Steve Mesirow is the Senior Managing Director in Mesirow Wealth Management and he has been providing expert investment advice and financial planning strategies to his clients for over 25 years. In this episode, Steve talks about how law businesses are at a disadvantage because they register their taxes at the highest rates. He discussed all the ways in which lawyers can build and protect their wealth in a tax-advantaged way.
Through systems called Cash Balance Plan, Donor Advised Funds, Profit-sharing, or Roth IRA, lawyers can do their best at their career without losing any of their well-earned money. Steve also talks about all the ways in which his company helps people - lawyers or otherwise - worry about things that are impactful, helping them save money in ways that are meaningful in the big picture.
Timestamps:
“The best use of your time is to work on your business and not be following down the rules of different financial planning aspects or chasing down a couple of stocks. That might not be the best utilization of your time.” - Steve Mesirow
Steve Mesirow: Mesirow Financial
Website: http://www.mesirowfinancial.com/
LinkedIn: https://www.linkedin.com/in/stevenmesirow/
Steve Mesirow, Senior Managing Director in Mesirow Financial
Wealth Management and Financial Planning
Steven Mesirow is a Senior Managing Director in Mesirow Wealth Management. He provides investment advice and financial planning strategies to individuals, business owners and charitable organizations that are designed to help accumulate, manage and preserve wealth.
Steven joined the firm in 1993 and has more than 25 years of financial services experience.
Steven serves on the Jewish United Fund Health and Human Services subcommittee. He has developed a social investment strategy; Mesirow Impact Management - a portfolio strategy that invests in companies with a positive corporate culture.
Steven earned a Bachelor of Arts degree in history/political science from the University of Michigan, a Master of Arts in history from the University of Maryland and a Management Aptitude Test in teaching from the American University. Steve is a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional and a Certified Fund Specialist™ (CFS™).
LinkedIn: https://www.linkedin.com/in/stevenmesirow/
Have comments, questions, or concerns? Contact us at feedback@1958lawyer.com
Episode Transcript:
Ron Bockstahler 0:29
Welcome to the 1958 lawyer. Great to have everyone here today. Our guest today is Steve Mesirow with Mesirow financial. If you're in Chicago, you definitely know Mesirow financial, one of the largest financial firms in the city, one of the top in the country. So see, let me give you a quick introduction. You know, we're just talking about this. So I'm going to mention that Steve's got a master's in history, a master's in teaching, started to go into teaching and then found his way back into financial planning, been doing it for 25 years now joined the firm that correct me if I'm wrong, Steve, but your grandfather founded. You joined the firm back in 1993. A couple things that I will I think are really, really great on Steve part is he's he serves on the Jewish United fund Health and Human Services Subcommittee. He's developed a social investment strategy Metro prot impact it Metro impact management, portfolio strategy that invests and invest in companies with a positive corporate culture. Steve's got a ton of things he's done. So I'll stop right there. I'll let Steve take off. Steve, welcome to the show. Great to have you.
Steve Mesirow 1:30
Thank you, Ron, it's a pleasure to see you again.
Ron Bockstahler 1:32
Yeah, we got to get into that Oh, whole history and teaching thing down the road. But, you know, let's start off. But you work with a lot of law firms, a lot of attorneys that make a lot of money, and how they can protect that money, and maybe keep more of it from taxes. Let's start there. And let's lay out a couple things I want to talk about today.
Steve Mesirow 1:50
Sure. The first subject that I think you and I want to talk about as lawyers, we were just discussing lawyers, all of their income is ordinary income taxed at the at the highest rates. And so the issue with lawyers is how can we help them protect and build their wealth and do this in a tax advantaged way. And the most powerful tool out there to how to this is what's called a cash balance plan. And a cash balance plan is a supercharged retirement plan, which will let a attorney put let an individual put away somewhere around it depends on their age, but it could be around $200,000 A year of pre tax income, up to that amounts. And the way they get there is a regular 401k, you have your limits, you can put away a little bit each year with this works. The way cash balance plan works is you're giving yourself a very generous pension plan. And the government lets you put away a very generous pension plan where you get to fund about $2.6 million by the time you retire. And so they back into the math of that and say, Okay, if we're going to get to 2.6 million, and you're 50 years old, here's how much you'd have to put away each year to do that. And so you get to put it away in a tax advantaged account, which grows like gross, like any regular retirement plan. And then the end game, the end game usually is when you reach that when you reach that limit, you roll it into an IRA and take it out in your retirement. Like I like normal Ira distributions.
Ron Bockstahler 3:34
Okay, ton of questions here. And I want to go back, we're going to talk about the cash balance plan first, and then I want to go back into a little bit of your history. Because I remember when I first I'll go there right now, I remember when I first met you I go man, the only Metro I know is like Metro financial, you know, the one whose names on that big building over there on Clark Street. And you go Yeah, yeah, that sounds like, wow, you're Steve mesereau. That's pretty impressive. So let's go right there real quick. And then we're going to come back to this balanced plan. Tell us the history and and how is it that we're talking with the Metro from Metro financial, which like I said, everyone in Chicago knows,
Steve Mesirow 4:11
oh, my grandfather started. My grandfather started from actually, he was a he graduated law school before he was 21. And he had to wait when you couldn't take the bar until you were 21. So he took a job at an investment firm, and stayed in the business forever. So he started the firm about 84 years ago, as a one man shop, and then took on partners to kind of more partners. My father was partner number 10 and 1960. And we're now about 500. Now about 500 employees, of which about 200 are shareholders. So in many ways, a law firm is the only thing that is similar to that where you have such a diverse ownership of you have 200 Two donors in a 500 person and a 500 person firm. And, and what happens is, then that affects the culture that affects the culture of the firm, because you have so many owners walking through, and everyone is more concerned about where we're going to be five years from now than the next six months, there's no, there's no quarterly earning pressure. Because there's no outside, there's no outside shareholders, you can just
Ron Bockstahler 5:25
focus on the clients. And you have I mean, you have clients other than attorneys, but attorneys, I mean, the successful attorneys are making a lot of money. And as you and I talked about, it's a cash income. It's not like they're getting invested shares, stock options,
Steve Mesirow 5:40
rights. So the problem attorneys face, I deal with wealthy individuals, and they generally have, yeah, I deal with wealthy individuals. And the problem attorneys face is all of their wealth is developed through ordinary income that's taxed at the highest rate, as opposed to, you know, I have clients who are small business owners, and some who are getting stock options from, from the public companies they work for, but the lawyer is faced with ordinary income. And, and your population is particularly, is particularly good, because they're all small business, they're all small business owners, as well. And as small business owners, there's some complications you have being a small business owner, there's definitely some challenges there. But there's also the other side of the coin is there's opportunities that you can change things and change the construct, so that it favors you. So that favors you. And you can take advantage of different of different things.
Ron Bockstahler 6:43
Yeah, you're the you're the but the seven 800 law firms that I work with in a lotta they're right in this wheelhouse of, they're making quite often a lot of money. But what do you do how you got to pay your taxes, so then they're finding ways to go spend the money, maybe add an employee's they don't need it, which some people on the outside might look at and say, Well, why are they doing that with like, why not, because I'm going to pay taxes anyway, I'm just reducing my tax burden. But instead of spending money uselessly, where they're not really getting a true value on it, there's a cash balance plan, they could be throwing a couple $100,000, before taxes,
Steve Mesirow 7:16
before taxes in your and your construct also works particularly well. Because when you set up a retirement plan, you have to include, you have to include all your employees. Now, that's not that big of a deal. And if you have, you know, a handful of employees, these plans still work really well. But if you outsource in your model, if you outsource your paralegal in your legal secretary and some other and some other functions, if you're the only employee, or if you're one of the only, if you're on one of the only employees, you can be generous as hell to your pension plan, because your your retirement plans are in fact, you
Ron Bockstahler 7:59
know, that goes back to your construct and model is particularly well suited for this model, when it comes down to is education, you gotta you know, they need to understand that there's a better way to do things and, and when you told me about this cash balance program, it blew my mind, I was like, wow, there's the way to save that much money before taxes. I'd never heard of this. In fact, I went to a couple of state planning attorneys who had never heard of this, which, you know, probably shocked me even more, but we need to be in front of them.
Steve Mesirow 8:28
There's another side of this, which is also a little bit of a benefits is I'm not sure how great of a concern this is. But when you put your money into a retirement plan, there are also creditor protection facilities. And so when you're running your own small business, it's usually not an issue, but in the back of your mind. You know, if someone's going to be sued, it's you. So, right, there is no there is no one else to hide behind. So in fact, the creditor protection piece is you're getting that you're getting that sort of as an afterthought for free. And it's, it varies by state to state, but ERISA plans, which retirement plans are have a very good, very good protections in there. So it's a nice added, it's a nice added benefit. It's not a reason to do. It's not a reason to do these, but it's a nice, it's a nice added benefit to juicing up your retirement plans.
Ron Bockstahler 9:24
Just be I'm thinking of a specific attorney who's 61 years old, has been practicing for quite some time. And, you know, he spent the first say 20 years of his practicing life paying for kids school, both of his daughters went on to the law school and got a master's in a PhD. So you know, he spent money but now he's at that prime, I guess, in the last 10 years have been that prime age where it's, I can save because I don't really got all these other expenses. But is that the age that you say, Okay, it's time to look at that or do you say, Hey, I just told you I was talking to a 32 year old family law attorney who's doing very well right now is that is this 32 The time that says hey, let's start Maybe start with 100,000 a year? And can you change this pension amount? Or is that to be fixed? Give us some details.
Steve Mesirow 10:07
So it actually, what happens with one of these retirement, you know, I would say, anytime is a good time to save. Now, when you're 32, you also have the time, the power of time. And whatever you put away, even if it's small amount is got the compounding effect of year after year after year. And that's very powerful. The way a way a pension plan works is you get to favor, you get to discriminate, that's the only plan, you're allowed to discriminate in favor of older people. So the 32 year old might only be able to put away 80 to $100,000, the 60 year old you're talking about can probably put away $250,000 or more, because they have a shorter window to reach a shorter window to save money and build up their pension until retirement plan. So it favors the old. Now, if you have what's kind of interesting with these plans is also work. So you have one or two employees, I know you'd say your six year old has two or three employees. The odds are they he is older, he or she sorry, he or she is older than the employees. And so when you put away money for each person in your plan, you get to skew it in favor of the older person, if you want now you can do the same amount, you can do the same percentage across the board to everybody. But if you want to skew in favor of the older you can, and that's and that almost always works out instead almost always works out in favor of the owner.
Ron Bockstahler 11:40
So we're talking what's the highest tax rate right now? Is it 36.9? Or,
Steve Mesirow 11:46
Yes, it's going to, and it's probably going to go up a couple percent.
Ron Bockstahler 11:50
And then we also because if you're in the state of Illinois, you also can defer an extra 5%.
Steve Mesirow 11:57
So Illinois State taxes 5%. And, and that's, I have no idea what's going to happen with taxes in Illinois, Illinois, my guess is that they're going to stay the same or go up. But that's purely a guess I would have no great insight to that. But there's a fluke in Illinois tax. And that is retirement plan money. When you put in, you get you're deferring on the Illinois state tax. When you take money out of a retirement plan, or IRA in Illinois, there's no state tax. So, for example, say you have your 60 year old person, they put away $100,000 into a retirement plan on a pre tax basis. Alright, so they're saving on Illinois and they're saving on federal, they turn around the next month, they turn around Jan, they put to put and do it for 2001 and 2022. They take the money out, they take out the $100,000 they're gonna pay federal ordinary income tax, but they're not going to pay Illinois. So by just moving your money in and out of a retirement plan, you're saving 5% for Illinois, right away.
Ron Bockstahler 13:14
So I just I want to be honest with you, you just went above my paygrade.
Unknown Speaker 13:18
But yes,
Ron Bockstahler 13:20
that's pretty exciting. I mean, that's a reason just to give you a call and talk about this,
Steve Mesirow 13:24
right? It's and it's a bizarre, yes, it's a bizarre Fluke in Illinois, that that is allowed most other states tax retirement plans as ordinary income. But Illinois has, has that provision in there for whatever reason that state retirement plans and pensions are not currently taxable.
Ron Bockstahler 13:41
So I want our listeners just remember cash balance plan, write that down. You want to talk to Steve about that. And we're gonna move on, but I will definitely probably come back to that at some point. Let's talk about some of the other options that are out there for our solo practitioners, our partner practice law firms that are just looking how they can keep some of their own money. You know, another
Steve Mesirow 14:02
great tool and I don't discuss this with you is donor advised funds. If you are philanthropic, say you were giving away $10,000 a year to your various charities, whatever they whatever they may be, you've probably lost your deduction. You've probably lost your deduction of whether you when you can itemize that in Illinois and some of the in New York and some of the other high tech states, the deduction became not as valuable. What you can do to cross that threshold is instead of doing $10,000 a year, you can do $50,000 You can bunch a couple years so 250 $1,000 In one year, get your deduction. And the donor advised fund works like your own philanthropic fund, you then dish out the money year by year to your charities whenever they're ready for whenever you're ready to give it away so you still give away The same $10,000 a year you were planning on doing. But you can manipulate your deduction into one year to cross that threshold. That is also very helpful for if your income fluctuates. So, so theoretically, if you're going to say you're going to retire in four years, but you're planning on giving to your causes for the rest of your life, you want to accelerate your deductions into those last years where you've got your high income. So you can put it into a donor advised fund. So I've had people accelerates their deductions, until those higher tax years, and then they have the money to give out to their charities, later on. Or, ahead, some if your income fluctuates, for whatever reason, your business, you have some big years, you have some low years, you shove your deduction and your charitable contributions into the year that it's more meaningful for your taxes, and still give out your money as time goes by.
Ron Bockstahler 16:06
So you're talking you're talking about the years, the maybe the last 510 years of work, work years, we still have that heavy taxable income coming in probably the most taxable income you've ever had in your life, is that when you want to create and not you create your own donor advised fund is there organizations out there you could do it through,
Steve Mesirow 16:23
there's organizations, you can do it through. So Fidelity has one Schwab has one, there's a number of them, it's there's a number of them that do it on a on a very cheap basis. And, and it's, it's relatively easy. And then while the money's in there, it can sit and grow each year. But depending on you know, some people's income fluctuates of either they may have over their careers fluctuate from the private sector to the public sector, and their income may fluctuate. Or, you know, they settle a big case. And they have big income one year, and they have lower income and their other years. I'm sorry, I missed that. No, no, no,
Ron Bockstahler 17:03
I'm, we're doing this show remotely, and my children are home. So I was asking them to keep it down. Sorry about that. Yeah, that's what happens when you have five young children coming home from school.
Steve Mesirow 17:17
You're here. Alright, so let's jump into are there
Ron Bockstahler 17:21
such a thing as a 401k? Or profit sharing plan for solo or a small firm?
Steve Mesirow 17:27
Absolutely. And you can do that. And that may be the answer. If you are want to contribute. If you want to contribute up to 50 $60,000 a year, then a solo 401k, or profit sharing plan is probably the answer or sometimes a SEP, those might be the answer this cash balance part is only on the accelerated when you want to do a greater a greater version. And sometimes, sometimes you work them in combination with each other. But the first part is to sit down and figure out what is the need, what am I after here? You know, what am I after here? What can I do? What what flexibility does each plan? What flexibility does he chant plan have? And what are the practical costs of implementing of implementing such a thing. And there are, and some things are great in theory, but then there's the practicality of how it how it works out.
Ron Bockstahler 18:25
So I'm not going to. So we're looking at like a 401k, sap of a profit sharing plan of up to you say 60s up to
Steve Mesirow 18:32
about $65,000. Okay, that's that's the route to go. And the other piece that people can do, at the moment, although Congress was talking about maybe changing this rule is you can do what's called a backdoor Roth IRA, and a backdoor Roth IRA. Even if you're doing your profit sharing plan, or 401k, or one of these other regular retirement plans, you can do what's called a backdoor Roth IRA at the moment. And what that does is you can make a, you're allowed to make a non deductible IRA contribution, you do that, and then at some point later, you convert that IRA to or to, you convert that to a Roth IRA. And the cost to do that is you pay the difference of your basis to what it's worth. So if you contribute $6,000 to a Roth IRA, your basis is $6,000. You convert it a month later, and it's worth $6,005. You pay tax on the $5 gain. But you can make you've essentially made yourself a Roth contribution of $6,000. And you can do that for yourself, and you can do that for your spouse. And that's is very powerful, especially if you're younger and you have time to start Benefits
Ron Bockstahler 20:00
of that Roth IRA, you're not going to be wanting a Roth in a Roth IRA, you're not going to pay taxes on the income,
Steve Mesirow 20:07
correct. It's always after tax money. So the way to think about retirement plans, at some point, the government is going to get their tax. So on a 401k, profit sharing, or pension, or cash pounds pension plan, you're putting your money in pre tax, and then you're taking it out in later years, when and as you take it out in later years, then you start paying the tax as it comes out in later years, a Roth IRA, you're putting the money in after tax, and you're putting the money in after tax and estate after tax. And the plus to both the plans is they get to grow tax advantaged. Whatever it earns every year, you're not taxed on it. So one way to think about all these retirement plans is, if you had in your own name, and it was earning money, the money that would be going to the taxes, you get to keep in your account. And that money that would be going to taxes gets to earn money, year after year after year. And that's why the compounding is so much more powerful in a retirement plan. Whether it's a Roth or a regular, it's so much more powerful, because all that money that would have been going to the government gets to keep working for you year after year.
Ron Bockstahler 21:20
And I remember talking about the Roth is 6000 per year, each year, but you are we're saying the backdoor as we would start it with a regular IRA. Each year,
Steve Mesirow 21:31
you do the same, you do six? Yes, your clientele most likely is not eligible to do a regular Roth IRA. Because they're ready to die. Yeah, okay. Their income is too high, which is why this, but this backdoor is sort of a anachronism of the of the code that you can, you can make a non deductible IRA, and then convert and then convert it converted later and you're only paying and you're not paying, you're not you're only paying taxes on money over your basis, which is going to be insignificance. Right.
Ron Bockstahler 22:08
And those years when you're not when maybe if you have a bad year, incomes not as high, so your taxes not gonna be high, maybe those are the years you take and do the conversion, would that make more sense? If you
Steve Mesirow 22:17
have a low year, it's a great year to convert regular retirement, same money to Roth, and take advantage of any year you have a lower income. And ultimately, you know, nobody, it's not bad to have a combination of personal money, ordinary retirement money and Roth money. Because, you know, while we can go with what the rules are now, it's good to have flexibility because the tax rules will change over the next 2030 years. They always have so laid out, keep a little flexibility.
Ron Bockstahler 22:52
Absolutely. And you've talked about I four distinct programs. Here we had our cash balance plan, which is amazing. You got your 401k, your profit sharing program, your IRA and then your Roth IRA. Let's talk about financial planning as a whole, because I think all of us, we hear from we there's a lot of financial planners out there, at least if you're running in our circles, I think you talked to a lot of what's the difference? You know, what's it to being a fiduciary and not being a fiduciary? Kind of? What do we need to look for Steve?
Steve Mesirow 23:22
So first off, there's two different ways people operates. There's our IAS, which stands for registered investment advisors. And they will, they will all operate as fiduciaries. And I'm in that category. We operate as a fiduciary where a brokerage house operates under under different status of the appointment of the brokerage rules, and they're held to a lower standard. And I don't need to tell lawyers the difference between fiduciary and not fiduciary. But if it's the same price, I'd probably rather have a fiduciary still most wirehouses most of the big firms that you most of the big national chains, you think of operating under brokerage rules, despite what's in their commercials, when when push comes to shove, they're your brokerage clients. The other thing I would say to your group is, even if you're good at even if you're good at investments, and you enjoy it, it's not the best use of your time. You have to think of your business as a business and what's the best allocation of my time as a resource. And you've got some terrific specialized knowledge and qualifications that most other people don't have. So the best use of your time is to work on your business and not be following down the rules of different financial planning aspects or chasing down you know, chasing down a couple of stocks. That might not be the best utilization of your time. The other piece that we often do for people and part of what makes it fun as well, we start with what the clients after, and what's going on in their life and trying to make their money fit their life. We've got tools, where technology is great nowadays, I can suck in the data from the bank accounts, the mortgage, the insurance policy, the swap accounts, the old 401k, it all sucks into one place. And I have a living, breathing balance sheet that updates every night. And so I can see exactly my clients. And I can see their net worth every day updated both our assets and liabilities updated each each night. And what that does for me is allows me our financial planning tools to make projections and figure and help answer the questions of, can I retire in three years? Can we buy the second house? I want to send my kids to private school? What is that going to mean? Can we join this country club or not? What if we downsize our house? What if we upsize our housing? Those are the questions that I like to discuss with people. And I think those are the more interesting, those are the more interesting questions to discuss, because those are more meaningful. And then we we have some clients where we tell them look, it's you're gonna run out of money at 83 years old. That doesn't sound that old to me anymore.
Ron Bockstahler 26:34
Not today, not today, where I was at grandma's 100th birthday party a couple weeks ago. So 83 is young.
Steve Mesirow 26:41
Right? Right. And so And life is full of choices. If we do x, what's the consequence of that? Can it be, or I've had other times where I've had people who were trying to lower their spending and increase their savings, but they were doing it in meaningless ways. They were going out to dinner less, or they were doing little things that were impacting their lives a lot. But weren't that meaningful to the big picture. So I want my I want my people to worry about the right things that are impactful. And that sweat the little things that aren't
Ron Bockstahler 27:18
its history, I don't know that do you or your clients Ever think about that year when they start to make more money on their investments than on their day to day annual income? Is that a that a year you celebrate?
Steve Mesirow 27:34
Yes, that would be well, that's I like to refer to that as your your when you reach financial independence, it's your assets can produce enough to support your lifestyle. And then you may want to keep working, because you enjoy it. So you want to keep building you want to enjoy, you want to keep building your wealth, whatever the you know, whatever the reason, terrific. You know, that's, that's great. But it's nice to know, in the back of your minds, hey, I have this, I have this here. And I'm doing this for my enjoyment. And so maybe I don't need to, maybe I don't need to put up with x.
Ron Bockstahler 28:13
So there's two things I want. I mean, I want to like paint a scenario for our listeners, let's talk about that. 32 year old family law attorney and let's give her some objectives. Let's say she's gonna I mean, most of us love to work. And most of the attorneys I'm with, they work until they can't work anymore, you know, well into their 70s or 80s. But let's just say she wants to quit at 70. And she wants to walk away with $5 million. Just hypothetical. I mean, can we work backwards? And is that what you do when you work? When you sit down with someone and say, let's work? What are you going to do? Let's figure it all out.
Steve Mesirow 28:45
We work backwards, either from $1 figure, like like a x x dollars, or we work from, hey, I'm gonna need $250,000 A year after tax to live my life because the other part of this is while we have these different pieces of money, they're all taxed it different. They have different tax implications. And so the issue is, how much money can I pull out after tax a year and we have, we have tools and software that helped model that. And usually what I like to do with the client is I'm a big believer of getting their other professionals in the same room. So once a year, I often meet with my clients and their accountants or every couple years, the clients, the accountant and the estate attorney. And what I find is that each of us helps make the other one better at their job. The information that each of us has helps the other helps the other immensely. And it also while it's an investment while it's in Watson initial investment of my time, it ends up saving In the lots of time, because decisions are made much quicker and easier with your whole board of advisors in one room, there's no, what I was finding, before I did this is the client was the messenger between each person and the client shouldn't be the messenger. And they might not relay everything with the subtleties that they each of us or our speaking. But then it's real easy for the client, everybody's in the same room. And what often happens is the client then turn on make a suggestion, the client will turn to the accountant attorney and say, Is this what I should do? And the attorney and the accountant say, Yes, that's exactly what our other people are doing. And we cut right to the chase. So it ends up being a big time saver for all the parties, it also ends up getting a little bit better results. Because when the accountant or attorney and or myself are operating in a vacuum, and don't know what the other person is doing is part of the plan. You know, it's it's each of us as a means to the clients end.
Ron Bockstahler 31:06
Right. Let's talk a little bit about because you got a timeframe, right. So you're practicing law, you got your own practice, when do you make a decision to sell? And get out? And then what do I do with the funds that I, you know, maybe it's an urn out, maybe it's a five year earner, but let's say it's a five year or not with a balloon at the end, and you're picking up this $2 million? At the end? What do I do with that $2 million? You know, how would you consult on something like that,
Steve Mesirow 31:31
give us some ideas, it depends back towards that, that picture that you just painted, where the person wants to get to, I want to get to $250,000 a year, and my kids educated, which I know is going to cost 50,000 A year for these four years, or I'm talking to a bunch of professionals seven years ago, seven years of school. So we back out through that. And then we can see where we can take risk and where we can't take risks. And from where I sit, that's I often the often I have people who are too reluctant to take risk because of the of the ups and downs of the stock market. And my greatest fear from where I sit, is that somebody lives a really long, healthy, a long, healthy life. And so being too cautious in the short term can end up hurting them if they live to 105. Like grandma. Yeah. So that's what I want to reserve and protect against in the so what I often do is we set up some money that's safe, that's buying us that's giving us our time, to an our staying power to wait through any lousy period and lousy periods is that they might come they will come. It's like winter, I know it's coming at some point. So there will be some horrible down years, there will also be some wonderful, great years. So as long as you have the staying power, in the short term to get through that you can invest for the long term and get your real growth and build your wealth. That's, that's meaningful for you, and wonderful for your family as well.
Ron Bockstahler 33:18
I like the way you got that reference on Game of Game of Thrones in there. Yeah, Winter's coming. It's inevitable. They're gonna have you know, it's funny, if you'd look at the last 20 years, I mean, I've owned my company for 20 years now. And every 10 years, there's something you know, there's the oh, 809 crisis that was supposedly a once in a lifetime financial meltdown, which I'm doubting that that's actually the case. And now we've had this pandemic, that's really set people back, but it's actually if you if you pivoted in certain businesses, you've done really well. So yeah, you know, within 10 years, there's gonna be something else that's gonna go, Whoa, it's gonna hit us.
Steve Mesirow 33:51
I assume that out of 10 years, we're always going to have to terrible years and the reasons different every time if we knew. You know, there's things we can point to right now, that make me nervous. But it's often the something that nobody's thought of. Nobody thought of the pandemic. Nobody thought that the mortgage financial crisis would balloon the way it said. And there will be something new. It's there for sure. But the if you have the staying power to sit through it, you end up just fine.
Ron Bockstahler 34:21
Yeah, absolutely. Well, let's, we're gonna be wrapping up. So Steve, give us some final thoughts, things you want to relay to our listeners, and then we'll then we want to close with how they can reach out to you also.
Steve Mesirow 34:32
So this is good fun stuff for me. And I have a team of people with me, I've got some younger people, I've got some, I've got some other colleagues, and we try and find a fit. We try and find a fit for everybody and not everybody has to be a fit for me, but I'm happy to sit down and talk and see if we can help them and who they might be a help for or who might be the right fit for them. I would say that this is this is not always the best use of your time to do it yourself. There are things that I have that there's things that I see, because we do this every day. There's some times for the higher end clients or sometimes different investments that we would that we get to see, because we're doing this every day. And the little bit of you're paying somebody which generally works out to be somebody paying somewhere between three quarters and 1% is a normal is a normal rate, that an advisor and advisor, whether it's me or someone else down the block, should be able to add that much value, and a add value over time. And secondly, protect you from the one or two mistakes that might happen. over 10 years, that'll be critical, or to bring an opportunity to you that might be critical. Over time.
Ron Bockstahler 35:47
You mentioned mistakes, but, you know, you want to point out that a small mistake at the time you do it could cost you hundreds of 1000s of dollars over the time, a 2030 year savings
Steve Mesirow 35:58
period. There's this whole field where we're hardwired as human beings, there's a whole psychology element to this. There's a field called behavioral finance, which postulates and studies that we're hardwired as human beings to make bad financial decisions. And it's nobody's fault. It just is. And the biggest, the most obvious one that I've seen 100 times in my career is people will extrapolate whatever's just happened the past three or six months will continue forever, except that it never does. So when things are good, people are sending me in money, because they only see things going up. And they hear their neighbors talking. And they think this is just going to keep going forever. And so they send in money when markets are high. When the markets are crashing, people extrapolate if I lost 20% In the past two months, and the downtrends are always quick and sharp. If I lost 20% In two months, hell in six months, you know, in six months, I'm gonna have this permanent, terrible dent that I'm never going to be able to recover from. I'll sell out now and buy back in when things are good. Except the
Ron Bockstahler 37:12
downturns are quick. And there's so easily seeable in the after, you know after. Yeah, in retrospect, we all know it retrospect. But yeah, we don't know what went before it happens
Steve Mesirow 37:24
in people. It's like trying to catch a falling knife. It's people extrapolates it, it's so hard to pin, when's the bottom? It's an impossible, it's an impossible task. And then when people try and buy back in, it's mentally impossible, because if you were uncomfortable when the market was at 18,000, how do you possibly buy back in at 20,020 4028? So it puts them in an impossible situation? Also, yeah, go ahead, finish the last thought. There's also sometimes tools and opportunities that come with a crash. Sometimes there's great assets that, okay, your stuff dropped, but there's something else that great, that also dropped, that they dropped that you can take advantage of. And that's the time to act and, and really part of it is to have a plan and be ready for these things to happen. Have your contingency plans ready? For what happens in case things go down? In case things go up? There's there's got to be contingency either way.
Ron Bockstahler 38:25
Steve, I want you we didn't talk about this. I hadn't mentioned it before. But Monte Carlo modeling, I know you use some form of it, or could you explain to our listeners what that is? And yeah, I mean, that's a great reason why you want to use a professional financial planner to start with. But Ken, let's talk about MonteCarlo modeling.
Steve Mesirow 38:43
So someone developed Monte Carlo, because at first when people were making models, they said, Okay, here's what happens if we earn 6% a year forever. And we can model out how your portfolio does and your withdrawal rates. And everything works out smoothly, nicely, except that the stock market never behaves quite like that. Monte Carlo accounts for the variability of returns. So there might be a long term return of six or 8%. But in getting there, there's a minus 20. A plus 25, a minus seven, a minus six A plus 30. So what Monte Carlo does, is it takes it takes the returns and puts them in random orders to see what your probability of success is going to work out your withdrawal rates, you know what your withdrawal rate is going to be? Because you know, I need I need $100,000 A year to live on whatever that may be. But if you get a if you retired in 2002 1007, right before the crisis, right before the financial crisis that may mess up, that may mess up your plans because the very first year, the year retired and taking money out was a minus 30% year. So the Monte Carlo takes all the returns of the past 100 years, puts them in various orders, and tries to figure out a probability of probability of success. And then you measure that by saying, okay, Ron, your probability of your plan success is 86%. Is that high enough for you to be comfortable? Or do you need to be at 95% for you to retire and be comfortable, maybe you need to work another year and a half, to move your probability of success and build up your wealth from 85% to 95%. Because I want you sleeping at night, I don't want you to have an ulcer or to have to change your lifestyle. Once you're retired, it's hard to change your lifestyle and who wants to mean, right? And you kind of
Ron Bockstahler 40:59
want to enjoy the rest. And I think it's very important for you to realize that we're living longer. So you don't plan for like this 10 year retirement just good chance you're gonna have 2535 year retirement maybe longer. That you got to be thinking through. Yeah, definitely don't want to do it yourself. Steve. It's been great talking to you. Thanks so much for coming on the show. What's the best way for our listeners to reach out to you?
Steve Mesirow 41:21
You can email me at Steve s te ve period mesereau mes IR o w@mesereau.com. Or they can contact Amata and you and Jeremy can pass them on to you and share my content the months
Ron Bockstahler 41:38
me absolutely anyone wants to give me a call reach out to us you can everyone knows how to get a hold of me Ron be at my offices calm. I will share information Steve is wonderful to work with. I can't say enough great things like that. Anyone that's in Chicago knows Metro financials, one of the largest financial firms in the city and been around for would you say
Steve Mesirow 41:55
8085 years now
Ron Bockstahler 41:58
five years. Great, great organization and great person and Steve. So definitely reach out to him. You're working so hard to make your money. But make sure you're putting it away. And and I guess deferring your tax burdens so that you can actually save more money and be prepared when you are ready to start taking a little more time off. So see, think me and I should they really appreciate having you.
Steve Mesirow 42:19
A pleasure. Always fun, Ron.
Ron Bockstahler 42:22
Thanks for listening, everyone. You've been listening to Ron Boxall and Steven Metro on the 1958 lawyer Tune in next week. All of October is financial awareness month. So we're going to be talking with a CFO coming up in the next week and learning how we can be making this money or keeping this money that we can actually save with Steve. So thanks for joining us, everyone.
Transcribed by https://otter.ai