Hidden Costs that Could Wreck Your Financial Plan

Speaker 1 – 00:00
Being rich is not true wealth. Less than 3% of wealth passed lasts more than two generations.
Speaker 2 – 00:04
Psychology of that is so important. I mean, this is hundreds of thousands, even millions of dollars that you’re
wasting.
Speaker 1 – 00:09
Decision fatigue is a concept we talk about a lot. And this comes when you have uncoordinated advice. Tax
planning can save you literally millions of dollars or double, triple your net worth over time. The most important
one that most people don’t have is that’s the biggest risk that exists out there right now. Foreign welcome
everybody, today joined by Ben Rettenberg. And we are talking about the that occur in wealth building. And these
The are not just money leaks. They are regret. They are a form of, you know, wasting time. Sometimes what you
own ends up owning you. So we’re going to talk in great detail how you can avoid this and what the biggest silent
killers are. So Ben, what do you typically see as the number one drain in a financial plan?
Speaker 2 – 01:01
One of the biggest The that I see is just general, like lifestyle creep or just not having like a, a system in place for
saving and spending. And then it, things just get unorganized and you don’t really have a control of what is coming
in the door and what’s going out. I think a good example is like setting a thermostat in your room. Like if you just
bump it up 2 degrees, like over time, like you might feel it initially, but if you just keep it like that, you almost get
used to it and it becomes normal for you. And I feel the same way about financial planning and just money
management. Like if you get used to a level of spend and you don’t rein it in and you don’t have a plan around it just
becomes normal.
Speaker 2 – 01:45
And it’s easy to get started stressed and unorganized about how much you’re spending and where your money’s
going because you don’t have a system in place. So I would say just general, like feeling your lifestyle go up but not
having a plan in place around it.
Speaker 1 – 01:58
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Yes, I would say that I, I completely agree. The catastrophe in a financial plan is one of two things. You’ve lived
such a good lifestyle, but every decision you make is full of stress because you know you haven’t saved or secured
your future. And then there’s the other end where you have the best savers who save everything. They don’t enjoy
life, and then by the time they, you know, retire, they have health problems, they die in two years, and then they spin
off a whole new set of problems for their kids.
Speaker 2 – 02:21
So they saved all this money to use for retirement and they don’t. Their health fails and they don’t get to use any of
it.
Speaker 1 – 02:26
Yes, I think a good financial plan is letting that lifestyle creep occur, but with intention and making sure you have a
calibrated financial plan. So I’ll give you an example. There’s a gentleman, we work with his family, you know, they
were originally planning to retire, not retire. He’s very motivated individual, probably is going to work for the rest of
his life. You know, business owner originally set his plan at 10,000amonth. And so, you know, we set a liquid net
worth goal of we need about 3 million bucks is going to be safe, you know, safe withdrawal rate, net of taxes. And
you know, literally three years later, his business exploded and he was spending 60,000amonth. Now,
60,000amonth was still like one fourth of what he was making, but when we evaluate it is actually much more.
Speaker 1 – 03:14
So when money comes in, if you don’t kind of call shotgun on where it goes, if it’s getting saved or spent, it just
kind of leaks through the cracks and before you know it, anything that doesn’t get saved intentionally typically finds
a way to get spent. So not saying it was wrong for them to spend 60,000amonth, but the lifestyle creep needs to be
with intention. It can’t be controlling you. You have to control it. And I think we talk about like, you should move the
goalpost. The higher net worth, higher income you get. You know, you don’t want to keep a static financial plan of
spending.
Speaker 1 – 03:44
I’m going to spend 10,000amonth and you’re making 50 now you’re saving 40amonth and you’re going to way over
accumulate your net worth and you’re going to have all this kind of regret of stuff you could have done with your
family along the way.
Speaker 2 – 03:54
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So can we unpack that more? I think that’s super interesting. So they’re spending, you had it modeled out at
10,000amonth. Everything was fine. They’re spending 60, but they’re making more than enough to spend that.
Where was their head at? Were they like, oh my God, we’re spending too much? Were they like, is this enough? You
know, how do you assure them or how did you get them?
Speaker 1 – 04:13
So we had to recalibrate the plan. Obviously now we needed a net worth and there was some stuff that involved
his kids. So like, by the time the kids were out of the house, they would have needed about 40amonth, about a Half
a million dollars a year. And so we had to adjust that liquid net worth goal from 3 million, I think to 11 and a half
million to sustain. And this is again as a financial independence plan, not a typical like 65, 95. This is like we want
this by 50 and we need to last 40, 50 years. So we had to adjust. And I think at the time he was making like 3 to 4
million.
Speaker 1 – 04:45
And so, you know, net of taxes he was fine to save that 60, that spend that 60amonth, but we really had to start
saving the equivalent of like 60 or 70amonth to create that financial independence within I think it was like a 10
year window. So what was an initially like super on track financial plan. We’re going to be financially independent in
five years. If he had retired in five years at that lifestyle, he would have like run out of money by 55. So we see this
all the time. I’m just thinking of another client we met last week. They had, you know, for years they had been very
disciplined or basically, you know, had big bonuses and stock bonuses that we would save. And they were basically
living off of their, they’re netting about 12,000amonth as a family, like net after taxes.
Speaker 1 – 05:32
And so they were spending all of it, but they were saving most of the bonuses. So we’re like okay, 12,000amonth.
Now they had done such a good job, they were going to retire at 60. And so there’s a gap of five years. They would
need health insurance. And we had the 12,000 month we know they’re going to spend plus the health insurance. So
that’s another probably 2,000amonth to bridge that cap until Medicare starts then. Plus we had evaluated, so
they’re between their cash bonus and their stock bonuses. You know, they were saving like 200 to 250 a year. But
when we did an audit of it, they were pulling back about 50 a year in upgrading the kitchen and the vacation house,
getting you know, a new, putting a pool in the backyard.
Speaker 1 – 06:13
And so we had averaged out these kind of like out of the 12,000amonth other cost that occurred over the last five
years and that average 50amonth. So we originally the assumption was 12amonth, then you add health insurance
for retirement, then you add another 50 a year. Now we’re looking almost close to 200 a year. Now these clients
were fully on track for that still at age 60. But it’s definitely a completely different dynamic and telling them like
their guard rails of what they could or couldn’t spend or like the expectations of what they can give their kids along
the way changes when you do that real audit. So I don’t believe in like retire off of 60% of your income or you need
to do like a hard life audit on like what is, what are your fixed costs, what are your variable costs?
Speaker 1 – 06:53
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And then what if, what are like the unknown cost that you say are never going to happen again. It’s a one time
thing. But there’s one time things happen every year. Right.
Speaker 2 – 07:00
I think that’s a big misconception, I think you’d agree is if someone spends 25,000amonth in their working lifetime.
I think it’s easy to think, oh, I’m retired, my kids will be out of the house, my mortgage will be mostly paid off. I
could probably spend 15,000amonth. In your experience find people are spending very similar to what they’re
spending in their working lifetime in retirement.
Speaker 1 – 07:21
I think that if you’ve done it right, you’re spending more on retirement. Right. Because you’re basically, if you’re
working, you have 40 hours a week that you’re not able to spend money if you’re actually working. Now some
people are probably purchasing stuff on Amazon during the day, but you retire and you have all that freed up time,
the more free time you have now, yeah, your kids are out of the house, but now you have grandkids and you’re
probably going to spoil your grandkids more than you did your kids. Right. So typically we found for our kind of
clientele, higher net worth, like that 3 to 5 million net worth, you’re typically going to spend a little bit more in
retirement or you’re that great saver and we’re coaching you now to, to say it’s okay to spend a little bit of your
money.
Speaker 1 – 07:58
You don’t have to split your Chipotle bowls when you add anymore. So anyway, so I think just to reframe, number
one, the lifestyle in a creep is a bad thing that controls you. I would coach any client that’s a high income, high net
worth, that’s done a good job. Financial planning, you need to. Lifestyle escalation is a healthy thing as long as it
comes with a calibrated financial plan. So you know what the cost of not spending more is. You’re over
accumulating what the cost of spending more is. Are we still on track for financial independence? Are you still on
track for giving money to your kids? Whatever your goals are. But to hit that balancing act, I would say less than
10% of the population is in that.
Speaker 1 – 08:34
And that’s our goal because the most financial advisor just says keep saving, saving because you know, more
assets under management but you know, we don’t want to have any regrets. I would define that as a failure in the
financial plan just as much as under accumulating and not being.
Speaker 2 – 08:49
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It’s a total balancing act. It’s hard to save for the amount you need for the mid long term. But balancing enjoying
life today I think that gets lost in a lot of.
Speaker 1 – 08:56
Financial points, no question. All right, so let’s go to number two. So I would say number two is really about your
high net worth, high income and you the peace of mind that you think you’re going to have when you have the
money thing figured out, it’s not there. In fact it can magnify any insecurities that you have or any tendencies that
you have. So I think it’s really important to make sure that your money is supporting your life by design. And this is
decision fatigue is a concept we talk about a lot. And this comes from when you have uncoordinated advice. When
you have an accountant telling you to do this, when you have an estate planning attorney to tell you to do this.
Speaker 1 – 09:30
When you have your two financial advisors, your parent performance and you have an insurance broker and you’re
getting five different things thrown at you, five different ideas.
Speaker 2 – 09:41
And you’re having five meetings too. Your time is valuable. It’s five separate meetings. It’s. Yeah.
Speaker 1 – 09:46
And you know this isn’t your field so you’re just getting confused with all these different recommendations. So
uncoordinated financial advice I would say is just. It’s really the worst kind of even financial cost because you’re
wasting your time and that’s the only non renewable resource you have. So yeah, maybe you’re not leaking money. I
would say you are leaking money because you’re probably overpaying in fees by having stuff spread out. But the
time you’re. And the decision delay that’s occurring because of this is just can be catastrophic especially cause
why not have peace of mind if you can do so with a good financial plan.
Speaker 2 – 10:19
Yeah, a lot of those professionals just feel like hey, I’m giving my advice and like kind of, you know, my job’s done.
But actually seeing it through I think is just a huge value add. So if you have a team or if you have someone that is
actually not just telling you what to do but then actually get helping you do it and getting it done for you. That’s,
that’s the biggest thing you can have the greatest estate planning meeting and greatest tax planning meeting of
your life. But if it’s just information that you have and you don’t act on was a point, it was a waste of time for
everybody. So actually like not just getting the right information, but having the team that’s actually helping you see
it through is valuable.
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Speaker 1 – 10:55
No questions. There’s a top of a bow on this. So hidden cost time spent coordinating others opinions, decisions
delayed due to confusion or your second guessing because of the different opinions or regret when misalignment
leads to missed. So you know, that’s our job at uwa. We try to act as that financial cfo, even that CEO. You’re the
CEO, but we’re handling as much as we can, taking the noise away for you so you can focus on what matters in life.
Okay, so that brings us to segment three, which I would say is all around taxes, tax drag. So Ben, what would you
say about this?
Speaker 2 – 11:26
Yeah, I would say just having a plan in place around it and the last thing that we would want is someone having an
unexpected tax bill or just you file at the end of the year and you owe a bunch of money that you didn’t really know.
So having that proactive tax planning throughout the year, running projections on your income, making sure you’re
on top of your quarterly payments, if that applies to you really having a full understanding of your tax picture and
then doing the right action items to take advantage of. Maybe like if you have a low income year doing a Roth
conversion, you’re taking advantage of tax loss harvesting. If maybe you’re in a direct indexed account, in your non
qualified brokerage account.
Speaker 2 – 12:03
So just not just having a tax person that does the return and you talk to them once a year, but having a coordinated
plan around, hey, I’m in a high income year, what are we doing about it? I’m in a low income year, what am I doing
about it? Am I taking advantage of all the things I should be? That just relieves a lot of stress knowing that you
have all that takes.
Speaker 1 – 12:20
I’d say three examples. A good tax preparer may be able to save you a couple thousand or maybe even a hundred
thousand, try and come murder that year. Tax planning can save you literally millions of dollars or double, triple
your net worth over time. So examples of that would be if you’re being disciplined with tax loss, harvesting those
you get to carry forward with you for the indefinite future, those can offset real Estate sales, those can offset
business sales on a capital gain level.
Speaker 2 – 12:46
Private equity investments.
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Speaker 1 – 12:47
Private equity investments that hit. So you know you can eliminate tax liabilities by having a disciplined strategy of.
And if you look at the turnover of the s and P500 of just like what makes up the good returns, what doesn’t, there’s
going to be hundreds of companies every year that you can tax loss harvest. If you’re in that direct indexing
strategy that we always talk about. Roth conversions you mentioned during low income years. And that leads right
into number three, which is if you don’t do anything AMT IRMAA charges when you’re trying to unwind your
portfolio and your Medicare costs are going to be based upon at least part B and part D are going to be based
upon actual modified adjusted gross income, which could be astronomical.
Speaker 1 – 13:27
If you look at your Social Security, if you look at your requirement of distributions from your IRAs, if you look at, you
know, dividends and capital gains getting spit out from non qualified account, and you add in the fact that all those
factors, I mean you climb through those brackets so quickly and suddenly your health insurance is one of the
biggest part of your balance sheet or one of the biggest part of your budgetary commitments. So there’s a
difference between tax preparation and trying to get that now down the year and then tax planning which can
compound in the right direction if you do it the right way for the rest of your life.
Speaker 2 – 13:56
Yeah, this is why a 10% return in a Roth account is not the same as a 10% return in a pre tax account. If you have a
team that is not just worried about the rate of return and is worried about the plan as a whole, you have a much
better understanding of where your actual tax situation is and how you’re dealing with it.
Speaker 1 – 14:12
Absolutely. So I would say number four would be illiquidity. So illiquidity. This is, you know, especially high net
worth. Everyone can invest in public stocks, private credit, private equity getting more popular. You know, maybe
there’s a friends and family investment that you did, maybe you’re doing real estate. So a lot of high net worth
families do have a lot of their wealth trapped in like real estate, business ventures, private investments they’ve
made. And a lot of these things actually consume your time, consume your money. They require capital calls. Real
estate constantly requires, you know, maybe it’s tenant terms, turnover, repairs and maintenance, whatever it is,
just to back up.
Speaker 2 – 14:46
On that capital call. So you put, let’s say you put a hundred thousand in an investment, you might Think, hey, that’s
your only, that’s your, that’s a one time thing. We’ll see what happens. But then it’s additional calls, hey, we need
25,000 here, 50,000 here. Stuff you might not necessarily plan for.
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Speaker 1 – 15:01
Yeah, so you have the, you know, you typically have the option that you can dilute your percentage that you own or
you have to keep funding money. And I’ve seen some private investments. There’s been like three capital calls over
a three year period. So what initially was supposed to be a, for my client, a $250,000 investment has now turned
into a $400,000 investment on a highly speculative type of investment that may not hit at all. So now if it does, it
could be really big. But just for number four, liquidity is so hard to do. It takes so much discipline. You know, it’s not
sexy in the way like a brokerage account is just sitting there.
Speaker 1 – 15:38
It’s not something that anyone’s going to see, which I would argue is the best thing in the world because that’s, you
know, true wealth is stuff you can’t see. Being rich is not true wealth. The cars, the houses that, you know, you can
see visibly. But the reality is it takes so much discipline to take after tax money and not spend it and then save it or,
you know, not fall into the influencer thing that you saw on social media or this fancy real estate deal that 12 of
your buddies are doing. It takes a lot of discipline to say no and to keep piling money. But we evaluated like
thousands of balance sheets.
Speaker 1 – 16:12
I would say 95% of the time when we look at all the clients have done all these fancy private investments, they
would have like literally had double their net worth if they had just done traditional diversified like ETF investing
over their life and not put a hundred here, two, fifty here, half a million into this real estate thing. If they just stayed
to the plan, they would have double the net worth.
Speaker 2 – 16:31
The math sounds so simple, but is it just boring?
Speaker 1 – 16:33
I mean, yeah, I mean there’s like. No, I think it’s just how our brains are wired. There’s no dopamine hit when you
save money automatically into a 401k, there’s. When you’re talking about a brand new real estate thing that could
hit big or you’re becoming a minority investor in some fancy thing, it’s just exciting and yeah, it’s good temporarily,
it’s horrible for you long term typically. And then one thing hits and you get addicted. It’s kind of like gambling.
Gambling, yeah, or your golf game. You know, you like have an offer round. You hit one good shot and you’re like,
you think you’re going probably. So number five, I would say, is all around risk exposure. So this could be, you know,
around legal structures, around insurance. We also coach our clients into.
Speaker 1 – 17:13
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You want to find a balance, you don’t want to be so insured that it’s costing you that and you don’t want to be
underinsured. So there’s a balancing act. So, Ben, why don’t we talk about that?
Speaker 2 – 17:21
Yeah, I think, I mean from a life and disability insurance standpoint, making sure you have the right amount of
coverage, the right type of coverage, you could have the greatest financial plan in the world. But if you’re not
earning your income that we’re planning on, like if you’re disabled, you’re not able to work, then all of it’s gone. So
we need to make sure, like you said, we have the right amount and type of insurance coverage. And then from a
protection standpoint, making sure you have the right amount of umbrella coverage, just protection as a whole is
super important. We always say, like, there’s offensive planning and defensive planning. Like we can’t be all offense
and have no defense. And the insurance is just that defense to protect you.
Speaker 1 – 18:00
You know, a good financial plan, you got to have your disability covered through work even some supplemental out.
You got to have a good life insurance plan to make sure your family’s protected. If you do super well, you need life
insurance can be a huge part of your estate planning. You know, obviously your homeowner coverage, your car
insurance, you know, those things you have to have. So most people have that. But I would say the two things that
most people miss are you got to have enough certain liability protection that are lying your car and home. So you
can add this umbrella. You always want to have an umbrella. Caps@5 million and most of our clients will get to
that 5 million should have that. Most states you want that equivalent to your net worth or rounded up.
Speaker 1 – 18:33
The other thing that’s I would say is the most important one that most people don’t have is purchasing additional
cybersecurity insurance. I think that’s the biggest risk that exists out there right now. It’s growing exponentially the
amount of crime that’s occurring and just securing your, you know where your money is on these different
platforms. So. Okay, well, let’s go to number six. So. And by the way, cybersecurity insurance you can just contact
your insurance agent that does your homeowner’s policy and it’s typically, you know, it needs a 250 you can add
that’s pretty cheap. Sure. That something recently I did. Okay, so number six, I would say is the cost of holding
cash. We see this very common in the medical space, very common with business owners. There’s a lot of
uncertainty in life.
Speaker 1 – 19:12
If you’re a high performing, high income individual, there’s a lot of noise around next market crash is always around
the corner. So first of all, market timing is impossible. You know, getting out or back in. No one has been invented
that consistently over time. And so you know, you gotta be the house of the casino. Always be. There’s gonna be
ups and downs that the house always wins. And the analogy there is you get in and you stay in. Right. If you go
play in that, play in the casino, eventually you’re gonna lose money. You may hit it big one time, but that we refer to
as timing the markets. Once you’re in, you gotta stay in. So with that being said, we would recommend when you
have cash, put it in, don’t think about the market being high or low.
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Speaker 1 – 19:51
We’ve done a podcast specifically on, you know, do you put it over time, do you put in a lump sum? What are the
probabilities around that? But if you have concerns about needing liquidity, one strategy, if you put into a normal
non qualified brokerage account, you can gain access to that liquidity right back through a line of credit. So if you
put a million, if you keep a million dollars in cash in a savings account, maybe you’re earning 3 or 4% right now.
That 3 or 4% is getting taxed at ordinary income rate. So probably 40% if you’re in Pennsylvania, 37 federal and 3%
state, you know, the 4% goes to 2.6% net return or you throw it in a stock account.
Speaker 1 – 20:24
Historically you’re going to get 7 to 8% in a diversified stock account and then you’re able to get 65% of that back in
liquidity through line of credit. So on a year you don’t need it. Great, it’s just growing. You’re not paying taxes
because you’re deferring all the capital gains and you’re letting your money grow long term. If you do need it, you
have this line of credit that you can pull from temporarily. A line of credit cost you nothing. If you never use it, if you
need it, you’re going to pay interest. Typically the interest is going to be less than the growth of the stock account.
So you’ve just arbitraged the returns of giving a bank, you know, letting the bank run a bunch of money on you.
Speaker 1 – 20:57
You’re getting those returns, and on a year, you need it maybe one out of every five years, you have the liquidity.
You’re avoiding taxes, you’re avoiding market timings. You’re not actually selling out of stocks. You’re letting that
line of credit go to work and then putting it right back when the time comes. But I think that’s a really important
way to get around the fear of I want to hold cash because of xyz.
Speaker 2 – 21:17
The psychology of that is so important. I mean, this is hundreds of thousands, even millions of dollars that you’re
wasting. Because I think there’s always going to be a reason to talk yourself into waiting. There’s always going to
be a reason to say, well, I’ll start this next year because I got to do X, Y and Z. And then next year rolls around and,
well, this came up, and then blah, blah, like there’s just always going to be a reason. You run the math on even just
waiting five years on starting your financial plan. We’re talking about hundreds of thousands, even millions of
dollars that you are essentially losing in compounding interest by. By waiting. So I agree with you 100% there.
Speaker 1 – 21:50
I’d say the last one, number seven, would be legacy uncertainty. So, you know, there’s a reason, like less than 3% of
wealth past last more than two generations. So having the tough conversations, what values impact? What’s the
structure for your kids? You know, the thing that made you successful sometimes, like the adversity, the hard work.
If you just give the money to your kids, without that, their ability to experience that, you’re going to ruin their ability
to achieve what you’ve achieved.
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Speaker 2 – 22:18
Yeah, you want to help them but not enable them. I think that’s a hard balancing act. And I think it’s hard to have
those conversations with your kids about what your net worth is, like, how you got your money, why the values that
led you to that point are so important. But unfortunately, we’ve seen those conversations not happen. And kids
inherit a bunch of money and they have no idea what to do with it. They have no idea how hard their parents work
for it. And we’ve seen it go to waste. So we always say hard conversations lead to an easy life. These are part of
those hard conversations around estate planning, for sure.
Speaker 1 – 22:51
Yeah. And money sometimes represents power and sometimes you see that there’s a lot of money being passed
on. You can we see sometimes families will look at, well, play favorites or, you know, kind of say, you need to do
this or that or, you know, I. I don’t like the marriage you’re in. Or we hear it all. I mean, and so the reality is, like, an
unclear estate plan can really room ruin an entire family dynamic. It can make things ingenuous. We’ve seen a lot.
So having a clear estate plan, eliminating family confusion, just having those really tough conversations, you know,
while you’re living. And then I think also having your philanthropic intents and writing is really important as well.
And discussing those with your kids before you. Bass. And then I would say for business owners, like, the
succession planning is just crucial.
Speaker 1 – 23:38
Don’t wait till the last minute. Make sure you’re addressing that, because that’s where a lot of leakage can occur in
your wealth plan of continuing the enterprise value that you build in your business.
Speaker 2 – 23:48
So, yeah, I think people think, you know, high net worth. People have all these things figured out, but these are all
risks to someone’s financial plan, regardless of your net worth. And so the earlier you can address a lot of these
issues, the smoother.
Speaker 1 – 24:01
All this will be. Perfect. Well, thanks for joining us. We’ll catch everyone next week.