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Is inflation around the corner, and what will it mean for your investments?

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Is inflation waiting around the corner?

BLUF (Bottom Line Up Front):  The CPI shows inflation cooling.  I think this is a huge trap that will cost investors big $ and time.

If you want to skip to 3 investments to protect against inflation 📽️YouTube scroll to the bottom or CLICK HERE.

Losing money doesn’t really matter if you believe the market “always comes back.”  And, if you are 35 years old, you might be right.

But in a decade of helping people near and in retirement I can tell you with 100% certainty that losing money does matter when you have a retirement date circled on the calendar that is not 15 years away.

The problem is time.

When the markets are back near all time highs investors’ rose colored glasses are thick.  It also helps confirm our priors that the markets did, in fact, “come back.”

What investors forget:  It was 12 years for the markets to “come back” from the .com crash.

If you are a retiree drawing on your investments, you could give two rips about what everyone thinks.  You don’t have the time to wait for the markets to come back.

We all know that inflation killed the markets right after COVID.  So the question is are we through the pain and back to business as usual?  Or have investors fallen asleep again, unprepared for what may be to come?

P.S.  No; “buy, hold, pray” and a “well diversified basket of funds” will not protect you.

Make no mistake.  The tariffs are not gone.  The 10% across the board tariffs currently in place are a massive increase in some cases.  Moreover the brief tariff nuclear war we fought with China has yet to manifest its consequences in US markets.

It takes a while for empty container ships to arrive in US ports, and they are coming.  Most major corporate boards and actuaries are already preparing for supply shortages, price increases, and supply chain interruptions.

Sound familiar?  COVID caused the same set of circumstances that led to a 25% decline in the S&P500📉.

So, the question is what investments can we make to prepare for a possible inflation spike?  This leads us to the never ending catch-22.

“But what if inflation doesn’t hit, I don’t want to miss out!”

“If inflation hits I don’t want to lose!”

My answer is always the same.  INVEST SO YOU DON’T HAVE TO BE RIGHT.

I used to hear on the radio “do you want to protect against a down market but capture market gains” and thought “ok Mr. Snake Oil salesman, no thank you to your snake oil.”

But now knowing what institutionally available investments there are, I know these tools are powerful ways to reduce unnecessary risk in your investment portfolio.

Some you can DIY, some you need a license to invest in, but the math simply shows that they are the way to successful, and stress free, investing.

Explainer in the video 📽️👇

https://www.youtube.com/watch?v=s_5Kd-ua7vY

6 Habits of Happy Retirees

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6 habits of happy retirees. 

BLUF (Bottom Line Up Front):

I used to think this job was all about investments, rates of return, market volatility etc…Its not.  In a decade of helping people get into (and more importantly stay) in retirement I have noticed some common things my happiest retirees do like:

  • Eliminate the unexpected
  • Focus on their health
  • Outsource

You can skip my pontifications if you like to the 📽️👇.

I have conversations every day with people at every stage of their financial lives.

Encouraging young savers to forego that cup of coffee and invest the $14 it costs to get time and compounding interest on their side.

Talking my near-retirees through market ups (ok, mostly the downs.)

Checking in with my retirees about that stage of life that they worked, saved, and invested to reach.

Over hundreds of conversations I have discovered that the things people talk about change.

Younger investors are focused on the money, an “escape hatch”, and planning for growth, tax efficiency, and individual investments.  But underneath those conversations I pick out that what they are really worried about is:

“Am I doing the right thing”

“Am I on track”

“I am so busy I don’t have time for this (or know what I am doing)”

When I talk to my clients who are kicked back on a beach or visiting their grand kids on vacation I have discovered that the conversation has shifted from the dollars and cents.  Given the right tools, I have very few clients who live the retired life they want knowing the money will be there.

In talking to retirees all the time (getting a glimpse into where I will hopefully be…one day…) I like to find out some common themes around what makes the retired people happy.  I have noticed 6 things happy retirees have in common 📽️👇.

The basic theme among the most successful retirees are things that

  • Free up time
  • Free up head space
  • Decrease worry
  • Increase confidence

Watch the video below to learn about these habits and try and incorporate them into your overall financial plan.

6 Habits of successful retirees

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6 Habits of successful retirees

BLUF (Bottom Line Up Front):  In a decade of helping people successfully get into, and stay in retirement, I have discovered some common things my happiest retirees do…

📽️ at the bottom 👇

When many of my clients first come to me they have a date on a calendar and a bucket full of money.

With life expectancy for Americans running into their 80s, a lot of people who first walk through my door underestimate how long they will be retired.  If a person retires at 65 they may have easily 30 years before they pass their wealth onto the next generation.  In order to be stress free during that retirement, it takes a lot of planning and management.

But it also takes a lot of other non-money things to sustain a retiree.

Expierience shows that to maximize a retirement retirees should, among other things:

  • Engage with their community
  • Stay healthy
  • Outsource

These are non-money things that ultimately allow retirees to maximize their happiness in retirement.

In order to have the confidence and peace of mind that they will have enough to do the things they want is where a retiree needs to:

  • Have a written retirement income plan
  • Avoid payin unnecessary taxes
  • Have an end of life plan

I go over some recommendations and other pontifications in the video below 📽️👇

Truth: You want to pay more taxes in 2024

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High income earners, you want to pay more taxes in 2024.

BLUF (Bottom Line Up Front) No matter how much you make, it may feel like you pay alot in taxes.  But a quick glance at our history tells a different story 📽️👇:

I recently drew up a financial plan for two amazing people.  Both were in the US Navy, were physician’s assistants, and were just generally the type of people I help on a daily basis.  I spent 20 years in the Marines, so we communicated well.

They were sitting on idle cash (like a lot of people, they didn’t know where to start investing, didn’t want to lose if the market tanked etc…) and combined they make around $500,000 per year.  They were also worried about taxes.

And…they aren’t my clients.

As with many times in my life, my lack of a filter and belief that people deserve the truth led me to give it to them straight.

One of the main things that people come to me for is tax planning.  Now reducing overall taxation is something that gets me out of bed in the morning.  But I had to tell them a couple truths:

  • There is no legal way to pay net zero in taxes today (like a lot of folks, they heard real estate is a magic get-out-of-taxes-free card)
  • You  want to pay more in taxes today.  

It doesn’t feel like it when you look at your paycheck but compared to where this country has been (and definately where we are headed), income taxes are near historic lows.

All of my tax planning surrounds one central theme: create tax free wealth, as mcuh as you can, as fast as you can, using whatever tools you can.

Some of those tools are known, some are less widely known but used by wealthy and high earning individuals alot.

  • Roth contributions
  • Roth conversions
  • Mega Roth conversions
  • Sec. 7702 plans
  • Qualified Opportunity Zone investments
  • Municipal bond investments 🤮

This quick video is a primer on why you want to pay as much income tax now so you can pay lesss overall. 

 

The month you retire matters

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The month you retire matters.

BLUF (bottom line up front) If you have the flexibility, you could set your self up to have a lot more money in retirement.  Case Study Video 📽️ explainer at the bottom if you want to skip my written pontifications.

Being able to take advantage of the tax code, create passive income, and ultimately have the ultimate goal of retirement takes a lot of planning.

For me, in 10 years of helping people get into (and stay;) in retirement, I think most of my retirees would agree the ultimate goal is simple.  Peace of mind.

Not the biggest bank account.

Not the most vacations.

The ability to go to bed every night and wake up every morning knowing everything is going to be ok.

Out of 12 months, if you choose the right one, you could potentially

  • Pay net zero taxes for the year
  • Save significant taxes in the future
  • Create more tax free assets

A lot of the taxes you pay are based on your earned income.  So, if you have the flexibility, it might make sense to retire when you can report far less income for the year.

Most folks retire at a milestone.  January 1st is a big one, or a career anniversary.  These may seem like quick and easy decisions, but the implications are large.

Depending on when you retire you could

  • Tax loss harvest
  • Tax gain harvest
  • Do a mega Roth conversion

Having a low annual earned income gives you the flexibility to lower other types of taxes like capital gains tax.

Watch below to get some ideas on ideas on when you should retire.

 

Retire earlier: the Pension Hack

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Have a PENSION? Read this to maximize your retirement income.

ATTN: Public Employees 👮‍♂️ 👩‍🚒 👨‍🏫

ATTN: Boeing and other Union members.

You don’t have to choose between the highest income and protecting your spouse. 

BLUF (bottom line up front): There are ways to take the most income, and make sure your spouse is taken care of and you leave something behind.  Boeing case study video at the end 👇📽️.

If you don’t have a pension you will be a hero to someone who does if you forward this to them.

Because I specialize in working with first responders and public employees, all retirees with a pension face the same dilemma (here’s looking at you Boeing and other union members ✈️.)

The conversation is always the same…

“This sucks 😣 , if I take the highest pension, my family doesn’t get anything when I die…I guess I’ll settle for the lower amount….”

Here is the thing.

I believe people who work hard deserve to live the life they want. I spent too long on the police department around the opposite.

So when it comes to what tools we use to generate passive income in retirement…it matters.

Typically, the formula looks like this for people with a pension:

1️⃣ MAX pension: stops when you die.

2️⃣2/3rds pension: stops when the last spouse dies.

3️⃣Typically there is nothing left for the kids.

❗Done correctly this does not have to be the case❗ There are tools available that can produce more income (getting near the max) while at the same time providing income for survivors and leaving money behind for heirs.

This is not for everyone❗. There is nothing wrong with taking a traditional pension option, and there are advantages and drawbacks to everything that need to be clearly understood. But with my clients that have elected to use some other outside-the-pension tools, the feedback I get is that they love having their cake and eating it too.

Do you have to sit on cash, or accept a bunch of risk? Not only no, but here are three great solutions.

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Sitting on cash?  Here are 3 investments that have safety and upside.
BLUF (Bottom Line Up Front):  At the bottom there are three investments that have the safety features of cash but the upside of the market.

When I was growing up having $100 bucks in the bank seemed like a lot. Having helped people successfully get into, and stary, in retirement for 10 years now, running across people with $100,000 or more sitting in cash is not uncommon.

The market right now is giving mixed signals. Inflation is down, but is still 50% higher than the Fed’s target rate. And prices are still up over 25% from where they were when interest rates spiked.

But, month over month inflation is down.  So the Fed will keep lowering, right?

Here is the problem.

If the Fed keeps lowering interest rates, the money supply will increase. More dollars and the same supply will mean that prices will most likely start to climb again (inflation). That combined with a federal budget over 35T in debt, with no sign of slowing, means that spending (pumping more dollars) into the economy will most likely accelerate.

But if you are planning for retirement what you probably care the most about is the stock market 📈.

Why? Because you are too close to retirement and it mattters more than ever that your savings are there for you to spend when you pull the plug.
It is not uncommon for me to find clients with analysis paralysis sitting on piles of cash.

Investors typically do this for two main reasons:

1️⃣ They are close to retirement and cannot lose their money.
2️⃣ They believe there are no investments with little risk/good reward.

Luckily there are institutionally available investments that can help provide downside protection, while not having to settle for low, CD or money market like returns.

Watch the video below to learn about these three investments that help you invest so you don’t have to be right.

In the video I cover:

1️⃣ Buffered ETFs
2️⃣ Structured Notes
3️⃣ Fixed Indexed Annuities

 

High Income Earners, your LTD will NOT cover you, because taxes.

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Understanding Group Disability Income and Its Tax Implications

When it comes to managing financial stability in the face of unexpected health challenges, group disability insurance plays a crucial role. This type of coverage, typically offered through employers, provides a safety net by replacing a portion of an employee’s income if they are unable to work due to illness or injury. However, a significant aspect of this coverage that often gets overlooked is how the benefits are taxed. Understanding this can help you plan better and avoid surprises during a challenging time.

What is Group Disability Insurance?

Group disability insurance is a benefit provided by employers to their employees. It typically comes in two forms: short-term disability insurance, which covers temporary disabilities and offers benefits for a limited period (often from a few weeks to a year), and long-term disability insurance, which covers more severe and prolonged conditions and can extend for several years or even until retirement.

The insurance generally pays a percentage of your salary, usually ranging from 50% to 70%, depending on the plan. This amount helps replace your income while you are unable to perform your job duties.

Taxation of Disability Income

The taxation of group disability benefits can vary significantly based on how the premiums were paid. Here’s a breakdown of how it works:

1. Premiums Paid by the Employer

If your employer pays the premiums for your group disability insurance, the benefits you receive are typically taxable. The rationale behind this is that since your employer is paying the premiums with pre-tax dollars (money that has not yet been taxed), the IRS considers the benefits you receive as income, subject to income tax.

For example, if you receive a monthly disability benefit of $3,000 and your employer covers the cost of the insurance premiums, that $3,000 is usually taxable. You would need to include this amount in your taxable income when filing your tax return.

2. Premiums Paid by the Employee

If you pay the premiums for your group disability insurance with after-tax dollars (money that has already been taxed), then the benefits you receive are generally not taxable. This is because you’ve already paid taxes on the money used to purchase the insurance, so the benefits are considered a tax-free return on your investment.

For instance, if you pay for your disability insurance through payroll deductions and those deductions are made after taxes, then the benefits you receive while on disability are usually tax-free.

Mixed Scenarios

Sometimes, the situation may involve a combination of employer and employee contributions. In these cases, the taxability of the benefits is prorated based on the proportion of the premiums paid by each party. For example, if the employer pays 60% of the premiums and you pay 40%, then 60% of the disability benefits you receive will be taxable, while the remaining 40% will be tax-free.

Reporting Disability Income

When you receive disability benefits, you should receive a Form 1099-R or a similar statement from your insurance provider indicating the amount of benefits paid and the portion that is taxable. It’s essential to report this income accurately on your tax return to avoid potential penalties or issues with the IRS.

State Taxes and Disability Benefits

In addition to federal taxes, some states have their own rules regarding the taxation of disability benefits. While most states follow the federal guideline of taxing benefits if the premiums were paid by the employer, it’s crucial to check your state’s specific regulations. Certain states might offer exemptions or have different tax treatment for disability income.

Planning for Taxes on Disability Benefits

To prepare for the potential tax implications of receiving disability benefits, consider the following steps:

– **Review Your Insurance Plan:** Understand how your premiums are paid and how this affects the taxability of your benefits.
– **Consult a Tax Professional:** Tax rules can be complex, especially with varying state laws. A tax professional can provide guidance tailored to your situation and help with tax planning.
– **Set Aside Funds:** If your disability benefits are taxable, plan ahead by setting aside funds to cover the additional tax liability.

Conclusion

Group disability income insurance is a vital benefit that provides financial support when you need it most. However, understanding how these benefits are taxed is crucial for effective financial planning. Whether your premiums are paid by you or your employer, being informed about the tax implications can help you avoid unexpected financial burdens and ensure that you’re fully prepared for any potential tax liabilities. Always consider consulting a tax advisor to navigate your specific circumstances and to make the most informed decisions regarding your disability income and overall financial health.

 

Avoid this one FATAL retrirement income flaw.

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In 10 years of helping people successfuly retire, I have found there are two distrinct phases an investor goes through when planning for retirement.  As a fudiciary financial planner there is definately one phase that is more stressfull for me, annd my clients.

Clients go through the accumulation phase.  Go to work, get a 401k, save to the match, and put your head down and work for 30 years.

But what about the 30 years after you have done a good job saving for retirement.  If you live locally in Sammamish, Issaquah, Maplle Valley etc… you probably need a significant amount of retirement income.

Between maximizing retirement income, maximmizing social security, minimizing taxes, and planning for long term care, the #1 need for retirees is this:

A confident retirement income plan that we know will work keep you from running out of money.

Most DIY investors rely on what has always worked…buy and hold.  But this investment strategy has a fatal flaw.  It is called “sequence of returns risk.”

This risk can be the difference between taking retirement income with peace of mind and worrying every time you need to take a dollar out of your account.

Its the difference between being able to schedule a trip to Disnelyand with your grandkids to build memories or having to zoom into Christmas to get some face time with them.

If you are a DIYer, or even working with a fiancial planner, ensure you avoin the most commone investment stratefy, andthe most risky income strategy.

 

High Income Earners, the TRUTH about Roth accounts

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I work with a lot of high-income earners.  Near Seattle we have Google, Amazon, Microsoft, Boeing, Meta, and a host of other high tech, high paying companies.

When doing financial planning for high income earners, once I create tax efficiency in their current investments and retirement assets we can personally invest, I help them with their company retirement plans (401ks mostly).

Often, I will say “ok, you are saving into pretax 401k, I want you to save into a Roth.”

The response I normally get is “I can’t, I make too much money for Roth.”

This statement is actually 50% TRUE, 50% False.

Creating tax free wealth is something I preach as loudly and often as I can to my clients.  And the short version of this sermon is this.

The more money you make, and the younger you are, the more you need to create tax-free wealth.

The Roth IRA is one-way high-income earners can save money tax free, but it is not the only way.  And it is true that if you make too much money, you cannot directly contribute to a Roth IRA.  But it is NOT true that you cannot get money into a Roth at all.

Watch below to learn more.