Planning For Things We Can’t Predict

There are certain things in life we just can’t predict. If we knew the answers to some of these questions, planning for retirement would sure be a lot easier. So let’s see how you go about constructing a plan that addresses the kinds of questions to which you can’t possibly know the answers.

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Transcript Of Today's Show:

Speaker 1: Hey everybody, welcome into the podcast. Thanks for hanging out with Tony and I here on Plan With The Tax Man. That's Tony Mauro, of course. He's the tax man. You can find him online at yourplanningpros.com. That's yourplanningpros.com. Maybe you came here through a newsletter or email blast or whatever the case might be. Make sure you check him out at the website, yourplanningpros.com. Don't forget to subscribe to the podcast, Plan With The Tax Man, on whatever platform you like to use. We got a fun show today. We're going to talk about planning for things that we cannot predict, how we go about doing that. We're going to get into that in just a second, but Tony, what's going on, buddy? How are you?

 

Tony Mauro: I'm fantastic. Very cold here in the Midwest right at the moment.

 

Speaker 1: A little chilly.

 

Tony Mauro: Yeah, a little chilly. Getting ready to start tax season. It's that time of year.

 

Speaker 1: It is. We are in early February. We're dropping this podcast. I imagine you were going to be ramping up here pretty quickly for the next couple of months. You stay busy and rocking and rolling. We'll get into this and knock it out today for you.

 

Speaker 1: Taxes is actually on my list. We're going to talk about that, so it's appropriate for planning for things that we can't predict, because, Tony, we all know, right, life is certainly unpredictable, Murphy's Law, whatever you want to kind of roll with. There's always something, the unknowns that just come out of nowhere. When it comes to retirement planning, I've joked with many advisors, and you and I, I think, have even talked about this. If we all came stamped with an expiration date, you could make the most awesome retirement plan, right?

 

Tony Mauro: That's right.

 

Speaker 1: If you knew when we were going to pass away, if we knew down to the minute, you could make a perfect plan. Well, but we don't know that. There's a lot of things we cannot predict for and account for. Let's talk about some of these. As an advisor, I talk to different people all across the country, and they all say the same thing a lot, that people will find out what they do for a living and they'll go, hey, when do you think the next market crash is going to be? Do you get that?

 

Tony Mauro: Yeah, I get it all the time. I've gotten it lately with kind of this rocky January that the market's kind of had, bouncing all over the place. Everybody's starting to ask is this the next 2008, 2009? Of course, my answer is, well to all these questions we're going to talk about is, I have no idea. I don't think anybody does, number one. I mean, there's a lot of news, a lot of people making money off of talking about it. But, I don't really think that they know for sure because, otherwise, they would have everybody beat.

 

Speaker 1: Sure.

 

Tony Mauro: It really is [crosstalk 00:02:24].

 

Speaker 1: There's indicators, right? I mean, we have market history, but I think that's the confusing thing about this one, Tony, is we're talking 12 years here of a bull run. I mean, yes, we've had some dips, but no prolonged downturn in over 12 years.

 

Tony Mauro: No. I mean, basically not. Just little dips here and there. It's had all kinds of [crosstalk 00:02:42].

 

Speaker 1: Toss the history out the window, right, because that's-

 

Tony Mauro: Toss that out.

 

Speaker 1: I think that's where it confuses people.

 

Tony Mauro: I think so. I think that the gist of it is people, for the most part, need to stay the course on what they're doing with their advisor and, you got to keep invested, of course, because that's the only way time is going to help you. If you're trying to time things... I mean, studies have been done. I think we've talked about it before. You miss the best so many days and what it does to your returns. I don't want to sound nonchalant about it and say it really doesn't matter, don't worry about it-

 

Speaker 1: But it should. In a way I'm like don't you want to be able to retire in any market, in any economy? Isn't that the goal?

 

Tony Mauro: I think so. I think you'd want to. That is the goal. I think that if you've got the good enough plan, then you're going to weather these types of things when they happen depending on where you're at and how close you are.

 

Speaker 1: Sure. That's the hiccup, right. That's the great unknown. I mean, if you were 57, 58, 59 in 2008, it was not good.

 

Tony Mauro: Not good.

 

Speaker 1: I mean, you didn't have time horizon. Now, if you were 50, it still wasn't great, but at least you had, maybe, let's say 17 years from 50 to 67 to recover. Well, we've had 12 years of a bull run since then, so you probably have recovered nicely from the '08, '09 down turn. It's time horizon. It's all these kinds of things, but you got to have a good strategy or plan to whether any market because if you live long enough in retirement, typically, Tony, what do we see, five years or so, and we have these ebbs and flows. It's typically a five year cycle, I guess they call it.

 

Tony Mauro: I mean, it mostly cycles five to seven years. You're going to see something, hopefully, if you're close to retirement right now, you've got your plan in place where it's more conservative, and it's not going to feel a lot of the effects if something prolonged happens for a length time. But, again, it goes back to you got to have the plan. Then, you got to monitor it. We've talked about it before.

 

Speaker 1: The key here... We're going to talk about this on things we can't predict is we're going to be living a little while, hopefully, in retirement, God willing. Therefore, you're going to see a number of things come and go, and you want to be able to weather those, whatever the case might be. When's the next market crash going to happen? Who knows? As the old joke with advisors go, nobody has a crystal ball, and if they do, it doesn't work.

 

Tony Mauro: It doesn't work.

 

Speaker 1: You got to just have a good strategy in place, and you do the best you can. Then you let that plan flow and adapt and change to what's happening in the world. Also, thinking about the market crash or any kind of market downturn, typically that's going to be your later money, hopefully, anyway. The way you've got a plan structured and set up is that's going to be your later money, which does give you some of that time to maybe recover. That's the first one on things we can't predict or planning for things we can't predict.

 

Speaker 1: The second one, Tony, is healthcare costs. Now these next three I have, just like the market one does have those indicators and that historical stuff, but that's kind of been out the window because it's been so crazy. Of course, the pandemic and the feeding of the government money has kind of changed all those parameters. These next three that I want to wrap up with, and I want to do for the podcast, I think there are some more tried and true indicators that say what may happen with these. But even so, you still want to have a good strategy. We're going to talk about that.

 

Speaker 1: Let's go to healthcare costs. What's it going to look like in the next 20 years? I think it's a safe bet, do you, to say they're going up? Everything's going up.

 

Tony Mauro: They're going up. Exactly. Everything. I mean, name something that goes down because I certainly don't know. I mean, there isn't isn't much even-

 

Speaker 1: Not my waist line, that's for sure.

 

Tony Mauro: I mean, even pre-pandemic, healthcare costs were high, and as we start living longer and many people are already there, it's got to be higher because they're just taken care of so long.

 

Speaker 1: Right. We're living longer.

 

Tony Mauro: We're just living longer and whatnot. I think in your own financial picture, I think you've got to not only budget for what you're currently paying, but add some in for these inevitable increases in your healthcare costs because not only the cost going up, but, obviously, the easy one is as you age, generally you need more care. The machine starts kind of breaking down a bit.

 

Speaker 1: I mean, it has to go up. We're living longer. The cost for everything are more exorbitant, right, and it's continuing to stay that way. Maybe we have some things that come into place, but I think the safe bet is... Here's the thing, Tony, we're talking general healthcare. We're not even talking about long-term care.

 

Tony Mauro: No. Just general.

 

Speaker 1: I just saw something. Every 65 seconds somebody is diagnosed with Alzheimer's in this country, every 65 seconds.

 

Tony Mauro: Yes.

 

Speaker 1: You know what I mean? That's really hefty care.

 

Tony Mauro: That's really hefty care. There's so many seniors that are starting to get diagnosed with that. My dad's real worried about that. He's 80, and it runs in his family.

 

Speaker 1: Okay.

 

Tony Mauro: Of course, he's all worried because at 80 you can't remember what you did when you were 30 even though you don't have Alzheimer's. He is funny to talk about, but many, many are very worried about that. If most are like him, they say they don't want to go in a home. They don't want that at all, but-

 

Speaker 1: So plan, start structuring, right, so that you can, hopefully, deal with that. That's the big miscommunication is it's not only the avoidance of it, but then think about what happens to the other person. If you're married and you do pass or you do go into long-term care first, it's often the second member of the family, the spouse that suffers. Whether it's the man or the woman that winds up with the long-term care event, the other person's retirement can be greatly altered if it depletes those funds.

 

Tony Mauro: We have an employee who works for us that that just happened about six months ago, and he had to quit because... He's not that old. He's 75 and his wife had starting going downhill. He finally had to put her into a home because she has such severe dementia. I mean, literally, within a year, it kind of turned his retirement really completely upside down. Now not only has he kind of lost his spouse because she doesn't know who he is and dealing with all of that is the financial burden.

 

Speaker 1: Sure.

 

Tony Mauro: From the old school, they didn't have long-term care, so they had to put her in a different unit. Long story short, it's just not good that, and so for the younger people out there, definitely start planning.

 

Speaker 1: Even if you're older. Don't keep waiting. Don't wait another day. What's the old saying, when's the best time to plant a tree, 20 years ago. When's the second best time, today.

 

Tony Mauro: Now.

 

Speaker 1: Do it right now. Okay. Healthcare costs, they're probably going up. Make sure you're addressing it. Don't do the ostrich thing. Don't put your head in the sand, and just not talk about it because that's certainly going to be a recipe for disaster a little later on.

 

Speaker 1: I mentioned taxes earlier, right, Tony. Obviously, this is your heavy tax season. You're getting started. Again, like I said, God-willing, we're going to live for a while in retirement, and we're going to see administrations come and go. What's the tax rates going to look like three presidents from now. Well, who the heck knows, but the indicators are pretty darn good that they have to go up here pretty soon. I certainly don't think anyone would be on the side of the fence saying, well, we might see them go down. I just don't think that's going to happen.

 

Tony Mauro: I don't think so either. Everybody loves low taxes. Who doesn't? Doesn't matter what political affiliation-

 

Speaker 1: It might get you in the office, but it can't stay that way.

 

Tony Mauro: It can't stay that way forever. If you really dig down into the numbers, the government, even lately with them spending so much money with the COVID... But before that, the previous administration, taxes are very low, people like that. But, frankly, the government can't pay for its own business that it runs. They do print money and do a lot of things. But, eventually, I got to think taxes have to go up. They try, as politicians, to kind of sneak them in, so it's not just what they call a tax hike because that doesn't win elections, I think. But it has to be done at some point. I think, for us, especially as we enter retirement, we have to make sure that we're taking that into account because Uncle Sam's got their hand out for a little bit of every dollar we take, and we have to make sure we're planning properly.

 

Speaker 1: Exactly. Well, think about this, Tony, and, obviously, you'd know this. I'll share this with our listeners. But, we have $30 trillion in debt. You go check out the debt clock, you can see we're $30 trillion.

 

Tony Mauro: Oh, yeah, the billboards.

 

Speaker 1: There's $40 trillion in retirement accounts out there. They got a big giant on those. We've seen a lot of changes already because Uncle Sam wants those tax dollars. A lot of that is in something like traditional 401ks or IRAs where it's been deferred, and they're waiting. They got their hand out, or they're going to start taking it. I don't want to be too inflammatory, but like the stretch IRA, for example. That rule change is kind of forcing us to pay that tax sooner than versus stretching that out.

 

Tony Mauro: That's right. That's the kind of things they do. Some of those types of strategies where that's not as mainstream as just coming on and saying we're raising taxes on everybody, sorry. We got to pay our bills. But, yeah, they try to eliminate stuff that they feel is too anti-tax or that defers them collecting, and that does affect us as investors. I think that, again, we got to keep our eye on that and plan properly.

 

Speaker 1: Well, and a tax professional, to your point, the rate that we're in right now, which is why so many people have been saying, hey, is a conversion right for me? Should I start moving some of this tax deferred money and paying the taxes now while I know what the rate is.

 

Tony Mauro: Generally, we've kind of been talking about that with a lot of clients over the last two, three years is possibly starting that and showing them the benefits of what that could look like. Of course, what it costs them in taxes now versus the long-term savings. A lot of times, it's quite a bit assuming that they're around and whatnot. But I got to think that with the traditional IRAs and the 401ks, so much money is there with that IOU to the government, they're licking their chops on that amongst other things.

 

Speaker 1: Strategize. Strategize about tax efficiency now, as well as even what you think you might be looking at, leaving it to heirs or whatever the case is. Again, we can't predict these things, Tony, but we can try to plan with knowledge that we have today and be as efficient as possible.

 

Tony Mauro: That's it. Keep monitoring, yep. That's what you got to do.

 

Speaker 1: Monitor ebb and flow. That is the case, for sure because, again, hopefully we're going to live long enough. We're going to go through some things. If they do nothing, the taxes will change in '26, they'll sunset, and they'll revert back to what they were during the Obama administration. If not, between now and then, something may get done. I mean, I saw California is considering trying to get something pushing through 15% as the state income tax, and we wonder why so many businesses and people are moving to places like Tennessee and Texas and Florida.

 

Tony Mauro: Exactly.

 

Speaker 1: 15%.

 

Tony Mauro: I was just out in California. I was out there for a conference, but visiting some wineries. Of course, the wine owners are complaining as Californians do. I always call them... They're farmers at heart, really.

 

Speaker 1: Sure.

 

Tony Mauro: The taxes are high out there. It's a lot to live.

 

Speaker 1: It's brutal.

 

Tony Mauro: Some of them even say once I retire and sell this, I'm going to move somewhere where the taxes aren't so high. I think you're right. High tax states, Iowa being one of them. Iowa's in the top 13, I think.

 

Speaker 1: Okay. Okay.

 

Tony Mauro: The government here right now is trying to reduce and eliminate the state tax because they want to try to keep people there. I don't know how we're going to pay for it, but-

 

Speaker 1: They'll try anyways. Of course, that, hopefully, attracts other people. I mean, because you think about that. Even in the current federal rate, let's say you're in that 22 or 24% tax bracket, and you're in California and they pass that. Well, now you're adding 15 onto your 24. Now you're at 39% for your state and federal. But then if the Feds do go up... Even if it sunsets, and you go back into that 28% tax bracket, right. Now you're at 28 and 15, right. I mean, now you're looking at what is that, 43%? I mean, that's hefty.

 

Speaker 1: I'll move on the next one here real quick. I saw an old episode of a Twilight Zone. Remember the old classic TV show, right?

 

Tony Mauro: Oh, yeah.

 

Speaker 1: It was an episode where a couple had a pawn shop, and they found a bottle and, of course, it wound up being a genie in the bottle. They asked for a million dollars, and they got the million dollars from the genie. They started giving some of the money away. They were super happy, people coming to pawn shop. Well, one of the people that came to the pawn shop was the IRS. The tax man came. He said you owe us $900,000. Well, this was a 1960. If you go back and look and you think, wow, $900,000 on a million dollars, that's 90%. Well, the tax rates were, at one point, 90%.

 

Tony Mauro: Yes, they were. If you go back and look at the charts, yep.

 

Speaker 1: Mind boggling. Basically, they lose all the money. They wind up getting this million dollars. Basically, they give it all away, or they give it to the taxes. They're left with five bucks because, typically, the Twilight Zone had some sort of moral, right?

 

Tony Mauro: Yeah.

 

Speaker 1: The genie says to him at the end, he says, well, you didn't ask for the money to be tax free.

 

Tony Mauro: That's right. That's a good one.

 

Speaker 1: So Roth conversions, these are why those conversations have been very popular right now is to start... It's not tax free, but the account is because you're paying the taxes now versus paying it later. Maybe that is right for you. That's a way that you can plan for things that we "can't predict".

 

Speaker 1: Final one, Tony, longevity. I just attended my uncle's funeral yesterday. He was 85. But, for the most part, the men in my family don't make it that long. My brother died at 57, my father at 63, my grandfather at 60. Typically, the males of my family don't live that long, so if I just go off of indicators in a family history, I don't think I'm going to see much past my late 60s or early 70s. However, I'm not planning financially for that because I don't want to be 85, and have no money.

 

Tony Mauro: Exactly. Exactly. I think, and we talk about this a lot with clients. I like to talk about it at a time, and it would be so nice as you said, in the beginning, if we all had a pink slip, and we knew when the end was, and how would we live our life?

 

Speaker 1: It would kind of suck. You have this stamp on because you'd feel like you're always under pressure to get something done. But, at the same time, it could be a heck of a motivator.

 

Tony Mauro: It could be a heck of a motivator unless it was tomorrow.

 

Speaker 1: True.

 

Tony Mauro: But, if you knew that, obviously, you'd probably live your life differently. You could plan exactly what you need to do. Obviously, we don't have that, and we need a plan anyway. But I think going back to even retirement, I think people don't look at it correctly. If the typical man lives to 80, let's say, and most of us are going to retire at 65-ish to 70, you're only really living less than maybe 20% of your life doing what you want on your terms, living the life the way you want, and the whole other 80 has been learning, working, and dealing with life-

 

Speaker 1: Growing, building, yeah.

 

Tony Mauro: ... and, boy, that's just reversed. It'd be so nice if it was the other way around. Somehow there's-

 

Speaker 1: There's a great quote from a great short story or short little thing from George Carlin, the legendary comedian who's since passed away, talked about when I come back, he says, I want to live my life in reverse.

 

Tony Mauro: In reverse.

 

Speaker 1: He goes through and kind of explains it out, and it's really kind of quite funny.

 

Tony Mauro: It is?

 

Speaker 1: Take a look. Look it up on online, if you'd like folks, but it's really pretty funny. But that's a great point. We have these family indicators, but they're not the be-all, end-all, especially with the technology. Like we said, we're living longer. Now the brain, if you go back to the long-term care, we're keeping the body healthier longer. We're still having some trouble figuring out the brain section so far. But, either way, you've got to plan because, again, also with the spouse component, Tony. Again, my male family history says I might pass away early. Well, if I go blowing all the money, or my wife and I go hog wild, and then I'm wrong, or even if I'm right, I've left her with nothing.

 

Tony Mauro: Right. I think that goes back to not only planning with your advisor, but also planning with your spouse and your loved ones about what's going to happen should these things come about. I know my wife and I both have a life book. We talk about it a lot. If something happens to one of us, what the other one's going to do to keep them going and whatnot. But, I don't think most people that I talk to give any thought to that, outliving the life expectancies even though maybe the indicators show otherwise. I'm finding a lot of people seem that you ask them, well, when's it time to call it quits, and they just say, well, I don't know.

 

Speaker 1: I don't know.

 

Tony Mauro: Well, have you ever thought about that? It's a deep subject, and you can get into a lot of different avenues with it. But I just think people need to start taking a look.

 

Speaker 1: At least penciling it in, start thinking about... because a lot of us wind up, sometimes we just are reactionary through life versus proactive. We just kind of react to the things that are happening to us versus planning ahead and planning is tough.

 

Speaker 1: Sometimes as humans, we, because best laid plans, right, a lot of times they go awry. But, when it comes to your retirement and things of that nature, we've got to, at least, get some of these things and some of these structures in place to help mitigate and make things easier. Of course, that's why you that's why you have a career. That's why you do what you do. Folks, if you've got some questions on how to plan for things that you can't quite predict, well, there are ways to still strategize.

 

Speaker 1: Make sure that you reach out to Tony. Have a conversation if you find yourself in this kind of area right now, and you're thinking about a lot of things with life. Stop by the website, yourplanningpros.com. That's yourplanningpros.com to have a conversation and a consultation. You can get on the calendar that way. You can subscribe to the podcast through the website as well, whatever platform you like to use, Apple, Google, Spotify, so on and so forth, Plan with the Tax Man. Of course, Tony's been doing this for 20 plus years. He's an EA and a CFP, so a great resource for you to tap in.

 

Speaker 1: Tony, thanks for hanging out. We went a little along today, so I'll wrap it on up. But thanks for spending some time with me today.

 

Tony Mauro: All right. You bet. We'll talk to you next time.

 

Speaker 1: We'll see you next time. It's going to be a little after Valentine's Day. We're dropping this one about a week or so before the Superbowl, so if you're a football fan, enjoy that. We'll catch you in a couple of weeks here on Plan with the Tax Man.

 

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