Paul Sullivan, author of “The Thin Green Line: The Money Secrets of the Super Wealthy” tells Joe and Big Al how the decisions you make about your money can put YOU in the wealthy club. Plus, how should you prepare for President Trump’s “biggest tax cut ever?” 3 things you may be getting wrong about retirement planning, and international taxation if you’re planning to move out of the country in retirement.
- (00:47) – Paul Sullivan: Money Secrets of the Super Wealthy
- (12:11) – International Taxation: Are you planning to move out of the country in retirement?
- (16:13) – “How should I prepare for the biggest tax cut in history?”
- (20:55) – Big Al’s List: 3 Things You May Be Getting Wrong About Retirement Planning
“You can save money, you can spend money, you can give it away, but most importantly, you can think about it, and that’s how those four work together that will allow people to make better decisions in their own lives.” – Paul Sullivan, author, “The Thin Green Line: The Money Secrets of the Super Wealthy”
That’s Paul Sullivan, author of “The Thin Green Line: The Money Secrets of the Super Wealthy.” Today, from the Your Money, Your Wealth best-of files, he tells Joe and Big Al how the decisions you make about your money can put YOU in the wealthy club. It’s an abbreviated edition of the podcast this week while the fellas are traveling, but they still found the time to talk about how should you prepare for President Trump’s biggest tax cut ever, 3 Things You May Be Getting Wrong About Retirement Planning, and international taxation if you’re planning to move out of the country in retirement. Now, here are Joe Anderson, CFP® and Big Al Clopine, CPA.
00:47 – Paul Sullivan: Money Secrets of the Super Wealthy
JA: Alan, I’m not sure how we got this guest.
AC: Yeah, but it’s pretty exciting.
JA: It is very exciting, Paul Sullivan is with us. He writes for Wealth Matters, it’s a column in The New York Times, and he wrote a very interesting book.
AC: Yeah, called The Thin Green Line.
JA: It is phenomenal, and I think a lot of our listeners need to read this book and listen to this interview. Paul thank you so much. I know you’re a busy guy. Thanks for a few minutes of your time.
PS: Hey thanks for asking. I love chatting, so this is wonderful.
JA: Well, tell us the genesis of the book. It’s The Secrets of the Ultra Wealthy. What did you learn, and what are some of the things that we can give a couple of nuggets to our listeners?
PS: Yeah, it’s got this really sexy subtitle, doesn’t it? The Money Secrets. But, it applies to everybody. And that subtitle always makes me cringe a bit, it’s kind of like axis of evil, it took like 17 people to write those three words and it’s sort of the equivalent for that subtitle. But the gist of the book is this. How we think about money matters more than anything else. And it all started when I got invited to participate in this group called Tiger 21 and Tiger 21, they are all super wealthy. You need 10 million bucks to get into the club. But most people have $50 million, $60 million. There are billionaires in this club. And you would ask yourself, “look, if I had $500 million dollars, why do I need to meet once a month and have lunch with a bunch of other guys to discuss money, right? You think, “I’m not going to run out of money, I don’t have any concerns.” But that’s the genius of this club. They’re there to talk not about how they’re going to invest money. They’re there to talk about how they’re going to think about money. They’re going to talk about the decisions they make when they do the only things you can do with money, which is: save it, spend it, give it away, or think about it. And being a member for one day, it was enlightening for me, because – I won’t give it all away, but put it this way – I didn’t know as much as I thought I knew when I was going to that lunch.
JA: I can imagine. What were some of the things – if there were two or three things that the ultra wealthy do – or just someone that is wealthy – because there’s this thin line between being rich and wealthy, and the title is interesting too. How did you come up with the title and tell us a little bit more about that?
PS: Yeah The Thin Green Line, if you think of the S&P 500, or you think of your favorite stock index over the past 50 years. Starts low goes high, but it’s not in a straight line. It’s a little bumpy along the way. And that’s a thin green line. The people who are on top of it, they are wealthy. Whether they make a little money or a lot of money. Everybody else? They’re rich and poor. You could be at the very tippy top, making a ton of money each year, but you’re really rich. And the difference is freedom. People who are wealthy are able to make all the decisions and choices that they want to make with their money. They’re in control. They control life. The people who are rich – in the simplest context, you can think of somebody who is wildly over-leveraged. they may make a million dollars a year, but they have five million dollars in debt obligations that they’re trying to service every year. Life is going to control them. So the point though, is that to be on the right side of the thin green line, to be on that wealthy side, you could be a schoolteacher You could be a schoolteacher who listens well, saves her money in the state-sponsored pension for teachers, save a little bit of extra, has some very manageable hobbies, likes to go to church, likes it go on hikes, maybe take one vacation a year. That person, according to my book and my research, can be far wealthier than the corporate titan who’s making $500,000, $800,000 a year, and it’s so leveraged that he’s one or two paychecks away from being broke.
JA: So, wealthy is not necessarily a dollar figure in your bank account. It’s basically the control that you have with the wealth that you’ve created.
PS: 100%. And it’s that ability to make those choices you want. Whether those choices are to go for a hike with your grandkids or to hop on a plane and jet over to London for a weekend. It’s all about having those choices and knowing that when you make them, you’re not endangering some of the essential things in your life.
JA: It’s funny. Al and I are financial advisors. We sit down with clients quite a bit. People look at the present, and they extrapolate the future like there’s not going to be any changes. So that’s where we see high leverage, very large incomes, very little savings. And some of the favorite parts of your book was – like you can learn a couple of ways how people do it right, or how people do it wrong. And some of the nightmare stories were, I think, more enjoyable for me.
PS: Oh absolutely. One of the things I learned from this group Tiger 21 is, they were so aware of the risk. They’re so aware of things that could go wrong and look, in general, would we rather read about the guy who inherits a $10 million and ends up broke? Sure. It’s fascinating. Utterly fascinating. But to me, it’s that person who earns the 10 million bucks or 20 million bucks, or whatever the dollar amount is – #$300,000, and finds a way to to make it last, and finds a way to do all the things that he or she wants in in life. To me, that person is wealthy.
AC: So Paul, The Thin Green Line, it can go either way. You can get there, but you can lose it. And so some of these wealthy people that you’ve been talking to, they spent a lot of time figuring out how to save it, and/or how not to have too much risk to lose it.
PS: Absolutely. And when you’re that wealthy, what are you concerned about? I mean some of these people are concerned about what’s going to happen to their children if their children get that money. Are their children going to be able to hang onto that money? Or they’re concerned about, look, if you have that much money, you’re like that ten point buck in the wild. Everybody wants to come after you and pitch you something. So how do you make those decisions with your investments so that you’re growing your wealth, but at the same time you’re not taking so much risk? Because why do you need to take the risk? If you have 15, 20, 30, million dollars, an extra million or two is great, but you’d rather not lose 10. This is kind of behavioral finance 101. This is the great loss aversion. And so, so much of the thinking is, “look, I’ve been very lucky. I’ve gotten to this point. I have a ton of wealth. Very successful. I have a lot of choices in life, but I know very well that it can all very quickly go away. So how do I protect that? How to protect it for me and protect that for my family?”
JA: You have a unique personal story to make your wealth. Give us little tidbits about your own personal journey.
PS: The good part or the bad part?
JA: (laughs) I guess all the above.
AC: Yeah, we’ll take either. (laughs)
PS: Look I say, half joking, that I’m probably one of the only people who could’ve written this book because I started off in the bottom 20%. My dad went bankrupt, my parents had a lot of problems. My house – this sounds like a Rodney Dangerfield joke, but my only friend growing up robbed our house when I was 16 years old. And so, when I hear my kids complain about bad neighbors, I’m like, “kid, you don’t know what a bad neighborhood was.” And now we’re now we’re in the 1%. The other, much reviled, or the much idolized 1%. And it’s it’s been an interesting journey, but it gives me a perspective on, look, it can go away, and how do you make sure it doesn’t go away. And more importantly, how do I talk to my kids, my kids’ friends, so they understand that there is a lot of luck involved in everything in life. Good luck and bad luck. But a lot of this is decisions and being aware of the decisions you make. And just as importantly, your behaviors. No matter how much money you have, you can’t have everything. Even if you’re Warren Buffett. I mean look, Warren Buffett doesn’t even have his own jet. He uses Net Jet. I mean that guy’s economizing. If he’s economizing, we all have to make choices. That’s what we can all learn, no matter if we’re a teacher or we’re a billionaire, it’s choices matter.
AC: Yeah Paul and I think sometimes even little decisions can make a big difference.
PS: 100% because it’s not one – I guess, sometimes it’s one gigantic decision that causes somebody financial ruin, but more often, it’s a series of incremental decisions that add up over time, and you look back. I don’t want to pick on people for their spending, but the easiest example is probably that credit card bill. If you had a little balance every month, $200 a month. Well, what does that become over 12 months? Well, that becomes $2400. Two years? $4800. And that’s not even with the interest involved. And it starts to grow exponentially. And I think that’s what people need to be really aware of. Because like I say, you can save money, you can spend money, you can give it away, but most importantly you can think about it, and that’s how those four work together that, I hope, will allow people to make better decisions in their own lives.
JA: We’re talking to Paul Sullivan, the author of The Thin Green Line. Where’s the easiest way to get your book, Amazon?
PS: Amazon, sure.
AC: (laughs) There you go.
JA: Where else can they get more information about you, Paul?
PS: Go to my website PaulJSullivan.com, or go to the New York Times website and type in my name, Paul Sullivan, a whole bunch of stuff pops up that you can read over the weekend.
JA: Hey, I know you’re busy. Thank you so much for taking a few minutes out of your busy day to join us. It was so fun to talk to you.
PS: Thanks, guys. I really loved it. I appreciate it.
JA: All right. That’s Paul Sullivan folks. We’re going to take a break. The show’s called Your Money, Your Wealth.
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It’s time to dip into the email bag, with financial questions courtesy of Advisor Insights from Investopedia, and you, the Your Money Your Wealth listeners. Joe and Big Al are always willing to answer your money questions! Email email@example.com – or you can send your questions directly to firstname.lastname@example.org, or email@example.com
12:11 – International Taxation: Are you planning to move out of the country in retirement?
JA: OK, this individual does not plan on staying or retiring in the United States. “I’m just here to work until I save enough money to start a business back home.” He lives in the Philippines. So he’s, as of now, he’s decided that 20 years is going to be his limit, he’s going to work here for 20 years. Is it smart to set up a retirement account and save into that retirement account over the next 20 years? “And what would happen if I put the money in the account if I move to the Philippines, and how does all of that stuff work?”
AC: Boy that’s a little complicated. That’s international taxation.
JA: We get a lot of people that are ex-pats that say I’m going to move on to the country when I retire. Maybe it’s Portugal, maybe it’s Spain, maybe it’s whatever.
AC: So I’m going to tell you a few things that I know, and then a few things that I think. (laughs)
JA: OK, that’s fair. Full disclosure.
AC: Full disclosure. So here’s what I know. So you’re working in the United States, and it doesn’t say whether you’re a United States citizen or not.
JA: “I am a dual citizen.”
AC: A dual citizen. OK. So there you go. So that means Philippine citizen as well as U.S. citizen. So, being a U.S. citizen, when you work here 20 years, you move away from here. If you keep your dual citizenship, then you still are a United States citizen, and the United States will tax you on all of your worldwide income, even if it’s earned in the Philippines. And what some people do at that point, is they become full ex-pats, they renounce their citizenship, so they don’t have to pay U.S. taxes when they’re living in a foreign country. Now, to be fair, the way this works for most countries – and this is what I don’t know, what our tax treaty is with the Philippines, that’s an international tax expert. But in most cases, Joe, let’s say he lives in the Philippines, and let’s say he’s still a U.S. citizen, so his income is taxed in the Philippines first, but then it’s also taxed in the U.S. But in the U.S., he gets a tax credit for taxes he’s paid in the Philippines. That would be, typically, how it is for foreign countries.
JA: So if I’m taking money out of let’s say a 401(k) account in the Philippines. So I’m going to pay tax in the Philippines, and then the U.S. is going to give me a tax credit?
AC: Yeah you pay tax in the U.S. also, but you get a tax credit for the taxes you paid in the Philippines. That’s called the foreign tax credit. But realize that there is a foreign tax credit for U.S. There’s no foreign tax credit for the state you live in. So if you happen to live in California, where we’re at, then you’re going to pay full California tax, in addition to the taxes you pay in the Philippines.
JA: So you might want to move.
AC: Yeah, you might want to establish residency, let’s say Nevada, or Washington state, or Texas, that don’t have any state taxes. So that might be a strategy. You could renounce your citizenship and then you don’t have to worry about it. Then the only income you would have in the U.S. at that point would be U.S. sourced income, like Social Security. I believe it would still be taxed in the U.S., depending on what the tax treaty with the Philippines says, that I don’t really know but that would be my presumption. As far as a retirement account, like let’s say he had a 401(k). Could he roll that to an account in the Philippines? That’s over my head. I’d have to do research on that one. That would be U.S. Philippine tax treaty law. These are common questions, and I got to tell you, it’s very complicated. And that’s where, when you are planning these kinds of things, it’s really good to talk to a specialist because every country has different rules.
16:13 – “How should I prepare for the biggest tax cut in history?”
JA: Here’s the last one, Big Al. Here’s the title of the e-mail: “How should I prepare for the biggest tax cut in history?”
AC: Oh, is he referring to the Trump tax reform?
JA: “Trump recently announced that he is aiming to lower the tax rate for individuals and businesses by potentially 15%. While I feel this is a huge positive for most, is there anything I need to do to prepare for or alter with my finances? For example, should I plan to invest more in my Roth IRA using that after-tax income since taxes will soon be lower?”
AC: Well, good question. There are 100 ways we could go with that. But we got three minutes. So, I would say a couple of things. As far as individual taxes, the 10 and 15% rate under Trump would become 12%, I think that’s the last number thrown out for those two brackets. The 25 and 28% bracket would be 25. And the 33, 35, 39.6 brackets would be 35. So it’s not like taxes are going down 15%. You might save a few dollars here and there, so for a lot of people, it’s not going to be a lot different. And then under Trump, state taxes are no longer deductible. Miscellaneous employee unreimbursed expenses are not deductible. All that remains is charity and mortgage interest, so some people actually are, even though the tax rates are lower, they’re going to have fewer deductions, they’ll actually pay more tax. And some single people will be hitting that 35% bracket at a much lower income than under current law, so they’ll pay more taxes. Some families with lots of kids will pay more taxes because exemptions will go away. So to just assume you’re going to be paying fewer taxes is not a great promise.
JA: He said it’s the biggest tax cut in history.
AC: That’s what the headlines say, right? And in terms of rates coming down, sure. But in terms of how much tax people pay? Now the truth is, the economists out there, which you and I are not, but the consensus is that this is not revenue neutral. That it’s going to take money away. In other words, if you look at all of us collectively, it’s going to be a big tax cut. And of course, Trump administration is saying that the increases in the economy, due to fewer taxes, will overcome that. And of course, that’s a matter for debate depending upon what your beliefs are. We won’t necessarily go there. Going back to I guess one of the things he said, in terms of Roth IRA, is yeah we’re big proponents of Roth IRAs. Whether this tax cut happens or not, get as much money to Roth as you can, and then invest that for growth, because you get rewarded for the growth, because you pay no tax on that future growth.
JA: Yeah, just doing a little bit of homework, figuring out, where do you fall today? What are your deductions, exclusions, exemptions? What’s your taxable income? What tax bracket are you in? How old are you? How much money are you saving? How much money do you want to maintain a lifestyle in retirement? What’re your Social Security benefits? Do you have pension benefits? Are you going to have other income in retirement? How far away is retirement from you? And then how much have you saved already, in let’s say a standard 401(k) plan versus the Roth IRA? And then you could kind of take a look and kind of guesstimate what your tax bracket potentially may or may not be in the future, and then that can help gauge to see, hey does it make sense for me to be a little bit more diversified from a tax standpoint to have more money into a Roth? So there’s a little bit of homework involved, it’s not a cut and dry answer, but yeah I agree with Al 100%. I love Roth IRAs. There is no better rate than zero. So no matter what happens what the tax code in the next four years, the next eight years, or the next 18, or the next 80, there is no better rate than zero compound growth on all of that money, tax-free to me and my family. I like that.
To learn more about “the biggest tax cut in history,” visit the White Papers section of the Learning Center at YourMoneyYourWealth.com and download the white paper, “Tax Reform: Trump Vs. House GOP.” How might income tax, estate tax, and business tax change? Are your tax strategies at risk? Download the Tax Reform white paper to find out more. Visit the White Papers section of the Learning Center at YourMoneyYourWealth.com
20:55 – Big Al’s List: 3 Things You May Be Getting Wrong About Retirement Planning
JA: Three things. All right.
AC: Well here’s the first one…
JA: Health care costs are going to blow you up. You’re going to live longer than you expected, and you don’t have enough savings.
AC: Those are good, but those are different than what I got. How about this, thinking you will spend less in retirement because you may be saving to replace 70 to 80% of your pre-retirement income if you read articles in Money magazine or whatever, they’ll kind of say “you don’t spend as much in retirement.” But the truth is you may need to replace 100% of your income, depending on what lifestyle you want.
JA: Well, I would say the majority of people will absolutely spend less money in retirement, without question. And why do I say that?
AC: Because they haven’t saved and they have no choice.
JA: No choice, they have to.
AC: But what about our listeners?
JA: What about what about Bankrate, what’s that stat that we talked about on the TV show?
AC: Yeah Bankrate tells us that 33% of all Americans have no retirement savings at all. And then another 23% have less than $10,000. Let me say it another way – 56% of the people out there have less than $10,000. More than half have saved less than $10,000 and the next step. From $10,000 to $49,000, that’s another 10%. So we’re approaching 70% of the people have saved less than $49,000 and the last segment, we just talked about the 4% rule, you save 50 grand, well that can generate about $2,000 of income. That’s less than a couple of hundred a month. That’s not going to get you very far.
JA: Well, Minnesota it might. South Dakota.
AC: (laughs) Maybe.
JA: But no, I think a lot of our listeners will probably spend more money, a lot of our clients spend more money, they’re shocked at how much that they spend actually. It’s like, “there’s no way, my budget must be off,” or “what’s going on?” or “did we lose a lot of money?” No, you’re taking a lot of distributions. “Well that’s right, we did go to Greece. We did do this.” But spending your money, I mean God bless you. If you saved, you did a good job. The problem is that a lot of really good savers, they’re terrible spenders. We encourage our clients. Please spend your money. You worked your tail off to accumulate some wealth, figure out a strategy to get your lifestyle how you want it.
AC: Yeah. Here’s another one, Joe, is thinking Social Security will be enough. Although I’m not sure how many people actually think that, but here’s what the Social Security Administration tells us, is that about 48% of married couples will count Social Security as their greatest source of income, and singles, it’s about 71% of single people. You fall into that category.
JA: Thank you.
AC: (laughs) 71%, that’s the majority of their income. Social Security. So you better get married so you can get into that 48%.
JA: Yeah, I know man, I do. I’ve got to check her working record first. See what her top thirty-five years of wages are. (laughs)
AC: Yeah. The first question. Bring your Social Security earnings statement. (laughs)
JA: Can you bring your earnings statement? I want to forecast my retirement picture is going to look like here.
AC: Are you going to bring a little laptop to do a little forecast on the first date?
JA: Exactly. Get a little bar napkin. Draw up the tax triangle.
AC: Well you can bring your notepad. Really get into it.
JA: Yeah, my HP12C. Start doing future value calculations of our combined Social Security benefits. (laughs)
AC: Yeah. Another one is thinking you can’t save in a retirement plan, that’s interesting. I guess a lot of people don’t really understand that they can save into 401(k)s and 403(b)s and IRAs, or they don’t take the time to get educated. This happens to start at a young age. It’s like, “well I don’t want to put money into a 401(k) because I’m not going to retire for years, and by the way, I need money to buy a car, and a TV, and I want to buy a house, and then next thing you know, you’ve got kids, and then you’re in your 40s and 50s and haven’t done much.
JA: Well they don’t think they can save in the plan, because it’s not like, well, they don’t even know about the plan. They don’t think that they can save in the plan because they have all these expenses.
AC: They think they can’t afford it and that’s the problem.
JA: Once again, blew that one up. I was like, there are that many people that don’t know that they can save? They think they gotta be special to save in the plan?
AC: This says, a lot of people don’t understand that they can save they can save.
JA: They can. You know what I found, is this study. I read this study, and there was a group that was working with people that don’t think that they can save. And so, what they found is that any time that they went to do a transaction, they showed a picture of their children. And guess what happened to savings rates? So let’s say if they’re going on the computer, Amazon, let’s spend this, boop, a picture of their kids. Or hey, they deposit their paycheck. Picture the kids. Savings rates went up like 200%. I don’t know what that study is. I’m just saying because if you take a look, Big Al, you love your kids, you’ll be like I need to save money because I need to provide. Me? I got no pictures or nothin’. I’m like, I’m goin’ to the bar. (laughs)
AC: Do you have your mom come up on the computer?
JA: I should. Yeah, Ruthie. How pathetic is that? All right. We’ll see you later. Show’s called Your Money, Your Wealth.
So, to recap today’s show: Social Security alone probably won’t be enough to live on, you will likely need to spend the same in retirement as when you’re working, and you CAN save into a retirement plan – if you aren’t already, get started now! The biggest tax cut in history may not be. For international taxation issues, it’s best to consult with an international tax specialist. And saving into a Roth IRA is a GREAT idea.
Special thanks to our guest, Paul Sullivan, author of “The Thin Green Line: The Money Secrets of the Super Wealthy.” Learn more at PaulJSullivan.com
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