Retirement Relocation Reality

SPEAKER_00 0:05

You're gonna do a really great financial future. Tom and Don are talking real money.

Retirement Living Options

Tax Considerations in Relocation

SPEAKER_01 0:12

I've mentioned before that I'm old. I don't mention as often that Tom's old, but we're both old. And some of you are old. And one of the things that people do when they get to be around retirement age, as we've done in our home. Tom doesn't do it in his home, but we've done it, is we talk about where we should live in retirement. Because, well, I mean, in my case, we get this big old house and two people and a dog in it. So where are we gonna go? Where are we gonna go? What's the best place to live in retirement? Should you move to a new state? Welcome to Talking Real Money. I'm Don. That's Tom, and today's topic of conversation is not how you're gonna pay for it, but where are you gonna spend it? The money and your life. There's two spending things going on here. Spending your money and spending your life. Where are you gonna go? What's the best place? I don't know. We fought about this for years. Fought and discussed and considered. What do you got? You're staying in in Duval, right?

SPEAKER_04 1:17

Yeah, I'm not going anywhere. You know that. I mean, I got the whole family within about 30 minutes. My brother's moving here from the Midwest. He'll be within 30 minutes, so there's no way. But are you handing out free money or something? Apparently so that I don't know about. But this does come up. It just came up with a recent conversation with a couple that lives in Oregon and uh thinks their taxes are way too high and they want to move to Arizona. Well, I guess, you know, well, there is Arizona in the winter months, which is pretty nice. That's part one. But part two is they said, well, we're gonna save a ton of money. I said, Well, you might want to look at all that and make sure you're actually going to save a lot of money. Because here's what happens. Oftentimes people look and say, Well, okay, Arizona does has a very small state income tax. I think Florida has none, right? Zero.

SPEAKER_01 2:04

Florida has zero, yes.

Evaluating State Income Taxes

SPEAKER_04 2:06

Yeah, yeah. So people often think, well, that's just a great deal. I'm gonna save a ton of money if I move there. Maybe. Uh there's other taxes, there's other considerations. I mean, for example, on a taxation basis, I think I read Alaska is the best place to live, but it's very expensive, right? Because it's yeah, everything has to be loaned to Alaska pretty much. Exactly. So it's like Hawaii, it's cheap. Yeah. Bingo, which would be uh not a bad place to be. But so uh there's a number of factors to consider with all this that that does come up, but I do see a good number of our folks we work with here that relocate to other states and actually relocate to other countries. We have people that uh have lived here in the Northwest who now live in Panama, who now live in Portugal, who now live in Spain. So they've moved other places entirely, uh, which is awesome. If that's on your list, that's something important. But uh a couple of things when it comes to the taxation part, because I think it seems very easy to look at you know, places like Florida, Wyoming, Texas, Alaska, South Dakota, they they have no state income tax. So people automatically think your taxes are gonna be lower. Well, maybe. Um because, for example, technically there is no state income tax in the great state of Washington, although now if you make more than a million dollars a year, you're gonna pay state income tax. And yes, I'm not on that list, just so you know, because somebody did ask me, and I'm like, I do not make a million dollars a year, it's pretty easy.

SPEAKER_01 3:33

You're not on that list. No, I'm not on that list. Uh uh We We want to we want to thank you all for sending us Jeff Bezos down here in Florida.

SPEAKER_04 3:40

Exactly. Thank you and many others left figuring that out. You know, but uh but if you're just looking at it from a dollars and cents standpoint, the number one place according to Smart Asset is Wyoming. Low cost of living, low taxes, and I don't know, that doesn't sound very friendly in the winter months.

SPEAKER_02 4:03

I have.

SPEAKER_04 4:03

I have not in the winter, no. How do you get there in the winter?

SPEAKER_01 4:06

I mean, that'd be tricky enough, right? You know, I mean the plows do clear I-25 and I-80. Yeah. But uh not for me.

SPEAKER_04 4:16

They don't. Uh but number two is where you're list living, my friend, in warm, low-taxation Florida, which is uh a hotbed. And a lot of people move to the floor.

SPEAKER_01 4:26

A hotbed. Funny you should say that. Um by the way, I want to thank all of you tourists for keeping our tax rates low here in Florida, because if it wasn't for you, we would probably have an income tax, but we we don't because of you. Thank you all so much. Um but you know, you mentioned the uh I want to move to a warm state, and you said this is a hot place. Well, see, what people forget is they come to visit Florida or Arizona in the winter from their cold places and they go, Oh, oh, this is lovely. I love this warm. Visit them in the summer.

SPEAKER_04 5:04

I once went to see you, if you may remember, in July, and I can still remember getting off of the plane, walking down the what is that, the the the jet way the jetway, and thinking, what happened? It it's you could barely breathe the air, and it was so thick and hot.

SPEAKER_01 5:22

It's almost like you're drinking the air through your lungs.

SPEAKER_04 5:26

It was yeah. You should so test all seasons, I guess would be good. But number three, by the way, is another place I'm sure you would be high on your list. Low taxes, quality health care. That would be South Dakota. I'm I'm sure that would be a a place you'd want to be in the late.

Hidden Costs of Living in Different States

SPEAKER_01 5:41

The Black Hills are absolutely stunning. That's a beautiful part of the state. I could leave the rest of it. Kind of looks like Kansas. You know, the the eastern part. So Wallet Hub, by the way.

SPEAKER_04 5:58

No. Wallet Hub says Wyoming, Florida, South Dakota, Colorado, and Minnesota in terms of the finances.

SPEAKER_01 6:04

But I think surprises me.

SPEAKER_04 6:07

Yep, that they have that on the list.

SPEAKER_01 6:08

Because cost of living in Colorado has soared and they they do tax income. And you know, there's another thing that these don't take into account. They talk about how Florida is affordable. Well, it's not necessarily affordable, and I'm sure they didn't calculate this in. Uh, if you own a home and have a mortgage and have to carry insurance on that home, we have among, if not the highest, property insurance rates in the country. If you can get it. Exactly. If you can get private insurance. Otherwise, you have to get it through a state pool. Yep. And it it's really, really my homeowner's insurance is ridiculously expensive.

SPEAKER_04 6:47

So a couple other things to consider around all this. If you're just moving for the money, first of all, in terms of the state income tax, don't just look at the state income tax, look at what actually is taxed. I hadn't even thought of this. Uh, Florida, Texas, Tennessee, no taxes, but some states uh tax pensions. I can remember my father retired from the military, moved to California because that was his home. I mean, he grew up there, that's where he wanted to retire, and after about a year, he said, I don't want to be in California because they're taxing my federal pension. He was outraged. He said, This is why are they doing it? So he sh moved out of there back to Washington. Because it's income? Well, I guess so. The Colonel is not pleased with that uh setup. Uh that's the thing.

SPEAKER_01 7:29

We're none of us are pleased with what we pay in taxes. Pleased is not something that goes with paying taxes. Accepting, maybe, but not pleased. And and it's always a trade-off. California is, in most of it, a lovely place to live. The the weather is almost perfect. The scenery, the beaches, the lifestyle. It's, you know, and New York is another one. My my daughter loves New York City, loves the the vibrancy and the lifestyle. She doesn't like the taxes. Taxes are bad, even when you're not a high income earner.

The Importance of Lifestyle Connections

SPEAKER_04 8:08

Yeah, especially in the city, I sure, I'm sure. So another one to watch out for is hidden taxes. So you mentioned something very interesting. Um, we've compared notes on this. My property taxes, I can think are pretty high. Uh now my home's worth more than yours, but it's like it's a lot. I live on a lake, but it feels pretty high when I compare it to other people. So that's one where you're gonna say, well, Washington does not have a state income tax. Yeah, but they're getting me with the property taxes. Also, we have a fairly uh elevated, shall we say, sales tax at 10 percent, which feels like a lot, right? Um and and the other part of the the uh property tax thing is home values are pretty high. So you're paying a percentage of a fairly high uh uh cost, a pretty high value there, right? So uh I think those in terms of the taxes, but here's the other part that again, people just look at taxes, they don't look at the whole package. You mentioned Hawaii. Well, if you want to move to Hawaii, yeah, your taxes may be reasonable, but the cost of living is outrageous, right? I mean, it's very expensive, similar to Alaska. It's a long way to take, you know, 31 flavors ice cream or whatever it is, right? You gotta haul it all the way across the world to get it there. Um and you may consider low lower cost states, Mississippi, Arkansas, Oklahoma, Missouri, and Tennessee. It doesn't mention uh your aforementioned and apparently not popular on your list, South Dakota. Um those are, I mean, beyond just the taxes. And then here's another one uh in terms of the expense side. I didn't even think of this either. Um, health care costs. Now, I don't know how variable those are, but my guess is they're pretty expensive here in this state, and they're probably lower in Florida. That's just a guess. But um again, that would be something to look at in terms of the overall cost of moving to one of those places.

SPEAKER_01 9:59

Yeah, you you really do have to take everything into account, and then there's that that intangible that uh I think is the reason you're not moving to a warmer climate, and you mentioned it earlier. The connections. And there's more to this decision than just money. Those connections to family and friends and community that you've built up over many, many, many years often uh and probably should impact your decision as much or more than the money situation.

SPEAKER_04 10:34

Totally agree. Uh lifestyle, uh, it even says that here's one of the headlines, might matter more than taxes. Yeah. And to me, that's home ownership or where wherever you end up, that should be number one, right? And there are people, by the way, towards the end of their lives, want to be closer to family for support, right? For help that they may need. But um there's no right or wrong decision. That was what I was trying to tell people I chatted with the other day. And there's not gonna be one perfect place. You mentioned something important about Florida. Feels really great in uh February, but then you get to July, and it's like, oh, that's a different world entirely.

SPEAKER_01 11:10

It's lovely until like the 30th of April, which this year too. I mean, by the by the end of April, we were in the nineties. Ugh. It already got into the nineties by the end of April here. Day after day of it's not humid yet. Humid is summer, and that that that's when the when the heat bakes the Gulf of Mexico and the Atlantic and all of the twenty million lakes we have that they were most of them were formerly just sinkholes that filled with water, but lots of those. And and all of that moisture just fills and saturates the air. Uh there is an upside to that, though. I'm waiting for it. There is an upside. No, there is, and this is the one thing that makes Florida's summers tolerable. And that is that much moisture rising up into the atmosphere, getting hit by moving currents from the o from the ocean or the gulf. It billows up into these massive thunderstorms that most afternoons in the summer, if you get if you get one over your house, it can drop the temperature from 96 to 76 in about 10 minutes.

Financial Strategy for Retirement

Finding the Right Housing

SPEAKER_04 12:21

That helps, I'll bet. In summer months. Yeah. So back to the bottom line for me. The advice I gave to the couple recently was number one, don't just consider taxes, consider all of those factors in terms of the actual cost. The cost of living, the cost of health care, cost of housing, the hidden taxes. That do it, line them all up side by side and say, here's Oregon, here's, I don't know, Arizona. And make sure you're considering all of those factors. Number two, I think, and at the end of the day, if you can afford it, you should live where you want to live. We've said this many times about real estate. It shouldn't be about getting rich. I don't know where you want to live. I that's the thing. But I mean, I think people but people think it's idyllic to move to X. It might not be that idyllic. Uh you know, so there's there's good things about Florida, there's bad things about Florida. For me, it's location, location, location. I want to be where family is, that's the decision. So um Well, my family messed that up for me. They did. And you, by the way, mentioned the other one that I think is very important. What? What was the important finding the right type of housing. I mean, it's kind of silly for you and Debbie to be in a 5,000 square foot home, whatever. They're not as rich as you. I don't have five thousand. Well, if you include the ADU, I might. Anyway, the point of the mat, and uh it's more space than I'm gonna need here soon because we're gonna be down to just the two of us. But um the point is to find the right type of housing once you've done that, absolutely 100% critical. I think uh as we uh did you call us old? As you get older, um, you know, one level, all those kind of things. So you're gonna be able to do that.

SPEAKER_01 14:00

Yeah, well, you know, they wait, but I know we're gonna run over. What the heck, I don't care. Um here in my little town of celebration, they they uh they're still building some new homes here. There's the very southern part of the community, they're still building new homes. And do you know what they build? They they hardly build any single story homes anymore.

SPEAKER_04 14:25

Don't they know it's is Florida's like Heaven's waiting room or something? No, no, no, but here's the thing.

Q&A Session Begins

SPEAKER_01 14:30

The your biggest cost going into a a home building project is the buying all that land. So you want the most you you sell a house based on square footage. So you want the most square footage on the least amount of land, and it turns out two stories is the way to get that. So the vast majority of homes in in this town are two-story ho ho houses, and the one stories, the two stories go for about four hundred dollars a square foot now. I paid eighty-five or something when I bought it. Um but the the the one stories go for about six hundred dollars a square foot. Six hundred? Mm-hmm. Wow. Fifty percent more just because they they that it's they're in such high demand. Because we're all getting old. Look what we've done. This is what demographics do to economics. A big group of people all asking for the same thing at the same time, huh? Cause the price to go up. Go figure. Well, we're gonna cue up the cues because it's QA time here on the Talking Real Money exciting podcast. We love taking questions. It's our favorite thing to do, and all you need to do to do it is to get into the queue at the QA, cue asking place on the web at talkingrealmoney.com. Hit the ask a question button and type in a question or speak it in for the Friday podcast. And if you type them in, Tom sits around and just he spends a great deal of time uh both fondling the paper, which we're not gonna get into.

SPEAKER_04 16:09

That just sounds weird.

SPEAKER_01 16:11

But you do I hear you, I hear you playing with paper. I don't know what you're doing. Um and I want to know. And and then he reads them and then reads them and then reads them and goes, I think I want to talk to this person about it, like he did right here. Lynette, Alabama.

SPEAKER_04 16:26

Uh, that's where we're going next to chat with Kenny. Kenny, welcome to Talking Real Money.

Investment Strategies for Retirement

SPEAKER_03 16:31

Hey Tom, thanks for having me on today. My pleasure. How can we help you? Well, Tom, I'm recently turned 64 years old. So kind of thinking about retirement, right? I know you guys talk about working until you're 70. That's probably what I'll end up doing. But one of the big things that's come up that I've thought about a lot lately is I have$192,000 setting in a checking account that's not making me any money. And just wondering at my age, um what you might recommend I invest that in, or should I just keep it in the bank?

SPEAKER_04 17:07

Yeah, that's a great question. So the$200,000, let's say you did retire in five years. Um, would this be the money that you'd use to start paying the bills first?

SPEAKER_03 17:20

Uh no. Um I have a 401k. Okay. Uh my 401k is about$225,000. Um, so my plan would be to hold on to that money. So I don't plan on spending it. Of course, I would keep an emergency fund out of that. Um, maybe maybe look at putting it into a high yield savings account or something like that. But no, I don't I don't plan on using that money, hopefully ever.

SPEAKER_04 17:47

Is that well, but here's the thing because as you are well aware, the money that comes out of the 401k is going to be taxed at regular income tax rate, whatever that rate is. Um and so the but the money that comes out of this account, the checking account, is gonna be taxed at only capital gain that you had it on, and the only tax you're otherwise gonna be paying is on the interest of which you receive in that account. So from a taxation standpoint, it's gonna make more sense to live first off of the money in the checking account, let the 401k grow as long as possible, then turn to that later, plus the fact that you're getting tax-deferred growth in that 401k, and if it's invested in stocks and bonds, you the expectation is you should make far more there than you would in a checking account anyway. I mean, here's my take. Okay. I probably, because retirement is close, and by the way, just because Don says he's never going to retire doesn't mean you shouldn't. Um he's got nothing else to do. You know, he's exactly uh he you know, he needs to keep his big mouth shut when it comes to all this because people need to retire when they retire. But I probably would take the amount for your emergency money for the next five years, put that in one high yield savings account. It's labeled that way, it's set aside. That's the money I'm gonna need in case something happens to my job, you know, before the five years are up. Then I probably would take the whatever's left of it, put it in a separate high yield account that's that's labeled for my retirement. Probably, and you can go to bankrate.com and look at the rate. Somebody just sent me a note the other day, still making 3.9%. Um, that money is set aside. Then, as I say, the first part is there for emergencies, the second part is there to provide income for you when you do pull the plug on retirement. That money gets spent first, then you start spending down that 401k later in your retirement. It has more opportunity for growth and it works better from a taxation standpoint.

Understanding Annuities and Alternatives

SPEAKER_03 19:48

Right, right. One thing I was thinking about, Tom, is my my wife, you know, is uh is you is younger than I am. So she doesn't have a 401k. She's now working with the state. If she stays there a few more years, she'll be vested, not fully vested, but have 10 years. So she'll be somewhat vested. So my thought was, you know, if the old saying is women will live longer than men. Yep. So I thought about uh, you know, the the hundred ninety-two thousand dollars to invest it in something and maybe leave that for her to have something to grow. That was my thought. Now I have talked to some advisors, and I keep getting, and that's the reason I want to talk to you guys, because I kind of get mixed, mixed results, mixed, you know, answers that I'm not feeling real comfortable with. And some of the things that they explain to you, I don't quite understand, and I don't know if it's a good idea to adjust to some of you. Well, uh, one of them's looking at um annuities.

SPEAKER_04 20:43

Yeah, I don't think you should do that, no.

SPEAKER_03 20:45

Yeah, I kind of agree with that. I I um I looked at that and it was a suggestion that I I kind of went in depth and and and I I didn't feel warm and fuzzy about that type of investment. Um, but the other was um doing um like bonds. Um and then um, you know, it was just all over the board, to be honest with you.

SPEAKER_04 21:10

Yeah, no, I mean again, here's the thing. You really want to make sure that you're gonna have access to money that's gonna be pretty stable if you're retiring in four or five years. Yes, you could today put it in fixed income and know that probably it would have made a little bit of money in the last four or five years, maybe a little bit more than what you're getting in a high-yield savings account. Not a lot more, by the way, but maybe a little more. I kind of like the safety aspect of knowing that you have the cash. It's there, it's available. Because sometimes, and I just read this yesterday, retirement comes quicker than people think. I I read recently that 50% of people that were getting ready to retire got retired earlier uh than they thought, either by their work or their boss or whatever it is. And we're seeing that here in the Seattle area where 10% of the Microsoft um uh employees were offered an early buyout. Like oh, they they could they could go. So these things do happen. That's why I prefer to see you stay liquid with that 200,000. It's there. And then push that 401k down the road a bit. You don't have to start taking that until you're 75. And um, and and I want to wait on that as long as I could so that I can I can let it grow, as I said, tax deferred growth, which is even better. And and it's just gonna be there for a longer period of time. So um it's gonna be a better place to draw from to take it out of those savings. So that's why, and I and I worry advisors get certain things in their head like, oh, well, you've got to have an annuity. Well, why do I have to have an annuity? You know, I'm gonna have my social security, my wife's social security, and my wife's gonna get a partial pension too. Those are annuities, right? That's a guaranteed set of income. The other stuff um, frankly, should be kept liquid because things come up and you may need liquidity. If you put it in an annuity, you can't get at it for whatever emergency comes along. So I'm not a fan of that. Yeah.

SPEAKER_03 23:00

Yeah, it's like that for like three to three to seven years, depending on then you can only withdraw what 10 10% a year on the annuity. Yeah, exactly. Um, let me ask you another question in regards to the 401k, something I thought about as well. So right now I'm vested in at 15% of my salary that I'm contributed to my 401k. Um I thought about just dumping, I have a little bit of excess money at the end of the week, just dumping more money into that 401k and let it grow. What's your thoughts about that?

SPEAKER_04 23:28

Do they have a Roth 401k option?

SPEAKER_03 23:32

Uh they do not.

SPEAKER_04 23:33

Okay. So yeah, I'm in fan of that because now you're going to get tax-deferred growth on something for hopefully five to ten years before you start drawing the money out. So, yes, I'd say if you had room in your budget to set aside a little bit more in a tax-qualified type of account like a 401k, I think that'd be money well placed.

SPEAKER_03 23:53

Okay. Good deal. Well, Tom, I was I appreciate your your answer because that's not what I've been getting from another advisor. Sometimes I feel like I that they're maybe looking at what they get most commission on is what they might be.

Managing 401k Contributions

SPEAKER_04 24:07

You know, and this is again the reason we tell people, you know, fee only, 100% fiduciary advisor, because other people are going to give you self-interested advice, their self-interest. Scares me.

SPEAKER_03 24:19

Good deal. Well, Tom, I think you've answered my question, so just keep the keep that money liquid. Maybe dump a little bit more into the 401k. There you go. And just set tight.

SPEAKER_04 24:28

Yep, I think that's smart. And uh I certainly appreciate you listening and reaching out to us.

SPEAKER_03 24:33

Yes, sir, Tom. Thanks for having me on, man. You have a great afternoon. Thanks, Kenny. Take care. Bye-bye.

SPEAKER_01 24:38

And you see what a lovely job he does with those. Look at that. And then on top of that, because he loves his paper questions oh so much. Oh, so much. He likes to then take them and read them to me. And then we try to answer them on this here podcast. And so, do you have some of those there, Tom?

SPEAKER_04 25:00

Yeah, I I'm just gonna say it. No paper was molested in the making of this podcast. I just want to make sure we're clear on that. Uh Jill writes us from St. Petersburg, Florida. Hi, Don and Tom. Sorry for supporting Tom's war on trees. I am 50 and have been maximizing 401k at work. Roth for both wife and myself and HSA. Hey, that's great. That's good. This year I'm a maxing catch-up contribution for 401k and Roth. My wife and I own a two-partner LLC in Florida without any employees. No one draws a salary from that. However, we make a small profit every year. Earlier, when this LLC was solely owned by my wife, she was contributing to a solo 401. We'd like to invest the annual profit into some sort of pre- or post-tax retirement vehicle. Can you suggest an option? This is an LLC.

SPEAKER_02 25:53

I get the salary.

SPEAKER_01 25:58

You're not paying yourself a salary.

SPEAKER_02 26:03

And how did she make the contributions to a 401k? I don't think you can. No, I don't think you can either.

SPEAKER_01 26:12

I think you have to double-check because sometimes I'm really um bum bum bum bum. Yeah, you've got to have self-employment income. I'm not a tax person.

SPEAKER_04 26:26

I I again I I you know I'm not a CPA, but there is no vehicle you can commit money to without having income. Because that's you're gonna need that, yeah.

SPEAKER_01 26:36

That's the profit from the business.

SPEAKER_04 26:39

Yeah. Just go into a uh post-tax brokerage type of account. There would be no pre-tax. Um then he wants to know, let's see, in absence of any, my thought would be to invest in your favorites, A V G V and B and D just through a brokerage account. Yeah. Yeah. Thanks for the show. Keep up the dad or dead per tom jokes coming. Um so there you go. I think you I think without income, you cannot make a uh a contribution to a retirement plan per se.

SPEAKER_01 27:10

Yeah, because the rules say income from employment. Uh because basically what you're doing it that would be like taking dividends on a stock and then putting those, a portion of those, into an IRA or a 401k or a Roth or whatever, and you can't do that. So uh logic tells me we can't do that. I I again I don't have the law in fact.

SPEAKER_04 27:36

I think logic is it in this case is gonna be correct.

SPEAKER_01 27:39

Ah, from Los Banos, California. June writes Wait a minute.

SPEAKER_02 27:43

Los Banos?

SPEAKER_01 27:45

B-A-N-O-S. Okay.

SPEAKER_04 27:47

Yeah, it is. Isn't that the bathrooms? I think we should just you've done enough today, don't you think? I think all you have.

SPEAKER_01 27:54

I mean, uh what little meager amount of span I mean, one of the first things I learned in high school was don't destroy banno.

SPEAKER_04 28:00

Where the hell there are the bathroom? Okay. Uh okay. Sorry, June. No no not no insult intended nor committed, hopefully.

SPEAKER_01 28:10

This used to be the one outhouse along the road, so they go, hi, welcome to Los Banos.

SPEAKER_04 28:15

Yeah. All right. You're coming up with the Ross. What are your thoughts regarding this financial strategy that wealthy individuals supposedly utilize to leverage money using SBLOC, securities-based lines of credit, isn't a more favorable approach as opposed to securing a HELOC? Now, I'm assuming what June is talking about here is borrowing against securities, right? Because this is this is done many times. Now, there's a cost, of course, to this, right? You've got to if you're going to borrow against them, there's a charge for that. Um, to me, it's about the well, the a HELOC is a home equity line of credit. That's using the equity in your home to borrow money, and there's a cost to that. I think right now the securities baselines of credit are kind of spendy, uh like 10%, something like that. Whereas you can probably get a HELOC for seven. And then it comes down to the terms, I guess, to me. Well, I don't understand.

SPEAKER_01 29:12

I don't know what the strategy is. Is this just an attempt to avoid selling things and and realizing capital gains?

SPEAKER_04 29:18

Maybe. She doesn't say that. She just says, what about using this? Just you know, should I should I do a HELOC or should I do the securities-based line of credit? That's her question.

SPEAKER_01 29:38

I I I I I have no idea how to answer that. Do you?

SPEAKER_04 29:46

No. She does mention here buy, borrow, die wealth strategy. In other words, you had a loan against the money, then.

SPEAKER_01 29:54

Wait a minute, what's it called now?

SPEAKER_04 29:56

Buy Well, yeah. Well, the the securities-based lines of credit is what she calls it, but buy, borrow, die wealth strategy is what uh the subject line was. And I don't know if that refers specifically to the website.

Wealth Strategies for the Ultra-Rich

SPEAKER_01 30:08

I bet it's a book or something. Or something on YouTube or some ad on the, you know, on CNBC or something. Uh yeah, it's a uh it's okay. It's okay, now I got it. This is what she's talking about, and this is what I thought. It's a way to use your wealth from stocks without selling the stocks. So you continue to accumulate assets that are appreciating, and instead of selling and paying capital gains taxes, you borrow against those because the proceeds are from a loan aren't taxable because they're a loan. Trevor Burrus, Jr. Okay, but how much are you paying for the loan? Uh well, you're paying the uh the overnight finance rate. I don't know what sofa is right now. Hold on, let me find see if I can find out. The current sofa rate is I gotta get it from the Federal Reserve. It's probably more than that. Yeah, it's 3.63. 3.6. 3.6. And then the premium on top of that uh depends on the amount, but it's between well it's right around 3% at a million dollars. Yeah. Yeah. And and it's a line of credit against your securities. So they m they are your collateral, which is why the rate is reasonable, because it's collateral that's considered to go get it. Considered to be almost as good as collateral the home collateral. Trevor Burrus, Jr.

SPEAKER_04 31:47

So in under that circumstance, then you're borrowing the money, you're living on that, you're paying the interest as you go along, and then you die. The securities are inherited by someone else. By the way, they've got to be a good thing. Stepped up cost basis. Stepped up basis anyway.

SPEAKER_02 32:03

Right.

SPEAKER_04 32:04

So other than I I see you're avoiding the tax while you're alive, you're right.

SPEAKER_01 32:08

Yeah, it's more of an a I think really it's an estate planning tool. It's a way to hand off accumulated wealth with uh with no taxation to your heirs, which just kind of goes against the grain for me. But I I I get it. For some reason, the the ultra-wealthy are more obsessed with giving their massive, ridiculously um huge amounts of wealth to their children than those of us who are uh you know in the in the top 10 percent, maybe or top five percent, who are just happy to have enough money that maybe we can live the rest of our life without running out.

SPEAKER_04 32:45

Yeah. Living the way we want to live. Um so again, it's there isn't no right or wrong here. Uh there's a judgment to be made, I guess, in terms of what's more important to you, as you just outlined on. So that would be the question at hand.

SPEAKER_01 33:00

Yeah. And here's the problem. Uh you're you're gonna have a limit to what the value is that you can borrow, and if you have a big gigantic market correction, you know, in the in the 2008 range, you're gonna get margin calls, you could get liquidated, you there there are other risks involved. It's certainly a uh it's a strategy, but it's a strategy that's very limited in its appeal.

Simplicity in Financial Planning

SPEAKER_04 33:29

You gotta be up in the pretty rich, it just feels complicated in a way, too, because you got the interest piling up there, and again, why don't you just sell the securities, pay the long-term capital gains tax? Because they want to leave it to their kids without any tax. I guess so. Okay. Fair enough. All right. So wouldn't be a favorite of ours, but could be applicable to the case.

Closing Thoughts on Financial Advice

SPEAKER_01 33:50

Because again, we're not we're fans of simplicity and not not uh trying to complicate things to to to game the tax system. I guess that's what it is. I don't know. Hey, thank you all for being a part of the podcast. We really truly appreciate you. And uh we hope you tell a friend or two. And if you have questions, go to talkingrealmoney.com, click the button that says ask a question, record it on your device's microphone, or type it in and we'll answer it on a future podcast. The other thing you can do if you need somebody to really sit down with you and look at a complex situation, or maybe go over your portfolio and go, what am I doing right? What am I doing wrong? Uh we have, since we started our own firm and then we merged with the Palo Wealth a few years ago, always believed that everybody should be able to get somebody they can talk to who isn't gonna try and sell them something. Because if we didn't do that, then we know you're gonna end up most of the time with a not always fiduciary advice provider who's probably gonna sell you something bad like an annuity. And so to avoid that, we've been giving people free advice for a long time. And we still do that. All you have to do is go to talkingrealmone.com, click the button that says meet an advisor, we'll get you with one of our advisors, including Tom. You'll get some good information, you'll get it for free, you'll get it with no obligation, and you can rest assured you're not going to suffer through some high-pressure sales pitch. It's that easy, and it's that sane, and it's we've been doing this for a long time, and boy, we would have been called on it by now if we were if we were lying. So go do that. Keep listening, tell your friends. Thanks for being there. I'm Don. That's Tom. We are talking real money.

SPEAKER_00 35:40

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