Bogleheads® Conference 2023 - What the Less-Involved Spouse Needs to Know About the Financial Plan
00:00:00.000 | [ Applause ]
00:00:06.420 | I want to introduce Mike Piper.
00:00:07.900 | Mike, I think, needs no introduction.
00:00:10.060 | He is on our Bogle Center board.
00:00:12.860 | He's currently our treasurer.
00:00:15.100 | He's also just, as you would expect, a jack of all trades.
00:00:19.020 | So in terms of like making fixes to our Bogle Center website
00:00:22.980 | and managing the books for our group
00:00:27.900 | and being a wonderful speaker who we can call upon
00:00:31.660 | to address any number of topics, Mike is our guy.
00:00:35.340 | So we are so excited to have him here.
00:00:37.580 | He's the author of several books, really helpful,
00:00:40.780 | shorter books, as well as the Oblivious Investor blog.
00:00:45.140 | Mike, come on up here.
00:00:46.440 | Thank you.
00:00:47.740 | [ Applause ]
00:00:49.340 | >> So just like Christine said, a dynamic that's super common
00:00:52.980 | in couples is for one partner, one spouse to be the one
00:00:55.580 | who is primarily in charge of the financial decisions.
00:00:58.780 | So they're the household's financial manager, essentially.
00:01:01.700 | And then the other partner is somewhat less involved
00:01:05.060 | with those decisions.
00:01:06.660 | And this talk is specifically for that less involved partner.
00:01:10.580 | And there are two reasons, really,
00:01:12.340 | why we wanted to have this talk.
00:01:15.060 | Reason number one is that even if you aren't the one in charge
00:01:19.080 | of this job right now,
00:01:21.780 | someday it might become your responsibility.
00:01:24.860 | And most of the time when that happens,
00:01:27.780 | it's the result of the D scenarios, death, disability,
00:01:31.580 | or divorce, which, of course, aren't happy things.
00:01:34.900 | So we don't like to talk about them.
00:01:36.940 | But if that does happen, and this job does land in your lap,
00:01:42.340 | we want you to be prepared,
00:01:43.980 | rather than feeling overwhelmed or lost.
00:01:47.380 | And when I say that we want you to be prepared,
00:01:50.060 | I don't just mean the John C. Vogel Center
00:01:52.180 | for Financial Literacy.
00:01:53.660 | I mean all of the people in this room
00:01:55.620 | who are the household financial managers.
00:01:58.060 | We, collectively, want you to be prepared,
00:02:01.700 | because this is a thing that we think about.
00:02:03.300 | We worry about it all the time.
00:02:05.620 | This is one of the most common questions I hear
00:02:07.460 | from people is, how can I prepare my partner
00:02:10.860 | in case something happens to me?
00:02:13.140 | And the second reason why we wanted to have this talk,
00:02:17.060 | I often think of it this way.
00:02:19.260 | If spouse A is the financial manager,
00:02:22.260 | then spouse B's job, with regard to the finances,
00:02:26.100 | is to be the oversight committee.
00:02:28.740 | And that is an important job.
00:02:31.180 | And I want to share with you just two quick stories
00:02:33.620 | to illustrate what I mean by oversight
00:02:35.260 | and how important that role can be.
00:02:37.700 | So the first story, this is a little while ago.
00:02:39.660 | I was at the climbing gym with a friend.
00:02:41.580 | And between routes, so this is basically during a break,
00:02:44.780 | he asks me, "Mike, what do you think about Tesla stock?"
00:02:48.820 | And so this is somebody who knows I work
00:02:51.060 | in the financial industry just sort of broadly,
00:02:53.020 | but we've never talked about any details, right?
00:02:55.020 | So we've never talked about index funds or bogleheads
00:02:58.220 | or anything at all like that.
00:02:59.940 | So I just said something to the effect of,
00:03:02.820 | I don't ever buy individual stocks.
00:03:04.220 | I just use index funds.
00:03:06.420 | Are you thinking about investing in it
00:03:07.700 | or what's on your mind?
00:03:08.620 | What's going on here?
00:03:10.140 | And he shares a little bit more information.
00:03:12.860 | And there's two super critical facts, it turns out.
00:03:16.380 | Fact number one about the situation
00:03:17.980 | is that he has already invested about half
00:03:21.420 | of the household's total savings in this one company's stock.
00:03:25.380 | Fact number two that I found especially noteworthy
00:03:29.900 | is that his partner, his spouse, she's got no idea.
00:03:33.740 | She's completely unaware of the situation.
00:03:36.260 | And it wasn't because he was doing anything sneaky.
00:03:41.180 | Like that's not what this was at all.
00:03:43.220 | It was just that that's how they've divvied up
00:03:45.340 | the responsibilities in their household.
00:03:47.580 | She's delegated this job to him.
00:03:49.980 | He's in charge of the investing decisions.
00:03:52.580 | He made what he thought was a good decision.
00:03:55.140 | And the result is that now she's exposed to this huge risk,
00:03:58.620 | not because of a decision that she directly made
00:04:01.460 | and she has no idea.
00:04:03.500 | And so that's one of the ways
00:04:05.300 | that oversight can be so valuable
00:04:07.020 | is that even if you're not the one making these decisions,
00:04:11.420 | you're still affected by them.
00:04:13.700 | And so checking in every once in a while
00:04:16.220 | and just making sure that you have an idea
00:04:17.700 | of what's going on,
00:04:18.940 | because you might have some opinions about it,
00:04:21.140 | that can be a good idea.
00:04:22.380 | And the second reason that oversight is so important,
00:04:26.700 | mogul heads love to talk about investing, right?
00:04:31.300 | If you're married to one, you probably know this.
00:04:33.820 | But sometimes we need to be reminded
00:04:38.020 | that investing is just one piece of financial planning.
00:04:41.940 | There's a lot more to it than that.
00:04:44.220 | And to share a story to illustrate this point,
00:04:46.700 | several years ago, I received an email
00:04:49.020 | from somebody who is a very regular poster on the forum.
00:04:53.180 | So as of this point, he had already made thousands of posts.
00:04:57.220 | And if you read his writing,
00:04:58.900 | you can tell that he's super knowledgeable
00:05:02.020 | about a whole list of investing topics.
00:05:05.540 | So he can talk about asset allocation,
00:05:07.620 | mutual fund selection, rebalancing strategies,
00:05:09.700 | and just on and on and on.
00:05:12.500 | And this email that he sends me,
00:05:15.100 | this is, by the way, the first one-on-one interaction
00:05:17.820 | I've ever had with him.
00:05:18.660 | So it's basically out of the blue.
00:05:20.860 | And it's a tax question.
00:05:22.740 | And he outlines the circumstances.
00:05:25.180 | And the very short summary is that he and his wife
00:05:28.980 | have been underpaying their taxes
00:05:31.380 | to the tune of like $20,000 to $30,000 a year
00:05:35.180 | for the last several years.
00:05:36.660 | And he's just figured this out.
00:05:39.780 | 'Cause again, not a situation
00:05:41.380 | where he was trying to do anything wrong.
00:05:43.860 | They had just made a tax decision at the start of this period
00:05:47.900 | that they didn't understand the ramifications of.
00:05:50.780 | And so now they collectively owe the IRS
00:05:53.740 | a big pile of money.
00:05:56.140 | And when I think back to that situation,
00:05:59.380 | because even though it was several years ago,
00:06:00.860 | it really struck me.
00:06:04.020 | What I see is this person who had put
00:06:08.500 | an enormous amount of time and effort
00:06:11.940 | into learning about investing,
00:06:14.020 | and studying investing, and discussing it on the forum,
00:06:16.420 | and sharing his thoughts.
00:06:18.380 | And he just didn't put enough time
00:06:19.660 | into the other parts of financial planning.
00:06:22.700 | And so they made this big, costly mistake.
00:06:25.220 | And so that's what I want to do this morning.
00:06:29.580 | I want to go through the primary areas
00:06:33.260 | under the financial planning umbrella,
00:06:35.340 | and just give you a checklist
00:06:37.140 | of the most common, most critical items
00:06:40.340 | under each of those topics.
00:06:42.180 | And the idea is that you can go over this together
00:06:45.580 | so that number one,
00:06:47.220 | if the person who is not the household's financial manager,
00:06:49.700 | if they become the financial manager at some point,
00:06:52.380 | they're better prepared.
00:06:53.820 | And number two, so that we can make sure
00:06:55.620 | nothing important is being left out.
00:06:57.420 | So the first topic we have is cash flow.
00:07:00.900 | That's all of the budgeting-related stuff.
00:07:03.660 | Risk management, that's the insurance stuff.
00:07:06.060 | Investing, retirement planning,
00:07:08.100 | estate and charitable planning,
00:07:10.740 | education planning, so that's saving for college,
00:07:12.900 | and tax planning.
00:07:14.500 | And again, this is gonna be a checklist
00:07:17.220 | of the most common, critical items.
00:07:19.220 | And to warn you, it's gonna feel a little bit
00:07:21.780 | like information overload,
00:07:23.340 | but I've got a few pieces of good news there.
00:07:25.100 | Number one is that these slides are already available
00:07:27.020 | on the Bogle Center website,
00:07:27.980 | so you don't have to remember all of it.
00:07:29.740 | Number two is that this job gets easier over time.
00:07:35.220 | The more often you go over this together,
00:07:37.620 | the easier it is,
00:07:38.460 | because you only have to go over what's changed.
00:07:41.500 | And the other thing about this is that,
00:07:44.980 | for some households, maybe it makes sense
00:07:46.420 | to have the once-a-year money talk,
00:07:47.900 | where you just knock out the whole thing.
00:07:50.300 | I don't think that's very common.
00:07:52.820 | What I see a lot more often,
00:07:53.820 | and this is what my wife and I do,
00:07:55.340 | is we have a once-a-month money talk.
00:07:57.340 | And so this month, we're talking about cash flow.
00:07:59.980 | Next month is the insurance stuff.
00:08:01.780 | Investing the next month.
00:08:02.780 | So it's just smaller, more digestible chunks, basically.
00:08:06.540 | So diving right in, in cash flow planning,
00:08:09.900 | the first question we wanna know
00:08:11.900 | is just how much are we spending every month?
00:08:14.380 | And then how much do we spend every year?
00:08:16.340 | Because it varies from month to month, right?
00:08:18.180 | There's a lot of things that we only pay for once a year,
00:08:20.060 | certain insurance premiums,
00:08:21.860 | or maybe you take a vacation every summer.
00:08:23.940 | So if you just look at last month's spending
00:08:25.340 | and multiply by 12,
00:08:26.620 | that doesn't really tell you
00:08:27.740 | how much you're spending over the year.
00:08:29.180 | So we wanna know typical monthly spending,
00:08:31.980 | typical annual spending.
00:08:33.900 | And what are we spending on?
00:08:35.380 | So we know this is how much we're spending,
00:08:37.340 | but if we categorize it,
00:08:38.500 | we're spending this much on housing,
00:08:40.060 | this much on groceries,
00:08:41.020 | this much on entertainment,
00:08:42.740 | and then does that align with our values?
00:08:45.420 | Because sometimes when you take the time
00:08:46.900 | to actually break it down
00:08:48.940 | and see that order of which you're spending,
00:08:52.260 | most on this, next most on this,
00:08:53.980 | you realize that it makes a little bit of sense
00:08:55.380 | to scale back a little here
00:08:57.020 | so you can spend somewhat more there
00:08:58.180 | on something that you care more about.
00:09:01.060 | And one last thing about spending
00:09:02.820 | that I always like to look at
00:09:04.100 | is subscription costs.
00:09:06.140 | 'Cause these days, everything's a subscription.
00:09:08.020 | I always think about, as a CPA,
00:09:10.620 | I use Microsoft Excel all the time.
00:09:12.660 | And when I started in this field,
00:09:14.860 | you would buy a copy of Microsoft Office,
00:09:16.900 | which you would install on your computer,
00:09:18.740 | and then you just had Microsoft Office.
00:09:20.580 | And now you buy a subscription to Microsoft 365,
00:09:24.380 | and you pay for that every month forever.
00:09:26.380 | And TV's the same thing, right?
00:09:28.340 | You sign up for all these different streaming services,
00:09:30.740 | and I see this pretty often,
00:09:31.740 | that people will have maybe seven different services,
00:09:35.220 | and they're only using two of them.
00:09:36.900 | So it makes sense every once in a while
00:09:37.980 | just to look at what your subscription costs are
00:09:39.940 | and see if there's anything we can cut out.
00:09:41.820 | Another important question still in the cash flow space.
00:09:46.140 | So this is specifically for accumulators,
00:09:47.780 | so people who are still saving
00:09:48.940 | towards financial independence and retirement.
00:09:51.740 | What we wanna know is how much are we saving each month,
00:09:54.220 | and does that put us on track for our goals?
00:09:56.580 | So what evidence do we have?
00:09:58.740 | That's what we wanna see here.
00:10:00.020 | We wanna know, did we work
00:10:00.980 | with some financial planning software,
00:10:02.820 | or an actual financial planner,
00:10:04.180 | or at the very least, a spreadsheet analysis?
00:10:06.820 | What evidence do we have to think
00:10:08.060 | that if we keep doing what we've been doing,
00:10:10.500 | we will end up where we want to end up?
00:10:13.380 | And for retirees, it's basically the same question,
00:10:15.540 | it's just kinda the flip side of the coin.
00:10:17.780 | Are we on the right track?
00:10:18.860 | Is the amount that we're spending sustainable?
00:10:20.980 | And again, what evidence do we have?
00:10:23.420 | Was it a spreadsheet analysis, financial planning software?
00:10:26.340 | We wanna see something to back that up.
00:10:29.580 | Another important question that we wanna check off
00:10:31.860 | is that we have a sufficient emergency fund,
00:10:34.100 | and you'll often hear people say
00:10:35.220 | that three to six months of expenses
00:10:37.820 | is the appropriate size for an emergency fund,
00:10:40.540 | but in reality, it varies,
00:10:42.220 | because the biggest reason why people tap
00:10:44.660 | into their emergency fund is because they lose their job,
00:10:47.980 | and so you're spending from your savings
00:10:49.300 | for however long until you get the next job,
00:10:52.220 | and so the appropriate emergency fund size
00:10:55.900 | depends on your job.
00:10:56.740 | So if you're a government employee
00:10:58.820 | in a very secure position,
00:11:00.300 | you can get away with a smaller emergency fund
00:11:02.020 | than somebody who is a software developer
00:11:04.500 | at a startup company.
00:11:06.060 | And the most extreme example of that
00:11:08.300 | is anybody who's already retired,
00:11:10.900 | they don't really have a risk of job loss anymore, obviously,
00:11:13.700 | and if their portfolio's already big enough
00:11:15.860 | to satisfy the spending,
00:11:17.300 | they don't really need an emergency fund.
00:11:18.620 | There isn't usually a need
00:11:19.620 | to carve out a separate piece of it
00:11:21.180 | and just call it the emergency fund,
00:11:22.660 | the portfolio can just do that job.
00:11:24.420 | So that's it for cash flow planning,
00:11:27.300 | which was our biggest topic.
00:11:28.300 | Insurance is our second biggest topic.
00:11:30.620 | First question is simply,
00:11:32.340 | what types of insurance do we have,
00:11:34.460 | through which companies,
00:11:35.540 | and where can I find the details?
00:11:37.780 | And with regard to this last question,
00:11:39.620 | where can I find the details,
00:11:41.340 | the ideal situation would be
00:11:44.060 | that you don't really have to think about it.
00:11:46.260 | It should be like the question of where's my toothbrush?
00:11:49.220 | Right, you know where that is without extra thought,
00:11:52.220 | and the reason that that's so important
00:11:54.220 | is that if you think about a scenario
00:11:56.060 | where you one day suddenly need to know
00:11:58.660 | is something in particular covered
00:12:00.860 | under our homeowner's policy,
00:12:02.300 | something went wrong that day,
00:12:05.020 | so it's probably a stressful day,
00:12:06.180 | and you don't need this to be another source of stress
00:12:07.940 | just 'cause you don't know where the information is.
00:12:10.180 | And then the thing that happens
00:12:14.220 | in the insurance space sometimes
00:12:17.220 | is the two most common mistakes I see
00:12:19.660 | are number one, that people will simply not realize
00:12:23.260 | that there's a particular type of coverage
00:12:25.420 | that they should have and they don't have it,
00:12:27.460 | and the other one, relatedly,
00:12:28.820 | is that they realize that this type of coverage
00:12:30.460 | is important, so they have some coverage in that space,
00:12:35.460 | but they don't realize that it leaves
00:12:36.540 | something important out.
00:12:38.060 | And disability insurance is the perfect example
00:12:39.820 | of both of these because this happens all the time,
00:12:42.940 | that young people who are still not even close yet
00:12:47.140 | to financially independent,
00:12:48.340 | they couldn't retire at all today,
00:12:49.940 | they very much are dependent on their job income,
00:12:53.020 | they don't have disability insurance,
00:12:55.020 | and that exposes you to a huge risk.
00:12:57.540 | And I made an offhand comment last year,
00:13:01.060 | and immediately after that session,
00:13:03.460 | multiple people came up and said,
00:13:04.860 | "Oh yeah, I don't have disability insurance.
00:13:06.500 | "What do I do?
00:13:07.340 | "How do I get that?
00:13:08.180 | "What should I look for?"
00:13:09.580 | And so this happens all the time.
00:13:12.100 | And then relatedly, a lot of a common scenario
00:13:17.020 | is that people will know
00:13:17.940 | that disability insurance is important,
00:13:20.060 | and they'll know that they have coverage
00:13:21.300 | through their employer, and so they'll think,
00:13:23.300 | "Great, that box is checked off."
00:13:25.340 | But they don't realize that the employer coverage
00:13:27.460 | is short-term.
00:13:28.900 | So maybe it only pays for three months
00:13:30.340 | or six months of benefits.
00:13:31.860 | And of course, if you think about it,
00:13:32.900 | there's a lot of disabilities
00:13:35.140 | that last a lot longer than six months, right?
00:13:36.820 | Some will last the rest of your life.
00:13:39.340 | And so it's important to have long-term coverage also.
00:13:42.180 | And then the last thing I wanna touch on
00:13:43.700 | with regard to disability insurance
00:13:45.500 | is the definition of disability that the policy uses.
00:13:49.220 | Because some policies have what's called
00:13:51.660 | an own-occupation definition.
00:13:53.780 | That means that if you become unable
00:13:56.500 | to perform your own occupation,
00:13:58.620 | then your account is disabled,
00:14:00.580 | and you can receive benefits.
00:14:02.380 | And that's a good thing.
00:14:03.220 | That's what you want to see in your policy.
00:14:05.260 | Not as good is an any-occupation definition.
00:14:09.340 | What that means is that in order to qualify for benefits,
00:14:13.420 | you have to be unable to perform any occupation.
00:14:17.620 | That's a much stricter definition,
00:14:19.660 | so it's much harder to qualify for benefits
00:14:21.340 | with that sort of policy.
00:14:22.580 | And moving on, we have life insurance.
00:14:25.940 | Of course, we know that we need life insurance
00:14:27.540 | if there's anyone dependent on us.
00:14:29.500 | And do we have sufficient life insurance?
00:14:31.060 | And this is another case where people will sometimes know
00:14:33.420 | that they've got coverage through their employer
00:14:34.940 | and think, "Great, I've got life insurance.
00:14:37.260 | "I'm good to go."
00:14:38.700 | And they don't realize it's just not enough coverage.
00:14:40.860 | Because the most common example that I see
00:14:42.980 | is that if you have coverage through your employer,
00:14:45.900 | the death benefit will be one times your annual salary.
00:14:48.820 | And if you imagine your spouse dying unexpectedly tomorrow
00:14:52.580 | and you receive one times their annual salary,
00:14:55.300 | that's not nearly enough to replace all of the income
00:14:57.940 | from them that you have been counting on
00:14:59.180 | between now and retirement.
00:15:00.660 | So most people just need a lot more coverage than that.
00:15:04.220 | And then one last point about life insurance
00:15:06.500 | is that in some couples, one partner earns most
00:15:10.980 | or all of the income.
00:15:12.700 | And in that case, it can still be important
00:15:14.300 | to have life insurance on the other partner.
00:15:16.500 | And the most common example of that
00:15:17.860 | is the situation where spouse A has the job
00:15:21.100 | and earns the income.
00:15:22.220 | Spouse B provides the childcare.
00:15:25.100 | And if you imagine that spouse B dies,
00:15:27.620 | the household's income isn't about to fall,
00:15:30.260 | but their expenses are going way up
00:15:31.980 | 'cause the surviving spouse now has to pay
00:15:34.180 | for full-time childcare, which costs a lot.
00:15:36.900 | And so even though the one partner isn't earning an income,
00:15:40.300 | they're still providing economic benefit
00:15:43.420 | to the family, essentially, and so we need that reflected
00:15:45.420 | in the life insurance coverage.
00:15:47.900 | And then moving on, still in insurance,
00:15:50.420 | we have all the liability policies.
00:15:52.380 | So homeowners, renters, and auto policies.
00:15:54.780 | And we just wanna check every once in a while
00:15:56.580 | the coverage limits because sometimes the decision
00:16:00.820 | that made sense several years ago
00:16:02.820 | when you purchased this policy might not make sense anymore.
00:16:06.020 | Something I see all the time is that people earlier
00:16:08.060 | in their careers, when they're more strapped for cash,
00:16:11.300 | they pick low coverage limits
00:16:13.420 | 'cause that's what makes the policy affordable.
00:16:15.300 | But now if you can afford better coverage,
00:16:17.140 | 'cause you've gotten some raises as your career's progressed,
00:16:19.820 | it makes sense to buy better coverage most of the time.
00:16:22.700 | And then one more thing to check on is
00:16:24.700 | whether we have an umbrella liability policy.
00:16:27.820 | What that is, 'cause a lot of people don't,
00:16:29.800 | haven't even encountered that before,
00:16:31.820 | basically it's a policy that picks up
00:16:34.220 | where your other liability policies leave off.
00:16:36.900 | So if you get in a car crash and you're at fault
00:16:40.180 | and you get sued, your auto policy will pay up
00:16:42.940 | to the liability limit, and then if you have
00:16:45.180 | an umbrella policy, it picks up after that, basically.
00:16:47.880 | And then the last question that we wanna go over
00:16:51.740 | when we're doing these insurance discussions
00:16:54.580 | is every year during open enrollment season,
00:16:57.020 | we want to just take a few minutes at least
00:16:59.580 | to look at the different health insurance options.
00:17:01.780 | Because the decision that you made last year,
00:17:03.460 | it might make sense to switch
00:17:04.300 | to a different plan this year.
00:17:05.780 | And the most critical question there is
00:17:10.540 | what we expect our healthcare costs to look like this year.
00:17:14.420 | And to an extent, we don't know,
00:17:15.900 | but sometimes you do know, if for instance,
00:17:18.500 | you know you're gonna need a particular procedure this year
00:17:20.500 | and it's a costly one, it can make sense
00:17:22.340 | to pick the plan with a higher premium
00:17:24.140 | and the lower deductible and a lower out-of-pocket maximum
00:17:27.300 | might yield savings for the year.
00:17:29.540 | So that's it for insurance.
00:17:30.400 | Now, the rest of the topics are somewhat faster.
00:17:33.020 | And investment planning is actually the fastest one.
00:17:35.980 | There's only a few boxes that we need to check off here,
00:17:38.060 | despite the fact that we talk about it indefinitely.
00:17:41.020 | And the first question is,
00:17:43.620 | is the portfolio reasonably diversified?
00:17:45.860 | And all I mean here is that Tesla stock example.
00:17:48.460 | So if there's individual stocks in the portfolio,
00:17:51.900 | how much is allocated to the biggest one?
00:17:54.220 | And in my opinion, most people shouldn't own
00:17:57.580 | individual stocks at all in most cases.
00:17:59.740 | But if you do, we basically just want to avoid a case
00:18:02.700 | where if one particular company blows up,
00:18:05.180 | then our portfolio would blow up along with it.
00:18:07.180 | We don't want that to even be a possibility.
00:18:09.860 | And then with regard to the asset allocation,
00:18:11.900 | so that's just how much is in stocks
00:18:13.740 | as opposed to how much is in fixed income,
00:18:16.220 | why did we pick that?
00:18:17.460 | What evidence do we have to show
00:18:18.700 | that that's a good fit for us?
00:18:20.220 | And expense ratios.
00:18:22.660 | This is another one that Bogleheads will talk about forever.
00:18:24.980 | It's pretty straightforward.
00:18:26.100 | Basically, all it is is that funds that charge less
00:18:28.180 | to the investors typically provide better returns.
00:18:31.180 | So that's a pretty easy way to improve
00:18:33.380 | the expected returns from your portfolios,
00:18:35.180 | just switch from expensive funds to inexpensive funds.
00:18:38.380 | And lastly, this is my favorite one.
00:18:40.580 | Could the portfolio be simplified?
00:18:42.780 | Because when I see people come in as clients,
00:18:45.900 | the situation a lot of times is that
00:18:47.980 | their portfolio is really just a collection of stuff
00:18:51.820 | that they've accumulated over 20, 30, 40 years of investing.
00:18:54.940 | And so they've got the current 401(k)
00:18:58.100 | and then maybe a 401(k) from the previous employer
00:19:00.220 | and maybe another one from the previous, previous employer
00:19:02.780 | and an IRA here and an IRA there.
00:19:04.900 | And it's the same thing with the other spouse.
00:19:07.580 | And so there's a million different accounts.
00:19:10.140 | And in every account, you'll see eight to 12 mutual funds,
00:19:14.540 | maybe a couple individual stocks, maybe a bond or a CD.
00:19:17.640 | And if that's what the portfolio looks like,
00:19:21.260 | there's no way without some sort of assistance from software
00:19:25.380 | to have any idea what's actually going on
00:19:27.780 | at the overall household level.
00:19:29.680 | And that's what we care about.
00:19:31.020 | We care about the overall household level
00:19:32.640 | because our goals exist at the household level.
00:19:35.780 | And so simplifying by combining accounts
00:19:39.340 | is usually a good idea.
00:19:40.900 | And reducing the number of holdings
00:19:42.500 | is also usually a good idea.
00:19:44.680 | And there's great studies from Morningstar,
00:19:47.260 | it's called the Mind the Gap Study,
00:19:48.780 | comes out every couple of years.
00:19:50.500 | And it actually shows that investors do better
00:19:53.260 | with simpler funds.
00:19:55.420 | They make better decisions in terms of when they buy them.
00:19:57.620 | So target date funds, balance funds, life strategy funds,
00:20:00.460 | things like that.
00:20:01.560 | Investors do a better job with them
00:20:03.960 | because they just put money into them and leave it alone.
00:20:07.740 | Whereas when investors have portfolios
00:20:09.540 | that are sliced and diced into a zillion different funds,
00:20:12.780 | it's really tempting to,
00:20:14.900 | this one hasn't been doing as well lately,
00:20:16.500 | so let's get rid of it, let's buy that other one.
00:20:18.140 | And most of the time when people make decisions like that,
00:20:21.180 | their timing is terrible.
00:20:22.980 | So simplifying is usually advantageous if you can do it.
00:20:25.780 | Moving on, we've got retirement planning.
00:20:28.800 | And here the question, the first one is simply,
00:20:31.160 | what's our plan for when we plan to retire?
00:20:34.060 | And this is for the most part just an excuse
00:20:35.960 | to revisit the question that we addressed in cash flow,
00:20:39.540 | which is, are we on track?
00:20:41.540 | Because that's something that we wanna be checking on
00:20:43.080 | at least pretty regularly.
00:20:44.440 | And then another topic that you don't really have
00:20:47.680 | to worry about until you're getting close to age 62
00:20:50.820 | is social security.
00:20:52.240 | And the question there is simply,
00:20:53.380 | when should we be filing for benefits?
00:20:55.360 | Because you can start as early as 62,
00:20:57.380 | or age 60 if you're a surviving spouse.
00:21:00.100 | But the longer you wait, the larger your benefit is,
00:21:02.960 | and so it's a trade-off of higher monthly income
00:21:05.260 | versus giving up income in the meantime.
00:21:07.600 | And so that's something you'll want to spend
00:21:08.920 | a little bit of time researching.
00:21:10.280 | And I gave a talk last year at this conference
00:21:12.260 | that dug into that, so you can look at that,
00:21:14.740 | it's on YouTube, it's free.
00:21:16.100 | And do we know what we plan to retire to?
00:21:19.400 | This one's not financial at all,
00:21:21.400 | but it is the most important question
00:21:23.160 | on this slide by a mile.
00:21:25.080 | Because we're retiring from these jobs,
00:21:29.560 | but what are we retiring to?
00:21:31.600 | Because there's a good number of papers
00:21:34.720 | that I've found interesting, this is not my field at all,
00:21:37.200 | but in the field of psychology,
00:21:38.760 | showing that two of the things,
00:21:41.400 | these are not the only two things,
00:21:42.560 | but two of the things that people need to be happy,
00:21:46.040 | actually, sorry, happy is not necessarily
00:21:48.640 | the word that gets used.
00:21:49.560 | It's often something like long-term contentedness,
00:21:52.080 | life satisfaction, rather than just a fleeting feeling
00:21:54.560 | of happiness, but two of the things.
00:21:57.440 | Number one is close personal relationships.
00:22:00.500 | That's a critical thing in order
00:22:02.020 | to be satisfied with our lives.
00:22:04.280 | And another thing is that you're doing something
00:22:05.680 | with your time that gives you a feeling
00:22:07.640 | of competency or mastery or identity.
00:22:11.140 | And for so many people, their job satisfies
00:22:14.940 | both of those requirements, right?
00:22:16.040 | We've got friendships with people at work.
00:22:18.360 | Our job, we're good at it, and so it gives us
00:22:21.800 | some personal satisfaction in that sense.
00:22:24.560 | So we're doing something with our time
00:22:25.760 | that we find meaningful or fulfilling.
00:22:28.000 | And then when you retire, that goes away.
00:22:31.840 | And so it's important to have a specific
00:22:34.660 | and explicit plan for these are the steps
00:22:38.040 | we're going to take to maintain our friendships
00:22:41.360 | and build new friendships.
00:22:42.880 | And this is what we're going to do
00:22:44.240 | with our new available time.
00:22:46.600 | Because if you just fill up all that time with Netflix,
00:22:48.560 | that's the recipe for depression,
00:22:50.320 | and so you need something better than that.
00:22:53.920 | Now, estate and charitable planning,
00:22:55.560 | of course you might divide these
00:22:57.400 | into two separate monthly topics if you want to,
00:22:59.640 | whatever works for you.
00:23:01.440 | Estate planning, we want to know
00:23:02.560 | if we've checked the beneficiaries recently
00:23:05.080 | on our retirement accounts and insurance policies, right?
00:23:08.680 | So when you open an IRA or any similar account,
00:23:11.400 | you have to fill out that form that says
00:23:12.720 | this is the primary beneficiary,
00:23:14.040 | and that's who gets the money when I die,
00:23:15.680 | and this is the secondary beneficiary,
00:23:17.120 | and that's who gets the money when I die
00:23:19.020 | if the primary beneficiary has also died.
00:23:21.680 | And the most common example if you're in a partnership
00:23:24.960 | is that you name the other person as the primary beneficiary,
00:23:28.040 | and if you have kids,
00:23:28.880 | typically the kids are the secondary beneficiaries.
00:23:31.120 | That's kind of the default assumption most of the time.
00:23:34.520 | But what happens sometimes is you've got mom and dad,
00:23:39.520 | they've got child A, child B,
00:23:42.960 | and then they have child C.
00:23:45.120 | And when you have a new kid,
00:23:46.640 | maybe the first thing on your mind
00:23:48.080 | isn't signing into Vanguard or Fidelity or whatever
00:23:50.200 | and updating these forms, and so maybe you just forget.
00:23:54.240 | And then if the tragedy happens
00:23:56.080 | and mom and dad die in a car crash,
00:23:57.880 | and you've got child A gets half,
00:23:59.200 | child B gets half, child C, oops.
00:24:02.240 | And that's not good.
00:24:04.560 | And so it's important to update these things
00:24:06.440 | every once in a while.
00:24:07.280 | Similarly, something that you see more often
00:24:10.680 | than you might expect is the ex-spouse
00:24:14.960 | or the ex-boyfriend or ex-girlfriend
00:24:16.680 | is the beneficiary on one of these accounts,
00:24:19.000 | and not because we're still close.
00:24:22.840 | It's just forgot to update it.
00:24:25.640 | And that's not what you wanna see either.
00:24:28.040 | And then the other big thing here
00:24:30.560 | is our critical estate planning documents.
00:24:32.720 | So do we have a will?
00:24:34.040 | Do we have durable power of attorney for finances
00:24:37.680 | and healthcare power of attorney?
00:24:39.680 | And those last two documents are just the things
00:24:41.360 | that provide somebody else with the legal ability
00:24:45.840 | to make decisions on our behalf if we become incapacitated,
00:24:48.480 | so we can't make decisions for ourselves.
00:24:50.520 | And then just like with the beneficiary designations,
00:24:55.640 | when's the last time we updated these?
00:24:57.800 | If you just had child C, that's time to update the will.
00:25:01.200 | Or if your sister is who you named
00:25:04.280 | as your power of attorney several years ago,
00:25:07.440 | and you had a falling out and you don't speak anymore,
00:25:10.240 | or maybe she's no longer living,
00:25:12.320 | it's time to update these things.
00:25:14.640 | And then just like with the insurance policies,
00:25:18.200 | we want to know where these are.
00:25:22.000 | If they're physical documents, what drawer are they in?
00:25:25.240 | Are they in a safe deposit box?
00:25:26.840 | Where are they?
00:25:27.920 | Or if they're PDFs, what folder on whose computer
00:25:31.480 | or a shared Dropbox drive?
00:25:32.680 | Or specifically and exactly where are these?
00:25:35.360 | And again, we want to know this answer
00:25:37.680 | without having to think about it.
00:25:39.960 | Because if you take a minute to imagine
00:25:43.520 | the moment in your life where you need
00:25:45.600 | to find your spouse's will, that's potentially
00:25:50.640 | the single hardest day of your life
00:25:52.080 | or the hardest week of your life.
00:25:54.120 | And you don't want it to be made harder by the fact
00:25:56.280 | that you just don't know where the damn thing is.
00:25:58.600 | And so you want to know where all these documents are.
00:26:03.880 | And moving on to the charitable planning side of things.
00:26:07.880 | First question, would there be a more tax-efficient way
00:26:10.720 | to do the donating that we're doing?
00:26:12.840 | Because if there is, then we can do more donating
00:26:16.840 | at the same net cost to us.
00:26:18.840 | And that's, you know, why not?
00:26:20.680 | And so there's a few things to consider there.
00:26:22.520 | Number one is what we call deduction bunching.
00:26:25.320 | This is a strategy where, let's say,
00:26:27.080 | you normally donate to seven different charities every year.
00:26:30.760 | What if instead you made no donations
00:26:33.960 | for four years in a row?
00:26:36.040 | And then in year five, you made five times the annual donation?
00:26:40.160 | And the idea here is that then in year five,
00:26:42.460 | you get a really big deduction for this big donation
00:26:44.640 | that you made.
00:26:45.720 | And in years one through four, you
00:26:48.160 | use the standard deduction.
00:26:49.620 | And it's not always going to work out.
00:26:51.240 | You have to do the math for your own family.
00:26:53.080 | But in a lot of cases, that results in net savings
00:26:55.840 | over the period.
00:26:58.120 | And then another option is donating appreciated shares.
00:27:00.800 | So there's three requirements here.
00:27:02.440 | Requirement number one is that this is an investment
00:27:04.600 | that you bought, and it has gone up in value.
00:27:07.160 | Requirement number two is that this
00:27:09.480 | is something you own in a taxable account,
00:27:11.180 | so it's not an IRA.
00:27:12.500 | And requirement number three is that you
00:27:15.580 | have owned this investment for longer than one year.
00:27:18.200 | And if all three of those requirements are met,
00:27:20.200 | and you donate this investment to a charity,
00:27:22.220 | then you get a deduction for the market value
00:27:24.140 | rather than just the amount that you paid for it.
00:27:26.180 | And you don't have to pay tax on all of that appreciation.
00:27:29.460 | And the reason that that's so good
00:27:31.460 | is that just compare that to the alternative
00:27:33.780 | where you sell this investment, and you
00:27:36.460 | pay tax on all of that appreciation,
00:27:38.060 | and then you write a check to the charity with what's left.
00:27:41.020 | You gave up the same shares, and you just
00:27:43.180 | didn't get to donate as much.
00:27:44.420 | So donating appreciated shares can be a great approach.
00:27:48.260 | And then qualified charitable distributions.
00:27:50.060 | This also has three requirements.
00:27:52.020 | Requirement number one, you have to be at least 70 and 1/2.
00:27:54.860 | Requirement number two, it's money
00:27:56.800 | that's coming out of a traditional IRA.
00:27:59.180 | And it has to be specifically a traditional IRA.
00:28:01.180 | It can't be a 401(k) or a Roth IRA.
00:28:03.340 | It has to be a traditional IRA.
00:28:04.900 | Requirement three is that it goes directly
00:28:06.660 | from the traditional IRA to a charity.
00:28:08.980 | When that happens, it counts as a QCD.
00:28:11.040 | What that means is two things.
00:28:12.340 | Number one is that it's not taxable to you,
00:28:15.180 | whereas most of the time when you take money out
00:28:17.240 | of a traditional IRA, it is taxable.
00:28:19.700 | So this is some tax savings.
00:28:21.300 | And the second thing that it means
00:28:22.740 | is that it counts towards your required minimum distribution
00:28:25.760 | for the year.
00:28:26.500 | So if you're of an age where you have to take RMDs,
00:28:29.160 | qualified charitable distributions
00:28:30.460 | are a great way to satisfy that requirement
00:28:32.740 | without incurring any taxes and also do the charitable giving
00:28:35.540 | that you want to do anyway.
00:28:38.180 | Moving on to our second to last topic is education planning.
00:28:41.460 | First question here, how much are we
00:28:43.620 | looking at in terms of price tag?
00:28:45.620 | And if we looked at the different options, so four
00:28:48.620 | years of private university versus four years of state
00:28:50.860 | university versus community college for a couple of years
00:28:53.660 | and then a couple of years of state university,
00:28:55.620 | what are the actual price tags?
00:28:56.860 | Because until you have that information,
00:28:58.780 | you can't really make an informed decision.
00:29:01.620 | And then you want to go to at least one college night
00:29:03.900 | or financial aid night at your child's school.
00:29:05.900 | Those are generally very informative events
00:29:07.700 | where they put you in touch with local resources,
00:29:09.900 | walk you through the FAFSA process,
00:29:11.360 | and there's a lot going on there.
00:29:12.740 | So it's valuable.
00:29:14.660 | And a refunding of 529 plan.
00:29:16.460 | That's just a tax advantage way to save for college.
00:29:18.780 | And one caveat I always add there
00:29:22.060 | is that most families don't have enough income
00:29:27.140 | to fully fund the retirement savings goal
00:29:30.000 | and completely fund the college goal
00:29:33.360 | without taking on any student loans.
00:29:35.960 | And when that's the case, retirement saving
00:29:38.200 | has to be the priority.
00:29:39.880 | Because even though the college costs are coming sooner,
00:29:43.120 | and it is a big price tag, and you love your kids,
00:29:46.320 | there's a critical difference here,
00:29:48.440 | which is that for college costs, there might be scholarships.
00:29:51.280 | There might be financial aid.
00:29:52.760 | There is no retirement scholarship.
00:29:54.840 | There's no federally subsidized retirement loans
00:29:57.120 | that you can just get because you asked for them.
00:29:59.480 | And so if you only do one or the other,
00:30:02.160 | you want to prioritize saving for retirement.
00:30:06.480 | We also want to see, does our kids' school
00:30:08.320 | offer any AP courses?
00:30:10.000 | Those are just courses you take in high school
00:30:12.720 | that offer college credit.
00:30:14.280 | And the reason that that is so valuable
00:30:16.640 | is that tuition in many cases is based
00:30:19.120 | on the number of credit hours.
00:30:20.400 | It might be a certain dollar amount per semester
00:30:22.680 | if you're taking 12 or more.
00:30:24.480 | And if you're taking nine or fewer credit hours,
00:30:26.680 | it's a much lower dollar amount.
00:30:28.680 | Or if you can even eliminate an entire semester,
00:30:31.360 | that's an enormous amount of cost savings.
00:30:34.520 | And have we researched scholarships,
00:30:36.640 | including from sources other than just the university?
00:30:39.480 | And the way I often explain this is
00:30:41.240 | that we don't typically like to be lumped into groups.
00:30:45.080 | But now is the time to lump yourself
00:30:47.000 | into as many groups as you can.
00:30:48.920 | And what I mean by that is think about every way
00:30:51.800 | that you could be classified.
00:30:53.120 | So your ethnicity, your religion, where you live,
00:30:56.680 | what you do for a living, what organizations you're a part of.
00:31:00.280 | And then think about the same questions for your child,
00:31:03.480 | because there might be scholarships for somebody
00:31:06.280 | in those groups.
00:31:07.360 | So take some time to think about all of those things
00:31:09.720 | that you could be called, and then do some research online
00:31:12.800 | to see what might be available.
00:31:15.640 | And then the last question, do we
00:31:17.960 | think our child would study for the PSAT
00:31:20.160 | if we encourage them to do that?
00:31:22.400 | And the reason I mention this test in particular
00:31:24.640 | is that it's the one that is the initial hurdle
00:31:27.480 | for national merit scholarships.
00:31:30.360 | And those-- many universities offer
00:31:35.240 | super generous scholarships for national merit students.
00:31:37.680 | In many cases, full tuition.
00:31:39.360 | And so if you think your child would study for this test,
00:31:42.220 | it's worth buying a book on Amazon
00:31:44.680 | and encouraging them to spend a couple of hours a week for maybe
00:31:48.040 | a couple of months.
00:31:49.280 | And I know that to a busy high schooler,
00:31:52.040 | that's going to sound terrible.
00:31:53.600 | It's going to sound like this enormous burden.
00:31:55.480 | But we're talking about 16 to 20-something hours
00:31:59.520 | total over their life.
00:32:01.200 | And the potential payoff is enormous.
00:32:03.520 | So if you think your child would do that
00:32:05.440 | with some encouragement, it's worth
00:32:07.320 | giving them that encouragement.
00:32:09.560 | And moving on to our last topic, we've got tax planning.
00:32:12.540 | And there's way too many things that
00:32:15.440 | fall under this umbrella to cover all of them.
00:32:17.360 | So just a few of the most common ones.
00:32:19.960 | For accumulators-- so again, that's anybody saving
00:32:21.960 | towards retirement.
00:32:24.040 | Are we maxing out our retirement accounts?
00:32:25.840 | And have we looked recently at the Roth first tax
00:32:28.040 | deferred question?
00:32:28.900 | Because in many cases, you might have
00:32:31.040 | made a decision several years ago
00:32:32.480 | that made sense at that time, but it doesn't make sense now.
00:32:35.880 | So if you've signed up for your 401(k) six years ago,
00:32:39.240 | but since then your income has gone up, or it's gone down,
00:32:41.640 | or you've gotten married, or you've gotten divorced,
00:32:43.040 | or you've had kids, or your spouse's income has changed,
00:32:46.560 | all of those things would change your tax situation.
00:32:49.080 | And so the Roth first tax deferred decision
00:32:51.320 | that was right then should be re-evaluated.
00:32:55.880 | And then for retirees, it's the same question,
00:32:59.040 | but the other side of the coin.
00:33:01.160 | So here, instead of looking at which accounts
00:33:03.160 | we're contributing to, now we want
00:33:05.120 | to know which accounts should we be taking out of.
00:33:07.720 | So if we need to spend a certain amount of money this year,
00:33:11.560 | how much of it should come out of taxable?
00:33:13.380 | How much of it should come out of Roth?
00:33:15.040 | And how much of it should come out of tax deferred?
00:33:17.560 | And the talk I gave last year also discusses that in depth.
00:33:20.800 | Wade was also talking about it yesterday.
00:33:22.840 | And that is a topic where there's a fair bit going on,
00:33:26.120 | but the potential for tax savings is very significant.
00:33:29.220 | So it's worth digging into a little bit
00:33:30.920 | once you're approaching retirement.
00:33:32.840 | And is our portfolio tax efficient?
00:33:36.640 | And there's just two things that I want to mention here.
00:33:38.240 | Number one is that we generally want the assets
00:33:41.120 | that grow the fastest in Roth accounts.
00:33:45.160 | Or rather, we want to fill the Roth accounts
00:33:46.720 | with those assets, because A, Roth accounts,
00:33:50.480 | if you meet the requirements,
00:33:51.520 | you never have to pay tax on the growth.
00:33:53.280 | And B, Roth accounts don't have RMDs,
00:33:56.440 | whereas tax deferred accounts do.
00:33:58.640 | And so when you combine those two factors,
00:34:00.700 | if you could choose one type of account
00:34:02.200 | that you would want to grow the fastest,
00:34:04.080 | you would want your Roth accounts to grow the fastest.
00:34:05.960 | And so most of the time, you want to fill those with stocks.
00:34:09.920 | That basically just means you want a total stock market fund
00:34:12.580 | or international fund or total world or something like that
00:34:15.400 | in your Roth accounts most of the time.
00:34:18.000 | And then in our taxable accounts,
00:34:20.080 | we basically just want to avoid anything
00:34:21.680 | that is going to create a lot of taxable income
00:34:23.760 | and a lot of tax costs every year.
00:34:25.200 | So a few things on that list are high-yield bonds,
00:34:27.960 | junk bonds, they pay a lot of interest.
00:34:30.240 | That means a lot of taxable income and a lot of taxes,
00:34:32.240 | so we don't want them in a taxable account.
00:34:34.760 | Mutual funds with high turnover,
00:34:36.560 | because whenever a mutual fund sells something
00:34:38.120 | within the portfolio, if it sells it for a gain,
00:34:40.680 | you have to pay tax on that gain.
00:34:42.120 | So even though you didn't sell something,
00:34:43.800 | the fund sold something, so you have to pay taxes.
00:34:46.600 | And the more turnover there is,
00:34:47.860 | the more often you have to pay those taxes.
00:34:50.160 | And then real estate and investment trusts, REITs,
00:34:53.000 | those are just stocks in the real estate industry,
00:34:55.440 | and they're a perfectly fine thing to own,
00:34:57.820 | but if you own them, you want them in a retirement account,
00:35:00.480 | because in a taxable account,
00:35:02.120 | the problems are that number one,
00:35:03.360 | they pay more dividends than most stocks do,
00:35:05.320 | so more taxable income, and those dividends are taxed
00:35:07.840 | at a higher tax rate than most dividends,
00:35:09.840 | so we don't want REITs in taxable.
00:35:11.540 | And then the last question under tax planning
00:35:15.740 | is Roth conversions.
00:35:17.360 | Would those be useful either this year
00:35:19.120 | or in the near future?
00:35:20.640 | And a Roth conversion is really just
00:35:22.240 | when you move money from tax-deferred over to Roth,
00:35:26.520 | so we're taking it out of a traditional IRA
00:35:28.040 | and moving it into a Roth IRA,
00:35:29.800 | and when you do that, you usually have to pay tax
00:35:32.400 | on that money, the money that you've converted.
00:35:34.680 | And the idea is basically that we're taking advantage
00:35:38.640 | anytime that you have an unusually low tax rate.
00:35:41.400 | So the most common example is you've retired,
00:35:44.440 | so your income has gone down
00:35:45.600 | because you're no longer working,
00:35:47.120 | and you haven't yet started receiving Social Security,
00:35:49.640 | so you have a temporarily low level of income,
00:35:52.560 | which doesn't necessarily but usually means
00:35:55.080 | a temporarily low tax rate,
00:35:56.380 | so the idea is we're gonna take advantage
00:35:57.640 | of that low tax rate, move some money over now,
00:36:00.240 | pay tax at that low tax rate,
00:36:01.760 | and then it's in Roth going forward.
00:36:03.700 | And the other common examples, less common
00:36:06.040 | but still important to know about,
00:36:07.460 | are if you ever have an unpaid sabbatical,
00:36:09.800 | or if you ever get laid off for part of the year,
00:36:11.800 | so reasons why your income for that year
00:36:13.800 | would be unusually low, that's a good time
00:36:16.080 | to think about a Roth conversion for that year.
00:36:17.680 | It doesn't necessarily mean it's a good idea,
00:36:19.080 | but it's worth considering.
00:36:20.440 | And so that is the entirety of the checklist,
00:36:24.280 | and unfortunately, that's still not
00:36:27.160 | super-duper comprehensive.
00:36:28.380 | There could be other things
00:36:29.240 | that are important to your family,
00:36:30.760 | and so this is something that we're gonna have
00:36:31.800 | to adjust over time.
00:36:33.760 | But fortunately, as you probably noticed,
00:36:35.120 | there's probably some things
00:36:35.940 | that aren't relevant to your family, right?
00:36:37.360 | Maybe your kids are already finished with college,
00:36:38.920 | so we don't really need to worry
00:36:40.120 | about the education planning anymore.
00:36:42.580 | And again, I think that for most families,
00:36:45.820 | what's going to work a lot better
00:36:46.880 | than trying to just pound out this whole thing,
00:36:49.320 | start to finish in one day,
00:36:51.000 | is smaller, manageable chunks.
00:36:52.640 | So going over this with your partner once a month.
00:36:55.760 | This month, we talk about cash flow planning,
00:36:57.360 | and we make sure that we have a big enough emergency fund.
00:36:59.440 | We look at how much we're spending every month.
00:37:01.420 | Next month, we go over insurance.
00:37:03.080 | We make sure we have disability insurance.
00:37:05.160 | We make sure that that includes long-term disability,
00:37:07.440 | and we look at the definition of disability,
00:37:09.120 | own occupation versus any occupation.
00:37:11.320 | The next month is investing,
00:37:12.360 | and you just, one month at a time.
00:37:14.440 | And it does get easier over time,
00:37:15.940 | because you really only have to address
00:37:17.460 | the things that have changed since last time,
00:37:18.940 | for the most part.
00:37:20.580 | And again, the goal here is so that
00:37:23.100 | both spouses can get involved.
00:37:25.420 | So that if the one who is not
00:37:26.800 | the household's financial manager
00:37:28.660 | becomes the financial manager,
00:37:31.660 | they're better prepared to take on that task.
00:37:33.940 | And number two, so that in the meantime,
00:37:36.300 | that person can be providing some oversight.
00:37:38.200 | Because I can tell you from experience
00:37:40.300 | that if spouse A is the one
00:37:43.100 | who is supposedly taking care of
00:37:44.720 | all of the financial planning topics,
00:37:46.600 | sometimes something gets left out.
00:37:49.000 | They're doing their best,
00:37:50.240 | they're making a very good effort,
00:37:51.680 | they're researching all of these things,
00:37:54.000 | but sometimes something gets left out.
00:37:56.080 | And so having the other person
00:37:57.480 | check in on a regular basis with an actual checklist
00:37:59.960 | and say, are we taking care of this and this and this,
00:38:03.280 | that can be extremely valuable.
00:38:05.880 | So that's really all I had.
00:38:07.280 | And I think we've, yeah.
00:38:08.640 | Got some questions, okay.
00:38:12.040 | Ooh, all right.
00:38:13.180 | Question, is counseling the only option
00:38:15.420 | when the reluctant spouse refuses to engage on this topic?
00:38:19.260 | Woo-wee! (audience laughing)
00:38:20.420 | All right.
00:38:21.260 | Getting serious.
00:38:24.980 | I don't think so.
00:38:27.860 | I think it's not necessarily a bad idea.
00:38:30.780 | And so yesterday I did mention,
00:38:33.740 | in one of the sessions, you might not have been there,
00:38:35.540 | but I did mention counseling.
00:38:38.060 | And I don't, I'm not joking about that, by the way.
00:38:40.260 | I mean this very seriously.
00:38:42.340 | Most of us benefit from counseling
00:38:45.140 | at some point in our lives,
00:38:46.620 | because most of us aren't gonna have perfect mental health
00:38:50.660 | from the day we're born until the day we die.
00:38:52.860 | It's just like physical health care.
00:38:54.540 | We need mental health care at some point.
00:38:55.980 | It's valuable.
00:38:57.140 | And so we joke about it also, 'cause it can be funny,
00:38:59.960 | and it maybe makes us uncomfortable,
00:39:01.460 | but I'm not joking, it's worth doing.
00:39:04.680 | That said, it's not the only approach.
00:39:08.540 | And I think that what I'm talking about here,
00:39:13.280 | the oversight committee idea,
00:39:14.820 | to let you in on the secret,
00:39:18.540 | that can be a bit of a hook, right?
00:39:19.960 | That's what we're trying to do.
00:39:21.180 | Give this person a job, right?
00:39:23.220 | Something that shows them that they're valuable.
00:39:25.860 | And it's not a trick.
00:39:27.580 | It's not tricking them into thinking they're valuable.
00:39:31.060 | They are, because I can tell you,
00:39:33.860 | so I'm a CPA, I've been in this field
00:39:36.100 | since the day I graduated,
00:39:37.660 | and my wife is a software developer.
00:39:42.260 | Before that, she was a food writer.
00:39:45.060 | Before that, she was a court advocate
00:39:46.780 | for domestic violence victims,
00:39:48.100 | and her degree is in criminal justice.
00:39:49.540 | So nothing related to personal finance
00:39:53.600 | in the entirety of her education or career.
00:39:56.420 | And when we go over these things,
00:39:59.260 | all the time, she's got valuable input,
00:40:03.140 | things that I didn't think of.
00:40:05.540 | And I think the reason for that,
00:40:07.980 | and I see this, by the way, working with clients
00:40:09.540 | anytime I'm sitting with a couple,
00:40:10.780 | 'cause most of the time there is the one spouse
00:40:12.540 | who's super-duper raring to go,
00:40:14.860 | and the other one who doesn't say as much.
00:40:17.660 | But when that spouse who doesn't say as much
00:40:19.860 | does say something, every time it's critical.
00:40:23.860 | And I think the reason is that those of us
00:40:26.880 | who spend all of this time thinking
00:40:28.580 | about the financial stuff,
00:40:30.180 | that's what our head's filled up with.
00:40:32.820 | And the other person has more space in their brain
00:40:36.980 | for all of the other things going on in life.
00:40:39.200 | And all of the financial decisions that we make
00:40:42.980 | are not just financial.
00:40:44.340 | They're part financial and partly about the other things
00:40:48.660 | that are going on in our life.
00:40:50.300 | And so this comes up all the time.
00:40:51.660 | You'll see, we're doing some retirement tax planning
00:40:54.020 | and talking about taxable income
00:40:56.700 | and all the things we can talk about.
00:40:58.640 | And then the one who's less talkative,
00:41:02.180 | the spouse who's less involved, will say,
00:41:04.320 | what if your dad ends up living with us?
00:41:07.660 | And just brings up a whole thing
00:41:09.520 | that hasn't even been considered,
00:41:11.260 | and boy, that's important.
00:41:12.980 | We need to talk about that.
00:41:14.660 | And that happens.
00:41:16.300 | So we're not tricking them into thinking
00:41:17.980 | that they're valuable as the oversight committee.
00:41:19.700 | They are.
00:41:20.580 | If you haven't gotten their input yet, you're missing out.
00:41:23.260 | So that's what I would encourage you to do,
00:41:26.120 | is try to empower them in that role,
00:41:28.220 | because it really is valuable.
00:41:30.460 | Is there anyone who does not need umbrella insurance?
00:41:33.460 | How about if they don't own a house or car?
00:41:36.420 | That's a good question.
00:41:37.420 | So if you don't own a house, you're probably a renter.
00:41:41.620 | Hopefully, you have renter's insurance.
00:41:44.300 | And you can still incur some liabilities in that way,
00:41:47.900 | if someone comes over to your home and they get injured,
00:41:52.060 | they can sue you.
00:41:53.100 | And so renter's insurance can cover that,
00:41:57.100 | and then umbrella could pick up from there.
00:42:00.460 | But there are certainly households
00:42:01.940 | where it's less critical.
00:42:04.340 | I will say about renter's insurance--
00:42:05.700 | or not renter's insurance, although also renter's
00:42:07.540 | insurance-- but umbrella insurance is not very expensive.
00:42:11.340 | If you're looking at long-term care policies or health
00:42:14.460 | insurance, those are really expensive.
00:42:16.580 | And so you might be expecting this huge price tag.
00:42:18.820 | Umbrella policy is not that expensive.
00:42:20.820 | So before saying I don't want that,
00:42:23.180 | at least go find out how much it would cost,
00:42:24.980 | because it might be less than you're thinking.
00:42:28.380 | Any recommendations on personal software planning tools
00:42:32.100 | for DIYs?
00:42:33.580 | This is one I struggle with, because the software that I use
00:42:37.540 | is advisor software, and so it's expensive.
00:42:40.420 | It's priced for advisors.
00:42:41.460 | It wouldn't make-- I pay like $3,000 a year for one of them,
00:42:44.220 | and probably, I think, $1,500 a year for the other one.
00:42:46.660 | And so if you're a DIYer, it wouldn't
00:42:48.860 | make sense to pay for that.
00:42:51.580 | And because I'm happy with that software,
00:42:53.260 | I then don't spend a million hours test driving
00:42:55.260 | all of the other softwares.
00:42:56.660 | I can tell you, though, what I hear good things about.
00:42:58.900 | So this is second-hand information,
00:43:00.780 | but I hear good things about New Retirement.
00:43:03.000 | Steve, are you here?
00:43:04.980 | OK.
00:43:05.580 | Well, Steve, he's a bogel head.
00:43:07.060 | He's been here this weekend.
00:43:08.500 | And he's the person-- there's a team of them,
00:43:11.460 | but he's the owner of the company.
00:43:12.900 | And he's involved in this community
00:43:14.620 | and listening to your feedback.
00:43:15.900 | He cares about what you think, and they're constantly
00:43:17.700 | building out new things.
00:43:18.860 | So I can't personally say I've used it,
00:43:21.780 | and oh, it did all these great things, and it was perfect,
00:43:24.540 | but I hear good things about it.
00:43:25.940 | And it is getting better over time,
00:43:27.740 | because they're actively working on it.
00:43:29.680 | Another one that I hear good things about most of the time,
00:43:32.140 | although I did hear somebody yesterday
00:43:33.860 | who wasn't thrilled with it, is Maxify Planner--
00:43:37.140 | M-A-X-I-- Maxify-- M-A-X-I-F-I Planner.
00:43:42.340 | And that's from Lawrence Kotlikoff,
00:43:44.660 | who is a super knowledgeable social security expert, as well
00:43:48.340 | as just broadly retirement planning expert.
00:43:50.700 | So that's another great piece of software.
00:43:54.020 | Pralana Gold-- that's P-R-A-L-A-N-A--
00:43:59.100 | gold, as opposed to bronze or silver.
00:44:03.340 | That's an Excel-based program.
00:44:04.820 | And again, these are just--
00:44:06.660 | I hear good things about them.
00:44:07.940 | I haven't tested them in any serious way.
00:44:09.660 | So those are the three that I hear the most about.
00:44:12.060 | Wade yesterday mentioned one that I've actually
00:44:14.060 | never even heard of--
00:44:15.460 | Flexible Retirement Planner, something like that.
00:44:17.980 | So that might not be the exact name,
00:44:19.580 | but I'd do a Google search.
00:44:20.940 | I bet you can find it.
00:44:22.860 | "How do you know how much life insurance you need?"
00:44:26.380 | Good question.
00:44:27.060 | So question number one--
00:44:30.020 | is there anybody dependent on you for income?
00:44:33.140 | Because if there isn't--
00:44:34.260 | somebody who's early in their career, they have no kids,
00:44:36.820 | and they're not married or anything--
00:44:39.140 | zero is the answer, because nobody's
00:44:40.820 | going to be hung out to dry, so to speak,
00:44:43.580 | if you die unexpectedly.
00:44:45.460 | Similarly, if you are already financially independent,
00:44:51.020 | unless you have a pension without a survivor benefit,
00:44:53.500 | then again, nobody's hung out to dry if you
00:44:56.580 | die unexpectedly or expectedly.
00:44:58.380 | And so it depends on--
00:45:01.140 | basically, we want to look at the needs of other people
00:45:04.780 | that would go unmet if you died tomorrow.
00:45:08.380 | That's the driving factor here.
00:45:10.620 | And so how far are we from financial independence?
00:45:13.260 | Because if you're almost there, a smaller amount of life
00:45:16.980 | insurance is totally reasonable.
00:45:18.640 | If you're 24, and you've got a brand new baby,
00:45:25.100 | that's going to be a lot of costs
00:45:26.980 | that need to be covered.
00:45:28.100 | So life insurance depends on, basically,
00:45:31.140 | the needs that would go unmet if you were to die
00:45:33.180 | and didn't have life insurance.
00:45:35.380 | What advice do you have for those who overfunded
00:45:37.380 | their 529 plans?
00:45:38.300 | Find somebody else who is planning on college education
00:45:44.300 | is basically the answer.
00:45:45.300 | And that's not a joke, because you overfunded it.
00:45:47.380 | Probably what that means is that you have more in there
00:45:49.780 | than your kids needed.
00:45:51.400 | There's a good chance there's going to be grandkids, or great
00:45:54.160 | nieces and nephews, or whoever.
00:45:56.380 | Somebody else you love and care about
00:45:57.900 | who you wouldn't mind paying for their college costs.
00:46:00.340 | Or actually, even yourself, if the idea of studying whatever
00:46:05.020 | sounds appealing, you can pay for yourself with a 529 plan.
00:46:12.340 | 529 plans can now be used to put money
00:46:17.540 | into a Roth IRA for a person who is
00:46:20.100 | a beneficiary of the plan.
00:46:21.340 | A couple tricky things there is that there's a dollar limit.
00:46:25.620 | And in order to qualify, the person
00:46:29.820 | needs to be eligible to contribute to a Roth IRA
00:46:32.020 | anyway.
00:46:32.540 | So basically, this can just count
00:46:34.060 | as the contribution for the year if they're allowed to do that.
00:46:37.300 | So that's something to look into, certainly.
00:46:40.660 | But if you're looking into it, really, really look into it
00:46:43.620 | to make sure that you don't overstep the rules, basically,
00:46:46.420 | is what I would say.
00:46:47.460 | Estate planning.
00:46:48.700 | How about joining the military out of high school
00:46:50.740 | or joining ROTC in college?
00:46:53.220 | Oh, education planning.
00:46:54.140 | Sorry, not estate planning.
00:46:55.260 | I was trying to figure out the-- that sounds morbid.
00:46:57.620 | OK.
00:46:59.300 | Woo!
00:47:00.300 | Oh, gosh.
00:47:01.380 | All right, education planning.
00:47:03.060 | You know, that, honestly, is something--
00:47:05.060 | I don't have a lot to say.
00:47:06.140 | I don't have personal experience with either of those things.
00:47:08.900 | So Anne Garcia, maybe--
00:47:12.500 | she's the college savings expert.
00:47:13.860 | I don't know if she's in the room right now.
00:47:15.780 | But I would bet that she would have a lot better information
00:47:19.980 | than I would have on those topics.
00:47:21.900 | And that's the last question.
00:47:23.300 | I think we're out of time.
00:47:24.380 | So thank you.
00:47:24.980 | [APPLAUSE]
00:47:27.340 | [AUDIO OUT]
00:47:30.700 | [BLANK_AUDIO]