Dollars & Sense retirement wealth strategies with Jeff & John Davis

Dollars and Sense
Saturday, July 15th

Jeff and John Davis with Dollars and Sense, the podcast from 7-15-17


Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

The opinions voiced in the show we're for general information only and are not intended to provide any specific advice or recommendations for any individual to determine which investments may be appropriate for you consult with your attorney and accountant and financial advisor or tax advisor prior to investing securities offered through LPL financial member finreg SI BC's investment advice offered through collaborative well a registered investment advisor collaborative wealth and pocket financial management are separate entity from LPL financial. He. Welcome two dollars and cents they show that helps you manage and grow your wealth. Join us in our great life adventure and here's your host Jeff Davis from falcons financial management. Celebrating over 25 years in north Central Florida and. Good morning gains and oh this is Jeff Davis the managing partner of falcon financial management and collaborative wealth. We are AFP based financial planning organization here in the north Central Florida and we hope that you will join us today. The we're going to. There. What we're always ready to the phone number. Clay is one and 88 days something something something something. As you get it to him it. So call us somewhere we give that number or if you like some of the things that we're gonna talk about today you can call us at 3523757977. Hearing gains of thank you sir. 877. WS KY. Talk. To be SKY talked give us a Holler if you have questions if you're. If we say something that really disturbs you today I've got my co pilot John Davis with me good morning John Moran. We've already had some coffee and I am. Profits as governor and a half. It's. Half a pack that backpack and. So judge no we we're talking this morning there's a lot of interesting data. Out there about the economy about the markets we're gonna talk a little bit about that there we're gonna talk a little bit about how you can use some of that information to actually. Implement it into your own planning if you're doing this yourself on things that you might wanna think about if you. Cut and advisors things that you might wanna talk about with peer advisor and if you don't have an advisor. That you should call me 3757977. And make John and I you're advisors and we will help you get through all this stuff. That's what we do it our complaints management. Retirement planning. Although John you're on the young age you've you're getting some of the young guys. Working on it. He now yup well and the needs are different. Millions are different the needs are different just start and and you know if you if you concern really is really important that sure is. Come what are the big things that we saw come in the last week or so was. Some. Something that we call the thank you surf the com. Instead the institute of supply manager index known sample of people refer to it by its old name which was the PMI purchasing managers index. Hum essentially the institute bought the PMI index in and that's how they got it but they'd always been using it since 1948. And if you look at this ISM index. Then what you're going to see is that. The ISM index is a measurement that goes from zero to a hundred. And any number above fifty means that purchasing managers are buying more raw goods. The more raw goods that they've they've by. We X they're doing that in expectation of building more product selling more product and ultimately when your building more selling more. You end up hiring more so it's an expansion. Of the economy and it's below fifty then you've got the opposite you've got purchasing managers buying fewer raw goods they expect to sell less and ultimately. That's going to mean that they're going to lay off people so you have a contraction. So expansion contraction ISM index above fifty means that things are good. We currently this month it was 57 point eight it comes out on the first day of every month so this is. This is becoming I was introduced this index in 1999 and it was obscure. But it's not obscure anymore and virtually on that on the if you follow the financial news. When this comes out at 10 o'clock on the first day of every month. Virtually all of the financial news covers. I SM manufacturing is doing this manufacturing that that at a they're talking about this index because this index is has been such an accurate. Predictor of expansion and contraction over the last 67 years. Hum there has never been a recession. And this is important guys. There's never been a recession when these numbers look like this at 57 point eight there's no recession on the up on the you know near term horizon. He is death I the next three to six months don't expect a recession you've got to see a trend in this going down. And once you see that trend then you might be concerned about whether or not the I SM index is indicating extracting economy. Remember it was. As we sit here in July of 2017. I think many people forget July of 2016. And what it was like in July 2 C 2016 in the things we are thinking about the things we're talking back. We also Twitter. Aided by a you know. That pass rush options. And for. The election in general no rush shop again I you know I Biden remember you know aren't that that though the big worry was that by everyone was that the Republicans were gonna end up. You know out in the streets shooting at people because you know of course they've all got the guns and they're gonna be shooting people in the because because trump didn't win the election and they're gonna believe that the trial that that the election was stolen in their market except it. I mean that was the accepted point of view by many people in November of 2016. Splash to July 2017 and exactly what they were worried about is exactly what's happening. Well except there was the Democrats and the Republicans I know he's really out there you're shooting people somebody just did. Police. Yeah. Somebody did get shot didn't day now. And I've but John's thinking I can see is lending rate is working yeah and you know do it. Extremism. Moon is absolutely absolutely but the point that being is that good we forget what. What that what what it was like a year ago. And we were seeing a trend in the ISM index that was going down that expectation was that Hillary Clinton was gonna win the election. We were expecting by this time a recession and a bear market portfolios were created that that that. Emphasized that story and now were undoing a lot of what we did. And try to get people back into the market's getting hit it taking advantage of opportunities and we're looking at a lot of these things today that we. That are because the economy is expanding because the underlying fundamentals of the stock market are very very good I'm here says that a short term I am this is. You know 2530 years of doing this I will tell you that you. 35% of the time I'm nervous I'm nervous Nellie on the short term I'm always confident on the long term but I'm always watch in the short term and I just. I probably shouldn't but you know it's it's the way I would I grew up in this industry uses. No question that short term and I'm confident about longer today I'm confident about the short term and long term bullish about both. I think you'll be rewarded by being bullish for a long time. I'm a big believer in the over performance under performance cycles. Which have been seventeen years cycles that go all the way back to 1896. And just think it's 2017. To 2000 does that had been an under performance cycle. You know the last few years have been good. And last 24 last twelve especially have been in the gut but if you look at the overall markets over this period of time. Com you know we've underperformed that 10% average of the stock market. But in the 2000 and you don't 1990s in 1980s we over perform it. 1970s the underperformed it fifties and sixties you're performance forties and thirties under performance twenties where the roaring twenties. This goes back and I believe that we are the beginning of one of these cycles. Expect lower growth on a long term basis to 3% is probably the new normal not 4% to 5% as much as we would want it. But you know it's really gonna become like the overall economy the overall economy and your car so GDP yeah two to 3% is probably more realistic right now. Com one of the things we're talking about on this morning. Was. You know not only do we expected that an expanding economy and I know that you're working on a lot of and this is something that we should probably set aside. You know Saturday morning just to talk about because John is spending a lot of time studying the S. What we would ES geez. OS RI AS RI's he has he he's Joseph -- to Dodd hit. CA or more late you know me and well the EU people who want. No morally responsible socially responsive Soros socially responsible and as a responsible and that and the menu is increased as there are more opportunities today than there were ten or twenty years ago when there was just Calvert funds and tax funds but there's a lot more. This plan on doing that sometimes John Hunter and because John's becoming. A bit of an expert at the half a well you know in the land of the blind the one eyed man is king knew you know. Definitely have looked at a lot of mutual funds your in the recent is in Korea that's an editorial that's that's how you learn a tell you learn. But one of the things that we were talking about that has to do with all these interest rates. And the direction of the economy in and things this feature was. This issue of pension plans. And are you know the concern of what's going on with many pension plan. Now let me just explain to help pension plans are calculated because this is a real gripe of mine and and the city of Gainesville is as guilty as. Anybody that you did I know. On every egg on their do their every pension plan is overstating their assets in my opinion. And they're Britain except for. Privately done pension plans that that everybody that that the federal government is watching what interest rates you use they tell us when interest rate we have to use on a defined benefit plan I did just make it up I got an actuary news eight iris prescribed. Calculation. But public pension plants in these large pension plans and how have an escape caucus. And they are not they don't have to find themselves. In the same since it was Osage I don't in my class load up. The FO this one says a close area there. So Moody's estimates that Illinois and funny that this is an Illinois. Blue okay is that letting them go back can you dive. I'm them in the middle of that equation so what you're doing is you're using the multiple inside. That inside your calculations to tell you how much money people need to be putting in and whether you. Are over funded and or underfunded. In terms of the actual liabilities so pension plan creates a big pile of money and from that pig big blue big pile of money. They are going to be paying people money on lifetime incomes so remember people came down forum they retired here. You know state employee may still have a pension plan. Pat pension plans can be paid out to you for the rest of your life and maybe your wife's life or maybe your spouse's life also. So the calculation says they're they're doing these calculation is to make sure that they're gonna have enough money that they're always going to be able to do this. Based on the number of participate and how much money was what they expect to be paying out. And there's an interest rate that they ascribe. To their earnings to make all this work. And you'd be stunned. What most pension plans are using it's going to be 7% or more or north you're gonna see some legacy 8%. Why are they doing this. Clay why the city of diesel does it because my one of my former colleagues. We had him on the pension Bordick tune to learn about pensions and com. Be being involved in the community and things of that nature I think it was very good for him. But what are the things that he will I was a real problem for him was he was hanging around me and I'm and that's you know should be illegal what they're doing it. But there you see they use an interest rate is 7%. Now why are they using 7%. Because if they lower that rate. Then the city of Gainesville or the city state of Illinois or any of these is going to have to put more money into the pension plan. There underfunding their they're using this number this actuarial number. They're keeping it high to reduce what their obligations are. And by reducing their obligations that means that they don't have to raise taxes to be able to find it. Because they're not they don't have enough body to be able to really fund their pension plans so. You know they they're they're faking everybody out and say it all the pension plans okay simulate a 7%. Com but much like eczema but but but you know it's OK it's OK we will catch application as long as they get their monthly check out. Who who moved 'cause what's happening in Illinois and this was happening in Illinois the the actuaries. In Illinois that's the people who stayed in sees that there's still using a number that is higher than for example Moody's and so. Moody's you're Rita forced out John Moody's has just gone to sorry I didn't bring my glasses and so well the head with. These are Moody's you know there there were the rating agency. Whom they estimates. Illinois unfunded pension liability. For its five public pension systems to be two and then fifty billion with a B 200 and and the actuaries say that it is the that's doubled them 127. Billion estimate from the states actuaries so the states actuaries are said were a 127. Billion in the hole. And we're using a false interest rates. India beat and it's very optimistic. Yeah I thought I thought I thought. And if you use a realistic return all of a sudden the number doubles. We now and how they get out of this is a state that doesn't hasn't had a budget in two and a half years Maria that's a big that's a big part of it due to you know they dared they're not gonna cut they don't want they just raise taxes on everybody didn't come back any benefits won't. So you know that's one or two ways that you can do this you raise the taxes you raise the taxes you raise the taxes. So that you can continue to go provide the benefits or you're gonna have to reduce the benefits. To meet what you can afford. And you've seen a lot of good general pension plans that have had to take 25% hits. Because the money's not there we wanna continue to pay but we go to pay 75% of what we told you we're gonna pay. That's not a happy situation for anybody who won but it's the reality now. When we come to the state of Florida or Italian state of Florida is not on that list Nia. That's a good thing state of Florida is not on the list of people who are abusing this issue. The word that we may be a little underfunded but is that if you've got to be in won a state pension plan today this is one of the best they pay into pension plans that you could be it. If you look around the rest of the country yes you know Illinois is startling. A calm and then you I think you are saying there's. California and terror there's a couple of them that are. Looking real troubling him there are no huge. Well you know and you know if there's you know a thing like you could look at and say that might be a bubble right you know. Some to watch out for oh yeah you know but if you're but but if you're here in Florida. We don't that what we're talking about is an us. You know if you were a state to state employee. Don't worry about that pension plan you are did they have done a great job of managing the money here in the state of Florida. They've also done a great job of managing the level of benefits. It's just a lot of people off that we you've. For example. One of the things that so most state employees don't have to do is contribute 3% to their pension. They had they took a pay cut to 3%. To be able to fund their pensions yet but they'll still get paid did ninety years old and well would you say you know if you're in Illinois. Would you rather Rupp sort of contributing 3% or be worried about whether they're gonna be able to pay. You know immediate terms zero attended trump. On the cult is pro Russia told Prussia all the excuse I just have a reaction I just happened it could kick you out of my mouth. She felt. Well lately and you know leading from that pension issue to me that there's a correlation there where. You know 31% of Americans working Americans. Have not acumen have accumulated no money in retirement. Is does it is at an age group or is it just doesn't work all American signal America's third and one person 31%. You know I you know I've always argued man and I continue to argue that we are facing an enormous crisis that we don't even know about. I know it's there and it's coming. And that he is an enormous amount of baby boomers who do not have not prepared for retirement are not gonna have enough money for retirement. And when you throw in their long term care on top of that we have a major problem in the next morning thirty years supporting old people like me. You elect and saw you you know I. We'll find a way but yet you know there's that that's the orderly lives taxi war that took. Metal food got money you'd have. Far into it Burton movie and it's you know to me that's that's a big problem right there is that you know. As as these pension plans to really start to they're doing that we're doing going here and you know and there's so few if they in this they're declining. In in yet offering you know people have active don't have access to a woman. Or almost all of those pension plans today are going to be municipal or state. Pension plans on it either in private industry it's almost going to be universally for a one K. You know Lou that's unit and that's because people have to pay to stay in and knew him well it's just in the verdict. In the burden went from the employer creating a retirement plan for you and taking care of you until you're dead. Do you gotta do this yourself. And today it's do it yourself you know did did the com the employer for the most part you're there you know they're not gonna provide you any health insurance benefits after you retire. On in the old days of pension plan mean folks would read worked for General Motors for thirty years moved to Florida. And live as well as they did in up in Minnesota or Michigan building cars. They had health insurance it was paid for. For them and their spouse they had a nice low income. Financial planning really didn't you know until this shift from pensions to 401 k's came. You know this idea financial planning was really just a wealth management. Tool in the average person didn't need it because they had a pension they could outlive him. Then Social Security they were gonna outlive them and they may have accumulated some wealth with the stock broker buying some stocks here and there. But that's what I'm that's what. This business that you and higher end who was like in 195019401960. Credit until the seventies when you started to see the shift from a pension plan to for a one case. And so now you're a situation for someone like yourself you'll probably never see a pension plan in your life. You're going to have to saved in your 401K. Your retirement plan becomes the most important thing you do with the money every day every month it's not the most important thing for most of us. And I said this before when I look at my most successful clients people that I've seen go from. I can't tell you zero to millions but I can tell you I know 10 in the went from 30003. Million over thirty years of working with us. It wasn't me it was him him and his wife drove cars until they couldn't drive them anymore they're living in the same house the when I met him thirty years ago. They live within their means their life is something that's designed so that they they are not spending the money before their saving and now they don't it. They're working because they would they wanna work. They day they they loved day they love their business and and that's what they're doing now. Well that's an you know which you can corporate yeah. News got everybody in other data are a small and you know luckily there are that that type that demographic is a big part of our client base. But it's not a big demographic of America doesn't mean that 31% have zero accumulation zero. Zero million you've got all these people with the the pension plans that are. Really. There do we have to press a button early on hi Tony. There yup I Tony crack at a good morning good morning to you. Real quick question are completely agree it would save about that integration but it is a 43. I have about thirty felt I had exactly 30000 dollars. What is the BR player award in early thirty years mom our first five at practitioner there is no retirement plan what do I mean today. You need to start either one of two thanks if you did nothing more than put money into your IRA you should be putting 5500 dollars into your ire. That would that would be the start you don't have a 401K or any other retirement plan you've got to be contributing to your higher rate. If you're married Tony did your wife to be eluded contribute also if she's not working she does qualify for a spousal benefits seem to be putting in 111000 dollars a year. Towards your retirement. The other alternatives. Is if you could be hired as. A 1099 employee rather than as AW two employee. Column in other words they're paying party your social security and things like that for a W two and early. If you're attend many nine employ in other words if they employed your little corporation and paid you as a consultant so to speak. Then you could actually be able to put as much as 25%. Of that of that income into what's called a simplified employee pension plan to sap. So did bring yes or so depends on how you're getting paid. On whether your W two employee or your 1099 employee. 1099 employee gets the opportunity to be able you can deduct everything that's deductible up as a as a 1099 employ that you're not deducting is a W two employee. Hum and you'll be able to put more money into a retirement plan your employer may not allow you to do that Tony but if they did it sickens it's a creative way around. On the situation. If he did nothing more you gotta be putting money into desire race. And if you'll end in you know 111000 dollars a big chunk of money but. The Mitt the magic number on a percentage basis is 10% if you're able to set aside 10%. Into a retirement plan then you're going to be financially successful in thirty years. I'm I would also say one other thing Tony. Arm the it when you're listening to. When you've got an IRA. Or are you in the other choices IRAs or not putting them in diaries. I believe that thumb splitting the difference is probably worth it for everybody. All your money doesn't need to be in a retirement plan remember. The concept of a retirement plan it's setting aside money it's that so for your retirement that's what a retirement plan is. But a traditional retirement plan is really designed so that home. You're creating money on a tax deferred basis you're taking money out of your prying tax years when you're taxed at a higher level. And then you're gonna pay him back and pay it out of your retirement plan when you're a lower tax bracket. The reality is I'm not seen people lower tax brackets. Pump everybody's getting you know as they're getting ready either retired their retiring. At these tax brackets change every other years so predicting what they're going to be is really hard. And a lot of folks have found that they've taken the money added up pay tax bracket and they're taking in their putting the money. Given the money back to themselves in. The time when they're there out there and a lower tax bracket that wasn't must retirement plans are supposed to be. So having some money that is outside of your retirement plan that is designated for retirement. Is taxed differently you're gonna make capital gains and dividend taxes on it as you go which are limited to 15%. And then when you start drawing out your money it's going to be the least taxable money that you can attack could happen. So if you can afford to accumulate money and pay the taxes as you go. It's a great way to complement an IRA so don't get fixated on everything going into tax deferred income. Hmmm we get clients succumb to cius and everything is in tax deferred money. That means every dollar that we take out of their retirement plans they got to pay income tax on. If there under 59 and have who is a 10% penalty too so there's a penalty either retiring early if you haven't. And if everything's inside of of an IRA. Yes you can invest without having to put it into an iron mean mean it is there's ways two. Just beat you just because you're using your retirement doesn't mean it has to go into an individual retirement account you move meant. You know the other things the you know we're we're focusing on Ross's are mean and I areas but ID I also especially if you're on a long enough time resident. Would recommend it raw player his well. Don't and thank you tell me if they can donate. All right so they guess we're coming up on the end we're talking financial management collaborative wealth. It doesn't see FaceBook you know couple financial management Twitter FF them point 67. And then potential personally. I. Ha ha ha that I'm getting closer you know courthouse today you can email us citizens their minister of them online. Have a good good weekend guys thank you Bob I. Join us and our great life adventure next week at this time four dollars and cents with Jeff Davis from falcon financial management. Thanks to all. Who made it all over 25 years and service so special. The opinions voiced in the show for general information only and are not intended to provide any specific advice or recommendations for any individual to determine which investments may be appropriate for you consult with your attorney for accountant and financial advisor or tax advisor prior to investing in securities offered you LPL financial muscle address SIPC investment advice offered through collaborative well a registered investment advisor collaborative well and a good financial management are separate entity from LPL financial.