2 - 2025 - Maximize Asset Protection

Seed or Harvest L.E.O. Law Enforcement Officer Independent Financial Education Podcast. Episode 03 3rd JANUARY Todd Des Berg Podcast Guest EPISODE 03 The PEM Model and Financial Planning Welcome to the Seed or Harvest Show! Today, we’re diving into the PEM model, a visual tool that helps you see exactly where your finances stand. By mapping out all the variables in your life, we can answer crucial questions: Will your money last? Are you unknowingly losing money in areas you haven’t considered? This conversation will bring clarity to your financial picture.Joining us is financial expert Todd Des Berg, CFF, who brings over 25 years of experience to the table. He’ll walk us through the tools he uses and, alongside Officer Ty, demonstrate how this model applies to pensions. Whether you’re planning for retirement or just trying to get a better grasp on your finances, this episode is packed with valuable insights. Enjoy!In this episode of Seed or Harvest, we sit down with Officer Ty to break down Tier 1 pensions, the importance of overtime, and what every officer should know about retirement planning. If you’re in law enforcement or just curious about pensions, this episode is for you! LEO PODCAST WITH FINANCIAL ADVISOR Summary The Seed or Harvest Show’s law enforcement edition aims to educate law enforcement officers about their government benefits and financial tools. In the first episode, Officer Ty, an 18-year law enforcement veteran, discusses his journey into law enforcement, highlighting the impact of 9/11 on his career choice and the complexities of understanding pensions and financial planning for retirement within law enforcement. The conversation reveals the importance of proactive financial education and a need for law enforcement officers to gain clarity on their benefits and retirement options. Key Bullet Points: Introduction to the Seed or Harvest Show:Hosted by Mario Luis Braga, the show focuses on financial education.Topics include health insurance, pensions, wills, trusts, tax planning, and legacy building.This episode is part of a series tailored for law enforcement professionals.Focus on Financial Literacy:The importance of understanding personal finances, including pensions and deferred compensation plans.Highlighting gaps in financial education, particularly among law enforcement officers, who are often left to navigate financial decisions independently.Introduction of Guests:Todd Des Berg: A Certified Financial Fiduciary with over 25 years of experience, offering insights into comprehensive financial planning.Officer Ty: An 18-year law enforcement veteran sharing personal experiences with pensions and deferred compensation plans.Personal Economic Model (PEM):A tool developed by Todd Des Berg to visually represent financial scenarios.Helps individuals understand their current and future financial states, including potential risks and opportunities.Key Financial Considerations Discussed:Pension Management:Understanding mandatory contributions and city match programs.Challenges with lack of control over pension investments.Deferred Compensation:Options for additional retirement savings (e.g., 401(k), 457 plans).Importance of maximizing contributions early in one’s career.Tax Implications:Risks of tax-deferred strategies, especially as tax rates fluctuate.Strategies to minimize future tax liabilities, such as Roth IRAs and life insurance.Role of Life Insurance in Financial Planning:Discussed as a tax-advantaged tool for wealth transfer and income replacement.Highlighted as an underutilized asset in many financial portfolios.Importance of Comprehensive Financial Planning:Todd emphasized a holistic approach, integrating all financial aspects like savings, investments, taxes, and expenses.Addressing wealth transfers and opportunity costs to enhance financial outcomes.Empowering Individuals with Knowledge:The role of education in demystifying financial concepts.Encouragement for individuals to involve their families and spouses in financial discussions. Suggested Additional Points: Target Audience:The episode specifically tailors its content to law enforcement officers, addressing unique challenges such as early retirement options, double-dipping opportunities, and job-specific financial risks.Highlights the importance of proactive planning to avoid financial shortfalls.Call to Action:Encourages viewers to engage with the show by submitting questions and participating in discussions.Emphasizes collaboration between financial and legal professionals to provide well-rounded advice.Potential Additional Points:Retirement Planning: Expanding on how inflation, cost of living adjustments, and market volatility can affect retirement outcomes.Financial Scenarios: Exploring “what-if” scenarios using the PEM to make financial concepts relatable and actionable.Practical Steps: Offering a step-by-step guide for officers to start their financial planning journey. Podcast Latest Episodes Retiring from Law Enforcement: Law Enforcement Officer Byadmin February 12, 2025 LEO,Podcast Many people misjudge their income’s place within national tax brackets, often assuming it's more common than it is. IRS data shows that the top 5–10% of earners bear a significant tax burden, making... Read More Law Enforcement Retirement Guide: Law Enforcement Officer Byadmin February 12, 2025 LEO,Podcast Many people misjudge their income’s place within national tax brackets, often assuming it's more common than it is. IRS data shows that the top 5–10% of earners bear a significant tax burden, making... Read More MAP Level Funding Byadmin February 10, 2025 Podcast In our discussion, we explored the innovative concept of 'level funding,' merging aspects of fully insured and self-funded insurance plans. This model grants businesses enhanced transparency and cost... Read More Blog Transcript Mario:All right, everybody, well, welcome to the Seed or Harvest Show. Today we’re excited to talk about the PEM model. We’re going to visually show you what your finances look like. Let’s put all the variables of your life into something you can visually see. Is your money going to run out? Do you have enough? Are you hemorrhaging money in buckets you have no idea about?Well, guess what? Our financial expert, Todd Des Berg, CFF of over 25 years, is here this year to show you what he does, the tools he uses, and he’s going to blend that with Officer Ty and show exactly how this coat works with a pension and what you should be looking out for. Enjoy.All right, everybody, well, welcome to another edition of the Seed or Harvest Show, where we focus on financial education for a variety of things that affect not only your life, but also your spouse, children, charities, and your legacy. We discuss everything from health insurance to pensions, wills, and trusts to the best ways for everyday tax planning. Our intention is to bring financial and legal professionals together with everyday people who need their help.We have real conversations with real people who have real-life questions and scenarios. I’m your host, Mario Luis Braga, and today’s show is part of the Law Enforcement series. So I’m happy to have our co-host, Officer Ty, welcome, who’s an 18-year law enforcement veteran. Hopefully, I 18 years that I can use. Yep. All right. Employed here in Arizona.So welcome. Also happy to introduce our special guest and financial expert of 20-plus years, Todd Des Berg. Welcome, Todd. How are you, buddy?Todd:Great. Thanks for having me.I’m excited to have you on here. And I’m definitely excited to get you two to meet each other and open up a lot of financial conversations. You know, Tyler and I have been talking about a lot of different things for a long time. And one of the things that we’ve always been kind of stumped on throughout our conversations is having somebody like yourself, Todd, to disseminate correct, accurate financial information.So we appreciate you being on here to educate us on all things financial. And maybe you want to start here. Todd, why don’t we just kick off? Tell us a little bit about yourself and who you are and what you’ve been doing all these years.Officer Ty (Leo):We get, I mean, it varies by department, but we get kind of a little rundown at the beginning when you get hired. But it’s not really that in-depth. It’s just kind of, “Hey, these are your options. These are the products we offer.” And then it’s really on the officer or whoever it is to go deeper into it.So if they really want, they could either just leave it alone. Like, from my standpoint, I did that for most of my career. The stuff they put me in at the beginning, I just stayed with that. You know, they’re like, “Hey, put this amount in. This is what you’ll get.”Aren’t you forced to? I mean, your pension, you have like an automated—there’s no option there, right? You’re like, you have to pay into that. Yeah. Is that accurate?Officer Ty (Leo):Yes, that’s accurate. And then there’s this set amount that the city will put in there, too. But then, like I said, it’s up to you. Like other products or other things you might want to do—that’s kind of on you. Like if you want to use somebody else other than who is basically recommended to you at the beginning, that’s on you, too.They’ll come and, you know, present to you like, “Hey, this is what we offer,” but it’s really up to you to seek it out and find something. You’ll figure it out. Yeah, pretty much.Mario:And then, so, that’s pertaining to your pension, but now that the pension’s already taken care of, you’re not in control of how your pension dollars are invested. You’re just saying you have a little more flexibility within the additional retirement components, correct?Officer Ty (Leo):Yeah. And we have a deferred comp. That’s another one. That’s—you can either put $5 in it, or you can put up to—it’s a, I think it’s like $600. And actually, it’s different now. When I started, I think the max you could put in was like $630 a paycheck—something like that.And I don’t remember exactly. Some guys would max it out from the very beginning. And other guys were not, like myself. I didn’t take advantage of that in the beginning, which I kind of kick myself for. Like, looking back, I didn’t fully max it out like I could have in the beginning, which, you know, it is what it is.Mario:I, yeah. Todd, are you still there? Can we still hear you?Todd:Okay. Yeah, I can hear you perfectly.Mario:Way better. No, it’s way better. It’s—it’s clean and less distracting. So, thank you for that. Great. So, the way that, you know, just to catch you up here, Todd, the way that, you know, Tyler and I started talking about in the financial spectrum, you know, kind of came to some questions.I found out I did some things pertaining to life insurance and my girls. And then he had questions about that. And we started—so it just opened up the financial conversation.Yeah. About how does permanent life insurance fit in? You know, I was intrigued, being a—you know, I’m a finance major, and I’ve always been intrigued with money and financial stuff. I’m by no means a financial advisor. I do handle permanent life insurance for a lot of my clients, but typically work with a lot of business owners.Mario:Typically, they don’t have a lot of equity accounts until later on in life when they’ve sold a business and they’re investing, but they’re typically done. But like me, I’m dumping money back into my business and my equity. So, for me talking to somebody like Officer Ty here, who has pensions and these other job programs he’s referring to, it was very obvious to me that there was a limit to how much I could even talk to him.So, that’s why I think it’s so fantastic to bring you involved and get you in the middle here, Todd. Because really, they’re focusing more—they need more information from you by far.Officer Ty (Leo):Just in general. Yeah.Mario:Right. So, yes. Thanks for being here again. And so let’s just jump in.Todd:That’s a great point, Mario, that you mentioned just there, that you have a team surrounding Officer Ty. You know, you’ve got a specialist at your workplace. You’ve got a specialist to help you with Mario in certain aspects of protection.And then, you know, I used to be that guy sitting in your break room signing employees up for the 401(k), 457 plan, the pension. You know, for many, many years, I built my practice doing that. But the reason I became a Certified Financial Fiduciary is so that I could do just what you’re talking about.When you’re considering your overall financial picture, the 401(k) or the 457 plan at your work, or a 403(b) if you’re employed by a nonprofit organization, that’s just one piece. And what I found is that a lot of people really didn’t understand how those plans work and how they affect every other aspect of your financial plan.You know, it’s kind of interesting when you look at how these things affect. I work with a lot of dentists, and they’ll talk about how your oral health affects your whole body. And so, it’s the same way with your 401(k). If you’re doing something in your 457 plan or your qualified plan at work, we really need to consider how this is going to affect you ten, twenty, or thirty years from now when you’re spending that money and enjoying retirement.Consider taxation and a lot of different things that are worth considering while you’re young. So, I commend you for getting started on the plan. I don’t think it’s a bad thing necessarily that you didn’t max it out right away. You met somebody like Mario. You’ve been doing other things.But let me ask you a couple of questions and see if maybe this is what you’re looking for as far as exploring other aspects of your financial planning spectrum that’s out there. What most people want to know—and I don’t know if your investment advisor answered this question for you—but how much really do you need to be saving in order to have enough set aside in retirement?To then, when you turn on the income adjusted for inflation, be able to maintain your lifestyle the same way that you’re living today. Do you know what that number is?Officer Ty (Leo):No, I don’t. And I don’t—I mean, I can’t say that it’s hard. No, they never talked about it, but I don’t remember. And I don’t have the—I don’t know the number.Todd:Would you like to know?Officer Ty (Leo):I would like to know. Yes.Todd:Okay. Well, we can answer that question and the three other main questions I’ll go through here with you in about 15 minutes. So what I’ll do, Ty—Officer Ty—when we finish our conversation today, I’m going to send you a link to my personal, private, confidential portal. You can plug in some of your information, like what you’ve saved and how much is in there.Then we’ll be able to do a complete analysis, look at everything comprehensively, and be able to specifically tell you, “This is what you need to be setting aside every month or every year.”The other thing people want to know is, how much do I need to be earning on my investments? You know, is it that 4%? Is it 10%? What’s the number? What’s the target rate of return? Have you ever considered that, or has anyone ever talked to you about that?Officer Ty (Leo):Up until this point, I’ve started to think about it more, but I still don’t—I’m not knowledgeable enough to really know an answer to that. But, you know, like I said prior, I didn’t really look into any of this stuff.Todd:Fair enough. But you’d like to know.Officer Ty (Leo):I would like to know.Todd:Yeah, okay. How about this question? People always ask me, especially when they’re getting a little bit older and they’ve been working a long time, “When can I retire?” What is my target retirement date? How long do I need to work in order to be able to maintain my lifestyle after my income goes away, adjusted for inflation, so you don’t have to worry about ever running out of money?Do you have a number in mind, or do you know that?Officer Ty (Leo):Technically, I can retire in November 2026, but I know—I was kind of looking at the numbers, I think it was a couple days ago, and it’s—I mean, it’s not the greatest.I mean, at 20, I think it’s like 60—whatever it is—62.5 or whatever the percentage is that we get for that. So, I mean, it’s something, but I’ll still be young enough where I’m likely going to keep working. I’m not going to stop working.Mario:And it’s interesting. What I hear being around a lot of other—I have a lot of law enforcement in my family—and it seems like the question is always like, “Do I retire from this and then go work for another agency and try to double dip? Do I work much longer?”I’ve heard you talk about, “Am I going to stop at 20? I can go to 25 knowing that you guys get a little bit more.” I was just with my cousin this weekend. He already has 25 years in, and he said he’s going to try to go another ten.And I thought that was very surprising. After I’ve had conversations with you, and then other officers were like, “That’s crazy. Why would you go that far in one department?”Officer Ty (Leo):I mean, like I think I told you before, some people haven’t done this kind of stuff. They haven’t planned, so they kind of have to work. And they work longer than they—you know, I think I kind of told you the story in one of the other ones.Like, I know a guy who’s getting ready to retire, and he—you know, he never maxed out anything. He never really worked overtime. So his—you know, his pension will be something, but it’s not. And he’s older, too, so he’s not—he’s probably going to have to work. He’s probably gonna have to get another job.Mario:His lifestyle—he’s gonna have to adjust something.Officer Ty (Leo):Because he’s leaving—you know, when he worked before, we’re making good money now. But that wasn’t the case before, and he wasn’t really ever maxing anything out.Mario:Right. And that pension that you’re—that percentage of your salary that comes in, that’s just a set rate based off of your salary, correct? Whatever that is, 13% or 11% or something like that?Officer Ty (Leo):And I think the numbers that they put on the retirement site are not—they’re not accounting for taxes and the dirty word—your cost of living increases, too. I don’t think it takes that into effect. So, this is the number you’re going to get, you know.Mario:No calling, no inflation. You’re not—I don’t think—yeah.Todd:Right. Well, and I think answering that, doing this analysis, will help you answer that question and get some real clarity on what that actual date is where you could turn off the income.Because the last thing is—and you just touched on it—if you don’t do anything differently and you just continue doing what you’re doing today, well, how much would you actually need to reduce your lifestyle in retirement so that you didn’t have to worry about running out of money?And so, that’s another calculation. That’s the—the thing is, nobody—we don’t want our clients to reduce their lifestyle by anything. We want to see an increased lifestyle. But at the very minimum, we need to make sure that our clients can maintain their standard of living adjusted for inflation so that they can have that asset throughout their life expectancy.And so those are the things that we’ll quantify as a fiduciary. I can do that for my clients. And that’s really what makes us unique and different from most advisors.Mario:You know, I’ve heard you talk about this before, Todd, and I really love the visual representation that you’ve shown. I mean, this—this tool that you have—looks fantastic and really helps break it down.Todd:Yeah, I appreciate that. It’s been something that we’ve spent a lot of time developing. The Personal Economic Model is designed to show you a more comprehensive way to look at your money. I’ll walk you through this model now so that you can see how it really works, and how we use it to avoid unnecessary losses and to protect your financial future.Todd:So this big tank on the left, this is your lifetime capital potential tank. The reason it’s so big is, let’s face it, over your lifetime, you’re going to make a ton of money. There’s going to be a lot of money flowing through that tank, and that’s why it’s represented in this kind of size.Now, it obviously doesn’t fill up all at once. It’s going to come through with your paycheck every two weeks or every month, however, you’re getting your compensation. But you see, the first thing it hits here is this tax filter.Now, unfortunately, the government bolted one of these on everyone’s model. Everyone’s model looks the same. You know this. This is the first thing that it hits. You’ve got to pay your state and your federal taxes.But after that, everything that you receive is what goes to sustain your current lifestyle. It pays all your expenses, all the protection in, aspects: your home, your car, any education, your kids, food, clothes, entertainment—all those things.What’s that money spent? It’s gone forever. We know. And we like to remind our clients this is not an infinite resource. This is a finite resource that really deserves to be cared for and managed carefully. Every penny that comes through here.Todd:So, what we know is that a responsible person like you—Tyler, I know you know this—when I asked Mario to introduce me to someone who he thought we could help, you were the first one that came up because you had the sense to manage your current lifestyle and do what we consider pumping this extra cash flow in an upward motion, which we know requires a conscious effort and a lot of energy.So you’ve dialed this in. You know, whatever your exact cash flow requirement is for your current lifestyle, and you’re able to push, you know, whether it was 20% or 25%, up into your future lifestyle.And then you have this decision to make. This is maybe what you talk to your investment advisor in the break room about when you’re signing up for the 401(k) plan, you know. You have money going through here, the qualified plan contribution into this risk tank. Or you could put it into a safe tank.Todd:You notice on the safe tank, it’s got a lid on it. Well, the reason this investment tank over here doesn’t have a lid on it is we know, you know, we can grow this money, but it’s invested in different assets. And we know that there’s volatility in the stock market. And we can have what we consider evaporation out of this tank. And we’ve seen it happen before.And so it’s always important to create a balance for our clients so that they have enough in this safe tank, so that we’re able to get them into what we call position A. That is, they have enough money in these two tanks so that when they do retire and they decide to drain those assets, they don’t ever have to worry about running out of money before the end of their lifetime.And so that’s what we call our position A. And now, I realize you have other assets here, and it could be represented in this tank here with your home. Maybe you have a mortgage. I can show you that here if you have any borrowed funds.But I just want to focus on one thing here. Again, as a CFO and becoming a fiduciary, you know, this is a very specialized field because most of my colleagues will only talk to you about this risk tank over here.Todd:Hey, what do you have, Tyler? Oh, you know, we’ve got better products. We can earn higher rates of return for you. Give us your money. We’ll manage it. We’ll charge you hefty fees. That’s pretty much how every conversation goes with most of the advisors in the industry.And there’s nothing wrong with that. That’s an important function that they serve. But what we do as fiduciaries is we also focus on this. We know that this is important, and we’re independent financial advisors. So we take great care in doing that. But the other thing that I think is just as important, as I pointed out with our core philosophy, is making sure that our clients aren’t unnecessarily losing money or unknowingly having this wealth transfer occur.If that’s happening, whether it’s with your tax situation, whether it’s an investment strategy, whether it’s the way you’re paying for a large capital purchase or your kids’ college education, we’ll point that out and we’ll make sure that, hey, if it’s unknowing, let’s make you aware of it. And if it’s unnecessary, well, let’s stop it. Or at least reduce it over time.These small changes, again, can make a huge effect on your overall financial picture when we get to retirement age. So let me just pause for a second. Do you have any questions about the model or how this works?Officer Ty (Leo):No, I don’t think so. Not at least not yet.Mario:No, I do, if you don’t mind.Todd:Yeah, please go ahead, Mario.Mario:So, how customizable is this to someone’s plan? I mean, I like the simplicity of what I’m seeing, but obviously life isn’t that simple, so. I mean, are these fairly customizable, or what kind of inputs are you putting in here?Todd:Great question. Thanks. So when I send you that questionnaire here, Tyler, what this model is actually going to do is allow me to test all of these scenarios—show all the different options and alternative strategies that we could consider for you—and then we can compare them side by side in this model, showing you, “Here’s what you’re currently doing, here’s how this will affect you over time.”And then show you a side-by-side picture of the new strategy and the improvements that we could make over time. So, very customizable. To answer your question, Mario, in fact, I could show you a little snapshot of one that we’ve done for another client, and you can actually then see the layers of all the different accounts inside these investments.Todd:So, it’ll be quite detailed. We’ll show your actual home account value, how much you have in these different accounts in the safe tank, how much you have over here. And then the beauty of this is, under certain assumptions, we can then fast forward these year by year, throughout your lifetime, to see how the model will react.This way, we can find the most optimal strategy for you. What’s the most efficient and effective way to get to your goal and make those, you know, recommendations and take action? So, that’s why we have this process in place. It’s this ten-step process that I alluded to at the beginning. But that’s, you know, if you want Mario, I could definitely show you a quick example of what one of those models look like.Mario:Yeah, I think that could be helpful just to kind of—Officer Ty (Leo):I think it would be.Mario:Just to see a quick, like, what do you do?Todd:Yeah. So, what I’m going to do is I’m going to stop that because I guess client names are here. So let me just pick up a generic one that I could share.Mario:I wouldn’t mess up your presentation, buddy.Todd:No, not at all.Mario:I’m good at throwing curveballs.Todd:I love it. No, that’s exactly what I like to show my clients, and this is what, you know, you can expect. This is a living, breathing thing.Mario:And so, you know, we can no longer see your screen.Todd:Yeah. Let me share this with you.Todd:Yeah. So, now you should be able to see this now. Okay. And I’m just going to scale up my tank so you can see, you know, everything that’s in there.Mario:So, this is an actual scenario of John Doe, right?Todd:So now, yeah. So now you can see the whole—you know, he’s got a $1 million home. He’s got a little bit of a mortgage, he’s got some cash value built up here in a safe tank with some permanent life insurance. And then over here in the risk tank is a Roth IRA, retirement accounts, an IRA rollover.And there’s another asset down here, a brokerage account. And so, you know, we can get into this. You know, you’re probably going to ask me, “Well, what’s that red slice of the pie here?” I want to line—I want to talk to you about that, but let me answer Mario’s question here first because you know what’s going to happen with this client.Todd:You know, he’s got some earned income, he’s got some protection benefits in place if he should get sick or have a chronic, a critical, or even a terminal illness. You know, if this goes away, we’ve got protections so that, you know, life insurance—Mario, you brought it up earlier—is one of the only financial products that can guarantee you what you want to happen will happen even if you’re not here to see it.And so, you know, with life insurance, if this were to go away, it would immediately fill up these two tanks. So I’m glad you have somebody to already talk to you about that. But, you know, you may want to say, you know, “How is this going to react over time?” And what I simply will do is I can either click the stop feature here and will advance it one year at a time, or I could just slowly advance this one year at a time by clicking the age button.Todd:And we can see now the client’s going to retire probably around age 65. You can see the well, this—this guy’s going to work till 70. So the earned income goes away then. And now he needs to start spending this money. You start to see the value is going down. And clearly, we’re not going to run out of money here.This client’s in great shape. What we call position A: enough after-tax cash flow to maintain his lifestyle adjusted for inflation. And he’s got plenty of protection and assets here in the three tanks. So just a quick snapshot to answer your question, Mario. Thank you.Mario:Yeah, but let me back up to really what I think is important. Let me make this point, and I want to stop sharing here for a second and jump back to Tyler’s example.Officer Ty (Leo):Our table. You were—Todd:So, trying to keep away. Yeah.Mario:Yeah.Todd:All right. So, this is why we have this process so that I can stay on track. You know, I met with six clients already. You know, I don’t want to skip anything, so I make sure that I introduce the PEM to you. I want to answer those four questions. We’ll do that with the portal that you fill out the questionnaire, and then I’ll have the data to be able to do that analysis and test the model and make sure that we’re making solid recommendations for you.Todd:But first, what I want to do, if I could just take another maybe five minutes to just walk through again, elaborate again on what makes us unique and different. You know, with my practice, you know, you have this circle of wealth, you have your money that exists and, you know, I work with clients. Obviously, they have some people have more money and some people have less money than you, Tyler.But what all my clients have in common is that they all want their assets to grow. And what I look at when I talk to my clients is really they have three types of money. It’s not just one big pool of resources. What I look at is the accumulated money. That’s again what most advisors focus on. First is, “Hey, what do you have?”Todd:We could do better with it. Higher rates of return, better products, lower cost. But it’s important to recognize you have your lifestyle money. Now, I know you’re a responsible individual and you’re managing your budget. You know, I’m guessing you probably don’t want me to spend much time in this area because a lot of advisors will tell you in order to reach your goals, you need to reduce your spending and put more money over here.Yeah, Tyler, right?Mario:Reduce your spending.Todd:You know, that’s not our expertise. Our expertise is finding those transfer dollars and moving that money over here. If anything, I’d like to see your—we move some over here, and we also increase your lifestyle. Maybe we put some of these transfer dollars over here along the way because, hey, you only go around this lifetime once, and you may as well enjoy it.Right? So, we want to make sure we’re maximizing your lifestyle, and not reducing it. Okay. So I just think that’s another area that makes us a little bit better.Officer Ty (Leo):Faster. What did you say that was? The transfer money. What is that?Todd:Yeah. So these are things like—great question. You know, well, there are five main areas that most people have these wealth transfers occurring. We look at about 32 different areas very closely to find out where these wealth transfers are occurring. But the big ones are taxes, your mortgage, how you’re paying for your kids’ college, how you’re making large capital purchases, and how you’re saving for retirement.Okay, so those are the five main ones. But what I want to point out, again, as a fiduciary, not only are we going to calculate that wealth transfer, but be familiar with this term “opportunity cost.”Officer Ty (Leo):No, I mean, look, I feel like I’ve heard it, but I don’t know. Yeah.Todd:Yeah. I mean, it’s just an important feature that I want to point out because for every dollar that you transfer away, you also lose the ability to earn interest on that money. So that money is gone. And the opportunity cost is the money that you could have earned on those saved resources.And so, we’ll calculate both of these things for you, to show you the impact that we can have on your retirement savings over a lifetime.I’ll say it right now, you know, when I work with a high-net-worth individual or, you know, even average salary clients, yeah, we could over time—and I don’t think I’m overstating this—I’ll show you a lot of examples where we can find between $3 and $5 million that would have been transferred away, and you would have had this lost opportunity cost.And we can actually improve your overall financial picture in that range. I mean, if it’s a higher-net-worth client, it might be over $5 million, but that’s a typical example of the impact that we can make over a 20 or 30 year time frame, which I know we have. You’re a young guy, so in the end, you mean—Mario:That’s because what they’re spending more on interest and paying the bank that interest versus earning the interest themselves, is that the kind of opportunity cost you’re referring to? What kind of—Todd:Yes, yes. That’s one.Mario:And yeah, it’s another one. Maybe just to kind of give you a real-world example.Todd:Yeah. So Tyler asked me about, “What’s that red slice on the risk tank there?” And so let me go into that, you know, when you talk about your qualified plan. I touched on it earlier. So these are these five areas, but let’s go. I’ll give you a real good example on the qualified plan.You know, it really does two things. These guys in the break room, they say, “Hey, we’ll set you up with a tax-deferred strategy.” Really, that’s a smart way of saying “postpone.” You know, these geniuses at the IRS, whoever came up with that? It was—it was a good strategy, but it’s really more accurate to use the word “postpone.”And I don’t know if you’ve ever postponed a toothache. It’s not usually a good thing to just postpone something, especially when it comes to taxes, because here’s why I say that.Todd:What tax bracket will you be in at retirement? Do you know?Officer Ty (Leo):Exactly. No one knows. What deductions will you have when you take out the money? Let’s talk about tax history because, well, I don’t know what you think about taxes. You think they’re going up or down in the future?Todd:Most of my clients and prospects agree with you, Tyler. Yeah, Officer Ty. Over the last 100 years, the average tax rate in the U.S. has been 56.58%. This is where we are today. The highest tax bracket is right here.Okay, what I want to point out to you is that when people say to me that they have—I’ll just use the example of $100,000 in their retirement account at work, for example, their pre-tax savings retirement account, I unfortunately always have to point this out to that.And to answer your question, “What’s that red line?” Well, that represents the IRS’s share of what’s in that investment. That’s what they consider their money. And remember, everything that comes out of that tank goes through that tax filter first before you get it. So they’re going to get that $37,000. So you actually only have $63,000 in that account.Now, if tax rates should go up in the future, you can see quickly what can happen to somebody’s retirement savings on distribution. And for you, I mean, you might not be taking this money out for 10 years, so it’s really important to focus on this and how we can reduce this risk and help you manage this risk because, yeah, there’s a lot of things happening.Todd:I don’t know if you’ve ever seen the U.S. debt clock, but I’d like to show you that real quick. Okay, I’m going to share that with you here.Mario:You really don’t want to do it?Officer Ty (Leo):You don’t want to see this?Mario:No. This is a long—Todd:Oh, yeah. So here, let me just—I have to go back and change my screen. Hold that one second.Officer Ty (Leo):And then just to clarify in the graph there, so the red—that’s the years on the bottom. But that’s the average salaries for the—and then the line that you were showing across. That’s the tax with the average taxes?Todd:Well, that’s your tax rate currently. That’s what—Mario:It’s all tax rates, okay. That was just showing how much they fluctuate. This is what I never know. You know, financial advisors is one of them out there. Typically want to focus on, “Hey, let’s just earn more money.”Officer Ty (Leo):Gotcha, okay.Mario:Right. Let’s ignore the elephant in the room, which is taxes.Todd:You see the U.S. debt clock now?Mario:We do. It’s hard for us to see.Officer Ty (Leo):But yes, that’s probably a good thing.Mario:You don’t want to see it. It’s in red, just in case that red number—that’s not a positive thing.Todd:Yeah. And I know we’re probably spending a lot of time on this, but let me just make sure I show you this. So, yeah. Great point, Mario. You know what was going on here? Well, you know, when they started the IRS, World War I, they had to raise taxes to pay for it, right? Then and then here, this is the stock market crash.Todd:You know, taxes got low again. Then they raised taxes during the Great Depression. You know, they had these very, very high tax rates in the United States. JFK came into office, and tax rates did start to come down. And so, Reagan really started lowering tax rates in the ‘80s. And if you look, they’ve been relatively low since then.Todd:And we have, you know, the Trump tax cuts back in 2017 that are set to expire at the end of 2025. So if Congress does nothing, we’ll automatically get a tax increase when they revert back to the previous tax brackets. Now, we know Congress is good at doing nothing.Mario:Now, if you don’t mind me, I’m just going to read a little bit more on that. What you’re looking at was the highest tax bracket. That was the levels that we’re adjusting for when you’re in the highest tax bracket, okay?So, you know, it’s that—the tax—understanding the tax brackets and how—what portion of your income is taxed at what rate—is something that people really lose sight of. They don’t understand. And it’s not at what point what part of your income—you can you recall offhand at what—what part of your income as all of a sudden can be taxed at the highest tax rate? Is it $84,000? What’s that number again?Todd:I’m going to—I’m going to show you that number because I have a great illustration.Mario:So as people work, you know, people that are underneath the income level, if you’re only making $50,000 a year, you’re not going to see that percentage. It’s that—it’s that proportion of your income that’s over that puts you into that highest tax bracket that’s taxed at that rate.Officer Ty (Leo):Gotcha.Mario:Okay. And there you go.Todd:It’s $731,000. That’s the highest threshold at 35%. If you earn over $731,000, you’re paying the 37% tax level. You see how this works. So in the United States, the way the tax code works is you have a standard deduction. If you’re filing jointly, you get a $29,200 standard deduction, meaning no tax on the first $30,000 that you earn. Everything over that, from up to the next $23,200, is taxed at the lowest tax bracket level, 10%.Todd:And you can see to maximize that, you pay your $2,300 in tax there. Then everything over $23,000 is at the 12% bracket. Here are the two that are set to go away. The 22% and 24% are going to expire unless Congress acts. And then, President changes that law and extends the tax cuts. Those 22% and 24% brackets are going to go back to 25%.Todd:So there’s the automatic tax increase on all of these dollars. And you could see if you’re earning $250,000 a year, you know, that’s about $30,000 that you’re paying at these lower levels below 25%. If you’re earning more than that, let’s say you’re earning, you know, $700,000.Todd:Then you could see what happens. Then you start to maximize the 24%, the 32%, you pay $33,000 at these lower levels, and then 35%, you’re paying $64,000 at that highest level.Mario:And what’s really alarming, when you start understanding what Todd is showing me, is that depending on when you take out your money, at what age, and if you’re pulling it out of a tax-deferred bucket, well, it only takes one flip of a switch by the next incumbent, the next president, or whoever’s coming in to say, “Hey, I’m going to alter the tax brackets or the tax rates for that bracket.”They pull two levers. Yeah. Every president—or they’re raising, adjusting tax brackets or adjusting tax rates. And so, no one can predict that. So, it’s interesting that everybody, since then, if you saw even on the last example, the gentleman had a ton of money in his tax-deferred bucket, very little money in his safe bucket.Mario:So, to me, it’s a big concern for people out there that they’re just overlooking. And most financial advisors who do not like life insurance because they want to manage your money, you know—the reality is, life insurance is one of the few products out there, other than Roth IRAs, that you can pull out in a tax-advantaged situation.Mario:So when you are pulling money out of that, it’s not stacking on top of your taxable income, because you saw those tax brackets. Yeah. So your pension starts right there. And then if you have any Social Security money that’s there, and it just comes out of all your 401(k)s and—and so people don’t talk about that, you know.Todd:Yeah. Let me just add to that point, Mario. It’s a great thing that you’re mentioning is, you know, what is the next Congress going to do? Well, just since I’ve been in the business, I mean, look at all the changes to the tax code. These are the government tax acts that have passed, you know, in 2005. A lot of these are good, but, you know, some of them may be questionable.Todd:And so when you look at how often this is why we have a tax code in our country that’s this thick, because even just in the last ten years, I’m going to, you know, probably screen-scroll about three pages of different tax acts, including some very significant ones in the last three years, going back to the Secure 2.0 Act and how this affects your qualified plans.Because not only do you have to worry about getting taxed on that money, but your beneficiaries, if you should pass that money on, it is not an efficient wealth transfer vehicle.Todd:Under this new Secure 2.0 Act, your beneficiaries—whoever inherits that money—they’re going to have to spend all that money within ten years. And so, imagine that. Imagine increased taxes. Maybe your children, who are in their working years, are suddenly having to pay additional taxes on these resources that either mom or dad worked so hard for over their life.Mario:And that money that they’re then taxed on, that is—that’s not considered. Is that considered an—it’s not income tax, right? Is that not stacking on top of their income?Todd:Is it ordinary income?Mario:So if, you know, if your kid is making a couple hundred thousand dollars that year, they’re doing well. And then, all of a sudden, they have this transfer coming in when I was one—that bumps them into a different tax bracket, or they’re forced to take out money at that time. This is what’s dangerous about what our government is doing. They’ve put all these incentives in place for that. People really don’t talk about it. Everybody just says, “Let’s outgrow it.”Todd:Yeah, so sorry. Sorry to interrupt. I know you’ve got a flow, buddy. I’m just kind of interjecting as I—Mario:No, you’re good. I just—Todd:Running through.Mario:Here. You know, getting run through time. It’s, again, this model is just unbelievably powerful. And the visual, the way to turn something visually almost into a tangible thing of something that’s just an intangible poof out there, I’ve got this 401(k) money. How does that really work with all the other things? At the end of the day, that’s what you do, and that’s what’s really impressive with this model.Todd:I don’t see our education system providing this information to our youth. And I know even as a financial advisor, nobody was teaching us this. This took a team of financial advisors working together to build this model. We’ve been developing this for decades over 25 years, building a way to be able to communicate all of these financial concepts and ideas with a picture.Todd:And I think that’s what’s so powerful is, you know, we can show you, you know, easily this tax risk, easily, you know, where the investment risk is. Any question that you may have, I’m likely to say, “I don’t know. Let me test it in the model,” and then we can put the numbers in, we can test it, see the result, and then I can really come back with a quantitative answer for you and say, “Here’s the best result.”Todd:This helped us in these ways and showed you very specifically the improvements that we can make. So, I think this model is really key to being able to communicate with people and educate people because, again, it’s not out there.We have developed curriculum now that’s being taught in universities across the country. We, you know, I teach at elementary school, middle school, high school kids, talk to individual college kids about this. I mentor kids that we provide scholarships to. So there’s a lot of ways that we use this model to educate people. So it’s not just you, Mario. Believe me, I—you know, I talk to high-net-worth individuals that are in their 60s, 70s, and 80s and still, you know, practicing philosophies that maybe they learned when they were kids, maybe from their parents, from the Depression era. You know, “Hey, I don’t want to ever have debt.”Todd:Well, hey, you know, everyone has debt. You know, that’s called a mortgage. You know, there’s—you know, there’s a lot of ways to use other people’s money. There are a lot of modern, more progressive philosophies that we can now help our clients with to really solve what the biggest problem is today: People are outliving their money.Mario:You know, to your point, you’ve got a guy as healthy as Tyler. You know, the picture of healthy. He’s careful about everything he puts in his body, takes care of himself. I mean, chances are you’re going to live a lot longer than the previous generation, especially if you have resources. You have assets to get good medical care and good healthcare.Todd:So, you know, we, as financial advisors and being in this business as long as I have, I’ve had the pleasure of seeing people go through all phases of retirement, from just getting started to, you know, I mean, my grandmother lived to be 98. My aunt was 101. You know, you know, I’ve seen the full spectrum of the, you know, the process.Todd:It took a while to go through for me, but having been through it with so many clients now, it really makes me an expert in being able to spot these things for a young guy like you and educate you. So now you feel empowered.Mario:So critical, but I’m sorry to cut you off, Todd, but we’re just kind of—Todd:Running through.Mario:Here. You know, getting run through time. It’s again, this model is just unbelievably powerful. And the visual, the way to turn something visually almost into a tangible thing of something that’s just an intangible poof out there. I’ve got this 401(k) money. How does that really work with all the other things? At the end of the day, that’s what you do, and that’s what’s really impressive with this model.Mario:And I hate to cut you off, but we are getting pretty lengthy here. We’re getting pretty, pretty deep into it. So…Todd:Yeah. Well, so we’ll follow up next time. I’ll go through the questionnaire with Tyler and, yeah, we can go through steps six through ten next time we get together. And it was a real pleasure meeting you. Obviously, Ty, thanks for taking the time today.Mario:First of many, conversations that we’re going to have and we’re going to peel back, a lot of different topics and subject matters. We we are looking for topics and ideas to discuss. Please don’t hesitate to leave in the chat. Send us a message. Something you’d like to see. As Todd has mentioned, he can customize any scenario for the most part.And so anytime you want to see like a comparative analysis, should I buy, you know, should I take money out and he lock or should I do something else? You know, there’s a lot of different scenarios, that you have access to that people just don’t know what to do. So a lot of times people take the path of least resistance, or maybe having assets in a liquid bucket.They don’t, and they want to pay off their mortgage, and they don’t realize that all their cash is tied up in a, an illiquid asset like their home. And also when they have an emergency in their life and all of a sudden they need to tap into the equity in their home. But guess what? They go to the bank.They don’t have income coming in to support the mortgage. And then all sudden they’re forced into higher interest buckets. And this is what I love about working the models that, the, the this circle wealth tool and Todd, specifically helps people understand it’s not all about growth. It’s about limiting that opportunity cost of wealth transfer. And, thank you, Todd, for for jumping in this.I’m really excited to have this conversation because.Todd:I know it’s it’s an honor to work with law enforcement professional. You know, I always have this phrase. It’s top of mind when I work with all my clients. But it’s especially, I think, relevant for somebody like you. It’s the luck factor. First of all, for all the risk you take at your job, you must have a little luck on your side, I would imagine to, you know, survive what you do every day.You know, you there’s trouble and you’re going toward it. And so, the luck factor that we consider for you is the liquidity. That’s the I’ll use the you it control is the key. And I would say the K is simply the knowledge. Now that you have that knowledge, as we all know, knowledge is power. And you can make those decisions and it makes our future meetings a lot easier because now you understand our philosophy and the system and how money works, and it makes this future, conversations a lot easier.And, you know, feel free to bring your spouse into the meeting. Because.Mario:ITodd:We do they try to. Yeah. You may try to convey this to her and, forget half the things that I said. So, I’m happy to meet with your spouse, too. And, or any of your colleagues, any anybody that you want me to talk to you, that’s happy to do it. That’s what I do.Mario:Outstanding. All right. Well, Todd, and obviously, Ty, thank you for your time today, Mario. All righty. And,Todd:Let’s take you off our time.Mario:Yeah, I’ll let you call the wrap and, we’ll talk soon. Thank you.Todd:Great. Thanks. Bye now.Mario:All right. Well, thank you for watching another edition of Seed or Harvest. This is our law enforcement edition. We’re going to be working with many other law enforcement officers. We are looking for you. If you are interested in coming on the show and asking questions to the variety of professionals that we will be working with lawyers, financial advisors, all sorts of people, pension experts, we’re bringing them on to help you understand what’s best for you and your family.

February 6, 2025

The PEM Model and Financial Planning: Law Enforcement Officer

Understanding Uncommon Income and Tax Strategies: Law Enforcement Officer

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