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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 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 📽️👇

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.

 

Why I disagree with this “rule of thumb” from Fidelity.

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I’ll keep this short.

One thing I have seen ruin #investment plans over and over is relying on a “rule of thumb” when it comes to financial planning.

Here are some of the most common:

1️⃣ The market always comes back

2️⃣ The market will make X% per year

3️⃣ In the video below I take a look at “you need X dollars” to retire successfully.

Will most rules of thumb work? Most likely. But WHY would you take a chance if you don’t have to?

See the “rule of thumb” in my financial planning software below👇.

The investments in your 401k may be putting your retirement at unnecessary risk.

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You DON’T have to roll an old 401k into a new 401k.

There may be better tools available outside of a standard 401k account.

Rolling into an IRA may be a better way to go.

I had a client build a business and contribute to everyone’s favorite, the 401k. We were creating a passive income 💸 plan with some institutionally available investments that weren’t available in his 401k.

He said “man, I wish I could use my old 401k for this, we just sold and I have to roll it into my new 401k.”

This is NOT the case. If you are collecting a “junk drawer” of accounts, full of old 401ks, IRAs, checking accounts, cash under the mattress 🛏 , and pocket full of BTC 💱 , I have found it is often best to roll them into an IRA, rather than a 401k.

But why would your rollover an old 401k into an IRA?

1️⃣ Better investments. You have access to a better selection of traditional investments like stocks, bonds, ETFs, mutual funds.

P.S. Half this video I get on my soap box again 🤦‍♂️ about TARGET DATE FUNDS, I can’t help myself.

2️⃣ More flexibility. Did you know in a self-directed IRA you can invest in real estate, gold coins, or a dog walking business?

3️⃣ Simplicity: Rather than having 23 different log in and password combos 🤮 you have one place to see your finances.

As an example of #1, and the impact it can have, watch below. 👇

 

What are you doing to protect your financial plan from this big threat?

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I get a little “tin-foil hat” sometimes.

BLUF (bottom line up front)

If you aren’t, AGGRESSIVELY, creating TAX FREE wealth, you are setting yourself up for a lot of pain.

No. Roth is not enough.

People often see the threats to their retirement investing through an entirely market driven lens.

– Inflation 📈

– Volatility 🎢

– Poor earnings 🤮

– The economy 🏭

If any number of those turn out bad, you stand to lose 📉 a chunk of money (and, worse, time.)

People often overlook one of the major events that can IMMEDIATLEY cost you 5, 10, 20, 50% of your assets.

Case in point in the article below. “But it only applies to people with big $$$!”

The point is that the federal and state government can change what they like, when they like?

Don’t believe me. For 133 years the State of Washington considered a capital gains tax to be unconstitutional. In 2022….never mind, JK, LOL.

The tax man can not only change tax RATES, but the NATURE of taxation.

Today’s capital gains could be tomorrow’s ordinary income.

This is why I am outside the box, kind of obnoxious, and occasionally cost myself potential clients by using every tool available to create tax FREE wealth in my client portfolios.

Could the IRS/State attack the Roth? Absolutely. The government could:

1️⃣ Income test Roth distributions (yeah, you might pay income tax twice.)

2️⃣ Net worth test Roth distributions

3️⃣ Take away Roth contributions based on income/net worth.

We cannot control what the legislatures do. What we can control is how we prepare.

So the question is NOT what they will do. The question is what are YOU doing to protect your financial plan.

AVOID a costly mistake with your money, have your investments reviewed.

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Every have a second opinion and a doctor catch something the first one did not?

How important was that?

Sometimes taking bad investments 😒 out of a new client’s portfolio is as important as what I put in…

I recently had a client sign up because I “was the first advisor to buy them dinner who didn’t just try and sell them an annuity.”

Listen, I try and be as charitable as possible to my industry.  Different investment vehicles are complex and most advisors are trying to do the best they can.

But

I will not soft peddle when it comes to products and advisors who wreck a financial life for their own benefit.

In this case I just made a client who had a seminar “instructor” convince him to cash out his 401k and put the money in a whole life policy.

 

The taxes…

The fees….

The lost retirement years….

 

You may think “no way I would let myself be talked into something like that” but I see it every day.  I have seen hundreds of thousands of dollars wasted 💸 because someone was embarrassed and didn’t want to ask for help.  Luckily in this case I was able to rescue this client’s money.

Anyhow, I thought this video might help you avoid a costly mistake 🤢.  If you would like a review of an investment you don’t understand just fill out the below form. 👇👇👇👇👇👇👇👇👇

YOUTUBE VIDEO BELOW THE FORM.