Bogleheads® Conference 2024 When Should a DIY Investor Quit DIYing? with Carolyn McClanahan

00:00:00.000 | (applause)

00:00:06.380 | So there's a good reason that our next speaker

00:00:09.440 | is one of the most sought-after speakers

00:00:12.480 | in the financial planning space.

00:00:14.340 | We have asked her to attend this conference

00:00:16.320 | a couple of years running, and she's had other engagements,

00:00:20.080 | and so we're so excited to have her here.

00:00:23.020 | She brings expertise to bear on several different areas,

00:00:27.260 | which is one of the reasons why everyone wants her

00:00:29.200 | to come talk at their conferences.

00:00:30.960 | So she's a medical doctor.

00:00:32.760 | She understands health care matters.

00:00:35.700 | She's a financial planner.

00:00:37.400 | That is her livelihood these days,

00:00:39.980 | and she's a certified financial planner.

00:00:42.780 | She's a human being who has worked with a lot

00:00:45.040 | of other human beings through her work,

00:00:48.280 | and so she brings a wonderful human quality

00:00:51.860 | to both the health care

00:00:53.660 | and the financial planning side of things.

00:00:56.060 | This is Carolyn McClanahan.

00:00:58.660 | We're so excited to have her here.

00:01:00.200 | Please give me a round of applause in thanking her.

00:01:04.560 | (applause)

00:01:06.960 | - Okay, am I on, am I on?

00:01:09.580 | Hello, hello.

00:01:10.840 | I am actually so excited to be here.

00:01:13.000 | So many people who have been mentors and idols to me,

00:01:16.420 | like such as Christine, Bill Bangen, I mean, are here,

00:01:20.040 | and so just so excited that I could also be here this year.

00:01:22.920 | So when Christine asked, "What do you wanna talk about?"

00:01:26.680 | it took me no, I already knew what I wanted to talk about.

00:01:29.580 | When should you do it yourself

00:01:30.720 | or should quit doing it themselves?

00:01:32.980 | So a little bit of background.

00:01:35.680 | Started out, I was a doctor.

00:01:38.180 | I practiced mainly emergency medicine.

00:01:40.520 | My husband's an engineer, and we did our own investing.

00:01:44.400 | I had a IRA when I was in residency,

00:01:46.860 | so started kind of early.

00:01:48.460 | He inherited some money in the mid '90s.

00:01:51.740 | We invested that money.

00:01:52.900 | We did quite well because we were so brilliant, right?

00:01:56.340 | We were lucky.

00:01:57.900 | And towards the end of the '90s,

00:02:00.340 | and he had quit being an engineer,

00:02:02.240 | and he didn't wanna go back.

00:02:04.380 | He wanted to be a photographer and a track coach.

00:02:07.320 | So I married an engineer,

00:02:08.920 | but now he wanted to make no money, right?

00:02:12.360 | And I said, "Honey, I love you,

00:02:13.760 | "but I am not going to support you,

00:02:15.420 | "so we need to make sure this little bucket of money

00:02:17.800 | "that we've done well with is enough

00:02:19.560 | "for you to be able to quit."

00:02:20.760 | We knew it wasn't enough to retire,

00:02:23.040 | and we were only in our mid '30s,

00:02:24.400 | and I actually love medicine.

00:02:26.040 | I still volunteer to this day.

00:02:27.880 | I love patient care.

00:02:29.440 | I do business of medicine.

00:02:30.780 | The culture of medicine is very challenging.

00:02:32.880 | That is what I did not like.

00:02:35.020 | So I went back to school.

00:02:36.020 | Well, no, we tried to find a financial planner,

00:02:38.740 | and they were sales schmucks.

00:02:40.480 | They charged too much.

00:02:42.020 | They didn't really do -- This was back in 2000.

00:02:44.520 | They called themselves financial advisors,

00:02:46.480 | but all that really meant was investments

00:02:48.400 | and not really financial planning.

00:02:52.320 | And so they kept trying to, like,

00:02:54.560 | sell us products and stuff that we knew we didn't need

00:02:57.100 | 'cause we were great do-it-yourselfers.

00:02:59.540 | So I decided to go back to school for fun,

00:03:02.040 | to learn about financial planning for me

00:03:04.200 | and for my husband, and I fell in love with it,

00:03:06.400 | and I saw this huge need for people getting advice.

00:03:09.840 | And at first, I was just going to take care of my ER buddies

00:03:13.040 | and my running buddies.

00:03:13.940 | I'm a runner.

00:03:15.180 | And then it just, like, I started a firm in 2004,

00:03:18.560 | and I was going to practice emergency medicine part-time,

00:03:21.320 | financial planning part-time,

00:03:23.160 | and then it just kind of exploded.

00:03:25.120 | But plus, I found out I was the lowest-paid person

00:03:28.460 | in our practice, emergency medicine practice,

00:03:31.440 | and I was the only woman.

00:03:33.600 | And I'm like, "I am tired of this BS," so I left medicine.

00:03:37.640 | And so I had my financial planning practice,

00:03:41.000 | and all of a sudden, I had all these wonderful people

00:03:43.280 | from NAPFA and stuff that helped me get started

00:03:45.880 | and understand how to be a real financial planner.

00:03:48.580 | And so all of a sudden, I started recognizing

00:03:50.960 | all these intersections of health and finance,

00:03:53.080 | like people don't know how to plan for chronic illness.

00:03:56.120 | How do you help uninsurable clients get health insurance?

00:03:59.220 | This was back before the ACA.

00:04:01.200 | So I started putting together all these fun talks.

00:04:03.300 | Before you know it, I realize there is some stuff I know

00:04:06.440 | that could really help both professions.

00:04:08.160 | So I'm really honored that I get to do this work.

00:04:10.800 | I feel like it's my true calling.

00:04:13.040 | And one of the things -- so my practice

00:04:14.980 | is fee-only fiduciary practice.

00:04:17.880 | We don't try -- and I'm just telling you about my practice

00:04:20.480 | so you understand my mindset.

00:04:22.160 | I hated AUM because it's like,

00:04:24.480 | "We are real financial planners.

00:04:25.960 | Why are we charging people based on assets?"

00:04:28.600 | So I was one of the early pioneers

00:04:30.660 | of doing flat-feed planning, which I'm really excited

00:04:33.520 | because that is starting to blossom,

00:04:35.320 | and there are more flat-feed planners out there.

00:04:38.340 | But, you know, I developed all this great clientele

00:04:40.840 | through the years, and we started recognizing --

00:04:45.040 | and we started getting a lot of do-it-yourselfers

00:04:46.880 | who realized that they needed help.

00:04:48.540 | They'd become too complicated to do it themselves well,

00:04:51.280 | or they were getting into trouble.

00:04:53.280 | And so I have lots of stories to tell you because,

00:04:56.580 | you know, doing it yourself is great.

00:04:58.280 | I was a do-it-yourselfer.

00:05:00.320 | And I want to go through how much should you do yourself,

00:05:04.960 | and then when should you get help,

00:05:07.100 | and then how and where to get help.

00:05:09.260 | So we are going to start with a quiz.

00:05:12.800 | I'm going to have everybody raise their hand.

00:05:14.740 | These are -- you know, people think of financial planning

00:05:16.660 | as investments, and Bogleheads,

00:05:17.940 | you guys all love investment stuff,

00:05:20.340 | and I know you talk about tax, you talk about estate,

00:05:23.300 | but you're trying to do it all yourself.

00:05:24.740 | I want to see how much you guys are really doing.

00:05:27.040 | How many of you do all your cash flow in budgeting?

00:05:29.780 | That's the easy part, right?

00:05:31.880 | And you planned out your cash flows for the next

00:05:34.060 | however many years of your living in retirement.

00:05:36.220 | Raise your hands if you've done that.

00:05:39.120 | Good. How many of you do your own taxes?

00:05:43.120 | Ooh, how many of you do your own tax planning?

00:05:46.940 | Very different.

00:05:48.600 | Wow. How many of you feel really good about your insurance

00:05:52.200 | and your asset protection?

00:05:54.200 | Mm, less hands, but still enough.

00:05:56.940 | How many of you have -- do not have an estate plan,

00:06:01.940 | or you've done your estate plan using Internet-based resources?

00:06:06.760 | How many of you have used an attorney --

00:06:08.980 | because people -- how many of you have used an attorney

00:06:11.220 | to do your estate plan?

00:06:13.160 | Okay. Some hands aren't missing,

00:06:14.560 | and it's probably the ones who are embarrassed

00:06:16.020 | to tell us they haven't done an estate plan.

00:06:18.600 | Okay. And this one, I'm pretty sure I know the answer.

00:06:20.900 | How many of you do all your own investing?

00:06:23.640 | Okay. Okay. Now, let's start.

00:06:26.980 | What I'm going to take you through is all the poops I see,

00:06:30.280 | right, of each of these sections.

00:06:32.780 | So, cash flow planning.

00:06:34.340 | Everybody should be able to do this, and thank goodness,

00:06:36.880 | financial literacy is improving, but not fast enough.

00:06:40.420 | And so, what do I see people get in trouble with?

00:06:42.360 | They're not paying attention to their statements.

00:06:44.460 | Everything is Internet-based.

00:06:46.260 | Now, all your statements are online.

00:06:48.060 | So, how often do you really look at them?

00:06:50.220 | I see people with duplicate subscriptions

00:06:52.700 | or subscriptions they don't use, fraud that they haven't caught,

00:06:56.100 | that the banks haven't caught.

00:06:57.940 | So, it's really important to pay attention to your statements.

00:07:01.740 | The other thing is people don't ever download their statements.

00:07:05.740 | And if you get into an accident, or if you die, and your family has

00:07:10.460 | to pay the bills, and you don't have anybody else on the count,

00:07:13.380 | what happens to those accounts?

00:07:16.420 | They're frozen.

00:07:17.700 | And not only are they frozen, you're not going to be able

00:07:19.500 | to access them online, so your family's not going to know when

00:07:23.020 | and what bills need to be paid.

00:07:25.500 | So, having too many accounts.

00:07:27.980 | You know, you see this great yield at this account,

00:07:30.580 | this great yield at this account.

00:07:32.180 | Oh, this beautiful credit card.

00:07:33.500 | Before you know it, you have five, 10, 15 statements.

00:07:36.380 | The estate planning attorneys will love you when you die,

00:07:40.140 | because now you've got to clean up all that mess

00:07:43.060 | if you have multiple accounts.

00:07:45.780 | Poor social security claiming strategies.

00:07:48.380 | People don't understand.

00:07:49.700 | It's not just about you.

00:07:50.980 | It's you and your spouse.

00:07:52.380 | And people don't think through good income planning

00:07:55.140 | so that they can delay social security

00:07:56.900 | to when it's most beneficial for them to take it.

00:07:59.340 | A lot of people say, "Government's going to run out of money."

00:08:02.260 | Government will not run out of money.

00:08:03.980 | It can't. It creates the money, right?

00:08:06.220 | We do have to have some tax issues around that.

00:08:08.660 | But social security's not going to go away.

00:08:11.300 | Too many people claim way too early, mostly out of fear,

00:08:15.100 | and they don't have anybody else to talk them out of it.

00:08:17.660 | And the big one is they don't notice they're slipping.

00:08:20.820 | So I had a 90-year-old client,

00:08:24.740 | and he was very good about paying his bills,

00:08:28.060 | and he got his credit card statement every month.

00:08:31.100 | He looked at how much he would spend,

00:08:32.980 | and he would send the credit card people a check.

00:08:35.740 | This is -- he was getting paper statements.

00:08:37.980 | And somewhere along the line, he had started automatic bill pay.

00:08:43.020 | So he was paying this credit card every month by a check.

00:08:47.540 | They were also deducting stuff automatically.

00:08:50.700 | And before you know it -- and the son finally caught it.

00:08:53.500 | He had a $2,000 credit card balance of money he could spend.

00:08:57.900 | And it's like, "Okay, this guy could die any day.

00:09:00.780 | It's hard to get money out of the credit card."

00:09:02.980 | So they had a big family outing at Maggiano's

00:09:05.660 | when all the grandkids and kids came down,

00:09:07.380 | and they spent the entire $2,000.

00:09:10.180 | But the son looked at -- kept up with him going forward

00:09:14.260 | because we didn't -- the slip was a gradual decline.

00:09:18.460 | Tax plan -- a PREP.

00:09:19.980 | And tax planning software makes it easy,

00:09:22.060 | but when do people get in trouble?

00:09:23.980 | When they have self-employment income or business income,

00:09:27.100 | a lot of people miss deductions.

00:09:28.620 | A big one I see is the health insurance deduction.

00:09:32.220 | You know, if you're self-employed and on Medicare,

00:09:34.300 | you can deduct Medicare premiums

00:09:37.340 | from your self-employment income.

00:09:39.020 | So, you know, there are a lot of little tax things

00:09:41.580 | that people don't understand that they deduct,

00:09:44.660 | so they miss a lot of things.

00:09:45.980 | Alternative investments, to me, just create a mess with --

00:09:48.940 | and I'm speaking to the choir here, though --

00:09:51.500 | mess with your taxes, because now you've got to wait

00:09:54.180 | on your K-1s.

00:09:55.500 | You've got to make sure your K-1s are appropriately put in.

00:09:59.860 | Too much trading.

00:10:01.160 | Had to do-it-yourselfer who came to me.

00:10:03.660 | His Schedule D was 10 pages long.

00:10:07.740 | You got -- the people who do taxes are --

00:10:09.580 | you guys understand what happened there?

00:10:11.100 | He was trading, trading, trading, wash sales,

00:10:13.940 | crazy stuff going on.

00:10:15.740 | So, thank goodness he didn't -- he did it himself quite well,

00:10:19.100 | but he was in a lucky moment.

00:10:20.940 | But his taxes were a mess.

00:10:23.060 | Multiple income streams.

00:10:24.340 | A lot of times people are -- you know, that have two jobs

00:10:27.220 | or two spouses have jobs.

00:10:29.300 | They're not withholding the amount,

00:10:30.620 | especially if you have great investments

00:10:32.900 | and that are kicking off income

00:10:34.400 | because you're not tax-efficient with your investments,

00:10:36.940 | then you don't do enough withholding.

00:10:38.580 | Now, how many of you here know what a 8606 is?

00:10:42.780 | Part of you.

00:10:44.080 | Okay, great.

00:10:45.380 | So, when you do IRA contributions,

00:10:46.680 | non-deductible IRA contributions or any contributions,

00:10:49.500 | Roth conversions, it gets recorded on Form 8606.

00:10:53.660 | How many of you have had more

00:10:55.380 | than one accountant in your lifetime?

00:10:58.260 | For those who don't do their taxes, some say, "Well,

00:11:00.420 | I'm my own accountant, so I don't mess up."

00:11:02.420 | Well, what happens is, if you change accountants,

00:11:06.100 | oftentimes if you were doing non-deductible IRA

00:11:10.140 | contributions, 8606 tracks your basis in your IRA.

00:11:14.180 | So, when you do that Roth conversion, you don't have to --

00:11:16.820 | or you pull money out of your IRA, you don't have to pay taxes

00:11:19.740 | on that post-tax money.

00:11:21.420 | Well, if you don't keep up with 8606s, that gets lost.

00:11:24.620 | And so, I've had clients that have had, you know, 40, 50,

00:11:28.100 | $60,000 in IRA contributions they made in the past

00:11:31.820 | or a post-tax that got lost because they changed accountants

00:11:35.380 | and it wasn't in the old accounting software.

00:11:37.860 | We've even had clients who kept the same accountants

00:11:40.700 | and the accountants got new accounting software

00:11:43.500 | and the new accounting software didn't carry

00:11:45.220 | over the old 8606s.

00:11:47.380 | So, it can be a mess.

00:11:49.460 | And then finally, again, I'm going to say this over and over

00:11:52.460 | and I'm going to get deeper into this,

00:11:53.780 | cognitive decline is an issue.

00:11:56.700 | Now, tax planning, biggest mistakes I see.

00:12:00.140 | Not utilizing lower tax brackets for income and capital gains.

00:12:03.420 | How many of you are really good at this?

00:12:06.380 | Oh, not many hands.

00:12:07.620 | OK. Nothing breaks my heart more than to see a tax return

00:12:11.980 | with negative income.

00:12:14.340 | You know, like you've had so many deductions that you go,

00:12:16.780 | "Oh, my tax is zero.

00:12:18.140 | I'm so excited.

00:12:19.060 | My negative income is 20,000."

00:12:22.100 | What have you done there?

00:12:24.420 | You missed out on tax-free Roth conversions

00:12:28.500 | or IRA distributions if you need the money, whatever.

00:12:32.540 | And so, it's important to call the age 60 to 70 the golden age

00:12:37.380 | of tax planning for retirement because that's

00:12:40.020 | when you're not taking Social Security yet.

00:12:42.580 | You don't have required distributions yet.

00:12:45.140 | You might not-- If you're early retiree,

00:12:47.060 | you might not have a lot of income.

00:12:48.940 | You might be in the 10% tax bracket.

00:12:51.780 | You can take capital gains, 0% capital gains tax rate

00:12:56.220 | up to when you're through the 12% bracket.

00:12:59.060 | And so, I see so many people missing

00:13:00.900 | out on these tax planning opportunities

00:13:03.540 | in those early years of retirement.

00:13:05.620 | Also, for people who need health insurance, ACA tax credits.

00:13:10.100 | If you do great income planning, you can get health insurance

00:13:14.140 | from age 60 to 65 for nothing.

00:13:18.060 | Great health insurance, tax credits worth $20,000

00:13:21.940 | if you do good income planning.

00:13:23.420 | A lot of people don't know this.

00:13:25.060 | So, miscalculating retirement plan distributions.

00:13:28.300 | People have multiple jobs now.

00:13:29.860 | So, they'll retire with 403(b), another 401(k).

00:13:34.060 | They have three IRAs.

00:13:35.740 | Well, some-- Everybody knows that you can take--

00:13:38.980 | you can lump all your IRA distributions for your RMDs

00:13:42.420 | and take them from one IRA, but you can't do

00:13:45.060 | that for 403(b)s and 401(k)s.

00:13:47.780 | So, making mistakes on that, and that creates a nightmare.

00:13:51.660 | Making inappropriate contributions.

00:13:53.340 | Just had a new client come to us recently.

00:13:56.100 | Been making Roth contributions for a few years now,

00:14:00.500 | and his income is $400,000 a year.

00:14:05.140 | Yep. Got to do some unwinding there.

00:14:07.660 | I'm like, "Oh, I hate to tell you this."

00:14:09.260 | I love when I can tell people good news.

00:14:10.660 | I hate the bad news, but he won't do it going forward.

00:14:13.540 | Not keeping up with basis.

00:14:15.100 | How many of you have stocks or mutual funds

00:14:18.220 | where you don't know the basis?

00:14:21.180 | Not many, but the good news is the rules changed recently.

00:14:24.460 | So, all the reporting, all the mutual funds,

00:14:26.900 | and the custodians have to help you keep up with basis.

00:14:29.820 | That wasn't so, but a lot of people will have old stocks

00:14:33.260 | where they don't know basis, and so,

00:14:35.340 | especially we have one client who had this stock.

00:14:39.100 | We kept bugging him to get basis for us.

00:14:41.300 | Well, the company was bought out and sold,

00:14:43.540 | and his shares were forced sale, basically.

00:14:48.260 | And now, we have this $64,000 capital gain

00:14:51.340 | that he didn't know basis.

00:14:53.380 | Painful, painful, painful.

00:14:54.740 | You see this a lot with employee stock

00:14:56.540 | because they didn't do a good job keeping up

00:14:58.100 | with basis during employee stock.

00:15:01.180 | Poor charitable planning breaks my heart

00:15:04.140 | when I see people they're giving away

00:15:05.980 | like $10,000 a year using cash.

00:15:08.860 | You know, maybe they get $10,000 property tax deduction,

00:15:12.780 | income tax deduction because of the SALT caps.

00:15:15.820 | So, they have $20,000 of deduction a year,

00:15:19.140 | and then they end up having to take the standard deduction

00:15:23.420 | because it's under a standard deduction.

00:15:25.380 | Well, let's say you're age 60,

00:15:27.220 | and you give $10,000 a year away,

00:15:30.060 | and you have some appreciated stock.

00:15:31.940 | Well, you could take $100,000 of appreciated stock.

00:15:35.460 | You don't have to pay the capital gains taxes.

00:15:37.340 | You can put it in donor-advised fund.

00:15:38.980 | You get a big write-off that year.

00:15:40.980 | You can either do Roth conversions,

00:15:43.420 | take capital gains, you name it.

00:15:45.620 | You can use that, and then you get

00:15:47.180 | the standard deduction the rest of the time.

00:15:48.900 | You saved a load in taxes.

00:15:51.060 | So, these are the things do-it-yourselfers

00:15:52.580 | don't think about.

00:15:53.640 | Gifting inappropriately.

00:15:55.420 | People have, and I've already heard it.

00:15:57.060 | I love this audience.

00:15:58.340 | You know, I was on the panel this morning.

00:16:00.220 | A lot of you guys have already told me

00:16:01.660 | some great stories throughout the day,

00:16:04.040 | and I hear a lot about like gift,

00:16:06.220 | you know, I have all this appreciated stock.

00:16:08.120 | What do I do with it?

00:16:09.300 | Give it to your children who are in low tax brackets.

00:16:11.780 | Let them sell it.

00:16:12.820 | Sometimes they can sell at 0% capital gains rate.

00:16:15.620 | Great way to gift.

00:16:17.420 | Also, you can, the other gifting mistake I see,

00:16:21.100 | oh, I have a lot of money.

00:16:22.100 | I want to help my children buy a house.

00:16:24.460 | So, you just give them $200,000.

00:16:26.800 | Well, most likely because the IRS is so busy

00:16:29.580 | that they're not gonna get in trouble with that,

00:16:31.780 | but let's say they change the estate tax laws,

00:16:34.420 | and now our estate tax exemption is lower.

00:16:37.080 | If you didn't document that correctly,

00:16:39.180 | that could cause problems down the line.

00:16:42.580 | So, have I hit any buttons yet?

00:16:45.580 | We'll wait till we get to the investments.

00:16:49.920 | Insurance, you know, people who are do-it-yourselfers,

00:16:54.020 | two reason people do it themselves.

00:16:55.940 | They don't trust people, or they're cheap, right?

00:17:00.800 | And the problem with when you're cheap,

00:17:04.600 | you also tend to be cheap across the board

00:17:06.780 | so you don't buy enough insurance.

00:17:08.680 | Nothing breaks my heart than seeing people

00:17:11.340 | who have a few million dollars in unprotected assets,

00:17:15.020 | and they have the minimum underlying coverage

00:17:17.860 | on their auto liability.

00:17:20.140 | I mean, in Florida, that's a nightmare,

00:17:22.340 | and man, you could get sued in a heartbeat.

00:17:24.300 | There's a reason O.J. Simpson,

00:17:25.980 | well, there's a lot of old people in here.

00:17:27.300 | I'm old, so I can say that.

00:17:29.180 | You guys remember O.J. Simpson and all that.

00:17:31.620 | So, what's the first thing he did when he got in trouble?

00:17:35.980 | What did he go do?

00:17:37.220 | He bought a big, huge mansion in Florida.

00:17:39.980 | I'm from Florida.

00:17:41.620 | And the reason he did that is that home

00:17:44.020 | is 100% protected from creditors.

00:17:46.140 | Every state's different.

00:17:47.180 | Florida's just very good about creditor protection,

00:17:50.140 | but some people forget to homestead,

00:17:52.160 | so you lose that creditor protection,

00:17:54.140 | so you gotta make sure your home is protected

00:17:58.340 | by homesteading it.

00:17:59.800 | Inappropriate titling of assets.

00:18:01.880 | People will buy a car.

00:18:05.620 | If you buy a car, the primary driver of the car

00:18:07.780 | should be the only owner of the car.

00:18:10.300 | Don't put it jointly, 'cause it's gonna be easier later,

00:18:13.220 | 'cause that just opens up everybody to being sued

00:18:15.860 | if that car's in a wreck.

00:18:17.260 | Or having things joint tenants by entirety

00:18:21.300 | makes it less likely that those assets

00:18:23.480 | will be taken by creditors.

00:18:25.100 | Estate planning.

00:18:27.360 | So many people raise their hand

00:18:29.620 | that they did their estate plans, which excites me.

00:18:33.300 | If you look at the data,

00:18:34.700 | there's all these different studies,

00:18:36.700 | but anywhere from 50 to 67% of people

00:18:40.740 | don't have estate plans.

00:18:42.580 | So you guys are doing better than average,

00:18:45.060 | which is what I'd expect.

00:18:46.720 | Now, I do not like using internet-based documents,

00:18:50.080 | and why is that?

00:18:51.160 | You guys, I have talked so much today.

00:18:52.940 | It's been so fun and exciting.

00:18:54.420 | I'm losing my voice, so I apologize.

00:18:56.340 | I'm just gonna hold on to this.

00:18:59.140 | If I've had this happen two times now,

00:19:03.120 | how many of you have ever had a power of attorney document

00:19:06.120 | turned down by a financial institution?

00:19:08.320 | Right, and so the problem, they're very persnickety,

00:19:12.860 | and if you have done your power of attorney document

00:19:15.500 | through internet-based service,

00:19:18.180 | or through some legal Zoom sort of thing or whatever,

00:19:22.200 | how, who do you have to stand up for you?

00:19:25.400 | Is it Mr. Google?

00:19:27.700 | No, nobody.

00:19:29.220 | And that's why, to me, it's really important

00:19:31.920 | for you guys to use real people

00:19:33.860 | to do your estate planning documents

00:19:36.060 | and your power of attorney documents,

00:19:37.540 | because if you get in trouble, and I've had this happen,

00:19:40.440 | I call up Mr. Attorney, and I say,

00:19:42.020 | Mr. Attorney, bank is turning down

00:19:43.860 | this perfectly legal, valid power of attorney that you did,

00:19:47.060 | and he writes nasty gram to the bank.

00:19:49.380 | We will sue your butt off if you do not accept this.

00:19:51.540 | And what does the bank do?

00:19:52.860 | They accept it.

00:19:54.300 | So pay the couple hundred bucks

00:19:56.660 | to get a real power of attorney done,

00:19:58.520 | or the 1,500 if your situation's simple,

00:20:03.520 | it's more complicated, you're gonna pay more,

00:20:05.440 | pay the money to get good estate planning documents done.

00:20:08.860 | Now here's the other big mistake.

00:20:10.740 | I think everybody says, oh, I left all this money

00:20:14.000 | to my children through my will.

00:20:16.420 | Well, how do assets pass?

00:20:19.180 | They pass three ways.

00:20:20.980 | First is titling.

00:20:22.020 | If you own something jointly with rights of survivorship,

00:20:25.140 | it goes to the survivor, right?

00:20:27.700 | It doesn't go through your will.

00:20:29.820 | For your IRAs, life insurance, annuities,

00:20:33.380 | ideally you have beneficiaries listed.

00:20:35.420 | If not, they'll go through your will,

00:20:37.720 | but now you have probate issues.

00:20:39.580 | So ideally you should have beneficiaries

00:20:42.660 | to all these things.

00:20:43.780 | You should have all your copies

00:20:45.060 | of your beneficiaries on file,

00:20:47.020 | and you should understand how much everybody's gonna get.

00:20:50.140 | Sometimes people have different beneficiaries

00:20:52.760 | on the documents than the way they're passing things

00:20:54.900 | through will, and they don't understand

00:20:56.980 | that people are gonna get different amounts of money.

00:20:59.300 | So make sure you understand exactly

00:21:01.620 | how everything is going to pass,

00:21:03.500 | and that everything is titled correctly.

00:21:05.420 | One other titling mistake I see.

00:21:07.300 | People go to their estate planning attorney,

00:21:09.180 | and they create these beautiful trusts,

00:21:11.620 | and then they don't do anything with them.

00:21:14.620 | They forget to title the assets to the trust,

00:21:18.420 | and it doesn't, you don't have a trust.

00:21:20.380 | A trust doesn't work if you don't title the assets.

00:21:22.860 | So this is one big story.

00:21:24.580 | Client of mine was gonna be the executor

00:21:28.220 | for his dad's estate, and his dad was 94.

00:21:33.220 | Dad, we knew, had a lot of money.

00:21:35.140 | We just didn't know how much,

00:21:36.220 | 'cause dad was very secretive, and he had done well,

00:21:39.500 | and he did not like financial advisors,

00:21:42.500 | because they were all schmucks,

00:21:44.040 | but son had no clue what his dad had.

00:21:46.780 | I said, "You're gonna have a hot mess on your hands,

00:21:48.300 | "I promise you."

00:21:49.600 | So he told dad, "My financial advisor happens

00:21:53.020 | "to help make sure old people stay out of trouble.

00:21:55.620 | "She's not gonna charge you a thing.

00:21:57.300 | "She's just gonna do it as a learning thing for me,

00:22:01.240 | "'cause I need to understand what you have,

00:22:03.200 | "'cause I don't know what you have."

00:22:04.940 | He said, "Okay, bring her on," the 94-year-old did.

00:22:07.900 | So I meet with him.

00:22:08.940 | He's very proud of how well he did.

00:22:10.580 | Six million dollars, that was his estate.

00:22:13.460 | Four million in taxable accounts,

00:22:16.600 | two million in retirement plans.

00:22:18.020 | He says, "I have done my trust."

00:22:20.380 | I'm like, "Oh, great, show me your trust."

00:22:22.180 | His trust, all his beneficiaries were his sons.

00:22:25.060 | He left tiny amounts to his grandkids,

00:22:27.220 | and he left about, it was gonna end up

00:22:29.260 | being about two million bucks,

00:22:30.340 | half of the taxable estate to charity.

00:22:33.580 | Very charitable.

00:22:35.140 | And so I said, "Show me your assets."

00:22:38.740 | And guess what?

00:22:39.580 | He had 40 different stocks in street name.

00:22:43.860 | Do you guys know what that means?

00:22:45.300 | At the actual holding companies.

00:22:47.380 | He owned them all individually.

00:22:49.740 | He still had some old stock certificates.

00:22:52.300 | That is an estate planning nightmare.

00:22:54.480 | Do I have an estate planning attorney in here?

00:22:57.100 | Is there, are there any?

00:22:58.300 | None, I'm sad.

00:23:00.380 | They will stand up and say, "That's a nightmare.

00:23:02.700 | "That's gonna be expensive probate,

00:23:04.700 | "hours and hours of work."

00:23:06.460 | And so it was not titled to his trust,

00:23:09.620 | so he'd have to go to probate to go to his trust.

00:23:11.840 | So what are the mistakes there?

00:23:13.340 | Anybody shout out one big mistake you hear?

00:23:16.100 | Charities listed in trust?

00:23:18.180 | Oh, the IRA beneficiaries were his sons.

00:23:23.500 | So if the way he left it is the charity

00:23:28.500 | would get assets in the trust.

00:23:30.780 | Sons would get IRAs that have to pay taxes on them.

00:23:34.140 | And so happened his retirement plans for $2 million.

00:23:37.500 | So what we ended up doing is we amended his trust

00:23:40.780 | to get, and it's all his grandkids were gonna get

00:23:42.980 | like 10,000 and we mine it in small amounts.

00:23:46.620 | And it's like, why are they even listed in the documents?

00:23:49.660 | And so what we ended up doing is had his trust redone,

00:23:53.140 | named his sons, the beneficiaries of the trust

00:23:57.420 | and made sure, and then we moved all those assets

00:24:00.180 | into a brokerage, all those stocks or industry name

00:24:03.180 | into a brokerage account titled to his trust.

00:24:06.160 | And then we made the IRAs the beneficiary,

00:24:09.380 | the beneficiaries were the charities

00:24:11.380 | because the charities don't have to pay tax on the IRAs.

00:24:14.840 | So that saved that family about $600,000 in income tax.

00:24:19.620 | And oh, and by the way, the guys told me,

00:24:22.660 | we've got plenty of time to deal with this.

00:24:24.180 | I'm gonna live till I'm 105.

00:24:26.340 | He died the year after we cleaned everything up.

00:24:31.460 | Family loved me.

00:24:32.540 | Now, so these are the things people don't know

00:24:34.640 | when you're a do-it-yourselfer and especially

00:24:36.760 | when you start getting too complicated.

00:24:39.220 | Investments, I've heard this in this room.

00:24:41.980 | So many questions are just like,

00:24:43.740 | you guys are doing a great job managing your investments,

00:24:46.300 | but too many people don't understand

00:24:47.540 | the goals for their money.

00:24:49.260 | It's like, how much do you really need?

00:24:51.140 | Are you taking the appropriate amount of risk?

00:24:53.180 | It killed me in 2008, the number of people

00:24:56.140 | once 2009 hit that were aggressively invested

00:24:59.900 | because the stock market was doing so great

00:25:02.020 | and they had to un-retire.

00:25:04.180 | Those weren't my clients, by the way.

00:25:05.460 | They became my clients after 2009, right?

00:25:08.780 | And so not understanding how much risk

00:25:11.180 | you can take in your portfolio

00:25:13.140 | that's going to keep you financially secure

00:25:16.020 | so you don't run out of money.

00:25:17.480 | Poor tax management, we already talked about.

00:25:19.660 | You know, people owning bonds in the Roths.

00:25:21.860 | I know you guys don't do stuff like that.

00:25:23.440 | Please tell me no.

00:25:25.400 | And owning like REITs and taxable accounts.

00:25:29.000 | So we see a lot of unnecessary tax things in portfolios.

00:25:32.860 | Too many accounts, not simplifying.

00:25:34.540 | We already talked about the titling,

00:25:36.420 | not keeping up with basis.

00:25:38.060 | And again, not addressing cognitive decline.

00:25:40.580 | So I know none of you are going to confess

00:25:42.580 | if you do any of this, but if you do,

00:25:44.900 | you need to get help.

00:25:46.500 | So when should you get help?

00:25:48.580 | Three situations.

00:25:49.580 | I call these the poop piles.

00:25:51.160 | I'm a doctor.

00:25:53.640 | I do talk a lot about inappropriate things.

00:25:55.420 | So Christine knows that.

00:25:57.500 | She's heard me talk quite a few times.

00:25:59.780 | Three poop piles are

00:26:01.420 | if you have a complicated financial situation,

00:26:04.440 | if someone is counting on you

00:26:06.220 | and you're the only one who knows everything going on,

00:26:08.460 | and if you're starting to slip.

00:26:09.800 | And the problem is people who are starting to slip

00:26:12.620 | know they're starting to slip,

00:26:14.040 | but they think they're doing better

00:26:15.480 | than they're really doing.

00:26:17.160 | This is just a fact.

00:26:18.700 | So are you complicated?

00:26:20.500 | First off, what are your skillsets?

00:26:21.800 | You may be very good at investing,

00:26:24.180 | but maybe it's really hard to know everything.

00:26:27.180 | Once you start getting a million dollars,

00:26:29.320 | two million dollars, which is what you need

00:26:31.540 | for a successful retirement for most people,

00:26:34.180 | I mean, as far as if you want to

00:26:36.000 | not have to just rely on social security,

00:26:38.900 | you can maybe manage those assets,

00:26:41.580 | but do you know how to withdraw them tax efficiently?

00:26:45.100 | Do you have everything titled correctly?

00:26:47.660 | It's good to have somebody look from the outside,

00:26:50.740 | just make sure that you have all your ducks in a row,

00:26:53.460 | that all the puzzle pieces fit together,

00:26:55.820 | 'cause you don't know what you don't know.

00:26:58.400 | You know, like my client didn't know

00:27:00.380 | he made too much money to contribute to a Roth.

00:27:03.140 | He had a lot of money too, so it was amazing.

00:27:05.740 | I'm like, whew.

00:27:06.580 | So consider getting an hourly planner

00:27:09.700 | just to look at your big picture.

00:27:12.020 | And I would caution you, I mean,

00:27:13.740 | the distribution, accumulation is easy.

00:27:16.860 | You guys know that.

00:27:17.860 | It's the distribution phase

00:27:19.620 | that can get a little challenging.

00:27:21.300 | And so, yeah, you can learn it all.

00:27:23.020 | And I have clients,

00:27:24.300 | they could seriously be financial planners.

00:27:27.500 | They're so good, but it's really important to be smart

00:27:30.780 | and have somebody else looking behind you

00:27:33.060 | to make sure you know what you don't,

00:27:35.660 | that they can help you identify what you don't know

00:27:38.980 | during that distribution phase.

00:27:40.700 | Now, if someone else is counting on you,

00:27:44.680 | I break this into two buckets.

00:27:46.480 | The spouse that have the skills.

00:27:49.180 | So, like in my family,

00:27:50.860 | who takes care of the finances in my family?

00:27:53.080 | My husband, 'cause I'm too busy, he deals with it.

00:27:56.660 | But I know everything going on.

00:27:58.340 | I know how to get in the accounts.

00:28:00.300 | I do, I can look at our cash flow and stuff

00:28:03.380 | 'cause we use a portal.

00:28:04.420 | I can look at anything, anytime.

00:28:06.540 | And we check in to make sure

00:28:08.260 | I know how to log into everything.

00:28:10.240 | Especially with two-factor authentication in the phone,

00:28:13.200 | you guys need to know how to log into each other's phones.

00:28:16.940 | I had one client that I went to their house,

00:28:20.500 | their caretaker that was paying all the bills,

00:28:23.180 | it was his sister, they were very close,

00:28:25.460 | and lo and behold, his phone,

00:28:28.300 | the only way you could get into it,

00:28:30.100 | and he had everything in two-factor authentication,

00:28:32.620 | was a thumbprint.

00:28:34.540 | I'm like, okay, you're on, and he was on his deathbed.

00:28:37.020 | I was going, I mean, going to make sure

00:28:38.740 | we had everything titled up, I mean, tidied up.

00:28:42.260 | And I'm like, oh my God, we can't,

00:28:44.560 | we don't have your thumb when you're dead.

00:28:46.240 | So we were at last minute trying to,

00:28:49.200 | we had to get his phone

00:28:50.680 | to where his sister could get into it.

00:28:52.680 | So it's those things you gotta make sure that every,

00:28:56.040 | there's somebody that knows how to get to your stuff.

00:28:59.340 | Now, if your spouse or the people looking after you

00:29:02.760 | does not have, don't have the skills,

00:29:05.400 | you gotta have still, you know,

00:29:07.080 | I call them yearly audits, at least once a year,

00:29:10.000 | check in and make sure they know

00:29:11.460 | how to at least get into everything,

00:29:13.580 | but have a good backup plan

00:29:15.780 | to also know how to take care of everything.

00:29:18.500 | And I always make our spouses learn

00:29:21.220 | how to at least know what bills need to be paid,

00:29:23.920 | how to pay the bills, log into the accounts,

00:29:26.140 | and that they understand the very big picture

00:29:28.700 | of their investments and finances.

00:29:31.260 | You guys, I'm gonna be really cooked by tomorrow morning

00:29:35.980 | how much I've been talking to you.

00:29:37.440 | So I might have to have Grand Marnier tonight

00:29:40.120 | to keep my throat going.

00:29:41.320 | So I, and I'm gonna, a quick story on this one.

00:29:45.480 | I had a client, and this is actually what sent me

00:29:47.360 | on this journey of having people plan

00:29:49.440 | for aging and serious health events.

00:29:52.320 | I had a client who had lung cancer,

00:29:54.000 | diagnosed in his early 50s, had a wife.

00:29:56.760 | Wife was oblivious to anything,

00:29:59.000 | and he had a very complicated situation.

00:30:00.840 | And when he was diagnosed, he says,

00:30:02.220 | "Carolyn, I'm gonna beat it.

00:30:03.320 | "Doctor me knows the prognosis."

00:30:06.000 | You know, so I'm, say, helping him plan

00:30:08.900 | and not taking his hope away.

00:30:10.500 | I said, "You gotta teach your wife

00:30:11.700 | "how to like at least pay the bills."

00:30:14.380 | So he says, "I'm gonna do that.

00:30:16.220 | "I'll make sure she knows how to pay the bills."

00:30:17.820 | I said, "Because at least when you're going

00:30:19.080 | "through treatment, she can lift some of the load."

00:30:21.300 | And she promised me that she would learn how to pay bills,

00:30:23.740 | 'cause I always talk to both clients.

00:30:25.780 | And so every month or two, I'd ask,

00:30:28.280 | "How's the bill pay come along?"

00:30:29.780 | And she would say to me,

00:30:31.380 | "He's getting really frustrated with me."

00:30:33.220 | I get a call from her saying,

00:30:35.540 | "Joe is in the driveway having a seizure,

00:30:38.760 | "and he won't go to the hospital."

00:30:40.920 | You know, 'cause he'd come out of the seizure.

00:30:42.640 | And so I actually drive over there,

00:30:44.560 | and I know, because I'm a doctor,

00:30:46.560 | that his lung cancer's probably gone to his brain,

00:30:48.840 | 'cause that's why he's having the seizure.

00:30:50.800 | And I get over there, and he's in his office

00:30:53.500 | on his daybed, and he's rocking,

00:30:55.440 | 'cause he has a big headache.

00:30:56.320 | And I'm saying, "You really gotta go to the hospital.

00:30:57.800 | "We gotta get you there."

00:30:59.000 | And I happen to see this pile of unopened mail on his desk.

00:31:02.280 | What was it?

00:31:03.980 | The bills.

00:31:05.500 | I said, "What are those bills?"

00:31:07.700 | I hadn't had a chance to get to them.

00:31:09.020 | They had not been paid in a couple of months.

00:31:12.420 | I mean, this was a guy who was so on it.

00:31:14.620 | And so I'm like, "Whew."

00:31:16.220 | And so I said, "We're going to the hospital."

00:31:18.380 | Scooped up, got the wife, scooped up the bills.

00:31:20.420 | I said, "Get the checkbook."

00:31:21.620 | At least I knew she was on the checkbook.

00:31:23.300 | And so while we're in the emergency room,

00:31:25.460 | I am having her write out the bills

00:31:27.180 | while we're trying to get him settled.

00:31:28.980 | And that shouldn't happen.

00:31:30.140 | And that's what put me on this mission.

00:31:32.360 | So last one, are you slipping?

00:31:36.240 | So with aging, we do face,

00:31:39.360 | our brain slows down a little bit.

00:31:40.720 | We can't make decisions as fast as we used to.

00:31:43.680 | But thank goodness, with aging comes wisdom.

00:31:46.920 | So most people are able to at least slow down,

00:31:50.440 | think through things, know what's not right.

00:31:52.920 | But this is how fraudsters get to you.

00:31:55.000 | They prey on by pressuring you,

00:31:57.600 | trying to get you to make quick decisions,

00:31:59.920 | and operating on fear, which as you get older,

00:32:02.640 | you become more concrete in your thinking.

00:32:05.360 | It's easier to prey on your fear.

00:32:07.920 | So that's normal aging.

00:32:10.060 | About 12 to 18% of people over 60

00:32:13.080 | develop what's called mild cognitive impairment.

00:32:15.440 | That means you can function day-to-day,

00:32:17.640 | but you may need some assistive devices

00:32:20.480 | in keeping you from forgetting things

00:32:22.560 | like making lists or, you know, having reminders.

00:32:26.080 | So, and most people with mild cognitive impairment

00:32:29.440 | stay stable and do fine until they die,

00:32:31.680 | but 10 to 20% go on to develop dementia.

00:32:35.200 | Now dementia, the risk of that doubles

00:32:37.240 | every five years over age 60.

00:32:39.680 | So people age 65 to 69, 3% have dementia.

00:32:42.960 | By the time you're over 90, 35% have dementia.

00:32:45.920 | Problem is, and I have dealt with this over and over,

00:32:49.120 | when you're in the throes

00:32:51.200 | of having mild cognitive impairment or dementia,

00:32:54.180 | you think you're better than you are.

00:32:56.520 | And you may know you have dementia,

00:32:58.240 | and you do when you're officially diagnosed,

00:33:00.680 | it's devastating, but you think you're functioning,

00:33:04.000 | and you're not as well as you should be.

00:33:06.680 | And so it's really important to plan well in advance

00:33:10.520 | before the event happens.

00:33:11.820 | So what we actually do with clients

00:33:13.840 | when they're in their late 50s, early 60s,

00:33:16.240 | we have what we call an aging plan.

00:33:18.320 | And it's where we go through

00:33:19.320 | what I call the four big things of aging.

00:33:21.600 | When, where are you gonna age?

00:33:23.480 | And when are you gonna move to where

00:33:25.280 | if it's no longer safe to age in place where you are?

00:33:28.480 | When are you gonna turn over financial decision-making?

00:33:31.420 | When are you gonna get help with healthcare decision-making?

00:33:33.840 | And when are you gonna quit driving?

00:33:35.240 | Driving's a big one, isn't it?

00:33:36.740 | Now, when you do that when somebody's well,

00:33:42.180 | it takes the fear factor out,

00:33:44.580 | and 'cause nobody, they're not defensive,

00:33:47.080 | they're not worried,

00:33:47.920 | oh, they think there's a problem with me.

00:33:49.520 | When you make that standard process,

00:33:51.520 | it creates muscle memory for, oh, we talked about this.

00:33:54.880 | And if you talk about it every few years,

00:33:57.120 | it makes it where people are more comfortable

00:33:59.300 | when the poop actually hits the fan,

00:34:01.460 | sticking with the plan of what you agreed on

00:34:03.920 | when you're in your late 50s, early 60s.

00:34:06.360 | And now that I've been doing this,

00:34:07.800 | I started that aging planning in 2009

00:34:10.080 | after I had a big client event that it's like,

00:34:13.320 | well, we gotta do better planning for dementia.

00:34:15.560 | And now I actually have had clients

00:34:17.800 | who've gone through the aging plan

00:34:19.840 | and now they have cognitive impairment or dementia.

00:34:22.480 | It has worked wonderfully.

00:34:24.540 | Now, it's still agonizing

00:34:26.240 | when you're diagnosed with dementia,

00:34:27.880 | and it's still painful, but everybody follows the plan.

00:34:31.480 | 'Cause part of that process is we also start

00:34:33.780 | involving the healthcare surrogates

00:34:35.560 | and the financial surrogates

00:34:37.000 | long before a need ever arises.

00:34:39.360 | So what we do is if you are slipping,

00:34:42.160 | you always have a backup,

00:34:43.720 | you do yearly audits with your backup,

00:34:46.160 | and at some point you allow them

00:34:47.720 | to observe what you're doing,

00:34:49.600 | and you may wanna involve a planner.

00:34:53.440 | Now, when do you get help?

00:34:55.220 | Where do you get help?

00:34:56.320 | So if you have financially adept children,

00:35:01.020 | and I met a couple, a mother and son here earlier

00:35:03.660 | just delighted my heart that he's actually getting,

00:35:06.620 | she actually made him come here, I think.

00:35:09.260 | But for families to start that financial education early

00:35:14.260 | and to start help getting the kids involved

00:35:17.940 | so they understand what they're gonna be taking over.

00:35:21.060 | But, and then the other option is you have outside parties.

00:35:24.520 | I think of a financial planner as a quarterback

00:35:27.160 | to help with all the situations,

00:35:29.520 | and you wanna make sure that you have an accountant

00:35:31.480 | and attorney that understands your situation.

00:35:34.040 | The more people you have involved,

00:35:37.120 | the less chance something nefarious will occur

00:35:40.320 | because people have to stay on their P's and Q's

00:35:42.720 | when everybody knows what's going on.

00:35:44.680 | So if you're using family members or friends,

00:35:47.720 | create transparency with everybody.

00:35:49.520 | So it may be one child in charge,

00:35:51.540 | but you wanna make sure that they're reporting

00:35:53.840 | to the other kids and the other kids know all the finances

00:35:57.500 | and they know the plan.

00:35:58.980 | Again, it reduced the chances of nefarious things,

00:36:02.620 | and it lets the other kids know that,

00:36:05.020 | hey, brother has it and he's doing okay

00:36:07.980 | 'cause we can see everything all along the way.

00:36:10.940 | Make sure everybody's on the same page.

00:36:12.820 | So perfect example I had, I have one client,

00:36:15.540 | Boglehead, and he loves our passive investing style.

00:36:19.640 | His son-in-law, who's an amazing young man,

00:36:23.560 | still thinks he can beat the market.

00:36:25.860 | You know how you are when you're young.

00:36:28.460 | And I said to the father-in-law, my client,

00:36:33.460 | I'm a little worried that he might try to change

00:36:35.460 | what we're doing if something happens to you

00:36:37.140 | 'cause his client's getting really on up there.

00:36:39.140 | And he says, "We're gonna have a conversation."

00:36:41.060 | So the three of us had a meeting,

00:36:43.080 | and my client basically said to his son-in-law,

00:36:46.220 | who's gonna be his financial surrogate,

00:36:47.860 | "Don't change anything I'm doing."

00:36:49.980 | And then the rest of the family knows that same thing.

00:36:52.900 | So we made sure everybody's on the same page,

00:36:54.860 | and the son-in-law said,

00:36:56.240 | "I promise I will never do that."

00:36:57.900 | And so consider also involving an outside party,

00:37:00.820 | like a financial planner, the accountant or attorney,

00:37:03.220 | to keep the peace.

00:37:04.300 | Advisors, thank goodness things have changed so much

00:37:08.620 | from when I started.

00:37:09.920 | Make sure that you use a fee-only fiduciary.

00:37:13.500 | And for most bogey heads, you're gonna do best

00:37:15.820 | with somebody who's hourly or flat fee.

00:37:17.980 | Not a fan of AUM, of course,

00:37:20.260 | 'cause I don't think it's fair

00:37:21.780 | for people to have a lot of money.

00:37:23.220 | And I don't think financial planning

00:37:24.900 | should be paid for based on assets.

00:37:27.700 | But more and more advisors are moving towards

00:37:30.500 | having financial planning fees

00:37:32.540 | with tiny asset management fees.

00:37:34.780 | Those may be okay.

00:37:35.860 | But for people who are just charging

00:37:38.320 | one, one and a half percent AUM,

00:37:40.500 | and they're doing financial planning under it,

00:37:42.660 | most of 'em are not focusing on the financial planning.

00:37:45.620 | Where do you find 'em?

00:37:47.020 | These are all organizations

00:37:48.860 | that only accept fee-only fiduciaries.

00:37:51.820 | Make sure that your accountant and attorney

00:37:56.860 | will work with your financial planner.

00:37:59.320 | And the reason why is if they're not working as a team,

00:38:02.980 | then there may be holes that you can't identify.

00:38:06.580 | So if I have an accountant, I mean a client

00:38:09.060 | whose accountant or attorney won't work with me,

00:38:10.860 | I say, I don't really like your accountant or attorney,

00:38:14.400 | the fact that they won't work with me,

00:38:16.020 | so you either need to talk with them or we need to change.

00:38:18.620 | And most often, they change.

00:38:20.380 | So that's a professional fiduciary.

00:38:24.260 | Some states have those available, like California.

00:38:26.980 | So if you don't have anybody else to help you,

00:38:28.660 | that's how you might wanna do it.

00:38:30.580 | And then finally, turning over duties.

00:38:33.860 | Especially do-it-yourselfers,

00:38:35.460 | it's such a sense of purpose and accomplishment

00:38:38.540 | when you're doing it yourself.

00:38:40.020 | It can be devastating to all of a sudden just say,

00:38:42.180 | I gotta give this up.

00:38:43.340 | So you make it a transition.

00:38:45.180 | And I've already talked about that,

00:38:46.880 | but make sure, talk about it early

00:38:50.060 | and make that transition last as long as possible.

00:38:53.640 | So in summary, and I think we have five minutes

00:38:55.980 | for questions, biggest danger to financial well-being

00:38:58.380 | is not fraud or abuse.

00:39:00.100 | Just a reminder though, 90% of financial fraud

00:39:04.100 | is done by friends and family.

00:39:06.420 | So that's why you need to have multiple people involved,

00:39:10.340 | but the bigger dollars are stolen by the other 10%,

00:39:13.860 | just so you know.

00:39:14.980 | But the biggest danger to your financial well-being

00:39:18.000 | is the person who fails to recognize

00:39:20.780 | that they have limitations and they refuse to get help.

00:39:23.860 | Being a do-it-yourselfer is great

00:39:25.340 | as long as you plan for the day

00:39:26.740 | you can no longer do it yourself.

00:39:28.760 | And now we'll do some questions.

00:39:30.180 | Yeah.

00:39:31.380 | I'm gonna stand over here

00:39:32.220 | 'cause I know you're gonna use that microphone.

00:39:34.500 | - Thank you, Carolyn, that was great.

00:39:36.620 | One sec.

00:39:37.460 | Okay, now.

00:39:38.540 | So let's do this lightning round style

00:39:40.820 | 'cause we have to get through a lot.

00:39:42.540 | So first question, how do you recommend

00:39:44.700 | handling a parent who is slipping cognitively

00:39:47.700 | who does not recognize that they are having the decline?

00:39:50.500 | - Well, again, the first thing is

00:39:52.380 | you should have those conversations

00:39:53.660 | long before they're ever slipping.

00:39:55.580 | But once they are slipping,

00:39:57.740 | you have to remember there comes a point

00:39:59.880 | where the child has to be the parent.

00:40:01.940 | And you just have to say, I'm really worried about you.

00:40:04.700 | And I think that you may be having challenges

00:40:07.440 | and say, would you mind undergoing testing

00:40:10.820 | just to make sure there's nothing going on

00:40:12.700 | that we don't know about?

00:40:14.060 | If you have objective testing saying you're fine,

00:40:17.460 | we're gonna feel good.

00:40:18.700 | If you're not fine, then we know

00:40:20.460 | we need to start putting in protections to help you.

00:40:22.940 | - Okay, great.

00:40:24.100 | Is there a particular age or life stage

00:40:26.360 | when DIY investors tend to make mistakes?

00:40:28.900 | I think I heard you say that we,

00:40:31.660 | the incidence tends to pick up as we age.

00:40:33.860 | - Well, it starts to pick up more

00:40:35.460 | when you're moving from accumulation phase

00:40:37.780 | to distribution phase

00:40:38.940 | 'cause a lot more decisions need to be made.

00:40:41.540 | And usually that ends up being late 50s, early 60s.

00:40:45.660 | Some people are super smart and able to manage it.

00:40:47.980 | It just depends on the situation.

00:40:49.500 | - Okay, several questions about how to find advisors.

00:40:53.840 | And you shared some tips,

00:40:55.180 | but one is what are the economics

00:40:58.220 | of financial or tax planners?

00:41:00.460 | It's hard to find a good fixed fee provider.

00:41:03.660 | Is that because it's less remunerative to charge that way?

00:41:07.500 | - Well, so this all depends.

00:41:10.340 | I mean, I would ask people,

00:41:12.460 | how much money do you think a financial planner

00:41:14.860 | should make per year, right?

00:41:16.700 | I mean, there's a lot of responsibility there.

00:41:18.780 | And I know people who are cheap don't wanna pay anything,

00:41:21.400 | but you pay for what you get

00:41:24.140 | and you've gotta look for value.

00:41:25.960 | To me, first off, make sure that they truly

00:41:29.340 | do comprehensive financial planning.

00:41:31.980 | That means the tax planning, the estate planning,

00:41:35.540 | and not doing the estate planning returns,

00:41:38.340 | but that they are estate planning documents,

00:41:40.820 | but that they'll work with your accountant

00:41:42.460 | and estate planner to make sure everything's going together.

00:41:45.180 | That's number one.

00:41:47.340 | And most of the people that,

00:41:49.500 | there are a lot of people charging flat AUM

00:41:51.580 | that are doing that,

00:41:52.980 | but there's all these organizations I gave you,

00:41:56.620 | most of them are now,

00:41:58.380 | NAPFA has a lot of AUM people,

00:42:00.080 | but the rest of them are flat fee

00:42:02.300 | or are small AUM fee with flat fee or their hourly fees.

00:42:07.300 | - Okay, this is a good question.

00:42:09.300 | What are the best ways to find a good tax planner

00:42:11.860 | if you don't have an accountant doing your taxes?

00:42:14.140 | And I would amplify that.

00:42:15.740 | Even if you do have an accountant doing your taxes,

00:42:18.500 | he or she may not be doing forward looking.

00:42:20.260 | - Yeah, accountants aren't the best

00:42:21.580 | at tax planning all the time.

00:42:23.300 | A lot of them just like to do the returns.

00:42:25.300 | And plus they don't know your big picture.

00:42:28.020 | Yeah, the problem is tax planning can't be done in a void.

00:42:32.060 | Tax planning really comes into play with income planning

00:42:36.260 | and with your investment planning.

00:42:38.880 | So it all fits together.

00:42:40.900 | And so what I would recommend for people

00:42:42.740 | who just want like a one-time thing,

00:42:44.780 | have a hourly financial planner,

00:42:46.700 | do a comprehensive financial plan.

00:42:48.540 | You're gonna pay a couple thousand dollars for that,

00:42:51.140 | but it can be invaluable to make sure

00:42:53.800 | that you're doing everything right

00:42:55.700 | and that they're identifying,

00:42:57.140 | not just the tax planning for that year,

00:42:59.260 | but making certain that you're thinking out

00:43:01.260 | for the next five to 10 years.

00:43:03.180 | Problem with accountants is they love to save you taxes today

00:43:06.300 | but they're not always thinking about the tax planning

00:43:09.300 | for the future too.

00:43:10.660 | So that if you wanna continue to do it yourself

00:43:13.580 | along the way, that would be my suggestion for that.

00:43:16.220 | - Okay, and then a couple of small board questions.

00:43:19.040 | When you said forgetting to homestead,

00:43:21.420 | I was like, what does homestead mean?

00:43:22.960 | So this is the question, it's not for me,

00:43:24.600 | but someone else.

00:43:25.440 | - No, that's all right.

00:43:26.260 | So every state's different,

00:43:29.020 | but homesteading means this is where I call home,

00:43:32.700 | this is my domicile, this is where I live.

00:43:36.420 | And you can only have one homestead.

00:43:39.220 | And so some states homestead provides no protection,

00:43:42.660 | but most states it provides some protection

00:43:45.420 | and so it protects those assets against lawsuits.

00:43:48.140 | So just Google in your state, should I homestead my home?

00:43:51.340 | Some states it doesn't make a difference,

00:43:53.020 | but most it does.

00:43:54.040 | - Okay, last question, another kind of small board question

00:43:57.500 | related to one of the mistakes you mentioned.

00:43:59.200 | You talked about that form 8606

00:44:01.340 | that goes with the non-deductible IRA contributions.

00:44:05.020 | What is the preferred method to correct

00:44:07.420 | a missed or incorrect 8606?

00:44:10.740 | - The beautiful thing is you just have to file a new 8606

00:44:13.900 | with your next tax return.

00:44:15.740 | And then make sure for yourself and your own documents

00:44:19.140 | that you have everything to support

00:44:21.460 | what you put in that new 8606

00:44:23.880 | and keep it straight going forward.

00:44:25.520 | - Okay, Carolyn, you are amazing.

00:44:27.640 | Thank you so much for being here to speak with us today.

00:44:30.220 | Thank you.

00:44:31.060 | (audience applauding)

00:44:32.760 | - I hope I didn't scare the hell out of everybody,

00:44:35.880 | but I hope I scared you a little to make sure

00:44:38.440 | that when it's time to get help

00:44:40.440 | that you guys really do get help.

00:44:42.540 | (audience applauding)

00:44:45.700 | you

00:44:47.760 | [BLANK_AUDIO]

Bogleheads® Conference 2024 When Should a DIY Investor Quit DIYing? with Carolyn McClanahan

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