How to Plan for Uncertainty

In this episode of More Living with Jim Brogan, financial advisor Jim Brogan shares practical strategies for navigating economic uncertainty in retirement. He covers the importance of maintaining a liquid emergency fund, recommending at least $20,000 or 5–10% of total assets in cash. Jim also emphasizes budgeting, tracking spending, and diversifying investments based on time horizons. Additional topics include managing debt—particularly mortgages and credit cards—and proactive tax planning, including Roth conversions. His overarching message: thoughtful preparation builds financial resilience, helping retirees maintain stability and peace of mind regardless of market conditions. utomatically Transcribed With Podsqueeze Jim Brogan 00:00:02 You're tuned into more Living with Jim Brogan, broadcast live from the Brogan Financial studios at Newstalk 9087, where old fashioned values, expert knowledge and genuine understanding come together to give you the retirement straight talk you deserve. Jim's a former National Advisor of the year recipient and a financial educator, and he's here today to talk about how you can live out the best years of your life. Jim and the Brogan financial team have been helping retirees and retirees across the southeast for over 20 years in their pursuit of financial independence. You can reach them during the week at 865862 6800. So sit back, relax and get ready to learn because More living with Jim Brogan starts now. Speaker 2 00:00:46 Hello East Tennessee, welcome to More Living with Jim Brogan, where it's all about living the best years of your life your way. You're listening to Newstalk 987 Waukee. And today I want to talk a little bit about uncertainty And you know, how can we plan for uncertainty? Uncertainty is a regular way of life. Especially when it comes to the economy in our and particularly the markets. Speaker 2 00:01:12 How do we plan for this to create a better financial future? You know, it's really become a new normal in today's economic landscape. We've had certainly market volatility. There are continued inflationary concerns. There are shifting job markets. And it has many people questioning their financial security. Recent economic indicators have sparked discussions about a potential recession, with market fluctuations and expert predictions making headlines. What do we make of that and where do we need to be cautious with how we interpret that? You know, whether a recession materializes or not. Building financial resilience is essential for navigating uncertain times. So by implementing strategic financial habits and making informed decisions. You can protect yourself from economic downturns while positioning yourself for growth when opportunity arises. So let's explore some practical strategies to reset your financial foundation, strengthen your economic resilience, and create a more secure future regardless of what the economy throws your way. So you know, today we're going to talk about recession ready strategies. How how do you prepare for financial uncertainty. We're going to talk about smart borrowing. Speaker 2 00:02:32 How do we manage debt before retirement and during retirement. And we'll talk about some tax planning tips. And how does that relate to things like Medicare premium and Social Security taxation. How's all that stuff connected in retirement? So let's dive in. Preparing for financial uncertainty and economic downturns. You know, it's interesting because a lot of the data out there, when we see survey data, how do you feel about the economy? You know, a lot of people seem to be very worried. we would call that soft data. You know, getting people's perceptions and opinions. We know investor sentiment is kind of low right now. We also know economic. When we look at economic indicators over time, things like, you know, consumer sentiment, really actually working an inverse relationship to what markets do. So usually when in other words, usually when consumer sentiment is low, usually it's followed by periods of economic prosperity and stock market growth. Now that doesn't mean that's what's going to happen this time. But we are seeing hard data support that consumer spending is strong. Speaker 2 00:03:55 Companies are making money. Now, it is true that the wealthiest are driving a lot of that economic growth. So there there are things to be thinking about, but how likely is it and what are the realities of recession? So first let's look at the data. Some of this soft data, as I mentioned it in our in a recent survey from a firm, a firm called a firm, it shows that 86% of respondents feel economic uncertainty, and 58%, however, do not think that the US will avoid recession. So in other words, the bulk of Americans think we are going to see a recession and they're driving those beliefs are driving. Half of those who took part in that poll to save cash for emergencies. And most people think that the uncertainty will last for the next ten months. And they're taking steps. Things like avoiding credit card interest. Focusing on elements of their finances that they control rather than external factors. So it's almost like Americans of all ages are actually adopting the kind of strict controls of their finances that retirees on a fixed income do all the time. Speaker 2 00:05:19 With a strong focus on avoiding surprise fees on purchases, controlling costs, wanting certainty on the timing and the amount of their bills. And so there's a lot of wisdom to be learned, I think, in considering. You know, how you prepare for retirement, even if you're 15, 20 years from retirement, you know, if you have a fixed income, how can you batten down the hatches, so to speak, and prepare for economic uncertainty? So let's go through a few essentials. One is the, of course, the emergency fund. Now in our working years, we call it an emergency fund. I like to call it rainy day money. You know, especially in retirement, because the purpose is a little bit different. You know, when you're in your working life, you're planning for emergencies. Like if you were to get laid off, you know, you're looking at, you know what? If earned income goes away for some period of time. When you're retired, you're earned. You you have no earned income. Speaker 2 00:06:23 And retirement is all about creating income certainty. Certainly Social Security is part of that. Investment income is part of that. How we structure investments to support income. The point is we're not worried about, you know, well, what if I get laid off and I have to look for new employment? We're planning for being permanently unemployed when we're retired and replacing our earned income with unearned income, which is what all these other income sources are in retirement. So when we're in our working years, you know, a good rule of thumb, you'll hear having at least having 3 to 6 months of living expenses in emergency cash. And I think those are pretty good numbers. I certainly would towards six months, especially if you're a dual income family. and if you're a single income household, frankly, you should really have more, because certainly a dual income has more margin. Usually, if one of you gets laid off, you should include some non-discretionary expenses in your calculations for your living expenses. I mean, you're going to, you know, you are going to tighten your budget, but you're, you know, you still have to you're still probably going to eat out some. Speaker 2 00:07:45 You're probably still going to, you know, drive and do different things. You may to take more, you know, more affordable Vacations and things like that. but you definitely are going to cut back. now, when you're, when you're retired. You know, I don't like thinking of it as how many months of expenses because you're not worried about losing or losing earned income. I like to think of it as a percentage of your total assets, and you're in specifically your investment assets. And a good rule of thumb is 5 to 10%. You know, 5% would be ideal. you know, if it's 5% of your life savings, you know, that's not a huge amount of money to be sitting in liquid investment alternatives, cash equivalents, that you can get to at any time. And cash equivalents. Now, you can get around 4% interest on high yield savings, government money markets, things like that. But a good rule of thumb 5%. If you have to go up to ten because you have a lower investment base. Speaker 2 00:08:57 I mean, I think every retiree ought to have probably 20,000 in emergency cash reserves. So I think of it in those kinds of terms. Likewise, if you've got a high net worth, it's okay to have 3 or 4% in cash reserves. Just make sure you're you're you are earning around 4%. It's not just all sitting there at a bank making absolutely nothing. Talk to your bank or your credit union. What do they offer in terms of high yield savings? Now this is a a little bit of a sticking point for me with banks because if they have high yield savings you can make around 4%. You know, why aren't they telling you about that? Why do you have to ask about it in order to find out about it? But bottom line is there is some simplicity with having your high yield savings, your emergency fund at wherever your banking relationship is. Now, the reality is there are some great resources. You know, online there are more and more proliferation of FDIC insured banks that are that don't have brick and mortar stores, their online banks there, as I say, they're FDIC insured, and you can easily move money back and forth between the online bank and your local bank or credit union. Speaker 2 00:10:23 So all of those things are are easy to do. One good resource for that is bank rate. Again, Bankrate.com. It'll tell you kind of what's going on around the country with interest rates, CD rates, treasuries, borrowing rates on mortgages and things like that. So that's a good resource. But the bottom line is you just shouldn't have a lot of money sitting at a bank, not making any interest. But you should have emergency reserves. Now, what you want to avoid is that, you know, if there's a hardship or an unexpected expense, something that comes up and you need 8 or $10,000, that you don't have to cash in an investment at an inopportune time. So think of your emergency reserve as insurance. you know, you're protecting by having, let's say, 5% of your life savings in emergency cash reserves in retirement, or if you have, if you're still working six months of expenses, that money is protecting the rest of your money and allowing you to be more efficient because it's more unlikely you'll have something come up where you have to cash something in unexpectedly or unnecessarily. Speaker 2 00:11:47 And when one of the fundamental rules of wealth management is you don't want to have to cash in an investment when markets are when it's substantially down and markets are unpredictable in the short term, then that's the that's the catch. With investing in the market for growth, it does protect you against inflation typically in the long term better than any other choice, especially stocks and the stock market in particular. But it exposes you to short term uncertainty. So you can create more short term certainty by having your cash reserves. so that money you you know, if you look at it as insurance, is there a cost? There's an opportunity cost. I mean, 4% interest is a good interest rate for high yield savings, but it's not, you know, the type of long term growth that will beat inflation over time after tax. so there is an opportunity cost. But again it's protecting the other 95% of your money. So that's very, very important. to understand how emergency funds work. A lot of people I see either have way, way too little or they don't have nearly enough, or they have way too much. Speaker 2 00:13:04 Okay. you know, are you going to need 2 or $300,000 in cash reserves to be able to get your money hands on it at any time? I don't know why you would. There certainly can be extenuating circumstances if you own a business or you run rental properties and have rental income and things like that, but you know, it's not likely you're going to need 2 or $300,000 at one time. And market investments are liquid. But again, you don't want to have to sell them at the worst time. I'll tell you what. We're going to get to our first break. We're talking about planning for uncertainty. Many Americans, over half of Americans, feel like we're headed toward recession. I'm not so sure that we are. But the bottom line is markets are uncertain. The the the you know, where the economy is going, especially in the short term, is uncertain. How can you prepare for uncertainty? So when we come back, I want to talk about smart spending and debt management. And we'll particularly talk about debt management in your retirement as you approach retirement and in your retirement years. Speaker 2 00:14:10 So stay with us. This is your living with Jim Brogan here on Newstalk 987 Sky. Jim Brogan 00:14:17 Welcome back to Newstalk 98 Seven's Brogan Financial Studios, where Jim Brogan is coming to you live with important news and advice to help you achieve your dream retirement. Get ready to learn and live. Here's your host, Jim Brogan. Speaker 2 00:14:32 Welcome back to More Living Here on Newstalk 987 Wlky. We're talking about economic uncertainty. How do you prepare for it? It is a reality of the world and market volatility is a reality of investing. Market investments also give us the best opportunity to fight inflation over time. So how do you plan for uncertainty? We've talked about the importance of your emergency fund and what is an appropriate emergency fund. We're certainly going to get into debt management. And how do you manage debt in retirement. But let's talk about a few more practical tips about your budgeting, and about some steps you can take with your investment portfolio to make sure you're more prepared for economic uncertainty. another is to really, I would say right size your budget. Speaker 2 00:15:26 You know, interestingly enough, because more and more Americans are worried about some economic uncertainty over the coming next 9 or 10 months. Many people are doing the kinds of things that you see retirees do that are living on a fixed income. Tighten down the hatches. you know, I can't tell you how often I have people come into my office that are wanting to talk about transitioning into retirement and, you know, are they ready to retire? When will they be ready to retire? You know, we start talking about their income needs in retirement. How much income will you need? And many people don't really have a well defined budget in terms of how much are you spending. Just overall, I'm not talking about every single line item in a budget, but how much overall are you spending on a monthly basis? So I think, you know, practically, in order to tighten things up, to prepare for economic uncertainty, we have to know what we're spending. and I think that, that, that you should start tracking that if you're not already now, getting a it's not hard to get a quick idea of what you're spending, because if you simply look at what is with with your income, your earned income at work. Speaker 2 00:16:47 If you're still working, you know how much income is actually hitting the bank. People make a mistake of thinking about their gross income. but you know, that doesn't, you know, in terms of what hits your bank. I mean, you've got income taxes that are taken out of your paycheck. you've got payroll tax. You know, you pay the 7.65% payroll tax that goes to Social Security. Figure Medicare, all those things. Unemployment, state unemployment. That's a big expense up to about. I don't have the exact number, but it's around $160,000 of income. And then it then it does go down to about 1.45%, but two but 7.65% is a lot. And that's a tax that goes away in retirement because it's only on earned income. So you know and then you got your payroll deductions, not just for insurance. And yes, you are going to have insurance and Medicare costs and retirement, but that includes your 401 contributions and things like that. Once you're retired, you're not going to be saving in a 401. Speaker 2 00:17:56 So first, to be able to track your spending, look at how much is hitting your bank account. how often is it hitting that bank account? Is it every, you know, is it twice a month? Is it 26 per year? And you've got to be able to convert that to a monthly cash flow. And then how much of it's being spent. You know, you have a pretty good idea on your bank balances. Most people do have, you know, are those balances growing or shrinking or staying about the same month to month? So if you know how much money is actually hitting your bank account, and you know whether it's increasing the size of your account over time or decreasing it or maintaining it, you know, you have a pretty good idea about what you're spending. But then, as mentioned, you know, people that are retired on a fixed income typically have a pretty good idea also of where that money is going. And they've kind of started to fine tune things. What are they spending on various items that can be cut back on? And so one practical step is not only to understand how much you're spending, but where is that money going and where can it be conserved. Speaker 2 00:19:03 So those kind of things are absolutely critical when it comes to recession readiness and preparing for economic uncertainty. And then I think you should be looking at things like the diversification of your investment mix. And so the last thing I want to talk about here, in terms of the emergency fund and, you know, I mentioned budgeting in a minute we'll get into debt management. But overall wealth management, one of the most critical components to understand is the time horizon of money. You know, if we go over long periods of time. If I were to take a ask a question today on the radio, what is a bigger risk to you, to your investment? Stocks or bonds? Most of you would probably say stocks are more risky and it depends on the time horizon we're looking at. You know, if we're looking at it over a period of 20 years, bonds are much more risky because bonds traditionally do not keep up with inflation over the long haul. So if you have $100,000 in bonds in 20 years, it won't really grow your wealth. Speaker 2 00:20:24 In terms of what can you buy 20 years from now? Yeah, that money should grow if you have it invested in bonds, but it's only going to keep up with inflation. It's not going to beat it at a minimum. So you don't have more than $100,000 in today's dollars. So Bonds are riskier in the long term, but in the short term, stocks are far, far more risky. You know, if I have a CD or a Treasury that matures in six months, I know I'm going to have that money in six months if I need it. If if I have money in the stock market and I'm going to buy a car in six months and it's in the and it's in the S\&P 500 in an index fund. Well I mean I don't know where the S\&P 500 will be six months from now. I might as well go to Las Vegas. And if I don't want to have to cash it in when it's down, you know, it's okay to sell something when it's down and reinvest. Speaker 2 00:21:18 You just never want to sell it when it's down and spend it. So in other words, money I'm going to need in the shorter term, emergency cash reserves a large purchase in the next three years. Those kinds of things need to be in things that are either protected or or very, very stable. But in the long term, those are those investments are riskier because they don't beat inflation. You're not growing wealth, you're not growing purchasing power. And and so but when we invest in the stock market, which has been the number one way to impede inflation in the long haul, we need time horizon on our side because we don't know where markets will be in a year or two. So you have to critically understand time horizon. And when you look at your current investments, how diversified are you? You know, your longer term investments that you're not going to touch for 10 or 15 years. Those moneys can be in a more stock heavy portfolio. As you start looking at monies you're going to be needing in the more interim or short term, you've got to have less stock exposure because you can less afford the inevitable short term risk of stock market investing. Speaker 2 00:22:31 And you say, well, Jim, I'm getting ready to retire. I'm retired. I don't have any money in a 10 to 15 year horizon. Well, you need to create a financial plan that does that for you. You need to create a financial plan where you've got money that you're confident can be invested for 8 to 10 years from now. You're not going to need to touch it for short term income so you can get more long term growth. And you do that by think of them as buckets of money. That's money you're going to put in. Think of it as putting in a bucket that you're not going to touch it over the next seven or 8 or 10 years, and you're not worried about what it's going to be worth next year. Then you create another bucket for more short term income. And that's a critical way to being able to manage time horizon in retirement and income streams and create income certainty. When we have uncertain economic times, all those things are critically important. But back to my initial thought of time horizon is, again, the longer term your investment money is, the more you should have in more of a diversified stock market portfolio. Speaker 2 00:23:41 the the sooner you'll need your money, the more you've got to have more diversification to to hedge the short term risk of stocks. And it's just very simple. Now we can talk about all the different ways to do that. And in today's show I'm not going to have time to get into all that. How do you build more diversification in your investment base so you don't have as much short term risk? you know, we talk about that off and on on this radio show and in my classes and all the education that I do. You can go to my website and get more information. If you go to Brogan Financial Comm and click on resources, you can get more information. But the bottom line is you've got to understand how to better diversify your portfolio. I do want to mention that's, of course, what we do at Brogan Financial. If you'd like to come in and talk to us, you know, we'd love to do. and by the way, the process for that, because I don't talk about that a lot on the show. Speaker 2 00:24:36 But, you know, we'll start with a 15 minute phone call and just find out what are you trying to do? What are your concerns? What are your questions? And then we'll just kind of go from there. And if you want to come into the office, then we'll come in and you'll have you come in the office. We'll do a complimentary review. We'll take a look at your risk profile. We'll identify your diversification. These different buckets, the emergency fund, you know, short term income over the next 5 to 7 years, longer term investment reserves. It can take a little more risk. How do you how are you managing all this now and how should you be managing it in the future? We can do all that with a consultation. So give us a call 865862 6800. You can also go online Brogan Financial Dotcom and you can click to register for a complimentary consultation. today we're mainly talking about preparing for economic uncertainty. And when we come back I want to talk about smart borrowing. Speaker 2 00:25:35 How do we manage debt approaching retirement and in retirement. Should you have a mortgage? Stay with us. This is more living with Jim Brogan here on Newstalk 987 Wookey. Jim Brogan 00:25:46 Welcome back to Newstalk 98 Seven's Brogan Financial Studios, where Jim Brogan is coming to you live with important news and advice to help you achieve your dream retirement. Get ready to learn and live. Here's your host, Jim Brogan. Speaker 2 00:26:02 Welcome back to More Living. We're. It's all about living the best years of your life your way. I'm Jim Brogan, I'm your host. You're listening to Newstalk 9087. We're with you every Saturday, 9 to 10 a.m.. Again from 3 to 4 p.m.. you can always catch our podcasts, at our website, Brogan financial.com. You can click on radio to stream and listen to all of our historical shows over the last couple of years. You can also listen to Apple Podcasts or Spotify. Just type in more. Living with Jim Brogan We're talking about preparing for uncertain economic times. and I want to talk about debt management. Speaker 2 00:26:47 So the first question I get asked is often with people getting close to retirement, as Jim, should I have a mortgage in retirement? And it's easy to say, no, you should not have a mortgage in retirement. Let's look at it very, very practically. now, I will tell you this. As a rule of thumb, the the people we work with, the clients I see, the people I meet at the classes I teach, those kinds of things. As a rule, people do who do that, who do not have a mortgage payment, have simpler finances. And I don't want to say easier, but certainly simpler and very streamlined. if there's any potential cash flow concern in terms of retiring in terms of funding retirement income, there's no question that not having that mortgage payment will make things a lot cleaner and easier. and it has more to do. It has it's less to do with what is your interest rate on your mortgage, and more to do with the cash flow needed to support your mortgage payment. Speaker 2 00:27:59 You know, you may have a low interest payment, but you're still having to pay off equity. And, you know, typically in retirement, unless you're going to move and downsize, you're not going to tap your home equity. So paying down your home equity, you know that's a good thing. You're creating more equity. But it's not something you're going to live on in retirement. So it's it's a cash flow expense when you're paying down home equity. And that's what you're doing with a mortgage payment. You know, you're not only paying the interest, you're having to pay down home equity. So, you know, think about it this way. If you have a $2,000 mortgage payment, just principal and interest, now you've got to subtract out the taxes and insurance. But just because you're still going to have taxes and insurance. Right. But the principal and interest, if you're paying 2000 a month and let's say you have a $200,000 mortgage, well, 2000 a month is $24,000 a year, right? You're paying 24,000 a year on a $200,000 mortgage. Speaker 2 00:29:08 That's 12% cash flow. In other words, if you paid that mortgage off, it would save you. If you think of it in terms of cash flow, you invest $200,000 of cash flow, and it's going to save you 24,000 a year in expense. I mean, yeah, a good bit of that expense is going towards your home equity. But again, you're not going to. You're not going to turn around and live on your home equity unless you do a reverse mortgage later in life or sell your home, which is really another topic for another day. So it does dramatically improve cash flow when you have no mortgage payment. So I'm a big fan of paying off your mortgage by the time you retire, or early after you retire, if you can. I'm not as big a fan of paying off a low interest mortgage while you're still working. You know, if you have a mortgage at 3% interest and you're still working, you know you're getting the benefit of leverage. you know, you're not having to pay. Speaker 2 00:30:17 You know, you can leave that money invested. Let it grow. You've got earned income to help you pay towards that mortgage cost. So, you know, do you take $200,000 and pay off the mortgage in one fell swoop when you're ten years from retirement. I don't think you need to do that. I think it's a good idea to try to have the mortgage paid by the time you retire. Now, we have plenty of retirees that are clients that have a mortgage payment and don't really have financial concerns. They have a tremendous amount of security in their financial plan and their income plan and their retirement plan and all those things. But as a rule of thumb, it's a good idea to have your mortgage paid for when you retire. Now, if you do have debt, you certainly need to be smart about managing that debt. and, you know, that's where, you know, you definitely should not be carrying consumer credit card debt. I'm not a fan of that in any way, shape or form, whether you're young or old, middle aged, somewhere in between. Speaker 2 00:31:23 You just shouldn't have consumer debt. home equity loans currently average about 8.25%. That's where you're borrowing money against your home equity. they're at their lowest level that they have been, since before 2024, when they were in 2024. They were at eight, 8.5%. They're now at eight and a quarter. There are certainly potential tax benefits for using home equity lines. The average consumer credit card is is 28.67%. That is just a crazy, crazy number and amount of interest. Nobody should be carrying consumer debt. I talked in the first segment about having an emergency fund. An emergency fund prevents you from having consumer credit card debt. It is worth only making 4% on your emergency fund in a high yield savings. To not have something unexpected come up that would require you to then charge it to your credit card and be paying 28% interest. So again, it's just so critically important. And you can use home equity lines to consolidate high interest credit card loans. So I am a fan if you have consumer credit card debt. Speaker 2 00:32:49 Of consolidating that into a home equity line, if you can afford to do that and you have good credit. Now I do hear people say, well, Jim, now it's against my house and I understand that. But debt is dead. You know, I mean it. Sure, if you are going to declare bankruptcy, there are advantages to home equity, you know, to some forms of debt versus other. But the bottom line is you don't want to go into bankruptcy. One way to avoid bankruptcy is to not have consumer debt. So, you know, these are we kind of know this, but you know, if you have debt to do it, do an inventory of your debt. That's the first step. Create a comprehensive debt inventory. That would be any installment loans you have. And then that would be any consumer debt that you have. And then, you know, there are a couple different ways to retire consumer debt. What if you already have consumer credit card debt? One is the snowball method. Speaker 2 00:33:55 You know, where you, you know, make your minimum interest payments on your credit cards and then whatever your lowest balance is, put everything else on that until you pay it off. Then you can take all the money that's going to that and you can apply that to the next lowest balance. And so it creates a snowball effect. Now the other would be what we call an avalanche method method, which is where you make the minimum interest payment on your bill, your debts, and then whichever one has the highest interest rate, then applied all the extra money towards it. There are some wisdom to both strategies. Bottom line you need a strategy. if you can do a home equity line to consolidate that debt, I'd be a fan of that. But then you have to be paying that home equity line off. You don't want to just let it sit there. Because one of the dangers with home equity lines is, is, you know, you can they're usually interest only for some period of time, but then the principal is going to come due. Speaker 2 00:34:57 And it is either going to have to be paid off over, you know, some amount of time or you're going to pay it off in a lump sum. So you have to be careful there too. But managing our debt is crucial. especially if you're approaching retirement. And having a plan to eliminate consumer credit cards is critical. as a rule, I would not be a fan of borrowing money for cars. certainly many car manufacturers provide these, you know, Incentives. 0% 1% 2% interest rate financing. You know, I think you can consider that if you have if you're very, very disciplined and you have good debt management and strict cash flow and you're consistently saving money. But you do have to be careful, because when we buy things based on what the monthly payment is, rather than how much we're going to have to eventually spend. It's easy to let things spiral out of control. Especially with things like automobiles. You know, if you have an automobile that you're paying $1,000 a month as an example, you know, and let's say that automobile is worth $40,000 and you owe $15,000 on it. Speaker 2 00:36:15 Well, if you pay it off, if you buy a new car and your payment is the same $1,000 a month, you think, well, hey, that isn't really costing me any more money, but now the amount of debt you have instead of 15,000. Now it's 40 or 50,000. And it has to eventually be paid. So be careful buying everything on a monthly payment that can really get you into trouble if you're not very disciplined. So as a rule, it's great to spend money, you know? Most of our clients, when they're going to be buying a new car in retirement, you know, maybe not brand new. you know, we get into the best. What's the best way to maximize the value of a car? But new to them? Maybe it's a low mileage car or something like that. we usually advise our clients to spend cash, that, you know, and just pay for it. Even if they have to cash in an investment. as long as it's not sharply down in value, you do have to consider the income tax ramifications, because, you know, if most of your money is in your IRA or 401, you have to pay the income taxes to cash that in, and that complicates things. Speaker 2 00:37:23 But if you have a healthy balance of non retirement account investments and money saved at the bank. We typically advise our clients to pay cash when they're acquiring a new vehicle for themselves and that kind of thing. But debt management can be critically important, especially as we approach and enter into more economic hard times. We don't know that we're going to have more economic uncertainty. But, you know, more and more people are worried about economic uncertainty. When we come back from our last break, we're going to talk about some keys to profitable tax planning. It's not how much you make, it's how much you get to keep. So stay with us. This is more living with Jim Brogan here on Newstalk 987 w Sky. Jim Brogan 00:38:11 Welcome back to Newstalk 98 Seven's Brogan Financial Studios, where Jim Brogan is coming to you live with important news and advice to help you achieve your dream retirement. Get ready to learn and live. Here's your host, Jim Brogan. Speaker 2 00:38:27 Thanks for tuning in. This is Moore living here on Newstalk 987 Wookey. Speaker 2 00:38:31 I hope you're having a great, great weekend. As we get this our first summer weekend. Yesterday was the longest day of the year. It's hard to imagine. I always think about as we get into July, but it's actually June. The 20th was the longest day. First day of summer. Summer Equinox. it's going to be a hot one this week, so, you know, stay. Be careful. Stay very, very well hydrated. Try to keep cool, stay in the shade. Those kinds of things. We're talking about preparing for economic uncertainty. Economic uncertainty is a is a certainty if you will. so how do you prepare for that? we've talked about different strategies today. We've talked about your emergency fund. We've talked about understanding how much you're spending and how to fine tune that for economic tough times, how to live like a retiree on a fixed income, even if you're not retired, is a really, really good step. We've talked about debt management. Now I want to talk about tax planning. Speaker 2 00:39:29 you know, it's not how much you make, it's how much you get to keep. And so I want to talk about being able to have a better budget and a more affordable budget when you're retired. You know, we really want to be doing tax planning before we retire. Now the the where we can take the greatest advantage of tax planning. And by the way, what is tax planning? It's simply being aware of the rules and the tax brackets and how taxes work, so that we can be somewhat intentional about the income taxes we pay in retirement. You know, we have a lot of control over the taxes we pay in retirement. You decide when you're going to draw Social Security income and where it is potentially going to be taxed when you need retirement income. You decide where to pull that money from. You know you don't have earned income. So do you pull it from the bank or from your IRA or 401? Do you sell a mutual fund with a long term capital gain? What? Where what do you pull from and what is the tax implication of that? Will you have more control of that typically in retirement than at any other time in your life? And I do often you've heard me talk about it on this show. Speaker 2 00:40:47 I talk about the sweet spot of tax planning, which is the sweet spot is between retirement age and age 73 or 75 y 73 or 75. That's the age at which you have to start taking taxable distributions from your retirement accounts. Your 401 K, your 403 B, your IRAs. If you're born before 1960, you have to do that at in the year you turn 73. If you're born 1960 or later, you have to do that starting in the year you turn 75. So the sweet spot is when you don't have earned income, you're retired. You're determining where to pull your income from. That presents some tremendous tax planning opportunities, but really, you should be planning for that now, even if you're not retired. You know, right now, for example, you know, if you're still working, if you're within ten years of retirement, you're probably in your peak earning years. So your taxable income is probably higher than it's ever been in your life. And when you retire, it's probably going to go down some. Speaker 2 00:41:57 Now be careful with that. It may not go down as much as you think, but it's probably going to go down some. But in other words, things like Roth conversion where you take part of your IRA and you convert it to Roth. You know, if you take $20,000 or $50,000 out of your IRA and convert it to Roth, you have to pay tax on that Roth conversion on that to $20,000, if you will. So you pay the tax upfront now and then. After five years, that money becomes income tax free. As long as you're over 59.5. But you may not want to do that right now. If you're in your peak earning years and your taxable income is higher than it's ever been. But when you retire in that sweet spot between retirement age and age 73 or 75, when you have those required minimum distributions from your retirement accounts might make a lot of sense to consider things like Roth conversion. Part of the biggest tax planning tips I can give you is Roth conversion planning and understanding our tax rates and capital gains, because long term capital gains are a tremendous incentive for income in our for for investors. Speaker 2 00:43:18 They're much better than ordinary income brackets. That's so being able to understand how long term capital gains work and how you can plan for that, especially in those early years of retirement when your income taxes typically are going to be lower. If you're smart, can be very, very powerful. Now, the other thing I want to mention about tax planning is, you know, certainly, you know, we're looking right now at a world where in our tax cuts, the Tax Cuts and Jobs Act is set to expire at the end of the year. Congress is currently talking about the big beautiful bill. And, you know, what are they going to get passed or are they going to get anything passed? Our taxes going to go up next year, and we don't know the answer to that in the short term. I do think it's highly unlikely that the Tax Cuts and Jobs Act will simply expire and tax rates go up at the same point. If I'm looking over the long term, I think we have to be very, very aware that when it comes to our income tax brackets Today. Speaker 2 00:44:20 We're in a very low tax environment compared to where we've been historically. We have $37 trillion of federal debt. We have unfunded liabilities for Social Security, Medicare and prescription drugs. Understanding tax rates may be much higher in the future should be a fundamental component of your tax planning. Thank you for tuning in. This week we've discussed your finances because greater wealth provides for more living, so you can live the best years of your life your way. Thank you for tuning in. This is more living with Jim Brogan right here on Newstalk 987 W hockey. Speaker 3 00:44:56 Expressed by Jim Brogan and his guests are not that of Cumulus Media. Any discussion of financial, legal and tax planning strategies is not intended to be individualized advice and is general in nature. Always consult with your advisor for advice specific to your needs. This program's content does not represent a recommendation of any particular security strategy or investment by Jim Brogan or Brogan Financial, Incorporated.