If your portfolio is overweighted in one or two individual stocks, here are some ways to diversify those concentrated stock positions. Is using a donor-advised fund a good choice? Plus, how does the IRS know if a required minimum distribution is a qualified charitable distribution? From which pool of money should you pull extra retirement income? Also, structured notes, and paying Grandma for daycare without impacting taxes on her pension – lump sum or monthly payments? Finally, the fellas provide their thoughts on starting a career in financial planning.
- (01:25) How does the IRS know an RMD is a QCD? (Judi, San Diego)
- (04:20) How to Diversify Concentrated Stock Positions: Should I Offset With a Donor Advised Fund? (Jeff, Overseas)
- (14:11) From Which Account Should I Withdraw Extra Retirement Income? (JP, CA)
- (18:58) How to Pay Grandma for Daycare and Minimize Tax on Her Pension: Lump Sump or Monthly Payments? (Mike, DC)
- (23:22) What Do You Think of Structured Notes? (Lee, Jacksonville, FL)
- (27:36) Getting Started in Financial Planning (Jeremy, Cookeville, TN)
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Today on Your Money, Your Wealth® podcast 338, following on from last week’s episode, what if your massive stock market gains are in one or two stocks? Joe and Al discuss options for diversifying those concentrated stock positions, including using a donor advised fund. Plus, how does the IRS know if a required minimum distribution is a qualified charitable distribution? If you need extra income in retirement, which pool of money should it come from? The fellas also offer their opinions on structured notes, and they help Mike in DC come up with a strategy to pay grandma for daycare without it negatively impacting taxes on grandma’s pension – and should grandma take that pension as a lump sum or monthly payments? Finally, some thoughts for those considering getting into financial planning as a career. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.
How does the IRS know an RMD is a QCD? (Judi, San Diego)
Joe: I’m going to go to Julia…. I’m going to go to Judi from San Diego. “Hello to the Three Musketeers of Wealth.” Well, that’s nice of you, Judi. “Important stuff, 2015 Buick Encore. But I bought a two-passenger golf cart to drive around town.” That’s awesome. I wonder what kind of golf cart she got? “Pets. We got a Buster the dog, a Schokanoogle-“
Joe: “- two cats, JJ-“
Al: I like that Schokanoogle, that’s pretty good.
Joe: “- JJ and Meow. Happy, retired, busy volunteering for Humane Society and Hospice.” Could you ever volunteer for Hospice?
Al: I guess that wouldn’t be my thing. I applaud people that do, but that would be tough for me. I mean there’s lots of stuff I can contribute to that wouldn’t be my choice.
Joe: That would be super hard. Oh my gosh.
Al: But I hand it to those that can.
Joe: Yeah. For sure. “My question, how does the IRS know that I withdraw from an IRA as a QCD? If I understand correctly, I can start using a QCD-“ qualified charitable distributions, QCD folks “- once I turn 70 and a half. And if I understand that if I am born in March, I must wait until September to make the QCD, it must be after I turned 70 and a half. And I can make a QCD even if I don’t start RMDs until age 72. For that matter, how does the IRS know the withdrawal’s an RMD? Is there some form I don’t know about? I tried to look online, but there’s so many strange things out there. I gave up and came to – “
Al: Yeah, be careful in the online world.
Joe: “ -The Spring of All Knowledge. Thanks for the podcast for the knowledge and the fun. Judi, San Diego.“
Al: Well, first of all, two correct statements. Yes, you have to wait till you’re 70 and a half before you can do a QCD. You can’t do it earlier in that tax year. So that’s true. And you can do it before your RMDs start at 72. So that’s a true statement as well. How the IRS knows, is they don’t really know. There’s not really good reporting on it. How you report it, if you’re using Turbo Tax, there’s a little checkbox I think that says QCD, click it, the software puts QCD in the margin next to what would- so it shows up in gross, but not net. So in other words, you don’t pay tax on it. But yeah, the IRS so far, is a little bit behind on tracking these. So they don’t- they really don’t know.
Joe: So let’s say she pulls $100,000 out of the IRA, but $30,000 of it is a QCD. In the margin, it’s going to say- or $70,000 is taxable, $30,000 QCD. It’s going to be like a- almost like a footnote on the tax return?
Al: Yeah. So what happens- $100,000 is the gross. $70,000 is in the taxable and there’s a little QCD in the margin. That’s how it shows up on a tax return.
Joe: All right Judi, hopefully that helps you out.
How to Diversify Concentrated Stock Positions: Should I Offset With a Donor Advised Fund? (Jeff, Overseas)
Joe: We got Jeff writes in. Let’s see “Joe and Al. For the past 32 years, my wife and I have worked in various international schools. I’m 57, my wife is 56. We plan to re-
Al/Joe: – repatriate?
Al/Joe: – repatriating?
Al: That’s what it says.
Joe: “ – and retiring next year. We have accumulated roughly $4,500,000 in a joint brokerage account. We have roughly $600,000 in a Roth IRA. We are wondering what our taxation options might be considering the following. One, we hit the-“
Al: – proverbial-
Joe: prover- yes I knew that. It’s been a rough morning here. “We hit the proverbial home run with two individual stocks during the past decade, accumulating nearly $1,000,000 in capital gains on each stock. While this is a good problem, we are wondering what our options might be for addressing these taxes. Ideally, we would like to sell out of these positions as we move into retirement. Doing this all at once, however, would come with a significant tax implications. What strategies might be we missing with the way to mitigate taxes when it comes to selling stocks in a brokerage account?” Do you want to tackle that one first, Big Al?
Al: Sure. Sure, you bet. So we got Jeff has about $1,000,000 in capital gain from each stock, so it’s about $2,000,000 in total. So if you’re just strictly thinking taxes, then you would look at how much you could have in taxable income before the capital gains rates goes from 15% to 20%. And for your- let’s see you’re married. So for a married couple, that’s it’s about $500,000, $600,000. Hold on. Let me look that up.
Joe: That’s about $701,000?
Al: We’ll call it $500,000. In other words, you can have about $500,000 of taxable income and those capital gains will be taxed at 15%. If you go over that, then whatever amount you go over will be taxed at 20%. So there’s an extra 5% tax there. Furthermore, there is talk about changing the capital gains to ordinary income rates if your income is over $1,000,000. So that hasn’t happened yet. It’s a proposal. If it does happen, I’m guessing it would likely be next year. But no one really knows for sure.
Joe: What did Biden just say? He said he wants it retroactive to April, but we’ll see if that ever happens.
Al: Yeah, that probably won’t happen. I’m guessing.
Joe: That’s what he said.
Al: I understand. It would just be unusual.
Joe: It’s happened before.
Al: Well, it’s not so much on the Feds. California has. California loves retroactive stuff. But at any rate, so those are a couple of thoughts there. Now, on the other hand, if your stocks, if you think they’ve peaked and you’re concerned, then I don’t even worry about the taxes.
I mean, capital gains are capital gains. You diversify and you try to get into the right portfolio. But that would, I agree, that would be a pretty expensive proposition to pay taxes on $2,000,000. So I think that’s what I would do. I would probably use that $500,000 of income and maybe try to get these things sold over the next 4 years- ish.
Joe: So you’re saying use the top of the 15% tax bracket?
Al: I think so, yeah.
Joe: And so if you go above that, you pay 20% plus the net investment income tax of another 3.8%, plus the state-
Al: Well, and you already have that once you’re over $250,000.
Al: But I’m sort of conceding that. That’s an extra 3.8% you pay in capital gains once your income is over $250,000.
Joe: They’re overseas. I guess we don’t know. Well, I’ll continue reading. But a couple of other strategies too Jeff, is that you could hedge the stock because if you have $2,000,000 in gain, but you’re only going up to a certain bracket, you’re still going to have a lot of stock. It’s going to take you several years to diversify out of it if you’re just going to go to the top of the 15% tax bracket. So I believe that that’s the right tax move. But then, Al, you’re saying, well, you know, if you’re uncomfortable with the risk, just sell it. Don’t let the tax sway from diversifying.
Al: That’s what I’m saying, that the 15%, like $500,000. So it could potentially- if you didn’t have any other income, it would take about, about 4 years to diversify.
Joe: Yeah. Or you could use hedging strategies. There’s option strategies that you can use on highly concentrated positions that you have. We have something on our website. You can go to- Andi, would you put it in the show notes or something like that?
Andi: I will. It’s a video from Brian Perry called Diversifying Concentrated Stock Positions.
Al: That’s actually a really good strategy. Because essentially what an option strategy- it sort of limits the downside and the upside, both. But you don’t sell, so it’s not taxable and you can sell at your own pace.
Joe: If you’re happy with the $2,000,000, you’re going to have that- you’re going to be protected from the downside. But there’s going to be a cap on the upside. So you’re not going to have huge appreciation, but you’re also not going to lose your shirt. And you can do a tax strategy.
Al: And you can gradually do it over the 4-year period. I do like that.
Joe: “We plan on opening a donor-advised fund and giving to various charities over the years of retirement. How might this play into offsetting some of the taxes on the sale of stocks? We’re thinking of funding this with several hundred thousand dollars, $500,000. Also, how might the timing of doing this, as well as cashing out the stock positions, affect our taxes?” You would probably want to give the highly appreciated stock into the donor-advised fund because then you get the full value of the stock, $500,000. Plus you don’t have to sell the stock and then you get a $500,000 deduction, then you could sell the remaining stock. So I think that’s a really good idea to kind of offset that.
Al: I do too. That would be perfect. And then the second part of this is it’s even more valuable if you have some ordinary income and then you can offset that charitable deduction against ordinary income, which is a higher tax rate. So just think about that.
Joe: “During retirement, we intend to maximize capital gains withdrawals from our brokerage account. If I understand the math correctly, we should be able to withdraw $105,000 per year, $80,000 minus the standard deduction from our brokerage account and pay no federal or Social Security taxes. We will have some state taxes to pay, North Dakota is our home of record. Now, we plan on having no earned income during retirement, hence the ability to take $105,000 in gains and pay no taxes. Does this math add up?” Yes, it does.
Al: It does.
Joe: To some degree.
Al: Although I do want to make sure for our listeners it’s clear that when we talk about taking- rounded to $106,000. So in other words, that’s what you’re taking out of your brokerage account, because then you get the standard deduction and you basically get to the top of the of the 12%. Yeah. 12% bracket, which means that capital gains rates are 0%. Now, remember, this, though, is you always get your basis. In other words, when you sell a stock, if you pay $1 for it, you sell it for $2, for example. Well, you’re only paying taxes on half of it, on the amount that went up. So in that little simple example, if you wanted $105,000, let’s call it, of gain, then you could actually sell $210,000 of stock to produce that amount of gain. Now, Jeff, I think in your case, it’s probably almost all gain. So you can probably just use that figure, but just be aware of that. When we talk about selling certain positions, you’re only paying tax on the gain, not the whole amount in a non-qualified non-retirement account.
Joe: So you would want to look at that type of cash flow analysis as well before you sell the stock all at once because you’re going to live tax-free basically for life. “And then lastly, I have a 2004 Expedition with 113,000 miles. I usually take it out 7 weeks a year, then it’s back in the garage for another 45 weeks. I’ll leave the keys in the ignition, but you’ll have to hook up the battery if you want to use it. Thanks for the learning and the laughs. Jeff. Yes. In case you’re wondering, the stocks are Visa and Facebook.” I was thinking it was going to be-
Al: I would have guessed Facebook as one, but I would have guessed Apple.
Joe: Apple? Netflix.
Joe: Thanks for the question, Jeff. Congratulations.
That video I mentioned, Diversifying Concentrated Stock Positions, from our Director of Research and Executive Vice President, Brian Perry, CFP®, CFA®, offers some additional suggestions for dealing with that concentrated position, like net unrealized appreciation, options, collars, regardless of what stock or stocks you’re overweighted in. Click the link in the description of today’s episode in your podcast app to go to the show notes at YourMoneyYourWealth.com to watch the video, read the transcript of this episode, fill out the YMYW podcast survey, and share the show and the free resources. And don’t forget, if it’s time for more personalized help, you can schedule a financial assessment with a CERTIFIED FINANCIAL PLANNER professional on Joe and Big Al’s team at Pure Financial Advisors right there from the show notes as well. There’s no cost and no obligation and no requirement that you be here in California where we are, either. Chances are the team at Pure can help you create a plan for a more successful retirement. Go to the show notes at YourMoneyYourWealth.com and click “Get an Assessment.”
From Which Account Should I Withdraw Extra Retirement Income? (JP, CA)
Joe: JP writes in from California. “Please discuss this scenario.”
Al: He asked nicely. Please.
Joe: “Got a married couple, early 70s, health good for now, on Social Security, largely retired, no significant earned income, no pensions, joint numbers below. Social Security is $45,000; RMDs on $1,500,000 is $60,000; brokerage account of $300,000.” I’m going to come back to that sentence. “Roth IRAs of $500,000. If desired lifestyle asks for more than $105,000 dollars above PY-“
Andi: per year.
Joe: – yes. PY- God. “$105,000 PY-
Al: – above-
Joe: “- above, where should the extra money be drawn from? IRA, Roth or brokerage account. How would that answer change with, say, a 10-year- ? How would that answer change with age- ?
Al: Say 10 years from now?
Joe: – say 10 years hence?”
Al: Yeah. So when they’re in their early 80s.
Joe: Yes, I get it. I just like it -say, 10 years hence. OK, I’ll say 10 years hence.
Andi: That’s a dad joke Joe, jeez.
Joe: I got it. “What if IRA, Roth and brokerage accounts were double those above?”
Al: OK. OK.
Joe: OK. JP. What is this- ?
Al: I think I know what he means on his brokerage account. I think his cost basis is $100,000. So the gains are 200% of that. I think that’s what he means.
Joe: $300,000 with cap gains of 200% or more.
Al: I think if- you have to go back to the cost basis and multiply that by 200%, I think. I think that’s what he’s saying. That’s my read.
Joe: Got it. So he’s got- so he wants to spend $105,000-
Al: which he already has. He’s already getting it from Social Security and RMDs. But if he wants to draw extra money, where should it come from? I think that’s his question. So I think you look at it like this-
Joe: $105,000 minus $25,000 is $80,000. He’s in the 12% tax bracket.
Al: Yeah. Top of the 12%. Although probably only $40,000 of the Social Security is taxable. So it’s probably $75,000 taxable income. Could probably pull out about $5000 more from his IRA and stay in the 12% bracket. And the other, I don’t care whether you take it from your brokerage account, which is capital gains, maybe 2/3 of what you pull out is capital gains, 1/3 is return of capital. And that’s at a 15% tax. That’s not so bad. And then your Roth IRA is tax-free. Whatever you want.
Joe: Yeah, I would keep deferring the Roth depending on I guess if you want to spend it, might as well. I mean, that’s why you have it in the first place. The RMD is going to continue to climb on you a little bit-
Al: – but so do the tax brackets. They go up too. So, I mean, theoretically, they’ll go up as your RMDs go up and you’ll be in roughly the same place 10 years hence.
Al: Maybe, maybe not.
Joe: I don’t think so. I would want to drain more of the IRA.
Al: Would ya?
Joe: So, yeah, go to the 12% and then continue to go on top of that. Because if an emergency happens or something like that, or maybe he wants to go on a bigger trip and he wants to spend a $100,000, then he’s got the brokerage account to do that or the Roth. But $1,500,000, let’s say now it’s $3,000,000. His annual Social Security is going to be higher. He’s got $1,000,000 now in Roth and the brokerage account’s at $600,000. Where would he want to pull it then? I would still want to pull it from the RMD just to make sure that I’m taking advantage of the lowest rates possible. And then pull-
Al: I think I would probably just say you’re in pretty good shape. Because you’re already roughly at the top of the 12% bracket and going to be roughly at the top of whatever the lower bracket is later. So you don’t really have to convert. But I get it. I mean, you can convert and be in the 22% bracket and he’s got money out of his brokerage accounts to pay for it. That’s what you’re saying?
Joe: Yeah. But yours was a lazier answer. I didn’t want to do the math.
Al: I’m saying your diversification is pretty good.
Joe: It’s better than what we see.
Al: That’s what I’m saying. So it’s not like you have to go hog wild.
Joe: Got it. Hog wild.
Al: Like that expression?
Joe: I do. Uh huh.
Al: You’re from Minnesota. Can you relate?
Joe: Oh yeah.
Al: That’s what I thought.
How to Pay Grandma for Daycare and Minimize Tax on Her Pension: Lump Sump or Monthly Payments? (Mike, DC)
Joe: We got Mike from DC calling in. He goes “Hey Joe and Al, big fan. Thanks for everything you guys do.” Well, thank you, Mike, for writing in. “I have a question about a pension plan for my mother-in-law. She’s planning to retire this Fall, age 55 soon to be 56, and move in with my wife and me to take care of our daughter instead of using daycare.” I don’t know. Mike?
Al: Are you going to give some personal advice?
Joe: I’m just saying.
Al: Do you have a –
Andi: This is where it becomes a lifestyle question?
Al: Do you have a concern already?
Joe: I do. It has nothing to do with the finances.
Al: Got it. I think I know what your concern might be.
Joe: I’m saying Mike, have you thought this one through? Oh boy. So, OK, let’s continue on here. “Her pension plan with CalPERS, California Public Employee Retirement System, is worth about $51,000. She doesn’t have any other savings besides this pension plan where she has been working for almost 15 years. My wife and I plan to pay her a monthly amount to take care of her granddaughter, day-to-day costs, and pay for her own expenses, phone, etc., when she moves in with us. What do you think is the ideal tax-avoiding approach in dealing with the pension plan? Do you suggest withdrawing the lump sum? About a 20% tax hit. Defer the payments to a later date, if possible? Or receive the pension monthly amounts when she retires? Is there another approach? Please let me know. Keep up the amazing work and look forward to your response.” So Mike’s looking out for mother-in-law, to having her move in, take care of the little granddaughter. Have another roommate.
Al: It sounds good on paper.
Joe: So good.
Al: Until you think about –
Joe: Look and it’s going to be great, grandma, because we can save you money in taxes.
Al: That’s right.
Joe: I’ll call Big Al –
Al: And we would pay daycare anyway. So just pay it to you.
Joe: Yeah, just pay it to you. Just makes a ton of sense.
Al: For the first week.
Joe: Yes, exactly. Mike, write back after a month. Let me know how everything is going. So what should grandma do here? Should she take the money and run? So if she gets $56,000 dollars, I’m assuming she’s single. So there’s going to be taxes. And at 55, she retires at 55. If she takes the pension as a lump sum –
Al: It’s worth $51,000 if she took it all, let’s say the year after she retired. So there is no salary whatsoever. $51,000 minus the standard deduction would put her in the 12% bracket. So that’s not too bad.
Joe: Plus, the state of California is probably 5, so that’s why he’s saying 20% tax hit.
Al: That’s probably about right.
Joe: So $10,000- So she walks away with $40,000.
Al: But she doesn’t necessarily need it all. So why not just take out what you need? She’ll be in a low bracket, really low bracket anyway.
Joe: Or roll it into an IRA without any type of tax hit whatsoever.
Al: It’s not like you have to worry about a big RMD. It’s not that big of an amount. And we don’t know what the payment stream is, so we can’t really evaluate whether she should take a payment stream or not.
But yeah, I think that’s right. You roll the $51,000, if that’s what the value is, into an IRA and take it out as you need it. And she’s going to be in a very low bracket anyway.
Joe: And at 55, she could probably take out, I don’t know, $150 a month. So I would look at what the pension is. So if there’s a guaranteed income higher than that, maybe you just take the pension because it’s not going to be a ton of money. But it’s something to – walking around money for sure. So, yeah, she needs to roll it and grow it. Because you’re going to kick her out and probably –
Al: Wait a minute, she’ll be 55, soon to be 56. She’ll probably live to 90. So this is a- what a 35 year process here.
Joe: But that’s the tax advice. Roll it into an IRA. There’s no tax. Then taken out when you need it and then you only pay tax on the distributions.
Al: Yep. Agreed.
What Do You Think of Structured Notes? (Lee, Jacksonville, FL)
Joe: “Hey Andi, Big Al and Joe, I’m a 45-year-old submarine Navy veteran living in Jacksonville, Florida. I drive a 2014 silver Toyota Tacoma with 98,000 on it. My wife and I have two cats, one named Sabrina in the other named Lilly. Our financial advisor has a fair amount of customized structured notes in our IRA, a Roth IRA and brokerage account. These notes for two years have yielded incredible returns, averaging 26% annually through monthly coupon payments. My wife and I are extremely pleased with the results of these products. We’re wondering about the sustainability of this trend.”
Al: I would wonder that, too. It’s a reasonable question.
Joe: Well, I don’t know. I’ve been in a submarine with zero air. How long can I- right? At some point you’ve got to come up for air.
Al: You do, right. And at some point, these things normalize out.
Joe: “We did our due diligence prior to getting involved with the structured notes but would love your take on them. We constitute roughly 50% of the assets across those individual accounts. Thanks for the great podcast you all put together and the advice delivered to the masses.” First of all Lee, thank you for your service as a Navy veteran submarine operator or what it-
Andi: – submarine Navy veteran.
Joe: Oh, it’s just submarine Navy veteran. OK, so structured notes. Yeah. It’s a good diversifier. To explain what a structured note is, I guess- depends on- there’s thousands of these things.
Al: Well, it’s kind of- it’s a fixed investment, but that’s based upon the market to some extent. Is that- would that be a way to say it?
Joe: Well, I don’t know really what-
Al: At least the structured notes, I’ve seen, it’s like a bank note, except it’s more than the normal rate because there’s some kind of market-type index. I mean, is that a way to say it?
Joe: Yeah, there’s a derivative component to the structured note.
Al: Right, right.
Joe: Or these could even be tied to real estate. It could be tied to all sorts of different things. It could even be like, hard money loans even.
Al: Could be. But it’s generally a fixed income investment that has more than a fixed income component. Would that be another way to say it?
Joe: Sure. And it has a kicker that could- it might have leverage in it. So you could multiply or juice up your overall returns. And if I’m looking at this, he’s getting phenomenal returns.
Al: For the past couple of years.
Joe: And what has the market done over the past couple of years?
Al: Killed it.
Joe: It’s killed it. So just be careful of how- if you gave us the structured notes and let us do our due diligence, we could probably do a segment on what these notes are and what’s the good and the bad and the ugly of them. We’ve done that multiple times. People send in like their annuity contracts and things like that. So Lee, just because you are a Navy veteran, just send me what the heck you’re invested in. We could give you our opinion on them. But, yeah, do your due diligence on every investment. Some are really good, some are really bad. Some might look good. Just because of how they’re structured in certain market environments. Is the ride going to be over at some point? Yes, the markets will turn. This is not guaranteed returns here.
Al: And if you have a concern about its being sustainable, it’s not going to do 26% every year.
Joe: Absolutely not. But you’re 45 years old. What the hell? Let it ride.
How is your investment mix, and why is it like that? Learn ways to grow your investments in all market environments, how to avoid poor investment decisions, and how to protect yourself from risk. Download 8 Timeless Principles of Investing for free from the podcast show notes, just before the transcript of today’s episode. It’ll help you feel more confident in your portfolio even when markets are volatile. Click the link in the description of today’s episode in your podcast app to go to the show notes and download 8 Timeless Principles of Investing. And of course you can also Ask Joe and Al your money questions, find out what the fellas think about a particular investment, or even get life advice from Joe. We can’t promise it’ll be good advice…
Getting Started in Financial Planning (Jeremy, Cookeville, TN)
Joe: “Al, Andi and Joe, it’s Jeremy from Cookerville.”
Joe: Thank you.
Al: He was just waiting for you to correct –
Andi: It’s just a thing now, right?
Al: It is. It’s part of the stick.
Joe: “I’m still doing my supply chain thing here while selling boats on the side.” This is the guy that’s like sells like 4000 boats and makes like-
Al: – $2?
Joe: $80. He loves it though. But he’s killing it on the supply chain thing.
Al: I think maybe he’s looking for something else too. Maybe.
Joe: I don’t know. Let’s find out and see what he’s up to. “43 now.” Now- like he’s been listening to us for like 10 years. “It’s been a long time. Now I plan to retire to part time work at 55.” All right. You’re on track there, Jeremy. “My ideal part-time situation would be to continue to buy and sell the boats, but also work as a financial coach, advisor, planner.” Woo, interesting.
Joe: I don’t know. Is he applying for a job?
Joe: “I picture myself working about 20 hours a week.” All right. Just like Big Al.
Al: I would love that.
Andi: I think that would fit as a financial coach, maybe not an advisor or a planner.
Joe: What is a financial coach?
Andi: Somebody who has absolutely no certification is my guess.
Al: I think of, like a trainer at the gym or I think about like a life coach.
Joe: Come on, you could do this. Just save an extra $50. You can do it. You want to talk about it? What’s got you down, Al? Your finances? Let’s chat about it.
Al: Thank you, Joe. I’ve been wanting to. That’s a coach.
Joe: I got it. I would hate that job. “I picture myself working 20 hours a week between the two and imagine that both would allow for a lot of flexibility with my schedule.” Yes, a lot of flexibility there and very little, if any, income. “I plan to move into financial services career around age 50 once my house is paid off and kids’ college saving is completed. I’d also like to be able to work for a company that will allow me to roll my current 401(k) so that I can potentially start drawing it down at 55, if needed. Here’s my question. What steps can I take now to make myself a good candidate for new employment in the financial services business? My current employer has a tuition reimbursement program that I can take advantage of if needed classes or a degree is needed. I have a bachelor’s in general studies from a small school in Oklahoma and 20-plus years of experience, of course, in the supply chain.”
Al: We did know that.
Joe: That’s all you need, Jeremy. You’re a supply chain manager, you could just do it.
Al: Did we ever figure out where the supply chain manager was?
Joe: Yeah. He manages the office supplies. Yes. “And now more recently, IT and database administration. I don’t know what the educational work experience requirements are for an entry-level position in the financial services space. I can tell you that I would be looking for a position starting around $60,000 a year. It would be open to everything from financial analytics to advising, etc. Any thoughts or suggestions? $60,000 a year would be a significant pay cut, which is why I want to wait until my house is paid off and the college is funded. What ya got for me?” I got a few things for you, Jeremy. I would go to – there’s a couple of schools that you could go online that has the CFP® designation schooling. So if you got tuition reimbursement, there’s San Diego State, of course, is in our backyard. You could go to the American College. You could go to the College of Financial Planning. You could go to like Cal Lutheran is in California that specializes in like financial planning or financial services.
Al: Got it. And you can do this online probably?
Joe: You could do those online. Yes.
Al: Yeah, cool.
Joe: You take one class at a time. It depends on how, like, if you just want to self-study, then I think the College of Financial Planning or the American College is really good. You’re going to get a book and you can do it all online and read and do it at your own pace. If you need a little bit more instruction, like I – the self-study kind of –
Al: – gets a little hard.
Joe: It does.
Al: You get home and that fridge is filled with Coors Lite?
Joe: Yes. I walk through my garage when I get home and it’s like do I get a book or do I –
Al: You would have to, like, lock that refrigerator.
Joe: Yes. It’s terrible. So I’m like, OK, I need some discipline. I need some accountability. So I’d like more of having a class where you would have assignments that you would have to turn in and things like that. So someone to hold you accountable. So I would definitely do that. You’re 43 years old. You have plenty of time to do that. You could probably bust out the whole program in a couple of years, depending on how fast or slow. We have a pretty advanced program with our newer advisors that are trying to- that might have a finance degree. They’re coming just out of college. That might be new to the industry.
We fast-track them to get their CFP®s and we can usually get them passed within a year to 18 months. But if you want to take it slow, take it slow, take two or 3 years. Just a comprehensive exam is pretty difficult. So you’ll want to do a review course. And the faster you do it the better just because it’s all right there, you know what I mean? If you take one class one year and then another class next year, the comprehensive exam would be pretty challenging.
Al: Do you have to have a degree in finance before you can do the CFP®?
Joe: They changed the rules I don’t know how many years ago, but yeah, you know, you need a bachelor’s degree to have a CERTIFIED FINANCIAL PLANNER™ designation. And he does.
Al: Well, he’s got a bachelor’s in general studies. So that counts?
Joe: Sure. It’s a bachelor’s.
Al: OK, so any bachelor’s and then you can go get your CFP®?
Joe: Yeah. What was your bachelor’s in? Philosophy?
Al: Sociology. Yeah, I’m a sociologist. Didn’t you know that?
Andi: What about yours, Joe?
Andi: Got it, ok.
Joe: Any other questions, Andi?
Andi: Nope. I was just – well, actually I do have a question. Would somebody who is a CFP®, be able to do a job as a financial planner and as a boat turnaround guy for 20 hours a week total between the two?
Joe: No, not a chance. Not even close. Because if you’re starting out in the business, depending on what you really want to do. If you want to be a financial advisor, you’re going to have to work probably 90 hours a week for the first several years just to build your business.
Al: To get the training and build your business.
Joe: Right. So 20 hours a week is really not going to cut it. I think Jeremy really enjoys this though. Because he listens to the podcast, he’s written into it several times.
Al: You bet.
Joe: And he enjoys the material. So for him maybe working that wouldn’t be that big of a deal. Because if you really have a passion for something, it probably beats the hell out of a supply chain manager. Or an IT database administration. I mean, I’m just falling asleep saying that.
Al: Could you – now, if you’re new to the industry, can you get a job for $60,000 grand?
Joe: Yeah. I think if you have a CERTIFIED FINANCIAL PLANNER™, you can’t get it without any type of experience. So he could do some internships let’s say. And say, hey, you know what? I’m in my 40s. I’m going to be a career changer. I’m just looking to tap into the industry.
Al: Got it.
Joe: And look around Cookerville and see how many registered investment advisors there are. So you could go to RIA and look up RIA In My Area and then I would start cold-calling these people and say, hey, I’m looking to get into the industry. Do you mind if I – can I take you out to lunch? Can I buy you a cup of coffee? How about a Coors Lite? Sit down, chat with you a little bit. I’m studying for my certified financial planning designation. And then you can start networking and getting to meet people. If you just like the job and want to be in it like a planner or an analyst in the background. Sure. Then you could work probably 40 hours a week. You could team up with maybe a really small independent firm and say, hey, I’m looking to work 20 hours a week. I’ll do some financial planning for you. I do this, this and that. Whatever. I mean, you could probably find it if you really work at it. But you’re just not going to waltz into the industry, you know what I mean? At 50 and say, OK, I want to make $60,000 a year, work 20 hours a week, and I’m going to build my boats and I’m going to do this and start making demands. Because it’s a profession.
Al: Yeah, just like any profession.
Joe: We’re trying hard to make it a profession. What’s that book? Malcolm Gladwell, 10,000 Hours to Become an Expert in Anything. So that’s 5 years of continuous work and study.
Joe: Yeah, I got probably 100,000.
Al: I know you do.
Joe: And it’s still terrible.
Al: That’s why we practice it.
Joe: We’re practicing. This is practice for us here.
Al: Yes, it is.
Joe: Jeremy, good luck with that. If you want more, I guess, resources, you know where to find us and hopefully we can point you in the right direction. It’s a phenomenal career, very rewarding in all aspects of the job. So there you go. All right, well, thanks for your questions this week, folks, appreciate you tuning in, writing in, giving us some fodder, some stuff to talk about. Thank you, it’s not all Roth. We’re getting some diversification in the questions.
Al: We are. I like that.
Andi: What kind of questions do you want to answer, Joe? And Al?
Joe: All questions are good.
Al: It doesn’t matter. Anything related to finance. Joe even will answer lifestyle questions.
Joe: I will. I will answer lifestyle questions. I will –
Andi: That’s right. Have you tried the Landshark beer yet?
Joe: I have.
Andi: Or Swing Lube?
Al: Oh, you tried it?
Joe: Swing Lube. That was my recommendation.
Andi: Oh, got it, OK. I thought you said you were going to try it.
Joe: Swing Lube?
Joe: Yes, I drink Swing Lube.
Andi: Got it, OK. So but what do you think about the Landshark?
Joe: Landshark is a very tasty beer.
Andi: That’s all you got to say? We’re going to do a whole segment just based on that?
Joe: Well no. Because I thought people would say, hey, let’s say, Gloria, my name is really not Gloria from San Antonio, Texas, and I like Bloody Marys at 10 o’clock on a Tuesday.
Joe: And then I would be like, OK, here’s my question. We would like to retire on – you know?
Andi: Got it. OK.
Al: I think what you want to hear is what people are doing when they’re listening to our program. That’s why –
Joe: – except for if you’re like having a romantic dinner with your spouse. You just keep that crap to yourself.
Al: Well, like, if you’re cleaning the garage, you can tell us that. Or if you’re having cocktail hour and you like to listen to it, tell us what you’re drinking.
Joe: Yeah, maybe you need a cocktail to listen to this garbage.
Al: Maybe. I would think so.
Joe: OK, that’s it. Thank you, Andi. Great job.
Andi: Thank you.
Joe: Big Al, wonderful. We’ll see you guys next week. The show’s called Your Money, Your Wealth®.
A HUGE Derail about submarines, aircraft carriers, MRI machines, and what a supply chain manager actually does, coming up at the end of the episode.
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