Jeff Massey: Massey On Money

Transcript

[0:00:32] CH: Author Hour is about answering one question. How can you get the best ideas from great books without spending so much time reading? Every week, we take you behind the scenes with a new author, about the most important points in their book. So if you love to learn while you're on the go, you’re in the right place. All of our book summaries are 100% free and we do more than a hundred episodes every year. Please subscribe to and review author hour on iTunes. Today’s episode is with Jeff Massey, author of Massey On Money. So let’s say you’re over 50 and you’re transitioning into retirement, you have a moderate amount of capital but not a lot of investing experience. So how do you build a solid post-career income that you won’t outlive? That’s where Jeff comes in. Jeff is the President of Massey and Associates Inc., a wealth advisory firm that specializes in retirement planning among many other financial services. And as the host of the popular radio program, Massey on Money, Jeff offers his advice an insight on wealth management. In this episode, he provides a road map that will help you on the journey to a successful retirement. Now, I do need to read off a quick disclosure from Jeff’s firm, as he’s a fiduciary, a certified financial planner, who is legally required to act in the best interest of his clients and for the sake of this podcast, we need to give disclosure to all the listeners. Which is, “Investment advisory services offered only by duly registered individuals through Massey and Associates and AE Wealth Management, AEWM, which are not affiliated companies”. Now having said that, by the end of this episode you could feel much better prepared for your financial future even if you aren’t a numbers person and Jeff is going to show you how. And now, here is our conversation with Jeff Massey.

[0:03:10] Jeff Massey: There were six kids, my dad was a factory worker. He never made a lot of money and my dad built the house that we lived in, he and his friends and relatives, I mean he hand dug the foundation and they built this house so it took them a couple of years to get it done but we grew up in a poor family. I mean there were four boys, two girls. Four boys in one 10 by 12 bedroom and the two girls shared a smaller bedroom and then mom and dad had their room of course. And you know, looking back we could see that yeah, you know we really were a poor family but you know in our neighborhood, there were many others like us. You know big families, lots of kids, six, seven, eight kids and the parents weren’t high dollar earners. So I remember growing up and always wearing hand me downs because I was the third son out of four. So when you look at that when I started working, I started working at a pretty young age, the first thing I spent money on was my own clothes because those were clothes that I bought with my money and nobody else wore them before me and that was a big deal for me. And when we did start working, we had to split our paycheck no matter what we made. So my first job was at my uncle’s restaurant on a Saturday morning and I had to drive my bicycle two and a half miles to get there. I have to be there by 7 AM on Saturday. I would work for a ridiculous seven hours and I get paid $14 and I had to ride back home that two and a half miles and give half of that to my mother and the deal was we would split our earnings up to $70, so the most we’d have to give mom was 35 bucks. Now in today’s world that is no big deal but as a senior in high school, I was paying my mom $35 bucks a week. So I called that room and board $35 a week. So about a year or so ago, I’d put that into an inflation calculator. And that would be the equivalent of $289 per week, that a senior in high school will be giving their parents. So I mean when you put that in perspective that was a ton of money that I was giving my folks back then. And all of us had to do it and even with the help with all of us working because I was number five out of six kids, all my older siblings did the same thing, that’s just the way it worked out. So that really because we had so little growing up, I was kind of sadly, I had a twisted outlook about finances and things. You know that I would be happy once I got X. Well that is not what life is all about and thankfully I got that mindset correction probably in my early 30s but I still have a passion about finances because my folks, really when they retired they pretty much had their house and about 20 grand and that was it. So my passion is to help people so that when they get to retirement they are in a better place and that we could hopefully structure a plan that encompasses some assets that will provide income and some assets that would provide growth to help with inflation as you move forward in life.

[0:06:15] CH: Wow, that’s a pretty remarkable story, thank you for sharing that Jeff and I can see why you have a passion for what you do and given your background and how you grew up. Now, you are a fiduciary and for listeners who are not familiar with what a fiduciary is versus a standard financial planner or somebody who’s a stockbroker or something, could you lay out what that means?

[0:06:45] Jeff Massey: Well there are two different standards if you will in the investment industry. One was a suitability standard and one is a fiduciary standard. So suitability, let’s say you are an investor and you want to grow your portfolio, that is very vague and it’s a loop hole you could pretty much drive a tractor trailer through where any stockbroker could pretty much sell you most stocks and it would be considered “suitable”. Now if you go to the same person to a fiduciary and they say, “Look I want to grow my portfolio”, that’s just the beginning of the statement. We don’t have to dig into the entirety of their portfolio and see where something would best fit and as a fiduciary, we are required by law to work in the best interest of the client. So if the regulators were to show up at my office and say, “Okay why did you give that client that recommendation?” We have to be able to back it up and say, “Look here is why we felt at that moment in time that that was the best thing for them to go into.” So two totally different standards.

[0:07:51] CH: And a quick question there, what happens to the suitability person, say the stockbroker who doesn’t work in the best interest of his clients, he doesn’t not get any legal ramifications like he can do whatever he wants. Whereas with you, you are held legally accountable. What does that mean? Like could you face getting sued, could you face jail time? I don’t know what that means.

[0:08:18] Jeff Massey: Well let me clarify. It’s not that a stockbroker can do anything, okay? They have much more leeway as to what they can do. Now a fiduciary is just more subject to being sued because you are supposed to be working in the best interests of the client. If something blows up on an investment or something and then the client gets injured financially, well then they have an easier time suing a fiduciary than they would a stockbroker. So that’s the bigger part and could you be sued, could you end up in jail, can you be fine can you lose your licenses, yeah all of those things. Now anybody could end up in jail if they do the wrong thing. We’ve all seen the news. You know there are attorneys that take money from trust accounts, there were advisers that abscond with people’s investment moneys. There are stockbrokers that use a client’s account for their own fund, buying a boat, what have you. And thankfully, they get caught eventually but think about Bernie Madoff. The reason why he got away with that for so long and he was not a fiduciary for one but he acted as “the custodian and the financial adviser”. So as a custodian, he’s required to provide statements but those statements we’re all fictitious where for instance the way we work, we have third party reporting. So we have my firm Massey and Associates Inc. but our client’s investment dollars are held at Fidelity. So now Fidelity provides those monthly statements to the client not Massey and Associates Inc. So therefore, it is much more difficult for somebody with third party reporting to be able to steal from a client’s account. I am not saying it can’t happen. I am just saying that really limits it and thankfully, I am a certified financial planner professional. So we have a fiduciary standard in our code of ethics but as an investment adviser representative we have a statutory requirement to work as a fiduciary in the best interest of the client. And you know the way I look at it, anybody that works with your money, Charlie, should be working in your best interest. I don’t care what your title is or what the right requirement is, everybody that works with client’s money should work in their best interest. To me, that’s a no brainer and I don’t know why they don’t set the rules accordingly.

[0:10:44] CH: I whole heartedly agree. I don’t want us to get too far down the path between the differences but I do think it is important to emphasize to listeners we’re talking with a fiduciary somebody who is legally required to act in their client’s best interest and I hold fiduciaries in the highest regard in the financial world. So I want to talk about your book, Massey on Money. You do a radio show as well by the same name and so tell me about the big idea in your book. I mean you have a lot of stuff in here, you have the wealth management formula. You have sections on investments, certainty of income, practicing retirement this sort of thing, what is the big idea that you really want listeners to take away from this episode?

[0:11:39] Jeff Massey: Well you know that practicing retirement, I have to give that credit to one of my clients and that’s where it came from. I had met with them, he was a client for a while, they came in for a visit and he said, “Yeah I am practicing retirement.” And I just cocked my head to the side. I said, “What do you mean?” Because I knew he was still working. He said, “Well I went to my boss and I said, look I’d like to be able to work four days a week instead of five days a week.” Now, he’s one of those very lucky folks that work for a very large firm and had a huge pension that was the equivalent of 80% of his pay. That’s huge.

[0:12:18] CH: Wow, that world is long gone for us millennials.

[0:12:22] Jeff Massey: Yeah, exactly right. So when you look at that, that is the equivalent of him working four days a week. So what he did is he practiced retirement, he said if I can drop down to four days a week and not have to hit my assets for any additional income then I know after doing that for a year, I know I can comfortably retire on just my pension without tapping into all the savings that I have built up all these years as well and I just thought that was a cool idea. Now let’s face it, most people –

[0:12:53] CH: That’s a great idea. I love that.

[0:12:54] Jeff Massey: It is a great idea so I said, “You know what? I like that idea.” And I have talked about it on my radio show. I think it is a great thing to do and I shared that with a lot of people and say, “Look you might not have an 80% of your paid pension but conceptually you can do the same thing.” If you are getting close to retirement then try living on what your post retirement income will be and then make the exceptions of course for the extra gasoline you still need to buy back and forth to work, any clothes you need to buy for work, etc. But then you could look at the baseline of your expenses and then say, “Look if we’re only going to have this many dollars in retirement let’s see if we can afford that.” And if we have to draw money from our assets during that period well then how much is it? As long as it is not in ordinate amount of money, now if you look at that you have to take 10% from your assets, you have a spending problem. Or you have a very low asset based to draw from it, either way that is not a good outcome. So it is good to look at it. You know we help our clients and in the book, we talk about an offer. A simple sheet, it’s called an income and expense sheet and in about 20 minutes, you can determine what your lifestyle expense actually is from an entire year and it is really neat and it is available on our website at masseyonmoney.com and just slash “income expense sheet.” That is available for anybody to go download, it’s a simple form. It makes it really easy, explains how to do it in literary 20 minutes. So most people take one to 20 minutes to figure out where they are going on Saturday night, never mind their lifestyle expenses. It’s a very simple way to go about doing that.

[0:14:36] CH: I love that and I just want to reiterate because that is a really big idea. I have never heard of this apart from taking mini retirements which is just like a three to six month in some other area where you are not working basically but the idea that you just said is practice retirement for a year without having to tap into your savings or assets and if you have to take 10% of your assets in that year, you have a spending problem or too low of a base. Is that correct?

[0:15:11] Jeff Massey: Yeah, that’s exactly how we would look at it. Now if we’re able to do that and draw a small percentage, 3% or 4% from your asset base then you can probably comfortably retire.

[0:15:24] CH: That’s awesome.

[0:15:25] Jeff Massey: Let me make a note there Charlie that of course everybody’s situation is different. So I am not giving investment advice here per say, we’re talking in general terms.

[0:15:34] CH: And now, you’re talking fiduciary to me Jeff. You are speaking on behalf of the client’s best interests. I love it. So let’s talk about disinherit your uncle. This is the third chapter of your book, what do you mean by disinheriting your uncle?

[0:15:52] Jeff Massey: Yeah, as in Uncle Sam and in try to reduce your tax burden in the long run and the real concern that most financial advisers have at this point is the heavy federal debt level and it is not coming down. It is getting bigger and digger day by day and as interest rates continue to increase at the federal level then it is going to make the repayment of the debt even more costly. So it becomes more problematic. Now David Walker is the former comp patroller of the United States under George Bush. He’s still pretty active and he’s been beating this drum for many years and he is on record saying that income taxes must double by 2025 in order for the United States to remain solvent. That’s a big deal and when you look at that, I mean we just had a tax plan adjustment. Now that could last until 2025 when it is going to expire currently or if we got a new president in place, it could change after a presidential shift. So it really depends on what’s going to happen. But in any case, we need to generate more revenue at the federal level to keep up with the debt service. So most of us feel that income taxes will be getting much higher in the future and that future is not all that far off. It’s seven, eight years out that’s all it is and it’s anticipated that they could be much higher than they are now. So if we think that is reasonable to assume then maybe we’re better off paying taxes on IRA accounts or retirement plans that we can’t distribute out to ourselves and pay that tax today at today’s likely lower tax rates than what you are going to see throughout your retirement years. Because now for most folks, retirement could be 20 or 30 years. So that’s what we talk about by disinheriting Uncle Sam, yeah he will get some taxes now but you’re going to take away the big tax bite that is highly likely to happen in my opinion in the not so distant future.

[0:18:04] CH: Huh, wow that’s a big deal. So taxes are going to go up significantly within 10 years and the best way to, not avoid it but to lower that tax rate is by investing in your retirement accounts where there’s - you are paying the tax today rather than the tax of the future.

[0:18:28] Jeff Massey: If you can do that that’s awesome because if your firm has a 401(k) plan and better if it is a 401(k) Roth plan, then you are paying taxes - the term we use, the analogy we use, would you rather pay tax on the seed or on the harvest? So if you put in $20,000 today by the time you retire that could grow to what? 30, 40? Who knows how high? So would you rather pay the tax rate today on the seed on the 20,000 and then regardless of how big it gets be able to withdraw that as long as you play by the rules and not pay any income tax on it at all. That’s huge. That’s a simple version for folks that are already heavily invested into a 401(k) or IRA plan, what we recommend in many cases is that we should start to draw down and transfer from the taxable IRA account, withdraw it, pay today’s tax and then reinvest it elsewhere. Where it can grow on a tax differed basis, so that it gets bigger and bigger in the future and you won’t have to pay taxes on it in the future. One simple thing, it could be a Roth IRA conversion.

[0:19:40] CH: I’m not familiar with this Jeff. I’m invested - I have a Roth IRA that I started in my early 20s at Vanguard.

[0:19:49] Jeff Massey: Okay, good.

[0:19:50] CH: Do I have to do anything with that? I have to put it through a conversion?

[0:19:54] Jeff Massey: No, you are in the place where people would want to be. The younger you are, the more important it is, in my opinion, to be saving on an after tax basis. A Roth IRA, you do not subtract that contribution from your taxable income this year. Going out on a limb but I’m guessing that you're way under 50 years of age. You can only put in $5,500 into that Roth IRA. If you do that, if you put in the 5,500, you will pay income taxes on that 5,500. Now, the rules are, there are two. Very simple. Has to be in the Roth account for at least five years, but the bigger one for you is you have to be at least 59 and a half for the growth to come out of that account income tax free. It is setup for retirement, not to be cash in, cash out whenever you need it, it’s not what it’s established to do, it’s to save for the long run. The younger you are, the more important it is in my opinion to fund those Roth IRAs and maximizing those contributions as early as you can in life, will reap benefits because you have more time on your side for that to grow and it grows on a tax differed basis and playing by the rules once you get to 59 and a half, the growth comes out income tax free. Now, you can take out your contributions because you’ve already paid taxes on it. There’s certain rules with Roth IRA’s that are different from a traditional because of the tax rate aspect. If you want, we can get a little more detailed on those rules if you like to cover that as well.

[0:21:38] CH: Well, the beauty is, you get detailed in your book. So I’ll leave the listeners on a little bit of a cliff hanger there but with 401(k)s, it’s a bit different, right? You can invest up to like 18,000?

[0:21:51] Jeff Massey: That is absolutely correct, if you're under age 50, actually, this year it’s 18.5 and for those 50 and over, they can add another $6,000 to that in a catch up contribution. If you’re 50 or over, you can put in $24,500, starting this year.

[0:22:09] CH: Excellent. Very valuable – I’m typing notes Jeff, this is great. Jeff, if somebody listening to this wants to work with you or your firm, what’s the best way for them to get in touch with you?

[0:22:23] Jeff Massey: Well real simple. They can go to masseyonmoney.com. You can hit the contact us button an email will come into our staff here and we can setup a visit. We call it an opportunity conversation because we don’t know if we can help the folks that are touching base with us, but we have them in for a visit, we have a conversation, we look at what they have in general. And then at the end of that meeting, we say, look, we think we can provide some assistance and then we would take people through our proprietary process which is the Massey on Money Retirement Roadmap which we’ve trademarked. It’s a whole process where we start with a real deep analysis of where they are currently with their investments. Our philosophy is pretty simple, you need to know where you are right now with your level of risk and potentially, the fee structure that you're paying, that you may or may not see on your statements before you can make real solid decisions as you move forward. We offer, listeners on the radio show, the readers over our book, come on in for our visit, it is a complimentary process that we will take you through. We’ll spend a few hours actually putting all this work together and face to face time with the perspective client. At the end of two meetings, we would both know if there is value for the perspective client to work with us or not. There are times where we analyze it and this is where the fiduciary level of responsibility comes in where, where we say, “Look, you know, overall, you’re in really good shape and you know, maybe if you just tweaked this over here or tweaked that which you can do on your own, you should be good to go and maybe you know, readdress this issue in three, four or five years.” Because you always want to kind of revisit the plan. Just to make sure that you’re staying on track to what’s going on in the market place.

[0:24:17] CH: One final question, what’s a challenge you can give our listeners? Something they can do this week that will move them in the right direction?

[0:24:27] Jeff Massey: Maximize contributions into their retirement plans. If they are not maxing out those contributions, figure out how to do that and the sooner you can do that, the younger you are when you can max out those contributions, the far better you will be at retirement. With retirement, what really comes – I want to circle back to one other topic that we hadn’t touched on, although you mentioned it, was the certainty of income. Because without income, there is no retirement. You need the income to pay your bills. Having a certainty of income is really where we specialize, because we want to be able to structure that income for clients and in some cases, we use insurance based products that actually guarantee a lifetime of income. Now, the guarantees of course are backed up by the claims paying ability of that particular insurance company and we do work with very highly recognized names and companies that have been around for decades and decades and in some cases, over a hundred years. We feel we know how to select a good company and we – When it’s appropriate, we can position some of our client’s assets into those types of plans so that they can have that certainty of income to cover at least their baseline expenses, you know, the hard expenses. Maybe not all the discretionary spending money but the utilities, mortgage payment if there is one. You know, things of that nature. I think that’ san important aspect of things.

[0:26:00] CH: The book is Massey on Money. Jeff, thank you so much for being on the show.

[0:26:06] Jeff Massey: Charlie, it was a real pleasure, it was a pleasure getting to know you better and I enjoyed our time together.

[0:26:11] CH: Many thanks to Jeff Massey for being on the show. You can buy his book, Massey On Money, on Amazon.com. Thanks for tuning in to today’s show. If you liked what you heard, here is what I want you to do next. Open up the podcast app on your phone or iTunes on your computer and search for “Author Hour with Charlie Hoehn.” And then click “Ratings and Reviews”. Take 10 seconds to rate this show or leave a review. It is a small favor but it’s really the best way to show your support and give me feedback and if you know someone else who’d love Author Hour, take another three seconds to text them a link to this episode. We’ll see you next time.