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Transcript
Mike:
If you are not one of these super rich people, you have to understand your money. Probably isn’t managed the same as theirs. And here’s what I mean. It is all about the difference between what I like to call symmetrical investing versus a symmetrical investing. So of course that begs the question. What the heck does that mean? Right. Yeah.
Zach:
Welcome to retirement today. My name is Zach Holcomb and alongside me, we have Michael Reese, founder and president of Centennial advisors located right here in Austin, Texas. Mike, how are you today? I’m doing,
Mike:
Doing great. And Hey, let’s go ahead and go on the record and say, I hope I’m at least starting to lose some weight because I’m doing this crazy thing called exercise. So we’ll see how that affects my life. See if, how it affects my energy level
Zach:
Today. Right? I’ve never heard of her. Let me know how it goes. <Laugh> all right. So on today’s show, I’m really excited about what we have to discuss here today. We’re taught about the three keys to financial prosperity, correct?
Mike:
That’s right. Three keys to financial prosperity. So what we wanna talk about today, Zach is what are the three things that you absolutely have to do? Like what do you have to do in order to enjoy true, complete financial security? Now I’m not talking about incomplete financial security. Like if you want to make sure that you are completely financially secure, we’re gonna talk about how to do that today. And you know, what we find Zach is, you know, most people, you know, they have some financial security maybe, but it’s incomplete. Our job today is to talk about what are the three things you need to do for you to have complete financial security, no
Zach:
Matter what, right? So some people might be covered in one or two of these areas, but your point is you have to account for all
Mike:
Three. You gotta account for all three. Very
Zach:
True. What’s the first one that comes to mind. You
Mike:
Have, who manage your money effectively. And we’re gonna talk more about what that means in a little bit, right here on the segment. Number two, you’ve got to plan for taxes, right? You’ve gotta keep more money in your pocket. Give less to the IRS. And, and I don’t know if you saw this. I know we’ll talk about this later in the show, but I see that in, by new tax plan, he wants to make he wants to basically make Americans taxed at the highest rate in the world on capital gains. So, you know, we’ll talk about that. And number three, you know, you get your money managed properly. You get your taxes managed, but guess what? Sometimes things happen. They don’t expect. So you have to protect yourself. You have to have protections in place to make sure that you are in good shape if things happen that quite frankly, you
Zach:
Didn’t plan on. Yeah. All three of those things seem pretty equally important to me. But I know we’re
Mike:
Gonna talk about managing your money properly first. Yeah. Let’s start there. So here is the biggest problem out there. And I see, you know, Zach, we see this every day and I mean, every day, and this is because it is a big problem with the financial industry. So let’s start here. Let’s imagine you are super wealthy. Okay. You’re I mean, you’ve got tens of millions of dollars, hundreds of millions of dollars. Like you’ve got some serious money. I like thinking about this already. Yeah. You win the lottery. Right? Right. We, we, yeah, yeah. Team. Anyway, the point is you got a lot of money and if, and because you have a lot of money, you are able to work with the very best investment advisors in the, like in the country, in the world. Like you have access to the absolute best, the 1%, right?
Mike:
Yeah. You need to understand if you’re that person, your money is probably managed very differently than everybody else out, out there. Right. So as you’re sitting there listening, maybe you’re driving the car and you’re stuck in traffic. It’s Austin. We have traffic again. Maybe you know, maybe you’re at home, you know, wherever you are, if you are not one of these super rich people, you have to understand your money. Probably isn’t managed the same as theirs. And here’s what I mean. It is all about the difference between what I like to call symmetrical investing versus asymmetrical investing. So of course that begs the question. What the heck does that mean? Right. Yeah. Pretty interesting concept. I mean, I can barely pronounce symmetrical and asymmetrical sometimes. I mean, but so what does it mean? What is the difference between these things? Well, here’s what it means.
Mike:
This is how 99.9%, by the way, I haven’t, I guess I shouldn’t use a percentage without having actual data to back it up, but it seems like 99.9, 9% of people we talk to are investing symmetrically. So does that mean, here’s what it means. It means that if you go back in time, if you look at your portfolio, how your money’s invested and you say, well, how much might I make when in a good year, when the market’s doing really well, and then you look and say, well, how much might I lose if the market’s doing really poorly? Like in 2008, those numbers are really close to the same number. So a balanced investor today, you know, to give you an example, if someone’s a stereotypical balanced investor, you might say, Hey, I’m diversified, I’m balanced. Yay. I feel good. Here’s where reality. Reality is this.
Mike:
If the markets do really, really well, you might make as much as say 25% in a really good year. Hey, it sounds great. Yeah. We’re gonna be, nobody’s mad at their advisor when that happens, rocking and rolling, but in a really bad year, you could lose 25%. So in other words, the amount you make in the amount you lose are really close to the same number that is symmetrical investing. And there’s not a chance in the world. A wealthy person would accept that, right? Right. Or a hedge fund, or like a big institution or a foundation or an endowment, like big money. They would never accept that yet. Everyday Americans have that happening all the time. So just to
Zach:
Briefly recap, symmetrical investing your general investor, who is in a balanced portfolio, they’re symmetrically invested
Mike:
This way. Yeah. They might make 25% of Goodyear lose 25% of bad. And here’s the problem. Nobody remembers the bad years cuz we haven’t had one in forever. Right. Right. Now, how does that compare with asymmetrical investing? Asymmetrical investing means the wealthy person in a, in their balanced portfolio. If the market does well, they may make 25% just like you. Right? And that’s so they’re no different really there, but in a bad market year, instead of losing 25%, they might lose five or 10% at the most, never more than 10. So in other words, asymmetrical means that, you know, a year plus 25 and a bad year minus say seven or eight, those are not the same number. My option. My, my opportunity of loss is very small compared to my opportunity for gain. So what does that really mean to you? Let’s say you’ve got a million dollars and you might have more, you might have less, right?
Mike:
So I’ll just, you use a million cuz it’s a round figure. If you invest a million dollars in a balanced portfolio, if the market has a bad year, you could lose 250 grand. I don’t wanna lose 250 K. Yeah. And you probably don’t even realize you could. What about a wealthy investor? They, if for the same million dollars, a bad market year, they might lose ah, 70,000. You’re losing two 50, they’re losing 70,000. That’s $180,000 of risk that you are taking. And you’re investing that quite frankly, you don’t need to. Right. It’s just not that hard to invest asymmetrically. Here’s the problem, the big financial firms, they just don’t care. I mean, let’s be honest unless you have like 10, 25 million, they really don’t care about you. You don’t have enough money to really, for them to really pay attention to. So they just put you in just kind of cookie cutter portfolios and the way you go.
Mike:
Right. And they just, Hey, everybody lost 25% this year. That’s everybody. Nothing you can do about it. Yeah. So be it, it happens, which is pure BS. Right? Pure BS. Let’s move on to the second thing. And you know, this is the one near and dear to my heart. Your favorite topic? Taxes. Yep. Taxes, taxes, taxes. This is just like the Brady bunch, you know, episode where it’s Marcia, Marcia, Marcia taxes, taxes, taxes, Mike, Mike, Mike, Mike is like taxes, taxes, taxes, right? Yes. So as time goes on the IRS, they’re just gonna want a larger slice of your savings. Right. You know, most people, if you’re like people the majority of your money’s probably in your 401k, right. It’s what we’re told to do. Yeah. 401ks 4 0 3 BS four 50 sevens. That’s where the money is. The problem is that that money’s never been taxed.
Mike:
And at some point down the road, the IRS is gonna say to you, Hey, you gotta pull the money out and we’re gonna take a chunk of it every time you do. Right. But it’s worse than that because they don’t just take a chunk of that money. Many times when you take distributions from your 401k or your IRA, especially if you’re in retirement suddenly not only do you pay tax on that money, you pay more tax on your social security right before you took the money out, your social security, maybe it was tax free. Maybe you paid a small amount of tax, but suddenly, oh, I took an IRA distribution or a 401k distribution. Suddenly I’m paying tax on almost all my social security. That’s called double taxation. Mm-Hmm <affirmative> right. Your capital gains. You might be in a tax bracket where you pay little to no tax in capital gains.
Mike:
Suddenly uhoh pulled some money outta my 401k. Suddenly I’m paying tax on my capital gains. Now we’re at triple taxation. <Laugh> right. And, and it goes on and on. And what are they talking about in Washington, DC. They want to do what increase the amount of taxes that they charge. You guess? What, if you look at us debt, clock.org, you’re gonna learn that this is not a one time thing. Right? I’m shocked to hear all of this. Yeah. Taxes are going up. You know, what’s kind of interesting is, you know, we talk about how bad taxes are today. Mm-Hmm <affirmative> if you look historically, we are kind of near all time lows, like the top tax brackets right now are what? 37 to 40% historically there was a 50 year period of time where they were over 50. Wow. Top tax brackets were 70%.
Mike:
They were heck after world war II, it was 94. That’s crazy. It’s crazy. Right. So here’s the thing taxes. I mean, you’re living in a cave. If you don’t think tax rates are gonna increase, it’s gonna happen. The question is to what are you just gonna be like an ostrich? Are you gonna sit there, bury your head in the sand and ignore it? Yeah. And say, all right, I gotta take it. Yeah. It just, it just, it is what it is. Sure. Or are you actually going to pay attention and plan for it? So I’m gonna give you a, a real world example of that, right? Couple comes in. They have and I’m, I’m gonna just round these numbers off. Okay. call it a million dollars in their 401k. Again, you might have more than that. You might have less, doesn’t matter.
Mike:
I’m just using this example to give cuz it’s a round. It’s easy to work off of. They got a million dollars in their 401k. They’ve got some social security. They wanna live on $7,000 a month. That’s their deal. They want 7,000 a month to live on. They want it to grow with inflation mm-hmm <affirmative> and you know, we did the math for them and like, Hey, check it out. You guys are in great shape, but let’s talk a little bit about the tax road you’re on. And we learned that their first year of retirement, 84,000 of spendable income that they want, you know, 7,000 a month, times 12 is 84,000 say, Hey, we wanna live on 7,000 a month. Their tax bill on that, Zach, it was like 6,000. Yeah. And if you think about it, 84 K, that you’re living on that 6,000 tax, you have to pull out 90 to live on, you know, pay six to the IRS live on 84.
Mike:
That’s pretty low tax bracket. Yeah. It’s not too bad. Not a big deal. Yeah. Right. But as they age, you know, inflation creeps up their income. They hit age 72. 401K is required distributions. Mm-Hmm <affirmative> their taxes go up every little year. Little bit, little bit, little bit. It’s creeping up on ’em. Yeah. They creep up by the time. Then their’s seventies, early seventies. Now it’s like 11,000 a year on the same income. By the time they’re in their mid eighties, 21,000 a year on the same income gone from 6,000 to 21,000. It’s more than triple, right? Why? Well required distributions. They’re being forced to pull more money outta their 401k than they, than they’re spending mm-hmm <affirmative> so they just have to reinvest it, I guess. Right. But then here’s the real kicking. The pants husband dies, cuz we’re never gonna say the wife dies first. That would be, we always gotta attack. The men. Never pick on the wife. <Laugh> always pick on the husband. Right? Right. First spouse dies. By the way, it could be. It doesn’t matter who dies. First, first spouse dies. Surviving. Spouse says, Hey, I still want the same level of income. Basically. I still have the same expenses, but their tax bill goes from 21,000 to, in this case $34,000. Oh my gosh. Like a 50 plus percent increase. Mm-Hmm <affirmative> and the same income. Why? Cuz we’re a single tax payer, right? Not a married taxpayer.
Mike:
Here’s the question. Has anybody told them about that before they came to see us? Probably not. No. Nobody tells ’em this stuff. And if you don’t know, I mean you just, you just head bearing in the sand. You don’t know how do you know if you have a problem and you’re not doing anything about it now with planning with planning. What if we said, well, what if we did some rough conversions or something let’s put together a rough conversion schedule over the next, maybe over the next seven years, right? Or five to seven years. Let’s convert some of that IRA to they’re that 401k to Roth. And if you do it the right way now when they’re in their eighties, instead of having a $21,000 tax bill, it’s like $2,000. Yep. Instead of the surviving spouse paying 34,000 in tax, they’re paying 3,400. I mean like 90% reduction later in life, all by paying a little bit of tax up front.
Mike:
Right? And over time in this particular case, it saved that couple over 188 that’s right. Almost $200,000, $188,000 of tax saved over their lifetime. It’s a life changing amount. That’s a 88,000 that they were able to keep in their pocket and not give to the IRS. Love that question. They spent like a total of two hours with us over, you know, a couple of meetings. Do you think that was worth their time? Yeah, absolutely. I mean, duh. Okay. What about you? Let me ask you the question. What about you? Do you know, do you know what your future tax liability is gonna look like? If you want complete financial security, part of that means that you not only, you know, what your future looks like from a tax perspective, but you’re also actively engaging in tax planning each and every year. Not I do it this year and I’m done each and every year to make sure you’re given the IRS the least amount of money over time.
Mike:
It’s not just what you pay this year. It’s your pain in the future as well. Are you doing that? Do you know if you’re married? What you’re surviving spouse’s tax bill would be if you passed away. I mean, Zach, I bet I, I I’ll bet you 95 plus percent of people have no clue. I’d agree with that. They no clue. Stop just giving the IRS money blindly. Right? Let’s be smart about this. And number three, you gotta protect yourselves from the unknowns. Now, what am I talking about here? The way I think about it, there are, you know, there’s kind of three ways to think about this. Here we go. Okay. You could live too long, die too soon, or get sick along the way. These are all uncomfortable things to think about. We don’t. Well, first I had a great conversation the other day with you know, with a, a very nice gentleman and he was commenting about how, you know, people really misunderstand or maybe they they’re unaware of how fast the medical community is advancing their ability to treat diseases, right?
Mike:
I mean, it’s like, think about it. Computers grow memory and speed. They grow at like exponential rates. We all know that. Well, guess what? The same is true in about every field. Every field’s growing at exponential rates in the medical community is no different. So the things that kill us, doctors are now helping us. They, they say, I got that. We got you fixed. Now your lifestyle might not be so good on the other side or as good, or maybe it will be right. But here’s reality. We’re all living longer than we expected. Yep. Right. I mean, if you’re 65 today and you’re healthy. I mean, if I’m in your shoes, I’m thinking, man, I’m probably living to 90, 95. Yeah. My great grandma was 1 0 3 when she passed, she was 1 0 3 and that’s before all these medical advances. Right. So I think that something that people miss all the time, you know, enjoying complete financial security is about making sure that, you know, you’re money that you can just live on your money, like work being, you want work to be optional.
Mike:
Right. But it’s not just, I want work to be optional means I’m working because I wanna work. Not because I have to. But it also means, gosh, my money, if I choose to stop working and choose to devote you know, maybe towards volunteering or I hobby or something else, your money might have to last a lot longer than you think mm-hmm <affirmative> right. So you might live in fact, not might, odds are very good. You will live longer than you expect. Right. You got a plan for that. Well, but what, and by the way, if you manage your money properly, that’s okay, sure. We got that covered. That’s not the big problem. The big problem with the other two. What if you die too soon? Or what if you get sick along the way? The unexpected. Yeah. So what if you die too soon?
Mike:
Oh my gosh. Do you have enough life insurance? Right? Do you have enough life insurance? Most people don’t. And, and here’s a good way to think about it. What is a purpose of life? Insurance is to replace lost wages, right? If you’re retired, you say, oh great, I’m retired. I don’t need life insurance anymore. Eh, not so fast. Think about all the taxes you owe on your 401k. Would it be a good idea? Like if you had a million dollar 401k, like 300,000 of that, isn’t your money. It belongs the IRS. If you died now your spouse to single tax payers could be in a higher tax bracket. Wouldn’t it be a great idea to leave your spouse? Like maybe, I don’t know, 300,000 of tax free life insurance that he, or she can use to say, oh, I’m gonna convert that IRA to a Roth IRA and get the IRS outta my life.
Mike:
Wouldn’t that be a good idea? Heck yes. And by the way, way <laugh> this is a fun one. Go find someone that got a check, a life insurance check because their spouse died and that check was like 500,000 or a million dollars. And ask that person. What do you think? Was it a good idea or a bad idea that they had life insurance? Good idea. It’s a, always a good idea. It’s never a bad idea. Right? So anyway, term insurance, for example, it’s so cheap these days, it is so cheap. There’s no reason to be underinsured. So if you’re still working rule a thumb in today’s interest rate environment, look get like 15 times your salary. You’re making a high hundred grand a year, get 1.5 million of death benefit in term insurance. You’re like, what? I mean, come on 1.5 million, really, man, it’s probably like 50 bucks a month or something.
Mike:
Probably it costs almost nothing. It’s ridiculous. Pretty reasonable make. If you’re gonna make a mistake, be over-insured not underinsured with life insurance, especially if you’re younger, still working, what else do we need to think about? What if we get sick? Mm-Hmm <affirmative> now you probably have health insurance through your work, right? You hit 65. You’ve got Medicare, which is about the best insurance. There is. That’s not what I’m talking about. What if you get sick, something that maybe your health insurance or Medicare doesn’t cover. And that happens all the time. And I’m talking about long term care. I know this is not everybody’s favorite topic, right? But again, you, if you want complete financial security, this is just like taxes. You cannot bury your head in the sand. You can’t be an ostrich, be an adult and say, look forward and say, Hey, what happens if I get Alzheimer’s Medicare, doesn’t pay for that health insurance.
Mike:
Doesn’t pay for that. How am I gonna pay for that? You know, both my grandmother’s act. They both died in nursing homes with Alzheimer’s both of them. When both my grandmothers retired, this is really interesting. Both my grandparents both sets my mother’s side and my father’s side mm-hmm <affirmative> when they retired in today’s dollars ahead, over a million dollars. Neither set of grandparents were big spenders. In both cases. My grandfathers both died at the age of 67 from heart attacks. Like they retired 62 or 65 mm-hmm <affirmative> couple years later, boom, they’re gone heart attack, right? Leaving my grandmother’s on their own, but everything’s going fine until guess what? They didn’t plan for taxes. We talked about that in the last segment. So suddenly my grandmothers more money to the IRS, less money for them. Yep. And then they both ended up getting Alzheimer’s. They’re both in nursing homes.
Mike:
They both died without one penny to their name. Wow. Why? Because they buried their head in this sand. They ignored the problem. By the way, my grandparents way back then. I mean, this was like probably 20 years ago or more. Let’s be honest that wasn’t like, if you retired in 1975 or 78 long, I mean long term characters, wasn’t that wasn’t in our lexicon that we weren’t talking about that. Right. I mean, because we didn’t live through this stuff, we just died. Right. But both my grandmothers died in their eighties and both with Alzheimer’s for like five years plus all their money ended up in the nursing home. Yep. Is that what you want? No, I mean, think about it. If you die too soon, is your family gonna be okay if you get sick, will your surviving spouse be okay? Do you want all your money going the nursing home or would you rather keep it in your family?
Mike:
Right. If you live too long, are you gonna run outta money or are you doing things the right way? How are you protecting yourself against the unknown? Have you truly addressed it? You know, when most people go see a financial advisor that, what does that conversation look like? You know, usually all the advisor wants to do is talk about your investing, right? Why? Cuz that’s where they get paid. But that’s just one piece of the, or one piece of the puzzle. If you will. One side of the coin, I guess that’s not complete financial security, complete financial security is the three things. One manage your money properly as symmetrical versus symmetrical investing. If I can just Hmm. If I could just really drive one point home, I want you to be aware of that asymmetrical investing versus symmetrical second. Got to be smart about your tax planning and third.
Mike:
Absolutely. You’ve gotta protect yourself. What if you live too long, die too soon, get sick along the way. Mm-Hmm <affirmative> remember when it comes to your financial world, we want you to enjoy the three CS. What are those control? The first C’s control. I want you to feel like you have control of your financial situation. And if you have control of your financial situation or you feel that way, that leads to the second C, which is confidence. You wanna have the confidence that work is optional for you, you, or that you’re on that path. You wanna have confidence that you’re making all those right decisions. If you have control of your finances, if you have that confidence, that leads to our third C, which is comfort and peace of mind, that comfort and peace of mind that, you know, no matter what the world throws your way, it doesn’t matter what the stock market does.
Mike:
Doesn’t matter what the, the people in Washington DC do. Right? I, I just, all boy, I could use so many other words for them. <Laugh> doesn’t matter what they do, right? Doesn’t matter. I mean, whatever happens, you’re prepared, right? You have that financial security and it’s complete. It’s not partially covered. It’s fully covered. Right? So as we wrap up the show today, here’s what I want you. If you haven’t done it yet, you call our number. What is it? 5 1, 2 8, 8, 6 58 50. Yep. Is that right? You got it. It’s amazing. I can remember these numbers, right? So again, that’s 5 1, 2 8, 8, 6 58 50. Just give us a call leave. And, and when you call, you get the answering service, they’ll say, Hey, let’s set up a time for you to talk to Zach. You talk to my co-host Zach here. He’s a very nice guy. And he’ll just say, Hey, tell me a little bit about your situation.
Mike:
He’ll tell you here’s some let’s let’s collect some information so we can put this together. Or he might say, Hey, let me set up a call with Mike, with you. So, you know, he can collect the information. We wanna give you the easiest path to complete financial security. Think about how comfortable that’ll be. I mean, won’t it be? I mean, look probably in the back of your mind, you know, you needed to do this anyway. Now’s the time let’s make it simple. Let’s make it simple. Let’s make it easy. It’s a piece of cake call the number let’s visit. Let’s have a conversation, right? So Zach, let’s get that number out there. One more
Zach:
Time. Mike it’s 5 1, 2 8, 8, 6 58 50 again, 5 1, 2 8, 8, 6 58 50. Now, before we hop off the air here this evening, Mike, do you have any final thoughts? Oh,
Mike:
For sure. I always have thoughts. Yeah. I mean final thoughts just for today though. Oh, okay. Just this week’s no, I’ll tell you what, here’s the deal. You’re gonna have to deal with this at some point, right? Let’s not make it hard. Let’s make it easy. No, excuse it takes what two minutes. Give us a call. Let’s get it done. 5 1 2 8, 8, 6 58 50. Hey, looking forward to talking to you had a great show. This see you again next week.
