Retire Smart Austin | Episode 166

Cynthia de Fazio  00:26

Welcome to Retire Smart Austin. My name is Cynthia De Fazio, and I’m joined today by Phil Capriotti, senior of Empower Wealth and tax and to our viewers at home, as you know, Phil and his team see hundreds of you in the office every single year. And so, I want to ask Phil today some of the common things that he’s seeing people that maybe perhaps were doing a few things wrong before coming into the office to meet Phil and his team. Well, Phil, how are you today?

Philip Capriotti  00:53

I am wonderful Cynthia. It’s so good to see you, and it looks like we’re kind of matching. I don’t know it was, must have been the bulk in mind meld or something like that.

Cynthia de Fazio  01:03

Because we had no idea we were going to really need, yes, pretty cool. Yeah. Well, our shows not blue and unhappy. It’s going to be a great show. It’s going to be fantastic. We’re going to talk about some common things that you’ve seen with people coming into the office, because I know so many people are actually clicking on that QR code. They’re not maybe calling in right away, but what we’ve noticed is that they’re interested in something that you’re saying. They click on it, and they do that a little bit later in the week, and then they can schedule their time. Even at that point.

Philip Capriotti  01:32

We are getting, and again, it’s a good problem to have, but we are getting so many folks clicking on the QR code, we’re having a difficult time keeping up when I say, keeping up now when you call in, or you when we call you back, when you click on that QR code, Erica or Betty will say, do you need to be fast tracked? Meaning, do you need to get this information as quickly as possible? Because normally will take 2, 3, 4, meetings to really dial in that personalized plan for client, especially if they’re still working, they’re getting ready, they’re thinking about their social security strategy, and what are they going to do with these investments? Who’s going to manage them? Who’s going to do their taxes? They haven’t had a will done. So, there are a lot of different parameters and a lot of different services that we offer. And many folks were like, well, you know, we’re going to take vacation in about three weeks. I’d like to set it up for like, four weeks from now. So, we want to know, do you need fast tracking? And this is what I recommend, because what happens is we get inundated. We’re seeing 8-10, sometimes 11-12, people click the QR code per TV show, because we also have the show, not just on Fox, but we’re on NBC. We’re on 10:30 to 11:00 on NBC, on Sundays, and then from 9:00 to 9:30 of course, on Fox. We’ve been here for about four years. So, call in, or click your QR code quickly, especially if you’ve been looking at watching our show for years and you’ve been apprehensive, but you really want to get in. So, because those five callers, we have to stick to it, because then we have the radio, we have we have people from the radio coming in Saturdays and Sundays. But anyway, it’s a lot of fun. We’re doing a lot of great work. We’re hiring new advisors, but it takes me a good six to 12 months, six to nine months, to train an advisor in our techniques, because we’re very, very unique in our style. We do a lot of heavy lifting before we choose, or folks choose to work with us. I love we’re not the in and out kind of advisor which a lot of these folks nowadays are. But at any rate, we see a lot. So, getting back to the original question, one of the biggest things that we find in our portfolio observations of clients is lack of diversification. Okay, many folks don’t even understand the difference. They don’t even understand like using unutilized sectors, for instance. So, I like to build, we’ve actually personally built your portfolio based on your risk tolerance, your drawdown, how much you’re willing to gamble, we’ll say. And then when do you want us to stop? But lack of diversification, we like to use a certain type of portfolio part of the management so maybe a piece of the portfolio will be sector rotation. We’ll want to invest in and out of specific sectors that are doing well during the current economic, geopolitical, the current period. So, giving an example right now, the real estate sector, not so much, all right. So, we’re seeing home prices coming down. We’re seeing. People not leaving their old homes, because we have those interest rates at 2.65% and so forth, and again, an old mortgage now it’s upwards of seven, seven plus percent, and folks are apprehensive, so you want to look at that. So, lack of diversification over concentration in a single investment is also a problem. Having 20, 25, 30 different mutual funds. You have no clue what’s inside of them. Every one of those funds will be holding Apple. They’ll all be holding Microsoft. They’ll all be holding Nvidia, you know. So, when we look at their concentration, they’re good companies to have, and we love them. Okay, you know The Magnificent Seven or so forth. But what about the other sectors? What about the health care sector? What about the financial sector? There are a lot of other sectors that can help balance these up and downs in the market. Okay, okay. So many folks, many of you folks, think you’re diversified because you have different mutual funds with different funds with different names, but most of these funds hold the exact same position. So that’s one of the-. That’s one of the issues we want to take advantage of. You would be shocked if I told you how many folks have no clue what their management fees are.

Cynthia de Fazio  06:19

I’m sure that’s common, Phil, because people don’t think about it.

Philip Capriotti  06:23

I have folks coming in, and I’ll ask them, What had you- what stimulated you to call and come into the office? I mean, it’s one of the very first questions, what we’ve been watching your show for a while, and so forth and so on. We moved here from Ohio; we moved here from New York. We moved here from California. Our advisor still back there. They don’t do tax planning. They tell us to talk to the CPA. They don’t do trust. They don’t do wills. We and you got our attention because you’re kind of like a one stop shop. And we are, and we have been since I started the company in 2005, so I’ll ask them, how much are you paying your adviser in fees, and as God is my judge, 95 I’m going to say 95 of 100 people. “I don’t know, we don’t talk about fees.”

Cynthia de Fazio  07:12

I’m sure, I’m sure that’s common.

Philip Capriotti  07:13

So, it is. And many advisers, I guess, I’m sure they tell them about the fees, because they’re obligated by law to do so, but they don’t know it. If you ask any of one of my clients what their fee is, they’ll tell you exactly what it is, because they know it’s one of the things we discuss. So, ignoring fees and high internal expenses inside of these funds is another issue. Now, one of the reasons we want to get a hold of that like one of our portfolios is a large cap growth portfolio that has a lot of AI, a lot of technology folks love it. It has zero internal fees. It’s a stock portfolio. So, with that, we’ll see mutual funds that are primarily stock portfolios with internal fees close to 1% a year, plus the advisor might be charging one and a half, one and a quarter depending on the advisory from the working with so ignoring fees, not having that reviewed. And by the way, when we run your Morningstar report and portfolio observation and analysis, those fees are clearly outlined. You need to know them. So, we want it’s all about education with our clients. Sure, one of the other things that we see, believe it or not, is some folks trying to, I can’t believe that people try to time the market.

Cynthia de Fazio  08:26

Yeah, that’s scary when you think about it, because how do you do that?

Philip Capriotti  08:31

I have folks come into my office that got burned pretty bad in 2022, and they were holding bond portfolios, your 60-40 portfolio. It’s not the way to go nowadays, and many professionals will tell you that, but market timing, they get out at the wrong time, and they get back in at the wrong time. Wow. Well, you’re not being you’re not you have you when you pay a fee, you’re paying for analytics, you’re paying for research, you’re paying for your advisor to worry about. When do we need to get in? Take our foot off the gas, put our foot on the gas within a client’s risk tolerance. So, we see that a lot when you call our office. Make it sooner rather than later. Dial 888-818-6557 or click that little QR code in that lower left-hand corner and come in and let us take a look at exactly where you stand. Are you underestimating your portfolio’s risk because you’re loving these returns? Let’s take a look at both sides of the coin. Absolutely.

Cynthia de Fazio  09:40

Feel so important to our viewers at home, there is a number to call on your screen, 888-818-6557 and if you’re in the viewing audience today and you’re asking yourself, am I taking too much risk in my portfolio, how am I going to be okay in my retirement years if I am doing so, do I know the amount of fees that I’m paying? If the answer is you’re unsure, call in today. 888-818-6557, Phil and his team have the answers for you. Let them run a Morningstar report and see exactly where you are with your investment strategy. If you don’t have your pen handy, that’s okay. We’ve made it even easier. Just grab your smartphone, click on that QR code at the bottom corner of your screen that will take you right to Empower Wealth and tax landing page, you can claim your spot accordingly. We’re going to take a very short commercial break here and retire smart Austin. Don’t go anywhere. We’re talking about some of the common things that Phil and his team are seeing when people are coming in for the first time to the office. Stay tuned. You.

Philip Capriotti  10:45

Our office is in cedar park. We employ 14 people. We have experts and professionals. Everyone’s license, if you fit into our company, you love people, you care people, you’re service oriented. So that’s our home office. We just opened a satellite office in Horseshoe Bay. Within the next 12 to 15 months, we’re opening up another satellite office in Sun City, in Georgetown. I told my wife, I said, we’re going to open up. She said, What? Open up another office? When are you going to retire? I said, Honey, I am retired. This is what retirement looks like to ask, and you better. Might as well hold on to your hold on your skirt, honey, because we’re probably going to open one up in Dripping Springs. To my son, Philip, he and his wife is also involved. Erica, she’s wonderful, will probably end up running Cedar Park office. My son Parker, he may run the Horseshoe Bay office. My daughter Lisa is going to be running the Sun City office, and I guess I’m going to need a grandchild to run the other dripping spring office. But at any rate, I was really blessed in that out of my five children, three are in the industry to directly work for us. This is really their legacy as well. You Cynthia,

Cynthia de Fazio  12:03

Welcome back to Retire Smart Austin. My name is Cynthia De Fazio, joined today by Phil Capriotti, senior of Empower Wealth and tax. And we’re talking all about what Phil is seeing when people are coming in for the very first time. What are some common pitfalls, if you will. So, Phil, an amazing episode we’re having today and talking about such important things, all surrounding retirement planning, of course, and some mistakes that you’re seeing. What about this next one? We talked a little bit during the commercial break, and I know you’re passionate about this overlooking tax efficiency.

Philip Capriotti  12:35

It’s amazing. It’s amazing how many folks have been really brainwashed, in a sense that when they retire, they’re going to be in a lower tax bracket, and they’ll be able to methodically take distributions from their 401K or their retirement accounts. They don’t understand the effects of the taxation of their Social Security for every dollar they take out of an IRA or 401K, it subsequently causes the Social Security taxes to go up significantly. They don’t understand about the Irma tax that affects your Part B and Part D premiums. They don’t understand that when they have to start. And this is where our government really, unfortunately, has put everyone to sleep when they change the Secure Act 1.0 and 2.0 we can’t wait to see what 3.0 has in store. Yeah. Well, they’re looking at changing the uniform life expectancy code, you know, the right now when they changed the RMD age from 70 and a half to 72 and in secure act one and then secure Act Two made it 73, 74, 75 depending on when you were born, they never changed the uniform life expectancy code, which is the variable we use to determine how much you have to take out of the IRA once you reach required minimum distribution or RMD land or age. So, what happens is, if they don’t, so they’ve done no tax planning, no RMD distribution planning, and when we run the numbers based on their portfolios returns, and they start to see, oh my gosh, there I have to take 70, 80, 100 when I’m 80, I have to take $150,000 in an RMD out. They have no one, and many of these advisors, they’re not talking about it. And I see the debt rising, and I know we know taxes are going up. And I’m telling you these 401(k)s, these seven- and eight-digit Ira qualified accounts have a huge tax bullseye on their backs. So, one of the things that we’re seeing is overlooking tax efficiency in your retirement plan. Look, folks, if you want your retirement income to last and last and really go to distance, meaning you don’t run out of money before you run out of life, you must take into account future. Tax increases and inflation increases. That’s the hidden tax. That’s the one that no one talks about. We were really our eyes were opened up when, due to administrative policies, we saw inflation go up in 2022. 8.6% is what we they told us, if you went back to the old inflation indicators, it actually went up about 17% another story won’t get into that, but the fact of the matter is, you must initiate an inflation action plan and a tax Efficiency Action Plan in this retirement I’m going to tell you about eight out of every 10 people to come in are kind of oblivious to the tax and inflation aspects with respect to planning their retirement income.

Cynthia de Fazio  15:46

Wow, unbelievable. What about this next one again? Phil, this is something that we talk about quite often on the show, because it’s so important neglecting risk management. Wow. This is where the x-ray comes in.

Philip Capriotti  16:00

This is where the x-ray really comes in. I will tell you, many folks neglect, and it doesn’t matter whether you’re a bond aficionado or you’re an equities aficionado, many times I’ll see folks come in and they’ll have they’ll have advisors that have sold them literally hundreds of 1000s, millions of dollars of annuities thinking that that’s going to be the cure all-be all. And the fact of the matter is, when we look at neglecting risk management, and this has put a definitive number behind how much you’re willing to see your portfolio drop during every possible, possible and imaginable situation that’s going to occur. How about the next pandemic-x? How much is your portfolio going to drop? How about when taxes go up? How much of your port is your portfolio going to go up? Okay, how about tax increases with respect to new newcomers, our newcomers that never paid taxes into the system. We still have to feed them. We still have to give them health care, shelter and so forth. We have to have their votes. But my point is, we’re neglecting that inside of the portfolio. So, what I would say to you is look at how much and have this conversation. This is what we have in our office. How much are you willing to lose in any one time period once you are in distribution mode? That’s when you retire, and you start to take distributions. You’re no longer getting that paycheck. We want to make sure that we’re yielding somewhere between a 7 to 11-12% a year, depending on the client’s risk tolerance. But I always like to draw a line in the drawdown no more than somewhere between five and 15% market volatility. We need to know when to get off the bus, and we need to know when to get on the bus, just like we did in 2008.

Cynthia de Fazio  18:02

That’s true. That’s true. Very good point. Phil, well, we’re going to take a very short commercial break soon, but I know that you haven’t already to present. I know I’m sorry to do that to you, but the clock is ticking.

Philip Capriotti  18:14

All right, folks, come into our office. Come and meet our family. And come all of our employees are really part of our extended family. You’ll see that after your first or second interview, dial 888-818-6557, come on in. Let’s have a candid conversation about what your important goals are in retirement, and let’s see if we can help you understand maybe some of the goals you may have overlooked. Or if you’re apprehensive about making phone calls or Sunday morning you’re not in the mood to talk with anyone, click the QR code and that will take you right to our landing page. We had some problems with it in the past, but our it, guys and gals told us that they have it straightened down. Click it and when you when you fill in your information, tell us in the comments section what’s most important to you. When Erica or Betty or one of our administrators calls you tomorrow morning to set up the appointment and to dial it in, we’ll make sure we get you to the right advisor and fast track you to get your entire plan accomplished in a relatively short period of time.

Cynthia de Fazio  19:23

Phil, thank you so much to our viewers at home. There’s a number to call on your screen, 888-818-6557, we know that you’re in the viewing audience today, and you’re asking yourself, Am I on the right path for retirement? Am I taking too much risk? Do I understand what the fees are involved with the current advisor that I’m working with. What am I even paying? If you’re unsure, call in today. Have the analysis done. 888-818-6557, or, as Phil mentioned, even simpler, you can pick up your smartphone, click on that QR code at the bottom corner of your screen that will take you right to the landing page for Empower Wealth and tax or. Going to take a very short commercial break when we come back. I want to talk to Phil a little bit about emotions and how they play a role when people are coming into the office. We’re going to talk more in depth about that. We’ll be right back momentarily.

Speaker 1  20:13

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Speaker 2  20:21

So, this job requires basic knowledge of the social media and video platforms, content creation and SEO. How proficient are you in those areas?

Philip Capriotti  20:34

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Cynthia de Fazio  21:10

Welcome back to retire. Smart Austin. My name is Cynthia De Fazio, joined today by Phil Capriotti, senior of Empower Wealth and tax, and we’re talking about some common things that Phil is experiencing with his team when people are coming into the office for the very first time. Phil, I wanted to ask you about this very important topic. Obviously, we know that emotions play a huge piece in everything that we as humans, being human beings do. How does that impact someone when they’re coming in for the first time? And also, there may be investment strategy overall behavioral.

Philip Capriotti  21:41

You know, many folks, we get very emotional when we see first of all, we’re happy, as long as the tide is up and our portfolio is doing well, yes, and we get the old pat on the back, I’m doing a real good job managing our portfolio, honey. Don’t worry about it. We don’t need a professional I’m good. I do my research, I do my study, and I watch TV. I know up on all of the current trends. One of the problem problems with that is you eventually become emotional, not as the market is going up and you’re seeing your portfolio grow by 20, 30, 40, $50,000 in one particular four-, five- or six-week period. It’s the downward cycle where we start to become more emotional, especially in retirement, when the paycheck is no longer coming in. Yes, now we may have, and hopefully have gotten our social security strategy right. We all know social security is going to take a cut. They’re going to means test tax that they’ve already told us. So many folks are I look at social security, it’s going to change, pardon me, significantly. But this portfolio, we’re going to see our 2008 they’re going to happen every 1015, years, sometimes twice, within a within a 10-year period. So, emotion forces people to get out at the wrong time, after they’ve already lost their will say shirts, so to speak, and then get in and get apprehensive about getting in. One of the disadvantages I see a lot is investing in portfolios and not accounting for inflation, another big one. All right, I see a lot of folks that have come in with muni bond portfolios, and like Phil, what can I do? I don’t have to worry about federal taxes, but I didn’t realize that the interest on these muni bonds were going to cost my Social Security. They were one dimensional. One particular client comes in $3.5 million in muni bonds. And they thought that the interest on those muni bonds, that 130 $140,000 that they were getting would be plenty. What they saw, though, is as interest rates went off. The value of those muni bonds significantly reduced again as interest rates go up, bond values drop as interest rates come down. As teeter totter they go up. There’s a time to be in bonds. There’s a time to be far out of bonds. If you had a portfolio that was bond heavy in 2022 you saw significant losses. If you’re in retirement, you might be getting quite emotional call our office, but ignoring the impact of inflation. Getting back to that topic, these muni bonds are paying two to 3% while inflation is running true. Inflation is running between five and 7% we’re reducing our purchasing power and over a timeline of five years, 10 years, 15 years, when we don’t price in inflation along with market volatility and taxes, we end up with a retirement income plan that fails.

Cynthia de Fazio  24:53

Wow. That is scary. I mean, all of these things fell obviously, when someone is coming in for the very. First time, and you’re sitting with them, and you’re really getting to know their situation. That first step does that always involve running that Morningstar report so you can do a deep dive?

Philip Capriotti  25:10

Always, always, always, if you don’t want us to run a Morningstar report on your portfolio to find out risk return, internal and external fees, you’re not serious about a comprehensive retirement income plan, but I got to tell you, I’m a good 9095. People out of 100 they can’t wait to get to the Morningstar report because they’ve never had one run before. Many folks don’t even understand what it encompasses. See, we not only run it, I sit down and I explain it, we give them portfolio observations. How many different ways can we better your current portfolio based on your risk tolerance? This is invaluable information, and we don’t ask for folks to work with us. And then, not only do we prepare it by certified financial planners and analysts, we explain it and then email it to the client. Wow that clients review it with their advisor, and I tell them, Look, I’m not in the business to train advisors. If you want to share with your advisor, go right ahead. The fact of the matter is, if you have to teach your advisor how to manage your portfolio, you’re probably with the wrong advisor. Yeah, yeah, that’s true, but Relationships are hard to break, failing to rebalance, I’m going to say is another issue, folks. We’re going to get ready to see three major tax changes. It may not be in 2026 it may not be in 2025 with this new Biden budget proposal, but it’s going to be there. They’re going to eliminate long term capital gains, and they’re going to make it ordinary income. They’re going to eliminate step up in basis. If you are not rebalancing these taxable portfolios on a regular basis, you’re begging to have a major tax burden laid on you in a relatively short period of time because of this increasing debt. They’re going to use this as leverage to increase taxes, and when I say they, I’m talking about the people that that elect, that we elect, to run our country, our elected officials. They’re the ones that have the power to change the tax code at any time and as frequently or as infrequently as they can.

Cynthia de Fazio  27:21

Okay, that’s a scary thought. Phil, thank you so much for another amazing episode this week. To the viewers at home, there’s a number to call on your screen, 888-818-6557, if you’re in the viewing audience today and you’re not sure how much risk you’re taking, this is the perfect opportunity for you to find out. Why not have a morning star report, run take a look at what you currently have in place. Thank you for spending time with us today. On retire smart Austin, be safe, be happy and be blessed. We’ll see you back one week from today. Take care now.