Do I Need More Bonds?

Updated : Aug 26, 2019 in Articles

Do I Need More Bonds?

it’s the weekend and you have financial
questions that need answering that can only mean one thing
it’s time for Jill on money the show that takes the mystery out of your
finances here’s your host Jill Schlesinger welcome welcome thanks for
joining us spending a little bit of time out of your weekend with us we
appreciate it this is Jill on money live from the Capital One Bank studios and we
hear we meaning me Jill and Mark the executive producer extraordinaire are
always very delighted that you care enough to turn on listen and send us
your questions comments etc if you have a financial question this is the show
for you here’s why because we take the mystery out of your finances and we
don’t sell stuff one dude just got in big trouble for selling some crap on his
radio show and just be careful the only thing I’m gonna sell you is that I’m
gonna sell you my book if you want it but even that don’t go crazy although I
really would like you to buy it let’s be honest the dumb thing smart people do
with their money thirteen ways to write your financial wrongs that is the title
but other than that there’s no product there’s nothing else we do have sponsors
we tell you when we have sponsors we tell you when we have something to
disclose we we always do that like over the last couple of years there was a
sponsor of my podcast that was a name brand online advisor and I would just
mention that name and say oh by the way they sponsor our podcast because that’s
what we do we disclose when there’s some sort of conflict it’s important to do
that so if you’re listening to other
financial shows and they’re selling product be very careful because we don’t
know exactly how the person hosting it is compensated necessarily so just
understand it that’s all we like to begin
our program with a caller and today is no different we are talking to DJ from
Texas hello DJ welcome to the show what can I do for you how are you fantastic I
am struggling with what to do with my 401 KS in a rollover IRA that we’ve
accumulated over the years I’ve just flipped it sort of on autopilot
contributing somewhere near the max and combining the two it’s something in the
neighborhood of 1.5 million and it’s all in index very little load and everything
you read you know says that since I’m 64 I probably should be thinking about
putting some of this in bonds but you know every everything I look at is just
over a ten-year horizon it’s the earnings on a bond fund on the bond
index fund are nothing compared to the earnings on the index fund right so I’m
scratching my head with is it worth leaving some risk in place and
continuing on or should I be stuffing some of this into bond index funds
that’s a I think that’s a that’s a good question let’s let’s do a little math
and see just how much money you need to pull from these funds first of all
you’re 64 when do you think you plan on hanging them up because you’re still
working right I’m still working my spouse is still working you know it’s
one of those things where if everything stays the same I’ll probably work
another five years maybe more there’s you know there’s a little bit of gold
and handcuffed in there somewhere mm-hmm that may happen but you know it
might not do and who knows you know in our jobs these days you get the boot
that’s the way it is yeah no kidding right so you know it’s you know five
years maybe maybe ten years you know maybe it’s two years
okay so um when you let’s pretend it’s five years let’s just do it let’s take a
stab at this all right in five years let’s presume you retire both at the
exact same time in five years at that time at retirement what kind of income
would you be entitled to first let’s do Social Security both my spouses I have
maxed out Social Security so whatever the max is at time okay pension you know
it’s about about three okay my my wife took early retirement so she’s got a
believe it or not a small pension from the prior company that will supply about
33 K to either one of us are no longer here so okay guaranteed for either one
of us or forever great I love forever it’s one of my favorite that’s of my
favorite payouts forever exactly right and any other any other money that’s
coming in because that’s like 9 grand a month basically yeah 9 9 10 grand a
month depending on where you where you pull the plug on Social Security right
and spend about it there of course you know there’s rainy day fund money but
that’s just you know what do you need to live on would you guess well you know
that’s interesting that’s about half hour half hour income now mm-hmm and you
know of course when you retire you aren’t stuffing more money back into
401ks and things so I think that’s fairly close to what we’d live on at
some point we’ve got to downsize our house I don’t need a great big house and
we’d probably move out of the Metroplex here hmm
I mean you can be some cash for some cash from from equity in the house okay
even forgetting that I mean honestly if I looked at your one and a half million
bucks in five years I mean you could probably
just pull 50 grand a year out snoozing right like not even worrying about it
and you would obviously want to delay tapping that I would imagine you’re
required minimum distribution is going to be you know tens of thousands of
dollars which will just you’ll you’ll use it right you’ll use it you’ll take
some trips you’ll have some fun so I guess the interesting part of this is
you fundamentally get that over the long term stocks have outperformed bonds the
question I would really be thinking about is do I want to have as much
volatility in my million and a half maybe it’ll be two million by the time
you guys retire do I want to incur the ups and the downs in the same way so
what I would suggest to you is this yes of course if you have the intestinal
fortitude to withstand the ups and downs it’s not it’s yes index funds that are
invested in stocks are probably going to perform over the course of your whole
retirement but you know you don’t give up that much by having some of those
lower produce income producing products that are less
basically less volatile and so I would actually be very interested in peeling
off some of those index funds and trying to replace the stock index with some of
the bonded necks maybe not all at once but presumably I would would like to
kind of get you at least to more of a I don’t know 60/40 ish kind of place maybe
65 35 you’ll still make a ton of money on the upside but with less volatility
so DJ hang on we’re gonna go pay some bills I’m gonna come back to you and let
you sit through the break and chew on that a little bit and see if you could
live with having a little bit of autopilot with maybe not as much upside
but also maybe not as much downside so stay tuned we’ll get back to DJ and his
million and a half bucks in a couple of moments you are listening to Jill on
money during the break hop onto the website Jill on money comm and you can
sign up for our free weekly newsletter they’re so cool all right we’ll be right
back follow Jill on Twitter and Instagram for
more personal finance content just use the handle at Jill on money now back to
the show you are back it’s Jill on money and
before we went to the break we were talking to DJ from Texas who he and his
wife were in their early 60s gonna work for at least five more years have saved
a pile of money in retirement accounts about a million and a half bucks and you
know the essential question is what should DJ do about the allocation in
these funds because right now it’s stock index funds and when he looks at bonds
kind of like says oh that looks pretty rotten compared to the stocks in terms
of performance but what I’m suggesting DJ is that you look at it slightly
differently as you come into retirement which is hey you know what I got to
preserve a portion of this you don’t need all of this money at once so I get
it you can have risk essentially you could be investing honestly for you know
30 years so I don’t have a problem with risk but I do think that there is this
nagging sense that you know it’s no big deal to go through a bear market or even
a once-in-a-generation financial crisis while you’re still working but when you
retire it does start to hit you a little bit differently and so I would think
about adding some bond index funds just to kind of pull the risk back a tiny bit
the again you don’t need all the money the only time you’re gonna need this
money is when you’re probably forced to take the money when you’re 70 and a half
for your required minimum distributions and then you do need to have some cash
accumulating but would you feel comfortable just kind of slowly rotating
into a little bit of and like if you had a million two half bucks how would you
feel if half a million were bond index funds you know that would work in the
other way I look at it is between Social Security and a pension there’s no risk
in that that’s absolutely going to be their true
turn every month yeah and my only risk exposure are these two the one 401 K and
the one IRA account etre right heavily indexed but I can certainly move one of
them in something like an eager intermediate
sort of Wanda fun happy would be happy with 2 or 3% yeah and I think that it’s
really the I think it’s really a question of what is the appropriate
amount of risk for someone in your situation look you’ve lived through a
lot of bad times so you know what it feels like to see that account go down
but as I said close my eyes yeah close my eyes grip the rail very tightly and
enjoy that first plunge what I didn’t ask you about and I should ask you about
is the you got some kids that are grown up or where are you in that well I’ve
got two semi adult kids you know a 28 year old going on 18
good kids what they aren’t completely launched and I’ve got to get them out of
the National Bank of dad at some point here I love that nbod you know what
everyone has like a little bit of that in them there is a recently a New York
Times article about these adult kids who get still get help from their parents so
you said you have a 28 year old and there’s another one also how well does
the other one twenty-three year old now if the 28 year old is going on at
home oh wait a minute so I was gonna say if the 28 year old is going on 18 what’s
the 23 year old going on sixteen okay great so so you still got to think about
that in terms of it about it every day yeah we’re gonna have to we should I
cook him up with dr. Jim Grubman the wealth psychologist okay that’s a
totally separate issue I get it absolutely all right but you are part of
that nine to ten grand a month that will be coming in in your retirement you
start or maybe in the back of your head you think there will have to be also
some money that could potentially be put you know around for the kids too so
again you have plenty of money to do that I get that
what about give any long-term care insurance no okay and do you have wills
trusts all that nonsense estate plan stuff that is on my radar that’s on my
this month very heaviness yet all right that would be I tell you what what’s
interesting about the estate plan and what it might prompt in you is really
thinking much more thoughtfully about how you want to handle the money and
what you want to happen with your kids because if you’ve got you know teenagers
in emotions but you know almost 30 somethings in age you want to plan this
estate accordingly because right now god forbid and if you and your wife were in
a car accident drop dead together and these kids got a million and a half
bucks probably you wouldn’t feel like the best that like that would be the
best outcome right now right probably not but I mean there would be a great
party in your house I think good kids but you know they they didn’t inherit
much DNA it doesn’t seem from the intellectual side of me I like a man or
a woman who is very honest and appraisal of their kids so I think that that
in-state plan actually comes up to be a big issue for you guys I really do and I
think that that will prompt you to maybe even think about these retirement
accounts in a slightly different way for example if something were to happen to
both of you and you have a portion you have one account that could basically be
invested very gently in the bond market and maybe that would be money that the
the kids could use they could tap that in a different way and maybe you would
make some some wishes known about how how much money they could inherit at
what point and maybe because neither of them is particularly financially savvy
you’ve got to really think as to whether you want to have somebody close to you
act as the financial guardian of these kids or a trustee of a trust these are
the kinds of questions that a competent estate attorney is going to ask you it’s
weird right because you don’t have an estate tax problem you don’t have a tax
problem you have an estate problem though and that should be worked out so
I think that that’s actually I’m glad that’s on your radar I think that you
know if you could get that done if that goal for you would be
you know by the end before 4th of July I want to have a draft of a some estate
documents created that would be a good goal for you because it’s gonna take you
a while and you and your wife are gonna have to have some tough heart-to-heart
conversations it’s very emotional and I totally understand it think you do that
estate plan and then I think it’s really about getting some of the money maybe
this year you say I’d like to have like a third of my money into bond funds it
doesn’t have to happen all at once you can do it a little bit at a time if you
want to you know there’s no tax issue because these are these decisions these
allocation decisions are being made within a tax preference account an IRA
or a 401k so you can do it as quickly or slowly as you want but I do think that
your goal should be maybe by the end of the year to at least have a third of the
money in bond index and then see where you stand at the beginning of next year
see where it is and see if you’ve liked you know if that’s good enough and
you’ve gone through one rotten period of time and it feels kind of like oh I’m
glad I had those bonds maybe you’d put a little bit more in but I mean for now I
think that’s a good goal for you and it’s not too it’s not too sudden a shift
in the allocation and that I think would be very helpful for you
yeah me too I think it’s it’s one of those things where you know what you
have to do or you feel like you know what you should do and it’s just we want
to make sure you get there and if I do if I say you have to do this all in the
next two weeks it ain’t happening so it sounds like you’ve done an amazing job
really and so I should have touched led with that I buried the lead which is you
and your wife have done a fantastic job of saving and so I absolutely
congratulate you on that let’s get this stuff buttoned up a little bit and and
let me know how it goes and if you need help and you want us to hold your hand
I’m here for you so just keep me keep us in mind you’d keep us updated if you run
into any stumbling blocks okay thanks Jill I appreciate it all right good luck
DJ thanks for calling thank you bye buddy bye that’s a good one
mark I love these parents that are just out there without their kids so so
anyway you guys mark let’s maybe we could put a link to that New York Times
article which is it was in it was back in when was it February March beginning
of March it was called the new 30 something and it was written it was
funny it was written and directed about and I think it was probably directed at
Millennials and in the the new 30-something have you or haven’t you cut
the financial cord with your family and the premise is this and I’ll just read
you that from the headline how does anyone even those with a stable upwardly
mobile job let alone a family afford to live in places like New York Los Angeles
Boston Chicago San Francisco or Washington DC the answer many are
bankrolled to varying degrees by their parents hold your nose and read this one
baby it is interesting all right you’re
listening to Jill on money if you’ve got a question we’d love to hear from you
ask Jill at Jill on is our email address hop on to the website
go go go go read listen watch and buy the book the dumb thing smart people do
with their money thirteen ways to write your financial wrongs we’ll be right
back follow Jill on Twitter and Instagram for
more personal finance content just use the handle at Jill on money now back to
the show you’re back with Jill on money if you’ve got a financial question I
want to hear from you I’m pounding the desk can you hear it mark if I do this I
want to hear from you mark does it amuse you that I amuse myself I know you
should see me do these radio hits when I’m sitting in my apartment because we
do this from a studio and the sound is so great but when I’m doing hits with
your local stations and you hear me on the radio I’m usually in my apartment
doing those with the beautiful exciting technology that is featured anyway
I put that out there because I do amuse myself quite often
Susan writes I’m 80 years old I this could be my mother my mother’s writing
me right now just kidding different email address I haven’t heard a word
about an increase in Medicare to pay for I haven’t heard a word about the
increase in Medicare which I think went to pay for tax cuts to the rich not
exactly Social Security been associate acuity went up but her Medicare also
went up leaving her with one hundred three dollars less per month in 2019
it’s because my income was higher than usual and it was a one-time event I live
in Florida I was managing two rental condos which become became difficult I
did two 1031 exchanges I ended up with a taxable overage of a big chunk of money
I made sent a big check to the IRS I made some upgrades to my new rentals I
replaced an old car when I file will I be able to return to my old status or am
I stuck with this situation forever you know what I would do I think this is one
of those cases where you absolutely positively should be using a tax
preparer because I think that this is a like one of those like weird one years
where you should be very careful so that’s what I would do I don’t have a
real I don’t really think that that’s a I don’t think that’s a financial
planning question it’s a tax question and when you have these unique
situations even if you file yourself it might be worth it for you to go see a
CPA or a tax preparer so that you can get some advice about going forward
that’s my my advice to you okay this is this is from Jennifer I
listened to your interview with David McKnight on taking advantage of the
current low tax environment he mentioned maxing out Roth IRAs but didn’t mention
anything about Roth 401 KS oh I love the Roth 401k I’m sorry if we didn’t do that
anyway she is a federal employee with 14 years and 14 years or so to go before
retirement she maxes out a Roth IRA at Vanguard
she’s got 200 grand in her traditional Thrift Savings Plan account and I don’t
see any drawback if I stopped contributing to the traditional TSP and
start contributing to the Roth TSP absolutely I agree her income is 76
grand and she’s gonna claim the standard deduction her taxable income is pretty
low 64 grand well below the limit of the 22 percent bracket ceiling I don’t
foresee earning over the 22 percent ceiling at any time am I missing
something no you are not this just absolutely makes sense so good
idea go do it I love the Roth this is a
perfect situation for that and I would encourage you to do just that use the
Roth option these Roth options in their retirement accounts in the in the
employer base plans are really helpful okay here is a note from John who’s
turning 62 or just has turned 62 so he has a history of kidney cancer oh yeah
yeah I’ve always been a saver I’m reluctant to start taking payments from
my IRA account 5% of years 20 years I’ll be 80 to my mindset doesn’t seem to want
to but these are my golden years retired three years ago from ups John spend some
money for God’s sakes don’t deplete it but if you’re living okay you don’t have
to take a ton of money but you could take some money I’m not saying you’re
gonna die tomorrow you don’t sound like you are but I do think it’s worth it for
you to live a little and you don’t want to spend more than you don’t want to run
out of money because maybe you will live a long life but please come on
you can you can do this you can spend a little bit of money all right
Timothy college loan I want to borrow money for my daughter’s college tuition
what’s the best place to borrow money how do I go about borrowing the money
Parent PLUS Fannie Mae another place have you decided actually that you can
afford to pay for college this is an entire chapter of my book the dumb
things smart people do with their money I am worried that parents are borrowing
more money than they should be for their kids college education so Timothy how
about this how about marks gonna send this to you and I would love to have a
conversation with you well you know we can just do it right on the air to be
very easy and I want to know whether this is actually something that you
should be doing because I am not sure that you should be but yeah yes of
course you can get parent loans you can do that anywhere that you get college
loans I would also encourage you to check out Beth kobliner
website Beth kobliner with a kko bli n er Beth kobliner com
we need to talk college that’s an awfully good place to start and you can
also have your kid your daughter go check out next gen vest next gen vest
com she’ll be paired with a money mentor that could be a really good thing to do
because if you do that then you’re you’re getting her involved in the
process and I think that’s incredibly important but let us know here’s a
question from Bonnie who listens to me all the time when the government
releases jobs reports where does it get the information from oh very interesting
so two pieces they had there is something called the payroll survey
which is like hey this many jobs are added or you know removed from the
economy they go directly to companies and then the unemployment rate is
actually calculated based on what’s called the household survey they don’t
use information from job boards does it have any impact on their raising or
lowering of interest rates yeah that’s another piece of information it’s a
piece of information that the Fed uses in trying to understand what is the
state of the economy is job creation really increasing our wages up sometimes
wages can be if we just start to go up the Fed might say oh we think that
there’s going to be inflation bubbling up so all of this is useful information
for the Fed it’s not a direct link but it’s part of what the Fed considers when
they look at interest rates that was that slug of emails my friend mark he
says he’s got about 10 more and I’m gonna do them darn it if you’ve got a
financial question you can contact us two ways
go to the website Jill on no no worries just do that contact us Oh
easy peasy okay if you have a financial question
and you just want to email us ask Jill at Jill on we will be right
back if you’ve missed any part of the show or want to check out a pass Jill go
to jail on for more great personal finance content you’re back
with Jill on money if you’ve got a financial question we’d love to hear
from you our email address is ask Jill at Jill on
our website is Jill on while you’re there you can sign up for our
free weekly newsletter and because that’s such a bargain you should also
buy my book see one thing is free and one thing I charge you for get it a
little bit like a balance in life asset and liability if you will the dumb thing
smart people do with their money thirteen ways to write your financial
wrong so you can get it on the website Jill had money calm just click on the
book Denise writes that her husband passed
away last August they have 401ks with the company they worked for they are
both retired they also have IRAs with a financial adviser who uses fidelity to
manage our funds the company 401k investments are okay the fees are much
lower than what my advisor is charging me my husband used this guy for a year
there have been thousands of dollar investments that were not good advice in
my opinion how can I find someone in my area I can talk to enroll my money to
another firm I’m going to be 61 and I just turned 61 I need my funds to be
stable since my income has decreased due to the loss of his pension
I’m Denise two choices for you you can check out NASA the National Association
of personal financial advisors and you can also go to the naphtha org and you
can also go to let’s make a plan org that’s the CFP website and if you want
to follow up just tell us where you live maybe we know someone around your area
so do that okay Tom writes about an inheritance that is coming his way I
have a notarized deed in which my father is giving me and my two siblings each
one-third of the value of his fully paid house I’m in Pennsylvania the houses in
Maryland my expectations are that my father will live another five years or
more and he lives in the house currently upon his death the house will likely be
put up for sale each of the three siblings will divide the proceeds
equally is there a best way to receive those proceeds from the sale I expect
there will be taxes to pay not sure if I should accept a check directly as myself
or set up some legal entity okay why is your father giving you a
third of the value of fully paid house here’s a problem I don’t know if he’s
done it already but if he does it when he gives you the house he gives you his
cost basis and I don’t think it’s a great idea
for you to get his cost basis in the house that said if he’s already done it
and he’s given you the cost basis you’ll receive the proceeds as an individual
that’s the only way you need to think about it and the difference between the
sale price of the house and the cost basis what he and maybe your mom paid
for the house and whatever else they put into that house would raise the cost
basis you’ll pay tax on it that’s it there’s no way around it and it doesn’t
really matter whether you don’t have to there’s no shenanigan basically it’s
just what you have to do and he’s also notes his wife and he earned about one
hundred twenty five thousand dollars a year that means you’re gonna pay a 15%
long-term capital gain so not terrible but that’s what you’re that’s what
you’re looking at everyone needs to stop their parents from just giving them
their houses there’s no reason to do this this is like some weird shenanigans
that people are doing oh I want to try to qualify for Medicaid I think this is
overdone ric reitz my wife and I bought two $300,000 term life insurance
policies when we were in our 40s we’re nearing retirement we’ve accumulated
just shy of two million dollars in assets the term life policies are valued
at 50 okay hold on a second these are not term
life pot insurance policies these are whole life insurance policies because
they have cash value so the policies have 50 thousand dollars in value and
they could pay off the house with that save monthly premiums
should we take a cash out Pavle home and use the extra thousand dollars to build
retirement cash yeah be sure to check with your insurance company as to
whether or not you have any tax liability associated with that tat with
that policy that would be the main issue if you do it doesn’t mean you shouldn’t
cash it out but you don’t need insurance anymore so grab that moolah and move on
okay how much time do I got two minutes let’s
say Randy writes to supplement my wife and I are looking to supplement our
income and we withdrew money from my traditional IRA account after taxes it
netted us $2,500 a month in 2019 we will grouse about just nearly forty thousand
dollars from Social Security and my part-time work as a result of the sales
some property we’re be getting a payment of one hundred thirty thousand dollars
if we continue to need additional money and to meet our expenses would it be
best to take from the hundred thirty or from the traditional IRA from the 130
it’s already been taxed so the current IRA is valued at about nine hundred
eighty thousand dollars so absolutely use the money that has already been
taxed do not take it out of the IRA if you can avoid doing so in fact you might
want to leave once you pay your taxes on that money from that from the cash maybe
you just keep that as your little floating fund to pay you it’s better to
use that than to use your IRA funds much better all right you are listening to
Jill odd money we’re plowing through these when we come back let’s finish up
the arrow do another question or two and if you need to contact us while we are
during the break we’re off you’re poking around just send an email ask Jill at
Jill on we’ll be right back you’re back with Jill on money we are
broadcasting live from the Capital One Bank studios Jeffrey writes that he had
a 401k investment actually from 1989 through 1991 and he had money in there
he then moved to Texas he forgot about it till recently the bank is gone I need
your guidance I tried locating it I gave up so how can
I find this well do you have any here’s a question is there any statement you
really just need any statement that you can put your hands on if you can do that
then we can start someplace if you have no statement and no recollection it’s
gonna be a lot harder to find this see if you can scrounge up some statement
somewhere okay and I don’t know just this is a tough one see if you can find
something maybe even an old tax return might have it but I don’t know you
probably don’t have that someone wrote in about some strategy about whole life
insurance called raft I have no idea what that is so I’m just gonna say avoid
it since I don’t know what it is I would try to avoid those kinds of things cuz
it’s whole life so just stop everyone stop stop I’m having a hard time this
one’s long property for sale this is so fun I had property for sale for $210,000
the first offer was 190 and I felt like it was an insult why do people get
insulted by this just a bid relax owes 172 bla bla bla so now the most
uncomfortable option is so three choices why don’t you just hit the bid why are
you what is what’s so bad about this and I wouldn’t he said take
out a home equity and update the kitchen I would not do that second option settle
for 200 to get it off my hands and pay two grand and closing boom that’s it
there’s your option sell it man sell it all right when we return more of your
questions stop being pigs everyone don’t be insulted by anything it’s just a
house don’t be insulted you’re listening to
Jill on money during the break hop on to the website and be sure to sign up for
our free weekly newsletter we’ll be right back it’s the weekend and that can only mean
one thing you’re listening to Jill on money the
show that takes the mystery out of your finances here’s your host Jill
Schlesinger welcome welcome so delighted you are joining us today this is the
Jill on Money program we are broadcasting live from the policy genius
studios policy genius is the easy way to compare and buy insurance a lot going on
right now tax season mark do you see that article
that talked about ten point nine million people who weren’t going to get their
salt their state and local tax deductions they were gonna capped in it
blaring headlines horrible thing everyone calm down we do not have final
statistics about who wins and who loses with this tax bill there will be some
losers no doubt but I don’t want to overstate it either there’s probably
many more winners than losers or at least neutrals so if you live in a high
tax state you’re getting ready to do your taxes you’re right in the heart of
it I get it we have an awesome guest his name is Edie slot he is the king of IRAs
Roth IRAs and all things taxes here’s our interview with Ed slot people
thought they were getting all this money back because that’s what they were
promised and they don’t understand the difference between a refund and paying
and their actual tax liability so what happened was we get this big tax cut at
the end of 2017 and in the beginning of 2018 the IRS changed their the tax
withholding tables which is how most people paid their taxes right through my
income and it goes right out of your paycheck right no problem and you live
on a net paycheck and for many people they may not have noticed it but their
net paycheck could have been higher through
20:18 by a little bit right but it’s a little bit each paycheck and that adds
up even if you’re paid monthly that’s 12 paychecks a lot of people are paid
weekly it’s a little bit times 52 could this be a bit of a issue in that with
most people now getting paid with direct deposit that you’re not looking at your
pay stub necessarily kind of a lot goes right you know remember when we used to
get paid and we look at the stub and you’d say yeah the first paycheck you
ever got you said yeah this guy hate that FICA guy and and we don’t do that
anymore you just said you’re right right it’s just a net amount that’s my net
I’ll get this big refund matter of fact this is where the expectations come in
they say probably even a bigger refund because look what he said big tax cut
70% of Americans are gonna get money back was what they said and so what has
happened is we now have a great teaching moment with Ed slot yeah where we found
out that the amount that was withheld changed your net many of you and not
every one of you okay I get it many of you got a net amount that was a
little bit higher and that little bit was partially your tax cut yeah or your
refund are your refund in advance now you go to file and instead of getting
$2,900 refund you got a twenty seven hundred or a 24:08 Oh or you might owe
is a shock to the system and it does reverberate through the economy all the
spending that was projected let’s so let’s start with like a few different
cases so you don’t owe but your refund is smaller should you adjust your
withholding well if you refund as small or maybe not the theory is you’ve been
giving the government less of a loan all those all of that time but there are
some people that count on a big refund because they have an earmark to pay down
last year’s credit card bills or it’s never to save I never heard anybody been
doing taxes for forty years and I never heard anybody that’s a big refund I’m
gonna save it I usually have the people sitting in front of me say oh let’s go
here let’s go let’s do this they they it’s spent so if those are your
expectations and you have it spent and it’s not there that’s going to be a
problem and if you are a saver then just take that fatter paycheck and do
something with it I mean it is easier to kind of direct money than it ever was so
you can have more money going to a retirement account or set up an
automatic draft to an IRA account or a Roth IRA account all those things can
happen you got to do something or so that’s a good point and it ties in with
your earlier point where you don’t see the money it’s direct deposit if you
could set up say an average worker can do a Roth IRA and set up a little bit of
each paycheck you wouldn’t even feel it in the end of the year you’ll have the
5500 or 6000 and a Roth IRA without even feeling it because it’s just in that net
check and for those of you who are listening you know getting that money to
work for yourself it’s so much easier because there are very low cost options
there no longer these big fat minimums there’s a zillion different places you
can do this okay so what happens if you owe a lot of money and give us a
scenario where someone may have gotten a refund in the past but now is owing
thousands of dollars I’m not talking about someone who sold a big piece of
real estate or something but who is the person who that usually would be in this
scenario I mean do you mean somebody whose income is relatively the same yes
because of the withholding they didn’t do anything different there were no
aberration or that they didn’t realize that whatever their withholding was was
not going to be withheld to account for the fact that they could have a limit on
their salt their salt their state and local tax deduction or that’s some right
so where who are those people do you think well who are they or what are they
supposed to do I’d say who are they and what should they do all right those are
people in high tax states like New York Connecticut New Jersey you know the or
California all over the country and they’re realizing they’re not getting
the tax deductions that they thought they would have and it’s people with
children remember all the exemptions are gone have you’ve seen the new form
people say where do I take off my kids no no that’s part of the new bigger
standard deduction that was taken away so although it’s been a lot that’s been
taken away that you probably don’t notice but it’s
now all in the standard deduction so you may have to adjust you withholding going
forward and if you owe money you probably won’t get a penalty if you
withheld at least what you withheld in the prior year and IRS has already come
out and said you know we’re going to forgive some of these penalties I guess
they have to because of the backlash but as long as you pay what you owe by April
15th you should be okay what do you think is in a like a reasonable range
for a refund where you should just say an you know like a thousand bucks or
something you know a chance good you know look in the perfect ideal world you
you want it to be zero right because then you didn’t give the government
alone for the year you paid your exact tax but that almost never happens so
yeah probably a zero to a thousand refund just so nobody wants to owe money
that’s the worst thing is in accounting for you tell people you owe money you
know then they think well can’t you do better sharpen your pencil not good and
so there’s a couple of big changes I guess the question would be is what
people will have to do to really judge their own situation is to say look at
your 2017 return look at your 2018 return because I think that there are
people who are saying well I’ve lost my exemptions but maybe they’re doing
better anyway there are some people that are doing better with the higher
standard deduction see this is a new tax system you can’t even do it you just
said compare 17 to 18 it’s it’s not apples to apples there are two different
tax systems so this will be the first year you can look at 18 and with all the
projections nobody really knew how it would come out because everybody’s
situation is different as you just said some people will benefit from the higher
standard deductions because they didn’t have maybe they didn’t own a home and
they didn’t have big mortgage interest and taxes and things like that
so they did better right now this year when you do your 18 return will be the
first time you’ll see how this new tax system affects you and then you can plan
ahead that is the baseline we’ll get back to our interview with Ed slot in
just a minute if you’ve got a financial question we’d love to hear from you
maybe it’s a tax question just send us an email ask Jill at Jill on we’ll be right back 401ks IRAs
refinancing she covers it all back to Jill on money with Jill Schlesinger
you’re back with Jill on money hey big news over here at Jill on money land I I
don’t know if we can call it that mark but I like saying it book is cranking
we’re doing great and I want to thank everybody who’s written us and told us
that they’ve read the book or purchase the book for everyone else if you want
to get in on this action go to the website Jill on
click on the link that says the book the dumb thing smart people do with their
money thirteen ways to write your financial wrongs and you can join the
conversation too hey if you bought the book and you liked
the book go to Amazon throw up a review I don’t know why but evidently the
publisher says they like that let us get back to our interview with Edie slot
because it is a different tax season I think that a lot of people are freaked
out by it because of the new tax law law but you shouldn’t be necessarily freaked
out you might actually have an easier time filing this year maybe but you
don’t know until you get going so get going and to help you out here’s ed slot
so will it be easier with a higher standard deduction yeah well most people
will file a standard deduction many more people like up to ninety percent of
taxpayers I’d be yeah could be unless you had high medical or charity but most
of that’s figured into the standard deduction so from that perspective it
will be easier for most people so it’s just getting used to the new forms but
nobody uses forms everything’s online so this whole business that it would be a
postcard there is no stupid I know so okay with a
higher standard deduction we also have a big change in rates right so the one
that I always am really kind of like he in
is this rate of 24% because a huge rate and a lot of people are in that right so
rates have come down load there will be people paying less tax that are using
the standard deduction but again as you said if you’re a wage earner you may not
have seen it because you got it back all through the year what about the rich
people all of your friends and your clients yeah so these people the highest
marginal tax rate is 37% Plus that 3.8 percent if you’re married filing jointly
that kicks in at 600 grand so it doesn’t mean if you’re like making let’s just do
like some of your friends there in Long Island you know the couple that makes
eight hundred grand lives in a big house still itemizes but caps their salt
deductions their state and local tax deductions but their tax rates are lower
do you think those people are gonna pay more or less in Ohio say a little less
in tax actually the more you make the the bigger benefit you have out of this
tax law good thing I sold my book last year huh yeah but when you say 37%
that’s only the top dollars that’s the marginal rate your effective rate can be
in the 20% area what do you think back to write the rate you actually pay on
each dollar earth right meaning that you need adduction so what you do is you
take your total tax bill we able to find from your returns and you take that
amount and you say Oh what did I earn here’s what I paid that’s really your
effective tax rate right okay so now let’s talk a little bit about when we
look at going forward are you still thinking because tax rates are gonna
stay this way till one twenty twenty-five okay
you still say to me the edge slot mantra I always quote you this is probably the
lowest tax rates you will ever see in your life yeah this is the lowest this
is the time to act for example to put money in a Roth IRA to a Roth conversion
it’s kind of counterintuitive but the best way to pay less tax later when you
need the money most in retirement is pay a lower tax now the way to pay less tax
when it counts is to pay some tax now at lower rates in other words you
the taxes on sale especially on an IRA or a 401k that’s money you’re counting
on for retirement and in retirement the last thing you want to worry about is
tax rates going back up to 30 40 percent okay let me give you a hypothetical
because I this person is a friend of mine and asked me you’re asking for a
friend no you’ll know it’s not me when I tell you partner at a law firm yeah
makes four million dollars a year in New York they introduced a Roth 401k great
so I said that sounds like a do to me that sounds like a good thing like for
some people will say but don’t you want to get the big tax break with a regular
401 K a benefit while you’re in a high bracket that could be right but you
don’t know what your future bracket is look at the deficits we’re piling up the
math is on the wall at some point you know any politician that says I can cut
your taxes that at this point is just saying I’m bad at math right or line
either why well maybe they just you know want to believe that rates can stay low
forever you know Mark Twain had a saying years ago history doesn’t repeat itself
but it rhymes and we can easily go back to the days of the 70s 80s where rates
were 70 80 percent people think that’s a horror but that’s what it was for many
many years I’m not saying we’ll go up to there but
who knows you could go up to 50 percent the last thing you want is a 50% tax
rate in retirement that means you only have half your money to spend I’d rather
pay the tax now on a Roth conversion and move your money what I call from forever
tax to never tax you know it’s funny so I had that exact reaction and then
partner comes back and says I spoke to my financial guy and my financial guy
says that’s crazy because I’m going to be there’s no way I’m gonna be in the
highest tax rate well when I retire here’s the argument on that I’ll be in a
lower tax bracket when I retire but what they don’t realize is if you leave the
money say in an IRA for a time and that money is forced out at 70 and a half we
see clients already that have more income from required minimum
distributions than they did their best day on the job so you’re not it’s not if
but when this tax will be paid it’s just it’s not if but when will it
be paid and the lowest rate when it’s being paid could be higher than today’s
rate so I think that that’s interesting because I have been feeling very much in
line with you which is I know what the number is today and it’s not it were to
be lower or if it were a push or breakeven I’m still happy knowing what I
have I have paid right I know what the the amount is because the future one I
mean look it’s an unknown we have as you said there are a lot of things that we
want to pay for we also have a bit of a populist backlash where people are
talking about higher rates so it’s not as if people seem to think that like
well I look at 37% I’ll never be I won’t be making 500 grand you may not be but
to tax rates still maybe thirty seven point right right and the Roth IRA or
any time you can move money now even at a smaller tax cost to a tax-free account
you’re removing the uncertainty of what future higher rates can do to your
standard of living in retirement when the paychecks stop and you’re the most
vulnerable and you need every cent and then it is nice to know that that money
has already been taxed I want paid for it’s like a free and clear house that’s
what I always compare it to do you want to pay off your mortgage so you don’t
have the problem later what if you had a mortgage in retirement that could be a
problem so I love that what about so you think tax rates are gonna go up what do
you think on point and what do you what about capital gains going into the same
as your marginal do you think that that’s a possibility well you know we
had that for a short time in the 80s hmm I really don’t see why I mean I’ll
probably get a big backlash why certain why your labor is taxed higher than your
investment income and you’re not some like bleeding-heart notion you’re not
you know I believe in a fair system it shouldn’t pick winners and losers why is
somebody’s labour taxed more than somebody who you know makes money on
investments that’s why Warren Buffett always says he’s in a lower bracket than
his secretary because she has labor and he has capital gains at some point it
could be likely that those rates will merge they’ll be the same that’s really
what it should be I think you know no matter how you earn your in
come shouldn’t determine what your taxes are what let’s talk a little bit about
also some of the like we saw in this tax this tax change that we had a limit on
state and local tax deduction but before they did that they did float the idea of
throwing out mortgage interest deduction do you think that that’s something that
could get thrown out in the future I don’t think so to me it would kill the
housing market even the salt cap well it didn’t effect the mortgage in but there
is a cap but it’s a very high from a million to seventy yeah maybe that’s a
tip of the iceberg but you don’t want to destroy the housing market in fact
somebody just asked me on the way over here today you know is the deduction is
that a good time you know they figured the deduction is figured in when people
go to buy a house and they figure well you’ll get this deduction so it’s not
really costing right much they figure that into the cash flow all right we’ll
get back to our interview with Edie slot in just a minute if you’d like to ask us
a question just send us an email ask Jill at Jill on
hey during the break hop onto the website Jill on
and there you can sign up for our free weekly newsletter we’ll be right back welcome back to jail on money where Jill
Schlesinger takes the mystery out of your finances you’re back with Jill on
money and we are talking about it’s tax season the height of tax season and for
those of you who find yourself struggling to get started this is your
official kick in the butt get started let’s get back to our interview with IRA
expert and CPA ed slot we’re talking about Roth IRAs in this segment really
important topic for everyone let’s talk about so your favorite always is the
Roth we write I love having tax free money for your retirement and to all the
young people if you have young people listen we got plenty of all right this
is a no-brainer it’s a slam-dunk there were things well you know and I’m sure
you give this advice all the time you you don’t really know depends on facts
and circumstances wishy-washy probably maybe could be just do it with the Roth
for young people it’s a slam-dunk every young person should be doing a Roth 401k
at work we didn’t have that option to start from day one building a tax-free
savings account a Roth IRA so here’s my advice for all the markets the
Millennials stop taking pictures of your food and open a Roth IRA wait a minute
we just have the name of the show stop taking pictures of your food opener
right kids who are in their 20s they they oh look a hamburger I haven’t seen
one of those yeah it’s amazing I haven’t enjoy the experience and don’t
documented health care costs going up lots going on there right tough one and
you talk about the health savings accounts and and this is a very a bit of
a thorny issue because not everybody has access to a health savings account it’s
it’s an outlier but it’s just something to know that you have an account that
actually is triple tax free they used to say that with bonds you know federal
state and say that triple tax-free because you get a deduction going in it
grows tax-free and if you use it for health costs its tax-free coming out and
unlike most flexible saving there’s no worry about what to lose use
it or loser carry forward this is yours for life and if once you’re on Medicare
at 65 you can’t use it you can’t use it but you could use the money that won’t
you just can’t add you can’t add to it by the way all of these the the Earned
Income Tax Credit which is still a big credit right there’s also new child tax
but it’s a little sneaky it’s under 17 now that’s great so that could replace
the benefit the lost benefit of the exemption but when you have older kids
that’s when you need the exempt that’s when you need that credit they’re maybe
going to college you have other expenses is still in the house right and then the
credit drops to like five bucks because that’s the other but what do you have to
do to claim your parent as a dependent because notice I said it says other
family not just kids over 17 they say other family oh yeah yeah well that’s
been around I mean if you have a family member it doesn’t have to be a pair
could be anybody somebody lives in your house you’re providing the support more
than half the support yeah you can you can claim that person that hasn’t
changed all right give us sort of the three big mistakes that people need to
avoid this tax season all right well on the IRA contributions
that’s the one thing you can still fix from last year so on the IRA I always
say make your IRA contributions early in the year so now you want to do it for
2019 but if you didn’t do 18 you can still do 18 up to April 15 when you go
back the mistake is people go do their taxes now right and then the accountant
and I am one I’m a CPA and I have to say this about my profession we’re basically
only history teachers we tell people would already happen so they go to their
accountants and the on the accountant is sitting at the same thing every oh you
know you should have done this oh you didn’t oh you’re too bad you should have
done this woulda coulda shoulda so maybe change the equation and look
ahead now it’s hard to compare two systems we have two different systems 17
and 18 but this year take the results of 18 and do something about it now going
forward so in the accountant or your tax preparer or
even if you’re looking at a screen on TurboTax of something even them they’ll
probably say no you should have done that for the last did you do that you’ll
sit there say oh no I didn’t do it so think ahead be proactive instead of
reactive what about the actual completion of the returns I think that
all those crazy expenses that people tried to deduct are no longer
miscellaneous I know that’s all done anyway what about like people who do
work out of their homes should they worry about being an audit flag if you
claim that your house is your office for it you you have to be legitimate you
know you can’t say you’re using your whole house exclusively for work at some
place you have to sleep and eat and do other things and also the IRS budgets
been hacked away so not a reason you know that reminds me I get this question
all the time from tax professionals at seminars and they’ll ask me uh they’ll
talk about a certain deduction and then it’ll always come up this is but how
they gonna know and I always answer the same way I don’t know ask the guy in the
cell next to you exactly still would you would rank Roth being
your favorite thing ever take advantage of low rate what about cue CDs yeah I
love that I love that but the only problem is it applies only to a limited
population but everybody giving to charity it’s a great you brought that up
qualified charitable distributions it only applies to people over 70 and a
half years old that have IRAs and have RMDs from these IRAs it’s a way to move
the money from directly from the IRA to charity and offset the income it lowers
your income and I’m not telling people people get confused they say oh if you
give more to charity you get a bigger break no I’m saying give the same just
give it a different way use this qualified some people call it the
charitable IRA rollover but it’s the QCD as you said and you will pay less tax
giving the same money but they haven’t been doing this is one of those things
that are going to happen to people right now when they’re doing their taxes and
they give the account and all the receipts for charity and the accountant
says you don’t even qualify for this because you’re taking a standard
deduction with the QCD you get the standard
deduction and in effect the charitable deduction you don’t get both actually
the it’s better than an extra deduction because it’s an exclusion from income it
lowers your adjusted gross income which is a key figure on the return that
triggers all other benefits so anybody that qualifies it’s only for IRA owners
who are 70 and a half years old or older but that’s the way to give charity yeah
I did it for my mom said it was great it’s a little bit of a
paperwork pain in the butt but those charities are behind the eight ball
which I don’t understand because it’s hard to get them to change their ways
stop writing checks and go to the charity and say you want to make some
real money every charity wants money try helping people do these qualified direct
transfers then you’ll see money rolling in on automatic so for your charity
listening this is the way to bring in big money all right thanks so much to Ed
slot for joining us today if you haven’t gotten the excitement necessary to start
your taxes I don’t know what’s gonna do it when we return we’re going to answer
more of your questions just give us a holler ask Jill at Jill on
we’ll be right back welcome back to Jill on money where Jill Schlesinger takes
the mystery out of your finances you’re back with Jill on money if you’ve
got a financial question we’d love to hear from you our email address ask Jill
at Jill on ask Jill at Jill on
hey college acceptance season around the corner so not the best time for you to
talk to your kids about money but maybe for everyone who’s thinking about
college in general you may want to start thinking about this before the time
comes up like freshman year something like that not when they’re seniors all
right there’s a question about the corporate tax cut and some of the
prognosticators people like me who basically been talking about how the
effect of the corporate tax cut is starting to wane that is mostly because
a lot not just the repatriation of funds but that companies use the money to buy
back their stock which juice to the returns of the stock market you know
sort of almost artificially but also that the spending the actual capital
expenditure is kind of not as big as you would have thought and that’s
essentially why Marcus that you know it’s just not it’s not going to be quite
as good also the comparisons to last year are not going to be as good because
now they kind of used to that so you don’t see the big bump year over year so
here’s one a realistic financial plan for a college student so this student is
overwhelmed and I attend university I work at a minimum wage job on campus it
allows me to study for my vigorous academic program I have no help from my
parents I received need-based grants and federal student loans to cover academic
expenses I find myself trying to save a little
extra cash for a car but this seems impossible because of my lack of cash
flow I’ve spent some semesters tightening my belt so much that I’m a
miserable eating ramen I am miserable eating ramen with a little money uh yeah
is there any way to remedy this and start saving as a student or is it more
plausible to wait until I am in my career uh I’ll pick up
and be why are you trying to save right now it’s just it’s not a reasonable you
shouldn’t be eating ramen noodles you should be studying hard too so you can
get a great job that’s what you got to do and if you can try to do that I think
that that’s gonna really work to your benefit max writes my partner will be
turning 65 next autumn this is more of a tax question than anything she’s
enrolled in Obamacare she knows to initiate sign she knows she needs to
initiate her sign up for Medicare three months before her birthday she also
knows that Obamacare will need to be cancelled as soon as she turned 65 not
doing so will incur a non subsidized premium for Obama coverage for the
period she is still enrolled in it this is where my question comes in gosh I
hope I know the answer to this because all the sudden it seems quite technical
since she is receiving a subsidy for the Affordable Care Act coverage she has a
modified adjusted gross income dollar amount she has to stay within to keep
that subsidy for tax year 2019 she will have received Obamacare for nine months
she will then face in preparing taxes for 2019 a situation where her modified
adjusted gross income will have to be approximately 75% of what it was in 2018
to retain the subsidy I can’t find a plain vanilla answer for the situation
partner turns 65 she transferred she transitioned from ACA coverage to
Medicare when preparing taxes will the ACA rules affect her income earnings up
until the date she dropped Obamacare and Pro rate for the modified adjusted gross
income for the total time in 2019 she was enrolled in enrolled or does
Affordable Care Act rules looked at the nineteen twenty nineteen final modified
adjusted gross income as long as she stayed under it
mark you want to weigh in on this I’m throwing my hands up I have no idea as
one social security expert said just call no and it’s not the answer I think
that this is a this is my inclination I really I don’t think they Pro rate I
think I I’ll tell you what I don’t think they Prairie but that said what I would
do because I don’t think like I think that you may want to do this through the
Medicare system so I might actually call the Medicare system and they have better
phone people than almost any other agency just because a lot of people who
are over the age of 65 in the past have not been as tech savvy so they tend to
man and woman their phone lines a little bit more robustly
so what I would say is this I don’t know the answer if anyone else knows the
answer anyone else who has transitioned from ACA to Medicare I might search it
online but then try to call I think I would call Medicare to find out what the
deal is I feel like they’re gonna be more helpful than trying to go through
whatever Affordable Care Act resource there could be just my two cents I think
that’s about it all right listen uh we’re coming up on a
break and if you want to make the break really useful go to the website Jill on and there you can read stuff that I’ve
written you can listen to past shows you can watch cool TV segments and other
stuff things that I’m doing Hocking the book you can sign up for our free weekly
newsletter and speaking about the book I listen to every show and what might find
you might find humorous as I do laughs at the amount of time that I have to
actually go back and and say to myself I can’t become one of those people who’s
just selling a book but here I am probably I’ll judge you for this year
but get ready it’s gonna be the whole year all right it’s Jill on money when
we come back more of your fabulous question send us an email ask Jill at
Jill on money comm we’ll be right back you’re back with Jill on money if you
have a financial question we would love to hear from you
hey mark where are we broadcasting live from this hour is this we are
broadcasting live from the policy genius studios policy genius is the easy way to
compare and buy insurance isn’t that awesome
love that and love the CEO Jennifer Fitzgerald we’ve had her on the show
fantastic so go check it out you need some insurance that’s one of the dumb
things that I outlined in my book the dumb things smart people do with their
money thirteen ways to write your financial wrongs I base it one of my
dumb things is you buy the wrong kinds of insurance or none at all that’s bad
when you buy none at all and you need it mmm
so check out policy genius okay speaking about about the book we got a
question from Janice about reverse mortgages and you know it’s funny when I
wanted to start the book one of the things that I thought was so confusing
is that people would just buy stuff that they saw either advertised late-night-tv
or proposed to them by someone they didn’t know and so one of the dumb
things that we start the book off with is you buy financial products that you
don’t understand one of the products that I highlight in that book is
essentially that you buy a reverse mortgage without really understanding it
and that why is this so important because a reverse mortgage can be a
great product in other words here’s how it works you’re over 62 you got a bunch
of equity in your house you don’t have a lot of savings and
is a way to kind of get the money out of the house without you having to sell the
house this is something that becomes incredibly important over time which is
that when people buy stuff that they don’t quite understand and they think
they’ve got something great it’s tough so I highlight reverse mortgage as one
of these products because it’s really hard to understand whether you this is
the right thing for you so what is the answer to that by the book obviously but
instead of buying a financial product like a reverse mortgage before you kind
of get what’s going on talk to somebody a fee-only planner who can give you
advice that’s what you’re going to do because that will allow you to ask the
right questions of yourself and the products okay you’re listening to Jill
on money and thanks so much for listening you’ve been fantastic give us
a shout ask Jill at Jill on money comm throughout the week just hop on the
website Jill on money comm all our stuff is there we’ll see you next week

1 Comment

Leave a Reply

Your email address will not be published. Required fields are marked *