How to Successfully Store and Save Your Profit

Leo and Claudine welcome Derek Linman, a successful financial advisor spanning from the Bay Area to Huntington Beach, to talk about how to best store and save the money you receive as profit. You've made revenue, you've accumulated what?
Prefer to read? (Transcript)

Speaker 1 00:14 Hey, good morning everybody. Happy Saturday. Welcome to you out there we are. We are Leo. At the end of this is business and legal talk with Leah, Claudine, and I’m your host, Leo Llandovery. And my gracious cohost, say hello. Good morning. Hello, wake. I am awake. What is your coffee? I um, it’s gone. I need more. Well, welcome back everybody. So, uh, it is a beautiful Saturday morning and it’s 10:00 AM and you’re probably going to have Rao and we probably not thinking about work, but we speak every week to the business owners. Yes. Uh, if you own a business, you’re running a business, you need to listen. You need to drop everything and listen to this show here in power talk a M 30, 60, because we are, the feedback out there is that we pack a punch. Uh, we are relentless on helping you as a business owner be profitable and sustainable.
Speaker 1 01:18 So every week we’re gonna give you actionable things that you can do today to get your business not just profitable, but bigger than to the next level. Isn’t that what makes the economy go round? It does. So, um, Hey, any, any, any exciting things on your legal world? Yeah, well actually we had something just come across and I haven’t had time to actually, um, read into it and get all of the details. But, um, this is probably going to be pretty big. Um, so you’re familiar with Pago, we’ve talked about Pega before. A private attorney general act of 2004. Yep. Pago um, essentially deputizes employees to Sue the employer on behalf of all former and current employees. So it functions like a loss or excuse me, a class action lawsuit. Um, and what you’re doing is you’re suing on behalf of the employees, but you’re really standing in the shoes of the attorney general.
Speaker 1 02:12 Um, and so recently, actually this week, this California Supreme court says workers cannot recover wages under the PAGA claims, a California Supreme court, we can, one of the workers most potent potent weapons against forced arbitration a Thursday saying workers cannot collect unpaid wages under the unique law that essentially deputized them to challenge the employment law violations on the state’s behalf. So this is going to be probably very big. B w Pago is a way for you or an employee to Sue an employer for a labor code violations. Um, wages was, is the big one. The wage hour, um, is, is a big one, so I’m not exactly sure how this is all gonna play out, but stay tuned. Anytime we mess around with PAGA, um, we either strengthen it or weaken it. It, it puts a big ripple effect in employment law. Um, and, and how it relates to employers.
Speaker 1 03:06 Um, this looks like it’s going to be a positive for employers though. Dots, should I be happy or sad about it? I think you should be happy. Pago is a nightmare for employers who have been through PAGA claims. They are nightmarish because you, it’s, you literally have every employee past and present, uh, for the last four years and you just the discovery alone, just digging through all of those records and having, um, an attorney, um, plaintiff’s attorney combing through every, every payroll, um, every check stub, every hour of overtime, um, double checking that everything was done correctly. If you have 50 employees, a hundred employees, you can imagine how devastating it can be. And there’s, there’s claims and you just multiplied at times. Everybody and POG claims are often combined with class actions. So you essentially have to, so you’ve taken the damages, let’s just say one employee wasn’t paid correctly.
Speaker 1 04:06 Um, if you, you just times that times how many of employees you have past and present, Oh wow, what else is going on? So it could be devastating. Not too much. We are just working on, should I be scared of everything? Everything. When it comes to being possessed in the state of California, we talked last week about about Dynamex Dynamex is going to have rippling effects. I don’t know what, what’s going to happen. It’s hard to believe that, um, you know, that that’s the way it’s going to be going forward. Um, I just, you know, there’s so many people who really want to be and enjoy being independent contractors. People supplement their social security, the gig economy, and they cannot, yeah, they’re not going to be able to do that anymore.
Speaker 2 04:47 Oh, well, just, just this fun times. Uh, on my side. Um, if you have a corporation that asks for an extension, nine 15, uh, it’s that time is that time. If you haven’t done it by now, you’re, uh, you, let’s just say you may have a problem in the personal extensions coming up due on, uh, on October 15th, uh, for, for your personal tax returns. So, uh, I, you know, and it just, when things have done at the last minute and my experience, mistakes happen. Oh, right. You don’t want to be, you know, wait until the last minute for things to happen. But proper, I’m all about proper planning. In fact, I’m always concerned about planning for the future. So not just planning for the press and, but planning for the future. So planning for the future and profit is something that I’m constantly thinking about. So we have a great show for you today. Yes, we have a great guest that is gonna tell us about all, how are we going to be able to store up our millions away and uh, all this great. Um, you know, cause I help you. What happens if I help you be profitable? Then we have all this wind full of profit. What are we doing that, how do I say, how do we save it? And so now I’ll let you take and tell us who we have for
Speaker 3 05:58 today.
Speaker 1 05:58 All right, well today Derek Lindeman is going to join us and he grew up from the small farming community of Reedley and Kingsburg California just down South of us a little bit. Um, he was raised to do hard work and worked in the fields when he was younger and ultimately got into the sales industry and became a sales assistant at a local fruit packing company. Um, after he graduated from high school, he carried on many jobs in the restaurant in industry, environmental industry, educational and athletic fields. Not talk about trotting around, checking things out. That’s, that’s quite a variety. Um, and he’s happily married for five years in October and has twins that are balls of energy at two and a half years old. I can’t even imagine. On one hand it would be fun having three kids. It would have been fun to have two at the same time, at the same stage, at the same age, but I’m sure it comes with its own set of challenges. Um, he’s been to financial advisors for three and a half years and he’s part of Falcon financial group, which is a DBA of, um, um, New York life and, um, practice ranges from Huntington beach to the central coast and all the way up to the Bay area. So he’s covering a lot of ground and, um, he was the million dollar round table recipient qualify or excuse me, in 2018 which is the top, top 3% in the world. That’s really rather impressive.
Speaker 3 07:21 Million dollar. Welcome to this show, Derek VU and Claudia and thank you for having me here. Very welcome. How are you doing? Did we cover everything? Yes, I think so. Did we do it justice? Anything else to add? Um, no. Just, yeah, those two and a half year olds, it’s definitely a bundle of joy and um, it’s fundraising too at the same time.
Speaker 1 07:40 So I heard, I heard somebody who had twins making a comment. I don’t recall who it was that it was on a program, um, that they scare and confuse people at the same time.
Speaker 3 07:52 Yeah. Ours don’t look, you’re hardly anything alike. So a lot of times we get the question, are they twins? Oh really? Or are they even brothers? So they are for what? What are they, what are you fraternal twins. Internal trends. Yeah. Versus identical ones. About an inch and a half taller than the other. Really. All right. Well really? Yeah, that different. Yep. Yeah. Wow. So I wonder, so when you have, how often does fraternal versus identical happen? I mean it’s a 50, 50. That’s a good question. So that’s more of a genetic thing. And my wife knows all about that as she was a twin herself. Was, she was a powerful genetic makeup. It is. Especially Carrie’s on the woman’s side, don’t they? We need to get into the science of all of it today on the show. But uh, yeah, it’s very interesting. She, she can tell you all about it really. That’s interesting. So brothers are twins. First question right off the gate, how do you get involved? In what you do. Well, for me, I just kind of fell into it as a former high school math teacher. Uh, really enjoyed educating high school math, high school math. What did you find him?
Speaker 3 08:55 He speaks my love language. Yes. Yes. So I just, I loved numbers and love educating. Um, and really just wasn’t enjoying the, uh, state, uh, teenagers, a room full of teenagers. I actually enjoyed the teenage years, the state education system, but I wasn’t really enjoying. And so, um, it was like, well, how else can I be involved with people, educate and work with numbers and um, interviewed with a few different firms and, and here I am three and a half years later. Awesome. Never ever would have thought have I been here, but absolutely love working with, uh, my clients. And one thing that you should know about, you know, Derek is, uh, he’s a hard worker. He’s for sure a hard worker running to get involved. I mean, this is a sales environment and you really are at the front lines of faith. You know, anytime you get, I always, I love, I have, I have this affinity with people who are in sales and just really, you know, we are hunters, we are looking for it.
Speaker 3 09:52 And um, you know, some, a, a, you’re at a young age to realize that Hey, I want to make a difference and I want to take control of my own future. And that you did that. Right? Right. Entrepreneurial spirit, very much entrepreneurial. Exactly. And, and it was a hard thing for me to fight growing up in an employee mindset. Right. But yet my mind was always running business ideas, but I had the outside influence of being an employee, get your business, get your benefits and get your, your paycheck every single week. Right. And I just, I couldn’t handle it anymore. I had to follow my heart and my mind w and, and went after the entrepreneurial lifestyle. How, how, how soon, how young were you when you realize you had this entrepreneurial bug? I was about a 20 when I first did it as a donor DOR, home security salesman. You did
Speaker 1 10:38 door to door sales door to door. That’s, hello, it’s door to door. That’s rough. Like the last of that door to door generation. I don’t want any, you know, it was very, very popular in the fifties and even through the sixties and seventies. Um, I think my husband did the, um, Kirby course or he, he was gonna I was like, no, no, no, I don’t think so. But you know, that was at the very, very into Kirby. It’s, you know what you say that about, um, being brought up in the world of, um, you know, paycheck benefits being an employee. If I had a dollar for every time my father just pled for me to go get a job at the post office, I grew up with that all, even through my twenties, he would say, just go get a job at the post office. Would you and I look back now and I think, yeah, that was really never going to happen. Show. Um,
Speaker 3 11:31 we probably need to go to break, so stay tuned. We’re going to come back with Derek as a guest here from polaka for national center. We brought back business illegal talk with Leah. Claudine, make it happen.
Speaker 4 11:41
Speaker 2 12:01 welcome back. Alright, so this is illegal talk with Ian. Claudia, we, we’re having fun talking about, um, business being profitable, sustainable. We have a grace, a great guest. Uh, today. Uh, Derek Lindeman from Falcon financial. So who, who do you, who do you go after? Who’s T? Tell us about what you do and, and w what sort of services, because you know, our community is about business owners.
Speaker 5 12:25 Sure. So, you know, I work with a lot of business owners and, uh, individuals. Um, a lot of it trickles down for a business owner, even to their personal side. And our philosophy is a protection first financial planning basis. So we always want to make sure that all your insurances are up to par action first, protection first, you know, and that’s, um, could be a lot different than you talked to your standard financial advisor and they’re like, Hey, I’m going to grow. I’m going to grow your wealth. Right? Well, what happens if all of a sudden there’s a recession or how are we going to protect against that? Or what if someone gets injured? How are you gonna protect against that? Right? But we also need to make sure that what if you want to retire and a lot of people are thinking, retire, retire at.
Speaker 5 13:06 What’s that? Right. Um, but people were like, well, you know, I’ll sell the business. Yeah. But if your plan of action is to sell the business to get out, you’re now in a vulnerable state because you can’t sell in a position of power, right? You’re ready to get out and leave when you don’t have the cash flow to be able to live without the business. right? So in that, you know, we’ll talk to the business owner and, and figure out, okay, what is that action plan? How can we help maybe put you in a position of power so that way maybe portion of your retirement is selling the business and a portion of it is you’ve already saved up for it. Or even if it’s a family business, how are the, how’s the next generation going to take over? How can you help set them ahead?
Speaker 5 13:48 Cause I know for myself, I didn’t start my own business and entrepreneur for myself. My, for me is the legacy. I want my kids to be able to take over and, and have that I want to cut my teeth and that’s how I’m gonna give my kids a better life. Right. Legacy planning, we work a lot with, with w in our firm, we also do estate planning, living trusts and wills. Mostly. Um, people are more appropriate set, appropriately situated for a living trust. Um, but that’s exactly what we’re talking about with clients as well as is that legacy planning. And um, when you’re, when you’re all done, the last thing you want to do is send it off to probate. Correct. And I would presume the same as is happening for you in that you create investment plans. Um, do most of the investment plans that you’re dealing with have a beneficiary in the event that the person passes away?
Speaker 5 14:37 They do. Okay. And I sure hope they do. A lot of times you’re surprising and you, I’m sure you’ve interacted with it. Um, I’ll meet with somebody and their investment plan and they either don’t have a beneficiary, right? Or they’ve only listed one. Right. And I talked to him like, so what if the two of you were to pass away together? Right? When we’re driving the car, my husband and I, yeah. Now you guys get an accident wet. How is that money being transferred onto the next generation? Right. In the most efficient way, right? Uh, so yeah, we had that conversation. We talk about credit or protection. A business owner may have a lot of assets, but how much of it is credit or protect, protected, right? You know it and we’re not, um, Arista attorneys or anything like that. We don’t deal with that. But on the flip side, we want to have that conversation and be on the forefront making sure that they’re educated so that way they can have, if something happens to the business or on the personal side, they can have something set aside that can’t be touched.
Speaker 1 15:33 So let me ask you, um, my understanding, and correct me if I’m wrong, that 401ks are judgment proof. Can you talk a little bit about that?
Speaker 5 15:41 I can go a little bit. I can’t go too far. Um, as the whole Arista attorney deal. Um, but yeah, so a 401k the only thing, and being in California, the only thing that really can go after it is the divorce. Right. Other than that, it goes directly through the courthouse that you get in trouble. Whatever. It doesn’t mean judgments, doesn’t matter. It is 100% protected. And a lot of, most people don’t out out there, don’t know that, especially business owners and they are, they reinvest everything back into the business, their cash flow, their P and L’s, and all of a sudden a workers’ comp accident happens. Right. And and everything’s gone. Yep. But did they have set up a 401k for example, they could have had a couple hundred thousand that they can still live off. Okay. While they’re trying to stay afloat.
Speaker 1 16:31 Super important. Uh, particularly with the younger generation, we’re talking to clients about it all the time because, you know, of course our, our position is always asset protection, life protection, avoid, you know, the catastrophic, you know, things that happen with employees and businesses and so forth. Is that, um, w w twofold when right now we’re in a great employment economy. So right now getting qualified candidates and employees is more difficult than it has been in say the last 10 years. And so one of the things that business owners can do, um, if you can’t offer a lot of the benefits to compete with the bigger companies, a 401k plan is a great, um, benefit to employees. Um, and then we also want to start talking to them about the fact that it is judgment proof because if you start at 20, by the time you’re 50, 60, obviously it’s grown and you, theoretically you’ve been continuing to contribute to it, but it’s a way for you to secure money that is going to avoid the car accident, the lawsuit, the employee suing, you know. Okay. So you get that. I have. Okay. So I have a question. So, um, keeping our audience in mind, you know, I don’t, I don’t have any preconceived notions that everybody that
Speaker 5 17:50 is listening to this show is quite versed. Sure. Uh, even even, even me on a day to day basis, there’s a lot of terms are thrown around, you know, 401k, SAPs IRAs. Um, so basically give us the basics, give us, can you educate us, you know, like, eh, you know, I’m here to learn from you, but people keep throwing the word 401k in. One of my questions was, as you’re educating us today is, are you ever too small or why would a four is four one K the best option? Are you, how small do you need to be to, to for it to make sense, et cetera. Sure. So yeah, cutting, you’re talking a lot about the 401k and the creditor protection. And that’s where when I go and meet with a client, I really want to understand their situation. And before even suggesting any type of product, I want to know how many employees they have, what their current financial situation is.
Speaker 5 18:37 A, do they have flexibility in their, a cashflow to add that additional benefit for their employees to attract them from a larger company? Uh, and so with that, yeah, there’s the 401k simple IRA step-by arrays. Um, generally with a 401k, I usually don’t bring that up unless an employer says no. That $13,000 limit on the simple IRA is not enough. I want to stash away more. Right. So is an ability to stash away more on a pretax basis because they are already doing it correct. Through ACEP or through at what a simple IRA, IRA. Yeah. So, and with the 401k is you can, as a employer or any, any employee can put away up to a maximum of 19,000, or if they’re over the age of 50, they can put up an additional 6,000 a year. Uh, and, but with that, with the 401k comes a lot of extra fees, you have to get a third party administrator involved.
Speaker 5 19:29 Uh, and that’s generally done on my side. Uh, the employer just has to pay the cost of it. Uh, so if you don’t have a lot of employees and the value of the plan won’t be very rich, then maybe we look at a little simpler plan and we’re just trying to get some pretax deductions on the employer side or even on to help the employees to add that additional benefit to their benefit package plan. So when you talk about fees, I mean what I mean, cause I think is it’s an investment in the business, there’s going to be feasible, what are we talking about? It’s a percentage. Is that a flat fees or as a percentage of, sure. So, so there’s a few different layers that, like I’ve mentioned the third party administrator on the 401k, they’re going to have their own, uh, initial setup plan.
Speaker 5 20:14 It could be anywhere from a thousand to $1,500 depending on who you use. Uh, the, the complexity of the plan and how many employees you have. Uh, and then there’s an annual fee that they’ll have any, and I’ve seen anywhere from $20 an employee all the way up to $50 an employee per month or one time on an annual basis. On an annual basis. And that is usually covered by the employer. Now the fees that you can pass on, on the employer to the employee is the investment fees. So each, uh, no matter who you invest with, whether it’s a Hancock, American funds, a TD doesn’t matter, you name it, they’re all gonna have their own fees, right? Everyone’s got to make money somehow. And that’s their way. So what they, so you’re going to have the, uh, fund management fee, which could be anywhere from 0.8% up to 1.2%.
Speaker 5 21:03 If vary. It ranges depending on the carrier and the type of plan that you’re using. Uh, then you’re also going to have an advisor fee, uh, someone like myself who’s going to help manage the plan and make sure that, uh, the employer and employees, all their investments are properly invested, uh, to their risk tolerance. Because last thing you want is, uh, an employee or business owner who’s got this large sum of money. And in an example like 2008 happens and they lost it all because they weren’t properly, uh, diversified. Yeah. So that makes sense. So, yeah, so there’s, there are fees, um, but those on the investment side, those fees are all going to be the same. Whether it’s a simple IRA or a 401k where you have the additional fees. Like I said, that that third party administrator that you just can’t get away from that. And that’s where the Arista compliance comes into play, making sure that employers or are not making the plan a what they call top heavy, which again, we can get real into the weeds, but it’s just, that’s weeds on my end that we take care of making sure that this stays is simple and complex for the employer.
Speaker 1 22:03 So let me ask you, and I hope this is not an unfair question, if if somebody at 25 were to say invest $5,000 in just, let’s just say a four Oh one K cause that’s the most commonly known name for these investment. Sure. Programs. Um, if they put in say $20,000, this is used, well, maybe tens a little easier, $10,000 at 25 and didn’t touch it and just let it sit there. What would they be looking at? Just generally rough roughly when they’re say retirement age.
Speaker 5 22:33 Sure. So they, they don’t, they only did that $10,000 investment one time. Yep. So there’s the rule of 72, uh, which we say if you get an average of 8%, that money, that number should double every nine years. Uh, so every nine years. So if you got 30, 40 years, that 10,000 should have been, what does that 40,000, 50,000. Um, and that’s a conservative number. We can’t see. We can’t tell what the market’s going to do. So, but on, when we’re looking at it, if you did rule 72 and you got 8%, you’d have up 40, 50,000 on just that one, $10,000 investment.
Speaker 1 23:14 That’s, see, that’s just amazing. And I think, um, I certainly didn’t get it as a young person. The time value of money. Yeah. Well, and, and the painlessness of putting it in early, um, it’s a little bit more difficult when you’re older and you have a lot more demands on your money and responsibilities and kids and so forth. And, and it, it’s a lot easier to do when you’re younger. Um, and I would highly, highly encourage people out there. I mean, even if you’re not 25 anymore, 35, 45, I mean, don’t, don’t slow down. Um, and from
Speaker 2 23:45 a business owners perspective, there’s a lot of creative things that you can do, um, to work, um, some of your tax liability and invest it and, and so forth. But it’s amazing to know the numbers. If you, if you never just touched it again, if you just had that money sitting in there. So when, okay, so back to my, one of my original questions is how, okay. So you evaluate, you know, here’s the thing, you can meet with a business owner and they may tell you, Oh, we’re doing great, and then their finances are not in order. How often does that happen?
Speaker 5 24:18 Probably more often than you’d think. And it’s, it’s a, it’s a scary thing. Uh, you know, you meet with a business owner and it’s like, yeah, things sound great. You know, we’re having a great year. Your money in the back. We’ve got, we’ve got a, we’re, we’ve got a couple million dollars in revenue this year. Wow. But, uh, okay, great. And then it comes to the end of the year and they’ve got to do their company match or whatever and they don’t have the money because they didn’t allocate things properly and they were spending more, or they were buying this or buying that to write it off on the other end.
Speaker 2 24:48 And they would wait until the end of the year to do the company match at one time. Yeah. So there’s a couple of ways you can set that up. Yeah. And so if you’re not a good idea roll taxes once a year. Can you imagine? Good Lord? Well, you have to file on a quarterly basis, but I always say, you know, impound, impound, impound, get them out of your account. You don’t want the liability sitting on your, you know, you don’t, you want to be able to sleep at night. No, because when you go look at your accountant to see how much money you have, your bank account account in your good. Right? But you imagine if your tax liability is to the tune of $10,000 a month, right? Just, and then you have $30,000 you got to set aside two for the, for the, for the filing, right. For payroll tax filing. Ouch. And that’s unforgivable sin, by the way. Oh, is it good to know? You can never ever not pay payroll tax. It’s just, Oh yeah, no, no, no. we can’t solve it. Yeah. I mean it’s even worse than being in problem problems with the IRS because it’s not your money. It’s somebody else’s, you know. Anyway, anyway, we get so, so the point is that here is what I was just curious because you’re coming in and you’re, you know, CEOs by nature tend to be overly optimistic. Isn’t that what you found?
Speaker 5 25:57 Yeah, exactly. They, they think they’re going to do a 30% growth this year and come come six months into their fiscal year. They’re like, Oh yeah, we’re growing at 5% and you’ve built these plans and built their projections and all their finances off of 30% growth. Now, me personally, I generally do a little bit more on the conservative side of a CEO. CEO tells me they’re gonna do 30. I might say, okay, you’re probably going to do 20,
Speaker 2 26:21 because you want to look at your history. Well, see as a, as a CFO, I hear everything, but I go back to the data. What does the data show me three years, you know, history of growth or decline. Anyway, so this is really, really good stuff. I know if I started asking the questions, we were gonna go down the road and we are going to be cut off for break. So might as well just go to break and out. Right now we’re, we’re listening to business legal talk, uh, with Leah and Claudine, and we have Derek Lindeman from Falco financial here. Uh, we had a good time. We’ll be right back, right on.
Speaker 4 26:49 welcome back.
Speaker 2 27:09 This is illegal talk with you and Claudine, we’re talking about your most valuable asset, your business that you’re growing and the money that you’re making that you want to pass on to the next generation. And you want to do it and you want to shelter as much as you can legally from taxes. And then at vehicle is that we have, you know, Derek lemon here helping us out to understand what do you do with all that windfall of money that you’re going to make and how are you going to be able to, uh, create a legacy for, for, for yourself and your family. So, welcome back. Uh, Derek, so where were we? So we talked about 401ks, right? So, but what happens if that’s not an option? I know you mentioned, um, uh, Iris and simple IRAs and SAPs. Can you walk us through what, what is, what that is?
Speaker 5 27:50 Yeah, so a couple of different options. I mean, if you’re a smaller employer and you’re just trying to get your feet wet into the retirement world and start sheltering a little bit of money, sometimes the simple IRA is the the best option to go and they’re there because biggest reason is there’s no additional fees. Oh, the only fee you’re paying is the investment fee that you’re going to have. No matter where you invest your money. And with that is you are also providing this benefit to your employees and with a simple IRA, the only cost that you’re going to have as the employer is the match that you do for your employees. And so if your employees don’t ever contribute, you don’t have to do anything for them. So they have the election whether or not they want to contribute 10% 15 or 1% and so the way we can structure the plan is that you match up to a maximum of 3% dollar for dollar a.
Speaker 5 28:39 If the employee decides to contribute, if they, or there’s the option of, Hey, no matter what, if my employer contributes or not, I’m just going to do a flat 2% to every employee. Uh, generally on the, uh, business owners side, we usually see the first, uh, happened because they’re more concerned about their bottom line and making sure that they are keeping money in their business. Um, and yes, they want to provide benefits to their employees, but if their employer is not willing to take advantage of this great opportunity to start saving for retirement, well why would I give them this extra bonus? I’d rather that go in, in, in their payroll or I’d rather use that for a company dinner at Christmas party or whatever that may be. Uh, so a simple IRA is literally that it’s a simple option for retirement planning, um, for the business and, and it really helps the employees to get that kickstart. Um, big thing to point out, like I said, is, um, and we were talking about the 401k is even if you’re a new business is best to start with something. Right. Okay. And this is, this is where that start with something is, is that maybe you can’t do the 19,000 a right, then yeah, then we kicked the 401k out the window and let’s start with a simple IRA,
Speaker 3 29:46 right? And just start there. And how much is that, what’s the limit there?
Speaker 5 29:50 Limit on the simple IRAs you can do up to $13,000 per year, uh, as an employee. Um, and if you are a, uh, over 50 years old, you can do an additional 3000 per year. Uh, and all these, all these guidelines will change from year to year. Uh, the limits depending on what the government decides to do with inflation and everything like that. So like, uh, 2018 was actually, or 19 was the year that they kicked these numbers up. So where the 401k went from 18 to 19 and simply raise went from 12, five to 13. That’s the amount you can invest, you can contribute. And so that, but, and also to note that doesn’t include the employer match. So you could get your own personal contribution, your own personal contribution. So you could do this quite a lot and you could do that 13,000 yeah. You think that 13,000 will double every nine years?
Speaker 3 30:38 Well at, at, at an 80% but on average, what is average anyway? It depends on who you talk to. You can talk to some financial analysts where they’re going to say, Hey, we can get you 12 to 14% and yeah, that’s been realistic in the last 10 years we’ve been in the strongest bull market. There has been a, and almost history. Uh, yes, we had a little blip in about 1718, but overall we’re, we’re going strong historical return. The Dow Jones, what is, what is it? 8% 8% a little over 8% 2% is a good safe place. Somebody comes to you with 16 or 17. Yeah. You probably should be a little there. Look the other way, be a little leery. Um, and if someone comes to me saying, Hey, I talked to this person that said I could get this. I said, okay, go for it.
Speaker 3 31:19 I think you should do that. Yeah. Can I sign up to please? Yeah. Because we always want to be on a conservative side, right? Because we don’t know what the market’s going to do. Hut. Okay. So speaking of risk and appetite for risk, so we, you sitting down with a business or the, and you know, and Claudine and I are both business owners and there’s a certain way that we are wired. When I w when I was telling you that Oh, CEOs can be overoptimistic. It’s true because I am also a CEO of my own company and I always have to sanitize or Q rate my goals with other peers to make sure that I’m falling off. Like this is this, you know, I grew at 20% 20% can I, can I shoot for 25% is that a basis for that? So we always want to check on each other.
Speaker 3 32:00 Right. So when you’re sitting down with a business owner and how do you assess their appetite for risk and where to put them into the investments, how do you go about doing that? Well, obviously being a business owner, you’re one of the most risky people in the world. Right? Right. Cause you could be rich one day and then debt broke the next day. Right? Isn’t that the very definition of entrepreneur? It is. And who takes risks? What a profit and but what it is. But what’s funny is when I sit down with a business owner, they’re generally more reserved with what I’m wanting to do then their own business. I don’t get it. They because they’re, they’re in control of their business when it comes to investing the money they’ve lost, that they’re
Speaker 5 32:40 trusting someone like myself to help them with their future. When they know they have the history over the last five years, whatever it’s been, that if I take this $50,000 I can double it within the next three years by doing this stretch strategic thing. But you know, how can I trust someone else to do that? Or they have the mentality of I can get 30 to 40% return when I’m coming in and telling them, Hey, I’ll get you eight to 10% on average. Well, why would I give up that 20% option? And so that’s where we have to really get into longterm strategies. And tailoring something that really fits their personality and what their goals are
Speaker 2 33:18 in those, I would imagine change from time to time. I would imagine that the appetite for a person who an entrepreneur at 30 is different than the one who is a 50.
Speaker 5 33:26 Absolutely. I’ve got a couple of clients, a family of clients where the, uh, the dad is, has, did a great job growing his wealth. And um, he got to the age of about 65, 70. And his son’s like, Hey dad, let’s take that money. Let’s just keep going. Let’s keep going. And dad’s like, no, I’m content. And Jay is now just sitting on it while he’s managing his mom’s money, similar age and he’s doubling that money. So yeah, it, as we grow with our clients that our clients grow with us, we’re all aging. We’re all getting closer to that deadline when we need that money. So we’re going to be more cautious as we get closer to twin. That money is a necessity.
Speaker 2 34:04 So as you get, so the profile changes, I get that. So in your golden years. So when you’re ready, you know, you have your, you know, your, your growth and you’ve been able to, you know, if you’re assuming that you do in 20 years and double that twice and then you have this, so you start moving to a different, um, asset based, a more liquidity or how to, you know, I guess whatever you can tell us. I, I, I, I don’t know how that works.
Speaker 5 34:29 Sure. So now, now you’re getting into the investment we use and we, that’s where we live and we love, and uh, so yeah, when you, when you start out your younger age, you’re, you’re dealing more with what we call equities, the stocks, grubs of the world cause growth, growth, growth mindset. And as you get older, um, that’s where we shift them down more into, um, a little bit more liquidity, uh, more on the bonds, bonds, the bond market. Yeah. Yeah. And so you have to make sure that you’re, you’re always blended because at the end of the day, you can’t go 100% safe or 100% aggressive, right? Because if you’re at retirement and you’re 100% safe, well if that bond markets only getting you 2% but inflation’s at three or four you’re falling behind them and your money’s not going to last for the next 30 years when you’re trying to relive.
Speaker 1 35:12 But isn’t that similar when you’re looking at a 401k versus a different types of IRA in that some, some investments are pretax at some of our post-tax and right now what the taxes are down low. The idea is go ahead and invest in the post-tax because you’re paying that tax now taxes are low.
Speaker 2 35:35 Oh yes.
Speaker 3 35:36 Well T interest, I’m using the wrong word. No, you’re on the right path. But w but so because what we know where our, we know what we’re at today, we don’t know what it’s going to be like exactly 20 years. But so having a little bit of both, not jumping entirely into one pre tax bucket or post tax bucket entirely. You sound like he was actually sat through one of our firms presentations. I’ve, I’ve, I have say we’re not going to talk age here, but I will say there, these are things that I have had to look at. Yeah. Yes. And, uh, um, so yeah, that, that is a big thing. Even on the 401k side, you could do some post-tax 401k planning. And what that does is you’re, yeah, you’re gonna pay the tax today, which sometimes it hurts. Nobody likes paying that tax.
Speaker 3 36:20 But like you mentioned, we don’t know where taxes are going to be in the future, right? Uh, no one can predict, no one’s got that magic eight ball. So really, if I want to have that control when I’m 62, 65, 67 when I’m retiring, of what income I’m going to live off of is the unknown. We don’t know what the future lies. Right, exactly. So I’ve gotta be able to control a little bit more of what my liquidity may be at that time, and I can actually play the tax game. If tax backers are lower when I retire, great. We’ll pull more out of our 401k or IRAs, whatever you want to call it. Right? Um, or if tax brackets are higher, we’ll pull more from the after tax side where we don’t have to pay the tax again because we already paid it years ago if it’s done in the proper vehicle because there are after tax things out there like real estate or just regular mutual funds that are, you’re going to get taxed on the regular.
Speaker 3 37:06 Again, we’re not CPAs, we don’t add, give you specific tax advice. Um, but along those lines, you know, if you’re investing in Roth IRAs or different things where it does grow tax deferred and it comes out tax free, you do have that flexibility and you’re not going to be 75 working at home Depot trying to get that supplemental income. Right. Right. No, I’ve worked at home Depot, not to say there’s anything wrong with working at home Depot. Right. I’ve been there. It was actually fun. Um, but with that it was by choice. Yes. Whereas at 75 or so you’re, you’re trying your more being forced into that job. Yeah. So let me, um, can you explain a little bit about SEP IRAs? I know SEP IRAs have some unique restrictions to them. Um, but there are a good, um, candidate and maybe we want to do that after we come back.
Speaker 3 37:49 We can get started. I mean, you know, I’ll just cut. You guys wanted it for our micro businesses. Exactly. Um, I, and even some of those, you know, five to 10 employee businesses even enjoy a, a SEP IRA and stuff. IRA, what it really stands for is a simplified employee pension plan. Oh, and in a world where pensions aren’t really evident anymore, really only place you see pensions or in the federal and state levels of employment, right. So what does it mean self employed? Simplified, simplify employee pension. Okay. That’s what’s it. And learn something new today. That’s right. Well, glad I was, you had me on the show. You just made it worthwhile for us. Totally. So with the step, uh, you know, I have some doctors who they may benefit more on a cost basis for them to do a
Speaker 5 38:36 401k, but the ease of access and the ease of contributions, ACEP as the best way for them. How so? Because all the contributions are done on an employer basics basis. So the employee has no control. But really there’s a few limitations as to how much you can contribute, how it gets invested. Um, and with that is you can contribute up to 25% of your income to a maximum of $56,000 a year.
Speaker 1 39:03 It’s a lot. This is the knit, this is the businesses net income. All right. Employee, employee, employee as opposed to 16 on a 401k 19, excuse me, on the 19. So it’s considerably more. Yes.
Speaker 5 39:17 Uh, where, where it may not benefit an employer is that they have employees and they’re not wanting to fund that because if they fund it for themselves and they have a few employees, they have to fund their employees plan as well, um, from the employers assets. Uh, so, you know, but again, as an ease of planning and that employer wants to have that plan for themselves and that deduction from the business, it’s a great option because you may be, as an employer, you may be making $250,000 a year. So you can contribute that 56,000 for yourself. But you have employees who are only making 20,000. Well, you’re only doing 25% of that 20,000 per employee. So if you’ve got 3000 or three employees at $20,000 a piece, you’re only contributing five thousand four thousand dollars for each one.
Speaker 1 40:05 because it’s done on a percentage basis up to specific employees in Cancun. Oh, rides. That’s interesting. That’s not a bad, that’s not a bad for smaller businesses depending on, I mean, if you’re, if you are a business that has, um, employees that are at a mid, um, salary range, yes. Or even, you know, still confused level in this app and the 401k. So I mean, when is across the line tax?
Speaker 5 40:33 So it says, yes, these are all pretax vehicles. Uh, so the con the did the tax deduction happens today. Um, really when you cross that line is the amount of employees you have and how generous of an employer are you.
Speaker 1 40:47 And if you are a micro business, for example, a realtor, a, that’s a really good plan. Law firms. Yeah.
Speaker 5 40:53 Mortgage brokers. Anybody who I say anybody who’s five or less employees is set up a SEP IRA is the way to go. Uh,
Speaker 1 41:01 can you upgrade from a CEP to a 401k? Absolutely. Oh, so you can start with this step may be another introduction plan. All right. Stay tuned. We did to go to break business illegal talk with Leo, Claudia and having fun. We’ll be right back.
Speaker 4 41:14 okay. So
Speaker 6 41:34 we’re having so much fun today with Derek. Thanks for being with us. So
Speaker 2 41:39 how do we find you? I mean there’s just all this, you’re unpacking all this great content, but I’m sure that if you’re anything like me, you know, it’s easy to get confused when it’s investment stuff. So tell us what, what, what, what do we find you? Where do we go to get more information?
Speaker 5 41:54 So you can find me. Find our us at www dot Falcon fi that’s Falcon, like the bird F Or you can reach us at five, five, nine four four seven three six one nine. And just ask for myself, Derek Lindeman and we’d love to unpack this for you. I know that we’ve thrown a lot at you and, um, you may even be wondering, well, did we get set up with the right plan to begin with? Uh, I meet with a lot of clients who already have a plan in place and I’m really weren’t aware of the different options that they had, uh, between the 401k, the simple IRA or even the SEP IRA and, uh, you know, re we can impact which one is right based off the size of your company, how much you want to contribute. Uh, has your business changed in the last couple of years where you may need to make that change? Uh, but the, we, you didn’t really have anyone to help guide you in that direction and we’d love to just help point you in the right direction and to help move you forward. Yeah.
Speaker 2 42:49 So you know what, we have some sound problems at the very beginning of the segment. K please tell us again, no number. Where do we find you? Because this is important, you know, like how do we, how do we get to you?
Speaker 5 42:59 Yeah. Um, and like we said at the beginning, you know, I’ve, I travel all up and down the state. I even have clients out across the country. That’s a great thing about my industry is that we can do a lot of things virtually. And uh, so be happy to help anybody anywhere. But our specific website is www dot Falcon fi that’s Falcon, like the bird F Or you can reach me at five, five, nine, four, four, seven, three, six one nine. And just ask for Derrick, um, our lovely staff about probably answering that phone call because they sound much better on the phone than we do.
Speaker 2 43:32 Great. So how we demystify it all. So what are the takeaways, you know, how do we, what, what are you one, what do we want our listeners to walk away with?
Speaker 5 43:42 Sure. So I, like you said, you know, it, this is a very complex and confusing topic for a business owner. And, um, because of that, a lot of business owners don’t even attempt to implement it into their business, into their practice and help their future, let alone their employees. Uh, so really if you’re trying to look for a few simple things to, uh, to chew on over the weekend, uh, you can start with, you know, how many employees do you have?
Speaker 2 44:07 Okay. How many employees do you have? So
Speaker 5 44:09 if you’re a number, if you’re in the range of one to five employees, uh, probably the, uh, simplified employee pension, uh, is the best. The, the set by IRA, I would generally be the best. Um, again, wouldn’t really know that until we actually sit down and evaluate your situation. But that’s a starting point. If you have anywhere from six to a about 45 to 50 employees and you’re a smaller revenue, uh, you might want to look at the, a simple IRA. That’s the one where, uh, you can contribute up to 13,000, um, on an employee basis. And the employer only has to match up to a maximum of 3%, uh, or a 2% on it on a non match basis. Uh, and if you have anywhere from 30 to 45 and up, that’s where you’ve got to go to the 401k side. Um, and that’s really the, the bigger plans that need more administration, it needs more hands on.
Speaker 5 45:03 And there are more IRS filings that go through are risks that compliance and all that fun legal stuff. So you could be in there the, we didn’t talk much about today, which is the individual IRA IRA, right? So can you as a business owner have you, one for you, one for your spouse, and then have the simple, um, IRA into your business? Can they coexist? So th what do you recommend? Yeah, so that’s a kind of a, a tricky question. You can, they can kind of co-exist. Uh, but generally most people think of an IRA as a tax deduction, but if you’re contributing to a simple IRA, you will not be able to do that non-deductible, traditional IRA. You could, you could do a Roth IRA depending on your income limit, uh, because Roth IRA is do have that phase out limit. Uh, but beyond that, yeah, you can’t really, there’s, there’s a lot of IRS regulations on if your employer offers a plan on how much you can actually do to a traditional IRA on a non, on a, a deductible basis.
Speaker 1 46:02 And I just want to throw in here, I don’t want to go to, this is along the same lines. I don’t want to get too far off track, but we have some regulations coming up here pretty soon. Are you talking about Cal savers? Yes, I am. And business owners, business owners out there understand starting next year for those who have more than a hundred employees or a hundred or more,
Speaker 5 46:21 a hundred more as of June 30th, 2020 they now have to offer a retirement plan. If not, there are heavy fines that are coming down the pipeline.
Speaker 1 46:30 Yeah. Or, or I hear the state can manage it, which, you know, was always such a great idea. Oh, sure. But it goes, it’s before you get off that topic, um, run through the next few years. Sure.
Speaker 5 46:44 So, um, you made a comment about this, how the state dues things, not always a bad thing. We’re wearing CalPERS. Okay. And so we’re, we, we think that there are great pros and cons to the Cal savers plan because it is getting people to save,
Speaker 1 47:00 right? This is one, this is one regulation that I have to say I do not think is a bad idea for our communities
Speaker 5 47:06 communities. But for the business owner of a business of a hundred and more employees or 50 more employees, the business is probably going to have to hire another, a HR department employee to help manage all the compliance with it. Um, eh, starting in June 30th, 2021, a, any employer with 50 or more employees will have to, uh, comply by this, uh, Cal savers plan. Right? And by 2022, any, any employer with five or more employees will have to offer a retirement plan to their employees or have a automatic deduction from the employee’s payroll to the Cal savers plan. Uh, and, and that again can be a big headache depending on the size of the company. And that’s where you really want to get a professional in the retirement world like myself in there to help you on the business side to make sure that, um, you know, I what if you are a, an ag industry that’s huge here in the Valley. Yes. Um, and these ag companies may have five, six, 8,000 employees. Can you imagine the headache that that’s going to provide for them? Wow, that’s true. And so there are ways that, um, along the Arista lines that they’re the third party administrator can do carve-outs to really save that employer a ton of headache.
Speaker 1 48:21 W you know, as we say all the time, don’t wait. Plan. Now use this as a, as a tool to get good employees and help them stay with you because this is a benefit. Um, and you have that window of time right now where this is something that you can offer that would make you more competitive than another business. Pretty soon everybody’s going to have to offer it virtually. So use that leverage. Now if you’ll sit down with, with somebody, sit down, you know, with yourself. And I’m, I, I’m pointing at him, but they got him, I’m sorry that didn’t it for the radio. I’m sorry. Yeah, that didn’t come out right. But okay. So sit down with Derek. I’m sorry as as, uh, that was terrible. But in any event, sit down with him and go through, because there are a lot of options depending on your level of, um, tolerance for complexity or, um, you want to just do something simple but get on the ball now don’t wait till the last minute.
Speaker 5 49:18 Yeah. Setting up these plans is not an overnight, overnight deal. No, it’s not even, I’ve met with some employers who want to get this in before the end of the year and they’re calling me in November. Oh no. And we have deadlines. it’s not a a one meeting, uh, deal where it’s a lot of times when we’re meeting with you for a few weeks, uh, cause there’s multiple parties involved, right. And we have to get documents signed and sometimes it’s even a 30 day out before it can actually be implemented. So if you’re wanting this done before the end of the year or the deadline of June 30th, it’s not a wait til a June 15th type of thing. Derek, I have a question unrelated to what we’re talking about. Shoot a young man full of energy. What gets you up in the morning? Uh, my kids
Speaker 1 49:57 no fit. Literally
Speaker 5 50:00 set an alarm clock in two and a half years. No, but what, why do you do, what’s your passion? I love, um, educating the people I work with, uh, coming from an education and coach background. Uh, that’s what drives me. Um, I, I was having lunch yesterday with a fellow, a realtor, and um, I was like, yeah, I just, I just love educating you. Even if you don’t become a client, at least you get to walk away with a little extra knowledge and maybe you’ll come back to me in the future. Uh, but really just the education because I came from it, got into this industry with no education, did not understand what it took to be able to retire at 65. I didn’t understand that as a teacher. My Calsters was not enough for me, right. That I should be doing additional supplemental investing in retirement planning.
Speaker 5 50:49 Uh, so there was a lot of additional things I wish I would’ve learned a lot sooner. Um, on my own personal side that now I’m taking that and trying to educate, uh, our general population on how to, uh, protect and, um, move forward financially for a better future. Because at the end of the day, I, as a parent, that’s what we want for our kids, right? Usually. And so with that, the way that I hope to provide for my kids is for them to be better off, um, not just financially, but in a, um, more knowledge and they can set themselves up better.
Speaker 1 51:24 So, wow. And also, I want to just throw one, one last thing in a lot of business owners weathered the catastrophe. That was 2007, eight, nine, 10 and whatever. Um, and that there are a lot of people are starting over and they’re not 25 anymore. Yeah. But it can still be done. And our motto and our policy is, you know, even if you, you start putting away some stuff for retirement now, it may not be enough to live on entirely because of the time span that you have. Um, and some of the re realistic constraints that you have. But if you get $1,000 a month or $500 a month, it’s better than no dollars a month w during that period of time in retirement. Because I think a pretty much the consensus is we are likely to not actually see social security and you know, 15 years from now.
Speaker 5 52:12 Yeah. I mean we, we wouldn’t say that. We don’t think it would be completely gone. We think if nothing changes by about 2034, 2035, it will be worth 75 cents to the dollar. but you know, yeah. It’s like your social security going to be enough. No, it won’t be because you’re used to a certain level of income. Now, social security is maybe 40 or 50% of your income.
Speaker 1 52:32 Right. Right, right. So don’t think you’re too old is my point. Don’t, don’t think that.
Speaker 2 52:36 Yeah. Never do that stuff, but don’t be reactive. Yeah. So I think it’s the perfect, you know, say went into just thanking you. Um, you know, we got to wrap up the show. Thank you so much for, for being at a show. I, uh, you’re hereby extending an invitation to have your back. I think our listeners can definitely benefit. So, um, you heard it from him. You know, where, how to get ahold of Derek. Uh, I think it should be part of your financial planning as a business owner. Not only you have this tax advantages, but also just wealth accumulation. So thank you so much, Derek, who was wearing gray hat in the show. Uh, I hope you have fun with Leo and Claudine here, a business talk with Leo. Cloudy in the next week. See you next week. Everybody had a good one. Make it happen. Yeah.