Financial Questions That We’ve Been Asked Recently

We work through all types of scenarios with clients each day and find tools that will help them reach their financial goals. To help you get a better idea of how we work through these different scenarios, we are going to run through a list of questions that we’ve been asked recently.

Each of these topics cover common financial scenarios that you have probably dealt with already or might come across in the future. We’ll explain our process for answering them, some of the things you’ll want to consider, and how to determine your best path forward.

Here’s some of what we discuss in this episode:

• What options do you have to provide financial support for your new grandchild and what are the tax implications?
• How do you overcome the lack of decision-making because you’re overthinking everything.
• What should you do if you realize you’ll have more money than you’ll ever spend and you haven’t been spending much in retirement.
• How should you take your final paycheck before retirement if you have a lot of paid time off accrued?

Full Transcript:

Ben (00:00):

Well, we've got a great question, financial question episode coming up on Candid Conversations Retirement Talk with Ryan Cravitz going to cover a wide variety of topics today. Hopefully something that you've been on your mind and you've been thinking about. Hopefully we'll touch on it today.

Announcer (00:18):

When it comes to financial planning, you need to cut through the jargon so that you can understand how to achieve your own retirement success. This is Candid Conversations Retirement Talk with Ryan Cravitz of Cravitz Financial & Insurance Solutions.

Ben (00:32):

Welcome in to Candid Conversations Retirement Talk with Ryan Cravitz. I'm Ben George, he is Ryan Cravitz, with Cravitz Financial office there in Orange, California. Find him online at CravitzFinancial.com. Ryan, what's happening?

Ryan (00:45):

Not too much. Just enjoying the beautiful weather here in February. Always glad to get nice weather in the wintertime, so that's why we're here in Southern California.

Ben (00:57):

No question about it and I know we got a lot to get into today. It's going to be a fun one because I like this format of the show because we get to touch on a wide variety of topics. I know there's all kinds of scenarios that you work through every day with clients there at Cravitz Financial and maybe today's episode will help us kind of explain and show that to people listening today on the show. So we're trying to get to five questions. We'll see how much time we have today, but we'll jump in here in just a second. I want to remind you again, you can find everything at CravitzFinancial.com and if you have questions for Ryan, you can always call 714-462-9155. Alright, so let's jump in here. Here's a good question. I know this is a good one for people that are having kids and there's a lot of money that comes with that and finances that come with that and tax implications.

(01:43):

So a good scenario here, I want you to sort through for us. All right, so we just had a new grand baby. He's probably going to be in the hospital for the first two months of his life. My daughter would love to take the time off work so she can be there with them, but their financial situation doesn't make it feasible. So we'd like to pitch in financially to give them some options, but we're not sure what the tax implications would be of just giving them money, not to mention how much we can afford to give them ourselves without jeopardizing our retirement. So what do you suggest we do in this situation?

Ryan (02:11):

Wow, there's so much to this and what I want to do is, even as I hear the question again, I just kind of want to break this down into pieces because I flash back at even when our son was born because when he was born he had some trouble initially. Fortunately it didn't last a very long, but just the trauma of that. And for us, we were out of there and the normal time, I think the next day, or I think it was the next day, the next night, but I just can't even imagine for the first two months and what's going on there. I actually have a friend from high school who's going through something similar like that. I don't know what the health situation is, but that's so tough and nothing's more important than wanting to be there for family. And sometimes finances will go by the wayside.

(03:10):

You're going to want to do everything that you can. That said, finances are hugely important because we need to make sure that we're making good smart decisions when it comes to our money to be able to handle these things. So when I look at this, the daughter she wants to take off, maybe it's just two months, maybe it'll end up being three months, something like that. So I don't know what their living expenses, what they would need if she wasn't working, but here's some of the things to consider. I mean, first off, likely two, three months worth of income isn't a ton of money and perhaps these folks could afford to, the grandparents could afford to pay this money or give their kids the money so that she could take this time off of work. And some of the financial things to consider is if they gift some money to their kids, you can gift now in 2024 up to $18,000 and not have to worry about filing a gift tax return.

(04:25):

And actually it says we, so I'm thinking when I saw this as well, that husband and wife, so they could each gift that much to their daughter. So you're talking $18,000 times two, so $36,000. So perhaps that would be enough and they can do that. Now, there's other things to consider besides just the gifting. And it's not to say you can't gift more than that. You can have to file a gift tax return, and then there's the lifetime exclusion, things like that that you have to be aware of. Now, fortunately, that exclusion is quite high and most people it's going to be much higher than they would ever need to worry about, but those are some of the things that need to be considered. So do be aware of that. The other part about it is from the tax standpoint is the possible income taxes.

(05:15):

So where are you going to get the money that you would give to your kids? So is the money going to come from let's say an IRA that hasn't been taxed, now it's subject to ordinary income. Now you would have to potentially pay taxes on that and then it might cause your Social Security benefits maybe to become taxable that weren't taxable before perhaps. Or if you're at a higher income, maybe you're subject to the IRMMA surcharge for Medicare and you have to be cognizant of where you're going to get the money and what the tax implications would be on that if you are going to take that. And then of course, the other thing is can we even afford to give this money to our kids and would that put us at risk of us not having the money that we needed in retirement? That sort of thing.

(06:11):

And I can tell you that the most important thing is to have a plan in retirement. You need to know, have an income plan in retirement so that you know have the money that you need to meet your expenses. And then when different things come up, let's say you need an extra, I'm just going to say $20,000 or something like this that needs to go to some sort of emergency expense, whether this is money going to the daughter or whatever this is, that you can then see what the impact would be on your plan. Would you still be okay financially? And I've looked at situations like that oftentimes with people. Sometimes it's just looking at maybe buying a new car and what the impact would be then or things like that. But, stress test the plan. Take a look at, okay, if we had this much less money because we gave it away or gave it to the daughter, we did something else with it, what now would be the impact on that plan? And if you're okay, then that gives you that confidence that you can go ahead and get that money and that you're going to be fine. So I really do hope that helps and those are just some of the key things that you need to consider.

Ben (07:29):

Yeah, very thorough answer there for that scenario and a tough one to work through. But hopefully that gives you some guidance and give you some things to think about. Again, if you have questions you want to follow up with specifics, maybe that might impact you or someone you know can always call Ryan at (714) 462-9155. Alright, here's another one. I know there's so much information out there, Ryan. It can be hard to make decisions and this scenario probably isn't that uncommon, but here it is. It seems like every time I need to make a financial decision, I just end up talking myself in circles. For example, I have some tech stocks that I think I should sell, but I'll have to pay taxes if I do. Or another example, the investments in my 401(k) are probably too risky for my age, but I don't want to miss out on another good market by being too conservative. So how do you stop talking yourself into a circle and never making a decision?

Ryan (08:20):

This is another one where I kind of want to break this down because there there's some different questions here, and this is important. I do see this a lot. And the thing is, is that when we're making decisions about money, I mean it can be very stressful and it can be very overwhelming, certainly for some people, perhaps more than others and such. And so the very first thing that I always recommended again, and I mentioned it earlier, but is having that plan in retirement. Because if you have that plan, then that gives you the confidence to spend money if you know what your expenses are and if you know how you're going to meet those expenses, that gives you that confidence. So for example, so in this case, this lady was, she said she was talking in circles or talking herself in circles and she has some tech stocks that she thinks she should sell, but she'll have to pay taxes to do it.

(09:19):

As I always say, don't let the tax tail wag the dog. So if you had a nice gain, and now if you have to pay taxes, let's say a long-term, capital gains tax rates, because presumably you've owned it more than a year. So what you pay some taxes and then you walk away with the profit. The mistake that I see happens too often is that people will have a nice gain, they'll continue to hold it even if they don't think it's maybe the best thing to do and because they don't want to pay taxes. And then that particular investment, let's say these tech stocks or whatever it is, it declines in value and now you sell it. Well, now you pay less in tax, but you also have less profit, less gain because it now has declined in value. So taxes are important. You'd want to be cognizant of that and understand the implications around selling investments and other things, but it shouldn't be the only part of your consideration there.

(10:22):

So that's just kind of the first thing and some things to think about. Let's see, the other part was the investments. My 401(k) are probably too risky for my age, but I don't want to miss out on a good market by being too conservative. So the key thing here is, and I strongly believe this is don't take any more risk, then you need to, okay, so if for instance, if you know that you can retire successfully, if you're able to achieve let's say a 5% rate of return, I'm just going to try to simplify this, then there's no reason to try to shoot for an 8% rate of return, okay? You have to make sure first of all, that your basic living expenses are all taken care of. And if that's the case and your plan is designed and you've got that intact, then if there's some additional money that you really don't need to meet your living expenses and you want to be more aggressive with, so perhaps this part of her 401(k), maybe there's a portion of that that you want to be more aggressive with because we've kind of segmented that out and you don't need that money to meet those living expenses when you retire, let's say, then that can be okay to go ahead and consider that.

(11:44):

But you don't want to just be in something that is overall too risky for where you should be at this stage. Because if the markets can move very quickly and if the markets were to pull back quite a bit and now you need this money for income, well now you're withdrawing money from an asset that is now declining and that could put you at a very real risk of running out of money. We've talked about it before. That's a sequence of returns risk. And that's losing large amounts, especially early in your retirement years. That's a critical time period, that time period about five years before and about five, even 10 years after you retire.

Ben (12:30):

Alright. Very good scenario. And I know one that is very common this day and age when you have so much information you just kind think yourself to death in a lot of cases. So good to address that. Alright, so another, the common worry with retirement is that we're going to run out of money, right? We're not going to have enough to last. But here's a unique scenario, actually maybe not too unique, but on the other end of the spectrum, I'm 79, been retired 10 years, I think I finally have peace of mind about our financial situation and I don't worry about us running out of money anymore. But now I'm thinking that we're going to have a million or more that we never spend and we don't have any kids. So should I just start spending a ton of money to make up for the last 10 years of pinching pennies? I have regrets about not traveling as much as I did in the past.

Ryan (13:16):

Well, so in this situation, I actually know this individual, so we were able to get together and talk. But if this is, you're in this type of situation, for the most part, I'm going to tell you yes, start spending. Now, I don't know you, I don't know your particular situation, so that may not be the case. You may need some money for some other things that we're not aware of here. But here's the deal. I mean, in this case, this guy was now 79 years old and again, over a million dollars that would likely never spend at this point unless he really made the decision to turn it on and start spending. And I'll tell you this too, by the way, is that one of the real challenges that I find for a lot of retirees is now becoming a spender in retirement, especially the people that have done such a great job of saving over the years now have the hardest time spending.

(14:19):

And this was a real good example of that. And now again, this guy's now 79 years old. And I will say as long as you've got a plan in place, you know that you're going to be able to meet your living expenses. And the other huge thing here that you need to make sure that is going to be taken care of are any healthcare expenses. Now it's hard to predict and know the future, but you have to think through, let's say that you needed long-term care, which could be quite expensive, especially if you needed it for an extended period of time and perhaps in certain facilities. And if you have that taken care of, whether you have long-term care insurance or you have money set aside that you know is going to be there to be able to handle that, as long as those things are in place, then absolutely your money, you're the youngest you will ever be and likely the healthiest that you'll ever be at this point.

(15:16):

And so spend that money and enjoy yourself. Because I see this far too often, people get into their later years in retirement and just aren't spending as much as they could actually afford to spend because there's always that fear perhaps of running out of money. So again, have that plan first, know what you need on a monthly basis and how you're going to meet those expenses and then enjoy yourself. And if there's money you want to give to the kids, separate that out separately so that you know, okay, you're going to designate X amount of dollars to your kids when they pass away, whether that's by buying a life insurance policy and designating them as beneficiaries or designating certain accounts towards them or however you're going to do it. But having a thought out plan as to how you're going to make that work. And by all means, enjoy yourself. You don't want to turn now 79, now 89, and now you just haven't spent it and then you're going to regret it even more.

Ben (16:19):

Yeah, you don't have that regret. And it does take a different shift in mindset to be thinking about spending when you've been so diligent with saving for so long. So it's not an uncommon situation. And one again that someone like Ryan can help you with and you want to have someone that is a professional doing this that can make sure you have that confidence to spend that money. So good situation to work through. I'm glad that you were able to Ryan to work with them and get that sorted out before it was too late. Yeah,

Ryan (16:46):

For sure.

Ben (16:47):

Alright, Ryan, how about this last one here? I'm retiring at the end of the year and we'll have about 18 weeks of vacation days and sick leave that I'll get paid for if my last paycheck is in December. All that payout will be included in this year's taxes. Should I just wait an extra month and retire after the first of the year so that paycheck is counted in a different tax year,

Ryan (17:07):

18 weeks? I'm just doing the math on that.

Ben (17:10):

Right? That's pretty nice.

Ryan (17:12):

What is that? I mean, that's like around four and a half months, something like that. That's a lot of vacation and sick leave. And it's unfortunate too, I find this oftentimes that people don't take their vacation time. I think there's a little bit of stress about taking too much vacation and keeping some job security and things like that, but interesting nevertheless. But congrats to this person now retiring. And what I will say is that, yeah, it likely does make sense, maybe retire in January here. Some things to consider is that if you retired the year before, like you said, you would have to pay taxes on that money all within the same tax year and you've already worked a full year. So you've made whatever your income is for the year plus, all of that. So you're going to want to take a look at from a tax perspective, what that would look like and how much in taxes that you would likely have to pay on that.

(18:17):

But chances are you'll have to pay less if you do it the next year because now we're only talking 18 weeks of that income. And then there could be ways to structure the rest of your income in retirement to perhaps help minimize the total amount of taxes you have to pay. So in other words, instead of maybe taking the additional income that you need from an IRA, which would be subject to ordinary income tax, you might take that from a savings account or a taxable account if you can do so, maybe without having to pay taxes at on a large gain or something like that. But there might be ways to take out money there and not have to pay as much tax. Also, if you had a Roth IRA or something, you could take money from that perhaps, and that could be tax-free. So there's different ways to kind of structure that so that you'll potentially pay less in tax at that time.

Ben (19:16):

Alright, yeah, that's a great situation to be in. Hopefully you've used that vacation time, but if you haven't, hopefully you get paid out for it like this. But great question to be asking now and not next year when you're filing your taxes and wondering why you didn't think through that before. So a great thing to be planning ahead. And as always, with all your financial decisions, it's always best to have a plan in place ahead of time. So if you have any scenario that you're working through or have questions about, again, Ryan, we'll be happy to sit down and chat with you no matter where you're located. You can find him online at CravitzFinancial.com or just give him a call at (714) 462-9155. Alright, Ryan, I hope we will do this again sometime. I think we're working through some different scenarios like this. I always think it's good to kind of hear your thought process and how you'd work through these different scenarios. So appreciate the time today.

Ryan (20:05):

Absolutely. Good talking with you, Ben.

Ben (20:07):

Well, thanks for listening to Candid Conversations Retirement Talk with Ryan Cravitz. Please hit subscribe on the show and we'll talk to you again soon.