End of Year Market & Tax Insight and Planning for 2022

by Mike Lester

Dec 29, 2021

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Speaker 1 (00:02):

Welcome to the Retirement Wealth podcast. Our goal is to help those retired or soon-to-be retired investors make more informed financial decisions and live an enjoyable retirement. Our host, Mike Lester, is the founder and CEO of Talon Wealth Management. Mike is an investment advisor representative of Retirement Wealth Advisors Inc, an SEC-registered investment advisor. Thanks for joining us today, and let’s get started.

Kristen Charles (00:30):

I’m Kristen Charles, alongside Mike Lester. Thank you so much for making this podcast a part of your playlist. We’ve got a lot to get to, so let’s dive right in. Kiplinger has some interesting advice when it comes to year-end tax planning this time around. Do what you would normally do, but then be ready to do something different because there’s a lot of last minute stuff pending in DC. How are you helping people prepare to do something different, but still do what they can for now?

Mike Lester (01:00):

Well, the last minute thing, obviously in DC, that happens a lot, but maybe with this administration even more than other administrations, and we’re all wondering what the tax policy is going to be in 2022, because it was threatened a lot in 2021. Now, obviously we’re coming to the end of that here within just a few weeks, and it doesn’t look like they’re going to be able to make any changes to 2021, which is a good thing. So 2022 is a little out there. We’ll get into that in just a second, but what I want, anybody who’s listening because we’re certainly working on this with our clients, to understand is moving into the end of the year, we know what tax rates are for 2021. And in particular, if you have things like trust accounts, joint accounts, individual accounts, accounts where you’re going to be subject to capital gains on those accounts.

Mike Lester (01:46):

And we’ve also seen lots of gains. I mean, if you’ve been in the market now for the past year, two years, three years, five years, going over ten years, depending on what your investment strategy was, if you’ve held onto those investments, you’re going to have a significant amount of capital gains. And for our listeners who aren’t real familiar with that, capital gains are gains in a portfolio that are going to be taxable at the moment that you sell them. So imagine that you, we’ll just choose a company that everybody’s familiar with, let’s say that you owned Microsoft.

Kristen Charles (02:18):


Mike Lester (02:19):

And you bought Microsoft 10 years ago. And now, let’s say, Microsoft is worth a lot more than it was 10 years ago when you bought it. If you bought that in an individual account, a trust account, a joint account, when you sell it, you have to pay tax on those gains. Not necessarily on the day that you sell it, but in the year that you sell it. So if we know that long term capital gains, again, depending on your situation, but long term capital gains, if in your situation it’s 15%, if you made a hundred thousand dollars on Microsoft, you’re going to owe 15% or $15,000 in taxes if it’s long term capital gains. Now, knowing that and having some certainty around it is something that you could forecast, right, if you’re doing financial planning. Not knowing what taxes are going to be in 2022 is a little bit of a problem. They’re floating around all kinds of rates. Maybe the long term capital gains rate would be 25%. So then combine that with uncertainty about 2022, we talk about it a lot on our radio show, Kristen. I’m not very confident that 2022 is going to be a good year.

Mike Lester (03:22):

We’re taking steps to protect our clients from issues, bad market. I can’t forecast how bad it’s going to be or even if it’s going to be bad. But Kristen, I just don’t think what’s happening right now is sustainable. So we have clients in situations. I was just talking to a good client of ours, Steve, the other day. And he said, “It’s been a good run. I’m very, very happy with where we’re at. It’s a good problem to have. I’m going to have to pay taxes on my long term capital gains at this point, if we sell before the end of the year. But at least I know what that long term capital gains rate is going to be. At least I can forecast it.” And he said to me, “Mike, you’re right. I’m just not confident in 2022. Let’s go ahead and sell this year. Let’s move into more conservative investments and pay at a rate that we know exactly what the rate’s going to be.” So we’ve already done that for Steve. Fortunately for Steve, he’s going to have to pay a lot in taxes. Again, good problem to have.

Kristen Charles (04:18):


Mike Lester (04:19):

But Steve is similar to a lot of people that are out there, and I want our listeners to take this into consideration. Moving into 2022, there’s concerns about several things, certainly concerns about government, certainly concerns about COVID. We’ve got the new Omicron variant here, which is a concern and I’m sure the media will blow it out of proportion as they normally do. We won’t on this radio program, but it’s going to be a concern. We’ve got tax issues, which we’re talking about rolling into next year that are going to be a concern. You have to ask yourself, “Do you want to deal with what you know this year, which is the economy did pretty well up to the end of 2021.

Mike Lester (05:01):

I know what my tax rates are, and maybe I want to start taking some money off the table. Do I pay tax this year? Do I spread it over 2021, 2022? If I have a 401k, if I have a Roth account, if I have a 403(b), how should I be invested moving forward?” Kristen, all of this goes into that question about things are changing moving into 2022. We can’t say what the government’s going to do when it comes to taxes. But we can take the time, take a few steps back, do an analysis of our current portfolio and come up with a financial plan, particularly if we’re at retirement or close to it.

Kristen Charles (05:39):

We’ve talked here on Guarding Your Nest Egg many times over the last couple of months about the so-called great resignation. I guess really all year, if I think about it. Millions of Americans have quit their jobs, and now it’s causing additional stress for the workers who are left behind. CNBC’s Sharon Epperson explains.

Sharon Epperson (05:58):

A new survey from the Society of Human Resource Management finds that more than half of workers who remain on the job after colleagues have left say they’ve had to take on more work and responsibilities.

Speaker 5 (06:10):

So there’s this vicious cycle. Employees leave, which means all of their work has to be done by the employees who remain. And the employees who remain now say, “I’m working too hard. I don’t have balance in my life, et cetera.” And so then they want to leave, and thus a vicious cycle continues.

Sharon Epperson (06:26):

Nearly a third of workers reports struggling to get necessary work done, and more than half wonder if their pay is high enough.

Kristen Charles (06:34):

Now, Mike, you exclusively work with folks that are near retirement or are already there. I’m sure you’re seeing some of this play out in the conversations that you’re having at the office every single day with our radio listeners. How are you helping folks figure out what their options are during this very different work environment?

Mike Lester (06:50):

Well, Kristen, it is and it’s pressure on individuals. So we’re getting calls from listeners every week that are in this situation. Now, it might be because people have left the job. Just like they were saying, they have more responsibilities and there’s really no balance in there. And again, they aren’t necessarily getting paid more. Sometimes they are, sometimes they aren’t. But there’s a lot of stress at work. Another thing that we haven’t talked about yet on today’s program, but it’s a common phone call that we’re getting both from clients and then also our listeners, which is the vaccine mandate. I have a lot of people calling us week after week. And by the way, if you’re in this situation and you’re concerned, give us a call. But I need to know, if I decide to retire right now, am I going to be okay? Because my company is mandating vaccines and I’m not comfortable with that.

Mike Lester (07:37):

They’re also not sure, so they’re trying to file for a way to get out of it. And we don’t know if they’re going to be able to do that. And so that’s scary, Kristen. I mean, people that are in the situation that aren’t comfortable with having something injected into their body that they’re not confident in, I mean, I can relate I guess to that. I see a lot of people. I travel for work. I’m in front of people that are retired or close to it on a regular basis. Katie and I made a choice to get vaccinated because [inaudible 00:08:05] a physician. So she works with people in a hospital and I work with people that are retired-

Kristen Charles (08:09):

Key word there is “choice.”

Mike Lester (08:10):

Choice. But we chose to do it, right?

Kristen Charles (08:11):


Mike Lester (08:12):

And for people that honestly are in a situation where their choice is not to do it-

Kristen Charles (08:18):

[inaudible 00:08:18] healthcare. It’s a fine line between, “Hey, we are going to,” I don’t know, “do a background check or something like that at work.” This is very different.

Mike Lester (08:26):

Yeah. And Katie and I didn’t really do it for ourselves. We did it for the people that we’re around. And so there are plenty of people out there working that they’re not in my situation or Katie’s situation, but yet their employer is saying, “Hey, you have to do it.” So again, that’s a phone call that we’re getting on a weekly basis, says, “Hey, listen, I’m not comfortable with this. And if my employer requires me to do it, I need to know if I can retire right now.” That’s a question, Kristen, thankfully we can answer, right? So that’s exactly what we do in our financial planning process is we take a look at where are you right now? What are your expenses? How much have you set aside for retirement? How much income are you going to have in retirement, whether it’s right now or later, just depends on when that income kicks in?

Mike Lester (09:04):

And will you be able to maintain your current standard of living, adjusted for inflation and taxes, moving forward? That’s the financial planning aspect of it, Kristen. But then also, most people that are looking for corporations or the government aren’t really familiar with active management of a portfolio. What they’re familiar with is their retirement plan at work. That’s the 401k, the TSP, the 403(b) account, profit sharing. These are investments where you don’t really have a lot of control. You’re basically along for the ride. You get the option to make contributions, typically on a monthly basis. And a lot of times there’s a match that goes into it, but then you have limited investment options and no guidance. And any changes that you want to make, you have to do it on your own. So you have to be able to have your crystal ball. I mean, you might be a doctor. You might be an engineer. You might own your own business. You might be a school teacher. Your profession could be a million different things, just not financial advisor, right?

Kristen Charles (09:58):


Mike Lester (09:58):

And then you’re sitting on this retirement account at work and people are going, “Well, hey, listen. Either hang in there or make choices on your own about when you should be invested in stocks and when you shouldn’t be invested in stocks.” And most of the people that decide to work with us, it’s not that they’re not capable, Kristen. They’re just not comfortable with making those types of decisions. And they’d rather trust a professional, as long as the professional adds value. So that’s why I like our complete financial planning process is it just gives us the opportunity to introduce who we are, what we do, and how we do it to individuals. They get to decide on their own whether or not we’re providing value. And if they feel we’re providing value, then they may choose to hire us to manage their portfolio and help them with retirement.

Kristen Charles (10:38):

On a related note, Mike, Forbes recently encouraged workers to ask their boss for a raise now to deal with higher inflation. I would ask you if you have any advice on what someone should do if they get that raise. But I think really the big question to hear is what about retirees? I mean, they start paying themselves when they stop working. Can they give themselves a raise? I don’t think it’s that easy.

Mike Lester (11:01):

Well, Kristen, there’s two parts to that. So first off, say, Kristen, you’re 55 or older, right? So those would typically be the individuals we’re working with. Again, sorry if you’re 25, 35, 45. There’s not a lot we can do for you at that standpoint because we manage retirement accounts for individual that are retired or very close to it. And so if you’re too young, there’s not much we can do to help. But if you’re currently working in a situation where inflation is a concern, and you’re going to your employer, asking for a raise, it’s potentially problematic. Kristen, as an employer, we employ a lot of people through Talon Wealth. We’ve been fortunate enough to be able to give our employees raises. It wasn’t necessarily because the cost of goods and services are going up. It’s just because, as the company grows, we want to reward employees.

Mike Lester (11:44):

But I think most corporations would take a look at this situation of costs going up and wonder, “Well, how long is that going to happen?” I mean, I think most good corporations are going to want to help employees, but then take a look at how many people aren’t going back to work. There’s over 10 million open jobs out there, and it puts corporations in kind of a tricky situation. Well, I want to reward the people that are willing to work, but if I pay the people that are willing to work too much, I don’t have enough money to hire more people that come in. Unfortunately, that’s probably kind of a complicated conversation. Now, going to individuals that are currently retired and looking at their portfolio, that’s tough, Kristen. That’s something that we’ve been having conversations with listeners about week after week over the past few months as the cost of goods and services are going up.

Mike Lester (12:31):

The most obvious one, obviously, being gasoline. Christmas is coming up. It’s a reality that things are costing, not a little bit more, it’s a lot more. And people feel that, “Well, listen. This is sustainable for a limited amount of time. But if this continues, it’s going to become problematic.” And what I would want most people that are retired or close to it to consider is it’s not just inflation. It’s not just things costing more. It’s also performance of your retirement accounts. If we have an issue where things are costing more and markets are up, which in general, they have been. I realize a couple Fridays ago, we had the worst Friday of the entire year, 2021. And that was obviously very, very concerning. A lot of things going on there. It was a limited trading day, so markets were only open for about a half day in limited shares.

Mike Lester (13:22):

But again, the Omicron issue, as soon as the World Health Organization announces they’re doing an emergency meeting, yeah, people are going to be scared. I mean, that’s just, I mean, they could have been a little more responsible with that announcement. But I think what we’ll see is less fear necessarily about Omicron and more fear just about what’s actually going on, the actual economics. So inflation’s going to be an issue, but if you have not only some inflation, but more importantly, if your portfolio isn’t performing, let’s say you started out with a million dollars in your 401k and things have been going pretty good. You’re looking at things costing more and realizing, “I got to make more money in my retirement account to offset the increasing expenses that I’m going to incur. But now, what if my portfolio’s going down?” Kristen, one of the things we know about management of portfolios and active management of portfolios is that when you’re taking distributions or making withdrawals from your retirement account, missing out on gains in the market isn’t nearly as important as avoiding losses in the market because it’s too hard to recover from big losses.

Mike Lester (14:30):

So if you’re just utilizing a hang in there approach, and we’re coming up in the 2022 with concerns, not just inflation, everything else that’s going on, I think you should take a close look at what active management looks like. Hang in there has worked real good for the past 10 years for most people if they were fairly aggressively invested in markets. But if the economy starts doing poorly, it’s not going to look real good moving forward. And Kristen, if you’re in a situation where you’re retired or very close to it, and you’re certainly willing to accept a certain amount of risk to participate in gains, but you’re not willing to take more risk than you need to to be successful in markets, you want to take a close look at it. So that’s why we offer our complete financial plan, and we want to show people what active management looks like.

Speaker 1 (15:16):

If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at retirement.tips/plan and we can do that for you complementary. Thanks so much for joining us on today’s show. Be sure to subscribe to our podcast, visit our website at retirement.tips for more free retirement planning and investment resources. Thanks for tuning in to today’s show, and we’ll see you next time on the Retirement Wealth podcast. Exposure to ideas and financial vehicles discussed should not be considered investment advice or recommendation to buy or sell any financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals specializing in the fields of tax, legal, accounting, or investments regarding the applicability of this information to their situation. Past performance is not a guarantee of future results. Investments may fluctuate, and when redeemed, may be worth more or less than originally invested.


Mike Lester

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End of Year Market & Tax Insight and Planning for 2022