need to understand the impact. Then there's something called full retirement age, which is between 66 and 67, depending on when you were born. For anybody born after 1960, it's now 67. And then the other age related to Social Security is 70. 62, 66, 67, and 70 are the four Social Security relevant ages. The longer you wait, the bigger of a check you're going to get.
Now, a lot of people get hung up on 65, and we tend to start here, too. I think we probably as financial advisors tend to rely on 65. It's just a good starting point for those who don't know. But that is the age at which you become eligible for Medicare, which obviously, is important because you need to have some kind of health insurance plan when you are retired. Some people are fortunate to retire from companies that offer retiree health benefits, most are not. You might have Cobra, meaning you could go at, say, 63 and a half and get a slightly better deal by maintaining your existing health care insurance through your ex-employer. But some people will simply have to go on the exchanges.
And for an individual, you're probably paying a $1,000, $1,200 a month for insurance. Double that for a married couple if you're on the exchanges. But that causes a lot of people to believe retirement starts at 65, and I have no way to choose differently than that. And that is simply not the case. You can retire earlier. You just have to do some planning on the health care side. And just because you don't want to write a $2,000 check for health insurance, doesn't mean you can't. So, own your life first, figure out what you want to do, and then make the math work around it. You got to write a fat check, then write a fat check as long as the plan works.
Bob: All right. Lesson number 9, you can't outsmart longevity. We run into people sometimes that underestimate how long they're actually going to live. One spouse for a married couple often outlives the other by, you know, almost a decade. You got to plan as though you're going to live longer than you think, because chances are one of you probably will. And that leads to lesson number 10, stop thinking that estate planning is just for the wealthy, it's for the responsible. And Brian, I see this way too often. Too many families put off doing wills and trusts. And without it, the courts, not you, decide what happens to your assets. And the big one that I see overlooked a lot of times, and this is becoming more and more prevalent for folks that I work with is powers of attorney. You got to have these things set up in case cognitive impairment, you know, dementia, things like that happen. You got to have somebody named to step in your place to handle things if you can't do it anymore.
Brian: And you might do what's called a durable power of attorney, which, you know, if you trust the person that you are naming as your power of attorney, then you can put them in charge right now. Give them the ability now while you are of perfectly clear mind. You don't need them to do anything. But if you want them to be able to step in quickly, then a durable power of attorney might be a good idea. That enables them not to have to go through the process of getting you in front of a doctor to have a doctor declare you incompetent officially. You can simply act for them now. There are many moving parts to this. That's not a quick answer, but it's something to consider if you're in that situation.
Bob: Here's the Allworth's advice. No matter how much you saved or how smart you think you are, money doesn't just take care of itself, discipline, planning, and a clear-eyed approach are the only things that keep wealth from just slipping away. There's a big lie about retirement that most people out there still believe. We'll tell you what that is 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. If you can't listen to "Simply Money" every night, subscribe and get our daily podcast. Just search "Simply Money" on the iHeart app or wherever you find your podcast. Straight ahead of 6:43, we are diving into more of your questions, everything from smart investing moves to protecting your retirement. One of the most common assumptions we hear from people approaching retirement is this, "Oh, I know I'm going to spend way less money when I'm retired. Less commuting, less need for work clothes. The mortgage might be paid off. So, naturally, expenses are going to go down, right?" But the reality, and Brian, we see this all the time, research shows that many retirees actually spend more in the early years of retirement, not less. Let's dig into this, because this happens a lot, and it's an important topic to cover.
Brian: This research comes from the EBRI, Employee Benefit Research Institute. We get a lot of good information out of them. They've been tracking and they found for the first five to 10 years of retirement, spending often rises. Well, the reason behind this, it kind of makes sense. This is when we're healthiest, most energetic, and finally ready to do the things they've been putting off. This is bucket list time, right? For those of us who kept a bucket list all those years, "Here's all the awesome things that I'm going to do when I have the time to do it." Well, that's really the first 5 to 10 years' worth of retirement. When we have time, we tend to fill it. When there's a vacuum of time, we tend to fill that vacuum with spending. So, that's not necessarily a bad thing, but for sure, we have to get our sea legs when it comes to being actually retired and understanding what our lifestyle is going to be like. So, this can include vacations, home remodels, maybe even an entire second home. And let's be honest, a lot of people just want to spike the football and celebrate the fact that they don't have to clock in on a Monday morning anymore.
Bob: Yeah, spike the football and write a half million dollar check for whatever, an RV or a second home. I think the point we're trying to make here is, and we and we talk about this in reverse, telling people not to just hoard all their money and not spend it and not have any fun and leave a whole boatload of money to their heirs, you know, when they're in their 80s and 90s. But, you know, this point, you have to plan for this stuff. If you're thinking about doing these major big ticket items, the cruise, the second home, the home remodel, the RV, talk about it in advance of retirement, and make sure that's factored in to your retirement plan. Because you only want to retire once and you don't want to come up, you know, in your late '70s and '80s and say, "Shoot, I'm about to run out of money."
Brian: Yeah. So, we want to make sure that we're on top of things. And this all starts with, sit down with your spouse if you're married or even if you just need to go sit on the porch and stare off into the sunset and think about what you want as an individual. It just has everything to do with, "What is it going to be like when I don't have to adhere to someone else's schedule." So, the big thing to pay attention to...
Bob: Brian, you just brought up an excellent point here. And that's, it is so critical to have both spouses in the room talking about financial goals, especially in retirement. Because let's face it, whether one spouse is working in a job and the other is stay at home or if both spouses are working, everyone has in their mind what retirement looks like to them. And oftentimes, when you're raising kids and working hard and you're busy and you're in the office all day, you're not communicating with your spouse on what he or she thinks retirement should look like. So, it's really important when you're talking about goals, have both spouses in the room to talk about this stuff. So, when you start attaching dollars and cents to these goals, you got to make sure the plan's going to work, and do that in advance so one or both spouses aren't disappointed in the end.
Brian: That's really important. And this all comes through. We have some data to support this, too. So, a '22 J.P. Morgan study showed that about 6 and 10 retirees spent the same or more in the first decade of retirement. So, there's a kind of exclamation point to this whole topic here of making sure we understand what's coming. And by the way, we're not talking about medical costs. We're not talking about the unfund stuff. That comes later. We're talking about people just living their lives once they finally accomplish some level of freedom.
Bob: Yeah, and for those that do have a good amount of wealth, the risk isn't necessarily running out of money, but misaligning your wealth with your lifestyle. You don't want to live the first 10 years in retirement way under budget only to pass away with more money than you ever intended to leave behind. Or worse, live it up early and then find yourself tightening the belt when you're 80. Again, it's good to take advantage of those go-go years, as you call them, the first few years of retirement. But talk about it. Talk about it with both spouses and plan ahead.
Brian: And talk about it with an adviser. I mean, this is something where the common question that I bring up when I can see that I'm in a situation where these folks are going to be okay. You know, after 30 years of doing this, Bob, I feel like my job, every meeting is going to be one of two outcomes. It's me pushing someone to be more responsible because they're about to run their train off a cliff, or pushing them to go out and enjoy what they've built. Every meeting fits in one of those two categories.
So, one of the first things that I ask people when we're building a financial plan is, you know, we need to know your goals. What do you have in mind? What is it that you want to do? And they'll say, "Well, we really want to kind of make sure it works. So, we're just going to keep it simple. And we're going to build a garden and we're going to eat vegetables out of the garden and we're just not going to leave the house." And that sounds like a terrible way to exist for the rest of someone's life. So, I kind of try to turn them around the other way. If you ever kind of sort of thought maybe you wanted to do something, that's going in the plan.
Let's throw every last goal in here. Remodel the house, the second house, the around the world retirement trip. Do all of those things. Let's run the math. Assuming we've done that, if it works, cool. Now, you got to get out of your own way and decide which of these things you're really going to pull the trigger and write a check for. If it doesn't work, that's okay, because we were throwing the kitchen sink into it. Now, we prioritize, what are the things that are most important? What are the things we can live without? That way, when we do those extra fun things that maybe aren't necessary to retirement, but sure are a heck of a lot of fun, we don't have to feel guilty about it because we planned ahead.
Bob: Exactly. And what you just talked about there is being proactive and communicating clearly. I love it. That's what good financial planning is all about. Here's the Allworth's advice, plan for retirement that matches your lifestyle, not just a formula. All right. Scams, the scammers out there are getting smarter, and we'll show you the latest tricks con artists are using and how to spot them before they spot you. 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, joined tonight by our good friend, Jocile Ehrlich, President of the Cincinnati Better Business Bureau. Jocile, thanks as always for spending some time with us tonight. Hope you're doing well. And I know you want to talk. There's a whole bunch of scams out there. We're always on the lookout on these latest scams and preventing our clients from getting exposed to them. I know you got a lot to talk about. Walk us through some of this latest stuff we need to be aware of.
Jocile: Well, let's start out with fantasy football. There are so many people that play fantasy football. It's very popular. We have seen a spike in online gaming scams as a result of that. You know, it's really easy to end up on an illegal betting site, especially if you're scrolling through social media. If you're somebody who relates to betting influencers, and that's a lot of young people, you can find gambling influencers all over TikTok and Instagram. They pose as betting gurus, but their goal is more to go viral than to give genuine betting advice. They hype themselves big time by claiming things like, "I made $10,000 in a day." And they post things like, "Guaranteed Sunday football wins," or, "NFL lockpicks."
And, you know, these claims are how they're going to lure you into clicking the link in their post. This link is supposedly, going to direct you to some secret betting site, but it's really a fake site, or it's a cloned version of a legitimate betting site. Think a URL that's spelled slightly different than the real site is spelled. The games on these sites are usually rigged so you have no chance of winning. And even if you do win, the site won't allow you to withdraw your winnings. Not only are you going to lose the money you deposited into the site, but the scammers now have your personal financial information to either use themselves or they'll sell it on the dark web. Now, if you want to try your luck, make sure you're using a legitimate betting website and check it out first at bbb.org.
Brian: That's great that you track those types of sites. I didn't know that the gambling sites was something that's... Has that always been there? Has BBB always tracked that?
Jocile: Wherever the scams are, we're tracking it. And we track legitimate businesses across all industries, and the ones that are causing people headache and heartache.
Bob: All right, Jocile, you've also got some updates on passport scams and timeshare scams.
Jocile: Right. So, you got this big trip next month, and you just realized that your passport is going to expire. So, you go online to find a solution and you come across a website that promises to expedite your renewal passport for a fee. Unfortunately, this is not your solution. It's going to be your nightmare, because this scam can cost you hundreds of dollars, not to mention possibly, having to cancel your trip. These fake passport sites are designed to look exactly like the official U.S. Department of State site, which is travel.state.gov. That's important. And these guys are counting on your desperation to keep you from thinking clearly. You could end up paying for forms that you can get for free on the government site. And in the process, you'll also be giving up sensitive information like your Social Security number. If you need an expedited passport, there are steps you can take, but you can only do it through official channels. You can pay for expedited processing by mailing in your paperwork and fees. Or if this is a really close window, you can go to a passport agency. And the closest ones to us right now are Chicago and Detroit, although there will be one opening up in Cincinnati next year, so that's good news.
And the timeshare scams you mentioned, you know, people have gotten involved in timeshares. Many of them are just fine and they are enjoying them. But there are a lot of people that are just over their timeshares. The fees are piling up. You don't use it. You just want out. Then you get a call, or you see an ad online for timeshare legal consulting or an exit company. And they say they have a team of lawyers on staff, and they've helped thousands of people exit their timeshare. That's all part of the scam to get you to trust them. They'll demand a huge upfront fee, claiming it's for legal services, filing fees, or even to guarantee your exit. And they'll use high pressure tactics, of course, claiming you have to sign up right now because of a limited time deal, or maybe there's an upcoming change in the law, according to them. After you pay up, they're going to stop returning your calls, and all those lawyers you were told about are nowhere to be found. They've got your money and probably passed your timeshare onto a broker. You are still the owner of that timeshare. You're still responsible for all the fees. And now, you're stuck waiting to see if the broker finds a buyer, which could be years if they ever do.
Bob: All right, Jocile, I'm sure you and your team monitor reputable companies versus questionable companies. And I hear these timeshare ads quite often on the radio. Are you able to name specific companies? Maybe they don't... Are there specific companies out there that you already know, "Hey, watch out for that company, do not contact them?"
Jocile: There are specific companies that BBB is aware of, but you as the consumer need to go to our website and check the company that you are considering doing business with. And the report will be there that this is either a company that you can trust, or it's a company that you should stay away from.
Brian: So, I want to change the subject here a little bit. You also have mentioned in the past, social media account takeovers in the ways that your life can be dominated if somebody gets a hold of your password or hacks into your account. How does this work, and how can we protect ourselves from these kinds of things?
Jocile: Well, one of the prime targets of a scammer is to get access to your social media account log in information. If they have that information, they can log into your social media account and impersonate you. Once they're in, they could message your family and friends, usually asking for money in some fashion. Maybe they will claim that you've had an emergency. In one case, a man reported that he saw his friend listed his car for sale on Facebook. He then went to message his friend about you know, "How much is it going to cost for your car?" And the scammer who had taken over the account said he would only accept cryptocurrency. So, the man got suspicious and called his friend, who knew nothing about it, didn't have a car for sale. And he realized that he couldn't log into his Facebook account. Now, his account had been hijacked.
So, losing access to your account, all your pictures and your contacts is bad enough, but it's even worse if somebody you know falls for the scam and sends these crooks money. To protect yourself and your family and friends, make sure you use a strong password. I cannot emphasize that enough. And turn on multifactor authentication. And if a friend suddenly messages you on social media asking for money either directly or indirectly, be careful because it might not be your friend at all.
Bob: Jocile, this impersonation scam actually happened. You know, my wife and I didn't get scammed, but somebody thought they were renting our condo and actually sent money to someone only to find out that the whole thing was fake. They didn't impersonate our account, but they created an account to try to rent our condo out to somebody. And thankfully, a neighbor, you know, discovered what was going on. So, this is a real thing out there. And we really appreciate you coming on tonight to share some of this stuff with us. You're listening to "Simply Money" presented by Alward Financial on 55KRC, THE Talk Station.
You're listening to "Simply Money" presented by Alward 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 big, fat red button you can click while you're listening to the show right on the iHeart app. Simply record your question and it will and always comes straight to us. All right, Brian, let's lead things off tonight with Tom and Hyde Park, who says, "I know my portfolio is too concentrated in tech, especially NVIDIA stock. Should I be looking at hedging strategies, or just start selling now, even if the tax bill is painful?"
Brian: Well, congratulations, Tom, you've put yourself in a good, solid position with some of these strong technology positions that have been driving the market for the better part of several decades. But also glad to hear you're willing to maybe step outside the casino with some coins left in your in your little bucket. So, let's talk about how you can get out of this. First thing would be, obviously, you can simply sell it, and you can spread it over time. Maybe it's a situation where you buy enough time to sell a little bit in the current tax year and move some into the second tax year. That's one option just to think about.
Another would be, you can you can potentially look at it using something called an exchange traded fund. If this position, and you mentioned in video, if that position is over a million dollars, then you may very well be able to put that into an exchange fund, and in response, receive a diversified portfolio of other people's stocks who have the same problem. So, you're basically committing your overly large position in exchange for a portion of everyone else's overly large position. That is not a taxable event. Lots of moving parts to that, though. You can also hedge with options. You can do something called collars or protective puts, which is basically putting a floor and a ceiling above your position so that it can't hurt you too much if it goes the wrong direction.
And then finally, and something else to look for is if there are any positions elsewhere in your portfolio that are sitting at losses, you might sell those at the same time. Those losses will net out against the big gain you have in your technology portfolio. Perhaps there's some out there that you can take advantage of. Rachel in Fort Mitchell says she's invested and interested in charitable remainder trust, but she's wondering whether they really provide an income as well as a benefit for charity or is this just a tax gimmick that CPAs and lawyers try to sell us? Bob, what do you think?
Bob: Well, it's definitely not a tax gimmick, Rachel. I mean, these things are real. They've been used for years and years and years. And in the right situation, they work remarkably well. There's just a lot of options and a lot of moving parts with these things. So, one thing to keep in mind is when you do give that stock away, the benefit is you avoid all the capital gains taxes on the stock that you gifted into that trust, and it leaves your taxable estate. It is an irrevocable gift to charity. And the charity will receive what's left in that trust after you and your husband pass away.
The key is figuring out how much income you want or need to retain and for how long. And you can dial that period up and down based on a period of years or over both lifetimes. And then the tax deduction for doing all this varies based on how much income you're going to retain during your life. So, it's definitely a situation where you want to sit down with a good fiduciary financial advisor and CPA and map this out to make sure you customize this if you're going to utilize this strategy for your and your husband's needs and goals down the road. But it's not a gimmick. These things are real, in the right situation, they work very, very well. All right. Brian and Blue Ash says most of our net worth is in investment real estate. How do we create liquidity for estate taxes so our heirs don't have to sell property under pressure, you know, presumably after we pass away?
Brian: You know, this reminds me of a story that comes up all the time when we talk about estate planning. So, I don't know if you remember, Bob, you remember Joe Robbie Stadium where the Dolphins used to play?
Bob: Yep, yep.
Brian: The Robbie family, Joe passed away without a will, and did not have estate plans in place. That team and that stadium were worth an awful lot of money. But you can't carve out a chunk of a team or a building or whatever and pay estate taxes. So, they were basically forced to liquidate the team, and hence, there is no Joe Robbie Stadium.
Bob: I also remember the Jim Carrey movie where they stole the dolphin. Remember that?
Brian: Yes, that was not related at all to estate planning. But I'm glad to see you've had a spark of a memory, Bob. That's something in your advanced age, that's something to be proud of and celebrate. Big moment for Bob. The reason I brought that up is because... Because I wanted to make fun of Bob. Anyway, no. So, this is a family that didn't do any planning, and they were forced to sell their family's big asset. And that's probably, real estate is illiquid wealth. So, your heirs might inherit that valuable property, but Uncle Sam's going to come knocking for estate taxes within about nine months, and that money has got to come from somewhere. You might be able to borrow against it. You might be able to sell off some parcels of it. Who knows? But regardless, the taxes are come and do.
So, what you might consider, there are solutions out there. Properly structured life insurance policy held in an irrevocable life insurance trust makes money drop out of the sky. Obviously, you have to be insurable and healthy enough to do this. But that can cause or that can cover those kind of needs. Entity planning, meaning what entity owns this property. It can be held by an LLC or a partnership. You can and you can take advantage of minority interest discounts to reduce the taxable estate value. You can also look at gifting strategies during life using the annual gift tax exclusion to reduce what's left to be taxed later. Charitable giving, strategic borrowing, there are a number of things that you can do in this particular case. Okay, we're going to hog a bunch of time from our other questioners, so we're going to move on to Joseph and Marymont. Joseph has some birds in the nest who don't get along very well. And he's worried about that their estate actually could tear the family apart based on everybody's own perception of what they're going to get out of this. So, how do they build a plan, Bob, that keeps money from becoming a wedge?
Bob: Well, when I think about your question, Joseph, you know, the two things that come to mind is if you own a business and you're trying to figure out who's going to take over that business, or you own a vacation property that in, you know, a perfect world, we say, "Well, we're going to leave this to our kids and they'll enjoy it with the grandkids, you know, on generation after generation." And if the kids don't get along, you really got to sit down and figure out how to divide these assets up ahead of time. So, you know, in a business situation, let's face it, usually one kid or at the most two is really interested in being involved in the business, and others aren't because they have other interests.
Communication up front. And again, it doesn't have to be fair, but you've got to communicate to try to avoid some of these this family discord down the road. Same thing with these vacation properties. Don't just pass it down and hope it all works out, because oftentimes, it creates a big problem. All right. Coming up next, I've got my two cents on how to plan ahead for some of these big ticket items that we all want to spend during our retirement years. 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, Brian, we just went through a whole laundry list of lessons here on how to plan to enter retirement and plan out spending and all this. So, I'm just going to share one of my pet peeves that comes up from time to time. And I'm talking about... And this is really, as we talked about before, this has nothing to do with your net worth. It has to do with what you plan to spend. And here's what I'm talking about, for folks that have their retirement plan in place and they have a certain amount of income they want to have coming in every month. And we've run the numbers and we know that it's going to work, but there's not a ton of margin for error in the plan. In other words, we've got to be disciplined and follow the plan in order for it to work. What invariably happens from time to time is I get this email or phone call that says, "Well, we've always wanted to take the kids on a cruise and the grandkids and all that. And Bob, I need you to pull 50 grand, 60 grand and send it to us."
And, you know, when people do that, you know, just on a whim, and they don't factor it into their plan and they don't communicate it with their advisor in advance, you leave some opportunities on the table, in my opinion. Number one, we want to make sure the plan is going to work if you do these kind of things. And then second, you know, especially as the dollar amounts go up, I gave the example of a cruise, but, you know, let's say $200,000 home remodel, you want to give your advisor in our team a chance to get some of this money out of harm's way to avoid market volatility. So, I'm real big on communication when it comes to these big ticket items. Don't just spring it on us through an email or a phone call, because that really can throw the whole plan out of whack and not in a good way.
Brian: Yeah. And sometimes there's no choice with this, right? Life happens and life intervenes and we just don't get the chance to plan. But Bobby, I recognize what you're talking about. These are situations where maybe we've talked about, maybe we're going to do this for years. I don't know. We're going to decide. Maybe it's a low priority goal. We just got it on the back burner. And then suddenly over a weekend, it launches itself to the front burner. And on Monday, we're scrambling to cut a check as soon as possible because a commitment has been made somewhere. This is our clients' money and it can and will and should be spent the way that they want it. It doesn't matter. We're simply pointing out that we lose the chance to be efficient and as well thought out as possible if there's not enough time to kind of plan things out. You know, maybe if...
Bob: Well, yeah, but Brian, you gave, in my opinion, the perfect example of how this is supposed to work in the earlier segment, where you described a situation where you were sitting down with your clients and saying, "Hey, let's dream a little bit. Let's throw everything into the plan that we might want to do from cruises to vehicles to home remodeled to vacations to RV. And let's make sure the plan's going to work in advance." That's exactly what I'm talking about. Unfortunately, we run into some people that won't have those kind of discussions with their advisor. That's really what I'm talking about here.
Brian: Yeah, I think you're right. And it's just, if you're going to have an advisor in the mix, then everything is on the table. Otherwise, you're not getting your money's worth.
Bob: All right. Thanks for listening. You've been listening to "Simply Money", presented by Allworth Financial on 55KRC, THE Talk Station.