¶ Preparing for Financial Success and Retirement
Welcome to a Wiser Retirement Podcast . Before we get started with the episode , I want to tell you about a new e-book available on our website called 'Buyer Beware, Why do they keep trying to sell you that annuity ? ' . This e-book covers the various types of annuities , negatives to owning annuities, and better investment alternatives to annuities .
To download this e-book , you can click the link in the episode notes or go to wiser investor . com and you'll find it at the bottom of the page . Now on to today's episode .
Welcome to a Wiser Retirement Podcast where we believe the best financial advice should always be conflict free . I'm your host , Casey Smith . Guiding you to financial freedom today is my co-host , Missy Beach . Hey , Missy .
Hey Casey , how are you doing ?
Doing good . So today we're going to talk about opportunity funds where dreams become reality . We talk with our clients a lot about opportunity funds when the opportunity arises . But I think before we drop , just drop right into opportunity funds , maybe we should talk about how you get to an opportunity fund .
That's good , because a lot of people want to fast forward to the opportunity fund with all kinds of grand ideas . But you're right , there's a lot that needs to be put into place before you get to the opportunity fund .
So we talk about . The theme of our podcast here at Wiser is financial success is intentional and there are people who have big dreams and then there's people who are able to dream and then also execute , and we all know these people . We have friends that have all these million dollar ideas , but they don't have any money .
Exactly , and we don't want to squelch anybody's grand ideas , but we can show them a path to get there .
Yeah , but sometimes people just don't have any money because they keep making poor choices .
Oh , yeah , right .
So this , this episode is not for those people . This episode is for people who want to make good choices . And so let's start with the very beginning, debt . Dave Ramsey has made multi hundreds of millions probably I don't know this numbers , but hundreds of millions of dollars in teaching people how to get out of debt .
And then , after you get out of debt , he has a whole another program for that and endorses so many different things . So you know , I don't know how much we can add to that process , other than I'd say you just have to get intentional about it and say I'm tired of living my life this way and get out of debt .
That's if you're in really bad debt , like the $80,000 in credit card at 20% risk and it kind of debt right .
Exactly well , with interest rates floating up , it's kind of getting out of control for the people that are in debt , without them really realizing it , when interest rates that were in the teens are now in the 20s and it's snowballing .
So , speaking of snowballing , that's how you get out of it . Yes , you go to your liability to look at the smallest balance and you just start pouring everything extra into that . You charge ahead at one thing at a time . Don't send $20 extra here , $1,000 extra there , right ? You know we think about auto and home debt .
I want to have your home paid off by the time you retire . If we have excess cash flow and that mortgage really bothers you , then throw some extra money at it . I think cars , cars are hard , you know , because we work with so many different people from different income groups . A car note that's $1,200 a month , but you make $60,000 a month .
You know it's not horrible . I would just say look at it this way, if you want to build wealth , sending money and interest to the bank every month doesn't do that .
No .
So I'm not saying you have to buy the crappy car when you're making , you know , $400,000 plus a year , but at the same time just remember that that's a depreciable asset . So it has to be bringing you a lot of joy for five years , not the first six months you own it , because all the newness wears away , it depreciates .
But just think long and hard before you make that that loan decision , right .
Yeah , do you really love it ? Yeah because it's all about cash flow . So do you really enjoy sending out $1,200 a month for that thing sitting ?
in your garage or more , yeah . So anyway , tackle your debt , eliminate your debt . Then you're gonna move to how much in emergency reserves do you need to have . We've had plenty of podcasts about that but , basically , the good news is , emergency reserve funds are now making money .
Oh yeah , that's the biggest thing we tell clients these days , so don't let it sit at your , you know big bank monster megabank as Clark Howard would call it . Right . Earn some interest 4 to 5% .
Yeah , yeah , that's kind of a no-brainer I think I'll add to that is just make sure your emergency fund is is really for emergencies . So if you want to keep $100,000 in savings , that's fine , but maybe 50,000 is the hard . We don't go below this number unless the HVAC broke . I can't get to work because my car is broken . That kind of money .
For most of our clients , they're never going to touch their emergency reserve fund unless there's a substantial job loss for a long time period .
But think of it this way, think of it this way the ROI on that account is if you lost your job, and we had a client this this happened to, if you lost your job and you want to find the best job on the other side so this was a C suite executive , I think .
He went a year and a half before he was placed into a , found a new position as a CEO of a new company , but he was able to live off his large reserves until the perfect job came up , and so that's exactly why you have that .
So whats the ROI on that money, it's huge because he was able to wait out the perfect position as opposed to having to settle for the fastest job he could get because he didn't have any money .
Yeah , the luxury of waiting versus just taking the first option just to triage the situation .
Yep , now for our airline pilot families it's a little different . You're , you're more of having reserve in case of medical . You know , in the mutual family , mutual assurance plan , I think at delta you're still gonna have 100% of your income for two years .
So I'm not saying you can carry less reserves , but I would still keep I'll probably still keep at least three months on on tap at all times . So we checked that box . Now we're moving to retirement . Are you saving enough for retirement ?
This is why people come in and higher us to do financial planning is because they don't, they know that they're saving , but what does it mean ? Yeah , what does their future look like ?
How does it project forward ? Exactly Is it in the right places ? Is it doing the right things ?
Yep , and so , that that's a retirement process so you can go through with us . Then the after that . We look at education . We have many podcasts on this as well . But you , when you think about , what is your educational goal ?
I don't know that I would fund 100% of college savings in a 529 , but maybe something around 50% , knowing you may have to come out of pocket or there might be a scholarship .
Yep , and it just depends on the family values too . You know some families hey , I paid for my own college , I worked hard all through those four years and my kids are going to learn to do the same thing . So we fund nothing , right , and hey , that's a great choice .
But other families are like , oh , I don't want junior to suffer and we're going to pay for every single penny that it costs .
So okay , we'll look at that and if that's feasible with the family budget , but . Yeah I think for high-income families it's really about legacy at this point , because you want to make sure they don't come out of debt strapped or come out of college strapped with debt , and then you also want to make sure that they have a good step into the future .
The world is not the same as when you and I got out
¶ Legacy Planning and Opportunity Funds
of school . I was able to buy a house with a $2,000 gift from my grandmother as a down payment . You can't do that now . It's a $50,000 down payment minimum . What kid come out of college , young person that come in a college has $50,000 that down payment ? Well the rental market knows this and so the rent is all jacked up .
Two grand for one bedroom .
And that's not even the nicest place in town . Nicest place in town is probably what 3,500 . I don't watch this stuff . We need Micaela , we'll have to have Micaela and William can tell us , but it's very expensive .
And so you know , when you think about legacy planning and money that you're setting aside for your children , it might be a combination of making sure they don't come out of college with lots of debt but also have something they can kind of step into a life with that that keeps the family at the same economic , social or social status level .
Yes .
So that's something to to be considering . Also to you know , helping kids make the best decisions about where to go to college . That's important . If you , if you're going to be a , you want to be a youth pastor , there's no reason to be going to Duke . No , right ? If you can get into Duke , you can get into UGA . Go to UGA .
It's going to cost you nothing , because I assume you'd be on the zell if if you got into Duke . So what they think their acceptance rates ? What ? 3% now , something really low . Right . So so helping them make the best college decisions and also the major . If you're going to major in art , Scad is a great school , but what ? How do you pay that back ?
After you graduate .
How does it ? What's the ROI on that education ? I don't know that it's there .
Well , Hunter Biden selling paintings for a lot .
Well , there's a family name there .
Okay .
Yeah , so anyway , just just helping them make the right decision , understanding that they don't probably have the maturity necessarily to figure that out right away , and that also helps with college .
Well , yeah , because when we do college projections and we're asking clients , you know where does your second grader want to go to school ? Where are we going to project ? You know , is it in state ? How does state people look at us like we're crazy .
And I'd say , I know , let's just use averages .
You don't really know until you get to probably what halfway through high school , and then you know what the track looks like . Maybe middle school , middle school .
You have some idea of what your child's going to be like , and maybe what kind of interests and what kind of academic potential , right , so .
Okay so we checked that box again . We have lots of episodes on college planning . So now here we are , finally made it . We made it to the opportunity fund .
And not everybody gets there , no , no . So this is like a luxury that you know . Once you've gotten all these other steps in place , you get to the luxury of opportunity fund planning . This is fun .
This is fun . So opportunity funds what are ? What are we even talking about ? An opportunity fund is . What do you do with that extra dollar , cause you've gone through all those steps . Where does that extra dollar go ?
And this is what the fuddles clients ? Yeah , cause they don't know what to do . This is where they really need guidance .
So that extra dollar could go to Starbucks a lot . It could go on outrageous family vacations , which is not bad actually , I actually like those vacations and builds memories and legacy , yeah . So what happens is people are maxing out the 401ks . They , our pilots are getting what 17% of their income put into the 401k plan , their retirements are are .
We check all the boxes . So now we're running into hey , I have excess dollars on certain times of the year or certain months . And then this is where we get to say , okay , what are your , what is your family mission and goal ? Like , what is it that you guys want to do longterm as a family ?
Talking to husband and wife here , and typically it's like well , someday we'd love to have a big RV and we like to travel the country , or we really like to take this big trip someday , not now . Kids are too little . Or we'd like to have a lake house or a beach condo would be really cool . And so it's not money that opportunity .
Funds are typically are brokerage accounts . They're invested in low cost ETFs . They're they're tax loss harvested , meaning that in years like 2022 , we have multiple portfolios that we can move money around in to capture losses to write off on the tax return . So there's a tax credit there in big years .
There's rebalancing to make sure that things are , properly managed . It may not be really aggressive . It can be . You know , if your dream is 10 years out , it could be , but if your dream is five years , it might look like an old person's portfolio . Yeah , cause short term needs need less volatility , right .
So the the purpose of it is you don't know what exactly the purpose of it is . You don't know what , exactly what the money's for . If you , if you told me you're going to buy this lake house two years from now , we're going to use a high yield savings account . That's where that money is going .
But if you have extra dollars , you don't know what to do with it . What typically happens is it builds up in people's ? Savings accounts or they start buying CDs with it .
Oh yeah , don't do that . Or bonds , or whatever .
And so now that money is not keeping up with inflation historically and you just have this cash
¶ Maximizing Opportunities With Intentional Financial Planning
building . So again , financial success is intentional , so we have to be intentional with our dollars . So that means that money going into this low-cost portfolio , this index-focused portfolio made up of ETFs , is not counted to a retirement . So in our financial planning we check a little box .
It says exclude from retirement calculations and it can start building and within a few years you might have a couple hundred grand in there , you might have 10 grand in there . But the point is this is where extra money's going . And at some point you go this is a great opportunity to do XYZ , thank you guys .
And then you start liquidating the portfolio to then transfer it into whatever it is that you wanna be doing .
Yeah .
It doesn't have to be going to buy real estate . It doesn't have to be for anything else that's investment-related . It could be for money that you don't get back , but you get memories for it .
Yes , exactly , and sometimes , Casey , I've even seen it where it's just built up and clients are like holy cow . You know how did we amass this ? There's nothing we really want to do right now .
Let's just invest half in our regular Wiser portfolio because , hey , we can take more risk with it , send it on to the retirement side , and we'll just have this other half to kind of play with in the opportunity fund .
Yeah , so we have a process for this . So we use Charles Schwab as our custodian for clients who are managing assets for , but we have this great flat fee or hourly-based financial planning process and for those clients we use a platform called FlightPath .
And with FlightPath we knew the concept that we wanted to do three or four years ago I think it's probably four years ago now but we didn't want to take the time to build out the technology ourselves and so we went to Betterment . So Betterment .
com is one of the first Robo advisors out there and we basically asked them I said look , I don't like your portfolios . They're all value-based and that hasn't been sucking wind for over a decade . We'd like to just build core asset classes and , more importantly , can we just rebrand it ?
Yeah .
And so basically we rent the platform and so we call it FlightPath . There is a website for it . It's wiser wealth management . com . / FlightPath . We can put that in the show notes . So the purpose of it is for opportunity money , because for hourly clients , most of your money is gonna be inside your 401k plan .
So you can open up Roths , you can open up SEPs , you can open up IRAs there , and typically we have hundreds of clients that are using it . But I think the average balance is like 25 grand or something like that ?
Yeah , it's worth it .
It's pretty small . We charge a nominal half a percent for it . A good proportion of that money actually goes back to Betterment for the platform . So it's not really a money maker for us , but it's because you remember , you're paying for our time , right ? And so what we did in the past is people would say what do I do this extra money ?
And so we'd open up account at vanguard . com and then we'd give them an allocation and if the 1980s had a website , it would be vanguard . com . It is not user friendly at all .
It's archaic .
And so what happened was people ended up having to come by the office and I have to show them how to do all this . I'm spending all that time which I'm not billing for , so I finally was like this is not very efficient , and so what we started was this flight path platform , but you create an opportunity fund there .
We have basically four ETFs that we use same ones we would have given away as part of our recommendation at vanguard , and the average cost is 0.05 of a percent for .
So inexpensive for the funds right .
Everything trades for free and you've run it all through your phone or the website . So there's an app . Click on the app and you can connect it with your checking account and you can deposit money , you can withdraw money . You don't have to call us . It's all very self-sufficient .
Set it up on autopilot .
Exactly .
It just comes out of your account every month , or bi-weekly , whatever you want .
So I was our first customer , and so what I started doing was sending 50 bucks , then I sent 100 bucks , then I sent 500 bucks and then in 2022 , I was sending two grand a month extra , because the market was terrible last year .
On sale .
This is a great opportunity to catch up , so I did that as long as I could . Now I'm back to 500 bucks , but I blame my kids . But the point is is that you mass money in there very quickly and it's surprising . And then I look down and I have this great rate of return . And then the savings side of it . They offer a 4.75% savings account .
Oh for new customers , new money . It's like 5.5 . That's right .
That's right , but that's on the personal side , not the institutional side , that we're on . Oh , okay , I'm sorry . So , unfortunately , I thought that too , as I was really excited about that , and then I was told that that was not available . I wrote them a nice letter , though .
Oh , good way to stand up for us .
And hopefully they'll get that changed .
Okay .
But the point is it's not infomercial for Wiser and Flightpath , necessarily , but the point is is that you can make this super simple . What I don't want people to do is put this into Tesla and Facebook and Google stock . Now you're just looking at potential destruction , not because of those companies I just named .
It has nothing to do with that , it's just you're not a trader .
No .
People aren't traders .
Just because you have extra money doesn't mean it's gambling money , right , right it's not crypto .
This is money that is going into what we call long-term healthy asset classes .
There you go .
The S&P 500 , small cap stocks , foreign stocks and a bond fund . That's really all you need and to be very successful . And so what we've done is we've modeled these after our strategic model portfolios that we use at Schwab and we pass it down to the smaller size investor . To be honest , you could probably put $3 million in this thing and be just fine .
I know firms that do it . I know firms that have $3 million minimum and they lease the platform from betterment , like we do for the smaller , the smaller accounts . They don't know what to do with .
Just the $3 million they don't know ours is more like below a half million .
This is a great opportunity .
But you're right when you say if you don't set up a plan to make this intentional , it's not going to accrue this growth in balance over time . So that's why we have to steer clients to say , okay , I'm going to open an opportunity fund , I'm going to make this happen and this is how many dollars a year I'm going to commit to the opportunity fund .
Because if you don't commit to it , those dollars do go to starbucks and Chick-fil-A and Target and you name it , that goes back to my most favorite budgeting system .
It's called the pay yourself first system . You do what you got to do and then you figure out the rest on . You lower your expenses to because you got to pay yourself first . But this is more like post that you've paid yourself first , you know your future is taken care of excess cash flow .
So this is a great launching, opportunity funds are a great launching spot . Maybe you build 50 grand , maybe you build 100 grand in there and then you put that down payment on that , on that second property that you wanted or land or whatever right .
Absolutely yeah .
But it just comes back to . There has to be an opportunity to be able to do that .
Right , and you don't even create the account . You're never going to have it .
Exactly .
And you don't have to have the goal just to set up the account . It can be , just build it up and then , hey , let's have a family discussion . What's our priority now ? Right , you know ?
Right , because things change , or some people some people just like to save , and so you can become other , different types of opportunities in the future . So imagine that you kept putting money in this thing . You've masked quite a bit . You retire at 65 . Well , your required minimum distributions from your IRAs won't have to happen now until age 75 .
So this is money that you could live on at a very , very low or no tax rate for 10 years , up to 10 years paying depending on how much money is there . Obviously , and you wouldn't have to you could convert money . Oh yeah , raw conversion .
You could convert from IRA to Roth during that time period . Payment tax Mm-hmm .
So it can create different types of opportunities , not just trips and real estate , but it can create good tax opportunities for yourself in the future . Or it could be opportunity for the next generation .
It could be that you have this money and this is where you pull some down payment money for a child , or this is something that you do right that helps the next generation and maintaining the family's status .
Very aptly named the opportunity fund .
But anyway , if you want to learn more about the Flight Path Program , reach out . If you're a client that's already doing this in the Schwab platform , you don't need the Flight Path Program . So just want to make that clear , because I know we'll get that question .
Oh , that's true . Yes , if you're already at Schwab , we just need another brokerage account for you .
Correct . But yeah , this is not something we've really talked about in the past and I thought you know so many people use it now . We should probably talk to the masses about it a little bit more . About the opportunity , and if you're listening to the podcast and you're not at the point of doing an opportunity fund , that's okay . No , that's okay .
There's a lot of people that won't make it quite to the opportunity , but you're living a pretty good lifestyle having your future retirement covered . That's the whole point .
Oh yeah , just get to those retirement goals .
Exactly well . Thank you , Missy .
¶ Introduction to Holistic Financial Planning
If you want to learn more about financial planning , take a listen to episode 141 , 'What is holistic financial planning' . That's a good one . We'll link to our flight path platform as well . Thanks for listening to today's episode .
If you're interested in learning more about Wiser Wealth Management or want to schedule a consultation , meet with one of our fiduciary financial advisors , you can do so by going to wiserinvestor . com or you can click on the link in the episode notes . Thanks , see you next week .
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