Mailbag: Should I Pay Off My House?

On this week's show, we'll answer some mailbag questions that have come in. We'll discuss if you should pay off your house, financially support adult children, and how often you should communicate with your advisor.

 

Important Links: 

Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Speaker 1:

Back for another edition of Plan With The Tax Man, with Tony Mauro, from Tax Doctor Inc. We're going to talk, well, actually, email questions this week. We haven't done an email show for a while, so we're going to take some questions from folks that have sent stuff into the office, or the website at yourplanningpros.com. That's yourplanningpros.com. You can get your questions asked and answered, and get yourself some time on Tony's calendar to sit down and talk about your retirement situation, or your tax situation.

Tony is a CPA, CFP and EA of over 27 years experience, and a great resource for you to tap into here. Well, he's got clients all over the place, but his office is in Des Moines, so reach out to him online at yourplanningpros.com. What's going on, my friend? How are you?

Tony :

I'm good. Enjoying the summer. How about you?

Speaker 1:

Doing the same. Hanging in there, rocking and rolling. Well, actually, about the time we're going to drop this, it's going to be probably right after 4th of July, so I hope that you had a good 4th of July. We're taping it ahead of 4th of July, but we're dropping it after, so hopefully you have a good one.

Tony :

Yeah, yeah. Hopefully everybody out there is going to get out and get a chance to enjoy the summertime. I like the summers the best.

Speaker 1:

Any 4th of July plans, both since we're ahead of time?

Tony :

Not much for us this year. Probably just relaxing around home a little bit. Maybe playing a little golf, and watch fireworks. Yeah.

Speaker 1:

There you go. Sounds like a plan. Yeah, we got some family coming in. We'll be around the pool, hot dogs and burgers, and all that good stuff. Classic 4th of July for us. Anyway, hope everybody has a good one, and had a good one, I should say by the time you're catching this podcast. But let's go ahead and take some email questions, Tony, from around the area, we'll have a fairly short podcast this week, but we'll see if we can help some folks out. We got an email from Tony, and it was not you.

Tony :

Yep.

Speaker 1:

But Tony did say, "Hey, Tony, I'm hesitant to pay off my house, because I don't have many other tax deductions at this point, but I do have a hundred grand on the bank, and only owe 45 grand on the house, so I'm really tempted to pay it off. What's your thoughts?"

Tony :

I'd tell Tony to pay it off.

Speaker 1:

Yeah?

Tony :

I'll tell you why. A lot of people get hung up on, "I don't have any other tax deductions," and they don't realize how, especially with only a $45,000 mortgage, how little their tax deduction really is, if even they can use it on the federal side, because they don't have a lot of other deductions. This particular deduction goes on a schedule A, and there's a threshold you have to get over, which is, for singles $12,000 and some change. If you don't have other deductions to get you over that, you won't even be able to use it.

I would say that even if, let's say your mortgage interest, for example, is $2,000, $3,000 a year on that, probably even be [inaudible 00:02:37] by now, your tax savings, if you're in a 20% bracket, maybe $600 versus, I don't know how much you're spending on the mortgage, but let's say your mortgage payment's $800 a month, times 12, that's $9,600 a year. I'd rather have that in my cash flow, and build that a hundred thousand back up. Then keep letting that money grow.

Speaker 1:

Yeah.

Tony :

That's my philosophy. I'm not a big debt guy. Especially, I like to not have a lot of debt, and I advise people not to carry a lot of debt.

Speaker 1:

Now, the tax deduction-

Tony :

Obviously... Oh, go ahead.

Speaker 1:

Sorry, I didn't mean to cut you off there. The tax deduction part of this question is a moot point right now, correct?

Tony :

It is.

Speaker 1:

Yeah.

Tony :

Yeah, it is a moot point. I think that you're better off long-term, is snowballing your cash flow, and it won't take you long to recoup the money, the $45,000. Then it's just all gravy from there, and you're out of that debt. But obviously, you can't do that if you're a young person going out, and just buying their first home, generally.

Speaker 1:

Right, right.

Tony :

But you could try to pay it off early.

Speaker 1:

Well, this is always an interesting question, when we get something like this, Tony, because first of all, okay, he's probably still sitting on a pretty nice rate, right?

Tony :

Sure.

Speaker 1:

He's got a $100,000 in the bank, he owes $45,000, he's probably paying like 3%, is my guess. He's probably had this mortgage for a while. It's probably before the rates started going back up. Many people do find themselves wondering, "Well okay, right now, even at in a CD I could get 5%, is it worth doing a short-term CD, or something, and getting more than I'm losing on the house?

But to your point, there's the emotional factor, and he's so close that it's like, "Well, all right, maybe this difference is not that massive," that it's not draining you down too much. I think that's always the math. Then you do all the math, and then you add in the tummy factor to go, "Just how much better would I feel not having the mortgage on my head?"

Tony :

That's right.

Speaker 1:

Yeah.

Tony :

That's right, and multiply that out over the number of years. But at the end of the day, yeah, it's the math, and it's pretty easy math to do, you just got to lay it all out.

Speaker 1:

Yeah, very true. All right, well great question, Tony. Thank you so much for listening to the podcast, and congratulations on being in such great shape as well. $45,000 on the house is, obviously, awfully fantastic. Whatever you do there, certainly kudos for that. Of course the team's going to reach out to you anyway, since you've submitted the email and has.

But for other folks who are in a similar situation, that's why we share these emails, because if it's happening for one person, it's probably happening to another somewhere. That way, if you've got a similar question, you can run the numbers specifically for yourself by reaching out to Tony and his team at Tax Doctor Inc. You can find them online at yourplanningpros.com.

All right, let's go to David. David says, "Tony, I'm positive that I have more than enough money saved to last the rest of my life. There's just no way I could spend it all. I'm not bragging, I just find myself to be in a blessed position. Is there any advice you'd give to someone like me, or can I just coast, financially speaking?"

Tony :

Yeah, I would say to David, not knowing any more than what you've submitted, I would say, and this is a little bit of a fun response, but prove it. What I mean by that is, congrats on the fact that you think you've saved enough, but maybe get some advice from your advisor, or someone else, put in some numbers to it just to see. Because one person might say, "I have enough to for the rest of my life," and that could be a million. Another person, it may take 10 million.

You just don't know, because it depends on your spending habits, and what some of the things you want to do are. Then of course your longevity, and everything else. I would just maybe double check it. Get an opinion, and then if that verifies it, then I would say work the plan you've got, and then you could be, quote, on Easy Street the rest of your life. But maybe you might find something that you didn't think of, and you might have to rethink a couple of things there.

Speaker 1:

When it comes to situations like David's, always good just to find out for sure. He says he knows, and he's not bragging. I guess my first question, when I see stuff like this, Tony, is, well, how do you know for sure? Is it because you've done the math, and you've run it out? He may be right. Is it because you've sat down and talked with a professional, and you have a written plan and a strategy that you know you're fine? Or are you back of the napkin this? Now granted, I don't know David. If you're sitting on $40 million, you probably are good.

Tony :

Absolutely, yeah.

Speaker 1:

But if it's the age-old question of, "Hey, I've got 2 million bucks," or, "I've got a million bucks," or whatever, "I'm in great shape." Maybe, right?

Tony :

Maybe.

Speaker 1:

There's so many variables. I hope that you are in a great shape, and I would say, to find out if you could coast, just sit down and have a complimentary review done, and find out. Run the numbers, make sure. Stress test it for multiple scenarios, whether if you check out our prior podcast, whether something comes up like a medical issue, or something. There's just lots of things that could come up and derail you. Just have them stress test it, Tony. That's one of the things you guys do. You can run various scenarios in case he is incorrect or correct.

Tony :

We can, yeah. With today's software, on the financial planning side, you can easily take a portfolio, and run run the numbers, ask him a few easy questions on how long would you like to run this for, and your life expectancy type thing. Give me a rate, a good conservative rate, and the software is going to spit out and say, "Your chances of outliving your money are only 5%, or maybe it's 0%." In other words, you've got enough money, based on what you've told it, you are right, or maybe you aren't as as you thought.

Speaker 1:

Yeah, very true. Especially when it's complimentary, and it's easy to do, no reason not to get a second opinion on the strategy you have in place. Great question. Thanks so much for listening to the podcast. We certainly appreciate it. All right, let's go to Kate. Kate's got a tough one here. She says, "Tony, my son's 27 years old, hasn't landed a legitimate job since he finished college four years ago. We've been supporting him, car insurance, cell phone, that kind of thing. I'm not going to be able to continue to do this much longer; in a couple of years I plan to retire. How do I cut him off without making this a big problem?" That's a tough one, right, Tony? Because there's a fine line between helping and enabling.

Tony :

There is. That that's a tough one, and it comes a lot down to how you think. My personal opinion would be, well, a couple of things, I guess, is if he's 27, he's been out for four years. I don't know what legitimate job means. Is he working at all? But let's say that he is, or if he isn't, well then that that's a different problem, then you probably are enabling him, and not forcing him to find something.

But if he just is working, and maybe not making the money he thought he was going to, or whatnot, then I think by helping him, maybe you're not enabling him, but at some point you have to have a tough conversation. Just explain it to him that we need to start weaning you off, or cutting this back. Maybe you do it in steps to help him out, rather than just pulling the rug out from under him. There are things that people can do. I tell my own son this is, there's easy ways to go make more money. One is just go work more, trade your time for money. If you have to do it to pay your bills, you'll find a way, generally. That's a little bit more of the tough love, I guess you could say.

Speaker 1:

I agree, Tony, and I think a lot of times, what happens to people in this situation is some people will come in to see you, and sit down for a planning process. They'll say, "Hey, we want to enjoy our retirement. Whatever's left over, the kids get." I think, to me, that's the healthiest approach. Others will say, "We want to leave them a bunch," and others will say, "We're doing something like Kate's doing, and we're doing a ton of helping." But at some point, you start to sacrifice your own retirement, and the success of your retirement plan.

Maybe Kate's plan has gone from all this helping, has gone from 100% surety for her own retirement, her and maybe her spouse, down to 80%. Is 80% good enough for you? If you keep helping him, if it goes down to 70% chance that you're going to be okay in retirement, is that acceptable? At some point, we have to not help our kids to the detriment of our own life. Because what's going to happen is, Kate, you're going to end up on his couch at some point. It's going to flip. [inaudible 00:11:18] Right?

Tony :

Yeah, it's going to flip.

Speaker 1:

Then neither one of you're going to be happy. It's tough.

Tony :

It is. I've seen it. That happens, and I don't understand it. I see it with clients, and even some family members, that are still helping their kids, and they're 30 years old and married, and they both have jobs. It isn't like they're destitute. I could see if your child, and I would help my kid as well.

Speaker 1:

Yeah, we all-

Tony :

He falls on hard times, everybody's going to help him, but with some constraints, and some, maybe, rules, and whatnot. I don't think you want to let them get to a point where they know that, or maybe they don't know, but they just feel like, "Well, Mom and Dad's always going to be there, no matter what." Which we are, but most of us probably want to stay in the background, only help if you really fall on tough times.

I think some of these young people, I don't know, I just feel like they're just freewheeling. I think they need to do a little bit more to help themselves. If, truly, he's in a profession, he's not making the money he wants. He's young enough, he certainly can go out and find something new, and maybe even retrain, go take some classes.

Speaker 1:

Yeah, and to your point, you started to touch on something there, and we'll move on to the next one. But also, does he know how badly he's affecting your retirement, Kate? If you're not being honest with him either, and you're just helping him, and not saying, "Hey, listen, we need to have a chat, because this is what it's doing to us." He may be, like, "Oh crap, I didn't mean to do that. Let's make some changes."

Tony :

Absolutely.

Speaker 1:

It's got to be communication in there, as well. Lots of things to think about. Great question. Tough spot to be in, Kate, but I think you're probably doing yourself, and him, a service by starting to cut this off, in some form or fashion. But anyway, always talk with the professional, make sure, also, again, another reason to run the review, Tony, to make sure that Kate's own retirement is not in bad peril from the help itself.

Tony :

Exactly. Yeah.

Speaker 1:

All right, final one this week. Laura says, "Tony, I like my financial advisor. I enjoy the podcast, so I've been listening. It's nice to listen to you guys. I'm reaching out because, well, they're hard to get in touch with. I rarely get phone calls returned, and I just wonder if my account is not large enough for him to pay attention to me. I've got about $350,000 with him, and I believe most of his clients are doing considerably better than I am. Is this a common problem within the industry?"

Tony :

In some cases it might be, but to dissect it a little bit for Laura, it depends on how much, since I don't know how much you're trying to get ahold of him, because some clients tend to think, in his corner on this, defending him a little bit. But just basically, if a client thinks that they need a call every week, every two weeks, just to discuss market conditions, that might be, and hopefully you're not that way, but generally, then they get mad when the advisor won't call them back.

Speaker 1:

Sure, that's a little unreasonable, because you've got tons of clients, but-

Tony :

It's unreasonable, yeah. But at the same time, he or she should, when you decide to work with them, be very upfront about the communication, how much of it is going to happen, and how often, because often that way everybody's on the same page.

Speaker 1:

How often you [inaudible 00:14:45] meetings and stuff like that, right?

Tony :

Yeah. You're just setting expectations.

Speaker 1:

Yup.

Tony :

If they haven't done that with you, or even if they have, and you're just talking about what I would consider probably once a quarter type of call, when you're getting together and reviewing things, even if it's every other quarter, so twice a year, then I think that they should at least be cordial, and prompt enough to, if not return the call, get your questions answered somehow, whether it be a quick Zoom call or email.

Speaker 1:

I would think, Tony, in a situation where, maybe the client's being a little unreasonable, and again, we don't know that Laura is, we're just talking speculation, but if a client is being unreasonable, someone on the staff is probably going to be reaching out anyway saying, "Look, we've addressed this conversation, or whatever. We just don't have the manpower, or whatever, to every single time. That's what the plan is for. We got to stick with the plan." If you want to schedule a review, that's a different conversation, I guess.

But yeah, I think a lot of people find themselves in this situation with advisors, or they've been with a firm for a while, and unfortunately I think there is some truth to the size of the account. Sometimes it's not a big enough account for them to jump up when, maybe, a random call does come in, versus a scheduled one. Think about the size of the firm, Tony, you guys are what I would call a boutique firm, versus-

Tony :

I would say we're boutique firm.

Speaker 1:

Yeah, versus a giant big box with 35 advisors in a building, four story building, or something like that. Because that's what you choose. You want a small boutique firm. Some clients are looking for that, because there they do feel like they're a name, not a number. Maybe Laura's working at a firm where she feels more like a number. I don't know.

Tony :

She could be. If the financial advisor's doing, what I feel like they should be doing, is that when a client calls in, they may not be able to jump right on the call, but-

Speaker 1:

Of course not. Right. Yeah.

Tony :

But they should have a staff in place to say, "Okay, well, let's schedule a call for this date, and then let me know what we're going to be talking about." Then we jump on a call, and we do it. But I think some advisors, it is true out there, where they institute minimums, because it is a business at the end of the day. Some advisors have this stigma of, "I can't really make any legitimate living unless my clients have X with me."

Speaker 1:

Right.

Tony :

That, I think, is to the detriment of everybody. But I understand, because there are people out there that, and there's nothing wrong with it, because you got to start somewhere that, I want to open up a $2,000 IRA this year, and I want weekly meetings, and we want to discuss. Most advisors are going to say, "Well, that's just not profitable for me.

Speaker 1:

Yeah, that's not the right business model for-

Tony :

... at the end of the day.

Speaker 1:

Yeah.

Tony :

Yeah.

Speaker 1:

That's the other piece of it too. That's the expectation conversation you brought up.

Tony :

Yes.

Speaker 1:

Not only when you go to sit down with someone is the expectations about the meetings, and how often you're getting together and discussing things, and the strategy and the plan, but also, is it a worthwhile business venture for both? I think a lot of times people are auditioning an advisor, they don't realize the advisor is auditioning them right back. It's got to be a good relationship both ways.

Tony :

It really does. When we interview clients, we basically, we'll sit them down in a room, by themselves, with a sheet of paper. It's got about 10 or 12 questions on it, and they'll just rate themselves, and we say, "We'll be back in 20 minutes." Then we come in, and start discussing, and I'm auditioning them as well. I'm looking for landmines.

Speaker 1:

Yeah.

Tony :

I'm looking for, "Do they really have some pain that they need help with, or want help versus I just want somebody to talk to, type of thing?"

Speaker 1:

Yeah. Yeah. Because at the end of the day, you can't help, literally, every person.

Tony :

You can't.

Speaker 1:

You'd love to, but at the same time, your business model is that boutique firm. There's only so many hours in a day that you can see people.

Tony :

That you can do it, yeah.

Speaker 1:

But I would say with Laura, $350,000 is not $3,500.

Tony :

No, not at all.

Speaker 1:

I would say it's a substantial amount of money, I think, to anybody. They should at least be getting back in touch with you somehow, and scheduling calls.

Tony :

Yeah.

Speaker 1:

Because I don't think that would be right. Okay. All right. Well, great questions and of course, obviously, Tony and his team are going to reach out to everyone, and have reached out to folks that sent these emails in. But if you've got similar questions, or you feel like you're in a similar boat, reach out to Tony and his staff, and have a conversation for yourself. Get set up with a time to come in for a complimentary review with the team at Tax Doctor Inc.

You can find them online at yourplanningpros.com. Don't forget to subscribe to the podcast on Apple, Google, or Spotify, which you can find at the website as well. Again, it's yourplanningpros.com, and you can drop an email if you'd like as well. We take some from time to time, and ask him here on the show. But either way, reach out to a qualified professional, like Tony, he's been helping families for many, many, many years. He's a CPA, CFP, and an EA, and he's here to help. Tony, thanks for hanging out, buddy, and answering these questions. I always appreciate your time.

Tony :

All right, we'll see you next time.

Speaker 1:

Yep, absolutely. We'll see you a little later on, in July. In the meantime, enjoy the summer, and we'll catch you later on Plan With The Tax Man.

 

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