Capita's Financial Bootcamp Spring 2024

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Erik Soderborg (Retirement Nerds), Tim Holland (Orion OCIO), and Zacc Call, CFP® (Capita) discussed the important topics of: The Great Medicare Debate, Market & Economic Outlook, and How To Manage The Social Security Tax Torpedo.

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okay we're going to get started my name is Zach call I'm the president of capita Financial Network I usually give you guys a little bit of an update here we have 45 employees now um we have 15 financial advisors and it seems like we're hiring about two to four financial advisers every year and about two people in other roles in per financial adviser every year so that's about four to eight other roles that that support whether that be in HR or operations investment trading and Audits and things like that so the firm is growing and growing well and and we learned that more than 70% of our new clients and new assets come from either our existing clients adding to their accounts or our existing clients introducing us to a family member or a friend so that's super exciting for us to hear and to see and I I'm really passionate about what's going on I have a lot of ideas for the next 12 to 18 months for capita that should expand our tax services our estate planning analysis our investment offering and so really excited about all those things I I won't like go into too much today because we have so much to cover um today we have Eric and Eric Eric Eric Soderberg sorry I just know Eric really well so I just Eric Eric and I do YouTube YouTube together Eric's channel has gotten millions of views now with how many are you like 100,000 subscribers now yeah so about a 100,000 subscribers and most of them are people who are really interested in the retirement transition and so Eric and I have um done some YouTube videos which has been so fun and gotten a lot of um really good conversations going Eric knows a lot about Medicare so we've had him we're having him come in to talk about Advantage versus supplemental plans and Tim Holland's been here before Tim is the outsourced Chief investment officer at Orion Orion is very involved in the trading and the rebalancing and the triage process of many portfolio managers down to a menu that we prefer lower cost options lower turnover options higher quality meaning the investment managers like companies that have less debt that have higher earnings higher history of earnings you know those those values in selecting underlying Investments align well with what capita believes and so we use a lot of Orion strategies to implement that and the third parties that they give us connections to so Tim's role is really part a big part of that investment committee and he's going to talk to us and give us an update on markets and and what's going on right now and then in the end I'm going to talk to you about the social security tax torpedo which is not my term I wish I made that up I called it the Social Security tax accelerator which is not as exciting and we're but we're going to tell you what happens as you add income in when you're in retirement how that affects your Social Security taxability and how that math works you don't need to know all the math but I'm going to show you the levers that you pull that increase your in your taxable income and then I'll show you how your capita adviser helps you through that process and can help you strategize around things so that's a summary of today we have a lot to cover um we have these QR codes right here we if you've been to this before you know that you should scan this because you can put whatever question you want in there and then everybody else in the room can vote on what question we want to have answered so scan it and and you can ask anonymously if you want so that's a really good thing and you know how it's always hard when somebody kind of asks that question that nobody really wants to talk about well you get to vote it up here or vote it down so it's up to you guys we'd love to be able to answer a few questions here I will watch it and I'll be able to see which ones everybody's most excited about and we'll get going on on the presentation next uh that's Eric first right okay sounds great all right it's good to be here can everybody hear me we have different microphones so I got to make sure that mine's working okay turn it down I'll just have to talk quieter I don't think I have control to the volume um as Zach mentioned I am on YouTube and YouTube is a lot less scary than this because if I cough or sneeze or mess up I can just cut that out and I can't do that here um but first I do want to give a round of applause to Shannon and the marketing team there is so much that goes on behind the scenes to make this happen that we don't see so if we could give her and the marketing team Round of Applause thank you this is a boot camp and I kind of would like to have a little bit of participation on your and and that's going to be through clapping and stomping so just be ready for that uh Medicare fight night um I'm not immune to this Medicare isn't the sexiest Topic in the world I understand that it's usually the topic that people want to get through quicker so they can get on to the more exciting things like Financial conversations with more handsome presenters but we're going to do our best here in the Medicare World there is a big fight between the advantage and the supplement conversation so just with a really quick clap clap who here is already on Medicare just do a okay so quite a few my purpose tonight is not to convince you that you've made the wrong choice or made the right choice for those who are on Medicare my purpose is not to convince you to go with one or the other if you're not on Medicare yet I genuinely don't care which one you pick I'm going to talk about how they work and this is normally about an hourong conversation that I've got to condense into about 15 minutes so if you're here to try and find me saying you're leaving something out I can promise you will find something that I will leave out just because of time but here we go Advantage versus supplement is a lot like the debate between BYU and Utah and probably more accurate is Democrats versus Republicans and there is a lot of passion on both sides um I have been called some of the most bile things online because I said something nice about an advant plan or I said something nice about a Supplement Plan so there's a lot of passion here and I think specifically politically there is a problem with original Medicare that an advantage plan and a Supplement Plan are trying to solve and they do it in vastly different ways okay and so the gist of it and there's more to this but it's do you are you okay to pay now or do you want to pay later and I'll just take my parents as an example my dad hates paying for something that he's not going to use he hates the idea of insurance he doesn't want to pay monthly premiums if he never goes to the doctor only he only goes for his annual checkups he hates that my mom on the other hand she has a history of cancer 28 years ago she got cancer uh she's she was always afraid of it coming back and her work would pay for her her healthcare premiums after she retired so being able to pay now with the assurance that she would be okay later was a big deal for her um and so I'll have a story about that here in a minute here is the big messy problem that these are both trying to solve so these are the holes of original Medicare if you ever hear original Medicare that is part A and Part B there are a lot of letters in Medicare and it is obnoxious but original Medicare is part A and Part B part A is your hospital coverage think of that as your rent to stay in a hospital or a skilled nursing facility and covers a few other things Part B is your medical coverage so your doctor visits Labs x-rays tests chemotherapy things like that fall under Part B so with those they have a deductible as a whole a deductible is the dollar amount you need to pay first before insurance starts to help if you've had an employer plan like a high deductible Health Plan and it's got a $5,000 deductible you get to pay the first $5,000 and then Insurance says okay we'll help after that so both of these have a deductible the part a deductible in 2024 is

$1,632 most deductibles were used to are an annual deductible you meet it and then for the rest of the year you're done not the case with part A you can have multiple part A deductibles in a given year based on certain timing Part B is an annual deductible it's $240 that is incredibly reasonable in my opinion once you've make that hit that $240 Medicare original Medicare Part B will start kicking in they ALS also have things C cost sharing mechanisms with co-pays and Co Insurance um part A you have co-pays for daily co-pays when you're in hospitals and skilled nursing facilities for a certain amount of time Part B you have a 20% Co insurance now again if you're used to an employer plan and you have a CO Insurance there's usually a maximum out of pocket where once you hit that number you're done for the rest of the year not the case with original Medicare so if you have a million dollar in claims which is possible Medicare will cover 80% that other 20% is on you and I don't know about you but I don't have $200,000 sitting around in that instance to just come up with so that's that's part of the problem and then look at all these other holes original Medicare does not cover prescription drugs it does not cover dental vision hearing long-term care think of that as nursing homes Memory Care Facilities like dementia and Alzheimer's a lot of Home Health Care it does not cover care outside the US excess charges would be if you visit a provider that does not participate with Medicare and then unapproved charges Medicare is there for medically necessary things so if I want to make something bigger or smaller cosmetically Medicare doesn't care and they're not going to cover that okay so there's our big ugly problem so I'm going to tackle Advantage Plans first it is part C another letter and alphabetically it comes first so what a Medicare Advantage plan this is your pay later concept 73% of everybody on a Medicare Advantage plan in the country pay0 in premiums okay you have to have a original Medicare to get a Medicare Advantage plan so part A and Part B Part B has a monthly premium so you still need to pay that but to have the advantage plan you don't have to pay a monthly premium so that's a positive for for that Medicare Advantage replaces original Medicare and it is a bundle of benefits so there's your hospital coverage that replaces part A there's your medical coverage that replaces Part B it they usually come with drug coverage which is part D another letter and they come with other perks like some form of dental vision hearing gym memberships and other perks that are part of it but again this is replacing original Medicare usually if you had a bill it would go to the government original Medicare to pay first and anything left over goes to you with an advantage plan the bill doesn't even go to original Medicare anymore it's going to a private insurance company that is going to handle that medical bill here are some of the holes that the advantage plan covers there's going to be a little check mark on care outside the US just so you're aware with an advantage plan they will cover a certain amount of Emergency Care outside the US it is typically a reimbursement model so you would pay out of pocket while you're there and then you submit receipts after the fact and then they would reimburse you there are maximums on that and there are things that you need to understand with that but that's why there's a little check but in some form it covers these holes here's the other side of the advantage plan equation is it is managed care which is what most of us have been used to our entire lives but it is a private insurance company handling this so you are going to have cost sharing whenever you use it so remember my dad who hates paying for things he doesn't use but he's okay to pay for things when he does use it you'll have co-pays you'll have Co insurance if you go and visit a doctor you're going to have a co-pay if you visit a specialist you're going to have a copay if you get surgery you're going to have a copay Network um there are different network varieties here but in general going out of network is going to cost you either 100% or more than it would have if you would have stayed in network prior authorizations again this is managed care and its aim is to provide the most efficient and effective Health Care at the lowest cost so as an example with a prior authorization and a denial if my knee hurts and I go to my doctor and he says you should get knee surgery you might get something from the advantage plan company saying have you tried Physical Therapy first have you tried an injection first uh so there's kind of steps to that so you might find prior authorizations and denials with that and this is kind of a general statement here I would say that original Medicare has more what I would call kind of Auto approved Services um than Advantage plans but in general that's just something that you'll have to deal with now we're going to switch over to the Supplement Plan side supplement plans pay secondary to Medicare they do not replace it they supplement it okay so the bill does go to original Medicare to pay first whatever is left over then goes over to the supplement plan to pay and what's that whatever's left over from that goes to you so it's kind of that intermediary between you and original Medicare and those costs Medicare supplement plans come in 10 different letters to confuse us even more so we've talked about part ABC D Medicare supplement plans have plans right up there and in grade school we were taught that to get an A is the best right if I get an A I'm doing pretty good if I get an F I'm not doing so great supplement plans are not that way so the strongest letter up here is Plan F it's not available to people who became Medicare eligible as of 2020 or later the next strongest is Plan G and some of you I'm sure like oh I'm sensing a pattern here K has to be next you're wrong it's n so there's no Rhyme or Reason to these letters just know that they are there uh Supplement Plan letters are standardized so if I get a Supplement Plan G and by the way I'm going to be talking about Plan G from here on out is it is by far the most popular Supplement Plan G in Utah with any insurance company covers the same thing as a plan G with any other insurance company in say California or Texas or some other state so it covers the same thing they don't cost the same thing between insurance companies they don't cost the same thing in different states as well so you do have variety there but the coverage is the same same thing a plan n covers the same thing as any other plan n in another state these are the holes that a Supplement Plan fills uh specifically G notice it doesn't fill the part B deductible so you would still pay the $240 Part B deductible after that the Supplement Plan will take care of the rest of part B approved charges does not come with drug coverage dental vision hearing similar reimbursement model on outside the US if you want prescription drug coverage dental vision hearing you would have to purchase those plans separately they come with their own monthly premium that you were paying for that supplement plans are the pay now version so the average nationally for a plan G is $150 per person per month for a 65y old those rates typically go up a little bit each year there are other versions but most supplement plans are age BAS based so a 65y old pays a little bit less than a 66y old and so we affectionately refer to that as your happy birthday increase every time you have a birthday on a Supplement Plan you're going to get a little bit of an increase and then the insurance company does an annual increase uh every year to account for inflation and Rising healthare costs so you can see two increases per year on supplement plans and then here are kind of average costs for Other Drug plans dental plans and vision plans here in Utah uh the average in Utah for Plan G is just under 150 but it's pretty close um so that just kind of gives you an idea of the monthly cost for an individual if you're a couple double those numbers so here and I put it as the biggest mistake I'm in marketing I got to make things exciting um it's probably not the biggest mistake but a big mistake people make is they make their decision about these two options based on their health at 65 and their finances at 65 and what I'm going to show you is a 20-year look at these plans because your health at 65 is likely going to be different and your financial situation than it will be when you're 85 so let's walk through that a little bit hey Eric really quick um we do have a question in here and maybe before you get into the analysis yeah let's do it because it has to do with ages so if I work until age 70 how do I avoid Medicare penalties perfect yes so there are two exceptions as to when you do not have to take Medicare at 65 and you will not be penalized the first is if you are actively working and you're covered by a group health plan through your work okay the second is if your spouse is actively working and you're covered by your spouse's plan through work okay so if either of those apply to you you do not have to take Medicare at 65 you will not have a penalty does that help yeah absolutely it just for a lot of people it's really scary because they get all those mailers right and tells them they have to sign up or they'll be penalized forever and a lot of people work Beyond 65 and have group coverage so it's something to be aware of for sure and then when they go just also to quick quick update but when they go to apply for Medicare usually there's a form to be filled out signed by your HR team saying you've had coverage so you're good to go your employer fills out that form they just say yes they were covered by our plan and you're good um yeah that is that is a big thing that scares a lot of a lot of people and I get a lot of fighting on that online because they heard their HR person told them they have to go on and just a fun fact for everybody if your company has 20 or more employees they cannot force or encourage you off of the plan and onto Medicare what do I mean by encourage they cannot say hey if you get off of our plan and go to Medicare we will raise your salary by the same amount um so they can't do that so if your employer is doing that then tell them to stop it for those who have already gone through this Medicare process or if you are 64 years old what Zach said uh your mailbox is going to blow up your phone is going to blow up your email is going to blow up uh there's not a lot you can do about it so all of the programs that we sign up for for free whether that social media or anything else people know what your birthday is and those evil marketers can buy lists of people who are turning 65 in the next year and then you get this Deluge of mail into your mailbox just throw it in the recycle bin um all right let's let's look at the 20year costs here so Supplement Plan G let's see there was a pointer here we go so there's that $150 average premium that I was talking about we're seeing about a 7% growth rate per year on these premiums so we come down here and once you're 84 $542 a month is for your Supplement Plan G premium now over here is the part B deductible over the last 20 years we've seen a 6% growth rate in that every year um here I have you're meeting 10% 50% and 100% of your part B deductible and that repeats every 3 years it's probably not realistic but it's I and by the way I'll have this calculator available for everybody they'll send it to you and you can put in your own numbers you can put in whatever you want releas um in the blue Parts there's your drug plan premium that goes up by about 6% uh that's longer than I have time for Part B premium is about $175 that's the base premium if you're making higher income that can be higher that growth rate is about 6% and then your dental premium with a growth rate of 4% so down here is the total so over the course of 20 years10 call it $185,000 for an individual double that if you're a couple that you need to have in financial assets to cover your Medicare health care costs now a lot of your part B premiums can be paid through Social Security so that's one way to deal with it um but that's that's a sizable amount of money and the real bummer with supplement plans in my opinion is when it comes to health savings accounts so if any of you have an HSA a Medicare Supplement Plan premium is not a qualified medical expense so you can't use your HSA to pay for Supplement Plan premiums without a penalty I think it's a silly rule I don't support it but they don't care what I think about it um so that's where that amount of money you would have to have in other assets to take care of it let's switch over to the advant AG plan side uh we'll see that the chart is cleaned up a little bit because most don't have a premium most aren't paying a Part D premium either this is a in Utah the maximum out of pocket is around $5,500 there are plans that are higher plans that are lower um so that's that max out a pocket of where once you meet it the insurance plan takes care of the rest uh and then you still have your part B premiums with the same growth right here so down here we're down to $152 sorry $153,000 for an individual 305,000 for a couple the wrinkle here is that if you have a sizable HSA all of it can be used for those so there aren't any restrictions on whether if you did have a premium with an advantage plan you could use your HSA dollar for that you can use it for the max out of pockets co-ace Co Insurance Part D everything um so financially let's take a look at this again I am not trying to convince you one way or another and I'll get to this in this situation with these VAR tables that I put in you can go and change those um the Supplement Plan is about $32,000 more expensive for an individual so as we go through who kind of gravitates to these I'm going to come over here for my dad my dad hates paying for things he's not using he wants the low premiums he wants drug coverage included and he wants the other perks he has a gym membership he likes re reimbursing things for Fitness other things like that he absolutely loves it my mom wanted the freedom of Network she had her cancer doctor 28 years ago she wanted to make sure that he she could use him no matter what once she had a bill she didn't want to have to worry about anything other than the part B deductible and she didn't want to worry about prior authorizations or denials and so for some people that cost difference is enough the cost difference that the the additional dollars from a Supplement Plan is enough uh and and that's completely okay here is the most important takeaway and this one is legitimately the most important takeaway this is me just messing around here um you do not have to make this decision on your own this gets completely overwhelming I've got 200 videos on YouTube and you can do a deep dive all you want there are DIY mentalities and I get that um but you do not have to do this on your own sharing an office with capita is a group we've got another Medicare agent great person here as well um that can help with this and I want to end with a story so as I've mentioned with my mom she had a she had a prior history of cancer she would go to lunch every other week with her friends and they would talk about family they would talk about their kids and grandkids their friends and believe it or not they would talk about Medicare over lunch and so I got a call from my mom one day and she said Eric why didn't you put me on the same plan as Carolyn Carolyn has a free gym membership and I said Mom when is the last time you went to the gym and she said never and so I said okay uh and I went through a similar conversation that we've just had we have a video on YouTube that I sent her as well that's a half hour long goes into a lot more detail she sent me a text after she watched that and she said you know what I'm on the right plan thank you we also helped her friend Carolyn with Medicare and our group after our help she chose to go with an advantage plan and so she called me and said Eric why didn't you guys put me on the same plan as your mom I said Caroline does your work pay for all of your monthly premiums for your healthare after You' retired no Carolyn do you have a history of cancer or are you afraid of it no Carolyn can you and your husband afford the monthly premiums of the Supplement Plan no that's why so four months after that conversation happens cancer comes back for my mom I'm going to try and get through this yesterday was Mother's Day and it was my first Mother's Day Without my mom so cancer came back and after 10 months she had $779,000 in medical bills that came through in in just those 10 months she was on a supplement plan our family paid $240 for that part be deductible and the monthly premiums for her plan now on an Advantage plan she would not have paid $79,000 it would have been around 8,000 Supplement Plan was around 4,000 with premiums and everything included but had she made that decision because she was talking to her friend and she wanted the same plan that her friend had because of a free gym membership that would have completely changed her interaction with the health care System it would have completely changed my interaction with the healthare system because I was in charge of her medical bills so the point is do not rely on the advice of your friends do not rely on your advice of your siblings or your neighbors when it comes to Medicare decisions if you're working with an agent and it sounds like a lot of you on Medicare if you're connected with capita you probably know either Katrina or the people over at Senior Benefits Insurance Services they are unbelievable please rely on them before you rely on your friends or even your spouse um or me uh and so here's where you can find me the retirement I'm on YouTube as well where I take deep dives into all of these topics there's a $47,000 ER Bill how it would be covered by each plan um when not to take Medicare at 65 which Zach covered um so thank you for taking the time now you can get on to the more attractive presenters and more fun topics Eric we have one question another question in here so once you're on one plan can you switch to another yeah so it depends is going to be the answer pretty much always for Medicare uh there in Utah um we have a unique situation so to go to an advantage plan is pretty simple going to an advantage plan is pretty simple from a Supplement Plan during the annual uh annual enrollment period which is October to December you can make that switch going from an advantage plan back to a Supplement Plan gets a little bit tricky it depends on timing so if you go on Medicare at 65 and you take an advantage plan you have a year to try it and then you can jump onto a Supplement Plan with no medical questions um if you start on a Supplement Plan and then you switch to an advantage plan you have a year to try it out and if you don't like it you can go back to the same Supplement Plan you had if you're outside of that and you're on an Advantage plan and you want to switch back to a Supplement Plan you would have to go through medical underwriting so they're going to ask you health questions they're going to ask your health history and there is a chance that you will either be denied or they will raise your rates they can charge you more than they would otherwise based on your age um other states have other rules around that but in general that's kind of what you're looking at for switching good thanks Eric got to make sure to turn the mic [Applause] off than um thank you Eric for sharing that with about your mom and so I've known Eric through this process and and watched him handle it incredibly well but thank you for sharing that with us and sharing us all that about Medicare drop all right thanks uh thanks Zach and everyone at capita for the chance to be here tonight Eric that was super informative and and very sorry for for your loss that's that's that's really tough um I'm just to spend 15 minutes uh we're going to talk about four topics uh in this presentation where we're calling it on the other side uh if you pay attention to Wall Street the markets um the last couple years have really been about two things inflation and interest rates so we're going to spend some time looking at what the world should look like now that the FED is done raising and hopefully cutting but there's a lot of debate around that you know when does JP and the FED move from just sort of sitting on their hands actually lowering interest rates and and those expectations as you may know been all over the place the last couple months because inflation is coming a little bit hotter uh than expected of late and if memory serves this Wednesday will get the Consumer Price Index for uh the month of April so all folks on Wall Street are going to be paying attention of that data point so if you're really interested in in this uh Wednesday is a big a big day for a news perspective uh we're going to talk about four things in particular including that sort of on the other side of the interest rate hiking cycle uh the first is our stocks in a bubble uh the S&P is up about 10% year to date it's less than 1% away from its all-time high after being up 20% plus last year so lots of folks think we've come too far too fast uh we don't think so but we'll talk about that um again talking about you know what does the world look like like once the FED is done raising and then hopefully pivoting to cutting uh why hasn't the economy cracked um I live on the east coast but I'm in Utah about once or twice a month clearly this state's been booming the last couple years in particular but there's lots of smart people smarter than me wondering how the economy can continue to do as well considering the fed's taking rates from 0 to 5 and a half% and people are paying more at the pump and at the grocery store and for credit card debt and so on so we're going to talk about that and then domestic and global politics uh I'm not breaking any news when I say we have an election coming up um it's probably going to be the most contentious in the last 100 years or so uh and you've got a geopolitical backdrop that's beyond unsettled as well so I'll try and get through all that in 10 or 15 minutes uh to Zach's point if anyone has any questions far away and we'll do our best to answer okay so our stocks in a bubble uh we don't think so so I won't list out all the characteristics of a bubble but if history doesn't repeat on Wall Street it certainly Rhymes and these are the characteristics that tend to present themselves when we've entered Silly Season and I think it transcends the asset class meaning a meteoric rise in prices a disregard for fundamentals and the price you pay doesn't matter could apply to housing 15 years ago or stocks 25 years ago for those of us who are investing in the late 90s or for you uh historians or or folks that are interested in economic history a tulip Mania of the 1640s right arguably the biggest bubble of all time if you've never read about it it's fascinating but apparently the Dutch uh went uh uh nuts for toilet bulbs which I think is kind of funny because I would think there's a ton of toilet bulbs in Holland but maybe there was a limited Supply and if history is anywhere near accurate at the peak one toilet bulb could buy you a mansion in downtown Amsterdam and then it all went away so it really doesn't matter it's stocks or real estate or flowers this is kind of what you see people just go nuts and so we get this question a lot considering how well markets have done especially you call it the last 15 16 months uh we would say no and we're just going to talk about a couple characteristics that tend to present themselves at a bubble Peak or before the bubble's about to pop and why we don't think that's the case today so the first would be sentiment uh when you're near the end of a bubble everyone's all in people are flipping houses in ' 05 that have no business flipping houses or people day trading in 1999 who have no business day trading so the upper left of this screen just plots out a very well reged sentiment survey and when that blue line gets towards the top it means a lot of people are optimistic and when it gets towards the bottom it means a lot of people are pessimistic about the Market Warren Buffett famously says be fearful when others are greedy and greedy when others are fearful so if you look on the left hand side of that graph you see where we got in the late '90s right I was living and working in New York City at the time and it was just a Mania in terms of the market and tech stocks in particular the other thing I'd point out is that you've got male movie poster uh some of you may remember that movie right it reunited M Ryan and Tom Hanks who were awesome and Sleepless in Seattle and it was a romantic comedy but I'd argue it was as much about a and online uh communication as it was about um me Ryan and Tom Hanks and those sparks flying between those two great actors so the point I'm trying to make there is when an asset class so pervades the culture that they're making movies around it you probably want to lean the other way and I'd argue that's not the case today um the other anecdote from that movie Tim can I ask a question because because we got um some people wondering some of these questions I'm going to sprinkle in at the right time but this one's needed what does a stock what does a what does stocks in a bubble mean yeah Define a bubble yeah so a bubble for any asset class stocks uh real estate or again tulip bulbs is when the price people are willing to pay makes no sense relative to the underlying value of the business right so uh and we've got another example a couple uh charts or a couple slides in but it's when uh you're just willing to buy a stock because it's been going up and you just assume it's going to continue to go up and it doesn't matter to you that the company's not profitable or the price to earnings multiple the valuation of the stock makes no sense whatsoever and maybe the greatest example of that again back to real estate so we all remember 07 and ' 06 right and it wasn't just residential real estate but it was commercial real estate and there was a very famous real estate investor Sam zel who recently passed away from Chicago uh Southside Chicago uh the son of uh immigrants parents came over from Eastern Europe dirt poor and he bootstraps himself into one of the most successful Real Estate Investors of all time own half of downtown Chicago and Commercial properties all over the country and he sells out to this massive private Equity Firm in 2007 right just as uh the ER is about to go of the real estate bubble and I'll never forget this I read an interview with him and I didn't know him but I admired his business acent and and he was wealthy he didn't need the money it was already you know extravagantly wealthy and they said Sam why did you sell to to Blackstone and I love this answer and it gets back to in my opinion sort of this is a better answer for what is a bubble he said because someone made me an offer that made absolutely no sense to me and he took their check and they took their real estate and they overpaid by the a factor of two or three and he walked away with the money and then to his credit he came back five or six years later and started buying those properties back on the cheap so that's a bubble in my opinion when the value of the asset is completely disconnected from the fundamentals uh the profitability and what that company or that real estate should do for you over time if that's helpful um okay and the other anecdote from that movie when uh the shop around the corner Meg Ryan's bookstore was closing down Jean uh stapen who played Arty Bunker's wife on on the family right remember me head I said love that show not that I mean I was alive but I caught it more well I did catch it in the late 70s um she's working for Meg Ryan this probably choke my entire 20 minutes and they have to close the store and Meg Ryan feels really bad and Jean stapon says to her overt don't worry about me I bought Intel at 6 so if you're watching a TV show or a movie and and that happens you know you're in the latter stages of a bubble my apologies okay so that's the first thing sentiment just gets goofy um people go all in on an asset class so again if you think of the late 90s day trading you may remember that real estate people buying two or three homes who didn't really know what they were doing if you look on on the right it's just a plotting out of mutual fund and exchange traded fund buys and sells over the last seven or eight years and when that Lin's below zero means people are net sellers when it's above zero people are net buyers for the last seven years or so the average American investor us has been a net seller of US stocks and they've missed out on some phenomenal Returns on some of that's demographics Good Financial Planning I think a lot of it is just people being burned through 0809 and then the pandemic as well so it's another way of saying it doesn't seem like people are all in on stocks at least in our opinion and again when everyone goes in One Direction you want to go uh in the other direction um wall Street's behaving itself so IPO as you probably know is an acronym for initial public offering it's when a company becomes public when decides to list on a stock exchange and take uh uh the Public's capital in return for being a publicly traded company if you look on the left or Center left that's how many IPOs there were in the late '90s right if you on the far right that's how many IPOs are taking place today so when you see everyone including Founders rushing for an exit and willing to give away their company for your money at that level again something's not exactly right and again living in New York City in the late 90s and working in this industry I remember all you had to do is at the end of your company and you could go public so you might remember remember this the sock puppet all of companies most most of them didn't make it so when the bankers start going crazy you know something's probably about right too uh this is for me the poster child of IPO EXs it was a company called the went public in 1998 think of it as an internet platform or chat uh room company the stock went up 600% the first day it was trading that just makes no sense no company is worth 600% more on a Tuesday than it was on a Monday and then they were out of business two years later so when you see that kind of stuff and that kind of mania you probably want to move on uh finally valuation on the Le hand side that blue line is what tech stocks were trading at 25 years ago so you hear PE price to earnings multiple it's the most common most widely accepted form of valuing what a company might be worth and whether or not it's a good bargain or not inexpensive or expensive 25 years ago technology stocks were trading at 60 times earnings today they're trading around 3132 so 3132 is expensive for short it's not 60 so if you think about sentiment valuation what Wall Street is doing if history is any guide it gives you a pretty good idea where we are in the cycle so I'll stop there any other questions about maret bubbles yeah yeah okay so are federal policies such as tariffs and discouraging International Commerce keeping inflation High U they will if they're not already yeah so I know the bid Administration is going to come out and talk about I I think four times uh tariffs on EV vehicles and some other products from uh China in particular but yet tariffs are inflationary so it's you're absolutely right whoever asks that question anything that sort of gums up the works is going to push prices higher so if you think about now there could be very good reasons for doing that from a national security perspective from a supply chain perspective not saying it's not a price worth paying but if you think about um uh president Trump and the tariffs he put in place and the bid Administration has continued all of them you know I'm I'm telling you all stuff you already know but if there's one thing that seems unight Republicans and Democrats um in DC it's that we were asleep at the wheel with China and that's got to stop so it looks like the administration is going to come out with a new set of tariffs as well so you go through the pandemic we realize that these Supply chains are beyond our reach beyond our control we can't get access to Goods that we thought we could and so there's been this big push from a national security perspective to onshore or reshore they call it bring those production facilities or assets either back to the states or to Mexico Canada or more friendly nations in that part of the world including Vietnam so that's an ongoing process it's going to play out over a very long period of time and it is inflationary because a worker in Mexico is probably going to make more than a worker in China and to that end it's interesting last year based on trade settlement data was the first year that we imported more Goods from Mexico than China in over 20 years so a lot of that has already played out and I would expect to continue to continue regardless of um who wins the White House President Biden or president Trump J wouldn't you wouldn't you expect too that as as those tariffs create as you said gum up the system yeah it takes there's a lag between that decision and the actual implementation of even the higher cost labor somewhere else right so so not just the trading of a higher cost labor but the lack of Supply while we get that whole situation reworked through a different channel right yeah and and even if the company that's making that decision pulls it off perfectly where they keep a legacy supply chain in place and stand up another one in parallel you're now doubling your costs right so that company either has to pay for that out of uh its own profits or raise prices offset some of the additional so there's no free lunch on on on on that front for sure and I do think that's going to continue just because our relationship with China Western Europe's relationship with China is in a completely different place than it was where it was 10 years ago and again I don't think that's going to change anytime soon so the next question is probably more of a financial planning question so then what I'll make you answer um so it's how much do interest rates need to drop before looking into refinancing a home equity line of credit so that that's very personal because the first question is what is your rate normally a HELOC is variable so what is your variable rate on your HELOC are you trying to refinance that to a fixed rate are you trying to just look for a better variable rate are you trying to refinance your primary mortgage that then incurs cost so there there's a lot of components to that question in particular that also impacts your cash flow how does that impact your actual in inflows and outflows meaning your income or your expense uh anyway so that that one's probably harder to answer given that it's much more specific but most of the time if you're just talking about refinancing your mortgage usually you need to see at least a half a percent or a percent or more of an improvement to make up the the costs of the transaction within too many you know you don't want to have to have to wait for 15 years to make all that back you want to try to make it back within five usually that's usually my goal if you could get it back within five and the costs can be made back within less than 5 years that seems pretty reasonable ble to do that okay all right um so what do markets look like in a post rate hiking world all we're already in a post rate I we should probably change the the the cover slide or the title slide uh so the FED last raised rates in July of last year so we're coming up on the oneye anniversary right they went really hard from March of 2022 to July 2023 took the FED funds rate from 0 to 5 a half% so the big question is when are they going to cut rates and uh no one knows right because the FED is a data dependent institution which can get a little tricky because the data can change very quickly but com in end of the year Wall Street thought the FED would Cut Rate six times from 5 and a half% to somewhere in the mid fours which didn't make sense to us because that would speak to an economy that's really in pretty tough shape the Fed was gu guided into three Cuts then we got three months in a row of hotter than exp expected inflation data and the market expected no Cuts then a week ago Friday we got a jobs report for April that was disappointing and now the Market's thinking two cuts so I could kind of go back and forth like I'm watching a tennis match but I guess the point I'm trying to make is you know the FED is going to look at inflation unemployment in particular uh they don't want to wait too long because High rates do impact the economy takes a while but they don't want to cut rates and then have to go back and raise them again that's the last thing they want to do from credibility perspective but right now Wall Street at least expects two rate Cuts this year and the fed Will Tell Us in about a month or so what their updated expectations are for 2024 we think they're going to end up cutting a couple times because we do think some of the data is going to come in a little softer than expected but this is what everyone on wall Street's paying attention to and it's really because markets love cheap money right consumers like lower cost of capital so do stock investors and so do companies uh so the good news is if you look back over the last 40 years or so whenever the FED has finished raising rates and you look forward 6 or 12 months stocks are up nicely and that's what's happened again so far so we're about 10 months into this and the US equities are up about 17% now and that's because again on balance lower interest rates just make stocks look more attractive relative to bonds and they make those company earnings worth more um when when you try to figure out what a company's worth so stocks do well and bonds do well this is just app pling out of the Bloomberg aggregate it's the S&P 500 for bonds so think of it that way and usually bonds do really well when the FED is done raising rates because if you think about it if the FED is cutting rates every Bond that's going to come to market after the FED Cuts is going to have a lower yield right because interest rates have come down which means every Bond that's already trading with a higher yield is going to be worth more and the inverse is true 2022 is really bad for high quality fixed income even because the Fed was raising rates so much the beauty about fixed income and owning individual bonds is you can ignore Bond indices and the market and prices because if you own a own a bond from municipality in the great state of Utah or the US government and you're not worried about them making coupon and principal payments you can ignore the price of the Bond as interest rates Drive prices up and down if that makes sense but um uh Bond markets in particular do well once the FED starts to cut um let's see in terms of the market itself you probably have followed the Magnificent 7 right Nvidia and meta and and and Microsoft and Amazon they did most of the heavy lifting last year for the US market what's encouraging is not all seven of those stocks are doing well this year but the S&P is still up 10% so for folks in our business you like to see more companies pushing the market up and not just see a big index like the S&P dependent on a handful of companies to push it higher and small companies have done really well since last year that's plotted out on the right hand side um we already talked about this in the first quarter of the year every sector in the S&P was positive except for real estate real estate doesn't do well when bond yields go up because it's a lever asset class right so if rates start to come in and yields start to come in interest rates uh will become much more favorable for Real Estate you still see a nice pop in prices but again the market even with the volatility in April is off to a great start and it's not just a handful of stocks doing the heavy lifting if that makes sense um ultimately the markets care about two things at least in our opinion earnings and interest rates so on the left hand side is just a plotting out of the earnings produced by the companies that make up the S&P 500 we're finishing up q1 earnings season right now most companies are on a calendar year and earnings are going to grow mid to high single digits and probably grow High single digits for the year and then on the right hand side we ploted out the yield on the US 10-year note it hit over 5% in October of last year stock sold off and then it fell to under four and stocks ripped and then a couple weeks ago got back up to 4.7% and stocks went down in April and then we got that jobs report that showed the economy was maybe weakening and yields came in so ultimately if yields are moving sideways to lower and earnings are moving sideways to up even with the unsettled World we're living in and an election coming up it's a pretty good backdrop for us equities and we're overweight us equities okay why hasn't the economy cracked yet um the resiliency of the US economy always astounds me no matter how many books I read on economic history how much I try and pay attention to what's going on today so as a rule I do not like to bet against the US economy I do not bet against the US consumer and if you look at economic history we're only in recession about 10% of the time and markets go up about 80% of the time so I like to lean into that optimistic worldview partly because history tells me it's a better way to think about the markets and the economy uh but I thought the economy would be a lot weaker by this point considering that the FED took rates to 5 a half% I know what credit card U interest rates are what home mortgages are costing people and what inflation has done but the economy has proven remarkably resilient um and folks that are a lot smarter than me are as surprised as I am so a couple things consumers are still spending money right on the left hand side we plot out retail sales the April number surpris to the upside so the US consumers hanging in there partly because of all the money that the government pushed out during the pandemic took a little bit longer to get spent down than people thought and then the other big reason is just uh the jobs market right the unemployment rate is still sub 4% uh we added over 2 and a half million jobs last year and if you go back to the first three months of this year markets got off to a great start the S&P was up about 11% through the first quarter but we got hotter than expected consumer price index report in January February and March and then markets finally started to roll over in April the S&P was off over 4% because folks in my business started to think well you know maybe the economy is's running even hotter than expected the fed's not done raising rates so on and so forth and then we got a jobs report that showed only 175,000 jobs were created created in April and the unemployment rate ticked up to 3.9% so we could be at an inflection point for the jobs Market I don't want to see people lose their jobs unemployment is a terrible burden for anyone to Bear but that's why the economy has been so strong because the consumer's been good because labor markets have been good but we could be at a point where that's starting to weaken but this is ultimately what drives our economy all of us you as consumer so if the jobs Market's okay the consumer is going to be okay then you have immigration just trying to understand why the economy has been so resilient in the face of an historically aggressive fed a lot of folks think this is a this has been a big part of of it so not to get in the politics of this and I honestly think this is something that economists are going to spend decades trying to figure out but most folks think anywhere from 8 to 12 million people have entered the country over the last four years most uh crossing the border illegally and then most just um making their way to other parts of the country and many of them joining the labor force so if you think about last year when we were adding 250,000 jobs per month but wage inflation was coming in which which is a great thing if you're a company because you want people to get some raises but not too much because there goes inflation and profits a lot of people think it's because an expanding labor force and that immigration is a big part of that um so that I think has helped mitigate both inflationary pressures a little bit but also keep the economy going because there were people to take those jobs um and we're more productive uh labor productivity is plotted out on the left how many Americans are working is plotted out on the right right during the pandemic no body wanted to go to work because they didn't feel safe or they didn't have daycare and then finally things started to get back to normal so people have come back to the workforce that's good and we're being more productive and ultimately you need oh sorry sorry uh ultimately you need two things to grow in economy people and productivity so on the left hand side productivity has gone up 2 and a half% over the last 6 months if you annualize it that may not seem like a lot but that's an astronomical jump in productivity and that's pre-i so no one's really sure why but if you want to be optimistic about the economy and productivity and corporate profits and the markets and the US's ability to continue to be the world's largest most important economy productivity is a huge part of that and AI which is just getting started artificial intelligence could be a huge part of that um talking about refi so the FED raises rates to 5 a half% and the consumer doesn't bad an ey and it's probably because so many people ref their mortgages when the FED took rates to zero so Chief Financial officers CFOs across the country refi their balance sheets and folks like us refi their mortgages so it doesn't matter that the fed's taking rates to 5 a half% because we've got something locked in for 30 years at three right and my wife Meredith and I refi our house in 2022 and I'm not the smartest guy in the room but if Wills Fargo willing to lend me money for 30 years at 3% I'm going to take it right and so that's why a lot of people think even though the fed's been so aggressive the economy hasn't slowed yet because people have locked in really attractive borrowing costs tied to their most important asset which is their home um we're wealthier than we've ever been markets at are alltime highs home prices are alltime highs um if you own your house outright and you have meaningful Equity exposure even with all the craziness of the last 15 20 years it's been a pretty good time to own real assets either real estate or stocks and bonds and that makes people feel wealthier because they are wealthier and then they tend to spend a little more money and our government's spending money hand over fist we're going to run a deficit this fiscal year that's about 7% of GDP we usually only do that during a pandemic or war or a severe recession none of those things are going on right now but no one seems to really care and so everything that JP and the FED is doing to kind of slow the economy down by making all of us pay more in interest rates the federal government to a certain extent is offsetting that by pushing a tremendous amount of money into the economy Tim there's a question specifically on that can we continue to ignore the national debt or might we expect an action that might affect the market and what might that be yeah that's a great and if I'm running too long let me let me know if they have questions this is what we want to talk okay so I would get asked about the the uh the deficit in the debt uh whenever I would talk the last 5 10 15 years and not to be flip about it but up until the pandemic if someone would ask me when is the the the debt going to matter and I would say you know I don't know and if anyone tells you they know they're lying to you right they just don't know when the bond market May scream enough or or or people that put money into our country will decide to go somewhere else and I would say that because countries like Japan and Italy have a lot more debt than we do smaller economies and they're a lot older than we are but I do think we're at a point now because of higher interest rates where we can't ignore this and what I mean by that is a a 10-year yield at 45% essentially the federal government's got to pay 4 and a half% to you or me every year for 10 years for us to loan them money you know when the FED rates to zero that was half a percent and and 15 years ago was 1 to 2% so our borrowing costs have gone up a lot you probably know this but because of all the money we put on the corporate put on the uh uh country's credit card um through the pandemic through both administrations and and both parties in Congress we did that and then interest rates shot up so we're now spending as much on interest expense as we are on the US Military and that to my mind is not sustainable right so if you think about the government's um um budget and Eric probably Eric I'm sure Eric knows this much better than I do you've got Social Security Medicare Medicaid you've got military spending interest expense on outstanding debt and then a little bit left over for everything else so I think something's got to get done for now the bond Market's not holding politicians feet to the fire my best guess is either and I don't this is probably way too optimistic you get through this election and there's some sort of bipartisan um um work around trying to minimize uh growth in spending and trying get the deficit and the debt under control and I think if we don't that at some point the bond markets just going to demand a even higher rate of interest and that's going to force the government to take some action so I I still don't know but I think we're at a point especially because of annual outlays where we can't ignore it anymore and the the higher rate the higher rate at which new issues are done is your thought as to why the government can no longer or why at some point soon they will have to pay more attention to their so I mean I don't think yields are so I think the the government and the markets are okay with the 10 year around four 4 and a half% um I think anything above five the bond market probably starts to do which is what it did last year which is sell off meaningfully so the market seems okay with where we are right now but I would think if we don't either do something proactively or at least just kind of move sideways in terms of spending and taxes that the bond Market's just going to say enough they're not going to take all the supply that we continue to issue um they're they're just going to say you know no more so paint that picture because a lot of our clients will hear you say that and say that means collapse yeah no it doesn't mean it in my it doesn't mean so this is going to sound silly right um um but you know this Big Blue Marble is going to keep spinning no matter what the folks in DC do right and this country in this economy of ours at least for our Collective lifetime is going to remain the world's most important and there there's nothing on the horizon that's going to knock the US out of its seat because we live in a relative world right if if you're not going to own US Stocks you have to own Japanese stocks or gold or Bitcoin you have to kind of you have to own something right so higher borrowing cost for a government doesn't pretend economic collapse or or or runaway inflation or sort of economic chaos what it pretends is prends is that is Wall Street sort of collectively globally pension plans insurance companies large hedge funds demanding a rate of interest that becomes unsustainable for the government the government's forced to raise taxes or cut spending and there's a self-correcting mechanism built in um you saw it in the early 80s right when infl in late 70s when inflation was going through the roof um Paul vulker came in and took interest rates to the High Teens put us into a terrible recession a double dip recession that broke back of inflation and started a 40-year bull market in bonds and gradually lower borrowing costs um because are spending uh and and and the deficits slowly became much more manageable as a percentage of GDP which super hard because on the backbone of that you you've already talked about you've got interest rates being at a reasonable borrowing cost for corporations and 10% year-over-year increase in their corporate profits which are two of the biggest drivers the highest correlation to stock prices going up and so that's this is why it's so complicated and why we get so many mixed messages because on one hand you've got really Healy environment for employment for interest rates and for profits yeah but yeah the government debt is tricky but I I think a lot of our clients won't have to deal with it dur during their lifetimes I think it's something that the generation beneath me even is going to be feeling it you're not beneath me I think no I think I think you're right and and I don't who knows what's going to happen come November but you know even if you just kind of went sideways in terms of tax rates and spending the economy grows 1 to 2% per anom on a$3 trillion number tax receipts go up GDP increases debt to GDP comes down so a lot of this can be solved for if you just don't increase spending for a couple years and if you just leave tax rates as they are it doesn't take a ton the other thing is a recession would help to a certain extent right because a recession would mean negative GDP it would open the FED to cut rates bond yields would plummet and our borrowing costs would go down dramatically and I don't think anyone would would want to root for recession I think something mild coming for the real economy I think wall Street's going to be fine but if we did get a downturn in the economy that would pull in yields and make it a lot easier for the government to finance this de but I'm you know with all of our problems and the amount of money we've borrowed and the amount of money we're spending and again this may be too optimistic it is a relative world and so capital and people in my opinion are going to go where they're best treated and capital you know you have you know Wall Street you know the original 187 and the SQL which I don't think was as good you know just moves at the push of a button right and so capital and people will go where they're best treated if you think about our economy our markets money continues to flow into the US and unless we really mess this up that's not going to change what's going to be variable is the level of insur at Bond markets demand so can I ask one more question and then maybe we'll we'll jump as soon as we can to the next topic here um what will impact the sorry what will be the impact of the large Baby Boom generation getting older and the drop off or drop in birth rate yeah so um there's a great article in the Wall Street Journal today co-authored by Greg IP um which is about uh Global demographics right and I'm I'm an optimist um I I like to joke uh even though I grew up in New Jersey I'm an optimist it's not easy coming out of Jersey being an optimist a lot of therapy lot of self-help books um but there if there's one thing that I really think about and I worry about it's demographics and um we're having fewer babies and it's not just here in the US it's all around the world and it's even in parts of the globe where um uh birth rates were still very high relative to developed markets and even those are plummeted uh subsaharan Africa in particular Mexico is already gone Brazil's already gone most of Southeast Asia uh so again the Wall Street Journal today brilliant article there's another book called Lonely uh empty Planet a play on the Travel books Lonely Planet um I could talk about this for forever I won't um but the basic idea is um uh any woman of childbearing age has to have 2.1 kids to keep at least population uh static right because unfortunately not every child makes it uh through through child birth or through infancy and so that's a replacement rate 2.1 the US was above 2.1 up until about 15 years ago and Eric can speak to this in terms of those Social Security Programs Medicare Medicaid Social Security trust fund um we're at six now South Korea is under one 0.7 so most folks think we're at about 8 and a half billion people globally the UN used to think we're going to get to 10 billion in change and the world's population would Peak at the end of this Century a lot of people think it's now going to Peak somewhere around 9 billion in change in 20 or 30 years and I think that's what's going to happen so demographically we're in pickle because an economy grows with people and productivity so what I would think has to happen what I would hope would happen is technology AI robotics will solve for a lot of the labor force challenges I also think and hope right we're all getting older I think we all look fantastic so good for good for us but people are living longer they're living more productive lives and that could solve for some of that as well uh but demographics are a big big challenge we're in much better shape than a lot of other countries uh but we're going to be dealing with it too for sure sorry to speed up yeah no no sorry if I end up there you go that was good thank you for answering

questions all right today I'm on the Social Security tax torpedo so this is something that I find even financial advisers Miss so it's important to understand what it means the tax torpedo is the calculation of how the government chooses to make you include a portion of your Social Security or not you don't have to include all of your Social Security income in retirement the maximum is 85% so in other way flip that around you get 15% of your Social Security back taxfree and I don't I know that's not the best news because it used to be all taxfree and then they brought in taxes on it but you get at least 15% of it tax free free you might get more of it back taxfree the the equation is complicated and it depends on what else is going on in your income and your financial situation so I'm going to show you the equation and we're going to talk about the Social Security tax on benefits the torpedo a tool we use and I'll give you a couple of examples okay so there's an easy way and there's a hard way and I'm going to get into that real quick though this is part of the reason that's confusing is because this language in here generally up to 50% of benefits ever might be up to 85% of your benefits that's from the irs's website the Social Security when you look at their website for how you know how much of your Social Security is taxable they say things like 50% of your benefit plus any other earned income that exceeds $25,000 a year if you're single or 32,000 if you're if you're joint that doesn't tell you anything either it's super confusing right so I finally got to the point where the reality is it's somewhere between zero and 85%

and I didn't mean for that to be funny that's how bad I am with jokes I didn't know that was one um that's just the way it is and then the um the I I had to go through and actually build the tool like line by line on the worksheet for us internally at capita to be able to to work through the math for you um okay so how does it work the easy way 85% of benefits that's so it's going to be the lesser of two calculations this is one of them this is by far the easiest calculation um you just take an example would be $40,000 of Social Security multiply it by 85% and 34,000 has to show up on your tax return so what do we have $6,000 that disappears from your tax return and that happens think it's line six also we'll look at it later on the 1040 you report the total amount then you report only the taxable portion in the column that gets summed you don't need to know that cuz either your accountant's doing that or you're for doing that and Turbo Tax and it just fills it in for you so this is the beginning of the hard way okay just bear with me okay stick with me this is not easy but I'm going to get through it fast because we only have a certain amount of time but they take well actually let's go back here they take 50% of your Social Security then oh and by the way I can see some of you taking pictures these slides are all available for you if you'd like there's a QR code at the end you can just scan it and everything will be available to you okay and speaking of which let's get back here did we have the QR code right there if you want to quickly take a pict take a scan of that so you can ask questions I'll leave it here for just a second but I'll talk okay so while we're doing this so they take half of your Social Security they take all of your other income then they allow you a few adjustments but funny there's like a whole list of them it's all the schedule one but they're like not student loan interest so apparently that's the only one that they looked at and they were like we don't want to allow that one in there but I think that's funny so if you go into see that's my kind of a joke the other one wasn't supposed to be a joke that was this is where I'm all by myself on an island here um okay so let's keep going 50% of Social Security all your other income and some adjustments that gets you to this number called provisional income it's used nowhere else that I know of in the tax return provisional income just to figure out how much of your Social Security shows up so an example would be half of the 40,000 and then like if you're taking 30,000 from your 401k or IRA or if you have a pension any of that all goes in that second box and some adjustments not super common but some people may be making a contribution to an IRA some alimony some HSA contributions those can reduce this a little bit those don't do too much and then well that gets you to the $50,000 total so this person has um 40,000 of income from s security 30,000 from other sources there's $70,000 total of income but they're provisional income is 50 okay so everybody's provisional income is a little less than their regular total income okay so they take I'm going to do this real fast because you don't need to know this this is our job but they take that the hard way up top part one in the we call it sky blue this is we paid a marketing company to tell us what colors we liked and we like sky blue so that top color is sky blue it's 50% of your Social Security benefits it's either that or it's the amount over these thresholds so you have right here if you're joint filer 32,000 single filer 25 so you take your provisional income in this case it was 50,000 anything over that you have to include 50% of it and that's part one and then over the second threshold you have to include 85% of it that's part two you add part one and part two together and that's the second calculation this is the hard way so let's give you an example 50% of of Social Security is 20,000 in that example um provisional income you can see right here I'm clicking through provisional Inc comes 50 and there's 12,000 over the first threshold so they have to include half of that then there's so that's 6,000 total then 6,000 over the second threshold 85% of that is 5,100 so I know I'm clicking through this fast you don't have to know this math I'm just telling you how it works so then it's 8 11,00 so this this remember how before it was I think it was 34,000 right 34,000 or 11,000 so although we don't like the math of the hard way we often times like the results of the hard way and so we we're glad for that right um so anyway it's the lesser of the two so in this situation they only have to include $111,000 of their $40,000 of social security income so this family has $111,000 of social security income showing up on their return and then they have 30,000 can't forget that 30,000 of Ira withdrawals 401K withdrawals and pension income all of that so really they have $41,000 of income to show remember they had 70 total but 41 to show that 41 even at a standard deduction for a couple most time most of the time these folks on Social Security over 65 you get a higher standard deduction they're going to wipe away all but maybe $8 $9,000 of taxable of their taxable income with standard deduction and then we're going to multiply that $8 or $9,000 by 10% this family has an $800 tax bill federally and $770,000 of income so just pause for a second there and remember when you hear the Saturday radio telling you you're going to die because of taxes right it's not quite like that for most retirees most retirees have a lower tax burden in retirement than they did while they're working and if we optimize it and strategize around it there's an opportunity okay so it is line six right there this family so they show the $40,000 in box 6A and then box 6B is what is the column with all of the the lines you add up and they only have to add in that 11,000 so that's the Social Security tax torpedo so how do you but how do you strategize around that well this is an example of that same example adding $2,000 what happens so if they add $2,000 it goes from 11,000 to to 12,800 of their social security so they didn't just add $2,000 of income when they added $2,000 to income they added 3,700 you know because a th000 from 2,000 from Social Security Plus 17 sorry 1,700 additional Social Security plus the 2,000 more they withdrew from their account right that that withdrawal from the account forces more Social Security to be included the blue category is where the hard way is the chosen method for their calculation on Social Security once you get to this 85% of benefits being the lesser of the two options that would remember easy calculation but it's the maximum taxability so once you get to the hard way you're out of of the Social Security tax torpedo so in other words if you add more money over here from 30,000 more to to 40,000 more it it's not going to impact the portion of your Social Security that's taxable so well I'll show you a couple of examples but I want to pause there you have questions is it better to pay your taxes on retirement income now while working or after retirement better to pay taxes on your retirement in say it one more time is it better to pay your taxes on retirement income now while working or after retirement gosh there's a lot of ways this question could go so if you're that person and you want to ask again a clarifying question uh or you want to try to clarify here's my mind I'm hearing you wondering thinking are we talking about like paying taxes on money you're putting into your retirement accounts therefore doing Roth contributions or traditional contributions or are we talking about working and taking social security and having to pay taxes on it while you're working I'm not quite sure most but the second one most people don't file while they're working much especially if you're younger than full retirement age because not only do you pay taxes on it but if you earn too much they'll actually pull it back so there's a limit on how much you can earn and take in terms of Social Security once you reach full retirement age that penalty goes away and if you are doing that and you're younger than full retirement age don't get caught up by the word penalty it's really not a penalty even though they call it a penalty they're just holding it back they're going to give it back to you at full retirement for the rest of your life so so in other words there's a lot there but that was a a quick answer to that but if they're talking about the Roth versus traditional that's a unique that we did a whole hour and change on YouTube that's the most viewed one I think has like 800,000 views that is a pretty complex I'm going to give you a couple of examples though if if they throw in the if they if I didn't answer it with those two then let me know okay that's the Social Security tax torpedo and then we have tools if you guys want this you can have this tool if you want to Tinker with it we have our own version of it for advisers which I'm G to I'm going to pull up real quick um and I know this I'll zoom in and out I know it's small font but I'm going to give you a couple of examples in we have a few minutes left okay so uh if you if we look at this scenario one I just threw in $45,000 of adjusted gross income and $40,000 of Social Security benefits meaning maybe this 45 is a pension Ira withdrawals all those other things that just count interest income uh and then they have $40,000 Social Security benefits then their provisional income 65 because it's half of the 40 plus all of the 45 and then this is that funky Hardway calculation and this is the easy way calculation so the hard way is winning in this case they have to include 23,000 of their 40 which works out to be 60% of benefits so often times we get the question what should I do with this 401K that I've been saving should I just withdraw from it as needed and when they make me take it out in my 70s or should I be moving it over to Roth in the meantime and a lot of people will take the extreme approach of I should move it all over to well in in the beginning they think I did it wrong I should have had everything in Roth or I did it I did it wrong I I should have put everything in traditional and gotten the the benefit and most of the time it's actually somewhere in between because if you look at the tax rates these is this is how it works for a couple right now and I can change it and show you single if you want but 10% then 12% then 22 that's a big jump between 12 and 22 when these current tax rates Sunset not sure spoiler alert that happens at the end of 2025 so 2026 all the tax rates change it goes 10 15 25 28 instead of 10 12 22 2 four so the question really is can you get it out now at a lower tax rate or later at a lower tax rate that's all you want is the which one gives you the lower tax rate there's math behind that we can get into but the point is it's it's a really good opportunity between 12 and and 22 like if you have space inside the 12% tax bracket you could do conversions there so we did 40 we in this case $ 47,600 worth of Roth conversions and that's now scenario two after the adjustments right so now they have 96,000 92,500 so instead of including 60% they have to include 85% and the question is is it worth it right it it somewhat depends on what their Situation's going to look like at minimum distribution age but my question is then how much additional income did we have to show so we had to show a $57,000 more of income even though we only did a $47,000 conversion 10,000 of Social Security snuck in we accidentally that that that math pulled in 10k of social security so then what that means is the true cost of that conversion even though it was inside the 12% tax bracket was not 12% it was 15 because of that extra 10,000 that snuck in this is what um my industry in general doesn't do very well they don't know how to calculate the unintended consequence of Social Security sneaking in as you add cuz they look at the 12% tax bracket and they're like great let's fill it up well if you this is exactly filling it up for this person and and it's okay 15% is still probably worth it that's the bottom line in this one most likely especially if they have big pre-tax amounts if this person has very little pre-tax money I probably am not stressing about converting much here but if they have two three $4 million do of pre-tax money especially we're absolutely converting in fact we're probably pushing it further um and that was that was this scenario so I just did another one same starting point but then modeled in $200,000 of conversions this would be the person who um wants to convert everything and watch what happens if we do that real quick I'm just going to zero out their social SEC their other income so let's say they converted everything and the only thing they have to show is social security because everything else is in WTH they don't pay taxes again this is that scenario they don't have a tax bill because their social security disappears for the most part and they they don't even have to convert everything they could convert most of it and not have a tax bill so that's the other scenario that it depends on how painful it is in this scenario they're going to go through into the 12 into the and potentially into the yeah 22 and 24% tax brackets their medic medicare premiums are going to go up to 349 a person instead of 174 and their marginal cost of that conversion is 21% on average so on the on the $200,000 they're going to pay 21% tax to get it over plus medicare premiums for that year are going to be an extra 200 and change per person per month 400 to five grand okay so they're paying an extra $5,000 in medicare premiums as well so that's still probably worth it to lot of people if they have two or three or four million and they think over the course of a decade they can try to wipe out their pre-tax money and get it over into a r and then never pay taxes again for the from 73 to 90 you know you can see how everybody's situation is a little bit different on this and then but I really don't want to think make you all walk away thinking Zach said everyone has to convert a t a ton because that's the popular thing right now you're hearing you got to move you got to move but let's take this same situation and let's add just maybe they have to take another $20,000 meaning let's say this 40,000 45 is pension income and so that's not going away or it's interest income that's never going away and the Social Security benefits are not going away so that scenario is baked and then their their minimum let's say they have like a half a million doll pre-tax account their minimum distribution is probably going to be less than $20,000 start and every year they they make you take just like on Medicare they make you pay a little bit more as you get older they make you take out a bigger percentage and this particular person if they had to take out $20,000 less than a half a million dollar pre-tax account they still don't have that big of a tax burden overall to to get that out every year and it it could be you know just a few percentage points I mean basically you're adding from 60 to 85% that one's actually fairly painful that's a bad example there are some we run into a decent number of ones where it's like your your bill is 10% in at minimum distribution age I don't think I would I don't think I would convert if you can sneak it out at 10 15 20 well let's call it 10 12 and 15 forever then then there's a really good argument to be made that it's okay to have some pre-tax left and sneaking it in at really low rates especially think about it you'll have about a $30,000 standard to now that will change in the future but right now we have about a $30,000 standard deduction which means you get the first $30,000 taxfree so if you eliminate all sources of taxable income because you paid taxes on it you missed an opportunity to get 30,000 for the rest of your life totally taxfree so okay so that gets you to different strategies uh we talked about these um let's talk quickly about like a qualified charitable distribution so we have a lot of folks here who give to charities whether it be through hospitals schools um churches and like tithing if you are over 70 a half and you take money out of your IRA and send it directly to the charity you don't put it in your bank and then move it to the charity that way you you skip the bank you go straight from Ira to charity you don't have to report that income on your tax return it's called qualified charitable distribution so it's super slick and so people who are currently taking withdrawals from their accounts and then paying for example a tithing of $110,000 every year basically at 70 and A5 you stop doing that and you start sending it directly over and you stop the withdrawal from your account which reduces your income by $10,000 which also will likely if you're in the tax torpedo pull some of the taxable portion of your Social Security back too so you might reduce your income by 10 but it from from not doing the withdrawal it may actually reduce the taxable Portion by by 12 to 15 okay so all of this is this is actually the basic version this tool that we use and then beyond that we have a software we we talked about it before we can throw your tax return into it it will automatically read it provide 12 to 15 recommendations plus scenarios that we can then mock up and and adapt and so that's something that as a capita client you have available to you not everybody wants to us to go through that every year but we're happy to so if you if you want to send us your 10 40 don't just send us the couple Pages talk to your adviser and send the whole package because the software reads all the schedules as well and we're happy to analyze it provide you the one page Report with the recommendations and then if specifically you're trying to figure out something like what if I take more income right now what if I convert what if I do this different charitable strategy what if I sell some some large long-term capital gains or really the nice thing you want to know is like how much room do I have in the different brackets um we can do all that work for you um okay so just in general um let's get to any

questions hold on I got to go back okay so that QR code should get you access to a landing page with these slides I think we may need to I wonder if they're already up there Shannon are we G to okay so maybe scan it leave it in your your Safari for 24 hours give us a minute to to make sure cuz I actually made a couple little adaptations to the slides and we'll get the updated version in there and mostly this has been a wonderful and Wild Ride being part of cap I started when there were five employees and there were only a few advisers and it is amazing there were 300 clients and now we have 2,300 roughly and it has been so fun it has been so so fun but we we we do these things on these nights like this because one we enjoy it of course but two we want to say thank you and we want to provide the opportunity for you guys to learn whatever you guys want to learn so I'll say this some most every six months I'm like what what might they want to know so if you have an idea is to what you want us to talk about in 6 months send it to me um we'll for sure take it into consideration and mostly thank you thank you for coming