The Debt Ceiling & A New Year Planning Checklist
by SGL Financial
Our 2 Cents – Episode #125
The Debt Ceiling & A New Year Planning Checklist
We have a great retirement planning assessment / checklist for you to kick off the new year on today’s podcast episode! But before we dive into that, we’re discussing the debt ceiling which was on track to be reached Thursday, and what that can mean for the U.S. economy going forward.
- The Looming Debt Ceiling:
- Why the debt is continuing to climb to this limit.
- Why just raising the debt ceiling is difficult.
- So why not just do away with the debt limit altogether?
- And what might happen if this doesn’t get resolved?
- New Year Planning Checklist:
- Do I need to make changes to my planned income this year?
- Should I take Social Security in 2023?
- Do I have a plan to handle market volatility?
- What’s my plan for excess cash this year to help offset the effects of inflation?
- Should I reassess my core financial priorities?
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Podcast Transcript
Announcer: You are listening to Our 2 Cents, with the team from SGL Financial, Building Wealth for Life. Steve Lewit is the president of SGL Financial and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.
Gabriel Lewit: Hello and good morning and welcome to Our 2 Cents. You’ve got today, of course, Gabriel Lewit and Mr. Steven Lewit, cent one, cent two.
Steve Lewit: 2 cents here.
Gabriel Lewit: Here to talk to you about…
Steve Lewit: And the third cent gave the countdown.
Gabriel Lewit: Yeah, so we’ve got, of course, producer Katie in the room.
Steve Lewit: The best countdown ever.
Gabriel Lewit: Who refuses to join the show and give us some of her insights and wisdom. Maybe one day, folks, we keep trying.
Steve Lewit: Miss Mystery.
Gabriel Lewit: But we got a good show lined up for you today. We’re going to talk about something we’re going to attempt to make exciting called the Debt Ceiling.
Steve Lewit: Ugh.
Gabriel Lewit: Because it’s actually important to know about. So stay tuned for that. We’re going to get to that here in just a minute. And then we’re going to talk a little bit about a start of the year checklist. Okay?
Steve Lewit: Right.
Gabriel Lewit: Because we’re still in… At what point do you stop saying, I got a question for you, dad.
Steve Lewit: Yes.
Gabriel Lewit: At what point in the year do you stop saying Happy New Year?
Steve Lewit: January 1st. Second. January 2nd. It’s like it’s done.
Gabriel Lewit: No.
Steve Lewit: It’s over.
Gabriel Lewit: No. Producer Katie.
Steve Lewit: Celebrate and it’s done.
Gabriel Lewit: You’re not on the show, but I’m going to just ask you anyways like you were. What date would you stop saying Happy New Year to people?
Producer Katie: Probably February.
Gabriel Lewit: February 1st?
Steve Lewit: February 1st.
Gabriel Lewit: What do you think folks? It’s a good question, right?
Steve Lewit: Yeah, it is. Yeah.
Gabriel Lewit: Well, happy New Year again.
Steve Lewit: Actually, we have clients coming in and I see them for the first time, and they say happy New Year.
Gabriel Lewit: Would you do that on February 1st?
Steve Lewit: No, I’d be talking about taxes. Happy New Year gets replaced.
Gabriel Lewit: Well, so my point…
Steve Lewit: How much am I going to have to pay in taxes?
Gabriel Lewit: My point in all that was you have a certain amount of time where you can do a New Year checklist before time runs out. Similar to time running out saying Happy New Year.
Steve Lewit: Now, is a checklist the same as a resolution?
Gabriel Lewit: Well, this is different than resolutions. I think last year we did resolutions.
Steve Lewit: Yes.
Gabriel Lewit: I don’t remember for sure.
Steve Lewit: I think we did.
Gabriel Lewit: But this year I didn’t want to do the same as last year. So brainstorming here, we thought about a new year planning checklist for…
Steve Lewit: What is…
Gabriel Lewit: For you out there, our valued listeners.
Steve Lewit: Well, let’s clarify. What is the difference between a resolution and a checklist?
Gabriel Lewit: Well, that’s very easy, actually.
Steve Lewit: Okay.
Gabriel Lewit: Resolution. You’re resolving to do a certain thing and a checklist is recommended, but you have not made the resolution. You could make a resolution to do the checklist.
Steve Lewit: Yes. I see. Yes.
Gabriel Lewit: You see what I’m saying?
Steve Lewit: Yep. Yep. Okay. So I have the checklist and my resolution is I’m going to go through the checklist.
Gabriel Lewit: Yes, sir.
Steve Lewit: And actually see if I check out.
Gabriel Lewit: So, we might get both a checklist and a resolution here today. We’ll see.
Steve Lewit: Okay. Okay.
Gabriel Lewit: We’ll see how the cookie crumbles.
Steve Lewit: All right.
Gabriel Lewit: All right, so to kick things off though, based on basically timeliness is why we’re talking about this, the debt ceiling.
Steve Lewit: Yes.
Gabriel Lewit: We’ll talk a little bit about what it is in just a second here, but the point is that the debt is set to hit that debt ceiling this Thursday.
Steve Lewit: Yes.
Gabriel Lewit: And there are potentially bad consequences if it does.
Steve Lewit: Yes.
Gabriel Lewit: Okay. So I know Mr. Economist here, Steven Lewit extraordinaire, he has…
Steve Lewit: Are you’re catering to my ego?
Gabriel Lewit: Some background on such topics such as the debt ceiling.
Steve Lewit: Yes.
Gabriel Lewit: Would you like to give a short introduction onto what this is for people that aren’t familiar with it?
Steve Lewit: It is very, very simple. It’s simply a law that says there’s so much money that the U.S. can borrow and they cannot borrow… It’s like a credit limit on your credit card. If you got a $10,000 limit on your credit card and you try to spend 11,000, they’re not going to let you do it.
Gabriel Lewit: Well, yeah.
Steve Lewit: So, the government has a cap on borrowing of $31.4 trillion and we are right up against that. And once it reaches that limit, it can’t borrow money to pay bills. So it uses something called extraordinary measures. And I’ve never really dived into what they are, but that allows them to reallocate funds that allow them to keep paying bills. But what happens is eventually those measures run out and then you cannot pay your bills. And just like a consumer, if you can’t pay your bills, your credit rating goes down.
Gabriel Lewit: Bad things happen.
Steve Lewit: If we can’t pay the interest… The debt is 31.4 trillion. The interest on the debt I think is about 440 billion dollars. And you have to pay the interest on the debt.
Gabriel Lewit: Well, and some of these, the questions I’m going to ask you here, I could explain and I know the answer to, but rhetorically, and to make a little more engagement here in the topic, I’m going to ask you some of these questions and I’ll give you the chance to kick off the answers here.
Steve Lewit: But we’re not going to do a grading system.
Gabriel Lewit: No, no. We’re not going to…
Steve Lewit: You’re not going to say I got an A, B, C, or D.
Gabriel Lewit: No, no.
Steve Lewit: We’re not going to do that.
Gabriel Lewit: We’re just doing a discussion today. No test.
Steve Lewit: So, no test today.
Gabriel Lewit: So, the question is why is the debt increasing to the point where it’s reaching the debt ceiling?
Steve Lewit: It’s just like any other debt. We spend more than we make.
Gabriel Lewit: Right. It’s called deficit.
Steve Lewit: It’s very, very simple. In many ways, it’s like a consumer debt. The only difference is the government has the ability to borrow and print money, whereas a consumer doesn’t, but otherwise, it’s exactly the same. If you spend more money than you make, you go into debt. And we spend a lot more money than we make. The GNP, the gross national product, the debt is 25% more than the gross national product. So the debt is 25% more than what we produce. In 1955, ‘57, I don’t remember the exact date, the debt was 25% of what we produce. So it was a lot more manageable. And as the years have gone by in different administrations, everybody likes spending because that’s what gets them voted. So even Republicans and Democrats have increased the debt, the spending, and increased the debt.
Gabriel Lewit: Yeah. So there’s a problem here because the debt is going up.
Steve Lewit: Yes.
Gabriel Lewit: The debt ceiling is capped.
Steve Lewit: Yes.
Gabriel Lewit: It seems like it should be simple. You would just raise the debt limit. But it isn’t that simple, which is why this is making the news right now. So in recent years, not even recently, I mean 20 plus years or so, it seems to be a battle every single time the debt limit needs increasing.
Steve Lewit: It depends on the party in power. When the Dems are in power, they want to spend and whenever, and Republicans don’t want to raise the debt ceiling, and they make a big stink over it and vice versa. And then when they get elected, they say, we’re not going to spend, but they do. So it’s kind of, it’s politics.
Gabriel Lewit: So, it’s turning into basically a political match every single time this deadline approaches, as opposed to historically in older times it was almost just a default, “Okay, let’s raise it.”
Steve Lewit: Yeah. Older times would be when I was younger. That would be older times.
Gabriel Lewit: Well, I would’ve been younger too.
Steve Lewit: Oh, you would’ve been unborn younger. Yeah. Yeah. So it used to be automatic because look, you got to pay your debt. But now there’s different economic theories about this. There are economic theories that say the debt’s not a problem.
Gabriel Lewit: Well, one of the questions here is why don’t they just eliminate the debt ceiling?
Steve Lewit: Well, because why would somebody give you a credit card with no credit limit when you have no income or very low income? It’s the same thinking.
Gabriel Lewit: Some control mechanism?
Steve Lewit: Yeah, most countries don’t have a debt ceiling. They just can do whatever they do. And that is an ingredient, it’s a free card to spend. So that’s not good either. But at the same time, if politics get in the middle of this, because Dems are screaming, Republicans now are screaming, “Oh, cut expenses, cut expenses, cut expenses.” When the Republicans got in on that same theory that the last administration had spent, they increased the deficit more than almost as much as Obama increased the deficits. So it’s like both sides are speaking out of the other side of their… With forked tongues.
Gabriel Lewit: Forked tongues.
Steve Lewit: Forked tongues. We got forked…
Gabriel Lewit: Nice way of saying that.
Steve Lewit: We’ve got forked tongue politics.
Gabriel Lewit: Yeah.
Steve Lewit: Say that quickly a few times. But what’s really dangerous for us and consumers is that if you can’t borrow money, if you can’t pay your bills, then what do you do? You got to shut down the government, or you’ve got to… Or you get defaulted or you get a credit rating, that borrowing goes down, the dollar becomes worth less. And that’s not good.
Gabriel Lewit: Not worthless. Worth less.
Steve Lewit: Worth less. Yeah.
Gabriel Lewit: Yeah. So there’s definitely some concern about what would happen if this doesn’t get resolved. The good news is traditionally the two parties end up hammering something out, but it still is always newsworthy and something to pay attention to. So if you hear a little bit more now on the news about the debt ceiling, perhaps you’ve got a little further glimpse into what that means and what it’s all about.
Steve Lewit: Yeah, I think it goes further than that, Gabriel, because we believe because there is a debt ceiling and because there’s so much money being spent and because interest rates are rising and because the interest on the debt is rising, that taxes will go up in the future. And that creates another part, of saying what are you doing in your investments, especially your qualified funds, which are IRAs and 401Ks and 403Bs, to protect the value of your investments if taxes go up in the future. And that’s another topic that I just want that to put that in there.
Gabriel Lewit: Well, they’re all interlinked. And part of what we always talk about with finance and retirement planning, investment planning, all these parts are always linked together. The stock market is linked to economics. Economics is linked to political policies. So many things in this industry, in this field, are linked and integrated together.
Steve Lewit: Well, just like in our business, if you take a holistic approach, you get a healthier result. If you just focus on the debt and then forget about the fact that the infrastructure of the United States is falling apart, you know, you got to take a holistic approach to be… Just like with your health. To be healthy, you got to take a holistic approach, I think.
Gabriel Lewit: Yeah. All right. Well thank you, Mr. Economist.
Steve Lewit: You’re very welcome.
Gabriel Lewit: We appreciate your joining us for the show.
Steve Lewit: I’ll send my bill by mail.
Gabriel Lewit: My producer Katie said that you were joining us free of charge today.
Steve Lewit: Oh, was this…
Gabriel Lewit: Economist Lewit.
Steve Lewit: Was this pro bono? Hey, when I put my economist hat on, I get a fee, don’t I?
Gabriel Lewit: Well, I do think we gave you a free coffee right, here today?
Steve Lewit: Yeah, we did.
Gabriel Lewit: Yes. Okay, excellent.
Steve Lewit: Also, cookies from Ukraine.
Gabriel Lewit: We pull out all the stops here.
Steve Lewit: Folks, we have Ukrainian cookies here. They’re really good.
Gabriel Lewit: Well, that’s a story for a different day. But moving on to our next episode.
Steve Lewit: Did you try the rum balls that one of my clients made?
Gabriel Lewit: I did not.
Steve Lewit: You have to try the rum balls.
Gabriel Lewit: I don’t know if they’re still good.
Steve Lewit: They’re still good.
Gabriel Lewit: When does a new year holiday cookie go bad?
Steve Lewit: I think there’s only one left.
Gabriel Lewit: I’ll save it for you. All right, so let’s talk a little bit about a new year checklist. So many things are always floating around in your financial world, I’m sure. Some of them as anything, imagine you’ve got a personal life to-do list. Well, I don’t know if you do like mine, it’s very long. I never get to all of it. Well, we all tend to have a financial or retirement or investment checklist. And just like everything else, we probably don’t have time to get through it all as well.
But periodically it can be a good idea to review it together with us or by yourself and see if there’s anything that jumps to the forefront as being a higher priority. Or as you said earlier, Dad, someone could make a resolution to tackle all these this year and make sure that they are making good progress and headway on their to-dos on the financial side of things, or just to check in on everything.
Steve Lewit: Did you make this list? It’s a good list.
Gabriel Lewit: Of course.
Steve Lewit: Yeah, it’s really good.
Gabriel Lewit: Well, thank you.
Steve Lewit: Folks, this is a really, really, really good checklist that Gabriel…
Gabriel Lewit: I mean I…
Steve Lewit: …put together.
Gabriel Lewit: I did have a friend named Google, as well as a little bit of what’s in my brain.
Steve Lewit: You mean you cheated?
Gabriel Lewit: You mean I research things for the show?
Steve Lewit: Research, research, right.
Gabriel Lewit: That’s crazy talk.
Steve Lewit: Yes. Yeah. Yes, I do.
Gabriel Lewit: Okay, well, so also just a note, many of you clients of ours, you know this. We get together in the early parts of the year, usually sometime in the first three or four months of every year. And during that time we might review many goals for the year. So some of these come from that list. Things like, number one, do I need income this year? This is a very easy question, right?
Steve Lewit: Yeah, it sounds like, well, of course. But every January folks, we have cashflow meetings with you to figure to make sure that you have the income that you need. Now to know that, you need to know your budget. So do you have budget on this checklist?
Gabriel Lewit: Well, this related to this number one.
Steve Lewit: Oh, okay.
Gabriel Lewit: It’s not a standalone item, but yeah, let me elaborate on that as well. So 12-31 of last year, ticks over, it’s now January 1st.
Steve Lewit: Happy New Year.
Gabriel Lewit: Happy New Year. The question is, okay, do I need to… Looking ahead for this year, 2023, do I need to make any adjustments or changes to my planned income? Now this is pretty easy if you’re working because you probably have a salary still, I would assume. I would hope.
Steve Lewit: Yes.
Gabriel Lewit: Now you could ask yourself even questions there such as, do I get a raise this year? Should I get a raise this year? Should I talk to my boss about that? But when you’re retired, it’s a little bit different. The question is, you likely have a certain amount of income you’re receiving each month, and sometimes that can shift and change.
For example, we have certain clients that are waiting to start social security. We’ve got clients that are switching income from different buckets of accounts.
Steve Lewit: Yes.
Gabriel Lewit: We’ve got clients that maybe were going to retire halfway through the year. So what you’re wanting to check on here is what is my income plan for this year and is there anything I need to pay attention to if that’s going to be shifting around or moving bits and pieces here and there? So I can map out where my income’s going to come from this year. And you were asking about budgets, your budget’s of course, a big part of that.
Steve Lewit: Yeah. So what we find folks is most of you have an idea of what you spend, but I’ll tell you, many conversations that I have, Gabriel, are “I’d like to spend more. I want to have some more fun or I’m so used to being frugal. I don’t want to live my retirement being frugal. I want to feel at ease. I want a certificate that says… Like a hall pass. It says yes, you can spend a little bit more money.”
Gabriel Lewit: Free to spend.
Steve Lewit: Right. So that’s all cash flow planning and where you need to know your budget. And then you need to know, as you said, Gabriel, where is this money coming from?
Gabriel Lewit: And look, for some of our clients out there, some of you listening to the show, it might already be on what we call autopilot.
Steve Lewit: Yes.
Gabriel Lewit: Okay. So if you’re already taking your RMDs on autopilot, if you’ve got a monthly paycheck from social security that just comes in and that’s on autopilot and you’ve got your pension and that’s on autopilot and you’ve got a systematic distribution that you know is going to last the full year and that’s on autopilot.
Steve Lewit: Or an annuity.
Gabriel Lewit: Yeah. You may not have any changes here, but many people do fall into that category where it’s going to be shifting and moving around. Or to your point, maybe you want to spend more this year or you feel like you need more because inflation’s ticked up. So all of these things go into planning for your income for the year. And that’s really why that’s number one, because you want to have that plan mapped out now, not at the end of the year.
Steve Lewit: And folks, there are tax implications. Did I say that…? Tax implications.
Gabriel Lewit: Implications.
Steve Lewit: Implications to how you take your income, whether you take it from an IRA, from non-qualified funds. Maybe you inherit. Like I had a client the other day, Gabriel, that inherited some money. It’s all sitting in cash. So we’re going to use that money this year because it’s already in cash. I had another client who’s rental income went down because they made some changes. I won’t get into that, but those are the kind of things that you want to take care of in January.
Gabriel Lewit: Yeah.
Steve Lewit: February. Just make sure. And the point is so you have peace of mind for the rest of the year.
Gabriel Lewit: Well, yeah. And I use this analogy a lot. You’re going on a road trip this year in your car, okay, 12 months, and you should probably know where you’re headed. Well that’s kind of mapping out your journey and that’s your income in this analogy. You want to map out your income so you know where it’s going to come from each and every month ahead.
Steve Lewit: I wish you hadn’t used the analogy of a car.
Gabriel Lewit: Why’s that?
Steve Lewit: Because now I’m thinking about the car I want to buy that you don’t think I’m going to buy.
Gabriel Lewit: Folks, in case you’re wondering, Steve and I have a bet that he’s going to not buy a certain car that he says he is going to buy when his lease comes up.
Steve Lewit: I’m going to buy it.
Gabriel Lewit: We’ll see. We’ll tell you more about that in another time.
Steve Lewit: In another session.
Gabriel Lewit: Well, so number two is actually very close… Number two on our list, very close to number one, but it’s related. If you have not yet taken your social security… Very, very typical question I get in start of the year meetings or early in the year meetings is “Gabe, should we take it this year? What do you think?” Even if a client has thought that they were going to wait till 70 or 67, usually at some point it pops up. If they’re waiting, what do you think? Should I still wait, or should I continue to, sorry, should I continue to wait, or should I take that this year?
Steve Lewit: Yeah. And that’s very individual decision based on the amount of assets you have, based on your income shortfall for the year, where all the money is coming from. So there’s no hard core answer to that, Gabriel.
Gabriel Lewit: Well, it’s interesting. There are some, I think, rules of thumb and what I find is very reminiscent of what I actually tell people early on. So I do have clients that come to us and they haven’t taken social security and they are very adamant that they’re going to wait till 70. And we go through this whole conversation about pros and cons. And I tell people, in general, if you’re going to be withdrawing say 30,000 a year this year from your investment accounts, when you could be getting that from social security, most of the time the financials actually say you should draw from Social security instead of depleting your investment account.
Steve Lewit: Especially if they’re down.
Gabriel Lewit: Especially if the market’s down.
Steve Lewit: Which they are.
Gabriel Lewit: And so what’s interesting is I’ll have people initially be like, “Gabe, no, wait till 70. I’m going to wait till 70.” And then the reason it pops up is because when it comes time looking ahead this year to say, wait a second, I have to pull $30,000 from my investment accounts this year? Maybe I do want to start social security. And it’s kind of interesting because that’s kind of real life psychology that I get to see that a lot of people don’t initially see themselves. I see that with other people. It just tends to happen over time. So maybe this year you were planning on taking from your portfolio, but the market was down last year, you have social security as an option to kick in. If you’re curious about whether or not you should do that, we should get together and we should talk about it.
Steve Lewit: Absolutely. Especially when the market is down.
Gabriel Lewit: Yeah, well, yep.
Steve Lewit: Absolutely. I have a bias here, Gabriel, because I don’t believe in waiting till 70. Because I say it takes nine, 10 years to break even.
Gabriel Lewit: No, it’s longer than that. And we’ve talked about that.
Steve Lewit: 12 years? Nine. Well, I thought it was nine, 10. All right, straighten me out here. Straighten me out here, son.
Gabriel Lewit: Okay, pops. Well, yeah. So if you take it at, from what age and what age? 70 versus what age?
Steve Lewit: Full retirement age.
Gabriel Lewit: Versus 67?
Steve Lewit: Yeah.
Gabriel Lewit: It’s around a 10-year breakeven, but that doesn’t include opportunity costs.
Steve Lewit: Okay, I agree.
Gabriel Lewit: Okay.
Steve Lewit: Yeah.
Gabriel Lewit: So, the true breakeven if you will, is actually much longer than that. So in other words, from that period of time, 67, 68, 69 through 70.
Steve Lewit: You lose three and a half years of…
Gabriel Lewit: If you’re drawing, let’s say $30,000 a year for three full years, you just took out of your investments, and while the market’s down, mind you right now, a hundred thousand dollars. Okay? So not only is there the standard breakeven, right, between getting higher payments to make up for that a hundred thousand that you took out, but also what would that a hundred thousand have grown to…
Steve Lewit: Over the 10 years.
Gabriel Lewit: Over the next 10 years had you not withdrawn it? And that’s always missing from all calculations you read when you hear about this, everybody who conveniently forgets about it, that actually pushes back that breakeven point almost 15, 16 years depends on what the money would’ve been invested in.
Steve Lewit: Yeah, that’s really an important point.
Gabriel Lewit: So, imagine the rule of 7.2, which says money doubles every 10 years, so that a hundred thousand that you took out, if you earn 7.2% would then be worth another a hundred thousand dollars 10 years later. So you’re really making up for $200,000 from your higher social security payment, not just $100,000.
Steve Lewit: So, you won’t see the benefit of that until you’re like 85 years old.
Gabriel Lewit: In some cases, 90.
Steve Lewit: And who cares at that age? It’s like, I’m just happy to get up and have a good day.
Gabriel Lewit: So, it’s interesting when you start to really delve into the math, sometimes the light goes off and people say, “Oh yeah, why am I doing that?”
Steve Lewit: Well, it’s because you see a lot of information on your friend Google that says, wait until 70, it’s going to really pay off for you.
Gabriel Lewit: Yeah. It’s kind of like a parroted line that everybody takes, but nobody ever thinks about.
Steve Lewit: What do you got next?
Gabriel Lewit: Well, Mr. Lewit.
Steve Lewit: Yeah.
Gabriel Lewit: Coming up on item number three, our checklist for the new year, retirement preparation financial planning checklist, is have you come up with a plan, if you haven’t already, which I hope you have, to handle the current market volatility that we are still experiencing and right in the midst of?
Steve Lewit: Yeah, so well, if you’re our client, you have a plan. I think this is so important for finances and peace of mind. Gabriel, I had a client in yesterday that said, “Well, what was your performance last year?” And it was like, well, we were down last year because… We were down less than most people, but we were down. And she said, “What do you think your performance will be this year?” And it’s like, look, I don’t know. Investing is not a short term… So it’s a headset.
Gabriel Lewit: I can tell you what our performance will be this year.
Steve Lewit: Up or down?
Gabriel Lewit: No, no, I was going to say, it’ll be better than some and worse than others.
Steve Lewit: Worse than others, yeah. Exactly.
Gabriel Lewit: Depending on the asset class, you’re like, why do I know that? Because we blend 20 plus asset classes together, so you’ll never be the worst or the best. You’ll have a mix of all of them.
Steve Lewit: So that helps prepare for volatility because you have an efficient portfolio, but also when you put time on your side, volatility becomes less important. And if you have your income earmarked differently from just pulling it out of the market, volatility becomes even less important in retirement. So the way to handle is have a good plan.
Gabriel Lewit: Yep. So this could be an entire topic naturally, but the question I want you to think about here, if you haven’t yet already, or if you’re a client of ours and for some reason you are concerned…
Steve Lewit: Yeah, come and talk to us.
Gabriel Lewit: Most of our clients aren’t because of the planning we do. But every now and then someone say, what did we do again? And it’s good to review that, but if you are asking yourself, “Man, what’s my plan this year to handle the volatility we saw in 2022 and whatever’s going to happen in 2023?” A lot of people are concerned that there’s going to be a recession and that a recession is going to trigger more challenging market conditions. So if you have doubts here, worries, then you want to come up with a plan or review your plan. And we can certainly help you with that.
Steve Lewit: I had a client last week that asked me that question about a recession and I said, can I be very honest with you? I have no idea. I don’t know. And she said, “Well, you’re a professional. Shouldn’t you know?” And I said, well, I guess I’m not that good of a professional. My crystal ball isn’t that good.
Gabriel Lewit: Well, we deal in terms of probabilities in this business more than absolutes.
Steve Lewit: Yes.
Gabriel Lewit: It’s similar to the thought that came to mind… I was watching a movie the other day where the President of the United States was asking his, I don’t know, national security team, they’re going to go do some raid or something like that. “I just know so-and-so’s going to be there.” And they’re like, “Sir, we don’t deal on absolutes. We deal in probabilities.” Right? They don’t know if some high level targets in a building. They think they might be a pretty good chance.
Steve Lewit: High probability.
Gabriel Lewit: I don’t know why that… I just was watching a movie, so that’s what popped in my head. But that’s kind of the idea here. Is there a high probability of a recession? Yeah, there could be because there’s a lot of warning signs flashing on the dashboard. But funny enough, there’s also a lot of counter warning signs saying everything’s okay. So that’s an interesting question.
Steve Lewit: Absolutely. Yeah. Yeah.
Gabriel Lewit: Okay, next checklist item.
Steve Lewit: Yep.
Gabriel Lewit: I’ve got for you here today is what’s my cash plan for the year?
Steve Lewit: Well now is that… We already talked about spending.
Gabriel Lewit: I’m not talking about spending money. What’s my plan for my excess cash?
Steve Lewit: Ah, okay.
Gabriel Lewit: This year?
Steve Lewit: Okay.
Gabriel Lewit: Okay?
Steve Lewit: Yeah. And we are finding folks, a lot of people have a lot of cash sitting around.
Gabriel Lewit: This is why I’m bringing it up because especially in years of choppiness, like last year, it’s common to be sitting on lots of cash. Early parts of last year, interest rates, quite frankly, stunk. So most people were fine sitting on lots of cash, earning very little. And nowadays, a lot of people are still earning lots of cash in accounts that are paying very little. But there’s a lot of new options that have changed that should be absolutely explored in our opinion.
Steve Lewit: Absolutely. So look, you go on the internet, you go to bankrate.com or go to different savings accounts and see what kind of interest rate you get on your cash. Just don’t go into the bank and buy a one-year CD at 2.3%. Well for example, Gabriel, we now have access to cash funds that are paying, what was it, 4%?
Gabriel Lewit: It’s a FDIC insured money market account. It’s a floating rate, but it’s currently paying 4.15%.
Steve Lewit: 4.15%, totally liquid. So those are the kind of things…
Gabriel Lewit: It’s a bank program, it routes through other banks, but its advisor driven through our system, and we help you get it set up. And the point is, if you have it in your checking account earning 0.01, which those rates haven’t changed much, you’re just losing money every month.
Steve Lewit: Or if you’re the kind of person that likes to have a hundred grand on hand because you just like to have a hundred grand on hand, don’t keep it in your checking or a low interest rate savings account. Call us or go on the internet and use one of the internet banking sites because you’ll get a three…
Gabriel Lewit: Yeah, don’t earn a hundred dollars this year on that money, earn 4,000.
Steve Lewit: Exactly.
Gabriel Lewit: Right.
Steve Lewit: Exactly.
Gabriel Lewit: Yeah.
Steve Lewit: Watch your cash because it kind of sits there and nobody wants to touch it because it’s cash. But that should be a productive asset for you, not just something to give you a comfy blanket.
Gabriel Lewit: Right, exactly. So that was our fourth item here. Our fifth and final one for today, just because… There’s more here, we could actually come up with probably 30 checklist items, but I’ll give you our top five here today is reassessing your core financial priorities. And now this is part of building a plan, but it’s a more particular part of a plan. And I like to mention it very explicitly because priorities shift and change.
And I was just having a conversation even yesterday with a client in a review and she was saying to me, she needs more income. And we talk about there’s five core priorities: income preservation, liquidity, tax efficiency and legacy. So I was explaining this, I said, “So it sounds like your priority has shifted now from just preserving your money to income. And if that’s the case and the focus is income, we could optimize your plan towards that goal.” Because different solutions are optimized towards different goals. And so if you’re thinking that your priorities have potentially shifted, then you might want to review how that fits into your plan.
Steve Lewit: And we come up with this… When we visit with you folks for an annual review or quarterly review, Gabriel and I are always looking, even though you may not even know it yourself. I had a client, I don’t know, three or four months ago, five years ago, they had no interest in leaving money to their kids. I mean none. It was like, no, I’m going to die spending my last nickel. Now they are fortunately still alive. They have no idea when they’re going to pass away and they have an awful lot of money. And all of a sudden it’s like, “Hey, we’d like to give this money to our kids and set up college funds for our grandkids.”
Gabriel Lewit: The priority has changed.
Steve Lewit: And the priority has changed. So now we got to make an adjustment to your plan.
Gabriel Lewit: Yeah, that’s the idea. And it’s good to check in on that. It’s good to review that. It’s good to reassess how you’re feeling about these things because once you make a change in your priority like that, the recommendations that we, as your advisor, whereas advisors would make, we also shift along with that priority change.
Steve Lewit: Definitely.
Gabriel Lewit: Yeah.
Steve Lewit: Definitely very important.
Gabriel Lewit: So, let’s recap here. We have a couple of key checklist items for the year. Do you have an income plan mapped out for this year, month by month? If you’re thinking about starting social security, when are you going to take that? Do you have a plan for this year’s market volatility that may continue or recession that may pop up? Do you have a plan for your cash so that you’re keeping up with and or beating inflation and making real money on your cash instead of sitting idle? And then have your core priorities shifted or changed? And if so, has your plan shifted or changed around those?
Steve Lewit: That’s a great list.
Gabriel Lewit: And so, folks…
Steve Lewit: And now…
Gabriel Lewit: And now, let me give you our contact information. So in case you’re ready to talk with us about those.
Steve Lewit: I was going to say, and now you need to resolve to go through the list.
Gabriel Lewit: Oh yes. Resolution, yes to do said things here on today’s podcast. So okay, give us a call if we can help in any way. 847-499-3330 or go sglfinancial.com, click contact us and or email us at info@sglfinancial.com and let us know what questions you have so we can answer them on the show, any ways that we can help you, schedule a time to talk to us. But otherwise, we are just wishing you a very happy and wonderful week.
Steve Lewit: Stay well to everybody.
Gabriel Lewit: Talk to you next time.
Steve Lewit: Bye-bye.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847) 499-3330 or visit us on the web at sglfinancial.com and be sure to subscribe to join us on next week’s episode.
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