Your Money, Your Wealth guest Catherine Collinson
ABOUT Catherine

Catherine Collinson serves as CEO & President of nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies and is a champion for Americans who are at risk of not achieving a financially secure retirement. Catherine oversees all research and outreach initiatives, including the Annual Transamerica Retirement Survey. Catherine also serves as Executive Director of [...]


Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Published On
February 15, 2018

Can you avoid a miserable retirement? Here are 6 actions that can help you prepare for the retirement you dream of, rather than the retirement nightmares are made of, according to Catherine Collinson of the Transamerica Center for Retirement Studies. Big Al’s got a list of 10 reasons people don’t create a budget. Plus, the fellas cover the best states in which to retire, and they answer yet another question about Trump’s new tax law as it relates to the sale of a primary residence.

Show Notes

  • (01:50) Joe Can’t Figure out His Podcast App, Best States for Retirement
  • (09:40) Catherine Collinson: Paying Off Debt Vs Saving For Retirement
  • (19:41) Catherine Collinson: Preparing for a Better Retirement
  • (30:34)  Big Al’s List: 10 Reasons Why People Don’t Create a Budget
  • (39:33) Will I Have to Pay Taxes on the Sale of My Home?


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When we talk about people living to 90,  it’s pretty naive to think that a four-year college degree could service for a 40 or 50-year career. We’ve got to update our education along the way. And it doesn’t necessarily mean going back and getting a whole other degree, but at least look into continuing education programs that can help, not only keep your skills up to date, but build networks, and learn what’s going on in the marketplace. – Catherine Collinson, Transamerica Institute

That’s Catherine Collinson, CEO and President of the Transamerica Institute and its Transamerica Center for Retirement Studies. Today on Your Money, Your Wealth®, she explains how continuing education and 5 other actions can help you prepare for the retirement you dream of, rather than the retirement nightmares are made of. Another one of those actions is to create a budget, and Big Al’s got a list of 10 reasons people don’t. Plus, the fellas cover the best states in which to retire and they answer yet another question Trump’s new tax law as it relates to the sale of a primary residence – capital gains? Regular taxes? Listen and find out. But first, somebody help Joe listen to his podcasts! Here they are, Joe Anderson, CFP® and Big Al Clopine, CPA.

1:50 – Joe Can’t Figure Out His Podcast App, Best States for Retirement

JA: I’m having a really tough time with the update with the iPhone podcast app.

AC: Really, is it not working right?

JA: Do you use it?

AC: Yes.

JA: It used to work awesome. I push play, and then if I’m in my car, I can go fast forward. Now it’s a mess. Someone help me. I need a manual.  Because I have to go to the phone and then I hit, OK, fast forward, I get done with one podcast, and then all of a sudden it randomly plays this other one that I didn’t want to hear and I thought I deleted it and it stays there.

AC: And then there’s a difference between whether it’s downloaded on your phone, or whether it’s part of the cloud. I’ve had trouble with that. They did change the app, and I’ve actually listened to more books on tape recently, so I’m not the best person to ask, but I used to get certain podcasts that showed right up, and now they don’t always seem to show up. So I guess I would second that, at least from what I’ve seen.

JA: Yeah. You could go in order, as they downloaded on my phone. It’s like, “OK, I’m going to listen to this, and then it’s gonna go to this show.”

AC: I think what happens now is when you play one, it just keeps in that show instead of going to other shows you want to listen to.

JA: Right. If anyone knows how to work for the thing, (laughs) can you please email me. Joe.Anderson@PureFinancial.com. And another thing, what we do on the show, we talk about finances.

AC: Yeah, sometimes. (laughs)

JA: (laughs) Other times it’s just a bunch of b.s.

AC: About podcasts.

JA: And then sometimes we’ll say, “if you liked it, you need some help with this, call this number, we come in and help you out.” I would say most people need some sort of financial guidance. Some people need a little, some people need a lot, and some people are in between. And I would say a lot of times, people that need help, will not ever – and I don’t blame you, to call a show like, this is ridiculous. (laughs)

AC: Talk to these yahoos? (laughs)

JA: Yeah, right. (laughs) Or any financial professional, for that matter. Because it is so uncomfortable. I am going through a process. I am going to Minnesota in the next couple of weeks. But it’s going to be like 1 degrees, and I’m really not excited to go. And the reason why I’m going is that Ruthie, my mother, built her a nice little home in a 55 plus community, so she can hang out and play cribbage with some friends. So we close on her home on Monday. So I’m going through the loan process – when’s the last time you got a loan, Al?

AC: Oh boy, probably 6, 7 years ago.

JA: It is the worst process anyone could ever go through. Do you enjoy that?

AC: (laughs) No. Well, because before the closing you got to sign all these papers.

JA: I don’t mind signing papers.

AC: I do, that takes an hour and a half.

JA: So here’s what I don’t like. I could just pay cash for the house. It’s not an expensive home.

AC: (laughs) Wow, you’ve got a bit wallet.

JA: It’s Minnesota, it’s in the farmland. It’s like $20. It’s not a big deal. (laughs)  So you go through it, and so it’s like, “OK, well how are you going to fund the down payment?” I was like, “well it’s in my checking account.” “How much do you got in your checking account?” I tell them. “Do you have any other assets?” “Sure. Here’s my retirement account.” “Do you have anything else?” I was like, “yeah, here, I’ve got a brokerage account.” “How much money is in that?” And I tell them, I think it’s a pretty good number! He’s like, “well, you got anything else?”

AC: It’s not enough. (laughs)

JA: I’m not buying the Taj Mahal. It’s a $150,000 home! Anyway. So I’m going through that process and thought I would share that with you, Al. So I think that’s why people don’t necessarily want to come and open up their laundry with a financial advisor. It’s private.

AC: Sure. I was going to say personal, it’s private, number one. Number two is, some people, they’re embarrassed. Maybe they haven’t done quite as much as they thought they should have done, and they don’t want to admit that. I totally get that. When you go to the doctor. “Have you been eating chocolate?” No, no.”

JA: Yeah. “How many alcoholic beverages do you have a week?” “A week?” Oh, I don’t know maybe two a month? Coors Light. That’s it. I have one every other Friday.” (laughs)

AC: Well, this might be surprising to you. But WalletHub came out with the best states to retire, and I’m not going to go through it. But Minnesota ranked number 11 in the best states to retire. And believe it or not – and they have different rankings. Quality of life rank, number one.

JA: Really.

AC: Number one. And health care rank, number one.

JA: Wow. Well, you got the Mayo Clinic.

AC: Yeah. So affordability – 42. I didn’t know was that expensive there. I think they did it by affordability of cost compared to income. I think that’s probably how they do it.

JA: I have no idea who did that. But it’s a great place to be from.

AC: No, I think you need to retire there.

JA: You want to get rid of me, brother! (laughs)

AC: Number one! (laughs) How could you beat number one? California’s pretty good, number three in quality of life. But affordability, 37, health care, 16.

JA: But you want to live in negative below zero where you just stay inside??

AC: And that’s what’s so crazy about these things. And I looked at, what does quality of life mean?

JA: I don’t know, that means you’re sitting in the basement drinking Pabst Blue Ribbon.

AC: So here’s the things that they ranked: share of population over 65. Elderly-friendly labor market.

JA: Very friendly. Minnesota nice is what they call it.

AC: Elderly food insecurity rate. What’s the chance of you not having enough food? Access to public transportation.

JA: Very good.

AC: Scenic byways. Museums per capita, theaters, golf courses.

JA: Yeah but you can only play golf like four rounds the entire year.

AC: I know. So they also have mildness of weather. They say double weight. I think you should wait that 10 times. I think that’s the most important factor.

JA: I think so too.

AC: Of course, I’m a Californian, and maybe I’m biased, but to me, you could tell me – and let’s see the top place is Florida, and then Colorado – I get those two. But number three? South Dakota? You want to retire in South Dakota? That’s number three.

JA: Well there’s Wall Drug. (laughs) You got Wall Drug, you got the Badlands. Mount Rushmore. Look, kids, Big Ben. Parliament.

AC: (laughs) No offense to people from South Dakota, it’s a great state. I drive by Mount Rushmore: “There it is. Bucket list. Done.” (laughs) Anyway, those kind of lists are kind of crazy.

JA: Yeah, I’ve been to South Dakota once. My brother in law is from North Dakota. He’s a peach. You could tell he’s from North Dakota.

AC: Are you interested in the least desirable states to retire to? Just so you don’t make this mistake?

JA: No I’m not.

AC: The first one is Kentucky.

JA: Really? I like the Bluegrass State.

AC: Quality of life, number 47, healthcare, 47, affordability, 38. 49 is New Jersey. 48 is Rhode Island. 47 is Mississippi, and 46 is Arkansas because they’re 50th in quality life and 45th in health care.

In the coming weeks on Your Money, Your Wealth®, we’ll learn to trick our brains into making better money decisions, we’ll talk to a broke millennial who got her financial life together, and as always, Joe and Big Al will wow you with their sparkling personalities and their encyclopedic knowledge of taxes, investing, and retirement. Visit YourMoneyYourWealth.com to subscribe to the podcast – new episodes will download right to your device for you to listen to whenever YOU want. While you’re at YourMoneyYourWealth.com, catch up on our recent discussion of market volatility, learn how to retire well before 50, and learn the basics of cryptocurrency. If you don’t have time to listen, transcripts are available for every podcast in the last year, and my fingers are really tired from all that typing, so check it all out at YourMoneyYourWealth.com!

9:40 – Catherine Collinson: Paying Off Debt Vs Saving For Retirement

JA: Alan Clopine. Who do we got on the show today?

AC: We’ve got Catherine Collinson, she serves as CEO and president of the non-profit Transamerica Institute and it’s Transamerica Center for Retirement Studies. Welcome to the show, Catherine.

JA: Catherine, welcome.

CC: Hey, thanks for having me on the show.

JA: Tell us a little bit about your role at Transamerica Center for Retirement Studies.

CC: Well, we are a nonprofit organization that is dedicated to conducting research and helping educate the public on all of the latest trends and issues that impact people’s ability to achieve a financially secure retirement.

JA: Where are we standing today? Because it seems like when Al and I go through studies, and we’ve used your firm several times, on a lot of different studies that we’ve talked about in the show, so it’s a real pleasure to have you on. But it seems it’s always doom and gloom. Is there any hope in sight here?

CC: Well, of course. I wouldn’t be doing what I’m doing if I didn’t think there was hope in sight. (laughs) But your question – many people, many Americans are not saving enough for retirement, and for a number of reasons. One, the ability to save, but also, because people have the potential of living longer than any other time in history.

AC: Yeah I think you just had a recent study called Wishful Thinking or Within Reach? Three Generations Prepare for Retirement. And didn’t you find that about 1 in 7 workers plan to live to age 100 or longer?

CC: Yes we did, one in seven to live to 100, and the median age at which people plan to live is 90. So that’s still, if one is thinking about retiring at 65, that’s a long retirement. The gerontologists will tell you that people potentially can live even longer than a hundred.

JA: I was reading a study. It was an advisor. I don’t know if you saw this, Al, but he was talking at a financial advisor conference and he’s saying, “all of you advisors are doing this wrong because you need to plan for your clients to live to 120 at least.” Do you think that’s a little aggressive?

CC: Well, I think it’s a really interesting question and one that we should ask. I don’t know that the medical community is right there saying “plan for 120.” But the nice thing about that, or that challenge is, it requires that we all think out of the box in terms of, not only how we plan for retirement, but how we plan for our lives. How we plan for financial security, and how we anticipate that there’s going to be change along the way.

AC: So why don’t we dive in. So we know that, particularly here in Southern California, where we’re doing this podcast, cost of living is high and people are trying to save for retirement, but then they’re also trying to pay off debt. And how do you balance those priorities?

CC: Oh that is so hard. And we see this in the survey. In fact, we asked survey respondents what their current financial priorities are right now. And we found that a higher percentage cited paying off some form of debt than saving for retirement, which is really scary. It’s hard enough to save for retirement all by itself, but when you think of it in the context of having to pay off debt, especially if there is high-interest rate consumer debt involved, that makes the tall retirement savings mountain that much taller to climb. And one of the things that is so important that people do, is really understand their personal balance sheet, their assets, their debts, their equity, and especially if there’s high-interest rate debt involved, that can be a downward spiral, a financial downward spiral. And to find a way to get it paid off as quickly as possible.

AC: But how do people do that? Because they get into cycles where something went wrong with their car or some medical expense, or they bought a home, so they had to furnish it, and they finally get this thing paid off, and then they had another kid, and they got all these costs, and and then it’s just one thing after another. And it seems like they can get to their 50s and they really haven’t saved much. So what would you recommend would be strategies for a lot of these people that kind of get stuck in that?

CC: Yeah. The best strategy is to avoid getting into debt in the first place, which people don’t want to hear if you’re already there. And our grandparents’ generation, or my grandparents’ generation, who lived through the Great Depression, will say always live beneath your means, but things happen along the way. And one of the things that we’ve seen in our research is the need for rainy day savings or emergency savings. We saw that almost three in 10 workers have actually taken alone or early withdrawal from their retirement accounts. And the reasons why typically relate to unforeseen emergencies, and given a lack of emergency savings, they’re dipping into their retirement accounts, maybe even incurring taxes and penalties, which is counterproductive in the long run. So it’s as we all think about our lives and our budgets, and we all need to have a budget. One is much more likely to stay on track with the budget than without a budget. And then to really very meticulously plan expenses, ensure that we do have some rainy day savings. So if the car goes into the shop or something, that we’re not putting it on a credit card. And then from there, being able to make adjustments. Another thing for people to look at is insurance coverages. Sometimes certain types of insurance can cover one of those major incidents, but only if you have it. And so many personal financial planners will say six months pay, or even more because we saw people were out of work for a long time during the Great Recession. Build up enough that you’re comfortable with, that you can continue to function your household if you do lose your job, or do have some unforeseen expense, to keep things going that can help avoid getting into debt – or at least serious debt.

JA: You know, Catherine, another good point with cash reserves or emergency savings is, I think we have to look at human capital as well. What I mean by that is, what type of occupation you’re in? Because if I’m a homebuilder versus maybe a tenured professor, my cash reserve needs or emergency needs are probably going to look a little bit different, because if my income is volatile, if it’s boom or bust, I probably need a lot more cash on hand, versus someone that has a very steady career income. So we have to dive maybe a little bit more, deeper too, to each specific need.

CC: Yes. And that’s a great point. I think it’s a construction worker, a construction professional versus a college professor, of course, depending on what type of courses that they teach and their areas of research, but the ups and downs, you’re absolutely right. The peaks and valleys in income, and the less predictability, also for construction workers or jobs that involve physical labor, to consider and ensure that you have disability insurance, because certain types of professions, somebody may be more likely to get hurt or be put out of work due to an injury for longer than desk jobs.

JA: Right. And I think that’s always overlooked, because if I’m young or in my midstream in career, probably the largest asset that I own is my ability to continue to earn that paycheck. So we insure our home, we insure our car, but a lot of times we don’t necessarily properly insure ourselves. Because I guess it’s not cheap, but if they would look, if you can’t have a paycheck for the next 6, 8, 9 months… You’ve seen the studies, I think most people can’t afford a $400 expense or something. What are the numbers there?

CC: Well we asked about emergency savings, and what we found is the median amount among workers is $5,000. That means half of the more than 6,000 workers that we surveyed have less than $5,000 set away for an emergency.

JA: So that’s that’s not all that much.

CC: And especially with the cost of car repairs these days, it adds up fast.

JA: Right. And if you don’t have a paycheck for six months, and you only have $5,000 in the bank, it’s not going to cut it.

So which should come first? Paying off debt or saving for retirement? Jason Thomas, CFP® has written a blog to help you decide which would be better for your specific situation – check it out in the Learning Center at YourMoneyYourWealth.com. Jason explains the benefits of saving for retirement first versus the perks of paying down debt first, how psychology comes into play, and what any of this has to do with the movies. Pay off debt or save for retirement? Both make for a happier ending, but can doing one before the other be even more helpful? Read the blog and decide for yourself in the Learning Center at YourMoneyYourWealth.com

19:41 – Catherine Collinson: Preparing for a Better Retirement

JA: Welcome back to the show, the show is called Your Money, Your Wealth®. Joe Anderson, here I’m a Certified Financial Planner, with Big Al Clopine, he’s a CPA. Thanks for tuning in today. Talking to a special guest, Catherine Collinson she serves as the CEO and president of the nonprofit Transamerica Institute and the Transamerica Center for Retirement Studies. She’s really got a mission to help all of us become more secure financially. Catherine. So what are some of the things that we can do? Because I’m looking here, baby boomers, what, they have saved the median is $164,000 for baby boomers. So those people are approaching retirement, well let’s just call that $200,000. If you take a 4% withdrawal, that’s $8,000 a year, that’s not going to cut it. We don’t have enough money sitting in cash. We have a lot of debt that we’re racking up. What are some of the solutions? What are some of the things that we can do to continue to help educate to say, “I get it that you might be working paycheck to paycheck but something’s got to give here.”

CC: Well let’s talk about human capital a little bit more, because we see something else in the research that I think is just so vitally important, and that is, people are not being proactive enough about keeping their job skills up to date and marketable, to stay in step with the job market and employers needs. And we ask workers, so many are planning to work past 65 or don’t plan to retire at all, they just plan to keep on working. However, you have to have up to date job skills in order to be able to accomplish that. And I’m old enough myself, I know that there are jobs that were hot jobs in the 1980s when I graduated from college that just flat out don’t exist anymore. So we’ve always got to keep our eye out on the next thing – how we can take our skills and our experience, and apply them in new and different ways. And one of the things that people can do is, if you work for an employer that offers training programs or educational reimbursement, take advantage. Often an employer will offer a training class. People with the best intentions sign up, and then they don’t show up. Sign up, show up, and then send a thank you note. Those steps can really help, one, demonstrate to your employer that you’re serious about keeping your skills up to date. And then secondly, they can serve you in terms of your marketability. It’s also really important to think about learning new things along the way. When we talk about even people living to 90, which isn’t even 100 or 120, it’s pretty naive to think that a four-year college degree could service for a 40 or 50-year career. We’ve got to update our education along the way. And it doesn’t necessarily mean going back and getting a whole other degree. It may for some. But at least look into continuing education programs at local university extension programs, community colleges, there are lots of online classes, there are a lot of great ways to learn new things that can help, not only keep your skills up to date, but build networks, and learn what’s going on in the marketplace.

AC: So in the study, you quoted “formulating a written strategy for retirement” which Joe and I would agree is very important. Now, what would actually go into a strategy? What are some of the things that people should be thinking about and writing down?

CC: One of the first things is thinking about your needs and your goals. It’s impossible to chart a roadmap if you don’t have a destination in mind. So start with some basic goal setting. And we find that surprisingly few people have taken the time to use a retirement calculator to estimate their retirement savings and retirement income needs. And of course, that’s something a financial advisor can be extremely helpful with their clients and crunching the numbers. We also know that many people are going to crunch the numbers, and they’re going to look at what they’ve saved to date, and they’re going to see a shortfall. From that strategy, once you have the goal in mind and do what I call the gap analysis, from there, you can chart a course that will get you better on track to achieve your goals. It may mean adjusting your goals, or it may mean adjusting a number of the assumptions that will take you to the goals. Either how much you’re saving, how you’re investing how long you plan to work, there are interventions that can be made along the way. And also, to set some funds aside for living your retirement dreams. One of the things that we see in people who say they have a strategy, they think about Social Security benefits, and they think about Medicare. Many are not thinking about out-of-pocket health care expenses, and very few are actually thinking about setting funds aside for the things they dream of doing like traveling.

JA: I really like your surveys because I think there’s a lot of honesty with them. There are other surveys that I have read before, and I’ve been doing this close to 20 years, helping people with their financial lives, Al’s been doing it for 30 plus years.

AC: Can’t even count. (laughs)

JA: I know. Talk about being old. And I think people might even get embarrassed, or in a survey, “I’m just going to say what I want to say.” Because we know the numbers of what the average balance is. But then it’s like 47% of people computed what they needed in retirement. And I saw that study and I was like, “I think that’s .47.” And your study here, it’s like great, 47% – or maybe they computed by guessing.

CC: Right, 47% said they guessed.

JA: Yes. “Well yeah but I computed it but I just kind of guessed at it.” Versus actually putting pen to paper to say “this is what I’m spending. This is what I have. Are the numbers going to jive?” I think if most people just did that simple calculation, they would probably freak themselves out a little bit and find a way to save a little bit more, don’t you think?

CC: It’s quite a wake-up call. And one of my personal theory is that people avoid running the numbers, or using a calculator, or getting an estimate, a formal estimate from a financial advisor or a professional because they are afraid of what the results are going to be. Almost along the lines of people who haven’t gone and gotten physical for ten or 15 years, they’re afraid to go get their checkup, because they’re afraid of what the numbers, what the results are going to look like. And the message is, you gotta get over it.

AC: And the sooner you do it the better. But even if you’re 64, and you want to retire at 66, it’s never too late to improve your situation.

JA: Right. Just a few tweaks can make that money last a lot longer than people think. Working two to four more years, that stretches out your Social Security. You’re not pulling money from your savings, you’re saving more, your life expectancy potentially shorter, so there’s hope if people could get the right information.

CC: Absolutely. And even doing your homework on housing arrangements and housing situation. That is something that, again, I see in the research, especially older people who are not married, they could be never married, widowed or divorced. They’re short on savings, they’re short on income, and yet they’re living alone. And we all didn’t necessarily grow up dreaming of having a roommate in retirement, but having a roommate in retirement is a lot better than running out of money.

JA: Yeah but I think you also need companionship too. My mother – my father died about eight years ago, and she moved into a 55 plus community because all her old neighbors either died or moved. And so she didn’t really have any friends. And you have to stay active as well. You could have all the things that we’re talking about people that don’t have a lot of money. Well, you can have all the money in the world, but if you’re just sitting around watching Golden Girls that will blow you up too.

CC: You’re so right – to have social connections, a support system, the benefits are beyond financial. They extend to the quality of life, friendship and staying active and involved.

JA: Catherine this has been great. Where can people get more information on you and your firm?

CC: Please visit us at TransamericaCenter.org. We publish all of our research on our website. That’s where you can find us. You can also follow us on Twitter at @TCRstudies.

JA: Well Catherine this has been a real pleasure. You’re doing a phenomenal service. I wish more people would read your stuff and follow you on Twitter so they can be more educated. One more time. Where do they find you again?

CC: www.TransamericaCenter.org

JA: TransamericaCenter.org.

Can you retire yet? Do you how to get retirement ready, despite the uncertainties we face with the roller coaster of the market, the rising costs of healthcare, the future of Social Security, and managing taxes in retirement? Visit the White Papers section of the Learning Center at YourMoneyYourWealth.com to download our FREE Retirement Readiness Guide. This guide contains little-known secrets about creating income to last a lifetime and controlling your taxes. It’ll help you understand your Social Security options and figure out how to adjust your retirement investing strategy. As retirement approaches, learn 7 plays to help you get there comfortably and securely. It won’t cost you a thing to download the Retirement Readiness Guide from the White Papers section of the Learning Center at YourMoneyYourWealth.com

Time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths and advice to improve your overall financial picture – in handy bullet-point format. This week, 10 Reasons People Don’t Create a Budget

30:34 – Big Al’s List: 10 Reasons People Don’t Create a Budget

AC: Today I’m actually going to do a list by one of our listeners, John Madison in Virginia. He actually listens to our podcasts on Wednesday mornings when he goes for a jog. And he’s he’s a fellow blogger, apparently. And he wrote about budgeting: 10 reasons people don’t create a budget. You could probably think of one, which is I don’t want to budget.

JA: Yeah, it’s awful. I got so many other things I’d do. I’d rather spend my money.

AC: Here are 10 reasons, and by the way, I’ll read the start of this: “the backbone of a successful personal financial plan is a monthly budget. It’s the map, it’s the blueprint to financial success. Instead of just reacting to money problems that suddenly pop up. a spending plan prepared in advance tells you where your money goes, squeezes every bit of value out of every dollar.” So that’s all true. Joe, you and I, in our experience with our clients have found that most of them don’t like to budget. And so we kind of sometimes come up with a simplistic way of budgeting, which is, come up with a savings plan first. And then, whatever’s left in your checking account, yeah, you can go spend that. It’s kind of a de facto way, I guess, of budgeting. But if you do have the discipline, I think the thing about budgeting is it does tell you where your money is going, and people that do it, they end up going through this process and they are kind of shocked how much they spend on this or that – they had no idea.

JA: Yeah I get motivated in January. It’s all right there, I’m looking at it. And then come February I’m like, “aw man, I’m done. I’m tired.”

AC: But at least if you do for a month, at least that’s better than nothing. But here’s 10 reasons why people don’t create a budget. A budget creates limits. People hear the word budget and they think bread and water, rice and beans. I don’t want that.

JA: That’s right, no way.

AC: I don’t want to feel like I can’t spend what I want to spend money on, and of course, it’s understandable. But he says it’s also incorrect if a budget is done in the right way, The negative assumption is is why I try to call it a “spending plan” instead of a “budget plan.” This is John Madison writing this. Basically, he’s saying, it frees you of guilt because you have X number of dollars to spend on entertainment or this or that. And so do it freely, not worrying about it.

JA: No that’s a great point because there’s a lot of anxiety when people spend money. We see it in our office. People make very good incomes, they don’t have a lot saved. They have a little bit of credit card debt. They have a big mortgage, and they’re pushing the limits. And it’s like, “well, how much money do you think you’re spending?” And they come up with these crazy notions that they’re spending a lot less because they’re either embarrassed, they don’t want to admit it, and when they do overspend, that does create friction within of a household. It creates anxiety. So no, that’s a very, very good point.

AC: Second one is fear. And this is just simply people are scared of it because they don’t really want to know how much they’re spending on their habits.

JA: Yeah, I don’t want to know how much I’m spending at the bar. (laughs)

AC: (laughs) That would be a scary thing for you. But that’s right. And I can understand that. But that’s also information that you can utilize, especially if you’re in your 40s and 50s, and you’re a little bit behind. A budget’s great to show you that. And that’s like OK, I gotta kinda get a little serious here, instead of going to Starbucks every day, let me get a coffee maker and do it at home.

JA: Folgers. (laughs)

AC: Yeah. Instant. (laughs) The third thing is budget abuse, and this is a real thing because sometimes there’ll be one spouse, male or female, that is in charge of the money, and then the other one isn’t, and they feel like the spouse in charge of the money is controlling them.

JA: Oh, yeah, yeah.

AC: Here’s number four – there’s a perception that only poor people need budgets.

JA: Oh, that is just…. (laughs)

AC: (laughs) “I don’t need a budget, it’s for poor people.”

JA: No. Al and I have witnessed people that have made over like $700,000, $800,000 a year. They need a budget! “Oh, we don’t live high on the hog.” Uh, yes you do!

AC: And they always say this, “Joe, Al, we’re not lavish.”

JA: “Not lavish at all.”

AC: How many times have we heard that word – we’re not lavish. The fifth thing is fear. The reason why people don’t create a budget is time and effort. Because it takes time. It does. I agree it’s actually not really that much fun. And I’m an accountant. I don’t even like it!

JA: Let’s get a ledger. (laughs)

AC: (laughs) Yeah. The sixth thing is lack of know how. I think that’s valid, a lot of people have no idea where to start.

JA: It’s overwhelming.

AC: It is. How should people start? (laughs)

JA: (laughs) I don’t budget. You’re asking me? Let’s call Madison up.

AC: I would suggest, at the very least maybe using Quicken to track your expenses, like Mint.com or something, so you can start getting a sense of where you’re spending your money.

JA: Well, the old-school way would just be to take your bank statements, credit card statements, just start rifling through all of that. But I think with technology today, with the aggregation sites, it makes it a lot easier.

AC: Because like Quicken, for example, they’ll take multiple checkbooks, multiple credit cards. They’ll download all that into one spot, and they’ll even suggest what categories they should be in. You might want to change it around a little bit. But it’s a lot easier than it used to be. Seventh thing is past failures. They’ve tried budgeting before, didn’t really work out, not for me. We had lots of fights. My wife and I or my husband and I. It’s not worth it.

JA: We’d rather die broke. (laughs)

AC: Eighth thing, related, is marital fights. A lot of spouses don’t like to talk about money.

JA: I know, that’s probably one of the reasons for divorce, isn’t it? I’m not a marriage counselor but I think I’ve heard that once or twice.

AC: We’ve seen it a couple of times. Ninth thing is numbers are for nerds. They’re not for me. I’m not a nerd. I don’t need to budget.

JA: Well sometimes people with math and arithmetic… that’s not their specialty.

AC: Right. Wouldn’t you say, on average, when we see couples, one or the other, husband and wife, wife or husband is more of the money person, and the other person is less – it seems to be very common. You occasionally see couples where both are numbers people. There’s a little tension there sometimes. And you also see, sometimes when neither one is a number person, and it’s like wow you wonder…

JA: I think more often than not, most people that we see, both of them are not necessarily numbers people. That’s why they’re in our office. But it’s funny when you see two people that are really analytical. One person will always overpower the other one. And then the other one just kinda….. you can tell. (laughs)

AC: (laughs) Right. Anyway, but I do think, even if both people are not necessarily numbers people, one is slightly more than the other. When we talk to people about financial planning and numbers, we make it a point to talk to both husband and wife, and sometimes the husband is like, “I don’t care. This is her stuff.” But it’s like, no, you need to know this. And it’s really important for the couples to know. The tenth reason people don’t do budgets is they don’t feel like they need one. And I think what we talk about is, budgets are great, but we know a lot of you are not going to do them. Everyone needs one, but if you’re just not going to do it, at least do this: at least come up with your savings plan, max out your 401(k), if you still have extra, have some of that extra money go directly to your brokerage account from your checking account. You get paid, some of that goes to your 401(k), you don’t even see it, then whatever’s left hits your bank account, direct deposit, and then the same day you have a certain amount go to a savings account, and then whatever’s left is what you can spend. Have at it. Don’t worry about it. Have fun.

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39:33 – Will I Have to Pay Taxes on the Sale of My Home?

AC: I got a question. This actually was sent to MarketWatch. I think it’s a really, pretty good question. This is from Sam in Greenville South Carolina. Due to a job transfer, I will be selling my home this year. My neighbor says that because I’ve only lived in it for four years, the new law says I’ll have to pay taxes on the sale. Is that a capital gains rate or regular tax rates?

JA: He’s only lived in it four years. So you got to live in the house two.

AC: That’s correct. Two out of five.

JA: So no, you wouldn’t pay any tax at all, depending on – it’s $250,000, or $500,000 if you’re married.

AC: Yes. So there’s a few follow up things to say and mention, and that is this: the new tax law, I believe it was the Senate version of the law, which had as a provision that you would have to live in your home 5 out of eight years to get the exclusion. That did not pass, when it came to the committee, and the House bill and the Senate bill were merged together, that was thrown out. Which basically means we still have the same law that we’ve had for the last couple of decades, which is this: if you buy a home and you live in it as your principal residence, at the point you sell it, as long as you’ve lived in that home 2 out of the last five years – so, in this case, it’s four out of five. It’s actually four out of four. But as long as you lived there two years, if you owned it for two years you don’t have to live in it five. It’s just you have to have lived in it two years out of the last five, which clearly Sam would qualify for that. So then, what does that mean, what do you get? Well, if you’re single, you get a $250,000 gain exclusion, which means if you gain on sale, if what you sold it for versus what you bought it for is less than $250,000, you don’t pay any tax, it’s tax-free. And if you’re married, by the way, it’s $500,000. But both husband and wife need to have lived in the home two out of five years and owned the home two out of five years. Because I get this question sometimes as well. “I’ve got a $500,000 gain. What if I get married the day before I sell?” Well if the person that you’re going to get married to actually owned the property and lived in for two out of five years, sure, but if they’re just moving in right now, no they don’t qualify. They have to have owned and lived in it two the last five years as well. So then you’ve got to look at, well how do you compute the gain on sale? So let’s just say, in South Carolina, let’s say they bought a home for $300,000 and sold it for 350, just to make up numbers. So then you have a $50,000 gain. Simple as that. $350,000 minus $300,000. So that’s a $50,000 gain, he’s lived in it four years, which is more than 2, and I’m assuming it was his principal residence for the whole time, so there would be no tax to pay in that situation. If, on the other hand, he bought it for $300,000 and maybe lived in it 10-20 years, that thing went up to $700,000. So now $700,000 minus $300,000, that’s a $400,000 gain. He gets a $250,000 exclusion. He’d have to pay tax on $150,000. And that’s at capital gain rates. And capital gains rates are 0, 15, and 20%, depending upon how much other income you have.

JA: And if you’re over $200,000 single, then you add the Medicare surtax of 3.8% or the net investment income tax.

AC: That’s correct. That’s exactly right. And if you’re married that’s $250,000, in terms of adjusted gross income.

JA: So if you have a large gain like that, a lot of times people will hit that net investment income because their income might not be $250,000. But they might be making $150,000, but then they have a large sale of a highly appreciated asset. That’s what pushes them in.

AC: Yeah. So in our area Joe, in San Diego, we’ll have people that maybe bought their home in La Jolla 30 years ago for $300,000, and now it’s worth two or three million. So let’s just look at that for a second. So you bought it for $200,000 you sell it for $3 million. So you got a $2.8 million gain. So if you’re married, you get a $500,000 exclusion, $2.8 million minus $500,000, but you still have to pay capital gains tax on $2.3 million. You’re going to be in the 20% capital gain rate. You got to have that 3.8% net investment income. And then you’re gonna have state taxes, which in California can be as high as 13.3%. So it’s higher than you think, and in a lot of cases, people end up not selling, just because the tax liability seems too great. Something that a lot of people still don’t seem to realize is husband and wife lived in their home for 30-40 years. When the first spouse passes, the surviving spouse gets a full step up in basis. So your spouse passes, and now that the cost basis of the home is no longer $300,000, it’s $3 million. Because we live in a community property state. As long as you’ve held title as community property, which is the way trusts are, or you can hold it as community property with the rights of survivorship if you don’t have a trust, then you get a full step up, then you actually can sell. And I just talked to a client yesterday Joe, that really had no idea. Has heard step up in basis, but it never really registered. And they’re now in a situation where one of them is actually not doing well, and so the other one will get a full step up in basis. So realize that.

JA So did you say, “oh, I’m sorry about your wife. But the good news is, no tax!”

AC: Well, you try to be tactful. (laughs)  But I think it’s important, particularly as we get older, we know we’re not going to live forever. So I would hate for someone in their 80s to make a mistake by selling a home, when maybe in a few years, there would have been a full step up in basis, for either the survivor, or the kids, or whoever ends up inheriting that asset.

JA: That’s it for us today, hopefully you enjoyed the show. For Big Al Clopine, I’m Joe Anderson. The show is called Your Money, Your Wealth®.


So, to recap today’s show: The new tax law did not change how primary residences are taxed when they’re sold, so the “two out of the last 5 rule” still applies. We all have a long list of reasons we don’t want to make a budget, but when it comes down to it, we really should, because it can prepare us for a better retirement. Having a written strategy can make a big difference. And what would make a big difference right now in Joe Anderson’s life would be for the podcast app on his iPhone to work the way it used to!

Special thanks to our guest, Catherine Collinson from the Transamerica Institute and its Transamerica Center for Retirement Studies. Learn more about workers’ retirement goals, plans and mistakes in America and abroad at TransamericaCenter.org

Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, if you have a burning money question for Joe and Big Al to answer on Your Money, Your Wealth®, just email info@purefinancial.com, or call 888-994-6257! Listen next week for more Your Money, Your Wealth®, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.