You Don’t Want That Tax Refund. Here’s Why.

For those of you looking for another way to enjoy this episode or needing to stay quiet – find out what to do with a windfall and why you should not be getting a big tax refund next year in the transcript below!

Seãn Johnson:

Hey, everybody. Welcome back to Cigar Conversation. This time, we’re going to be talking about taxes, Bitcoins, just basically finance. We’re going to be touching on so many different things, but the reason why I have Jessica and Daryl here today, every time a group of guys sit down and we’re having a conversation, we talk about investing the right way, the wrong way, crowdsourcing. There’s so many different ways, but before we even get into that, do me a favor. I want you guys to introduce yourself so the viewers know who we’re working with, so go ahead.

Daryl Brayton:

Sure. My name is Daryl Brayton. I’m with Transamerica Financial Advisors. I’m a branch office manager. Been with the company almost 10 years now and just fell in love with the mission that we have.

Seãn Johnson: Okay. Jessica?

Jessica Buddington:

My name is Jessica Buddington. I’m a marketing director with a subsidiary of Trans, and the reason why I became passionate and became a part of this organization is because I feel that no family should be left behind. We should be able to help everyone attain their goals and their dreams.

Should I get that tax refund?

Seãn Johnson:

Okay. I can dig that. Totally, I can dig that. All right. Now, one of the first things I want to touch on is we’re going to go through some myth-busters because I get asked questions all the time, I have questions that I want to ask, and it’s like you guys are the experts in the room, so now I can go ahead and shoot them. One of the first one is… Waiting for that big tax return.

Daryl Brayton: Of course.

Seãn Johnson: What should I do with that money?

Daryl Brayton:

What should you do with the money? That’s the big question, right? It’s easy to take that money when you get it back. Most people use it to pay off bills. A lot of people use it as a forced savings plan.

Seãn Johnson: Or pay off credit cards.

Daryl Brayton:

Yeah, they’ll pay off credit cards, but they’ll be like, “I can’t wait to get that five grand back so that I could pay off all my debt that I messed up and got the whole rest of the year.”

Seãn Johnson:

But you were saying something about not even getting money back. Touch on that for me.

Daryl Brayton:

Traditionally, you shouldn’t get any money back. As a financial decision, it’s better to get zero back or be in that range of, you got to pay 100 bucks, pay 200 bucks, or get 100 or 200 back.

Seãn Johnson:

I think we might’ve just lost some viewers right there. Go ahead because I want to know why. Go ahead.

Daryl Brayton:

For a lot of people, if you own a home, you have children, you’re going to get standard deductions, right?

Seãn Johnson: Correct.

Daryl Brayton:

That’s all great, except for the fact that… Let’s say you get five to six grand back, which is fairly normal for a family with a couple kids in a home. You can get five to six grand back. Sounds like a good windfall, right?

Seãn Johnson: Right.

Daryl Brayton:

Except for the fact that that’s money that you loan to the government for the whole year, they didn’t pay you any interest on it, and you should have had it in every paycheck. The question is, is how do you get to that point? That takes a little bit of working around, but most employers will allow you to pick what you are taking out each month.

Daryl Brayton:

But the reality is, is that $5,000, let’s just say, for example, it’s 400 plus dollars a month that you should have had in your paycheck. Now, one, would it help you not put things on a credit card that got you in debt during the year anyway, or two, could you have saved it, invested it, put it in something that would have given you that growth? For the people that are struggling with retirement or looking as an option for what to do to save money for retirement, what if you had an extra 400 bucks a month for the whole rest of your life? How much of difference do you think that would make in people’s retirement savings?

Seãn Johnson: That makes a big difference.

Daryl Brayton: It sure would.

Seãn Johnson: Especially since you were talking about family earlier.

Jessica Buddington: Absolutely.

Seãn Johnson:

That would make a big difference. It’s just a matter of figuring out, when you get a new job, how to fill out your W2s so you get less taken out or close to zero as possible. When you get that on your check weekly, bi-weekly, monthly, now you have that $200 or $300, $400, even 500, to reinvest. Of course, the bigger your paycheck, you know it, is the more they take out of it.

Daryl Brayton:

That’s right. And it’s unfortunate, but the two constants in life are death and taxes, but we want to try to eliminate the taxes as much as possible, but whatever you’re going to pay, don’t give them extra.

What about that 401k?

Seãn Johnson:

All right. Okay. I’m going to go ahead and put this one to you. I fill out the paperwork correctly. Now I’m saving that extra cash, and I put it in my 401k.

Jessica Buddington:

Well, actually, you know that 401k was not set up to be a retirement program. It was actually set up to be a tax shelter for the wealthy.

Seãn Johnson:

Okay. All right. Can I take this tax shelter and I use it for my retirement? I’m not getting taxed on it right now, and then when I go ahead and I retire with 500,000. I’m going to flip it into a IRA. Am I still on the right path?

Jessica Buddington: It depends on what your goals are.

Daryl Brayton:

Yeah, that’s the biggest thing, is it really depends. There’s no one blanket statement. Everybody needs to look at their plans individually. It’s hard to give a blanket statement. There are a lot of financial celebrities that you’ll hear on TV or radio, whatever.

Seãn Johnson: Suze Orman, even locally, you have Clark Howard and all those guys.

Daryl Brayton:

It’s not that they have bad advice. Some of them have really good advice. It’s just that some of the statements don’t apply to everybody, so you can’t listen to that thing because it may not apply to you. And that’s why people have to be careful as to what advice they take because some of it, for an individual like you, may just plain be wrong, and it may really be detrimental to you. Doesn’t mean it’s wrong for everybody else though.

Seãn Johnson:

That wouldn’t be the first. All right, so we’re going to go ahead, and I’m going to put this back on you. Now, you’re telling me my 401k is not for retirement. It’s a tax shelter. Break it down for me. So, we’ve been wrong all along? Because every company you go to, great companies that have 401ks.

Daryl Brayton:

It’s not that anybody’s being misled with it. It just was originally designed for that. Just like the two vehicles that most people use that count on for retirement are Social Security and 401k. Security was never meant to be your retirement and neither was the 401k, but when you go get your first job, your HR person says, “Hey, put some money in your 401k. That’s going to help you retire.” It’s not a bad plan or product or not something you shouldn’t use. It just doesn’t solve all the problems. It has inherent flaws in it for a lot of people.

Seãn Johnson:

When someone did everything that they needed to do, they’re finally retired, 65, 67, some people don’t want to retire, eventually 70, they say, “You know what? That’s it. I’m going to get a house and go right down the countryside.” What’s the best thing… Give me one or two things that the average Joe retiring should do with their 401k. Flip it into… What?

Daryl Brayton:

Well, that’s the thing, is when you get to age 70 and a half, you’d have to take the money out of your 401k if you haven’t already. There’s a thing called RMD, required minimum distribution, that you have to take out no matter what. The IRS will let you keep it in there forever without paying taxes. They want their money at some point. When you get to that point, you start taking distributions, whether it’s still in your 401k or whether you’ve rolled it over into some other kind of IRA vehicle, whichever that your situation is, is it’s fine. The reality is, is most people don’t want to leave it in their 401k at that point. Once you no longer work for them, if you’ve retired or if you’ve left a job and have an old 401k, generally, you want to move it out where you have access to change the investments inside of it.

Once you’ve left the company, most companies, it becomes a dead asset where you can’t make changes to the investments. You can’t change how things are in it. And what it does is it becomes crippling because whatever investment you’re in and it starts going poorly and you can’t change it, what do you do? Getting it out into something that can either give you better investment options, give you less fees, give you something that, even for the same or a little bit more, will give you a better return, or give you some guarantees on your investment, that’s the important thing to people.

Seãn Johnson:

Gotcha. Okay, that makes sense. You know what? I forgot to ask you. Now, the fact you’re so passionate about explaining the situation right now, one of the reasons you got into this is you had a situation with your mom and how the money was handled. Touch on that for me.

Daryl Brayton:

In 2008, when the market crashed for the second time. First time, 2001. Second time, 2008, where the market was down around negative 38%, I was finishing grad school the second time, and at that point, I wasn’t doing anything with finance or investments or anything like that. I just watched my mom lose half her retirement at the age of 60. Not that she wasn’t in anything that she should have been in looking at everybody else, but now I know there were other options that she should have been. She was 100% in the market like most people are, in a bunch of stocks that weren’t bad choices for somebody, but when the market goes down like that, there’s literally nothing you can do. And because people sell on emotion or buy on emotion, everybody sold. Her advisor told her to sell everything. She’s never gotten back in the market since. She had money in a safety deposit box for a long time because she just was afraid to invest it anymore. It just turned her off so much to that that she would never put money back in the market.

Seãn Johnson: At least she knew where her money was.

Daryl Brayton:

Yeah. But then you’re losing purchasing power to inflation. People that say, “Well, the old joke is you save it in a coffee can-

Seãn Johnson: Under the mattress.

Daryl Brayton:

… or under the mattress.” Reality is it’s losing purchasing power. Just like if you saved your money in the bank, in the bank, the reality is you’re not even going to probably get 1% these days.

What if you’re starting over?

Seãn Johnson:

All right. I want to touch on how, segue from your mom, it’s family. How we can hand wealth down to our family, how we can, even health-wise, not just financial, but health-wise and time. I’m 50. Where do I go from here if I was to start over, the average Joe was to start over, or Jane was to start over? We’re going to go ahead and light up, take a sip and go into this because I need one.

All right. Now that we’re all having great sticks and a great libation, I hope you guys are enjoying it by the way.

Daryl Brayton: Of course.

Seãn Johnson:

Thank you. Thank you. What I want to touch on is I’m 50. I get up tomorrow morning. I lost everything. How do I go about rebuilding?

Daryl Brayton:

Okay. At the age of 50, rebuilding is going to be tough. To be honest with you, the amount of money you make will determine how easily you can rebuild.

Seãn Johnson:

Okay, so I get a great job. I’m going to have to go ahead and be very aggressive with my savings. What, I don’t put it in a 401k, but talk to me.

Daryl Brayton:

You can be aggressive without being aggressive. Your primary goal, especially at the age of 50 or above, is to find something that will protect your investments. There are lots of products that will do that. There are options to do that. Being aggressive is fine for growth, but if there are any market corrections, you are going to get totally hammered. Now, people have been talking about market corrections for the past seven or eight years. So far, thank God we haven’t had anything happen.

Seãn Johnson:

I thought we were going to have at least… I’ve been talking about it for about two years because here in Atlanta, things are kind of slow. Especially between commercial and real estate, they’re being more cautious now, even with their building, so I’ve been watching it.

Daryl Brayton:

Yeah, and that’s the thing. As the real estate market changes, that’s what 2008 was. We had that big bubble that burst, caused a lot of headache and heartaches for everybody. It didn’t matter whether you had money or didn’t have money. I have friends that had a lot of money in real estate that lost a lot of money in real estate.

Seãn Johnson:

Before the bubble, I had a lot of friends.

After the bubble, everybody found out who their friends were.

Daryl Brayton:

Exactly. Exactly. You can be aggressive to an extent. You need to be aggressive because you need some growth, but you also need to find a way to protect that from losing money. Warren Buffet, everybody knows the number one pure investor in the world, his number one rule, if you open his book, the number one rule is don’t lose money, and number two rule is don’t forget rule number one. And that’s what he says to everybody. But if you could protect yourself from losing money, and there are ways to do that, you can be a little more aggressive. If you can get the majority of the upside of the market without losing it when it goes down, that would always be your goal, right?

Seãn Johnson:

True, true. Totally agree. Now, what would you say to someone, I’m going to pose this question to you, with a family, whether they start off later in life, because everything that you have done and even got you into this, a segue because you’re on the health side as well, is creating generational wealth. When you pass away, when you retire, your kids are still protected. Speak on that for me.

Jessica Buddington:

Absolutely. What made me so passionate, like I mentioned to you when we spoke previously, about this organization is that we will deal with everyone. Most brokerage firms only want to deal with the two percenters of consumers. I want to work with the 98% of other people that whether they make $50,000 or $300,000 or more, I want to be able to assist them meet their goals.

Daryl Brayton: Yeah, the goal is to bring Wall Street to Main Street.

Seãn Johnson:

Okay, okay. Now, on the health side, because I could have the money, but if I’m not around for it, how do I spend it? You actually have a project that’s near and dear to your heart that you’re a part of. Speak a little bit about that.

Jessica Buddington:

There are alternative health care programs that can be utilized to assist someone to meet their annual needs, whether they just want to have first dollar coverage for physician visits or if they would need something more comprehensive or a catastrophic program. I work with an organization that brings those programs to all families.

Seãn Johnson:

What’s the name of that organization so if anyone needs to know, we’ll have it right here? What’s the name?

Jessica Buddington: Trinity HealthShare.

Seãn Johnson: And is it for doctors, primary, or hospital?

Jessica Buddington: It’s all of it. It’s a full spectrum of programs that we offer.

Seãn Johnson: Okay. All right. So, health, wellness, and wealth.

Jessica Buddington: Absolutely. That’s what we’re here for.

Time is money.

Seãn Johnson:

All right. Now, here’s the next thing. I’m going to come back to you now. So, I got that covered. We’re talking about time.

Daryl Brayton:

Time. Time is your greatest friend or your greatest enemy.

Seãn Johnson:

You see, I like talking to you. I really like talking to you.

Daryl Brayton: Am I too much of a downer for you?

Seãn Johnson:

You’re just straight to the point. “Listen, this is what we need to do.”

Daryl Brayton: Just the facts. Just the facts.

Seãn Johnson: Go ahead.

Daryl Brayton:

It’s your greatest friend or your greatest enemy. The biggest thing is to get people started when they’re young. The majority of millennials have no money saved. 40 to 60% of Gen Xers have nothing saved. And the reality is, is it’s going to be too late for them. I’m a Gen Xer. I’m 46. If I have nothing saved, I’ve got a big problem ahead of me. That’s just the reality. The math is the math. We can’t ignore the math. It may be a little not as exciting as your part, but the numbers are the numbers, and you can’t fudge the numbers.

Seãn Johnson:

All right. What do the big boys do? What does the bank do? What does Warren Buffet do? Where do they invest their money? Because people are still making money today, so I know for a fact.

Daryl Brayton: They’re making a lot of money.

Seãn Johnson: Okay. How? What? Where?

Is Bitcoin an option?

Daryl Brayton:

The reality is, is most of them surprisingly are more conservative than you would think. You would think that all these people are big investors doing options and going short and long trying to make big money, but they’re not. Warren Buffet is a big believer in index funds, where these are funds that basically just get something on an index. Like the S&P 500, if it gets 7%, you get 7%. If it gets 2%, you get 2%.

Seãn Johnson: Is he into Bitcoins? Forex?

Daryl Brayton:

My guess would be no, but I don’t know to be honest with you. I don’t want to get into Bitcoin too much, but I understand how it works, but I don’t understand why you would ever do it.

Seãn Johnson: Is it like crowdsourcing? Because, really, I mean…

Daryl Brayton:

There’s no currency behind it. How do you spend it? What do you do with it? I can’t go to the grocery store and buy groceries with Bitcoin.

Seãn Johnson:

I can maybe flip it. Since it’s all web-based, flip it and get some Amazon gift cards and buy groceries. I don’t know.

Daryl Brayton:

It’s all speculative though. That’s something I would never tell somebody to go into. If you want to go play with that on your own, that’s fine. Forex is a great market to be in. It’s just speculative though. What we’re more focused on is the protection part of it.

Seãn Johnson: Are you saying speculative is same as emotions?

Daryl Brayton:

Speculative as far as, especially with Bitcoin, there’s nothing based on behind it. So, it’s speculative as far as if people think it’s going to go up, it’ll go up. If they think it’s going to go down, it’ll go down. It’s all depending on people’s perception of what’s going on in that, basically, box that you’re in because the market’s not driving it. To be honest with you, I don’t know what drives it. I know how it works, but I would not put my money in it because you can’t do anything with it. If I were to go get a server farm and get a bunch of Bitcoin, what am I going to do with it? I can’t put it in my 401k. I can’t pay my mortgage with it.

Seãn Johnson:

I know a lot of you guys right now, and gals, have so many more questions than answers or might have a rebuttal to this. Please, write below, go in the comments, and tell me, when you mine your Bitcoins, how do you pull it out? How do you spend it? Because I honestly don’t know. The government has no idea. That’s the reason why they’re not even behind it. They’re not supporting it.

Daryl Brayton:

Yeah. It’s not a currency. I’m sure there are a lot of people that don’t agree with my view on it. It’s just my view. I’m just more into the protective side of things for people. If you want to go invest in a bunch of stocks, that’s awesome. Everybody wants to go buy some Google or some Apple. Well, go spend 500 bucks a share and buy it.

Seãn Johnson:

And that’s the thing. Everybody wants to buy something when everybody hears about it, by the time it’s…

Daryl Brayton:

It’s already hot and it’s high. You should buy it when it’s low, but most people don’t do that. And it’s hard with things like that. You don’t always get in at the beginning part of it.

Seãn Johnson: And that’s the reason why-

Daryl Brayton: Then, you go find something else.

Seãn Johnson:

And that’s the reason why we need individuals like yourself just to guide us and be strategic with the money because at the end of the day, time is against us. We need to figure out where we’re going to put it, how we’re going to do it and make it work for us wisely because generational wealth is important. We didn’t have it growing up. Now we’re trying to prepare our kids for it. We’re trying to prepare ourself for kids to have this.

Daryl Brayton:

And that’s the biggest thing. That generational wealth, building that legacy is the important part for a lot of people. I’m surprised at how many people I talked to that don’t want to leave anything behind for their kids. I don’t get that. My kids are 11 and 15 and my brain doesn’t work like that. But for somebody, especially somebody that’s older, that’s just starting out, what are your options for leaving something behind? Maybe, for most people, it’s probably some type of life insurance, but that’s also what wealthy people use to make money. Most people don’t understand it, but it’s what most people been using for years to build generational wealth.

Seãn Johnson:

All right, I have one more question. I mentioned Warren Buffet, the bank and everything. If I want to open up an account, and this is going back to the average Joe. Kid just graduate, student loan, he’s taking care of that. How do we know what are banks’ health? How do we find out how well are banks doing?

Seãn Johnson: Because you mentioned a website. That’s why I’m asking.

Daryl Brayton:

Yeah, this is a website that we’ll post down at the bottom where you can actually go and look at what your bank’s balance sheet is, what’s in their accounts. Most banks, you’re lucky if you put your money in a savings account to get 1% these days, but they’re taking your money and investing it well, and that’s why they’re able to do what they’re able to do. But when you go look at their balance sheets, most of them have a lot of money in life insurance. You think the bank’s going to die?

Seãn Johnson: No.

Daryl Brayton:

No, but they figured out what wealthy people figured out, which is-

Seãn Johnson: And if they’re struggling, they’re just going to merge.

Daryl Brayton:

That’s right. What they figured out what wealthy people figured out a long time ago is that life insurance has certain benefits that no other products do. And that’s a giant conversation to go into, but for the right person, that’s a good way and a good strategy to one, build generational wealth or two, possibly help supplement your retirement.

Seãn Johnson: I think we could go on and on and on.

Daryl Brayton: Definitely.

Seãn Johnson:

So, I’m going to go ahead and take the questions as you guys post them, and we’re definitely going to have to have you guys back.

Seãn Johnson: Hold on. We forgot something. I got a gift for you guys.

Daryl Brayton: Oh wow. Okay.

Seãn Johnson:

Let me just go into it. My apologies. I just want you to see why we’re going to go ahead from us here at Cigar Conversations to these guys that can afford to buy great cigars. Just sitting and talking with you guys not just today, the several times we’ve gotten together, I think I kind of know your tastes.

Daryl Brayton: Okay, let’s see. Let’s see what you got.

Seãn Johnson: Hold on. First, here you go.

Daryl Brayton: All right. I’ll put these down.

Seãn Johnson: And here you go.

Jessica Buddington: Oh, nice.

Daryl Brayton:

Oh, the Opus Story. Very nice. You might have heard me say I was an Opus fan too, right? You probably were listening.

Seãn Johnson: A little bird told me.

Daryl Brayton: At least you’re listening.

Seãn Johnson: A little bird told me, you know?

Jessica Buddington: Oh, very nice.

Daryl Brayton: This is like Christmas.

Jessica Buddington: I know.

Seãn Johnson: Let me get this out of the way for you.

Jessica Buddington: Oh, beautiful.

Daryl Brayton: Wow, look at that. That is amazing.

Jessica Buddington: Isn’t that beautiful? Isn’t that beautiful right there?

Daryl Brayton: We got to show the goods off. Hang on.

Jessica Buddington: I know.

Jessica Buddington: Gorgeous.

Daryl Brayton: The forbidden X Travel Humidor.

Seãn Johnson: From Cigar Conversations, we want to say thank you.

Daryl Brayton: Well, thank you very much. We appreciate that.

Seãn Johnson: All right. Until next time, definitely, what are we going to do?

Jessica Buddington: Have great cigar conversations.

Daryl Brayton: Have great cigar conversations.

Seãn Johnson:

Thank you for watching another episode of Cigar Conversations. For more information or to comment on previous shows, visit us at cigarconversations.com, or if you’d like to appear on a future show or advertise with Cigar Conversations, send us an email request at ads@cigarconversations.com.