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., and SEC registered investment advisor. Thanks for joining us today, and let’s get started.
Kristen Charles (00:31):
Stay with us as we virtually, of course, check in with a few families across the country to find out how their home quarantine life has been going so far. Because depending upon what area of the country you live in, that lifestyle is very different. And also, how to retire on your own terms during an unpredictable market such as this, because Mike, that’s the bottom line. We don’t know what’s going to happen on Wall Street day to day, any time but especially right now. And a lot of people are skittish about the markets at this moment, but others are seeing this as an opportunity to buy while prices are down, depending upon the day. What are you telling your clients about how they should or shouldn’t be investing right now? And I want to preface that with, if people are tuning in for the first time, you help people near and in retirement with their investments.
Mike Lester (01:21):
Right. I think it’s important that we frame that in the context of who we work with typically, because if you’re 20, 30, 40, your investment objectives are going to be a lot different than our typical client. So we’re working with people that are either retired or very close to it, so typically they want the highest rate of return that they can get, they’re just not willing to take a lot of risks to get to those returns. Then when we look at markets like we’ve seen, all of this volatility … I mean, it’s literally the first time that we’ve had a … not the first time there’s ever been a pandemic, but it is the first time the entire world has just shut itself down and done it to itself. So it’s confusing for people, it’s concerning.
Mike Lester (02:00):
But what are we telling people? Well, we’re always looking for opportunities, and I view this as an opportunity. We were coming off of an 11 year bull market. I know most of our listeners know, but for those of you who don’t know, a bull market is a good market, it’s a growing market. A bear market is the opposite of that. That’s where we get the bulls and the bears. But literally, 11 years of growth since the last market crash that really started kind of late 2007, but we think of as the 2008 crash.
Mike Lester (02:28):
So the reason we’re looking at it as an opportunity is, well, if we’re going to get this much of a pullback or this much of a correction … or there’s all these technical terms. I don’t know that it’s technically a crash yet. Let’s just call it a really, really big pullback. Some people are looking at their 401(k)s, their IRAs, whatever you’ve set aside in investments or for retirement, and they’re seeing 20 to 30, sometimes over 30% in a pullback when we reached what I really thought was the floor. We got down to close to about 18,500, 18,700, something like that on the DOW. People ask, “Well, where is the bottom?” I do think, I do feel that was the bottom. And so now moving forward, how do we look at this? Do we just remain scared? Do we crawl into a hole and not look at our statements until markets get better? My answer would be no. Let’s take advantage of what I believe to be an opportunity.
Mike Lester (03:25):
Kristen, it’s been 11 years since we’ve had one. Markets just kept going up and up and up and up. Yeah, we had some corrections along the way, but they pretty much went up. And there were a lot of people out there that felt like they missed out on that. And then also, there were people that maybe didn’t really like their allocation. Again, what’s the opportunity? Well, we’ve had a huge selloff because of coronavirus, this forced shutdown, and now I think we can go back and look and say, “Well, if we’re going to dump trillions of dollars on our economy in stimulus, and if we’re going to have interest rates near 0%, and if we’re going to have really, really cheap gas … I mean, look at New York. Look at these hotbeds, Kristen. Their numbers are peaking and then going down.
Mike Lester (04:03):
So I really think we can see the light at the end of the tunnel. I really think we can see the end at this point. Once we start to peak and go down, markets are going to realize that, and we’ve seen it. Now, is there going to be volatility? Absolutely. But, how do we take advantage of the opportunity? We take a look at what’s in our portfolios currently and we start to measure … and we call that analysis, but you want to measure how it’s likely to do moving forward.
Mike Lester (04:29):
So again, we haven’t seen this in forever. But if we start looking for opportunities … What about things like energy? Oil? It’s literally been a perfect storm for oil to have a really, really hard time. We already had Russia and Saudi Arabia in a price war for oil, and then we dump on top of that a worldwide pandemic where basically every government, every country just shuts down. Nobody’s traveling, whether it’s by plane, by boat, by car, by train. Nobody’s doing anything. If you do all of that and you take a look at it … So why is oil down so much? Why is energy down so much? Well, literally kind of a perfect storm for it to be a disaster. Now, ask yourself. Is there always going to be corona? Will Russia and Saudi Arabia always be having a price war? The answer is no. So I would want to talk to people and say, “Listen, I mean, is energy in your portfolio? Because if it’s not …” I hope we can agree that oil can’t be $0.
Kristen Charles (05:29):
Absolutely not. Once we start being able to move, that’s going to change.
Mike Lester (05:33):
Right. So things start to change, so looking for opportunities there. What about things like hospitality industry? I mean, they’re getting crushed right now, obviously. But are we always going to live in this world? The answer is no. And so Kristen, I’ve always been a glass is always half full, as far as I’m concerned. I’m always looking for a silver lining. I know this is painful, but it’s my job as an investment advisor working with individuals that are either retired or very close to it to help find solutions.
Mike Lester (05:59):
So I think yes, we have a new normal moving forward. We didn’t realize the entire world could just shut down because every government decided they were going to do that. This’ll be studied for a long time moving forward, whether that was the right thing to do or the wrong thing to do. It doesn’t matter at this point. We’ve done it, so now we need-
Kristen Charles (06:14):
It is here and we got to deal with it.
Mike Lester (06:16):
It’s here, we got to deal with it. So let’s deal with it by understanding our portfolios. If you’ve been out of markets and you’re wondering about getting in, that’s a good conversation we can have with you. If you’ve gotten really beat up in this and you’re just kind of scared of it, I hope that we can at least be a sounding board for some of those concerns and we can help you with some ideas moving forward, because I do think there’s a new normal. What I would suggest to people who are listening is try to resist the urge to not look at things, to not change things, to just get back to where you were before you make any changes. That’s probably the worst thing that you could do right now, is bury your head in the sand. Now’s a great time to dig into your portfolio, find out where you are, what’s likely to happen moving forward, and see if there’s some opportunities that you can take advantage of.
Mike Lester (07:03):
Those are the conversations, Kristen, we’re having week after week. Normally, under different circumstances, we’d be sitting down …
Kristen Charles (07:09):
In person, yes.
Mike Lester (07:09):
… face-to-face with people in person having those conversations. For the last six, eight weeks, we’ve been having this conversations over the phone. We’ve been doing virtual meetings. People are getting very, very good at that. Honestly, the people that we talk to, Kristen, are shocked how easy it is that we can just send them a link and literally have a sit down with them without them leaving their home. It’s a very, very easy process. We accomplish exactly the same goals, other than we’re just going to have to shake hands a few weeks from now. But outside of that, it’s a great process.
Mike Lester (07:37):
So what I’d say is, anybody’s who’s listening, if you’re retired or very close to it, you don’t like the idea of sort of a, “Hang in there,” approach, you want to find out if you’re going to be efficient moving forward, it starts with an analysis of your current portfolio, which we can do very easily. Then also, let’s just go ahead and put together a financial plan. If you’re not quite retired, let’s put together a financial plan that helps you get there and retire. If you are retired, let’s put together a financial plan that keeps you that way. But it’s all about maintaining your current standard of living adjusted for inflation and taxes moving forward. And at this point, Kristen, all it takes is a phone call to us or visit our website and we can start that process.
Kristen Charles (08:13):
Mike, I know that tax reform law, it passed a few years ago and it gave us less of an incentive, sadly, to claim deductions for things like charity. But wasn’t there something in this new stimulus bill that came out recently that tried to address that?
Mike Lester (08:28):
There was. Let’s start with why did charities get hurt. It’s because they capped the charitable contributions, and when they increased the standard deduction, most people, it didn’t make sense for them to do charitable contributions anymore because the standard deduction was higher than what they could have put together in charitable contributions. I mean, overall, it was good for taxpayers to have more of a tax cut, but it was hurting charities along the way.
Mike Lester (08:56):
So now we have an opportunity … And again, this is where we get into not just the financial planning aspect of things, Kristen, but as an investment advisor, as a fiduciary we’re very, very focused on portfolios. We want to help individuals get the highest rate of return possible, but we realize that they’re not willing to take a lot of risks. That’s why our portfolios are actively managed. But at the same time, that’s not the only piece of retirement. The other pieces are going to be income planning, tax planning, and estate planning. So really, I look at it as a … Some people call it a three-legged stool because if you take one leg out, the stool just falls over. I look at it more as a four-legged. So we’ve got the financial planning aspect, the income planning aspect, the tax planning, and the estate planning. And really, we’re talking about tax planning here.
Mike Lester (09:41):
So what are they saying? Well, for 2020, if you make contributions up to $300 to a charity, that’s going to be an additional deduction that you can take on top of these standard deductions and everything else. So whatever your charity is … maybe it’s your church, maybe it’s Goodwill, maybe it’s Habitat for Humanity, what have you … I realize that this is not a huge deduction, but just realize a $300 deduction on top of everything else is going to be helpful. Just to take a second and kind of walk people through our process, Kristen, because we’ve just talked about financial planning, income planning, tax planning, and estate planning. Those are all very, very important.
Mike Lester (10:20):
So it’s one thing to have a financial plan, but if somebody doesn’t sit down with you and explain to you the tax consequences of the different types of money you have, the income planning becomes a problem. I know this from years and years of sitting down with individuals going, “I’ve been working. I knew right where my money was coming from. I would go to work, they would withhold taxes, they would send me a check. I had healthcare. I knew exactly how to pay my bills. Now I’m going to make that transition into retirement and I’m nervous about it because I don’t understand the mechanics of it.” They’ve never actually had to deal with it. What we’re helping people with are the mechanics of that.
Mike Lester (10:54):
So, all right, you’re not going to get a check from your employer anymore. You’re not going to have health insurance from your employer anymore. What we’re going to do is we’re going to sit down and we’re going to come up with a strategy based on what are your sources of income. So certainly social security for individuals, when should you take that? If you have a pension, how should you do the pension? Maybe it’s lump sum, maybe it’s take the distributions. That’s a very individual situation and an individual decision. Outside of that, how do you invest your money in retirement to provide you with an income stream for the rest of your life, but that income stream has to be adjusted for inflation and taxes moving forward?
Mike Lester (11:29):
That’s where the income planning comes in, because people are going to have money that they’ve already paid taxes on that’s growing, individual accounts, joint accounts, trust accounts. They’re going to have 401(k)s, IRAs, 403(b)s, TSP accounts. All of that money is taxable. And there’s also going to be Roth money out there, Kristen, that’s not taxable at any point in time. They’ve got different … let’s call them buckets … of money. You come up with a financial plan, and then you come up with an income plan that shows them how to access those buckets and keep their taxes at the lowest rate possible. We all want to pay our fair share. We just don’t want to pay more than we have to.
Mike Lester (12:02):
Then we follow that up with estate planning. Let’s make sure that … Eventually, we’re all going to pass away. None of us have found the …
Kristen Charles (12:10):
So far, there’s not that.
Mike Lester (12:11):
… fountain of youth. Nobody’s going to live forever. I know there are some people that love vampire movies that fantasize about that, but so far, I don’t think that’s going to happen. At this point, we got to find a way to pass our assets onto our beneficiaries, and so that’s where the estate planning component comes in.
Mike Lester (12:27):
At Talon Wealth Management, we focus on all of those issues that when it comes to being retired or transitioned to retirement, because you can’t leave any of those on the table. So if you want to find out more, or just, again, not sit down with us, but at this point it’s going to be a phone call, virtual meeting. It’s a very easy process. Just give us a call or visit our website.
Kristen Charles (12:48):
Whether you’re a Grammy winner or a regular person listening to this show, we’ll discuss how you can retire on your own terms even in a down market, hopefully, with the right planning.
Vince Gill (13:02):
Kristen Charles (13:03):
Thanks for joining us this weekend on Guarding Your Nest Egg with Mike Lester of Talon Wealth Management. Wishing a happy birthday to country music superstar and 20-time Grammy winner, Vince Gill. A while back, we had a chance to sit down with Vince and talk to him about his career. He’s had a pretty interesting one, and been in a lot of groups. You may not know, Mike, he was a member of Pure Prairie League for a while, too.
Mike Lester (13:26):
Kristen Charles (13:26):
Yes. And one thing-
Mike Lester (13:28):
That’s so weird. That’s one of those bands I’ve never heard of before.
Kristen Charles (13:30):
Oh my gosh. Get your life together. We’ll fix that after the show. But we also asked Vince what it’s like to be a veteran musician right now.
Vince Gill (13:39):
When you’re 20, 25, you’re just going, “I got forever.” But I’m so much more driven to be better today than I’ve ever been in my whole life. I play better, I write better, I sing better. All those things are far superior to the early years where I struggled, the medium years where I knocked it out of the park. You’d think your hottest stretch would be your best stretch. I don’t think that’s the case. My ears tell me different.
Kristen Charles (14:06):
That’s pretty cool insight there. I mean, he’s writing and performing on his own terms in his 60s. How do you help regular people listening retire on their own terms, even when the market’s unpredictable and they’re not a country music star or rock star or Grammy Award winner? How do regular people accomplish that?
Mike Lester (14:24):
I mean, the numbers might be different. We talk to people every single week, Kristen. Their numbers are a little different. We don’t, but if we were working with Vince Gill, I’m assuming he’s done pretty well over time. I don’t know. If you were a nurse or a schoolteacher or an engineer or what have you, your numbers might not be as big as Vince Gill’s, but they’re still your numbers. I mean, what it really boils down to is sitting down with individuals, taking a look at their numbers, their situation, and helping them be successful in retirement. I say this all the time, but being successful in retirement in my mind … and this is not because I’m retiring any time soon. It’s because we talk to individuals that are either retired or close to retirement every single week. It’s all about being able to maintain your current standard of living throughout retirement.
Mike Lester (15:17):
The reason I say throughout retirement is things are going to change. Things aren’t going to get less expensive moving forward. They’re going to get more expensive. So we have to take into consideration inflation. Taxes are never going to go away, so we have to take into consideration taxes. It’s about maintaining your current standard of living throughout retirement, meaning of course you don’t run out of money. Maintaining that standard of living means we have to deal with inflation and taxes moving forward.
Mike Lester (15:39):
So how do we help our clients retire on their own terms? Well, their terms are typically their lifestyle. “I want to maintain my lifestyle.” So whether you’ve got … pick a number, Kristen … a half million dollars in assets, a million dollars in assets, 10 million dollars in assets, there’s a chance your lifestyle looks a little different in each case. What it means is let’s sit down and have a conversation to help you maintain. If you need $5,000 a month for the rest of your life after tax, adjusted for inflation, moving forward to maintain your current standard of living, that’s fine. Let’s sit down and have that conversation and find out, okay, have you set aside enough money to make that happen? And if you have, how does it need to be invested?
Mike Lester (16:20):
Kristen, if you need $10,000, $20,000, whatever your number is … It’s not the number or the lifestyle, because that’s going to be different for each individual. It’s the opportunity to sit down and do an analysis of the current portfolio and find out if your goals, your specific goals in retirement are in line with how your portfolio’s invested. Because many, many times, we’re sitting down with people and they’re opting to give us a call and come sit down … which eventually we’ll do again, but these days it’s a phone call and a virtual meeting. But we’re sitting down with individuals, whether it’s in person or virtually, having conversations about where they are. We’re doing an analysis on their current portfolio.
Mike Lester (17:00):
I’ll give you an example. Let’s say that we did an analysis on a portfolio and we found out that, you know what, long term, this portfolio averages about 6% per year. In your mind, you can imagine, “Well, if I’ve set aside this much money for retirement and I’m averaging 6% on it, this is how much I’ll make per year.” That’s not how investments work. It’s up, it’s down. It’s not that you get 6% every year. It’s that you’re averaging 6% on your portfolio.
Mike Lester (17:23):
Well, we’ll have a conversation with an individual and it might look something like this. We find out they’re averaging 6%, but then we find out that in order to get that 6% on average, you would need to be willing to lose, let’s say, 30% if we get another market crash like 2008. So imagine someone who’s retired or pretty close to it going, “Well, I like the idea of 6%, but I can’t lose 30. There’s no way to really recover from that if I’m not working.” Well, what if we could take that same portfolio, meaning the amount of money that you have to invest, and what if there was a different way to invest it where you could still continue to average 6% or maybe even more? But historically, your worst case scenario was … I don’t know, let’s just say it was half that. Let’s say it’s 15%. Which would you rather have? I know the answer to the question already. It’s just that a lot of people haven’t walked through this process.
Mike Lester (18:16):
If I could average 6% and my downside, historically, is 30%, or if I could average 6% and my downside historically was 15%, which one would you choose? You would choose the one averaging 6% with half the risk, right?
Kristen Charles (18:28):
Mike Lester (18:29):
It’s just without the detail, Kristen, without the analysis, without the information, it’s very, very hard to make informed decisions. So the only thing that we’re doing when people call us up and we have these conversations and we do the analysis and we build out the financial plans is we’re just answering those types of questions. What average rate of return do we need to maintain our current standard of living, and then how can we do that in an efficient way, meaning I don’t want to take more risk than I have to to get that return? That’s the type of detail, that’s the type of information. At the same time, individuals are going to walk out of our office not only with an analysis … at this point we’re emailing them, but it’ll change later … you’re going to have the analysis and you’re also going to have a written financial plan.
Mike Lester (19:09):
A lot of financial advisors charge you $1500 just to get that. I don’t like that, Kristen. I’d just rather give people the information. If they decide to work with us, great. If they want to take it to their current financial advisor, fine. But if you’d like that from us, we’d be more than happy to provide it. Just give us a call or visit our website.
Kristen Charles (19:26):
I’m wondering if you’ve had any clients who are now rethinking their retirement plans due to what’s going on. If so, what are you telling them right now?
Mike Lester (19:35):
Well, Kristen, I think a lot of people are rethinking their retirement plans in the sense that if you’re invested in markets, you’ve had volatility. This is a very, very different situation in the sense of how quickly it happened. I mean, it’s just never happened before that within a very, very short period of time, markets have gone down. And the reason, obviously, that they went down … we all know this … is because governments and economies …
Kristen Charles (19:58):
Mike Lester (19:58):
… shut down around the entire world. Just stopped. So this is a new territory, and I do believe this is going to be a new normal moving forward. So volatility is very, very scary, but let’s just understand … Again, I just talked about it here earlier. I’m a silver lining guy. I know it’s been tough for a lot of people who are listening. I know they’re scared to open their 401(k) statements. I know they’re concerned … Maybe they’ve got advisors that just don’t tell them to hang in there and, “Don’t worry, it’s all going to be okay eventually.” I mean, that’s kind of an easy thing to say. I mean, yeah, eventually it’ll get better.
Mike Lester (20:29):
But I’m more concerned about the … The reason I’m concerned about the, “Hang in there,” approach is not that I believe individuals shouldn’t be in the market. I think you need to take a very, very close look at your portfolio and come up with a plan for this new normal. When things happen that we’ve never ever seen before, we need to have a plan for that.
Kristen Charles (20:45):
Mike Lester (20:45):
So we’re talking about a V curve with all the stimulus, meaning markets jump right back up. I do think that’s a possibility. But Kristen, we also need to be aware we could get what’s … and the more I see, maybe a W curve here, meaning it jumps up, it drops down. Maybe October, November, this circles back around and they want to shut economies down again, and then it drops again before it goes back up. That’s a W, and this is a little confusing, I realize, just talking about it. But here’s the thing. We need a plan, whether it’s a V curve, a W curve, whether we have a crash because of inflation 12, 18, 24 months from now, all of these things. It’s important, but it starts with a phone call and sitting down and having a plan moving forward.
Kristen Charles (21:26):
Stay with us as we virtually check in with a few families across the country to find out how their home quarantine life has been going so far, and also what to do in a time like this when you’re near retirement or already there. How do you gauge this timeline of your personal economy? Next with Mike Lester.
The Turtles (21:50):
Kristen Charles (21:53):
The Turtles’ biggest hit, Happy Together, released back in 1967. After quite some time staying home in close quarters, I wonder if everyone listening right now is feeling all that happy together. I mean, Mike, what’s the vibe in your house these days? I mean, you got a bunch of kids running around.
Mike Lester (22:10):
Well, it’s a lot of vibes. Yeah. If anybody can hear …
Kristen Charles (22:14):
There’s some noise in the background.
Mike Lester (22:15):
… some noise in the background, that would be …
Kristen Charles (22:17):
Mike Lester (22:18):
… my family. There you go. Yeah.
Kristen Charles (22:21):
Spending so much time at home is obviously a new experience for many of us. Mike, I virtually checked in with some friends of mine across the country in various states to find out how their quarantine life at home has been going, because it’s different depending upon where you are. Here’s what they had to say.
Speaker 6 (22:39):
During this quarantine time, I’ve been working from home. We have been doing some projects, working on a little landscape trailer for my son’s landscape business. Watching movies, ordering groceries online, that kind of stuff. So far so good. I don’t think we have cabin fever yet.
Speaker 7 (22:56):
For the most part, we’ve really enjoyed the family time. The past few mornings, we’ve actually been woken up by kids just kind of crawling into bed and cuddling with us, which has been really sweet. We also watched Tiger King and I’m forever changed.
Speaker 8 (23:10):
So what am I doing these days during all this that’s going on around the world? Well, I’m ordering books from my local indie bookstore, trying to support them while they’re forced to close their doors to in-store foot traffic. I ordered some books for my son and his girlfriend who are hunkered down in a tiny on-campus apartment in Manhattan, of all places, while I worry about them from afar. I’m writing my latest novel, feeling lucky I can continue doing that even while the world is spinning out of control. I’m also sewing face masks for some family members on my sorry, rickety, worn out, old fashioned … did I mention rickety … sewing machine.
Kristen Charles (23:48):
I can’t imagine what it is like to have a family member, a child especially, in New York quarantined right now. The fear she has, unbelievable.
Mike Lester (23:57):
No, I agree. I was listening to it and I can relate. Not that I’m in the situation, but I can understand why she’s fearful. I just think our listeners probably picked up on … I’m thinking this is one of Kristen’s friends from the South somewhere, because she used-
Kristen Charles (24:11):
Mike Lester (24:11):
The last one, because she used the word, “hunkered.”
Kristen Charles (24:15):
Oh, that’s true. Yes.
Mike Lester (24:15):
She used the word, “afar,” and she used the word, “rickety.”
Kristen Charles (24:18):
But she used to work for CNN, so it was okay for them.
Mike Lester (24:22):
So I’m just checking them off like, “Hunkered? Okay, that’s … And afar? And rickety.” Which is great.
Kristen Charles (24:32):
Mike Lester (24:32):
Now, I was a little concerned, also, about the Tiger King reference, because she talked about spending time with the kids and then she was like, “We watched Tiger King.”
Kristen Charles (24:39):
No, she meant her and her husband.
Mike Lester (24:40):
I know. I’m joking. But holy cow. What a train wreck. That is just-
Kristen Charles (24:45):
Listen, let’s give that some attention real quick. Do you think … because I tried one episode and then bailed. I couldn’t do it, and I love trash TV. I just couldn’t handle it.
Mike Lester (24:55):
This is way beyond Maury Povich.
Kristen Charles (24:59):
Do you think that it shows where we are as a country, the fact that Tiger King is getting so much attention? I think it does. We’re so bored, we’ll watch that.
Mike Lester (25:05):
Yeah, I think … I don’t know. I’ve fallen asleep twice during it. Not that it’s awful. It’s not boring, but it’s-
Kristen Charles (25:15):
Mike Lester (25:15):
It’s disturbing, but there are … It’s the number one watched thing on whatever-
Kristen Charles (25:25):
Mike Lester (25:25):
Netflix. Right, because it comes up ranked. And you just can’t stop watching. It’s a train wreck. This goes across all genres. I mean, I talked to super intellectual, really, really smart people. They’re glued to it. And then people who maybe … it’s not that they’re not smart, but they just don’t think the same way … they’re glued to it, too. I mean, just every genre. So it’s …
Kristen Charles (25:48):
Yes. Every demographic of everybody.
Mike Lester (25:49):
… a goldmine. Yeah.
Kristen Charles (25:50):
Our behavior has changed a lot. I mean, the coronavirus has obviously profoundly changed our habits and what we’re watching, but it’s also profoundly altered our daily live sand changed our economy, too. We’ve talked about that here on the show. But Mike, it’s also radically changed how we’re spending our money. The New York Times published some very interesting data about that firm, Earnest Research. This is the sharpest decline in overall consumer spending that we’ve ever seen in our lifetime. However, it’s interesting what areas are actually up right now. It’s online shopping, ordering groceries and in-person grocery shopping, home improvement stores … lots of projects getting done around the house … online gaming, food delivery, and even alcohol is up 25%. I mean, if that doesn’t show you where we’re at mentally, nothing will.
Mike Lester (26:41):
No, I agree. Yeah.
Kristen Charles (26:41):
Tiger King and more alcohol and we’re going to hopefully make it through, I guess.
Mike Lester (26:45):
Well, it’s uncharted territory, Kristen. I mean, none of that is … I don’t think it’s surprising to us or our listeners. But it’s just one of these situations that we’re not likely to ever see it again.
Kristen Charles (26:57):
I hope not.
Mike Lester (26:57):
I know people are very, very afraid of it. I think we’re going to learn a lot of lessons. Again, I’m an optimist. I do think that … For safety reasons, I think what we’ll find out is, “Well hey, we played it safe, but we overdid it.” We talked a little bit before the program about a couple different things, but we keep hearing about a V curve in the economy. What that basically means is we had a sharp … We went into a recession and dropped really, really quickly for the government shutdown and everything else. They dumped all this money on the economy, it shoots back up.
Mike Lester (27:27):
One of my concerns … and again, I don’t know that anybody’s at fault for this, but one of the issues that we may run into because of all the social distancing … which they’re claiming that’s slowing down the spread, which I’m sure it is. But we don’t have a vaccine for this, and so if people don’t have their own immunity down the road, what happens when we get back into the next flu season, essentially … I don’t know, October, November, whatever … this comes back around, COVID-19 round two. And if we get COVID-19 round two, I want our listeners to understand, okay, that’s a possibility. It’s not great, okay? But financially, you don’t necessarily have to be afraid of it. You just need to be prepared for it. It’s all about preparedness.
Mike Lester (28:07):
So a V curve means, “Well, I’ve got an opportunity. If I bought in, I could make a lot of money.” A W curve … it’s not really a curve, but it’s a W … goes down, goes up, goes down again, goes back up. Try to find the silver lining. Look at that as, “Well, I’ve got two opportunities to make money.”
Kristen Charles (28:22):
Mike Lester (28:23):
And in a pretty short period of time. And so I would not want the, “Hang in there,” approach through a W or even a V. I would want to have a really, really good understanding of my portfolio, what it’s likely to do. I would want to get out in front of this and have some sort of a plan.
Kristen Charles (28:39):
Mike, the question we’re all asking about this coronavirus emergency is, when’s it going to be over? Sadly, there’s not a crystal ball and many people are demanding that. The president doesn’t know. Even … the adorable, by the way … Dr. Anthony Fauci, who is the leader of the corona-
Mike Lester (28:56):
Kristen Charles (28:56):
He just is the cutest little old man in these press conferences. That’s why I say that. He’s part of that coronavirus task force, and he’s sort of the main doctor that we’re all listening to right now for advice. He tells CNN that we have no control over when this will finally be over.
Dr. Anthony Fauci (29:13):
You’ve got to be realistic, and you’ve got to understand that you don’t make the timeline. The virus makes the timeline. So you’ve got to respond in what you see happen. You can’t make an arbitrary decision until you see what you’re dealing with. You need the data.
Kristen Charles (29:31):
And that’s true. More data keeps coming out every day. Sometimes it’s uplifting, and we’re so excited when that happened. But here’s the thing. Bottom line, can’t control the virus. And we can’t control what’s happening with our American economy and the global economy. But we do have a little more control over our personal economy than many folks realize, don’t we?
Mike Lester (29:50):
I think we do, Kristen. Again, adorable. Now that you mentioned it, he is kind-
Kristen Charles (29:59):
He’s like a cute little old man, you know what I mean?
Mike Lester (30:00):
He is, yeah. And he’s a realist. He’s a numbers guy.
Kristen Charles (30:03):
And he has-
Mike Lester (30:04):
And there’s some tension there.
Kristen Charles (30:05):
Yeah. I was going to say.
Mike Lester (30:06):
I want him to come out and be a little more hopeful as opposed to, “Yeah, this is going to suck.” But it is what it is, and I get it. What I want to do with individuals when we sit down and we’re having conversations is I’m more of an optimist. I am a numbers guy. I’m a math guy. But looking at these numbers, we’re just looking for opportunities. And Kristen, I know this is a hard time for a lot of people listening and I know they’re worried about a lot of stuff, but we are seeing a lot of opportunities. There are areas that we can benefit from. We just need a plan moving forward.
Mike Lester (30:40):
We were just talking a little bit earlier about a V curve recovery that they keep talking about versus a W. We’re not for sure … Right now, there’s no way to know. Nobody has a crystal ball. I don’t know which one we’re going to get, but it makes sense to have a plan either way. So I do believe we’ll get at least a V curve. I don’t know how you dump all this money on an economy and you have cheap gas and low interest rates and everything else and the economy doesn’t at least at first seem to bounce back. So I want to plan for that. I want to be involved with that. I don’t know that I want to just do nothing with my portfolio and wait it to get back to where it was because, Kristen, this has created opportunities out there. There are positions that are oversold. There are things like energy. What about hospitality? What about, I mean, all of these things that have just gotten beat up? It makes some sense to take a really close look at your portfolio.
Mike Lester (31:28):
At the same time, I know a lot of people are trying to kind of cherry pick individual stocks. We can go out and find certain companies that have been really, really beat up. I understand that mentality. I understand the feeling. I’m not totally against the idea, but it scares me. People ask me questions. “How would you invest? What do you think about this company?” I say, “Well …” Let’s say, historically, it’s been a great company. Yes, it’s really, really cheap right now. What do I think is going to happen in the future? The answer is, I don’t know. We’re in uncharted territory. There are going to be some great companies that fail. There will be. And we’re going to be-
Kristen Charles (32:02):
Mike Lester (32:03):
Unfortunately. And we’re going to be surprised by that.
Kristen Charles (32:06):
And it’s not going to be their fault.
Mike Lester (32:06):
It’s not going to be their fault. But I don’t want to try to cherry pick individual opportunities, but what I do think is a really good idea in portfolios right now … and this is a type of conversation we should have … is instead of trying to cherry pick certain companies, let’s find sectors. What sectors have been really beat up? What sectors are likely to do well in a V curve? What if we get a W, meaning drops, goes back up? Flu season comes around again, we get hit again, markets drop, it goes back up. The W sounds a little scary. Kristen, to me, that’s two opportunities in a short period of time instead of one with the V curve.
Mike Lester (32:39):
So let’s try not to be too pessimistic. I know it’s been painful. But again, find opportunities. Try to work with a financial advisor that’s a fiduciary. We’re fee-based, Kristen. We’re incentivized when our clients do well. We’re not out trying to sling annuities all day long and get commissions. It’s, “Hey, let’s partner up. If you do well, we do well. Moving forward, let’s come up with a good financial plan,” and the financial plan, in my mind, always has to be helping individuals that are either retired or very close to it maintain their current standard of living adjusted for inflation and taxes moving forward. Regardless of whether or not we have a V curve, a W curve, corona or whatever they want to call it in the future, Kristen, what I do know is most of our clients have 20, 30, 40 years of retirement. We’re going to do a lot of this moving forward. We just need a plan moving forward, and we need a relationship where we continue to update that plan and stay in great communication.
Kristen Charles (33:36):
Next, we are going to talk about why we’re facing the financial version of the perfect storm. Not just the obvious things. Some things you may not have thought about, with Mike Lester of Talon Wealth Management.
Elvis Presley (34:06):
Kristen Charles (34:10):
This marks the 56th anniversary of the closing of the federal prison on Alcatraz in the San Francisco Bay. So commemorating that with a little Elvis, Jailhouse Rock. Over the years, Alcatraz housed some of America’s most ruthless criminals, including Al Capone, Robert Franklin Stroud, known as the Birdman of Alcatraz, and George “Machine Gun” Kelly. I mean, those were real people with real serious ways to take care of business. Have you ever done Alcatraz when in San Francisco, Mike?
Elvis Presley (34:43):
I have, yeah. Obviously, any locals there, I imagine that they’ve done that. We work with a lot of people in the Bay Area, but I enjoyed it. I mean, it was a little bit grim and kind of dark. A little creepy, but-
Kristen Charles (34:57):
I mean, it was a prison. Of course.
Elvis Presley (34:59):
It was a prison, but it is fascinating. I’ve got a favorite lunch place that I go to when I’m in the Bay Area, and you can pretty much see it from your table out there in the Bay. Yeah, I was out there. Took a boat trip over. It was one of these tours where they give you the headphones and as you walk through, it tells you stories. If you’re into that kind of thing … not prisons, just museums … it’s pretty fascinating, yeah.
Kristen Charles (35:28):
It is a very interesting thing. I’ve not had the chance to do it. I’ve gone by it in the boat because when I was in town, they didn’t have any openings. You have to make those reservations, if you’re not local, well in advance. So keep that in mind if you visit the Bay Area any time soon.
Kristen Charles (35:44):
When it comes to managing our taxes, it’s important to understand what you can and can’t do. But that’s hard to know because the rules seem to change from year to year. For example, IRA expert Ed Slott tells Morningstar the RMD waiver that’s included in the new stimulus law has created a new opportunity for some retirees listening.
Ed Slott (36:03):
One thing you could do now that you couldn’t do before are RMDs were never allowed to be converted to a Roth IRA. Now that there’s no RMD, maybe that’s a scenario, a planning idea, where you can take whatever you want and stay in a low bracket. But as long as you’re going to take it out, you may as well convert it to a Roth IRA and have it grow tax free. And there’s no RMDs for lifetime in the Roth.
Kristen Charles (36:28):
Mike, what do you think? Is that a move that we might should do and that might benefit some of our listeners?
Mike Lester (36:34):
Well, I certainly think we could. I just want to take it back a little bit. A couple of the provisions that have changed in the stimulus package … and what Ed Slott’s talking about there is for 2020, you’re not going to be required to take your required minimum distribution. This was something that used to be age 70 1/2. They moved it to 72. But it’s a distribution that you have to take based on your age and your total assets and retirement accounts. Things like IRAs, 401(k)s, 403(b)s, TSP. There’s an equation that works it out for you, and people … even if they didn’t want to take it, Kristen … they had to take it. If you didn’t, under the requirements, you’d pay a 50% penalty. So it was a forced distribution.
Mike Lester (37:16):
So bottom line, in 2020, you don’t have to take that distribution. That’s not a requirement. Now, I think that it was maybe a little bit confusing, that segment we played for Ed Slott, in the sense that it’s not that the rules have changed and you can convert an RMD over to a Roth. The rule has always been when you take a required minimum distribution, even if you don’t want to take it, you can’t just pay tax and put it in your Roth IRA. A question I get several times a year, “Hey, listen, what if I just pay tax on it and put it in my Roth?” Well, the government won’t let you do that. They still won’t let you do that. That hasn’t changed.
Mike Lester (37:49):
What has changed is you don’t have to take the required distribution for 2020. It’s more of a, “Well, I don’t have to take it. What if this year, I went ahead and took it even though I don’t have to take it?” Because there’s not a requirement, then technically I can pay the tax and just put it into my Roth.
Kristen Charles (38:06):
Mike Lester (38:07):
Now, why would you want to put it in your Roth? Because that money, after you’ve paid tax on it, grows tax free moving forward for the rest of your life.
Kristen Charles (38:14):
And taxes are very low right now.
Mike Lester (38:16):
And taxes are very low right now. So you’d pay the tax on it, you’d put it over into your Roth, and then that money would grow tax free. And also, you’re not required to take a required minimum distribution from a Roth. That’s another important factor. So for individuals out there listening, yes, things have changed. There’s a lot about the stimulus package that we really, really need to be informed about. We’re trying to do it here on the program, Kristen. It’s a little easier sort of one-on-one, looking at individual-specific situations. This’ll all come out in our financial planning process as far as conversions from IRA to Roth IRA as far as what is the government doing differently in 2020. There’s tax planning in there, estate planning in there. All of this is important, but it is individualized.
Mike Lester (38:58):
Kristen, that’s one of the things about doing a radio program, is we’re having conversations with thousands of people at one time, and every situation’s a little bit different.
Kristen Charles (39:07):
Yeah, so you can’t give big, generic, broad advice.
Mike Lester (39:11):
Yeah. Well, I can’t tell everybody what they should do because everybody’s situation is a little bit different. But what we can do is we just want to hit on certain topics. If you’re listening right now and you go, “Hey, listen, I wonder if that applies to me?” Or, “I don’t have a financial plan,” or “I’m a little concerned about my allocation in my portfolio. I’m wondering what it’s likely to do moving forward,” these are conversations we can have in person. Now, lately in person means on the phone or over the computer. In the future, we’ll be doing sit downs at any one of our offices. If you can hear our program, that means even though we can’t sit down with you there right now, we do have an office very close to you …
Kristen Charles (39:40):
Of course, yeah.
Mike Lester (39:41):
… if you’re listening to our radio program. So that being said, if you want information about anything that we’re talking about, even if it’s just Roth conversions, about financial planning in general, give us a call. We can do the analysis of your current portfolio, help you get more efficient there. But we’ll also provide you with a complimentary financial plan, and that financial plan is going to include all of the things that you need to know to be successful in retirement.
Kristen Charles (40:04):
Mike, it’s kind of like the perfect storm right now. Stocks are in a bear market, bond rates are low, and interest rates are almost nonexistent. What other options are there for people that are nervous about all the volatility and want something a little more stable?
Mike Lester (40:20):
Gosh, Kristen. Options, options, options. CD rates. That’s an option … not a very good one. Bonds. Option, not a very good one. Real estate. Option. I don’t think it’s going to be a very good one. So as we’re looking for options … And why I say they’re not very good, the rates aren’t very good because interest rates are so low. Right now … Again, I sound like a broken record, but we’re looking for opportunities and the opportunity right now is going to be mostly equities. Now, I know there are … Why is it equities? We’ve had so much of a selloff. I know there’s going to be a lot of volatility, but just imagine the fuel that they’re dumping on this economy. So at least for the short term, equities are going to look pretty good. Not all equities, and by equities, we mean stocks, corporations.
Mike Lester (41:01):
Be careful. Have a plan. But right now, if you give us a call and we start having a conversation, you ask me what I like, I’m going to say we like equities because if I can get 1% at the bank but 5% in one day a lot of times on the S&P 500, it’s kind of hard to bet markets aren’t going to be higher down the road. What I would caution people about is individuals that are trying to scare you into things like annuity products, stuff like that. Again, there are guarantees with some of the annuity products that are out there. There are plenty of salespeople. We call them annuity slingers that are pushing, pushing, pushing annuities. You know what? If an annuity is appropriate for you at some point, it’s probably, in my opinion, not right now because interest rates are so low.
Mike Lester (41:44):
So literally, these fixed annuity products that a lot of people are trying to promote … There are other types of annuities, but most of them are doing fixed or fixed indexed annuities. Those are the ones that most of the annuity slingers are pushing. Listen. They’re based on the 10 Year Treasury. It’s about as low as it could get. So now is potentially the worst time to get into an annuity contract. Locking in a contract right now, even though it’ll change over time, might not be a great idea. What I would propose is, if you think an annuity’s great for you, maybe wait until the interest rate situation’s better. Even though it might protect your money, it might not grow your money, so let’s just take some time, have a conversation about all of the options that are available to you.
Mike Lester (42:22):
Our job, Kristen, is to help our listeners and clients make informed decisions, whether it’s equities, whether it’s fixed accounts, maybe even annuities. But as we wrap up today’s program, I just want to let everybody know, if you’d like to have that conversation with us, just give us a call or visit our website.
Speaker 1 (42:38):
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 complimentary. 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.
Speaker 1 (43:11):
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.