Retirement Planning Challenges for the Wealthy
by SGL Financial
Our 2 Cents – Episode #154
Retirement Planning Challenges for the Wealthy
Those who have accumulated significant wealth face unique challenges and opportunities when planning for retirement. Do you know at what value of assets someone would be considered a high-net-worth individual? The amount may surprise you! Listen in today as Gabriel and Steve dive into the distinct strategies and factors that come into play when the wealthy plan for retirement.
- Getting to Know Steve and Gabriel:
- If you were a world famous gardener but could only plant one plant, what would it be?
- Do you hit the snooze button or wake up immediately?
- Retirement Planning Challenges for the Wealthy:
- What is a high-net-worth (HNW) individual?
- What makes a HNW plan a little more complex?
- How is the tax impact different for HNW individuals?
- Are there any differences or similarities in how higher net worth clients tend to invest their money?
- How do HNW individuals handle their estate planning items?
- What are some myths out there about retirement planning for HNW individuals?
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Podcast Transcript
Announcer: You’re 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: Well, hello, and welcome to Our 2 Cents today. We’ve got Gabriel here, of course, Mr. Steven Lewit, the spectacular.
Steve Lewit: The wonderful.
Gabriel Lewit: And the-
Steve Lewit: And spectacular.
Gabriel Lewit: … one and only producer Katie, running the show behind the scenes.
Steve Lewit: Behind the curtain.
Gabriel Lewit: Welcome one and all to our show here today. We’ve got an excellent one lined up for you. Now, I can’t say what I want to say for next week yet.
Steve Lewit: No, that’s a secret. Why did you-
Gabriel Lewit: For a Halloween special.
Steve Lewit: Why did you bring that up?
Gabriel Lewit: I’ve got some fun things saved up for that for our Halloween show next week.
Steve Lewit: Is that a teaser?
Gabriel Lewit: It is a teaser.
Steve Lewit: Yeah.
Gabriel Lewit: So, you got to stay tuned, and you got to come back for that one. It’ll be, dare I say it?
Steve Lewit: Scary.
Gabriel Lewit: Spooktacular.
Steve Lewit: Oh, thought-
Gabriel Lewit: Spooktacular.
Steve Lewit: Oh, spooktacular. I thought you were going to say scary.
Gabriel Lewit: No, it’ll be entertaining. Scary? Nah, none of that.
Steve Lewit: Yeah.
Gabriel Lewit: Well, we have a deeper dive today. We sometimes rotate through some different topics. Sometimes we also do deeper dives where we talk in more depth about a specific topic. And that’s what we’re going to do today, we’re going to talk about high net worth planning and what changes for high net worth individuals. What is a high net worth individual? Maybe you are one, you don’t even know it. We’re going to get into some of those here in just a moment. But because that’s going to take up the majority of our show here today, I wanted to start off with one of our favorite things to do, which is of course, get to know Steve and Gabriel.
Steve Lewit: No, this was not the plan.
Gabriel Lewit: It is indeed the plan, and it’ll just take us a fun second here.
Steve Lewit: Wait a second.
Gabriel Lewit: I’ve got a very serious question to start off asking you with.
Steve Lewit: I did not agree to this.
Gabriel Lewit: Are you ready for the serious question?
Steve Lewit: Okay, let’s go.
Gabriel Lewit: If you were a world-famous gardener, and you could only plant one plant.
Steve Lewit: Yes.
Gabriel Lewit: What plant would you plant?
Steve Lewit: Tulips.
Gabriel Lewit: Tulips.
Steve Lewit: Tulips.
Gabriel Lewit: Why?
Steve Lewit: I love tulips.
Gabriel Lewit: I wasn’t expecting that.
Steve Lewit: Well, of course not.
Gabriel Lewit: Out of all plants in the whole world. You could also pick fruits or vegetables.
Steve Lewit: No, tulips. If you go to the botanical gardens, they have a hill of tulips every year. It looks like a Monet painting.
Gabriel Lewit: They can be very pretty.
Steve Lewit: I love tulips.
Gabriel Lewit: Very cool.
Steve Lewit: Yeah. The colors, you get them in different colors.
Gabriel Lewit: I’m going to get crazy here.
Steve Lewit: All right.
Gabriel Lewit: What would be the second thing you would plant?
Steve Lewit: Small tulips. Have large tulips and small tulips.
Gabriel Lewit: Well, that’s not…
Steve Lewit: Now I got to think about that. The second thing I would plant, what would I like? Oh, I don’t know. I have a ponytail in my office, which I love.
Gabriel Lewit: A what?
Steve Lewit: A ponytail. I
Gabriel Lewit: I don’t know what you’re talking about.
Steve Lewit: You got to go look in my office.
Gabriel Lewit: You have a little tree in your office.
Steve Lewit: That’s called a ponytail. Not the little money tree on my desk.
Gabriel Lewit: I don’t know what else you’re talking about though. I know about the money tree that we plant. And that’s not a metaphor for us planting money trees for you guys. He actually has a little tree, little plant called the money tree.
Steve Lewit: That was dying, and I nursed it to health. No, in the corner of my office is a big leafy thing.
Gabriel Lewit: Oh, I know what you’re talking about.
Steve Lewit: It looks like a ponytail.
Gabriel Lewit: I guess I could see it. I guess I could see it.
Steve Lewit: And I think they’re beautiful, but I don’t know if that would be the second one. I have to think about the second one. I’m stuck on the-
Gabriel Lewit: We’ll circle back to you.
Steve Lewit: All right, what about you?
Gabriel Lewit: Oh, very, very easy. It would be blueberry bushes.
Steve Lewit: Really? You like blueberries?
Gabriel Lewit: I love blueberries, and I love picking them off of the bushes.
Steve Lewit: Really?
Gabriel Lewit: Nice summer, warm day. When I was a kid, we used to go hiking places, and I had to verify they were blueberries first. Of course, wild blueberries on different hikes that I would go on, and they were phenomenal.
Steve Lewit: I could taste them right now.
Gabriel Lewit: Delicious.
Steve Lewit: Yes.
Gabriel Lewit: Yeah, if I could just walk outside and I had rows and rows of fruit bushes, I wouldn’t even have to go to the store. I’d be very excited.
Steve Lewit: Yeah, you could squeeze them into wine.
Gabriel Lewit: Blueberries? I don’t know about that.
Steve Lewit: There must be, I can picture you stomping on blueberries with bare feet.
Gabriel Lewit: I think you’re thinking of grapes, but yes.
Steve Lewit: Well, maybe there’s blueberry wine.
Gabriel Lewit: I don’t think so.
Steve Lewit: All right.
Gabriel Lewit: Okay, next question.
Steve Lewit: There’s more.
Gabriel Lewit: This is a simple one.
Steve Lewit: There’s more.
Gabriel Lewit: Okay. Do you hit this snooze button or wake up immediately?
Steve Lewit: Neither.
Gabriel Lewit: What do you mean neither?
Steve Lewit: I don’t set my alarm clock.
Gabriel Lewit: Oh. Trick question.
Steve Lewit: Trick question.
Gabriel Lewit: Trick answer.
Steve Lewit: Oh, you bet, man.
Gabriel Lewit: Oh wow, look at you. Natural alarm, huh?
Steve Lewit: Natural alarm. Five o’clock.
Gabriel Lewit: Do you ever naturally hit the snooze button?
Steve Lewit: Never.
Gabriel Lewit: And just fall back and then wake up later?
Steve Lewit: Four to five in the morning I’m up.
Gabriel Lewit: Okay.
Steve Lewit: Yeah. I write for an hour and a half, go to sleep… Oh, well. Okay. So now when I go back to sleep, because it’s really early, I do set an alarm. I never hit the snooze button.
Gabriel Lewit: Interesting.
Steve Lewit: Because I go back to sleep for an hour and a half or two hours.
Gabriel Lewit: Look at you. Look at you.
Steve Lewit: Yeah.
Gabriel Lewit: I’m a snoozer.
Steve Lewit: Oh, are you?
Gabriel Lewit: Always.
Steve Lewit: Yeah.
Gabriel Lewit: Every time. As much as I can.
Steve Lewit: It’s like, keep pushing that button.
Gabriel Lewit: Keep pushing. Must drive my wife crazy.
Steve Lewit: Just another 10 minutes.
Gabriel Lewit: Just 10 more minutes.
Steve Lewit: I’m getting up honey, don’t worry about me.
Gabriel Lewit: Worse is when I get ambitious, I’m like, I’m going to get in early and go do something or go to the gym. So I set it at six o’clock.
Steve Lewit: Yeah, by nine you’re out.
Gabriel Lewit: And then by 7:12, 7:20, I’ve hit the darn thing seven times. Yeah.
Steve Lewit: Don’t kick me again, honey. I’m getting up.
Gabriel Lewit: Okay.
Steve Lewit: All right.
Gabriel Lewit: Well, we hope you enjoyed getting to know us here, that was a little bit of fun here for you. We’re going to dive into the world of high net worth individuals now, and of course there’s lots of different challenges here. But I think the first challenge is describing, what is a high net worth individual, Mr. Lew?
Steve Lewit: Big question. Yes.
Gabriel Lewit: I’ll let you take point on this and then we’ll get into the specifics here of some of the planning tips that we’re going to talk about. Some of the myths that I think are there about planning when you’re a high net worth individual, and then some of the tips and strategies that you might want to consider.
Steve Lewit: Yeah. When I say high net worth to people, I ask them. I say, “When I say the words high net worth you, what do you think?” “Oh, I think of people that have like $20 million or $30 million.” And it’s like, really? When I talk to people that have $10 million and I say, “Do you know you’re high net worth?” They’ll say to me, “Really? Am I really high net worth?” So the question of who is high net worth is really an interesting question. The numbers say that if you have a million bucks, that you are in the top 4% of people in the country. So you are high net worth, as far as I’m concerned.
Gabriel Lewit: Let’s see here. While you’re talking some more, producer Katie, let’s Google something here. I don’t know if you know this, folks. We’ve got a nice TV and internet access set up here, so we can Google things on the fly. Let’s say, what’s the top 1% net worth? Let’s see what Google says for us here. You said 4% has over a million?
Steve Lewit: Mm-hmm.
Gabriel Lewit: Top 1%. Oh, okay, let’s see here. Okay, okay. We’ve got the top… Well, you are off Mr. Lewit. The top 5% has assets of a million dollars or higher. You said top four, so I got to mark you down for that.
Steve Lewit: Really? No, no, it’s four.
Gabriel Lewit: It says top five.
Steve Lewit: I disagree.
Gabriel Lewit: The top 2% has a net worth of greater than 2.472 million. And it says people with the top 1% of net worth in the US had $10.815 million. Net worth.
Steve Lewit: We have clients that have $500,000, a million dollars. And I’ll say, “A million dollars, do you know you’re in the top four…” All right, the top 5% of people. And they say, “No, that can’t be.”
Gabriel Lewit: You were pretty close.
Steve Lewit: I was pretty close.
Gabriel Lewit: It was very close. Yeah.
Steve Lewit: I’m very proud of myself. I think my number’s right. Anyway, you get the point. It’s like, that’s a lot of money. In comparison, now-
Gabriel Lewit: Well, we have clients in the top 1%. We’ve got clients, definitely a few more percentage-wise of our clients are in the top 2%. A lot of top 4%s. And then we’ve got of course clients of all sizes.
Steve Lewit: Yes.
Gabriel Lewit: Yep. But what we’ve noticed as planners, and you’re a certified estate planner, I’m a certified financial planner. As we talk with clients with higher and higher net worth, some of the discussions change. But surprisingly, also some of them stay the same.
Steve Lewit: Yes.
Gabriel Lewit: And I think that’s part of what we are looking to unpack here is, what is different? What is the same? What are the same concerns that everybody faces regardless of asset size?
Steve Lewit: Exactly. Exactly.
Gabriel Lewit: All right. Well, okay, did we answer our question? What is considered high net worth? We talked about top 1%, 2%, 5%, but what are we going to say is considered high net worth planning here?
Steve Lewit: Million and over.
Gabriel Lewit: You say million and up?
Steve Lewit: If you’re in the top 4%, you’re high net worth.
Gabriel Lewit: Well then you get into-
Steve Lewit: But then there’s higher net worth.
Gabriel Lewit: Ultra-high net worth is-
Steve Lewit: And there’s ultra-high net worth where someone has 20, $30 million. And then there’s ultra-ultra where you’ve got hundreds of millions of dollars. So each level, per your point, Mr. Gabriel. Each level is the same, people worry about the same things. You and I have clients that have quite a lot of money and keep worrying that they’re going to run out.
Gabriel Lewit: Well, you know we sometimes do quotes on the show. I don’t think this was on our list, but you’ve heard the quote, “more money, more problems”?
Steve Lewit: Mm-hmm. Yeah.
Gabriel Lewit: It can be very true from our experience. You think it’s more money, less problems, but it tends to be more money, more problems.
Steve Lewit: You’ve got more to worry about.
Gabriel Lewit: Yeah, exactly. All right, let’s talk first and foremost about complexities. In your opinion, Mr. Lewit, and I’m lobbing these up for you just to keep things conversational here. What makes a higher net worth plan a little bit more complex than a different plan?
Steve Lewit: Well, in my view, it’s all about taxes. Investing in the stock market, whether you’re high net worth or low or medium, there’s ways to invest and everybody has a different opinion. We have our method based on modern portfolio theory, but some people have a… That’s its own compartment. You can be wealthy or not wealthy. If you’re wealthier, you might find some hedge funds or different specialty things. But to me that’s the same. The real issue is taxes. Because the higher net worth you get, the more the tax problem becomes. For example, you might be at 2 million today, but in 10 years that doubles, you’re at four. And now if you died or if you and your spouse died, you would be over the estate tax limit exemption for Illinois. All of a sudden you’ve got four… Well, the Illinois exemption is remarkable. Is that if you have 3,000,009, you’re exempt. But if you have $4,000,100, you pay on the entire 4 million. Times 16% is… What’s 16 times-
Gabriel Lewit: Well, it doesn’t get to 16% until you’re a little higher. It’s graduated.
Steve Lewit: Yeah, it’s graduated. But let’s use that as just as an example. It’s 4 million… 500,000, 600-
Gabriel Lewit: Well, that’s what I’m saying. You’re not going to get taxed on the full 16% right at the $4 million mark.
Steve Lewit: Right.
Gabriel Lewit: But the point is, you can plan to accordingly to do things that would eliminate or reduce the risk of ever having to trigger that estate tax. And that accounts for also on the federal level too, as well as the state level. And different states have different rules. So you got to be aware of your state tax, which is different than the federal estate tax. And you’ve got to be aware of when those rules and laws shift and change, like the federal estate tax exemption is going to be dropping in 2026. But I think what you’re stating here is that when you have a little bit more money today, and that money grows, it can grow yourself right into a bigger and bigger tax problem. If I could paraphrase so.
Steve Lewit: Yes.
Gabriel Lewit: Yes.
Steve Lewit: Yes.
Gabriel Lewit: Okay.
Steve Lewit: Yes.
Gabriel Lewit: Which I would agree with.
Steve Lewit: I’m glad you agree. I would feel… I don’t know what I would say if you disagree. Well of course, you’ve got more money, the government is looking to tax you more. Everybody’s after our money in taxes, and taxes are where the wealth is. Wealthy people know how to protect their money from taxes, and that’s how they keep their wealth. Someone has a million dollars or 2 million, they don’t think they’re wealthy, but they are. And lots of them don’t protect their money from taxes. And there are a lot of places that want that, especially Uncle Sam. They want your money.
Gabriel Lewit: Yeah, they do. Well, what else would you say about taxes is more complex with higher net worth individuals generally?
Steve Lewit: Well, two things. One, if you are a higher net worth person, I would suggest that most of your money is probably in IRA accounts, 401Ks, 457, 403Bs. So when you turn 73, or 75, depending on your age, you’re going to have to take required minimum distributions even though you don’t need them. And they could be quite sizable. We have clients, their required minimum distributions of 200,000 bucks. They don’t need it.
Gabriel Lewit: And they’re going to be paying taxes on it.
Steve Lewit: At a higher level. And then if taxes go up in the future, they’re paying at an even higher level. And if they die and give those funds to their kids in their peak earning years, they’re paying at an even higher level.
Gabriel Lewit: Well, and especially I think if you’ve got the point, let’s say you’re leaving what will grow into a $3 million IRA. Okay, that’s one of your accounts. And you’ve got maybe two beneficiaries, even just say one beneficiary for simple math. And that goes to your kid. And your kid’s say 45 in the middle of their career, and you just passed them $3 million. And they’ve got to take that out over how many years?
Steve Lewit: 10 years.
Gabriel Lewit: 10 years. How much is being withdrawn by Mr. Child over the course of 10 years?
Steve Lewit: 300 grand a year.
Gabriel Lewit: A little bit more than that because of interest, which is going to immediately push that child into the highest tax bracket.
Steve Lewit: Exactly.
Gabriel Lewit: And so you also start looking at taxes not just from your lifetime, if you’re higher net worth. But also, what’s going to be the tax rate that your beneficiary is going to pay? And sometimes you can just kick that can really far down the road, say, oh, I don’t really care. But what I find is people that have taken the time and have been successful and built up a lot of money, they care about keeping that money in their family lines, and maximizing that.
Steve Lewit: That’s a great point. I’m so surprised, because I don’t know if I can say this generally, but maybe the folks that have more money watch their money more closely. And so I have folks that have less money, and it’s like they’re pretty loose with it. And we might have a client that has $12 million, and they’re fighting over every nickel.
Gabriel Lewit: Well, it’s also, I do find this interesting, totally on the aside here. But you would think, I would think… We try to maximize everyone’s dollars, [inaudible 00:16:13] no matter how many you have.
Steve Lewit: Of course.
Gabriel Lewit: But I do find also that my clients that have $500,000. “Oh, my kids will be fine. We don’t need to maximize what we leave them. No one left me anything.” It’s like, wow. You’d think you’d want to maximize it more, leverage more and leave even more for kids.
Steve Lewit: Yeah. It’s like, we don’t care. It’s like, man, that’s your money, put it to work.
Gabriel Lewit: You should care. Save the nickels and make the dollars.
Steve Lewit: Yeah. Put them to work for you. You worked all your life for it.
Gabriel Lewit: But yeah, I do see that a lot with my higher net worth clients is they do care about maximizing their legacies, which means minimizing taxes and coming up with charitable ideas to maximize their charitable endeavors, which we’ll get into is one of the other complexity areas. Lots of different things, but taxes is probably amongst the biggest one. One of them.
Steve Lewit: And then how you pass your money to your children. Do you do that through special kinds of trusts? This is where it comes very complicated, depending on how much money you have, and what kind of money it is. Do we use charitable remainder trusts? What do we do? How do we get it there?
Gabriel Lewit: Let’s get there in just a second, if we may.
Steve Lewit: Sure.
Gabriel Lewit: Okay.
Steve Lewit: Okay.
Gabriel Lewit: So, we talked taxes. Higher net worth, more money, more taxes, unless we plan accordingly.
Steve Lewit: Yes. Okay.
Gabriel Lewit: How about investments? Do you see differences or similarities in how higher net worth clients tend to invest their money, the actual allocations they choose, the products they use? What would you say there compared to non-high net worth individuals?
Steve Lewit: Surprisingly, and I’m always surprised by this even though I’ve been doing this for 30 years, I always think that people have more money they’re willing to take more risk. And generally, I find the people with a lot of money are pretty conservative.
Gabriel Lewit: Well, I think there’s a band there. Let me ask you a question.
Steve Lewit: Yeah.
Gabriel Lewit: Okay. Let’s say you won the lottery and all of a sudden you had $20 million in your lap.
Steve Lewit: Yeah.
Gabriel Lewit: Okay, extra than you-
Steve Lewit: Why only 20?
Gabriel Lewit: … than you’ve got today.
Steve Lewit: Wait, wait.
Gabriel Lewit: It’s a small lottery.
Steve Lewit: No, no.
Gabriel Lewit: … lottery.
Steve Lewit: Wait a second. If I’m going to win the lottery, I want to win a big one.
Gabriel Lewit: Well, there’s the Powerball and the Mega Millions, then you got just Lucky Day Lotto, or something. Maybe you win the small lottery.
Steve Lewit: All right, Lucky Day Lotto. Okay.
Gabriel Lewit: So, you got $20 million.
Steve Lewit: That’s it.
Gabriel Lewit: 20 mil.
Steve Lewit: 20 mil.
Gabriel Lewit: What would you do to invest that? Would you do anything dramatically different than if you had $2? $2? $2 million. $2 would be hard to… Take a little while for that to compound.
Steve Lewit: Yeah, of course I would do it differently.
Gabriel Lewit: What would you do? Because I’ve read message boards and things where people talk about if I had $10 million or $20 million. $20 million, put that in the bank at 5%.
Steve Lewit: Yeah, if you can get five, yeah.
Gabriel Lewit: Okay. And then how much are you living off of on that?
Steve Lewit: Only 10 million a year, or something like that? 20 million. Oh, how much is 20%? I’m thinking of 200 million.
Gabriel Lewit: So, 20 million times 10% would be?
Steve Lewit: 200,000.
Gabriel Lewit: Oh, my goodness.
Steve Lewit: 2 million.
Gabriel Lewit: Are you messing with me?
Steve Lewit: No, I’m confused. I’m still trying to think about how to answer the previous question. You’re moving too fast.
Gabriel Lewit: $20 million.
Steve Lewit: Yes.
Gabriel Lewit: Times 10% would be 2 million.
Steve Lewit: I said 2 million.
Gabriel Lewit: Well, we were talking about 5% in a bank account, right?
Steve Lewit: Oh, 5%.
Gabriel Lewit: So, you could be living off of a million dollars a year.
Steve Lewit: Right.
Gabriel Lewit: Right? No risk, no muss, no fuss.
Steve Lewit: Yeah. How much do you need?
Gabriel Lewit: Right? You’re making a million dollars a year.
Steve Lewit: Yeah. What do you got to go out and risk losing 40% in one year?
Gabriel Lewit: Yeah. I think that’s an interesting question to ask, because a lot of people would say, “I’d be more conservative if I was a higher net worth person because-
Steve Lewit: I don’t need it.
Gabriel Lewit: Why take the risk? And I’m making a million bucks a year.
Steve Lewit: Yep.
Gabriel Lewit: Others take the opposite tact. Which is, okay, I could now afford to lose 3 million of my 20 million. Why don’t I go and buy 10 franchises, or do this or do that, or invest in some startup or an IPO? They get even riskier with their money. My question for you really, to put it back into context, is what would you do if you had $20 million? Would you be riskier? Would you be more like the tortoise or the hare?
Steve Lewit: I’m the tortoise.
Gabriel Lewit: You’re the tortoise?
Steve Lewit: I would not be risky at all.
Gabriel Lewit: Okay.
Steve Lewit: I would take my 150 million and I’d sock it away.
Gabriel Lewit: No, but you won 20 in the Lucky Day Lotto.
Steve Lewit: No, you gave me 20. I won 120 million. No, I would diversify. I would buy businesses. I would look into businesses in the market. Look, if I can get a guaranteed five or 6%, that’s all I need.
Gabriel Lewit: So, you would start diversifying your investments into different strategies.
Steve Lewit: Definitely.
Gabriel Lewit: Which is going to start to increase the complexity.
Steve Lewit: The complexity, but not the risk, hopefully. But look, when you have the game won, and this is a problem that I see with folks at all levels who are retired, or are planning a retire… Well, I was with a client last week, and they’ve got the game won. All their income is taken care of, and the husband and the wife, and the wife wanted to be very aggressive. And the husband’s looking at her and saying, “Why do you have to make so much money? We don’t need it. We could make 5% and we’d be great.” And that was the question. Hey guys, you’ve got the game won-
Gabriel Lewit: Do you think-
Steve Lewit: … why are you still playing?
Gabriel Lewit: … at different levels of wealth people just start thinking, hey, I’ve got this money, I should maximize it? And try to get the most they can out of it, even if that can backfire on them with too much risk.
Steve Lewit: Yeah, absolutely. I think it’s a matter of how people are built. Some people just want more. I want more, I want more. And they’re never satisfied. So if you want more, that’s great, but that also means you can have less.
Gabriel Lewit: Yeah. There’s two sides to that coin.
Steve Lewit: There’s two sides to that.
Gabriel Lewit: That is often forgotten by many people focusing on more, is that aiming for more can result in less.
Steve Lewit: Yeah, of course. Right.
Gabriel Lewit: Interesting. Yeah. So different ways of managing investments, oftentimes a little bit more complex. Real estate, you have oil and gas leases, business ventures, all sorts of things that we see with some of our higher net worth clients. You’ve got more complexities in taxes. And then you were starting to talk about some estate planning items, trusts and charitable remainder trusts. And donor-advised funds, which are another way of being charitable. Just a minute or so on that. Tell us a little bit more about what you would typically see for higher net worth individuals from an estate planning perspective.
Steve Lewit: Yeah. It comes to a point when you’re getting closer to passing or your health is depreciating, and you’ve got a big estate. And the question is, how can I lower the value of my estate so I’m not paying taxes through the nose on my estate? And that has to do with strategies of using specialty design trusts, of gifting money to irrevocable trusts. Of using life insurance to pay the taxes when you pass away, which you have to start planning younger rather than older. And figuring out, do I gift my kids now when I’m living? Which a lot of people start to do. What many people don’t understand about the gift tax is that right now the gift tax exemption for a couple is $24 million. So you could give away $24 million today.
Gabriel Lewit: That’s what you’d do if you won the 20 million.
Steve Lewit: Well, I would give a lot of money away. But you could give away to your kids $24 million, say it goes against your lifetime exemption. But when you die, if the gift exemption is only 5 million, guess what? 19 million of what you gave away is taxable again, in your state. So you got to be very careful about all that stuff.
Gabriel Lewit: Those are some of the big things that we see, most commonly, is you’ve got more complex investments. Not always, you can keep things very simple. Actually, there’s some value in that. So if you have lots of money, but there are ways of maximizing your money and still being safe and secure and not being too aggressive or speculative. You’ve got increased tax complexity, increased estate planning complexity. Now let’s shift gears into some of the myths that we sometimes hear. If you’re out there and you’ve got a higher net worth and you’re listening to the show here, sometimes we hear people say, “I’ve got all this money, I don’t really need a plan. I’m in good shape.”
Steve Lewit: Yes.
Gabriel Lewit: Right? And I know what you’d say to that.
Steve Lewit: I’d say, “Let’s take a look.”
Gabriel Lewit: Well, you’d say-
Steve Lewit: I have other things.
Gabriel Lewit: … “On one hand that’s true.”
Steve Lewit: In my head I’d like to say something else.
Gabriel Lewit: On one hand that’s true, because you probably have enough money to access and to spend on income. But as we just talked about, there’s so many complexities and risk factors and taxes and estate planning that that’s really hard to navigate on your own.
Steve Lewit: I was sitting with a gentleman today who’s fairly wealthy, and I actually looked at him and said, “Look, you don’t have to do any planning, you’ll be fine. Except you’ll probably leave about $10 million behind.”
Gabriel Lewit: Well, and I think that hits it to a T, right? You’re going to be fine, but you just lose and leave lots of money on the table.
Steve Lewit: Yeah, I was thinking about this because we give seminars and talk to people, and the problem is you don’t know what you don’t know. And-
Gabriel Lewit: I know it.
Steve Lewit: I know that. And people that have been successful, a lot of them think they know because they have known, and that’s what made them successful. But we have 18 different tax strategies. Well, there’s no way you’re going to know that as smarter, as brighter as you are. We have all the different investment options that span far more than the stock market. Well, there’s no way an ordinary citizen is going to know these things.
Gabriel Lewit: It’s hard. And the more money you have, the more and more things to know about there are, and the harder it is to know about all of them. In my opinion, and I know you agree.
Steve Lewit: Yep.
Gabriel Lewit: Well, how about income strategy? Sometimes you hear out there, well, you got lots of money, you don’t need a specific way of solving for income. What would you say about that? I think that’s one of those myths that is out there.
Steve Lewit: When you have wealth, real wealth, all your wealth covers up all your mistakes. It’s like having a star on a football team. A real star can cover up all the mistakes of the football team, and you win.
Gabriel Lewit: That’s a good analogy.
Steve Lewit: Yeah. I borrowed that from you.
Gabriel Lewit: Maybe I said that. Who knows?
Steve Lewit: Yeah. You can do anything you want when you’re wealthy. My job and your job is to point out to you, well, if you do this, this is the opportunity cost. This is what you lose by doing that. And do you want to lose that? And to your point earlier, is that some people say, “Yeah, I don’t care. I got plenty. My kids will get plenty. So the government will get 3 million or 5 million, I don’t care.”
Gabriel Lewit: Yeah. Well, I agree, I think there are… But it all goes back to that same thing, you’ll probably be fine.
Steve Lewit: You will be fine. Yeah.
Gabriel Lewit: The team’s going to win the game, but there’s a lot of [inaudible 00:27:59] holes.
Steve Lewit: There’s a lot of holes.
Gabriel Lewit: A lot of gaps. And areas that could be improved upon that. Instead of your team winning by 20 to zero, maybe you could have won by 40 to zero, right? Because you’re executing all the parts of your plan really properly and cohesively.
Steve Lewit: Yeah, exactly.
Gabriel Lewit: Yeah. And similar to that is people that think, hey, I’ve got lots of money, I don’t need life insurance. I don’t need long-term care. What would I need those for if I’ve already got four, five, $6 million?
Steve Lewit: Only if you want to save a bundle in taxes.
Gabriel Lewit: Or even if you do go into a nursing home, leave your kids an extra-
Steve Lewit: Two, 3 million bucks.
Gabriel Lewit: Well, maybe a million.
Steve Lewit: Well, it could be more. Yeah.
Gabriel Lewit: But those are those ideas, right?
Steve Lewit: I tend to exaggerate a little bit. I like exaggerating.
Gabriel Lewit: I think if you’re spending 3 million on long-term care, I don’t know what nursing home you’re going to.
Steve Lewit: Well, you know what I was thinking?
Gabriel Lewit: Maybe the Cadillac of nursing homes.
Steve Lewit: I was thinking of my aunt who at 45 got dementia, in a nursing home. Alzheimer’s, in the nursing home for 22 years before she died, at 100 grand a year. Wiped out the family, their family. It was terrible. That’s what I was thinking.
Gabriel Lewit: Well, and so we’ve got to start to wrap up here. But I think when you look at all these different things, many of these apply whether you’re high net worth or not. So if you’ve listened to this show and you’re not high net worth you might be saying, “What does this mean for me?” Well, you may grow and continue to grow your wealth. Many of these things still apply if you’ve got a million dollars or 500,000. You still want to maximize your money, you still want to save on taxes. You still want to get proper estate planning in place. But all of these are magnified considerably when you’ve got millions and millions of dollars at stake.
Steve Lewit: Yeah, it’s a magnification. That’s a great way of putting it. It becomes more intense and the stakes are higher. But I think that what I’m hearing in our talk today is that if you work all your life for your money. My story is I was born in the South Bronx. I got nothing, nobody gave me anything. Or nobody gave me nothing.
Gabriel Lewit: Not even a nickel?
Steve Lewit: Nothing. And every dollar I have, I worked for. And by gosh, I want to make those hours work for me for the rest of my life. I don’t want to give it away.
Gabriel Lewit: Certainly.
Steve Lewit: Now, I don’t know if that’s selfish or what, but I know I work for it and I’m going to give it to my kids, or I’m going to give it to you, or I’m going to give it to-
Gabriel Lewit: Right here.
Steve Lewit: Right? All of it to you.
Gabriel Lewit: All of it right here.
Steve Lewit: I better amend my trust, but you understand.
Gabriel Lewit: I get it. I get what you’re saying. Yeah. That’s what we wanted to cover here today, hopefully you found that interesting. And I will say this, everybody that I meet, regardless of levels of wealth, seems to sleep better at night, far better at night when they have a solid plan.
Steve Lewit: There’s documented evidence that says that.
Gabriel Lewit: Absolutely. And so that’s what we’re here to do no matter who you are, how much money you have. We’re here to help give you peace of mind, to give you a plan for the future, save you money on taxes, increase your wealth. Just give us a call, (847) 499-3330, or go to sglfinancial.com, click contact us, and we are here for you anytime you are ready to talk.
Steve Lewit: Yes, we are.
Gabriel Lewit: We hope you have a wonderful rest of your day, night, week, weekend, whenever you’re listening to the show. And we will catch you on our next spooktacular-
Steve Lewit: Spooktacular, scary.
Gabriel Lewit: … Halloween special.
Steve Lewit: Not going to be scary?
Gabriel Lewit: We’ll see.
Steve Lewit: We’ll see. All right, stay well everybody.
Gabriel Lewit: Talk to you then. 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.
Prerecorded Voice: Investment Advisory Services are offered through SGL Financial, LLC, an SEC Registered Investment Advisor. Insurance and other financial products are offered separately through individually licensed and appointed agents.
