00:00:00
Speaker 1: The airing of this program by this station is not an endorsement or recommendation by the station of the products or services discussed in the program. The station does not guarantee the results of any investments made by a listener to this program.
00:00:11
Speaker 2: Josh Peck is a registered investment advisor representative with Simplicity Wealth Advisors Columbus. Investment advisory and financial planning services are offered through Simplicity Wealth LLC, an SEC-registered investment advisor. Exposure to ideas and financial vehicles discussed should not be considered investment advisor recommendation to buy or sell a financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals to see if any ideas expressed would fit their specific situation. Past performance is not a guarantee of future results. Securities can fluctuate, and when redeemed, maybe more or less than when originally invested.
00:00:50
Speaker 3: We appreciate your time, taking time to join us for the Simplicity Wealth Retirement Blueprint Radio Show. I'm Bruce Hooley here with Logan Harris and Josh Pick of Simplicity Wealth. They are located in Lewis Center just off Route 750. That's not far from 23 and 270. We sit every Friday afternoon at 4 o'clock to do this show, and it also re-airs on Saturdays at noon. So whenever you're hearing it, I want to make sure you know we appreciate your time. You're going to get some great information here. And if you really want a wealth of information that applies directly to you, what if you could go in and sit with someone who really knows about retirement investing, really does it well, and I can say that because I'm a client at Simplicity Wealth Columbus, and you'd get to ask the questions that you want that pertain perhaps only to you. It is not a presentation when you go in for your free no-obligation consultation with the Simplicity Wealth team. It is a conversation, a conversation that you can tailor to the information that you want to find out about. So take advantage of that. That's how my wife and I became clients. We are very satisfied with the results that we're getting. We understand why we are getting those results. We understand where our money is invested. We had choices we were not dictated to. We were given options. You will be given options today. That's why they call it a blueprint. Nobody's house is exactly the same as anyone else's house, unless you buy a cookie cutter home and maybe a new development. But that's not how retirement works. So take advantage of that free, no obligation consultation, 614-917-1040, 614-917-1040, or book your appointment online at simplicitywealth.com backslash Columbus. And we've talked before about the changing face of retirement over the years, and it used to be pension and social security, pension and social security. Now it's like Multiple jobs usually for someone, 401ks, IRAs, Roth IRAs. There are a lot of different ways it can go. But for many people who are on the cusp of retirement now or who are in retirement, Social Security is still a big piece of that. And there's a lot of concern because we've now delayed doing anything about Social Security, which is– it's not criminal, but it's a government-sanctioned Ponzi scheme. And it's going to be insolvent because we have more going out than we have coming in.
00:03:04
Speaker 4: Yeah, but let's talk about just how significant Social Security is. You have about 69 million Americans collecting about $ 1. 6, $ 1. 7 trillion off of Social Security. And if you look at $ 1. 6, $ 1. 7 trillion, our budget is just over $ 7 trillion. So as a component of our budget, it's pretty significant. As a matter of fact, if you add Social Security and Medicare and Medicaid together, it equates to almost two-thirds of our budget. So if you look at that, then you look at things like defense spending at 10% and then paying off just our debt. When you hear people in Congress arguing over the budget, they're really arguing over about 10% of our budget. The rest is already spoken for. Social Security is a huge, huge component. About a third of people's retirement income comes from Social Security. And here we are on the cusp of trying to figure out what do we do to solidify future payments and the way that it's worked in the past. You had people paying in. You called it a Ponzi scheme, and it is by definition a Ponzi scheme. People paying in and then people collecting off the people paying in. When it started in 1935, there were a lot of people paying in for every one person collecting. As a matter of fact, you had the average life expectancy in 1935 was 62. You couldn't collect Social Security until you were 65. It was pretty darn well-funded.
00:04:15
Speaker 3: Yeah, pretty bulletproof at that point.
00:04:17
Speaker 4: However, fast forward to today, and those ratios are all askew. You can collect at 62 instead of 65. And we live a heck of a lot longer than 62, the average life expectancy being very close to age 80. So what we've had over the years is we've had this kind of overfunding, creating a huge trust fund because we were paying in more than what was being collected. Those tides have shifted for quite some time, and many presidents have tried to add solidarity to it. How are we going to fix it? But it's kind of political suicide to go after. Now insert baby boomers being a huge contingency in the voting pool. And it's becoming even more and more of an old maid that no politician wants to touch. But we're now reaching the end of our proverbial rope. And that in around 2032, if we do nothing, social security is going to go down for every recipient by about 22%. And that's a huge challenge. It's a challenge because, you know, you have, could most people live on 22% less money? Probably not. Those people are sometimes paying taxes on their social security, so the tax revenue goes down and exacerbates the problem. And then those people have less money to spend on stuff, so it's going to have market impact. So this is a huge, huge challenge, and the government's put out, if you don't believe me, go on socialsecurity.gov, and they will actually line item out. What are the possible changes that we can do? Some a heck of a lot more scary than others.
00:05:47
Speaker 3: Yeah, and I remember vividly in my early days here at the station, I had a woman who worked here, and she was on the cusp of retirement. And whenever a headline came up about Social Security that it might be cut or whatever, she got, Logan, she got really mad. She was like, I paid into that. That's my money. They can't take it away from me. And I'm like, well, they can take it away from you if they want to. But people are really attached to that, and I understand why, because they have had that taken out of their checks, not like they checked a box and said, yeah, it's okay to take it out.
00:06:14
Speaker 5: Yeah, people have a visceral reaction to any time you start questioning the viability of Social Security going forward. I've had every reaction from anger, like you talked about, to pure, undulterated fear. Like it was the first time in their life that they had even thought about the fact that Social Security would be lower or not there.
00:06:34
Speaker 4: Based on their age.
00:06:35
Speaker 5: And when you come up in that area, when Josh was talking about where your pension Social Security or you were saying pension Social Security, you were ingrained to think about relying on that money as your retirement. It wasn't until, you know, 30 years ago when people started even talking about investing for themselves, right? I've met with somebody who worked in the OSU system and didn't even hear about a 403B until the 90s.
00:06:59
Speaker 4: And so it just wasn't part of planning.
00:07:01
Speaker 3: Yeah, no doubt about it. And we have to fix it. I agree with you guys that it is like a stick of dynamite and everybody's handing it to, you know, the next politician down the road, the next political party that's in charge. There are some proposals to fix it. One of the proposals, Ohio Senator Bernie Moreno has partnered with, of all people, Elizabeth Warren, which, you know, can't imagine too many topics on which they're aligned. But they want to suspend, I guess there's an income limit, right? If you get up to $ 184, 000 and change in income, they stop what you don't, your Social Security deduction then goes away? Or it holds, it's fixed, right?
00:07:38
Speaker 4: It goes away.
00:07:39
Speaker 3: It goes away, okay.
00:07:40
Speaker 4: So what ends up happening is every worker in the United States pays about six plus percent into Social Security. Then your employer pays another six point something percent into Social Security for 12 and change. And if you're self-employed, you pay both sides of that. And this has been a point of contention between the left and the right side of the aisle, which it's interesting that now we have Elizabeth Warren and Bernie Moreno spearheading something. There's actually some congruency, but Once you exceed 184,000 and change, then you no longer pay that 6% into Social Security or 12, depending on how you're employed.
00:08:18
Speaker 3: Does your employer continue to pay?
00:08:20
Speaker 4: Nope. No, you continue to pay Medicare, Medicaid, but not Social Security. When Joe Biden was running for office, he proposed something called a donut hole. So what he was going to do is once you hit the– it was less than this at the time, but once you hit that 84.5 or whatever the threshold was, You no longer pay into social security until you exceed 250,000. And then it picks back up again. The arguments on one side, why do I have to pay a hundred percent of my income when you're making a million dollars a year and you don't have to pay a hundred percent of your income. That's unfair. On the other side, if I make a million dollars and I pay 6% of my million dollars and you pay 6% of your 50, the way that the calculation works on social security is is the first dollar is weighted more than the last dollar that you make. Meaning that if you make $ 50, 000, you do not make half as much as somebody making $ 100, 000. And there's a cap. So effectively, if you remove the cap on my paying in, but you don't remove the cap on the amount of money that I receive, the argument is you're very much disproportionately paying into Social Security. And the argument here, my argument maybe, is what politicians will tell you is not real life. Let me explain. There are not that many people making a $ 400, 000 W-2 salary. Most of those people are independent business owners. And if you're an independent business owner, if you're smart, you usually set up your business in one of the tax structures that's most beneficial. And I'll use the easiest one to explain. You do an S-corp. So rather than being just a limited liability corp or something like that, you decide I want to be taxed. as an S-corp. If you're taxed as an S-corp, let's say you make a million dollars a year. You set your salary up for $ 100, 000. And then the other $ 900, 000 is distributions from the company. You only pay social security taxes under an income. Well, the other $ 900, 000 I make is distributions for the fact that I own the company. I don't pay Social Security taxes on that. So who's going to get caught is attorneys, doctors, engineers, highly paid accountants. Those are the people that are going to get caught, but it will be pitched to us as, do you believe that Elon Musk makes $ 3 trillion a year, whatever the numbers are? Why isn't he paying more? He's not paying anything anyway. So you're not catching the right fish in the right net.
00:10:46
Speaker 3: So the Moreno-Warren plan, I don't know if it's– Forbes doesn't like it. Forbes magazine doesn't like it. They're a financial magazine. So I don't know whether you think it would help or not. But I think what we want to ingrain to people is that this is a problem, and you need to figure out a way to get around the problem and not just rely on Social Security. There's a lot of advice out there. I know Dave Ramsey says everybody should take Social Security at 62. What's his theory on that?
00:11:15
Speaker 5: Yeah. I mean, he's, he's looking at it from just dollars over time and when you're going to live and you don't know how long you're going to live.
00:11:22
Speaker 3: That money's there. You better go get it before it's all gone.
00:11:24
Speaker 5: I guess, I guess that that could be a thing, but you know, this is the same, his rules are set up to help you kind of stepwise unwind, you know, whatever financial mess you've made. And on the most basic level, I think Josh and I tend to agree with, you know, most of them, right. I'm not really keen on his thoughts on debt, but I get it, right. You, have people have a hard time separating their credit card from their mortgage.
00:11:45
Speaker 2: Okay.
00:11:45
Speaker 4: That's fair.
00:11:46
Speaker 5: But to say in a vacuum that you should take it at 62 could cause a host of problems. I mean, everything from just, let's look at pure numbers. You're making $ 80, 000 a year and you have to take social security. And he says, well, you should take social security at 62.
00:12:01
Speaker 4: Okay. So am I giving up the 83,000 to take my $ 3, 000 a month?
00:12:03
Speaker 3: Right.
00:12:03
Speaker 4: Or I take it.
00:12:08
Speaker 5: And then I don't realize that I failed the earnings test and now I have to withhold that money and then the government calls it back. I mean, it's kind of a tricky thing to say to somebody. But I think to your point about whether it's a solution that we're proposing, let's think about it this way. Do you want to put your retirement into the hands of the decisions of people in Washington that you cannot reasonably control? Or do we want to take a step back and say, okay, let me do everything in my power to plan for like Social Security does take a 22% haircut and or goes away.
00:12:40
Speaker 3: Yeah, no doubt about it. I'd much rather have it in the hands of people that I know and trust and can sit across from and talk to. And you can do that by going into Simplicity Wealth Columbus just off Route 750 and chatting with Josh Logan and their team. Get your own questions answered. Did you know that, hey, if you take your Social Security at 62, like Dave Ramsey recommends, and you're making over X amount, the government's going to tax that Social Security. I think everybody's Not everybody, but a lot of people think it's tax-free. It's not. It depends upon what you're making at the time you start taking it. 614-917-1040 to sit with them to have a free consultation and get the questions answered that you have. All right, so I've heard people before say, okay, I have investments, that's great, but then there's a time I have to take them because eventually the government does want its money. So those are called required minimum distributions. What should people know about that?
00:13:36
Speaker 4: Well, effectively, when you've been putting money in your 401ks, 403bs, IRAs, all the alphabet soup with everything except for Roth IRAs, you've been kicking the can on taxes up to that point. That's the advantage of them. That's the way they're pitched, right? You can take money out of your paycheck, put it in pre-tax, a gross tax deferred, and then hopefully at some future date, you'll be in a lower income tax bracket than you are today. And that's all predicated on in the past, the objective was buy a home, pay off the home, buy a car, pay off the car. Now I'm retired. I was living on $ 7, 000 a month, but now that I'm older, I only need $ 4, 000 a month, so I'll be in a lower tax bracket. The problem with that is now that people have these gigantic, well, hopefully gigantic 401ks, some people, shockingly, hit the end zone with more money than they actually needed. First world problem, but a problem nonetheless.
00:14:29
Speaker 3: Yes.
00:14:30
Speaker 4: And it's not necessarily because of just the RMD. And the RMD is the government saying, you've been kicking the can on these taxes long enough. We want our pound of flesh. We are going to force you to take money out of it and pay taxes. So again, first world problem, I have to take money I don't want to pay taxes I wouldn't have otherwise had to pay. And this is constantly changing. So originally, it used to be you had to start taking minimum required distributions at 70 and a half. Then the SECURE Act came out and it went up to 72. Now we're at 73. And based upon how old you are, when you were born, it could be as late as 75. So if we look at that in a wind tunnel, much like Dave Ramsey looks at social security in a wind tunnel and ignores taxation and recapture and all these other things, that's one thing. But we have to start correlating in other assets and other things that we have to pay for. Let me give you a couple examples. What Logan was talking about earlier was a recapture on social security based upon your age, meaning that if I'm not full retirement age, which for most people is 67, and I make too much money So I collect my Social Security at 62. Then I keep working because, as Dave Ramsey says, you should save your Social Security, put it in the bank. Now you control it. Heck with the government. Agree with that. That would be great other than, in his example, he said he's making $ 80, 000 a year. Well, for every $ 2 you make over about $ 24, 000, they take a dollar of your Social Security away. So that doesn't quite work. Okay, well, there's a gotcha. What are some of the other gotchas? Well, when you're retired, if you're living purely off of Social Security, you pay no income taxes on Social Security at all. If we were one of those people that delayed gratification was a discipline saver, we have extra money so we can live a better life, you can pay taxes on up to 85% of your Social Security. So now that drags that over. So not only did I have to take a $ 40, 000 minimum distribution I didn't want to have to take, but now I have to pay taxes potentially on an extra, let's say, $ 30, 000 worth of my Social Security. I'm getting double taxed. What other problems could that cause? Well, there's this mean lady. It's just an acronym, but the name is Irma. And that's the calculation to determine how much you pay for Medicare. And Medicare can cost you as little as $ 200 a month or an excess of $ 600 a month for the same Medicare, by the way. And we're just talking about Part B. We're not talking about your supplements or your Part D or anything. It's just Part B. So you go, okay, well, I have to take these minimum required distributions. I got to pay money I didn't want to have to pay taxes on. Okay, that stinks. I'd also drug over some of my Social Security, and that stinks. And it also bumped me over an Irma threshold. And now I have to pay $ 400 for my Medicare as opposed to 200. When will this stop? And I'm going to answer that how you make it stop. You make it stop by doing the opposite of what the federal government is doing with social security right now. And you address the problem sooner rather than later. And you can start doing things like Roth conversions and pivoting assets to different categories. And what ends up happening then is when you reach that end zone, you've effectively mitigated what is the impact of all of these things. Notice I haven't said how you've invested the money yet. All I'm talking about is a proverbial shell game on controlling taxes and expenses.
00:17:30
Speaker 3: I'm sitting here and I'm thinking my head is the same size as these guys' heads, and yet there's no way I have any of that knowledge in my head. And I'm so glad you guys do because you're looking out for me and everybody else who comes in and sits across from you. I mean, you guys must be fascinated by... I mean you wouldn't be able to do this if you weren't fascinated by it and get gratification from doing it. But I mean I just– I'm awed at your expertise on these things.
00:17:59
Speaker 4: Well, perhaps we were wired weird. But I'll give you an example. When I was in college, I thought I was going to go in the medical field. And I took chemistry and biology and very quickly realized that the medical field is not for me. My brain is not wired. I don't understand that stuff. I don't get it. I don't know why somebody would want to do a lot of different jobs that are out there. And then, again, funny story. My girlfriend at the time is like, you're taking finance classes and public speaking for easy A's. That's not normal.
00:18:30
Speaker 2: All right.
00:18:31
Speaker 4: So I don't know why you're not seeing the writing on the wall. Why don't you stop being stupid and maybe go into business? And similarly, you know, you are a savant at remembering things. Dad, I know you're not in the sports world. Inane information that doesn't help anybody. You're not in the sports realm anymore, but man, I've had conversations with you where you're like, well, it reminds me of the 1982 World Series where I can't retain that at all. I would be the worst person at selecting your fantasy football team. That's just not the way we're wired. So fortunately, this is all we do all day. It sounds like an overwhelming amount of information to the end user, I suppose, but we're focusing in on one specific thing.
00:19:09
Speaker 3: My biggest fear is somebody's going to collapse in front of me, and I'm going to need to do open-heart surgery. And all I'll be able to do is stand over them and go, in the 1975 World Series.
00:19:19
Speaker 4: You got this.
00:19:21
Speaker 3: Yeah. So other ways people can plan, like there are a ton of investment vehicles, and we've talked about those in different categories and stuff like that. But a lot of people are counting on insurance. They're counting on if they have somebody in their family who dies. They will get an insurance payment. There are tons and tons of different insurances that we have talked about here. I think, you know, when I was younger, I thought, hey, term insurance is a pretty good deal. And now I'm getting older and I think my term insurance policy has just a couple years left on it. So when you get to be at a point where I am where I'm not ready to retire yet, I'm not sure I'm financially able to retire yet. I'm pretty sure I'm not. Term insurance is still a good deal for me or whatever. Do certain types of insurance apply to people at different stages of their life?
00:20:11
Speaker 4: Yeah, this is kind of a controversial topic, and you'll see people on polar opposite ends of the spectrum for this. And as is usual with our industry, I think the answer is not quite that simple. There are companies that are out there saying buy term and invest the difference. There are other companies out there saying buy a permanent life insurance policy, and it's dual purpose, and you can use it for income or for protection. And I'll explain the differences between the two. So this makes a heck of a lot more sense. Term insurance is effectively renting insurance. So perfect case in point example would be the family I was talking about earlier. They're 32 years old. They have a young child and they need temporary insurance until the kid graduates college because if something happens to them, they want to make sure dad wants to make sure wife can pay off house, wants to make sure kid can go to college. help support mom while she's still alive. That's a temporary need because the kid's going to be out of the roost in 20 years or 20 year term policy does it because you're renting and it's not establishing any sort of savings plan within it. It's the cheapest way to do it. And term insurance rates can be incredibly inexpensive. You know, think 30 bucks a month for somebody that's got a million dollar policy when they're in their early thirties. I mean, it's incredibly inexpensive. Now on the opposite end of the spectrum, you have permanent insurance and there's a bunch of different ways that you can do this. There's variable and, fixed and dividend paying and all these different things, but ultimately they all work the same. And the way they work is part of my premium is going towards kind of that term insurance piece, but the remainder of my premium is going into cash value. That's earning some interest based upon some calculation. And the point of that is in the future, when my term insurance, if you can imagine it's 30 bucks when you're 30 a month, when you're 30, it could be a thousand bucks a month when you're 60 for the same policy, right? So what will end up happening is that cash value starts paying for part of your premium. So you have a policy forever. So now when you actually do die, I mean, if you have a 20 year term policy and you're 30, you're hoping this is the worst investment of your life and you never cash in on it. But all of us, you know, mother nature's undefeated. That's right. We will all die at some point. So I'd rather have that insurance around at the end of the tunnel. And, Insurance companies will argue that you can use that cash value for tax-free income in retirement, and that's true. My argument is this. From a cost perspective to you, the average person should be buying term insurance to cover a temporary need, investing the difference in a 401k that has a matching provision, postponing taxation on their income while they're young, investing in Roth IRAs, which have very little, if any, fees to obtain. Because the permanent insurance inherently has a bunch of fees. That's not a bad thing necessarily. It's just not as good as the others. But if you've checked all the boxes on all the other stuff and you're still looking to save more money, well, then these permanent insurance options can be a very good option. And I tell you all of this, not talking trash on permanent insurance at all. I have one. I think there's value there. I just think it's later down in the checklist.
00:23:22
Speaker 3: Logan, do you find that when you, Broach insurance topics with clients. Sometimes they have like a unawareness that it can be used as an investment for their future.
00:23:31
Speaker 4: They definitely do.
00:23:32
Speaker 5: I mean, when we think about insurance on your car, you're not thinking about I'm going to insure my car and if I don't need it, I can invest it and maybe I get to buy another car later. Right. So it's definitely a little bit of an eye opener that that is something that they can use. But, you know, kind of to the point of speaking that it's really based on what you need. You know, I mean, I have two young kids. They're going to each get half a GI bill and they're going to have a 529. Our life insurance is not designed to send them to college. If they can't figure it out with three years of college paid for, well, I gave you all the tools, right? So it's more to protect my wife to replace the income that I have lost. We do take advantage of we're just not there yet to where the money for the whole is comparable to the investment. So every person just kind of has a different scenario.
00:24:13
Speaker 3: Yeah, that is so true. Everybody does have a different scenario, your life situation, your child situation, your spouse situation. And that's why retirement is different for everyone and why it is wise to take the time, the opportunity to set up that free, no obligation consultation with Josh, with Logan, with the Simplicity Wealth Columbus team located in Lewis Center, just off Route 750. Call their office, make your appointment, 614-917-1040, 614-917-1040. Their web address, simplicitywealth.com backslash Columbus.
Speaker 1: The airing of this program by this station is not an endorsement or recommendation by the station of the products or services discussed in the program. The station does not guarantee the results of any investments made by a listener to this program.
00:00:11
Speaker 2: Josh Peck is a registered investment advisor representative with Simplicity Wealth Advisors Columbus. Investment advisory and financial planning services are offered through Simplicity Wealth LLC, an SEC-registered investment advisor. Exposure to ideas and financial vehicles discussed should not be considered investment advisor recommendation to buy or sell a financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals to see if any ideas expressed would fit their specific situation. Past performance is not a guarantee of future results. Securities can fluctuate, and when redeemed, maybe more or less than when originally invested.
00:00:50
Speaker 3: We appreciate your time, taking time to join us for the Simplicity Wealth Retirement Blueprint Radio Show. I'm Bruce Hooley here with Logan Harris and Josh Pick of Simplicity Wealth. They are located in Lewis Center just off Route 750. That's not far from 23 and 270. We sit every Friday afternoon at 4 o'clock to do this show, and it also re-airs on Saturdays at noon. So whenever you're hearing it, I want to make sure you know we appreciate your time. You're going to get some great information here. And if you really want a wealth of information that applies directly to you, what if you could go in and sit with someone who really knows about retirement investing, really does it well, and I can say that because I'm a client at Simplicity Wealth Columbus, and you'd get to ask the questions that you want that pertain perhaps only to you. It is not a presentation when you go in for your free no-obligation consultation with the Simplicity Wealth team. It is a conversation, a conversation that you can tailor to the information that you want to find out about. So take advantage of that. That's how my wife and I became clients. We are very satisfied with the results that we're getting. We understand why we are getting those results. We understand where our money is invested. We had choices we were not dictated to. We were given options. You will be given options today. That's why they call it a blueprint. Nobody's house is exactly the same as anyone else's house, unless you buy a cookie cutter home and maybe a new development. But that's not how retirement works. So take advantage of that free, no obligation consultation, 614-917-1040, 614-917-1040, or book your appointment online at simplicitywealth.com backslash Columbus. And we've talked before about the changing face of retirement over the years, and it used to be pension and social security, pension and social security. Now it's like Multiple jobs usually for someone, 401ks, IRAs, Roth IRAs. There are a lot of different ways it can go. But for many people who are on the cusp of retirement now or who are in retirement, Social Security is still a big piece of that. And there's a lot of concern because we've now delayed doing anything about Social Security, which is– it's not criminal, but it's a government-sanctioned Ponzi scheme. And it's going to be insolvent because we have more going out than we have coming in.
00:03:04
Speaker 4: Yeah, but let's talk about just how significant Social Security is. You have about 69 million Americans collecting about $ 1. 6, $ 1. 7 trillion off of Social Security. And if you look at $ 1. 6, $ 1. 7 trillion, our budget is just over $ 7 trillion. So as a component of our budget, it's pretty significant. As a matter of fact, if you add Social Security and Medicare and Medicaid together, it equates to almost two-thirds of our budget. So if you look at that, then you look at things like defense spending at 10% and then paying off just our debt. When you hear people in Congress arguing over the budget, they're really arguing over about 10% of our budget. The rest is already spoken for. Social Security is a huge, huge component. About a third of people's retirement income comes from Social Security. And here we are on the cusp of trying to figure out what do we do to solidify future payments and the way that it's worked in the past. You had people paying in. You called it a Ponzi scheme, and it is by definition a Ponzi scheme. People paying in and then people collecting off the people paying in. When it started in 1935, there were a lot of people paying in for every one person collecting. As a matter of fact, you had the average life expectancy in 1935 was 62. You couldn't collect Social Security until you were 65. It was pretty darn well-funded.
00:04:15
Speaker 3: Yeah, pretty bulletproof at that point.
00:04:17
Speaker 4: However, fast forward to today, and those ratios are all askew. You can collect at 62 instead of 65. And we live a heck of a lot longer than 62, the average life expectancy being very close to age 80. So what we've had over the years is we've had this kind of overfunding, creating a huge trust fund because we were paying in more than what was being collected. Those tides have shifted for quite some time, and many presidents have tried to add solidarity to it. How are we going to fix it? But it's kind of political suicide to go after. Now insert baby boomers being a huge contingency in the voting pool. And it's becoming even more and more of an old maid that no politician wants to touch. But we're now reaching the end of our proverbial rope. And that in around 2032, if we do nothing, social security is going to go down for every recipient by about 22%. And that's a huge challenge. It's a challenge because, you know, you have, could most people live on 22% less money? Probably not. Those people are sometimes paying taxes on their social security, so the tax revenue goes down and exacerbates the problem. And then those people have less money to spend on stuff, so it's going to have market impact. So this is a huge, huge challenge, and the government's put out, if you don't believe me, go on socialsecurity.gov, and they will actually line item out. What are the possible changes that we can do? Some a heck of a lot more scary than others.
00:05:47
Speaker 3: Yeah, and I remember vividly in my early days here at the station, I had a woman who worked here, and she was on the cusp of retirement. And whenever a headline came up about Social Security that it might be cut or whatever, she got, Logan, she got really mad. She was like, I paid into that. That's my money. They can't take it away from me. And I'm like, well, they can take it away from you if they want to. But people are really attached to that, and I understand why, because they have had that taken out of their checks, not like they checked a box and said, yeah, it's okay to take it out.
00:06:14
Speaker 5: Yeah, people have a visceral reaction to any time you start questioning the viability of Social Security going forward. I've had every reaction from anger, like you talked about, to pure, undulterated fear. Like it was the first time in their life that they had even thought about the fact that Social Security would be lower or not there.
00:06:34
Speaker 4: Based on their age.
00:06:35
Speaker 5: And when you come up in that area, when Josh was talking about where your pension Social Security or you were saying pension Social Security, you were ingrained to think about relying on that money as your retirement. It wasn't until, you know, 30 years ago when people started even talking about investing for themselves, right? I've met with somebody who worked in the OSU system and didn't even hear about a 403B until the 90s.
00:06:59
Speaker 4: And so it just wasn't part of planning.
00:07:01
Speaker 3: Yeah, no doubt about it. And we have to fix it. I agree with you guys that it is like a stick of dynamite and everybody's handing it to, you know, the next politician down the road, the next political party that's in charge. There are some proposals to fix it. One of the proposals, Ohio Senator Bernie Moreno has partnered with, of all people, Elizabeth Warren, which, you know, can't imagine too many topics on which they're aligned. But they want to suspend, I guess there's an income limit, right? If you get up to $ 184, 000 and change in income, they stop what you don't, your Social Security deduction then goes away? Or it holds, it's fixed, right?
00:07:38
Speaker 4: It goes away.
00:07:39
Speaker 3: It goes away, okay.
00:07:40
Speaker 4: So what ends up happening is every worker in the United States pays about six plus percent into Social Security. Then your employer pays another six point something percent into Social Security for 12 and change. And if you're self-employed, you pay both sides of that. And this has been a point of contention between the left and the right side of the aisle, which it's interesting that now we have Elizabeth Warren and Bernie Moreno spearheading something. There's actually some congruency, but Once you exceed 184,000 and change, then you no longer pay that 6% into Social Security or 12, depending on how you're employed.
00:08:18
Speaker 3: Does your employer continue to pay?
00:08:20
Speaker 4: Nope. No, you continue to pay Medicare, Medicaid, but not Social Security. When Joe Biden was running for office, he proposed something called a donut hole. So what he was going to do is once you hit the– it was less than this at the time, but once you hit that 84.5 or whatever the threshold was, You no longer pay into social security until you exceed 250,000. And then it picks back up again. The arguments on one side, why do I have to pay a hundred percent of my income when you're making a million dollars a year and you don't have to pay a hundred percent of your income. That's unfair. On the other side, if I make a million dollars and I pay 6% of my million dollars and you pay 6% of your 50, the way that the calculation works on social security is is the first dollar is weighted more than the last dollar that you make. Meaning that if you make $ 50, 000, you do not make half as much as somebody making $ 100, 000. And there's a cap. So effectively, if you remove the cap on my paying in, but you don't remove the cap on the amount of money that I receive, the argument is you're very much disproportionately paying into Social Security. And the argument here, my argument maybe, is what politicians will tell you is not real life. Let me explain. There are not that many people making a $ 400, 000 W-2 salary. Most of those people are independent business owners. And if you're an independent business owner, if you're smart, you usually set up your business in one of the tax structures that's most beneficial. And I'll use the easiest one to explain. You do an S-corp. So rather than being just a limited liability corp or something like that, you decide I want to be taxed. as an S-corp. If you're taxed as an S-corp, let's say you make a million dollars a year. You set your salary up for $ 100, 000. And then the other $ 900, 000 is distributions from the company. You only pay social security taxes under an income. Well, the other $ 900, 000 I make is distributions for the fact that I own the company. I don't pay Social Security taxes on that. So who's going to get caught is attorneys, doctors, engineers, highly paid accountants. Those are the people that are going to get caught, but it will be pitched to us as, do you believe that Elon Musk makes $ 3 trillion a year, whatever the numbers are? Why isn't he paying more? He's not paying anything anyway. So you're not catching the right fish in the right net.
00:10:46
Speaker 3: So the Moreno-Warren plan, I don't know if it's– Forbes doesn't like it. Forbes magazine doesn't like it. They're a financial magazine. So I don't know whether you think it would help or not. But I think what we want to ingrain to people is that this is a problem, and you need to figure out a way to get around the problem and not just rely on Social Security. There's a lot of advice out there. I know Dave Ramsey says everybody should take Social Security at 62. What's his theory on that?
00:11:15
Speaker 5: Yeah. I mean, he's, he's looking at it from just dollars over time and when you're going to live and you don't know how long you're going to live.
00:11:22
Speaker 3: That money's there. You better go get it before it's all gone.
00:11:24
Speaker 5: I guess, I guess that that could be a thing, but you know, this is the same, his rules are set up to help you kind of stepwise unwind, you know, whatever financial mess you've made. And on the most basic level, I think Josh and I tend to agree with, you know, most of them, right. I'm not really keen on his thoughts on debt, but I get it, right. You, have people have a hard time separating their credit card from their mortgage.
00:11:45
Speaker 2: Okay.
00:11:45
Speaker 4: That's fair.
00:11:46
Speaker 5: But to say in a vacuum that you should take it at 62 could cause a host of problems. I mean, everything from just, let's look at pure numbers. You're making $ 80, 000 a year and you have to take social security. And he says, well, you should take social security at 62.
00:12:01
Speaker 4: Okay. So am I giving up the 83,000 to take my $ 3, 000 a month?
00:12:03
Speaker 3: Right.
00:12:03
Speaker 4: Or I take it.
00:12:08
Speaker 5: And then I don't realize that I failed the earnings test and now I have to withhold that money and then the government calls it back. I mean, it's kind of a tricky thing to say to somebody. But I think to your point about whether it's a solution that we're proposing, let's think about it this way. Do you want to put your retirement into the hands of the decisions of people in Washington that you cannot reasonably control? Or do we want to take a step back and say, okay, let me do everything in my power to plan for like Social Security does take a 22% haircut and or goes away.
00:12:40
Speaker 3: Yeah, no doubt about it. I'd much rather have it in the hands of people that I know and trust and can sit across from and talk to. And you can do that by going into Simplicity Wealth Columbus just off Route 750 and chatting with Josh Logan and their team. Get your own questions answered. Did you know that, hey, if you take your Social Security at 62, like Dave Ramsey recommends, and you're making over X amount, the government's going to tax that Social Security. I think everybody's Not everybody, but a lot of people think it's tax-free. It's not. It depends upon what you're making at the time you start taking it. 614-917-1040 to sit with them to have a free consultation and get the questions answered that you have. All right, so I've heard people before say, okay, I have investments, that's great, but then there's a time I have to take them because eventually the government does want its money. So those are called required minimum distributions. What should people know about that?
00:13:36
Speaker 4: Well, effectively, when you've been putting money in your 401ks, 403bs, IRAs, all the alphabet soup with everything except for Roth IRAs, you've been kicking the can on taxes up to that point. That's the advantage of them. That's the way they're pitched, right? You can take money out of your paycheck, put it in pre-tax, a gross tax deferred, and then hopefully at some future date, you'll be in a lower income tax bracket than you are today. And that's all predicated on in the past, the objective was buy a home, pay off the home, buy a car, pay off the car. Now I'm retired. I was living on $ 7, 000 a month, but now that I'm older, I only need $ 4, 000 a month, so I'll be in a lower tax bracket. The problem with that is now that people have these gigantic, well, hopefully gigantic 401ks, some people, shockingly, hit the end zone with more money than they actually needed. First world problem, but a problem nonetheless.
00:14:29
Speaker 3: Yes.
00:14:30
Speaker 4: And it's not necessarily because of just the RMD. And the RMD is the government saying, you've been kicking the can on these taxes long enough. We want our pound of flesh. We are going to force you to take money out of it and pay taxes. So again, first world problem, I have to take money I don't want to pay taxes I wouldn't have otherwise had to pay. And this is constantly changing. So originally, it used to be you had to start taking minimum required distributions at 70 and a half. Then the SECURE Act came out and it went up to 72. Now we're at 73. And based upon how old you are, when you were born, it could be as late as 75. So if we look at that in a wind tunnel, much like Dave Ramsey looks at social security in a wind tunnel and ignores taxation and recapture and all these other things, that's one thing. But we have to start correlating in other assets and other things that we have to pay for. Let me give you a couple examples. What Logan was talking about earlier was a recapture on social security based upon your age, meaning that if I'm not full retirement age, which for most people is 67, and I make too much money So I collect my Social Security at 62. Then I keep working because, as Dave Ramsey says, you should save your Social Security, put it in the bank. Now you control it. Heck with the government. Agree with that. That would be great other than, in his example, he said he's making $ 80, 000 a year. Well, for every $ 2 you make over about $ 24, 000, they take a dollar of your Social Security away. So that doesn't quite work. Okay, well, there's a gotcha. What are some of the other gotchas? Well, when you're retired, if you're living purely off of Social Security, you pay no income taxes on Social Security at all. If we were one of those people that delayed gratification was a discipline saver, we have extra money so we can live a better life, you can pay taxes on up to 85% of your Social Security. So now that drags that over. So not only did I have to take a $ 40, 000 minimum distribution I didn't want to have to take, but now I have to pay taxes potentially on an extra, let's say, $ 30, 000 worth of my Social Security. I'm getting double taxed. What other problems could that cause? Well, there's this mean lady. It's just an acronym, but the name is Irma. And that's the calculation to determine how much you pay for Medicare. And Medicare can cost you as little as $ 200 a month or an excess of $ 600 a month for the same Medicare, by the way. And we're just talking about Part B. We're not talking about your supplements or your Part D or anything. It's just Part B. So you go, okay, well, I have to take these minimum required distributions. I got to pay money I didn't want to have to pay taxes on. Okay, that stinks. I'd also drug over some of my Social Security, and that stinks. And it also bumped me over an Irma threshold. And now I have to pay $ 400 for my Medicare as opposed to 200. When will this stop? And I'm going to answer that how you make it stop. You make it stop by doing the opposite of what the federal government is doing with social security right now. And you address the problem sooner rather than later. And you can start doing things like Roth conversions and pivoting assets to different categories. And what ends up happening then is when you reach that end zone, you've effectively mitigated what is the impact of all of these things. Notice I haven't said how you've invested the money yet. All I'm talking about is a proverbial shell game on controlling taxes and expenses.
00:17:30
Speaker 3: I'm sitting here and I'm thinking my head is the same size as these guys' heads, and yet there's no way I have any of that knowledge in my head. And I'm so glad you guys do because you're looking out for me and everybody else who comes in and sits across from you. I mean, you guys must be fascinated by... I mean you wouldn't be able to do this if you weren't fascinated by it and get gratification from doing it. But I mean I just– I'm awed at your expertise on these things.
00:17:59
Speaker 4: Well, perhaps we were wired weird. But I'll give you an example. When I was in college, I thought I was going to go in the medical field. And I took chemistry and biology and very quickly realized that the medical field is not for me. My brain is not wired. I don't understand that stuff. I don't get it. I don't know why somebody would want to do a lot of different jobs that are out there. And then, again, funny story. My girlfriend at the time is like, you're taking finance classes and public speaking for easy A's. That's not normal.
00:18:30
Speaker 2: All right.
00:18:31
Speaker 4: So I don't know why you're not seeing the writing on the wall. Why don't you stop being stupid and maybe go into business? And similarly, you know, you are a savant at remembering things. Dad, I know you're not in the sports world. Inane information that doesn't help anybody. You're not in the sports realm anymore, but man, I've had conversations with you where you're like, well, it reminds me of the 1982 World Series where I can't retain that at all. I would be the worst person at selecting your fantasy football team. That's just not the way we're wired. So fortunately, this is all we do all day. It sounds like an overwhelming amount of information to the end user, I suppose, but we're focusing in on one specific thing.
00:19:09
Speaker 3: My biggest fear is somebody's going to collapse in front of me, and I'm going to need to do open-heart surgery. And all I'll be able to do is stand over them and go, in the 1975 World Series.
00:19:19
Speaker 4: You got this.
00:19:21
Speaker 3: Yeah. So other ways people can plan, like there are a ton of investment vehicles, and we've talked about those in different categories and stuff like that. But a lot of people are counting on insurance. They're counting on if they have somebody in their family who dies. They will get an insurance payment. There are tons and tons of different insurances that we have talked about here. I think, you know, when I was younger, I thought, hey, term insurance is a pretty good deal. And now I'm getting older and I think my term insurance policy has just a couple years left on it. So when you get to be at a point where I am where I'm not ready to retire yet, I'm not sure I'm financially able to retire yet. I'm pretty sure I'm not. Term insurance is still a good deal for me or whatever. Do certain types of insurance apply to people at different stages of their life?
00:20:11
Speaker 4: Yeah, this is kind of a controversial topic, and you'll see people on polar opposite ends of the spectrum for this. And as is usual with our industry, I think the answer is not quite that simple. There are companies that are out there saying buy term and invest the difference. There are other companies out there saying buy a permanent life insurance policy, and it's dual purpose, and you can use it for income or for protection. And I'll explain the differences between the two. So this makes a heck of a lot more sense. Term insurance is effectively renting insurance. So perfect case in point example would be the family I was talking about earlier. They're 32 years old. They have a young child and they need temporary insurance until the kid graduates college because if something happens to them, they want to make sure dad wants to make sure wife can pay off house, wants to make sure kid can go to college. help support mom while she's still alive. That's a temporary need because the kid's going to be out of the roost in 20 years or 20 year term policy does it because you're renting and it's not establishing any sort of savings plan within it. It's the cheapest way to do it. And term insurance rates can be incredibly inexpensive. You know, think 30 bucks a month for somebody that's got a million dollar policy when they're in their early thirties. I mean, it's incredibly inexpensive. Now on the opposite end of the spectrum, you have permanent insurance and there's a bunch of different ways that you can do this. There's variable and, fixed and dividend paying and all these different things, but ultimately they all work the same. And the way they work is part of my premium is going towards kind of that term insurance piece, but the remainder of my premium is going into cash value. That's earning some interest based upon some calculation. And the point of that is in the future, when my term insurance, if you can imagine it's 30 bucks when you're 30 a month, when you're 30, it could be a thousand bucks a month when you're 60 for the same policy, right? So what will end up happening is that cash value starts paying for part of your premium. So you have a policy forever. So now when you actually do die, I mean, if you have a 20 year term policy and you're 30, you're hoping this is the worst investment of your life and you never cash in on it. But all of us, you know, mother nature's undefeated. That's right. We will all die at some point. So I'd rather have that insurance around at the end of the tunnel. And, Insurance companies will argue that you can use that cash value for tax-free income in retirement, and that's true. My argument is this. From a cost perspective to you, the average person should be buying term insurance to cover a temporary need, investing the difference in a 401k that has a matching provision, postponing taxation on their income while they're young, investing in Roth IRAs, which have very little, if any, fees to obtain. Because the permanent insurance inherently has a bunch of fees. That's not a bad thing necessarily. It's just not as good as the others. But if you've checked all the boxes on all the other stuff and you're still looking to save more money, well, then these permanent insurance options can be a very good option. And I tell you all of this, not talking trash on permanent insurance at all. I have one. I think there's value there. I just think it's later down in the checklist.
00:23:22
Speaker 3: Logan, do you find that when you, Broach insurance topics with clients. Sometimes they have like a unawareness that it can be used as an investment for their future.
00:23:31
Speaker 4: They definitely do.
00:23:32
Speaker 5: I mean, when we think about insurance on your car, you're not thinking about I'm going to insure my car and if I don't need it, I can invest it and maybe I get to buy another car later. Right. So it's definitely a little bit of an eye opener that that is something that they can use. But, you know, kind of to the point of speaking that it's really based on what you need. You know, I mean, I have two young kids. They're going to each get half a GI bill and they're going to have a 529. Our life insurance is not designed to send them to college. If they can't figure it out with three years of college paid for, well, I gave you all the tools, right? So it's more to protect my wife to replace the income that I have lost. We do take advantage of we're just not there yet to where the money for the whole is comparable to the investment. So every person just kind of has a different scenario.
00:24:13
Speaker 3: Yeah, that is so true. Everybody does have a different scenario, your life situation, your child situation, your spouse situation. And that's why retirement is different for everyone and why it is wise to take the time, the opportunity to set up that free, no obligation consultation with Josh, with Logan, with the Simplicity Wealth Columbus team located in Lewis Center, just off Route 750. Call their office, make your appointment, 614-917-1040, 614-917-1040. Their web address, simplicitywealth.com backslash Columbus.
