How to set up your financial goals with Steven LeClair

Oh man, I'm super excited to be here. Thank you for letting me join you.

I think success is living life with a purpose. You've got to stand for something. I always say we can't stand for ten things, we can't stand for four things. We can only stand for one thing, and for me, it's living that life with purpose. When it comes to money, for most people it's about taking care of the people that you love the most. While everybody wants to put a number out there and say that's success, the reality is if you can take care of your loved ones, if you're living within your means, and if your life is sustainable, that's a success. For some people that's a big pile of money, but for others it could be pretty modest. It's really an independent question; it goes to your life of purpose.

That's an excellent question, and it really comes down to the best financial reasons and the best psychological reasons. With everybody, you've got this little scale inside you, and only you can balance it. As a financial advisor or wealth manager, our job is to give you both sides of the story: here's the advantages and the disadvantages of using debt and not using debt. We're at a point in time where we're at all-time lows on interest rates, so from a financial reason, most debts when we're talking about good debts, should you buy a house, should you refinance your mortgage, should you extend the length of time? We're looking at interest rates that are less than 3%. Historically, keeping your money invested in financial markets has done better. There's no guarantees that this is going to last in the future, but in the term of finance, it's called arbitrage. The simple lesson for all the listeners out there: if you're paying 3% on your debt and you're making 7% on your investments, then you keep that 4% spread. That's the arbitrage. At this point in time, by keeping the debts outstanding, you should be better off in the long run. For some people, though, this is where the psychological components come in, especially when you're looking at something like your house and mortgages. A mortgage is typically the biggest financial burden that we have on our shoulders. If you have that debt and it does not allow you to sleep at night, it doesn't matter what the mathematics are behind it. You just can't stand it. In those circumstances, it makes sense to pay it off.

Yeah, absolutely. I didn't intend on being in the wealth management industry or a financial advisor. It was actually something that accidentally happened to me along the timeline of life. When I went to college, I wanted to be a doctor. For those four years, my intention was to go to medical school, so I studied kinesiology and human physiology. I happened to have minored in economics, but that was simply because I took one economics course and I liked it, so I wanted to take some more just to learn. Little did I know that it was the economics course that would be my future career versus the science courses. Post-school, I didn't get into medical school first round, so I had to get a job. My first job out of college was selling telephone service for a startup telephone company. This was during the dot-com era, everything was booming. I walked door to door to businesses and sold them phone service and DSL service. I didn't realize this at the time, but I was good at cold calling. The other thing I really learned, and I think this is a lesson for all of us, is I was good at it because it was a bubble. Everybody was successful at that point in time. Next thing you know, the bubble burst, and I was out of a job just like everybody else around me.

You're so right, because that was the breakthrough technology of the time. It's funny to think about it and where we are today. But one of the things those telecommunications companies paid me in was stock options. There I am in my mid-20s, and I was one of the kids that you'd read about in Money Magazine who was a millionaire on paper. I had millions of dollars worth of these options. But here's the funny side of the story: I never recognized one dollar out of those options because those companies all went broke and those options went to zero. So there I am in my mid-20s, without a job. It was this experience through those options that made me think, 'I need to figure out this finance stuff.' That's where the light bulb went off in my head. I thought, people go and work for these companies, they get these benefits packages, they don't know what any of these options are. Then when it comes to something like retirement, they wake up 30 or 40 years later and hope they selected the right options. I decided there needs to be programs, and it sounds like what you do with the kids, there needs to be programs for adults where you have some type of financial literacy on what's retirement, what's your benefits package, and how do you turn that into your own personal financial plan. So I started cold calling the financial services firms, UBS, Paine Webber. I pitched them on this idea. They had never even seen me, but they actually hired me just on that idea. Next thing I knew, I was swept up into one of these big massive corporations working on this idea. Doing what I learned in technology and telecommunications, I started calling on companies to sell them on doing financial planning and financial services for their employees. I learned really early on, you can call the biggest company in the world and you can call the smallest company in the world, and they both can tell you no at the same speed. So I started calling all the biggest companies in the country. In the first year, General Electric was the very first company that took me up on it. One of the biggest companies in the world said, 'That's an awesome idea.' For the next 10 years, I traveled and taught financial education to GE employees across the country. It was an awesome experience. That's how I got into the wealth management industry.

Later doesn't come. One of those great experiences from that was that it doesn't really matter what somebody's education is, where their background is, or their socioeconomic status. People either get it or they don't. I've been in front of corporate executives whose compensation packages, if I told you what it was, it would make you blush, it's so much money. But I'll be honest with you, I've seen some of those people who are one paycheck away from the bankruptcy courts. Then I've seen other people in the most modest jobs out there, and they sit down with you and they start opening up these file folders, and you're like, 'Oh my God, where did all this come from?' They've saved every nickel in their life. It's mind-numbing. I call those the financial hoarders. They've never seen an investment they couldn't put their money in and then hold it forever.

I love that question. Whether you're looking at a family of modest means or you're looking at the ultra-high net worth and extremely successful entrepreneurs, the one thing that everybody has to have is a clear vision of what you want to be, a clear vision of where you want to go. Once you have that vision, you always have to be taking the action steps to get there. As you're taking those action steps, this is truly the big difference between those who have and those who have not. It's interesting because we're in this part of society where the media and the government tells you who has and who hasn't. But just knowing what people's finances look like, everything that those people are advertised as the haves and have-nots are not who you think they are. They absolutely aren't. But here's the big separation: it's stress testing. Those who are successful are always looking for gaps in their plan. They're always trying to identify those gaps and find ways to fill them in order to do better. They're constantly questioning themselves, 'What am I missing here? What could go wrong?' It's not just on the investment side, but they're looking at this for their legal structures, personally and in businesses. They're looking at this on their insurances, property, casualty, life, health. They're constantly going back, looking for gaps, and trying to say, 'How can I make improvements?' When something goes wrong, they always have a plan for stepping in.

I think last year, 2020, was a real big separation of people in how they respond to financial markets. This is a hindsight statement now, and you can just take it for what it's worth. As the financial markets melted down in March, they were an opportunity of a lifetime. But there were a lot of people who looked at it from that contrarian point of view and thought it was all going away. I always happen to be that optimist. I think when somebody gets a bite of the apple, they want a second bite of the apple. Whenever I hear that markets are going to zero and everything's going to go bankrupt, I just don't believe in it. That's not my personality type. Looking at these behaviors from 2020 and coming into 2021, whether we agreed with it or not, it doesn't matter what side of the political spectrum you're on. We spent $7 trillion as a country, and we're going to have to pay for this stuff somehow. Becoming tax-aware within your investments, becoming tax-aware within your incomes and your businesses, I think it's vitally important. I don't think tax policy is going to change in 2021, but I do think it's going to start to change in 2022 and 2023. You need to take a strong look and a strong assessment on how you're positioned, not how you avoid taxes, but how you mitigate taxes. We're all obligated to pay taxes, but you're not obligated to pay more than your fair share. So what can you do to mitigate your future tax?

Actually, I want to step back before answering that fully. In March, there was another event that occurred, and somehow this just got brushed over by all the financial media. It's true, markets were off somewhere between 30% to 40% on the equity side. On the bond side, bond prices had never been so high. We hit all-time highs in bond prices. Going back to financial advising 101, what are you supposed to do? Sell high, buy low. With those boomers and those retirees, whether they were in retirement or near retirement, they should have had a hefty bond portfolio, and they never had a better time in history to go ahead and reallocate that portfolio. Also, the tax position in that, you could have taken advantage of that time. It was huge. That's where I take some of the stuff with a grain of salt. I'm like, yeah, but you had the opportunity. What about the stuff that hit an all-time high? How did we never bring that into our vocabulary and conversation? It did exist. Going forward, looking at just the equity markets, there was an author in 2000 named Harry Dent, and he was talking about The Great Wave Ahead. Essentially, what he said was all the baby boomers that are going to retire are going to take their monies out of the markets, so the markets were going to hit all-time highs and then go back to lows. We've never seen it, especially because the largest demographic within our society is Generation Z. It's no longer the millennials, it's Generation Z. We have a tremendous opportunity just as far as population growth goes. I'm a pure believer that once you get that bite of the apple, you want a second bite of the apple. Here's one little stupid factoid, I call these the Steve stupid facts. If you look at the total number of public securities over the last 20 years, there are about 30% less securities in the public markets. Companies have been bought, taken private, or not going public as well. All these statistics we hear about with the public markets, valuations have never been so high. There's just more people chasing fewer things. The reality is there's just not a lot to buy. There's not huge incentives for a company to go public like there was in the past. That changes some of the dynamics. It's going to be harder for the average investor because you have to have a high net worth to invest in these private companies. They're just not available because there are regulations. There are actual government regulations that prohibit the average person from investing in these private deals.

Depending on the registration type, and I won't go too far into it, basically there are two numbers you need to know: there's $1 million and there's $5 million. Based on the registration, you either have to have a proven net worth of a million dollars, and that's liquid net worth, so real estate doesn't count, or it's $500,000. At the million dollars, there's a bypass rule too. You can have an income, and I believe the income's at $250,000, but it has to be a documented income for so many years. When it comes to these private registrations and private investment deals, the founders and the original company members don't want to deal with smaller investors either. They don't want to have 100 investors, they want to have two investors. They want fewer hands in the pot.

Great questions. Let's just look at somebody who's working today. As a financial advisor or wealth manager, what should they talk to that client about? The first thing is you need to have enough savings and emergency savings so that if you do lose your job or something goes wrong, you're liquid and you're going to be able to get past that time period. The rule of thumb you hear from most financial advisors is you need to have six months' worth of cash in the bank account. Once you get that, your next step is short-term goals. If you're saving for a house, it's down payments, kids' college education, something like that. Third, we move into retirement savings. If you're part of a company, we want to see you maximize the retirement benefits with your company because if there's matching dollars on the table, if you're not taking those matching dollars, that's your compensation, that's your salary, and you're leaving it there for somebody else. Make sure you're taking advantage of it. It's not until you have the emergency savings, you've funded your short-term goals, and you're maximizing your company's retirement plan for the match, that we start talking about those additional accounts. With the company 401(k) plan, say you get matched on 6%, so you put 6% in. You might still have more dollars that you can physically put in there, but is it a good idea or should you look elsewhere? It's going to come down to your tax status, but then it's also going to come down to your financial investing options. You may want to invest in an IRA or a Roth IRA simply because it has more options than inside your 401(k) plan. Whenever you're doing that, you also have to look at the fees and the expenses. A couple things you mentioned are looking at something like life insurance policies. Should we invest in or use the equity in index universal life policies or whole life policies? My personal opinion on life insurance is that it's here for two reasons: either to create an estate or to preserve an estate. For most people in life, it's the creation of the estate. Here's what I mean by that. Let's say you're 30 and you have your first child. It's usually at that point in time that your debts are going to be the highest. You want to go out and buy a 20- to 30-year term policy because if you die, it's to replace the income that you would have brought into the household during that time period. After 20 to 30 years, for most people, that insurable interest starts to go away because when your kids are in their 30s, why are you trying to have a big insurance policy for them? Their life's not going to be as disrupted financially if you have a premature death. On the other side, the preservation of an estate, and this is where tax policy changes over time. If a married couple has an estate that's over $23 million today, for every dollar over that, about half of it goes away in what we call the estate tax or the death tax. Life insurance is used to pay the tax, to try to preserve the estate for the heirs. That's a moving target. 20 years ago, it wasn't $23 million, it was a million dollars. 30 years ago, I think it was $600,000. We have what are called sunset provisions in all of our tax laws. In 2025, that current limit of about $23 million for a married couple goes away and reverts back to $5 million. For a lot of families who've done very well, say they're $5 to $10 million, we haven't bought life insurance policies for them for death taxes because they weren't subjected to it. But if the law reverts, then we may need it. That's my personal point of view on life insurance: it's the creation of the estate for young families for the replacement of the income that would be lost in a premature death, or it's for some of those wealthy families that are trying to save themselves from these estate taxes.

You're asking great questions. We just came out of the political season, and you watch all the political posturing on both sides on how they're going to tax business owners and the self-employed. Eliminating income, getting income into retirement plans, not paying income taxes if taxes go up. There are lots of things business owners can do. On the other hand, W-2 employees who work for somebody have very few things they can do. For example, if you didn't contribute to your company's 401(k) plan last year, there's no makeup provision. You can't magically go and put money into it. On the other hand, for business owners, can you start up a retirement plan and still fund it for the year 2020? The answer is yes. There are different what are called solo 401(k)s, there are SEP IRAs, and they can fund these all the way until October 15. The funny thing is, people always ask me, 'What are the current limits for retirement plans?' I'm usually one year behind because I'm working on those October 15 numbers. I'm just now switching over to 2020 in my mind for contribution limits because I just finished 2019. There's a type of retirement plan for a business owner where the limits on it this year, they can put away for retirement, it's $399,500.

It's a cash balance pension plan coordinated with a safe harbor 401(k) and a profit sharing. Add those three together in the right circumstance, for approximately a 70-year-old, it's $399,500 tax-deferred.

My LinkedIn is Steve Leclair, it's L-E-C-L-A-I-R. And my website is leclairwealthmanagement.com.

Oh, thank you. I loved it. It was a great time.

Oh man, I absolutely loved it. The energy that you bring to the show is absolutely incredible. It's so much fun. In a podcast, as you know, you get on there sometimes and you have a guest and you're asking a question, and they're just like, 'Yes,' and it's hard. You're trying to pull stuff out of them. You're like, 'Please, please give me something, give me something more.' You ask an open-ended question and they just give a one-word answer. It's funny, I've seen it. I've been there myself. You get a guest on the show and you're like, 'Oh my God, he's going to be working on wealth stuff,' and then you're kind of like, 'What's my notes? What's the next question?' From the response, you're like, 'I can't even think of anything.' But you made it fun, you made it easy. Thank you very much for coming on the show. I would love to have you on my show, and I especially would love to talk to you about that financial literacy for the 17-year-olds because I think it's a huge miss that we have in our society. Everybody's in charge of their finances, and literally our educational system doesn't teach kids about this stuff at all.

I'd love to.