Ken Moraif
Remember when you were a little kid, did you worry about your financial well being? No, you know why? Because your parents did it for you. Well, now we want to put you on the path to your financial peace of mind again, there are nine important steps that you need to take on that path, and that’s what we’re going to be talking about on this week’s podcast. Retirement planners of America, rpoa.com Hello everyone. Thank you for tuning in again. I am Ken Moray from the founder and CEO of retirement planners of America, and as the name implies, we specialize in retirement planning. So all the topics of all of our podcasts and videos are designed to help you to achieve your retirement goals. And this week, we’re going to be talking about the nine steps on the path to financial peace of mind. And so Jeromy, we have a lot to talk about. It’s good to see you now. You just got promoted, didn’t you? You just got a new title. You’re, you’re, you used to be. I forget what your title was before, but now your co host, right, right, yeah,

Jeremy Thornton
before it was just Jeremy. No, it was jer bear. Okay, right, yes. So

Ken Moraif
what happened to jerobot? So is it, is it Jeremy the co host, or is it jer bear the co

Jeremy Thornton
host? Well, I was hoping that you would have forgotten about the chair bear in the time. Okay, of our live recordings. Okay,

Ken Moraif
all right, so it’s, it’s Jeremy. So okay. So ladies and gentlemen, my co host here, Jeremy, hello, hi. So what are we gonna what? What are we going to talk about the nine steps. What are these, these steps that we need to take.

Jeremy Thornton
Yeah, so the nine steps, I think, are very, very important. So they’re kind of the pillar of how you should, or our clients should, view their retirements, and how we have that set up. And in most of these spokes, we don’t want them to worry about it

Ken Moraif
true. Yeah, you know, one of the things that we when we bring on a brand new client, right? So what we do is we go through and we’re going to walk through that today, but we walk through all nine of the steps on what we perceive to be the path to financial peace of mind. And each one of those steps are up to you as to which one you want to do, first, second, third. But our goal is to create a timeline where we get them all done and so by the end of that timeline, and we work together to figure out, you know, the speed of that and all the chronology of it, but once we have it set, then we want to go into more of a maintenance mode. But there’s a lot of stuff that needs to be done first before we can go into maintenance

Jeremy Thornton
mode. Delayed gratification kind of deal. We’ll do all the work up front and then take it easy on the

Ken Moraif
back, and then hopefully retire. Have a long path with lots of peace of mind all over

Jeremy Thornton
it. I love that. Yeah. Okay, so the first one, what’s the first step?

Ken Moraif
So the first step is cash flow. Yeah, so one of the things, and we’ve done other podcasts and videos about this, right, the importance of positive cash flow. And we always believe that happiness is positive cash flow, because if you, during your retirement, have more money coming in than you’re taking out, you know, under that math, you can never run out of money, right? And you know, our goal for our clients are, we have two right. One is we want your money to last as long as you do. And secondly, we want you to have financial peace of mind. And they kind of go hand in hand. And so accomplishing that is the first step is the cash flow is to, you know, have your money last as long as you do, and the exercise of doing that is to look at all the sources of income that you’re going to have during your retirement, looking at all the expenses that you’re going to have when you are retired, and then deciding, you know, what’s the shortfall, and how much of that can your investments make up, and if They can’t. And so there’s a lot of interplay there. It’s actually a lot of fun, right? You know, we always say we want to have more fun than a human being should be allowed to have when talking about all this boring financial stuff, it’s actually fun. Yeah, you know, I’ve been doing it for, gosh, almost 30 years now. And even though I am the CEO, I still like to work with clients, and I still like to do that, you know, to keep my hand in the game, I guess. And it is one of the most enjoyable things, you know, when you bring on a new client to go through that exercise, because for them, in many cases, it’s first time they’ve ever done it, yeah, and there’s a lot of enlightening that happens. You know, we laugh about stuff, and we talk about things, strategize. And so, you know, it’s not a, you know, you’re not talking to an accountant, and you’re going through, you know, your profit a loss statement and your balance sheet. It’s, it’s talking about life, it’s talking about what you want to accomplish and all those kind of things. And it takes into account, you know, taxes and Social Security and all those kind of things as well. So. It’s actually a fun part of the first but the first part, the first step towards your financial peace of mind, is to establish, you know, how you can have positive cash flow, or at least have a great probability of that being done from now until the rest of your life.

Jeremy Thornton
Absolutely, and we talked a little bit about that in our previous episode, we talked about the magic number, which is a large, large part of that, finding out where you’re at and where you’re going, right? Yes, those goals. So you click on that video here if you want to watch that. After this video, so after you

Ken Moraif
don’t go anywhere. Now you watch it later. Yeah.

Jeremy Thornton
What are some? What is something that’s surprising to people, when they when they get in there and they’re having fun and they don’t really, they haven’t thought about something, what’s, what’s an important consideration.

Ken Moraif
You know, when I talk with people, when we when we visit with people, we’re talking about their their cash flow on the expense side, right, their cost of living. One of the things that you know, people don’t take into account in that equation is gifts to charity that they be, you know, they don’t consider that as part of their cost of living, gifts to their greedy, unwashed, undeserving heirs, which is what we call the greedy unwashed, undeserving heirs, and also things that come around once a year that maybe you don’t think of, they’re not like a monthly thing, right? So for example, your property taxes, or, you know, car insurance, if you pay it once a year, those kind of things people tend not to add into their cost of living. So they’ll say, you know, my cost of living is x. And then I’ll say, Okay, well, what about your property? Oh, yeah. Well, we got to add that in, you know. And you do, you give any money to your to any charities? Yes, well, we got to add that in as well. And then, of course, you know, travel or the entertainment that you’re going to enjoy, hopefully, while you’re retired, a lot of times, people don’t include that in their cost of living, because, you know, they it’s not in their consciousness right now. They’re working, right? So, yeah,

Jeremy Thornton
yeah, yeah, it’s not something you can really look into your bank statement the last six months and say, Okay, well, this is about what we’re doing, and there’s always those outliers. Okay, well, what if you took a vacation seven months ago? Or, you know, those property taxes came up nine months ago, something like that. So, yeah, it’s, it helps if somebody knows what to look for,

Ken Moraif
yeah. And, you know, sometimes questions come to mind. I was visiting with a client just last week, and she asked me a kind of an interesting question, which I think is a great topic for a future podcast. But she said, she said, Ken with with my net worth and my income, what would be an appropriate amount for me to give to my kids every year? Because I want to give them money, but I don’t want to run out of money in the process, right? I want to take care of myself first. I don’t want to be a burden. She’s a widow, and so I thought, you know, that’s a really good question, because the amount that you can do is dependent on your individual situation. There’s no everybody can do this, right, you know. So that was a really, you know, I had to stop for a moment and think about that one. That was kind of cool. So, you know, questions like that come up, and we work through them and have fun

Jeremy Thornton
with it. I love that. Okay, well, the next step, next step is investment management.

Ken Moraif
Investment Management, that’s correct. So the outcome, the product of the retirement cash flow plan, is what we call the cash flow plan, okay, so rcfp. So the the product of the rcfp, there are many. One of them is, what rate of return do we need to earn on your investments to generate the income to satisfy, you know, supporting your lifestyle for the rest of your life. And so once we and our goal always, you know, we’ve talked in the past about the importance of having investment principles, and one of our investment principles is take only as much risk as necessary to accomplish your financial goals. So what we try to do is we try to push down, you know, how much money we need from our investments? Because the higher the amount we need from our investments, the higher the rate of return those investments need to generate to provide that income. So we want to push that down so we have a higher, you know, higher degree of probability and a lower degree of risk. So one of the products from the retirement cash flow plan is, you know, how much risk do we need to take with your investments? Once we know that, then we can look at, okay, what portfolio construction should we have? You know, how should we diversify your money? How much risk does that portfolio need to take to satisfy that? And in our view, if you haven’t done the retirement cash flow plan first, then how on earth are you going to know how to construct a portfolio for somebody? Right? You know, if you. Just go, Okay, well, you need to be x. Well, how do you know that? What if they need to take a little bit more or a little a little bit less risk than than x? And until you’ve done this, cash flow plan first, you, in our view, you can’t really determine that. Yeah, so cash flow plan first, the offshoot of that. There are many, but one, very important one is, how much risk do we need to take to accomplish once we know that, then we can say, Okay, now let’s build a portfolio that’s going to give us the highest probability of achieving that rate of return that we’re looking for, right? With the least amount of risk,

Jeremy Thornton
right? So risk is named a lot there. What? What? What? To a dummy, that’s me. What does risk actually mean? When? When we’re talking about investments?

Ken Moraif
Okay, yeah, so that’s a very that’s a good question. I like that one. So when you’re investing, you’re in the risk business, okay, because nobody’s going to give you a return on your money if there wasn’t some risk involved. Because if there’s no risk involved, the way you do that is you bury it in the backyard, and, you know, hopefully termites don’t get to it, but you know, you know it’s there, right? And nothing will ever happen to it. You put in a nice box, hermetically sealed, fire sealed, etc, and it’s always there. That’s the no risk. One anything that gets you a return higher than that, there’s some risk involved or there would be no return. So the higher the return that you want to get, the more risky the investment needs to be in most cases. So to specifically answer your question, what does risk mean? In our view? What risk means is the potential that you could lose, gotcha right, and how much? Yeah, right. And there’s different kinds of risk. For example, if you put all your money in CDs, then one of the bit, there’s two risks you’re taking there. Because most people think, boy, when I put my money in CDs, I got no risk, right, right? FDIC insured, and it’s locked down at the bank and no risk. Well, you have two risks. One is the reinvestment risk, which is that when you that CD matures, you know the interest rate that you’re going to get is going to be significantly lower than the one that you were getting, which happened to a lot of people over the last few years. With interest rates dropping down near zero. They were finding CDs that they were getting, you know, Five 6% and suddenly they’re renewing, and they got, you know, point 5% or whatever it was. So, you know, you have to, you have reinvestment risk, and the other is liquidity risk, you know, you put it in, and then emergency comes, and now you got to get it out. And you can’t get it out because there’s penalties, right? So you’ve got, you know, so there’s really no investment that does not have risks associated, and that’s why you diversify, okay? Because what you want to do is you want to say, Okay, this one has that risk. So I need something else in my toolbox, you know, to address that risk, but have another opportunity, you know, so different ways of looking at it. So, so in a nutshell, risk is the things that could cause you to lose money, not have access to it, or get a lesser return in the future.

Jeremy Thornton
Gotcha

Ken Moraif
yeah, that’s that’s what we try to do by diversifying and having different tools in the toolbox. And, you know, I like to use that analogy. If you think of a toolbox, you know, you got hammers, you got screwdrivers, you know, you have all these different tools in there. Each one of them is designed to do a different job, yeah. And so you wouldn’t use a hammer to try to, you know, screw something in right? And so in your investment toolbox, you need to have things that are designed to do different things. Some are designed to give you income. Some are designed to combat inflation, you know, so that you want to build a portfolio that has a diversified toolbox, if you will. Yeah,

Jeremy Thornton
awesome. Okay, yeah, so, and I would say that’s probably a very large portion of what people look for a financial advisor for

Ken Moraif
it is, but it shouldn’t be. I mean, it is. It certainly is a major thing. And you know, for most people, what I’m talking about the philosophy, the philosophy that got you here, is probably not the full of investing is probably not the philosophy that’s going to get you there. Yeah, right. So coming to the point where you’re about to retire, or you’re retired now, you know, you probably have 30 years, or 20 years, or something behind that, where you were investing being more aggressive, you weren’t particularly concerned about inflation with your investments, or, you know, taxes or bear markets. You know, which we consider to be the three worst enemies you have to your financial well being. You know, if you’re 2530, even in your 40s, yeah, those things are considerations, I’ll say, but they’re not things that cause you because you’re putting money in right, you’re but once you. Retire now, you’re taking money out, you’re not contributing, you’re you’re you’re depleting, right? You’re taking money out, you’re spending, as opposed to adding. And that dynamic is very different. And the kind of planning that you need to do and the portfolio strategy that you use now is different, yeah, then where you were, you know, 10 years ago or so absolutely,

Jeremy Thornton
yeah, no, that. That makes a lot of sense. Okay, next step,

Ken Moraif
yeah, the next one would be planning for Social Security. Yeah. So Social Security is, you know, and I, and I’ve said this a million times, because I think it’s funny. So hopefully our audience, hopefully our audience, will think it’s funny. We’ll see. We’ll be the judge of that. Yeah, but if there was a gold medal for you know, if they had an Olympics, the Olympics of complexity, Social Security, I think would win the gold medal. Like every single time they are hands down. You think income taxes are complicated, try figuring out the best strategy to when and how to take Social Security. And you know, I’m probably advancing a question you’re gonna ask me, What’s the biggest mistake that people make with Social Security? Well, one of the biggest mistakes, in my view, is that they assume that, because they’ve given you these dates that that’s your decision points, right? You can take them you’re 62 right? When you’re let’s call it 67 your full retirement age, or you can wait till you’re 70. So basically, I just wait for one of those, right, and I’ll just decide which one of those three. No, no. There are 9000 combinations of how and when you can take Social Security, it is supremely complex, yeah. And on top of that, there are tax implications of when and how you take Social Security, and there are, you know, the cost to you from, you know, Medicare standpoint. So there’s so much interplay and your health, your age, the disparity in ages between you and your spouse, your income disparities, you know, it’s a 3d you know, multi chess game, right? So don’t do this at home first of all. But Social Security is extremely important to do it right. And the thing about Social Security that I think makes it so important is that if you if you do it, if you make a mistake, yeah, after a year, you can’t change Yeah, right. So you’re kind of stuck with it, you know? So, like they used to say on that TV, that game show, is this your final answer? After a year, it’s your final answer, yeah. And you can’t go back and change it, so you’re stuck with it. And if you pick the wrong way of doing it, and you leave, let’s say $100 a month on the table. Well after a year, that’s a $1,200 you live. Let’s say 30 years in your retirement, God willing. Guess what you now got? You got $30,000 you left on the table? Yeah. And so it’s significant money, and so doing it right, I think, is extremely important. And working with somebody that’s trained in that is equally important, because it’s so complex that you want to work with somebody, I would guess, that has been certified and trained and that understands it and is up to speed with all things that change every year, which is what we do internally. We do that with our retirement

Jeremy Thornton
planners. Yeah, yeah. So mentioned a couple of the ages. I think that’s definitely something that people think of a lot. It’s what’s the minimum age you can take it out, and then the maximum, or the full retirement, and then they even have beyond that. You know, the last time you’re basically eligible to take and you have to take it by that age. Well,

Ken Moraif
actually, you don’t have to take it when you’re 70, but if you don’t, you’re kind of right.

Jeremy Thornton
You’re out of it. Yeah, you’re out of the out of the running. Yeah, you can’t take it after that. Well, you

Ken Moraif
can, but there’s no advantage to waiting beyond age 70, I gotcha, because there’s no more cost of living increases. There’s nothing. So waiting till 70, in in many cases, is a good idea, but waiting beyond 70 is a really bad idea. In all cases that I’ve come across, I can’t, I can’t even think of a reason why you would wait beyond 70 unless you just don’t want the money. Because you’re, you’re a great patriot, and you think that you know the government should keep the money so they can distribute it to others, right? And you’re just being altruistic,

Jeremy Thornton
yeah, yes, government is well known for using but actually, if you’re gonna

Ken Moraif
do that, well, I was gonna say, just send it to me, but my compliance department would not like that one. So do not send me your Social Security check. Please don’t do that

Jeremy Thornton
full retirement age. I think that’s again, going back to the age. I think it’s a really big topic. Is there just one full retirement age for everybody? There?

Ken Moraif
Isn’t it? Your full retirement age depends on when you were born, and so there’s a different one depending on the year that you were born. Yeah. So that adds to the complication, yeah, yeah. So no, it. You know, I was talking earlier about having more fun than a human being should be. Allowed to have, you know, if you do this stuff, if it’s, like, your passion, it’s actually fun. Yeah, you know, I think for most people, they’re like, oh my gosh, I gotta, I gotta figure this out. And it’s a headache. I feel stressed, you know, I don’t want to do this. Well, it’s actually fun. You know, it’s like, it’s like a puzzle that you’re trying to put together, and you want all the pieces to fit, right? And once you’re done, you look at, you look at, you look at the whole thing. You’re going, Yeah, that looks good to me. Yeah, you know,

Jeremy Thornton
yeah. Complete picture, essentially, yeah, yeah, don’t, man, I can’t stress it enough, don’t try it at home. I have loved ones that are trying to figure this stuff out right now, and they’re like, Who do we talk to? Who do we go to there? And you haven’t told them, I have okay, but this is, this is they came to me with this. They said, We don’t know what to do. And I said, Okay,

Ken Moraif
listen, they thought, yeah. I was like, no, no, I may work for that. I’m not the guy.

Jeremy Thornton
Okay, very good. So Social Security, super complex,

Ken Moraif
but very important, very important, yeah. And for most of our clients, Social Security, outside of their investments, is, is the single largest source of income that they have. So nailing that down and making sure it’s done to the best that we can is is very, very important,

Jeremy Thornton
very good. Okay, next step, step number four.

Ken Moraif
Step number four. And again, you know, these are not necessarily, as I said before, these are not necessarily, this is the order that we kind of view them, right? But when we have a brand new client, what we tell it, we ask them is, what order do you want to do these in? Yes, so we’re the next step would be insurance, right? And so we’re putting Social Security in step number three. But if you’re not of Social Security age, that may be step number five. So just so you know, these aren’t cast in stone chronologically, but we ask you which What do you want to do? We want to two years from now, we want you to be all everything, all set, and you can go out and enjoy your second childhood, if not sooner. And so what order do you want to do these in? And those are our marching orders to help you to help you to get all those things done. So the next thing is, is insurance. And when you retire, you know a lot of the insurance that you’ve had up until now may no longer be needed, for example, if you have disability insurance, right? So, disability insurance is the kind of insurance that pays if you can’t work, right? Well, if you’re retired, you don’t need that insurance anymore, right? So that’s one example. You know, a lot of times people say, I have all this life insurance, you know, do I need that still? And so, you know, life insurance is a really interesting thing, because basically, you buy life insurance so as to replace, think of yourself as a box that’s producing income, right? So you’re working and you’re generating income for your family or right? So you’ve got, so you’re the black box that’s generating this income. So if that box went away, now, your family would no longer get that income right. So you need to insure the box right, and that’s called life insurance. So you buy life insurance to replace the economic impact of you no longer being able to work and disability insurance, but you, if you’re gone, you’re right, right? And so now we want, we want to provide the fan, our family, with enough money to keep going when that box is gone, right, right? But now you’re retired, yeah, so you know, you don’t need to insure a box that that doesn’t exist anymore, right? This box isn’t producing anything now, so why would you want to still insure it? Yeah, but you need to be looking at different kinds of insurance. So Long Term Care Insurance is a very important thing, because now, like I said, in many ways, once you retire, you’re playing defense, yes, right? And one of the worst enemies you have to your financial well being is the person that you see in the mirror, you know, in the morning, when you when you’re brushing your teeth or whatever, because if you’re if your health declined and you couldn’t take care of yourself, you know, and I’m sure many people have experienced this personally, but long term care, where you have somebody you know, take care of your family member you know, come to the house or whatever it is, very expensive, yeah, and it could put a huge dent in your retirement plan if you suddenly have an extra $50,000 a year expense that that wasn’t there before. So, you know, in many cases, you switch the kind of insurance that you’re going to have, right? You needed life insurance because you were the black box that was generating the income, but now that income, you’re not doing that anymore. So insuring the black box is like a waste of money, so now maybe we divert those dollars and buy the kind of insurance that we should have. The other thing is that you know the kind of insurance you may have, long term care insurance. But you don’t have the right kind. You know, there’s lots of different things to be thinking about in that regard. So, you know, one of the things that we want to do with clients is to do an analysis of all the insurance that they have, to make sure that they’re not paying too much for what they have, and also to make sure they’re not paying for something that they don’t need anymore, and diverting those dollars towards something that they do, right? And so that’s part of the exercise. That’s that step that’s very important to do as well.

Jeremy Thornton
What’s another type of insurance that is, there’s no end all be all. There’s no thing that works for everybody. What’s another but besides long term care insurance that people typically take.

Ken Moraif
Well, depending on your age, there’s also what’s called Medigap, or insurance that pays for what Medicare does not. Okay, so Medicare as a deductible. Medicare doesn’t pay for a lot of things. Long Term Care, actually, insurance does pay for something that Medicare generally does not. So that’s important. But also, you know how, depending on your financial situation, you may want to have a big deductible. You’re not worried about it. You may want to have a very small deductible on your Medicare. And so looking at Medicare and the alternatives, there’s the subject for a different podcast, but there are, there’s the A, B, C, D, you know, there’s all these alphabetic terms for different kinds of insurance. And dealing with all of that is very important also, because every year it changes, you know, the doctor, for example, that you’re currently going to may not, or, I’m sorry, the plan that you’re on currently may change, and suddenly the doctor that you’re working with is not on there anymore, or the prescription drugs that you were taking are not covered under this particular plan anymore. So you can’t take it for granted. Every year, you got to review the whole thing to make sure that what you want is still there, and then your life changes. You know, I’ll use prescriptions as an example. You know, a prescription that you didn’t need before. Maybe now you do, and then you look on the plan, well, they don’t, they don’t pay for that. Okay, so now I need to switch plans, right? So it’s an ongoing thing, but the first step in, since we’re talking about this, of peace of mind, is knowing that the insurance that you have is appropriate for you, you know. And running through the whole checklist of things. And so that’s a very important step on the path. Yes, indeed, your financial peace of mind. It’s almost like a tack line.

Jeremy Thornton
Okay, all right, so mentioned a couple times. Now, next step, step number five in no particular sequential order, Medicare, yeah,

Ken Moraif
Medicare. So, yeah, like I said, if somebody is already on Social Security and they started before they were 65 then they don’t, you know, at this point, it may be too late to do something about Social Security, but Medicare may be a big deal. Yeah, right. So again, it’s up to you which order we do all these things in, but Medicare is very, very, very important and also very complicated, yes, and so again, working with somebody that deals with a day in, day out, I think that has a familiarity with it, that has a working knowledge that you know has done it 100 times or whatever, I think is, is an important thing to have, a person to have on your team. But there are some considerations. When it comes to Medicare. There are laws, tax law or not tax laws, but how much of your premium is going to go up based on income from previous years you may have had, you know, a lot of people get an ugly surprise when suddenly there’s an extra, you know, or their premium goes up by $200 a month. They’re like, where did that come from? Well, it’s because, you know, a year ago you didn’t do proper planning to address that if it was possible. So future thinking when it comes to Medicare is also very important in terms of what your investments are doing that can create extra cost for you in higher premiums, and therefore, you know, and that’s a big deal.

Jeremy Thornton
Yeah, I had, I did not know that to your past earnings or that recent earnings would affect your Medicare payments.

Ken Moraif
Yeah, they essentially, it’s a means testing, which is basically, you know, depending on how much money you make and how much money you make, can be your investments as well. It’s not just your wages, but how much money you make. They use that as a barometer or a measuring stick to decide, you know, what your premium should be. And so if you have a big increase in one year, you know, you could, you could find yourself having this big and what’s interesting to me is that there is nothing that I can think of that angers clients more than when they see their Medicare premium go up. It’s like, this is like the most irritating thing in the world. And, you know, a lot of. Times it goes up just because of inflation and all that, but you don’t want it to go up because you missed an opportunity to, you know, either spread it out so that you don’t have as large of an impact or avoid it altogether, if possible.

Jeremy Thornton
Yeah, yeah. There’s almost a theme to all these government programs, and that’s complication,

Ken Moraif
yeah, yeah. It’s really, it’s really interesting. In fact, you know, as I’m talking to you, I’m thinking of other podcast ideas. One thing that clients ask us for help with is signing up for Medicare, you know, because you only do it once, right, right? I mean, the initial one is only once, right? And believe it or not. I think there’s like, 29 or 30 pages on the website. You know, when you go to sign up for it, and you know, you what you can do is you can stop, because it’s like, okay, I don’t know. I do not know how to answer that question. So you can actually pause the thing and come back to it like, you know, two or three days later, once you’ve done your homework on how to answer that question. And so, you know, walking people through that process and getting it past them, you know, getting past it is also an important step, you know, towards financial peace of mind. It’s like, Thank goodness I got that behind me. I don’t want to do that again. But again, unfortunately, you know, Medicare, they have, you know, the enrollment every year. You got to, you got to think about it so it’s not a set and forget. It’s, it’s a set and then revisit, yeah,

Jeremy Thornton
yeah. You know, after a couple years, you kind of get into the groove of it, I’m sure, a little bit. But it’s always helpful if somebody else is doing that every single year, multiple times a year with multiple different people. Yes, little expertise, a little probably a few tricks of the trade and things like that can go a long way to easing that burden.

Ken Moraif
Yep, that’s a true fact, in my view. Yes, indeed. Okay,

Jeremy Thornton
Medicare, another complicated government program we’re moving on to a much less complicated government program, joking tax planning, number six, tax planning,

Ken Moraif
income taxes, yes, boy howdy, yeah. I think income taxes, you know, for most of people when they retire, I would say, is less complicated than the initial decision as to when and how to take Social Security, but once you’ve made that decision Social Security, you don’t do it again, right? So that’s behind you. So now income tax moves up into the first place as to, you know, who’s winning the gold medal every year, but income taxes are, you know, when we when we talk about the three worst enemies you have to your financial well being, we talk about inflation. We talk about bear markets. You know, big drops in the market that can be devastating. And then number three is income taxes. And you know, over time, if you’re overpaying on your income taxes over and over and over again, it’s the equivalent of getting a lower return on your investment, right? Because if you’re paying more tax, it’s a subtraction from your income. And so income tax planning is very important. And again, once you retire, the income tax strategies are most likely going to be quite different than the ones while you were working. Okay? So, for example, when you were working, you had a 401, K that gave you tax deductions. You don’t have that once you retire, but now, once you retire, what you do have is, you know how much income you have could affect your Social Security benefits, right? I was talking about Medicare. Now I’m talking about Social Security. There’s this thing called your provisional income where they determine if they’re going to tax 85% of your Social Security benefits or not. Okay? And if you’re not aware of that formula that they use, then how are you possibly going to figure out if you can avoid it at all? Well, now, in some cases we can’t, but in other cases, it’s possible. So we want to look at, you know, how can you reduce your provisional income, which causes taxation of your Social Security required minimum distributions? You know, once you get of a certain age, you’re going to be required to take money out of your IRAs. So, are there strategies you can use in advance of that? You know, there’s one strategy that we use we call tax bracket management, okay, which basically is, how can we maximize the amount we’re taking out of the IRAs before we get to the age when we’re required to take money out? And if we do that, then we can reduce the amount of those distributions later, because the required distributions can get quite big, okay? And if they’re big, you’re going to owe a lot of taxes on that, yeah, so if we drain the tub in advance, then those distributions could be smaller, and we could spread that tax out over the years and keep you in a lower tax bracket. So that’s another strategy that you want to start. You know, before you get to be 73 or 76 Six, whatever age it is for you. So yeah, again, the the theme I hope I’m getting across is that what, what brought you here in can get you there, right? So the the income tax planning that you did while you were working in your 40s and maybe even in your 50s, is not the same as the income tax planning once you are retired. There’s another consideration, you know, you probably have an IRA. You may have a 401, K. You may have investments that are not in either one of those. You may have annuities, you know, money at the bank. You’ve got all these different places, you know, hopefully, where you have money, right? Okay, so now it comes time to get income while you’re retired. Well, what’s the most tax efficient way of getting that income? You know, should you take it from your IRA, your 401, K, from your, your you know, where do you get it from? Yeah, so as to, you know, mitigate your income taxes, right? That’s a very important thing, right? And so planning against that is something you probably never had to think about, yeah. So there are a lot of things that once you retire, I think working with someone who specializes in retirement planning is very important,

Jeremy Thornton
yeah, yeah, yeah. I don’t think my, my normal CPA, who is me will know anything about that? I don’t think my Turbo Tax is gonna help planning any of that out. Do you have one or two, just like commonly used strategies to minimize taxes? I know you said, you know, picking which income that we’re going to be taking money out of and spreading that out and things like that.

Ken Moraif
Yeah. So tax bracket management is definitely one that you want to look at. If a lot of your money is in an IRA where every dollar you take out of it’s going to be taxable to you. That’s a traditional IRA now Roth IRAs, when you take it out, it’s tax free now, so those two converting a traditional IRA into a Roth. Ira can be a very effective tax planning strategy. So that’s another way to look at it. So you could, you could, as I said, drain the tub on your traditional IRA. You can convert it to a Roth. The other strategy, of course, is looking at the provisional income on your social security, and the big component of that is your adjusted gross income. So reducing your adjusted gross income by investing in things that don’t create Adjusted Gross Income reduces the tax you’ll pay on your social security. So yeah, there, there’s a variety of income tax strategies to be looked at, right and again, once you feel you know that you’ve kind of addressed that, I think that’ll give you some peace of mind. But lest you get too cocky, remember Luke Skywalker, I did it, I did it. And Han Solo said, Don’t get cocky, kid or something. Don’t get cocky here, you know, have to revisit this again every year, yeah, to be sure that you’re, you know, because income tax laws change and your situation changes, and you know, so that’s part of the process also is to revisit it, but in the initial stage with a brand new client, we always look at, you know, reviewing their their income taxes, and planning for these different things, these different things that are going to be coming in the future, so that we can mitigate as much as possible your income

Jeremy Thornton
taxes. Yeah, yeah. Again, keep going back to where you’re at and where you’re going. That’s right, yeah. Okay, on taxes, we’re, I see, I’m looking at my list. I’m like, there’s some fun stuff coming up here. Okay, what you see on your list? So I like, I like, I like this. Number nine. We’ll see what I like number nine. Number nine, that’s what I’m looking forward to. Number nine is the best one. Yeah, yeah. I agree to number nine. We have number seven, seven estate planning.

Ken Moraif
Yeah, so estate planning is what I call the the passing it on to your greedy, unwashed, undeserving airs. And let me just say for a moment here that anybody that got offended by that, right, I’m joking, right? Okay, cuz, right, because, you know, on my radio show, which I did for years. I always that’s kind of I have fun with that, and I get emails from people my kids are not greedy. And I say, okay, but they are unwashed, yeah, so you need to shower them off, hose them down. So I’m only kidding not so, yeah, so estate planning is also, you know, something that you know, I think, if you’re if you love your kids, that you want to and your spouse, your significant other, that you want to get your affairs organized. And, you know, once you retire, it’s a time, basically. To kind of go in the attic and clean it all out, you know, a lot of that stuff. You know, I meet people that, in fact, I met with a couple last week that said that their will was 20 years old. And I said, well, has anything changed in the last 20 years? They said, Yeah, quite a bit. I said, Okay, well, probably that needs to be reviewed. Yeah, not the least thing that’s changed, you know, is that the laws have changed over the last 20 years, but your net worth has changed, hopefully over the last 20 years, right? So if you’ve, if you’ve done a good job over the last 20 years, you probably have more money now than you did when you were 20 years ago. And so the importance of doing that becomes, even, you know, more acute. So and estate planning is complicated. You know, which trusts to use. You know, how do you transfer money? What you know, there are a variety of different kinds of trusts that you can create. You know, for me, one of the most important. You know, I love my daughters. I love my daughters. I looked into the camera. I love you girls. But you know, with all due respect, I love my wife more, yeah, and so, you know, there are trusts that you can create to make sure that if something happens to you, you know before your spouse, especially if you’re the financial one that your spouse is taking care of, that’s called a Q tip trust. So you know, estate planning is not for very wealthy people necessarily. It’s for really, anybody that wants to pass on to their family, their children, their grandchildren, you know, their estate in the least taxed, most cost efficient way. Yeah, it’s also the, I’ll call it the art of trying to avoid a family war. Yeah, right, you know, because I can’t tell you how many times I’ve seen where people didn’t plan properly, and then the kids just go to war with each other over the money, yeah, you know, and sometimes it’s not even a

Jeremy Thornton
lot, right? Yeah, the amount of money is not important. Yeah,

Ken Moraif
it’s crazy to me. There was these three sisters, you know, in their 60s, and they inherited a farm in Kentucky, okay, $35,000 farm in Kentucky, yeah. And from from their mom and mom didn’t do any planning at all. And so the three girls, these are 60 year old women, you know, you think by now, they went to war with each other over that $35,000 farm. You know, they grew up that was where they were playing and all that. It was really important. All three of them. One of them wanted to sell it. I mean, it was, it was a mess. And, you know, mom could have done some thinking about her estate. She had a lot of other stuff besides just that, right? But planning is part of it is to avoid the, you know, the family war, yeah, the other side of it also is, you know, protecting the inheritance that you leave from, you know, kids who spend it all they’re spendthrifts. You know, maybe you want to put some restrictions there. Certainly you want to protect what you leave behind from lawsuits. Yeah, divorce bankruptcies. You know, I love my three daughters, and so, you know, I don’t want them, if they inherit and then they get divorced, that half of it goes even though I love my son in laws, don’t get me wrong. But you know, and I don’t want them, you know, if they’re, you know, have a car accident, God forbid, or something, some terrible thing where they get sued, or they go bankrupt at some point. Don’t want any of those things to happen. But I’d like to create a hermetically sealed, you know, container for them, so that, you know, they are protected from those kind of things. And the inheritance that I’m leaving 10 my wife and I are leaving to them is is protected from those things. In addition to that, of course, there are documents that need to be I think almost everybody listening or watching this program should have, and those are Power of Attorney documents. Yeah, what is power of attorney? Well, power of attorney is, if you’re not able to make decisions for yourself, either because you have mental incapacity or physical incapacity, that you designate somebody else to make those decisions for you. And a lot of times, people assume, you know, if that happened to me, my wife could just do it, you know, or my kids could just do it, right? No, they can’t. I mean, think about it. You don’t want people that you have not given permission to spend your money for you because you don’t, you’re not aware of what’s going on, right, right, right, and you don’t want them to make medical decisions for you if you have. And told them, You know, I remember a Seinfeld episode where they were, I think Kramer asked Jerry to be his power of attorney for, you know, pull the pull the plug document. And then Kramer was getting all nervous, because he thought they were, if he was in that position, that they just pulled a plug to kill him. So, so, you know, there are documents that are important and deciding who is going to sit in that seat. Because, you know, from a power of attorney standpoint, you may want to have somebody who’s in charge of paying bills and handling the financial side, the investments, etc, but they may not be the person that you want to be making decisions about, you know, what medical procedures are appropriate, or whatever. So your medical power of attorney may be different than your financial power of attorney. The pull the plug document is a very important one, also subject to your, you know, your moral compass. Some people don’t believe in that. Most people do. We’ve, we’ve all seen, you know, on TV, the stories of families that are the judge will not allow them to pull the plug, and they’re just draining the family’s resources, because the person in the hospital there never signed, you know, never let anybody have that power of attorney. So that could be a significant threat to your estate as well. So there’s a lot of considerations there. Also,

Jeremy Thornton
yeah, yeah. And there’s always somebody in line as well at the reading of the will. Maybe not there in person, but they’re always there, and that’s Uncle Sam.

Ken Moraif
Well, that’s true too. That’s right, yeah, good shot. Yeah, certainly depending on the size of your estate, yeah, you want to avoid estate taxes, and there are trusts that can potentially protect against estate taxes for up to 100 years. Oh, wow, yeah. So you know, if that’s a concern for you, then and then there are others that go into perpetuity. Those are, you know, problematic from our perspective, because perpetuity is such a long time, and the government has an incredible knack of saying, man, there’s a lot of money over there that we want to go, yeah, and that perpetuity thing may go away. So we, you know, that one’s kind of with a grain of salt, but certainly you want to, depending on the size of your state again, yeah, you know, protect that from estate taxes for as long as possible.

Jeremy Thornton
Yeah, yeah, yeah. That’s Uncle Sam is going to get try to get his payday no matter what.

Ken Moraif
So, yeah, death and taxes, yeah, yeah, yeah.

Jeremy Thornton
Okay, all right, so now I think we’re getting into a little bit of a more fun topic. Okay, number eight. Number eight, yeah, large purchases,

Ken Moraif
large purchases, yeah. Yeah. And you know, large purchases can can be defined in several different ways. One could be because you’re you downsize, and you’re going to buy something with the proceeds of your downsizing. So in other words, you have a house that’s too big, has a pool. You don’t want something like that. And you know, in many instances, people will sell that and then buy something else that may have a lower cost than what they sold the original for. And so that would still constitute a large purchase. You know, you’re spending a few $100,000 to buy this, this new home. So that’s an important consideration we have. You know, situations where people want to, I had one, one client who wanted to buy the Tom Selleck Ferrari, you know, the one from Magnum PI. He wanted one of those. It’s like, that was his bucket list item. That was, that’s a big, you know, it’s not a cheap thing to buy. And that was his thing. And, you know, he’s like, I’ve always wanted one, you know, can I afford to do that so? And large purchases, you know, the important and, you know, we have clients who large purchases don’t necessarily need to be something that you, that you, you, you buy as in an asset. It could also be, I want to take, you know, the vacation of a lifetime. Yeah, you know, I’m gonna do it this one time, and we’re gonna spend, you know, a lot of money on it, because it’s a bucket list item that we wanted to, I don’t know, go around the world or whatever it may be. And so that’s a big ticket item, yeah, you know, large purchase as well, even though it may not be like a house or something like that, right? And so, going back to what we were talking about at the beginning, the retirement cash flow plan. It is also, you know, a living breathing thing, because you’re always updating it to reflect how investments have done. Tax law changes. You know your situation. Are you spending more or less, etc. And one of the things that we plug into that is these large purchases. And how will you be, you know, can you afford to do it? Yeah. And so we always tell clients before you go doing anything, you know, talk to us first. Yeah, because you know you don’t want to accidentally shoot yourself in the foot,

Jeremy Thornton
right? Is there? I know there is. So I’m asking this question. No. Knowing that there is a different answer here. What is the delineation, or the idea, between cash versus loans for some of these larger purchases? What’s what’s a consideration?

Ken Moraif
You know, one of the things that we believe is that when you retire. So Should your debt be retired? You know, again, we’re going back to the concept of financial security, financial peace of mind. We want your money to last as long as you do, right? And you know, in that scenario, debt is, you know, a real threat, because if you have a lot of debt and you come on bad times, it’s very difficult to go to those people and say, you know, I’ve come on really bad times. Can you just, like, waive everything and, you know, I just won’t pay you anymore, and we’ll all be friends. You know, it’s unlikely they’re going to do that. And so, you know, and debt is, in our view, is a is a dangerous part of your retirement plan. So ideally we want you to be debt free, because then, if things went really badly, then your electric bill could be the candle you put on the coffee table, and your food could be, you know, the tomatoes you grow in the backyard, or whatever, right? And you know, you can, you can subsist on way less than what you have, what you’re doing now, if you have no debt, yeah, but if you have debt, the debt doesn’t go away because you’ve fallen on hard times, or your investments have fallen on hard times, or something you know, of that nature. So in our view, if you’re if you’re retired, so should your debt be retired? And you know, many times people even say, you know, interest rates are so low, or at least they have been right, you know, isn’t it still worth having a mortgage? Our view on that is, you know, again, we want to look at the big picture. But generally speaking, even if you have low interest rate on your mortgage, it’s still dead, right, and we would rather that you didn’t right. And what I tell you know, what we tell clients, is that, yeah, you know, if you’ve got a, I don’t know, a 4% mortgage, and you could invest the money that you’re gonna pay off this mortgage with at 8% you’re better off doing the eight, paying the three, you got a net of five. And that’s the math a lot of people use. But in our view, paying that off is like the bank depending on this is like Las Vegas. You’re betting that this is going to be there to pay for this one. Yes, but what if it isn’t right? If you pay that off, it’s guaranteed. You’ve saved whatever the interest rate you’re paying on that mortgage is that return on investment is guaranteed. So if so, if it’s a 4% mortgage, it is a guaranteed 4% return on your investment. Now what I say to that is, yeah, it’s not the best investment you’ll ever make sure, but I’m pretty sure it won’t be the worst investment you’ve ever made either, but when you put it in the category of financial peace of mind, if you add that to the component, right? I think it’s a big deal. I’ll tell you when I when when. And this is, this is consistent through all the years I’ve been doing this. When clients pay off their mortgage, when they’re when they’re out of debt completely. Yes, their skin color is different. I’m not even kidding. Yeah, they come in and they got rosy cheeks, and I’m like, wow, you’ve been out the sun. Would even know we paid we’re debt free? Yes, you know, it’s like, there’s a, there’s a grayness to the skin, you know, even if people, even people that can afford to pay it off, and they just aren’t because, you know, they they feel that the interest rate is attractive, they still have that in the back of their head. They owe money, of course, and you can see it in their skin color. It’s really weird.

Jeremy Thornton
Yeah, yeah, the E out, and that’s if you’re owing that the debtors are going to get it. You know, they’re not going to accept an IOU

Ken Moraif
unless you’re in Dumb and Dumber. Remember the suitcase in there? Cars.

Jeremy Thornton
I don’t think you know, Wells Fargo Chase Bank or whoever is going to accept that. So, so they’re going to, you know, whatever you are in debt on, if you can’t pay it, they’ll come get it, whether that’s your home or your car or whatever it is. So that’s like, you know, again, that said another component to that piece of mind that’s very

Ken Moraif
so when it comes to large purchases, there’s all, there’s lots of considerations in there that are really important. The most important one, though, is, does it fit within your plan? Yes. And, you know, can you afford it? And if you can, then the answer is, yeah. Let’s take that big vacation, you know, buy that second home, buy that boat. You know that Ferrari, you know, the Tom Selleck Ferrari, which, by the way, he did. Oh, that’s fun, yeah, I told him, you know, you can afford to go get it. And so he did. And he and he sent me a picture, you know, and he didn’t have the mustache, and he’s not as good. Looking as Tom Selleck, either I can say that. I say that with all due respect, I think he would agree. But, yeah, talk to us first, you know, make sure you talk to somebody first before you, you know, satisfy your, your, you know, your, your dream of owning something or buying something, and it may put a hole in your financial plan, of course.

Jeremy Thornton
Okay, all right, so this is the, the most fun one. I think this is the goal. I mean, this is my goal right now, but it’s absolutely gone retirement as well. Number nine, our nice step is recreation.

Ken Moraif
Yes, you know, like I said, your retirement should be your second childhood without parental supervision. That’s what we want for you, right? That means being a kid again, going and playing and having fun and not worrying about all these other things we’ve just talked about, you know, getting it all done is, is an important exercise. And you know, like I said, for us, it’s a lot of fun, and I hope it’s infectious with with clients who, you know, oh my gosh, we’re talking about income taxes and Social Security and Medicare. Is Dave Lenny, well, it is fun, yeah, you know. And checking off that list, getting it done, knocking those things off is, is very gratifying, validating, I think. And then now maintenance time comes with those things, right? So now you can go play, hopefully, you know, you can go have fun and enjoy whatever that means to you. And you know, I had a client tell me, he said, you know, he said, Ken, I really don’t like your whole idea of the second childhood without parental supervision. And I said, Oh, really, why not? And he goes, because you’re always talking about, you know, people being kids again and going out and playing and, you know, having fun and all this stuff. And he says, I don’t want to do that. And I said, you don’t. Why not? He goes, because what I really want to do is I want to volunteer. Oh, you know, he said he’s got, like, two causes that he feels really strongly about. And he said, you know, those aren’t they’re not funny. You know, these are important things, people in need that I want to volunteer and help. So I thought, You know what? He’s right? So I’ve kind of amended the second childhood to say whatever that means to you, yeah, is what we want to facilitate, right? You know? And even if that’s what, which, in his case, that’s what he wanted to do. The steps that we just talked about, you still have to go and make sure that they’re all done and properly in order, so that now you can be free to say, Okay, I’m gonna go volunteer, you know, and help these, these causes that I feel strongly about

Jeremy Thornton
Absolutely. Yeah, no one recreation is going to look the same on in anybody’s mind. Somebody wants to sit outside and enjoy a mountainside morning coffee, or somebody wants to be out at sea, or what, somebody just wants to take a vacation with their grandkids or their kids,

Ken Moraif
yep, yep. That’s exactly right. You know, I remember there’s, one client, and he’s deceased now, so that’s why I’m pausing for a moment. But his deal was family vacations. That was really very important to him, and he always had the whole family dressed the same. Yes, I love that. Yeah. So they go on these vacations. And my favorite picture of that whole family, and they were, there was a lot of them, I’d say maybe, you know, 15 or 20 people. They were little babies, and you know everybody, they were on the beach, and they were all dressed in like a white shirt, t shirt, and a white pair of pants, and they were all barefoot in the sand, and they looked like they were just having a great time together. And I always thought, you know, that looks really cool. I can’t wait till I do that. Yeah, absolutely, 100%

Jeremy Thornton
okay, all right, so that was, that was, that was our exhaustive list, nine steps. This is going to be a loaded question, I guess it kind of depends on your viewpoint, but what? What step do you think is most important there

Ken Moraif
the first one, the first step, the cash flow, the retirement cash flow plan, understanding your financial health and making sure that you have positive cash flow. That’s where it all starts. Yeah, because if you have negative cash flow, then everything else we talked about is not as important, you know. You’re not going to have anything to leave to anybody you know. So, yeah, I would say the first step is the first step, yeah, and cash flow is the most important step in my view. Yeah, it

Jeremy Thornton
affects every single one of the other ones, where those others don’t necessarily affect all the others. Yeah, that’s a great point. Awesome. Well, thank you very much for being with me here today. Ken,

Ken Moraif
way to go. Jeremy cohost, thank you.

Well, thank you for watching slash listening to our podcast on. The Nine Steps to your financial peace of mind, as we see it, and I hope that as you went through that it enlightened you on some of the things. And maybe you know as as we were talking about all those different steps, that there were areas where you felt a little bit unsure about it, or you you felt like you know you could be clearer or better at it. Well, those are the kind of topics that we’re going to be talking about in our future podcasts, and in our all of our content is addressing more specifically each one of those steps in that wheel that you saw. So I hope you will tune in to all of our podcasts. You’ll watch them on YouTube and make sure you subscribe by clicking below, because you don’t want to miss any of our delicious, wonderful content, So we’ll talk soon.