Episode 44 Do You Want Net Worth or Income?
Welcome to your optimal personal economy podcast with Justin Bennet your personal economy. Is your ability to create protect preserve and utilize your wealth? Your financial world. Justin, we'll share strategies and stories to help you optimize your personal economy now onto the show with Justin Bennett and co host, Matt Holleran. Hello and welcome to another podcast with Justin Bennet. It's interesting that there are many, many philosophies on what wealth truly is. And today, we're going to talk a little bit about that, which is what the difference really is. Do you want to have net worth? Or do you want to have income? I'm gonna throw a little kind of Hitchin, the get along here or do you want both and how to somebody like you? Justin Bennet make that decision. Help your clients make those decisions. Yeah. That's, that's a great question. And thanks for posing that Matt, I think that whether somebody's in the phase of life. Life, whereby they're creating in building their money, their wealth. Or somebody is in the distribution phase which is commonly referred to as retirement. I think we have this conversation with people all the time. And it's like. Traditional planning gets very, very focused on assets. And what the value of they may be and what your net worth is. And when you think about it, though, it's attractive in and beneficial and important. You know, it's obviously, obviously, not the most important part because what happens is assets almost become like a Mirage like you could see them on the horizon, but most people can't ever end up touching them, you know. So. In what happens is, you, you end up finding yourself accumulating accumulating in building in building, and, you know, the piece of paper shows the number going up, and the question becomes is like, have you positioned yourself in your planning in such a way that will allow for you to spend those assets, which, ultimately is income. If you spend assets you convert assets into income, and I think what happens is people appreciate. What income does for them because ultimately that income is converted into lifestyle? And people wanna make sure that they could live a comfortable lifestyle both today in their accumulation phase as well as tomorrow in their distribution phase. So what, what we say to clients is that in a Wetherby, this whole notion that you need to certainly have a combination of both assets in order to get the income, but more critically need to have the assets or the net worth. And the planning that goes around that, so that the net worth can be converted effectively into income. Justin. I've heard a lot of news articles, right? A lot of news articles hurt some podcast, watch some news pieces, and they're always referring to a specific number, which it seems to me that people are trying to take their net worth and say, okay, well, my network is not worth is act. So therefore my income will be why is it really that simple? It's definitely not. So in from a practitioner and from a practical setting it's definitely not that easy from a conversation or a math perspective. It may be that easy. Right. So the challenge becomes people exchange words or paint pictures to say and narrate a certain story, but that doesn't becomes real life. Real life is when you have money in an asset, or you have net worth in an asset. And that underlying asset may have some inherent risk with it, and the degree to which it has the amount of risk that it may have will dictate the probability to which you can create an income stream. A probable in certain income stream over a long period of time because what happens mad is. No, people look to build assets accumulate net worth, and, you know, it just becomes a very, very easy conversation. Be like, oh, yes. If I get my, my network, the acts and I apply this four percent this four percent rate, on that net worth, then I can, you know, solve for my income, where obviously, in conversation or in math at it can easily be done. But in real life, whatever that net worth may be, there's a tremendous amount of moving parts to that. You know, that may be associated with just the risk of that position of that money, the money, loses value and you wanna continue to pay your bills and live, a comfortable life than you need to understand how to position the net worth. So the net worth the assets require a lot of responsibility, an ongoing work so that it could be converted over into income, which obviously all this is in retirement, but how you may. Decisions today in your accumulation, or creation phase will will directly. Result in the life that you're gonna live in retirement. So there's a direct correlation between how you make your money decisions in creation and building wealth. And while you're working, and trying to grow the net worth to how you can ultimately convert the net worth of the assets into income. You have been known on this podcast to be a little bit contrarian to be understated. How do you look at all of this so differently from financial planning standpoint, from a planning standpoint that opens your clients is to some opportunities that they, they might not have realized because of your in depth planning process, almost simple guy, as you, as you know, Matt, and I think a really good place to start is to look at the demographic of our population in the United States that are either closing in on this point of their life. Call retirement or looking to actually or, or retirement, frankly, and when you look at that demographic of our population, which is, you know, fifty sixty seventy million people and you objectively. The determine like, okay we'll what does their life look like currently? And if they have a net worth of acts in, I'm just gonna use a number to create a, a picture here. They have a net worth of a million dollars in their deemed to be a millionaire. Right. They throw out that Amila Nair. Then what happens is he slapped at four percent interest on that million? And you've got forty thousand dollars of income, and then, of course that's taxed end. So you're maybe somewhere in the ballpark of twenty five or thirty thousand dollars of spendable income. But yet, you're a millionaire 'cause your net worth suggested. And so, and so somebody that's accumulated a million dollars of assets was likely spending a lot more than twenty five to thirty thousand dollars of income, as they were accumulating those million dollars of assets. So, so you can look at those that are age fifty five age sixty eight sixty five you know, in that range and informally take a take a poll of those people and say, okay, well, you know, if they were solely focused which traditional planning oftentimes, does, if they were solely focused on just building the wealth, and they got to this million dollar number or north of a million. In. We an answer there, therefore, they're kind of looked at as they're like being at that point of success. And then they go to convert a million dollars into income at four percents, forty thousand after taxes, twenty five or thirty thousand like there's just not a there's not a clear understanding of the results that somebody will get. For their income, if they're only focused on their net worth and not how to position they're planning so that their net worth becomes a spendable NetWorth. I love it. I love how clear and simplistic that. I mean it's complex. It really is. I mean the way that you explain that really does make an enormous sense. All right. Closing thoughts and ideas on this conversation between net worth as a focus or income as a focus. I think the idea is that worth is very important and because from the net worth, you're going to be able to create income. So the question then becomes what is the makeup? What's the what's the? Which the composition of that net worth that would allow for you to spend the most amount of income. Right. Because when people go to retire they wanna. They wanna have income they want to have as much income as they can. So it's, it's the net it's what makes up the net worth. It's what makes up the assets that will directly create the life that somebody could live when it comes to income. So the key is to make sure that the network, the assets are important, and there's a direct understanding of how to convert the assets of the net worth and income awesome. We'll just and thank you very much for your thought leadership again today. Thank you, Matt. And as I say, always make sure you subscribe to the podcast, we everytime, Justin comes out with a new idea will show directly on you're listening device. And if you know somebody who you really could use this information, make sure you share with your family and friends for everybody benefit Nanteuil grip. This is Matt Halpern, and we'll see on the other side of the Mike very soon.