Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted through X Spaces by Michael A. Gayed, CFA, Publisher of The Lead-Lag Report (@leadlagreport), each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
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Lead-Lag Live
Money Talks: Breaking the Taboo of Wealth with George Stefanu
Financial literacy forms the bedrock of generational wealth preservation, yet remains strikingly absent from our educational system. This knowledge gap creates the perfect storm for the "shirt sleeves to shirt sleeves in three generations" phenomenon that plagues family fortunes—wealth created in one generation, enjoyed in the second, and squandered by the third.
George Stefanu, with over 15 years of financial advising experience, tackles this pressing issue head-on. Drawing from his book "Two Comma Wealth," he reveals the critical conversations families must have about money and the principles that extend wealth beyond a single generation. The timing couldn't be more crucial, as we stand at the precipice of history's largest wealth transfer from Baby Boomers to their heirs.
Stefanu unpacks the concept of "hitting your number"—that magical retirement figure that supposedly guarantees financial security—and why the traditional 4% withdrawal rule requires nuanced application. He offers a refreshing metaphor of investment "lanes" (from the emergency lane of cash reserves to the sports car lane of growth equities) that helps visualize proper diversification strategies needed to combat inflation while preserving capital.
The challenges of working with high-net-worth individuals receive special attention, particularly how their business success can paradoxically hinder investment discipline. Men and women approach money differently too—men often rushing to action during market volatility while women process information before making decisions, frequently becoming better long-term investors as a result.
Strategic tax and estate planning emerge as critical yet underappreciated aspects of wealth preservation. With potential changes to estate tax exemptions looming, Stefanu illuminates how proper asset location and distribution timing can save heirs significant money while honoring philanthropic intentions without "tipping the IRS" unnecessarily.
What about AI in financial planning? While technology will enhance data analysis and pattern recognition, the human element—behavioral coaching, accountability, and personalized understanding—remains irreplaceable, especially during market turbulence.
Subscribe now to explore how meaningful kitchen-table money conversations can transform financial education from a missing curriculum subject into your family's greatest inheritance.
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I think now, with people tending to have less and less kids and there's more of a concentrated wealth and I don't have the numbers right offhand, but I mean this is the biggest generational shift as far as wealth being passed on from the baby boomers down we need to have that education.
Speaker 1:We need to have those discussions around money and it's sad because really, one of the primary reasons I have a job at all is because we don't teach any of this in school. A lot of it is kind of just basic personal finance that we're having conversations over day in and day out. But there are really things that should be talked about even around the kitchen table understanding and being ready to share what you're ready, what you're okay with sharing at the time, but also showing your why and your how to how you got to the numbers that you are sharing with that second generation to hopefully extend it further. And it doesn't mean that you have to be the Rockefellers and set up some dynasty trust over the generations in order to do it. It can start with principles in there, and I think that education is probably the bigger inheritance.
Speaker 2:At the end of the day, this is going to be a bit of a different conversation than normally I do, which are more focused on market commentary. This is actually more about wealth accumulation, preservation, having to think about taxes, taxes, financial planning and all kinds of interesting subjects, with george stefanu here my name is michael guy, a publisher of the lead lag report. Joining me is george stefanu. Uh, who's got a few letters after his name, kind of like I do, but he's got more of them. Uh, you know cfp, cpwa. Uh, georgie, first time you and I are chatting. Uh, appreciate that you had reached out. Um, introducece yourself to the audience to me. Who are you? What's your background? What have you done for your career? Where are you going currently?
Speaker 1:Yeah. So I got into financial planning a little over 15 years ago. I'm in my 16th year now in financial advising. I wrote a book and that's what we're here really to talk about Two Comma Wealth. I found there was kind of a little bit of a gap there. Lots of books out there on how to accumulate wealth Not a whole lot of guidance, at least holistically, in an unapproachable format for folks once they kind of hit their number, so to speak. And just throughout my career working with clients I've just seen some commonalities of some gaps there and recurring themes that I wanted to address and just talk to folks a little bit about and have them better prepared on taking the reins and where to seek guidance and what kind of things that they should be looking at in that next stage once they hit their number.
Speaker 2:We should talk about that hitting their number thing. What does that mean? I would think most people would say well, I want to be a multimillionaire. Well, but why should I stop at 10 million? Why not 20?, why not 100? What does that mean? To hit their number?
Speaker 1:Well, here in the US, obviously, it always seems like more is better, and so you're kind of coming up with that number a few ways, right? So there's the back napkin kind of traditional method of the 4% rule and kind of backing into that, right? So 25X of your annual net spending or needs along the way. Multiply that out, a relatively safe withdrawal rate of 4%. That should last you over, say, a 30-year horizon is what the Trinity study came up with in a pretty balanced stock and bond portfolio 50-50 kind of a mix along the way. So that might be the number. But you're right, the number is a little bit more nuanced than that, right? So when sitting down using financial planning software et cetera, you're going to have other things to take into account. You're going to have social security income, maybe you have some pensions, you have whatever it may be. That's adding to those, and I think it was Fidelity back in the day that had a, maybe it was ING, I don't remember. They're all blending together.
Speaker 1:But what's your number? Everybody's kind of carrying their number throughout the streets of it seemed like a big city or New York, wherever it was in doing so and kind of figure out what that number is. But once you get there, what I often find is there's there's two kinds of folks that you know that can't spend it fast enough, and there's others that really are scared just to spend it at all. And so really the book kind of walks through how to kind of come over that scarcity mindset as well as kind of keep yourself in check and giving yourself that permission to spend, based on some math, some numbers behind the things and realistic situations that they may afford themselves, realistic methodologies in which they can take withdrawals from their portfolio and feel a little bit more confident, especially in a world with a ton of volatility, as you know.
Speaker 2:And a ton of inflation, right, and I think that's a big part of this right. So I think the question, or at least the concern you could come from along with this a lot of very high net worth individuals have, is I want to keep up my lifestyle, but at the same time, I need to make sure I'm earning more than the rate of inflation. That feeling has poured itself over into non-high net worth individuals who feel like they almost have to gamble in order to preserve their wealth, because if they don't gamble on a levered fund or on some option trade idea, their income is not going to allow them to to keep up right with with rising prices. How do you think what inflation in the context of that?
Speaker 1:uh, yeah, I mean, it's a really good point, um, especially as we talk to, I talk to clients in their, in their next generation, um, their kids. You know they may have I speak in the book actually the drive that my parents had in moving from New Jersey to Florida. They were told back in the 80s that $30,000 wasn't enough for a deposit on a doghouse in the neighborhoods they were looking for in New Jersey at the time. And yet they could put, you know, over 50% down on a Florida home at the time that was much nicer than the homes that they were even looking at up there. And now it's only exacerbated right. So the next generation today they may have $80,000 or $100,000, but in certain parts of the country that's not even going to get them to eliminate the principal excuse me, the mortgage protection insurance PMI that's there. So people do feel that gap there, that it is harder for certainly the incoming generation to kind of keep up, especially with housing prices and then just baseline expenses. We've seen record high inflation over the last few years and so that the traditional modeling that I did perhaps at the beginning of my career, where the default in our software might have been 3%, there may be a need to adjust that on an ongoing basis, depending on where the economy is. And so you're right. How do you get there? How do you do it? It's not going to be in your super safe. You know fixed income investments. They're just not going to be able to keep up. You've got to own some of the companies and the names that are able to set the prices and to pass on some of those costs of inflation along the way. And so we talk about that often with clients the rising principal from a rising income kicking off a rising principal when it comes to dividends, when it comes to growth. But you're going to have to own names and equity positions in order to outpace inflation, as well as perhaps thinking of alternatives and things in there to properly diversify your portfolio.
Speaker 1:In the book I talk about the personal lanes of finance, so that there's a point to having an emergency lane, that being pulled off to the side of the road. If there's noise going on in the car you want to pull off. Maybe check out under the hood what's going on on in the car. You want to pull off. Maybe you know. Check out under the hood what's going on, and in doing so you're going zero miles an hour. But if you're on the side of the highway in the emergency lane you're not going to let your kids get out of the car and play on the sidelines, and the reason for it is because they still can get side sweat and that's where inflation really comes into play to your point.
Speaker 1:But the next lane over that I talk about, so that might be cash or emergency lane of cash, money markets et cetera. The next lane would be fixed income, right, so I call that the bus lane. You know, go 45 miles an hour, maybe in a 70 as an illustration there, but the semi-truck of inflation is still going to be tailgating even at that level. So you're at least making some headway, but it's not enough. And so you kind of get it, kind of get into the equity markets, start moving into what I call the, the sports car lane, really the minivan lanes. The next one up, you know, large cap companies, then the sports car lane. I explained to clients of mid and small cap companies and potentially having some in the aggressive lane or the sports bike lane of whether it be commodities, whether it be alt, whatever it may be, in that area as well, and it's not choosing one lane, it's having a diversified portfolio across the board and doing a basic rebalance right.
Speaker 1:So the old adage of buying low, selling high along the way, especially in distribution years, being able to pull from lanes that are doing well, given whatever cycle that we're in, and then further diversification from there, broken down by sectors, because even sectors rotate. So in a down market, you're going to see things that have opportunities that erupt that you might be able to pull from. I think what 2022,? We saw the market down, but obviously energy was having a great year. The very next year, the opposite was true. Energy had a really poor year, but we had a nice takeoff in communication services and technology. Obviously, we're going back to that cycle again. So leaders rotate and so proper diversification.
Speaker 1:You know, the same thing that most financial planners talk about holds true.
Speaker 1:Especially in a time frame when you're not able to add money to and you're pulling money out, how do you still buy low and sell high?
Speaker 1:Well, having that proper diversification have some things that zig while others zag, and you know if there is a you know a traffic pile up on the investment highway that we're talking about, so to speak, being able to rotate as needed but also kind of stay in the course within parameters that you've already preset within each of those lanes and not just jumping into whatever you think is going to go the fastest at that point.
Speaker 1:Because the worry there of course, just like in traffic, when there's a pile up there, you might be patient initially, but eventually, when the lane next to you keeps on going, by the time you jump over, often you know your lane starts going and that one starts stopping as well. So all things there, I know with a lot of your audience though, with traders et cetera, they're looking at some of the short-term indicators. But what I kind of try to address is, as we're getting into higher net worth outside of just hedging strategies et cetera, having proper diversification, knowing where to pull from and having things that are not highly correlated and have some negative correlation to it and act differently along the way can help them create a distribution channel from their portfolio that can be lasting and hopefully outpace the inflation that we're talking about.
Speaker 2:I'm sure you're dealing with a lot of high net worth individuals, multi-millionaires, and a lot of these people become multi-millionaires because they are running businesses, sell them. You know things like that. I find from experience that dealing with very wealthy, or even not very wealthy, but high net worth in general can be challenging, because they think their success in their industry, in their business, translates over into the financial planning side, over into the investing side, which means that sure you can have guardrails, sure you can have rules, you can have asset allocation, but they may think that they know more than the person they've hired to manage their finances. How do you deal with that? Because when you're dealing with high net worth individuals, it's their money.
Speaker 1:You're absolutely right. So you are typically dealing with a type A or an alpha personality in that case, and they do understand their business and they were very successful in that field. It's funny you mentioned that this week in particular, one of my first higher net worth clients was a business owner who exited and he met with me. He was a do-it-yourselfer on the side and he came to me and had a nice portfolio, quite frankly a little bit concentrated, more concentrated than I would put it, but he came to me. But he came to me with his wife and they both sat down and we did some planning. They really were interested in kind of Social Security claiming strategies At the time. There was more of them. The loopholes hadn't closed at the time that have today, and so we just kind of did some forecasting and some illustration on their financial planning and the software that we had at the time.
Speaker 1:He was abreast. He decided he wanted to work with me Now he was going to be paying me to manage his portfolio and he did so with pretty tight reins initially. As we went on um, he realized that this side hobby of his that he kind of developed um wasn't really, uh, benefiting him any more than um it could you know, because we made some comparisons over just our basic models um that uh, the firm I worked for uh has and uh he's had decided to kind of kind of ease up and even made the mention of you know, I guess I'm paying you a particular price, right so? But we went to lunch a few years ago it was actually toward the end of COVID of it all things had opened back up a bit and we grabbed actually it was just a cup of coffee under the lunch hour and I asked him you know you were doing this before For a while. There you kind of it was hard for you to let go of the reins with it. Why are you paying me to do this? And he said it's in Georgia. I know what I'm doing and I feel confident when I'm doing it. Um, but I'm hiring you really as an insurance policy for my wife and his wife.
Speaker 1:Come in that first meeting, came in the second meeting and it really didn't come ever again. I speak to her in the background of the phones which she'd pick up, you know, or you know, talk a little bit about her workflow, give her an update, but she has no interest in any of this thing that things weren't looking great. And we just got the notification from her and we actually just sent the flowers. Today the client has passed, and that's what he was with before. In his eyes was really that continuity of the plan that he set in motion, his perspective on investing, really looking at how he wanted his personal investment policy statement managed in line with his wife's, and now we're going to be finally acting on that, sadly, but I think back to that case especially obviously timely today in doing so, but you deal with these clients that, at their level, they have to be comfortable with whatever they're they're doing.
Speaker 1:So, um, you know, but giving them some education along the way, um, telling them, you know, letting them know some things that they may not know already, um, in approaching things, um, and perhaps add value around um the fringes initially, um, and then slowly kind of work into, uh, what you know, into what you know to be the best course of action for them, and so that's been really the case with me working with such individuals. It is difficult, though, because they do get in their own way. Sometimes you have some clients that just don't take advice, and sometimes those aren't really clients that really should be working with you. So there has been a cases where we've graduated a client to perhaps having them do it themselves or work with another advisor. Because of that mentality, because we don't want then either their hesitation or their extra methodologies, I guess that they've come up with whatever they read on it online or somebody told them about to affect their overall and they're worth. We're okay, you know, taking some unsolicited orders or doing some things that are small pieces, or taking, you know, some calculated risk or some bets here and there, but if it's going to interfere with, ultimately, the projections that we're having to keep them secure and making sure that they're going to actually achieve their goals, um, that we need to kind of pivot. And so we talk a bit about in the book, um, getting um, your why down and realizing, okay, what is it that? Um, you're headed to?
Speaker 1:So, in the case of business, exit, a lot of people, their entire identity is tied up into it, so they're used to being the decider, the decision maker, um, at the end of the day. So what is it that you want to do, what do you want to be known as and what are you running to? What is that next second act, what's that next thing that you want to get to? Um, and crafting your, your, uh, your identity around that um, whether it's being a parent or grandparent or spouse or traveler or, um, you know, philanthropic goals or whatever it may be, because otherwise, if you're sitting at home with nothing better to do, you're going to just look, you're really just going to look at the news and you're probably going to take some action that may not be in your best interest. And it's a fine line sometimes with investing and gambling, and so you can kind of get caught up in some of those activities if you're not careful as well.
Speaker 2:And in gambling, and so you can kind of get caught up in some of those activities if you're not careful as well.
Speaker 1:When I look at the focus on their finances, that's an excellent and very insightful question, michael, and I don't know if the clarity is from the fasting or whatever it may be, but the self-recognition of it, men are they. They, they do tend to be the ones more fascinated with the um, the decisions, or the the trades um aspect of it. It's interesting. I think it kind of goes back to how many times, if our, our, our partners are um, if, uh, we have a wife and we're a, we're a husband, then, um, they come to us with a problem and we get yelled at because we come up with a solution. We get in trouble for coming up with a solution because the reality is they never wanted a solution to begin with. They just wanted to vent and be heard. And so I find myself in an interesting position when it comes to men and women investors too. When they come to me with concern about the markets, a lot of the times with the female investors, they they come to me with concern about the markets a lot of the times with the female investors. They just want to be heard and they tend over time and I don't have any published data on this to back it up, but they do tend to be the better investors over the long haul because they don't make emotional decisions with their money. Um, you know, they get the bad rap of being more emotional, um, but the truth is it doesn't mean that they they then make a decision based on it, whereas men, they want to take an action. They see something happen. What are we doing about it? What are we going to change? How are we going to hedge this? How are we going to, um, you know, jump in and out of the markets, time things, all those kinds of things and concerns to worry about as well, trading costs, all those kinds of things?
Speaker 1:But I think it was. There was a study done I believe I'm going to misquote where, where it was from, but probably read by Michael when they looked back in accounts held by deceased people actually outperformed those that were actively trading, and so, again, not probably the platform to say that out loud, on tough, but nonetheless and sometimes that can be the case that the right action is no action at all If we have a good quality position, and I'm holding it to fruition there and allowing it to do so. So I think that's kind of the case with men and women. I think that's some of it the behavioral psyches that are in there in their approach to a problem. One is to kind of talk through or walk through it and kind of get back to kind of fundamentals, and for men, a lot of times it's to take action, and maybe that's what the appeal is in that case, and certainly amongst your listeners too.
Speaker 2:By the way, you can absolutely say that, because I've mentioned that myself. That's the problem with over-trading in general, especially when you're not doing it on a systematic way, right, and discretionary work from a discretionary perspective. Speaking about disconnects, there's also a disconnect between generations, or among generations, right? So I forget the stat, you probably know it. Something. Um, I forget the stat, you probably know it. Uh, something along the lines of you know, the first generation tends to, if they inherit a lot of wealth and of having a lot less by the end of their lives, and then the next generation a lot less.
Speaker 2:So it's like yeah, that's shirt sleeves to shirt sleeves, Uh yeah, exactly Right, let's let's talk about that, Cause I think that's interesting. Why? Why is that the case anyway?
Speaker 1:Yeah. So I think I'm kind of living proof of it a little bit, right. So my dad came over from Greece. He was an immigrant with a fourth grade education. I saw his hard work. He did end up getting to what we call that two commonwealth in the book, but he did it through the grind method, right, just putting away, putting away, saving, saving.
Speaker 1:I thought we were really really poor growing up. Turns out we were, you know, very lower middle class kind of, or maybe upper lower class kind of thing, but I thought we were much more impoverished. It was just the fact that they were incredibly frugal with their money and then putting money away. I think that leads and there's kind of a phenomenon in the US that first generation Americans you know those that kind of come from, those immigrants that are given the opportunities, like I was, to have education et cetera, but still seeing that work ethic that's there, tend to elevate that success even further. And that's usually where that big two comma wealth kind of comes in the next generation after them. Because you've, you know, my parents' generation, for instance, kind of grinded through, did all those kinds of things, and that's inherent not to kind of squander wealth. But I also want my kids to have what perhaps I didn't have and so I start to maybe spend a little bit more of it. But in that generation, the next generation. So I look at I got two teenage daughters and I've done my best around kind of giving them accounts and showing them you know money management techniques et cetera, and letting them know about just spending patterns and how much stuff actually costs. And letting them know about just spending patterns and how much stuff actually costs and in fact actually giving them a sizable budget. We just started doing this a little while ago and allowing them to actually pay for basically all of their discretionary expenses. But they have a set budget and that's what they have to do, is necessary, because it's easy to spoil and to give them a disconnect, simply out of love, out of trying to give them something more, but not instilling in them the values, not just hard work, but really what money means, how it is a tool and that it doesn't just grow on trees. So a lot of that phenomenon does exist where the generation that creates it starts spending at the second generation quite a bit and completely squandered usually by the third generation that's there down. So I think it begins in education I talk about in the book.
Speaker 1:You know having family meetings, the older generations not so much the boomers, but the generation just before them. You really didn't talk about money. You didn't know what your parents had or didn't have, and certainly in some of the immigrant population I know the Greek culture, et cetera. You didn't have um, and certainly um in some of the immigrant population. I know the greek culture, etc. Um you didn't share um the. It was a surprise what you inherited or didn't um.
Speaker 1:I think we're seeing a change now where people are becoming more open um and discussing um what they have, especially as parents have grown older. They're not just passing away, they're, they're living longer, but they need more assistance in doing so. So they're putting their kids as powers of attorney, they're adding them to accounts, those kinds of things. We talked about some of the disclaimers, and why not to add people to accounts but put them on as power of attorneys for a whole different set of nuanced issues that go on there in the estate planning section of the book, I think, having discussions around money and then when the next generation doesn't see this as a windfall but as an accumulation of the, the life's work of your parents. Um, it changes the narrative. Um there, so it's not just hey, I got this inheritance from mom and dad, I can finally pay off the cars and the credit cards and maybe, maybe, the house. Um, and it's just poof, it's gone as opposed to okay. They were strategic about it. They had it set up this way so that it would generate this amount of income for a month, so that they could supplement a lifestyle that did this.
Speaker 1:I want to do the same thing and I think now, with people tending to have less and less kids and there's more of a concentrated wealth and I don't have the numbers right offhand, but I mean this is the biggest generational shift as far as wealth being passed on from the baby boomers down.
Speaker 1:We need to have that education, we need to have those discussions around money, and it's sad because really, one of the primary reasons I have a job at all is because we don't teach any of this in school. A lot of it is kind of just basic personal finance that we're having conversations over day in and day out, but they're really things that should be talked about even around the kitchen table understanding and being ready to share what you're ready, what you're okay with sharing at the time, but also showing your why and your how to how you got to the numbers that you are sharing with that second generation to hopefully extend it further. And it doesn't mean that you have to be the Rockefellers and set up some dynasty trust over the generations in order to do it. It can start principles in there that, and I think that education, is probably the bigger inheritance at the end of the day.
Speaker 2:You don't have to set up trust, sure, but you do have to be very mindful of taxes, and I think we need to talk about that, especially in an environment where there's a lot of uncertainty on policy in general. There is a lot of validity, I think, to the idea that, given how much debt the US government has, one way that you can fill the coffers up at least a little bit is through the estate tax, the municipal side, the state side. People will literally leave to states that have better estate tax rates, right, just so that they don't have to pay a large amount for the next generation. I want you to talk about the importance of tax planning from that perspective, because I think it's really underappreciated.
Speaker 1:Yeah, so, and you make a good point Each state is different too. Some states have a lower threshold than others when it comes to the estate tax and what can be given, and right now not as big of a conversation, but it is going to come to the fore here very, very soon with the ending of the tax cut and jobs act and the likely extension and we'll see what happens ultimately at the end of the day. But right now the inflation adjusted return on the state tax is, I think, 13.99 million this year per person, so pretty large estate for it to be effective now. But if it resets it'll go down to 5 million inflation adjusted per person, which might be more in the realm of where people could hit. But there are, to your point, in local governments the state governments anyways there are some that are far lower than that A million dollars. Some, depending on who the heirs are, can go significantly lower, even into just a few thousand or $25,000, whereas the tax may set in and it may be an area where, depending on policy and depending on, you know, party, that comes back into focus as far as where to resolve some of the national debts. I don't know that it's all there, but there's lots of nuances in it. Especially when it comes to inheriting things like property or businesses, it becomes really difficult because you have liquidity issues and how do you pay the tax, and it becomes very cumbersome to do so.
Speaker 1:Nonetheless, you're not wrong. There is thing, or there are things to consider with it, and we talk a lot about it again in that estate planning chapter of my book, in where to keep certain assets, how to title things, etc. Because sometimes people just don't kind of think it through. I talk about an example in the book that maybe we are a philanthropic rechargeable charitable client. So some people they might tithe to their church so they say, okay, well, not just during my life, I want to do that at the end of my life too. And someone put 10% across the board to my church. Well, that's all well and good, but a much better way to approach. It would be okay, what is that dollar amount or that figure? And either set a separate account or put it in a percentage rate as a beneficiary to your church, only with your taxable, your excuse me, your pre-tax accounts, right, so your traditional IRAs, your 401ks, et cetera, because they're going to inherit that tax free as a tax-free organization, why would you give the church your Roth accounts or even your regular taxable accounts that have a step up at cost basis upon debt, so not to squander that wealth away, right? So I talk about that's like leaving the IRS a tip unnecessarily, so how do you avoid doing that? So sometimes it's just structuring where to keep your beneficiary designations to.
Speaker 1:Another thing to kind of think about is what kind of assets do you own? So some things become tax bombs, right? Or they don't get a settlement basis at all, or stretch an IRA to your beneficiaries, with some exclusions, obviously your spouse, depending on age of the sibling, and their close, if they're disabled. There's some exceptions to it. However, if your kids inherit it, under most circumstances they're going to have 10 years in which to liquidate the account and take those distributions out from your IRA. If your kids are successful or likely they're to inherit that, perhaps in their late earnings years, right before the precipice of them going into retirement or at the beginning of their own higher income years, it can be an effective tax that's much higher than yours in your late years where you're not spending that much or perhaps don't have the income levels that are there.
Speaker 1:So how do you deal with that? Well, educating again the next generation around taxes and how that's handled. I give an example of a book of a client who inherited some money from an uncle and in their case was sizable a few million dollars and the initial advice they got from the advisor that they sought out was to just wait to the end of that 10 year period, let the taxes defer and then take it all out the end. Well, the problem is that throws them, for the majority of the assets, to the highest tax bracket. It was a huge tax burden. The more current way in doing so is talking about, you know, topping off your tax brackets, finding a more favorable rate in which you could deplete the accounts to keeping within that rate over that 10 year period, at least utilizing in your favor so that you're only paying, in their case, the 24% taxes as opposed to 37% tax rate. In their case it was several hundred thousand dollars in tax savings they projected over just that period of time, not to mention that we amplified it a little further and they happened to young and a low earner, first jobs at a college, that kind of thing, being able to have them fit all of their income into Roth assets actually, and then live off of some of the non-qualified accounts that they inherited. So it keeps them at that 24% level along the way, fully funding their Roth IRA, super funding it, so to speak, and allowing for another tax-free asset for them in the future and perhaps the third generation after that. So there is an approach with it. Obviously, there's also just estate tax techniques, whether it's using different vehicles, like prepaying it through a local, like insurance trust, whether it's setting up methods to exclude assets from your estate during your lifetime, whether it's. There's all kinds of tricks and tips that we talk about in the book, and certainly you'd want an attorney to sit down with you and kind of find out the best path with it.
Speaker 1:But taxes are complicated. I mean you want to work with your accountant along your lifetime and I do find that that becomes an issue, right. So we just had the tax deadline right yesterday and more often than not I find that accountants are tax preparers but they don't prepare you for taxes right. So they're the ones filling out the forms, but they're not doing forecasting, they're not helping you plan along the way. So we talk a bit about that. How can you create a relationship between your financial advisor and your tax professional in which they can collaborate and think forward, because your financial advisor is typically looking out forward decades, but you judge your CPA based on the return or the amount of money you owe each year. What tricks can you do? What can you do in that case to get a deduction or amend your return a little bit to make sure that your taxes are a little lower this year? But sometimes that can be short-sighted, just like in that illustration with the 10-year waiting to take the distribution. There's actually more proof for them to take it along the way, and they worked with their accountant to make that happen and do it the right way.
Speaker 1:And then even for an investment strategy, not to bag on things like annuities, but some things defer taxes during your lifetime, which sounds great, but then become a big tax hit to your heiress Annuities. That's all growth that has the potential. That's all based on income income and we don't tax income like we do investments a lot of the times. So you have capital gains rates available, you have step ups and bases, but when it comes to putting an insurance wrapper on things like an annuity. Sometimes you can lose some of that and you think you're being safe, you think you're being tax efficient during your lifetime, etc. But you may be exacerbating an issue along the way. So we talked about that and we talked about during your lifetime if you're in a lower tax bracket rough conversions, topping off the tax bracket that you're in, putting some money in Roth but making sure it grows as well. So that's where you want to have a little bit more of your higher speed investments, your more aggressive or growth-oriented investments, so that it has that opportunity to grow. Otherwise, what was the point of putting it in a tax-free vehicle if it's not going to grow? We talk a lot about healthcare savings accounts. I think that's going to be more and more part of financial planning going forward as that becomes part of the component and how to utilize those the right way, instead of taking your HSA debit card and using it all the time.
Speaker 1:We talk about in the book no-transcript we don't talk enough about it. You know you get the tax deduction going in and potential. You know the tax deferral while it's in there and then potential tax free distribution for healthcare at the end. Under current tax law, though, you got to worry even about that, because if it's inherited, the HSA becomes taxable all in the year of the inheritance. So it all becomes a big gain to them and a problem. So we talk about methodologies in which to either reduce that or roll it over to your IRA, et cetera. So at least there's a stretch there. It gets very complex. Obviously, I'm not a CPA or a state planning attorney. So see those ones, you see those ones, but your advisor should have some understanding of the nuances there and be able to kind of approach those with thought, because it's not about what you earn, it's about what you keep at the end of the day, and that tax alpha can be significant over the course of your lifetime.
Speaker 2:I'm curious to get your thoughts on the proliferation of some of these services that use AI for financial planning. Are those fraught with issues, errors? I mean, is AI going to replace a lot of the types of things that you do?
Speaker 1:You know, I think it's going to disrupt a lot of industries, but I think ultimately, it can be a source of real good.
Speaker 1:I'm excited for AI in the financial planning space because I think it can be leveraged. The problem is, though, when you put in inputs, a little nuanced output can or input can lead to a pretty messed up output. Right now, ai, depending on how you phrase a question, et cetera, can kind of spit out results that might be what you wanted it to say or what it thinks you want them to say along the way. So being careful with it, I know it's something that I think a proper advisor can utilize and leverage. I think large firms are using it in a way that's pretty interesting. I've heard lots of talks within the industry that AI will be allowed us to take advisor notes from perhaps thousands of advisors across the country and maybe they work all with a certain nationwide employer and give you kind of the insights and outsides of the plan If there are a certain level of executive, what their stock options look like, what the best methodology is to kind of spit that out.
Speaker 1:So I think it can enhance the relationship. But I think the whole idea of having an advisor is to have that human interaction, to have that behavioral kind of coaching along the way, and there's nothing like that, especially in volatile markets, to kind of keep you invested, reminded of what the plan is, et cetera. But there are components, like you said basic asset allocation, maybe even basic asset location when it comes to taxes, etc. A lot of that is going to start relying more on AI, but there's going to be some nuances in knowing you, your family makeup, what your goals are and truly keeping those top of mind from a human-centered standpoint. But I think it complements the overall plan and doesn't completely disrupt it either. But I don't think it's something that can be ignored by advisors. But I don't think it replaces advisors and it's kind of like you know, even just with basic asset allocation we've talked about, you know, robo advisors.
Speaker 1:Before that they were going to take over everything and that has not been the case. But there is a space for it. But as people's wealth becomes increasingly complex, they do want to sit down and talk with a human. As much as they like their phones and talking and double-checking things or looking at things. They want to have that human insight to make sure. Is this really how it works at the end of the day, and do I have somebody that's human, that's accountable and that could be that accountability partner along the way too? So to your point.
Speaker 1:You know, michael, I know we were talking about before this podcast about kind of your journey with fitness, right? So there's lots of AI fitnesses out there. I have an anatomical. I think it's great, you know all those kinds of things, but the truth is I don't think it completely replaces personal trainers, because having that accountability, having that person to coach you on things that you already know and should be doing, but helping to kind of bring it to the fore, and again that accountability role I think still has a lot of merit and a lot of value. So I think it's a compliment, not something that completely replaces.
Speaker 2:Talk me through the process of writing the book. Somebody once said to me that having a book is like a very expensive in terms of time business card. I think there's some degree of truth to that. But you know, is it one of those things where, as you were writing it, you had to do research beyond what you already knew? I mean, how easy was it for you to do? Talk me through that whole journey.
Speaker 1:Yeah, it was a pain in the butt, the whole thing was insane. So it's something I always wanted to do, you know, and I had thoughts that I wanted to put together. I didn't know how to put together them. I'd never written a book before.
Speaker 1:So initially, you know, you go to some conferences, advisors, and they talk about, you know, companies that'll help write the book for you, help do this or that, based on a series of interviews, so I said, okay, well, that'll help kind of confine things, et cetera. Um, I said, okay, well, that'll help kind of confine things, et cetera. So I started down that path, um, in working um with someone to so first create just that detailed outline. And that part was great. Um, she had helped, uh, several authors in this uh, and and wealth management um put some books together, kind of new issues out of things, and so, um, we went down that path and helped with kind of a detailed outline on the construct. Um, after a series I think it was 10, 10 interviews that I did, the third kind of came up with a thread um of things that that she thought would put together well for a book. And then, um, I started that and then, um, it's like, okay, we'll go to the next phase and and even do so, that kind of help write the book as well.
Speaker 1:The actual book itself, um, that did not work for me, um, though, because, as it got nuanced beyond the outline, you have to have somebody this, this isn't just a book of feelings. There are certain parts of that, of course the eq component, the stories about my dad, etc. That that were helpful in kind of constructing the storyline with it, but when it gets to the actual financial plan, the advice, the um, uh, the things that we talk about on the strategies, I should say, um, there's not any direct advice in the book, but, um, the nuances that are there, um, and even me, when I read the book now, there's like maybe I should have included this, maybe I should have tapped this at a certain point. Just kind of have to let go and say, okay, let's go forward. But there was a hiccup along the way too, because we were going to release this book in October. Then it got delayed until January and then by then tax laws had changed and numbers had changed. It was right up to the deadline to make sure I could get it resubmitted and hopefully, the books that went out on Amazon and Barnes, noble et cetera, made it out with the right numbers in there. We made numbers in there. We made it just in time.
Speaker 1:Um, I think there's only uh one edit that the word currently has one hour instead of two hours throughout the whole book. But those little things, as a perfectionist, kind of eat away at me. But, um, I would say the difficulty is keeping it in a fashion that's um relatable, somebody to read and walk away with some understanding and some tips and and actionable ideas, um, seeing how it can pertain to their personal situation, regardless of level of wealth in there. Um, and that's been the feedback that I've gotten a lot of is uh, that's that's come across um as professional. Though when I read it like again, again, I over, over worried and analyzed I should have said this, or if I should explain it with one more word here, this or that or another sentence here to kind of recap it. But it can easily kind of become overwhelming.
Speaker 1:So the idea behind the book is it to be just enough where you get the idea of things and understand that you don't know what. You don't know perhaps resources and the tools so you can understand some of the industry jargon around it and how to really consult with your team of advisors in order to, um, to, to enact, uh, some of the and implement some of the things that pertain to you in the book, yet also be able to kind of judge your current set of advisors and say you know, if they're not talking to me about this, why do they understand these concepts? Are they doing it, um, or are they just kind of doing a very bland and generic advice and I haven't done any drill down? So, um, there's some of that in there. Um, I try to recap it with something that quirky but fun for me, I call the swim lessons. So, stefano, welcome investment management lessons. Kind of a nod to my dad who came over from, from greece, who you know, country known for all its speeches, but he never learned to swim himself.
Speaker 1:But but he did learn to swim financially, um, and so we kind of recap each chapter with some actual ideas, some questions that are posed, some examples that um, hopefully take the material that can be a snooze fest for those that are not, you know, fully, uh, into the world of financial planning and, um, really kind of circle back and say, okay, this is the stuff that pertains to me, perhaps, and this is stuff I need to do and take some action with. So it was a fun journey. My wife is certainly glad it's over. I'm glad to have that time back and not waking up in the middle of the night. So you're not going to edit this for that.
Speaker 1:And then also, it was hard cutting things out but to try to keep it around 200 something pages so that it's not overwhelming, doesn't become a financial you know, phone book but has enough meat to it where it makes sense. And then getting out of my own head about other professionals reading the book and me being too technical in there just to try to appease an audience that really the book isn't, is not intended for at the end of the day, and you're always going to have your critics out there, so of course says that all three. You're worried about your first negative reviews, but I guess you don't make it until that happens too. So we'll see how all that unfolds, but I'm excited about the launching and how it's all going so far.
Speaker 2:George, for those who want to get in touch with you because they're intrigued by your knowledge set and who want to potentially buy the book, where would you point them to?
Speaker 1:Go to 2comoweltcom. You can spell with the number 2 or space out 2comowelt. You can also just Google my name and I'm sure I come up that way too. Feel free to reach out. The book's on there. You'll be able to buy the book. There's a contact site about contacting me. As far as an offer to keep up with where the book's at and some of the accolades and things where we'll be featured at, so I appreciate it. Thank you, michael.
Speaker 2:Appreciate those that watch this Again. This will be an edited podcast under LeadLag Live and all your favorite platforms. I am now going to take a break, given that I have done two other ones of these back to back. Appreciate the knowledge here from George and thank everybody for watching. Cheers.
