#14 | Controlling the Controllables

Jon “Jag” Gay: Welcome back to Protecting and Preserving Wealth. I am Jon Jag Gay, joined again by Bruce Hosler of Hosler Wealth Management. Bruce, always a pleasure to be with you,

Bruce Hosler: Jon, it’s great to be with you. Thanks for leading us out today on this important topic.

Jon: Yeah, today we’re talking about controlling the controllables, which sounds a little meta, but is really, really an important topic today. Uh, what is it you wanna talk about with our listeners today, Bruce?

Bruce: Jon, I believe everyone is feeling more stressed today than almost any previous period in our country’s history. There are so many uncertainties in the world, inflation, rising interest rates, supply chain shortages, worker and employee shortages, leftovers from the pandemic.

The war in Ukraine, the migrant issues at the southern border, a stock market that’s been down 16 to 25% for most of the calendar year in 2022.

Jon: Mm-hmm. Yeah.

Bruce: And a political environment that’s so partisan, it’s depressing to the ordinary American. And finally, the issue of future tax rates, they’re most likely gonna be much higher than they are today.

Jon: Yeah.

Bruce: I just want to give our listeners a chance to step back and pause and take a moment to consider their options and actually realize that they have a lot of choices when it comes to taking control of their individual situation.

Jon: Right, and a lot of times, stress and anxiety comes from a fear of helplessness, a fear of uncertainty, not being in control or not feeling like you are in control.

Quite a long list of issues you just ran through there, Bruce that affect most of our listeners in a negative way. So, what do you propose our listeners should do about it?

Bruce: That’s great insight, Jon. I think many of them are paralyzed, right now. But what I wanna point out is the specific steps that our listeners can take to protect themselves and their families from that list of uncertainties that I just provided a moment ago.

Jon: All right, let’s start at the beginning. First step that people should take in order to take control of their lives. In the midst of all these uncertainties.

Bruce: First we have to recognize that we cannot control these issues. They’re going to come and go, and some will be a major issue affecting our lives in a dramatic fashion.

If we realize we cannot control them, that frees us up to prepare flexible plans that can prepare for and act and react to all the craziness going on in the world. I believe everyone should begin with first and foremost, a retirement income retirement plan.

Jon: Okay, a retirement income plan. What do you mean by that exactly, Bruce?

Bruce: Many people have heard of a financial plan.

Jon: Mm-hmm.

Bruce: That is really the foundation of what I’m talking about. Real financial planning software accounts for all the many variables that need to be considered when we’re planning for our financial future.

Jon: Right, try to give you some semblance of control back.

What are some of those variables?

Bruce: So, first off, we would need to include retirement income needs in the different stages of our retirement. So, early in retirement, we have our go-go years in the middle. We have our slow years and then we have our no-go years in retirement. As you know, we get older and our health effects us.

Jon: Mm-hmm.

Bruce: The one big one that I have a lot of people asking me about is inflation and do we adjust their income for this inflation? And the answer is yes.

Jon: Yep.

Bruce: And then of course, rising interest rates, market volatility. Investment vehicles, both – some that are guaranteed with income sources and those that may be partially protected. And those that have complete volatility, but allow for the potential for higher performance over a longer time horizon.

And then of course, everyone wants to know about social security benefit and Medicare benefit planning. Long-term care costs, and the big one, “am I gonna run outta money?” Longevity, “How long am I gonna live, and do I have enough for healthcare?” And finally, our clients want to know about legacy transfer and their charitable wishes.

Jon: That certainly is a long list of variables, Bruce, and some of those we’ve hit on on previous episodes of the podcast. I’d encourage our listeners to go back and listen to those specific episodes. No wonder someone needs financial planning software to account for all these issues.

Bruce: Exactly. There’s no way you can do that with a yellow pad and a pencil.

But really the question that we all want to know is, am I gonna be okay in retirement? Do I have enough money to make it through and not run out?

Jon: That is the biggest fear, as we’ve said before, it’s not dying. It’s running outta money before you die. It’s so true. We all are wondering though, how much money do we have to save in order to have enough?

And really more of a bigger question. How can someone actually know the answer to that?

Bruce: Jon, that is the beauty to the financial plan with all of the variables, our savings, our future income needs in retirement in today’s dollars extracted for inflation rates in the future; and then the expected growth rates of our investments, our potential healthcare costs, and long-term care needs.

All of those numbers need to be entered in the financial planning software so it can create what I’m gonna call a statistical probability of success. This tells us statistically what the likelihood is of us being able to achieve a successful retirement.

Jon: And I suppose that successful retirement is defined as not running outta money before we run outta life, right?

Bruce: That certainly is the biggest concern that most people I talk to worry about, Jon. They want to know with a high degree of certainty that their savings and planning is adequate to get them through their life expectancy and many times to leave a legacy to their loved ones as well.

Jon: Okay, Bruce, you’ve given a lot of good information so far in today’s podcast, but maybe I’m missing something.

It doesn’t seem to me that people can really control any of those variables. So how do we proceed here?

Bruce: Jon, you’re not missing anything. We can’t control the variables. What we can control is how we prepare for the volatility, and the uncertainty that all of the variables may create. And still feel like we have properly prepared enough no matter what happens, to not be left in a position where we cannot recover.

Jon: So, Bruce, as you’re talking, I can’t help but think there are some variables at least that we can control somehow with some of that proper planning and preparation that you’re talking about.

Bruce: Absolutely, Jon. And that is the other idea I wanna plant in our listener’s heads today. Consider future tax rates in the United States.

Now, there are several things we know right now. We know that the Tax Cuts and Jobs Act of 2017 is going to sunset in December of 2025.

Jon: Right.

Bruce: And without doing anything at all to raise taxes, Congress can simply just sit on their hands. Fail to reach an agreement between the parties and the act will sunset and taxes across the board for most Americans will increase somewhere between three and 9%.

And from there we know there’s a high likelihood that taxes will have to be going higher in the future of the United States.

Jon: You know you talk about, uh, Congress not doing anything or being able to get anything through. As we sit here and record this on November 14th, it looks like whichever way the House of Representatives goes, it’s going to be a very, very slim majority either way.

So, not a lot likely to get done at least in the next two years, regardless of the next, uh, four or five or up until 2025. What about the national debt in the United States and those unfunded liabilities for Social Security and Medicare? We’ve talked about that in previous episodes. Won’t those future expenses require the US government to raise taxes in the US even higher than we’re already talking about?

Bruce: No matter what party someone belongs to, they most certainly will have to raise the taxes, and that is why our listeners are in a position today to take advantage of this “controllable.” This is something they can control. Since we know the high likelihood that future tax rates will be higher than they are today, we can control the tax rate that we will pay on our tax-deferred IRA and retirement accounts by converting them to Roth IRAs. By converting our retirement plans to a Roth IRA today, we can control the tax rate that we will pay on those IRA account balances.

Jon: All right, so lemme get this straight Bruce. I wanna make sure I’m good here. By converting some of their IRA to a Roth IRA our listeners are taking control of the tax rate at today’s tax rates they’re gonna pay on that IRA account as opposed to on some uncertain rate down the line.

Bruce: Exactly.

Jon: But are you suggesting they convert the whole IRA into a Roth this year? You’re not suggesting that, are you?

Bruce: Oh, no, Jon, I am suggesting that they begin using the tax bracket strategy to systematically plan their effective tax rate each and every year, and how much they convert to a Roth IRA and lock into that tax rate in that year without bumping into a higher tax rate.

Jon: So by converting the IRA to a Roth and how much gets converted each year, you have more control over your tax rate on that IRA.

Bruce: That’s exactly right. They have locked in the tax rate for that amount of money that converted to the Roth in that year, and they’ll never pay a higher tax rate.

Jon: So, the tax rate on the IRA is a rate that we can control, at least for now by systematically, as we said, converting a strategic amount to a Roth IRA each and every year.

Bruce: Jon, the tax rate on your IRA is one variable that our listeners can and should control. Almost all of those other variables are very hard to control, but our listeners can help to control the outcome of the volatility of those variables by preparing a comprehensive financial plan and then considering all the potential outcomes – plan for those possibilities.

Jon: Bruce, these are powerful concepts we talked about it from the jump today about taking some control, can really effect your level of anxiety and uncertainty, and I’m sure our listeners today are gonna benefit from the stuff we’ve talked about in this episode. If one of our listeners wants to get in touch with you or your team at Hosler Wealth Management, what are the best ways for them to reach you?

Bruce: They can reach us at the website, www.hoslerwm.com or call us in Scottsdale at (480) 994-7342 or in Prescott (928) 778-7666.

Jon: Good stuff, Bruce, you’re gonna come back in a couple weeks in our next episode, and I love the title of our next episode, “Insanity is doing the same thing over and over and expecting a different result.”

We’ll talk to you then.

Bruce: Thanks, Jon.

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