Podcast Episode 185: Financial Questions You Don’t Know the Answer To

Today’s Wisdom:

Much of what you try to accomplish with a financial plan is being prepared for the unexpected and there’s plenty of that in life. We realize not every question has an answer, but a strong plan can position you for many outcomes. 

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What You’ll Learn:

Without a crystal ball, it’s impossible to know how life will unfold. That’s why you work with a financial professional to build a plan that can withstand the unexpected.

On this episode of the Money Wisdom podcast, we’ll explore the questions that can’t be answered right now and tell you how we approach each of these areas.

Before we get started, Joel will discuss what he’s seeing from the stock market right now. Despite everything going on in our country, the market continues to climb. It feels like the stock market is untethered from the news, which makes many people question what’s going on. As you probably know, the market is forward looking and seems to be telling us that a good year is ahead. We certainly hope so.

This all takes us to our main discussion today about questions you don’t know the answer to. There are things that you can’t predict but still need to plan for, so how do you do that. Joel will explain how you can prepare for certain things without truly know the answer.

The first question is how should you be investing this year? Obviously no one knows what’s in store for 2021, but the strong market makes many people either want to take on more risk and chase the growth or pull out and move to cash until things settle down. If you’re asking yourself those questions, you either don’t have a solid financial plan or you’re not going back and using that as a foundation for your decisions. This money is supposed to be providing income for you over a lifetime. Instead of asking yourself should you get in or out of the market now, rely on your financial plan to guide you.

The future of healthcare is another huge question mark. No one has any idea what this could look like in 5, 10, or 20 years. There could be a reduction in age for Medicare, a push for national healthcare, higher regulations on insurance companies, and many other possibilities. So the way to approach that is to set aside reserves for extra expenses if you have the ability. If not, we approach it as we go along and adjust as things change.

The next unknown is tax rates. We aren’t even sure what will happen with the next administration but try looking out years beyond that. There’s no telling what might happen a few presidents from now. The expectation from most is that rates are going up though so we work on planning with clients all the time. Be consciously thinking about taxes in retirement to make sure you’re keeping as much money as you can.

As you think about each of these unanswerable questions, make sure your plan addresses them all and you’ll have confidence in your financial future.

MAILBAG

Time for your questions again on the show. We get a few today that mortgages, saving money, and estate planning.

The first question we have on the show is how to determine how much money can you afford for a mortgage? This is a two-part answer to a great question. The first thing is what is a reasonable amount you can afford each month on a mortgage? Just because you’re pre-approved for $500,000 doesn’t mean you have to take that full amount. Typically you put about 20-40% of your monthly income towards a mortgage. The second part of this is that you don’t want to have too much financial pressure on you that it’s stifling. Don’t be in a position where you have to stress over work or the future.

Our second question asks about saving. Is the goal truly to save 15% of your income? That can seem overwhelming for some but, yes, that’s the ideal situation. We don’t like pushing someone towards a plan that they get discouraged by so we tell people to save what you’re comfortable with, but continue to move towards that goal of 15%.

The last question we’ll tackle is one about trusts as part of tax planning. This is a tax and control question. Yes, Joel has set up trusts to help save estate taxes but also to have control over that money. It’s a difficult question to answer here but it’s something we can help with and guide you on if you come to see us. 

[0:38] – Market Update

[3:25] – How should we invest this year?

[5:02] – When is the next market crash?

[8:21] – What will healthcare costs look like in 20 years?

[10:37] – What will tax rates look like three administrations from now?

[15:12] – Fun Fact and Quote of the Week

[17:26] – Mailbag question on mortgages

[19:44] – Mailbag question on saving 15% of income

[21:35] – Mailbag question on trusts in tax planning

Thanks for listening to this episode. We’ll be back again next week for another show.

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Final Thoughts:

“When you’re investing your retirement money, you should be thinking like a pension fund. The job of a pension fund is to be able to get a reasonable rate of return to pay out monthly checks to those people receiving a pension and not take too much risk.”

– Joel Johnson, Money Wisdom Podcast

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