How Insurance Works

Financial Planning after COVID-19


>>My name is Evan Rutter. I’m the Assistant Vice President for Alumni and
Parent Engagement at Claremont McKenna College and thrilled to have all of you here to listen
to one of our very own, in so many ways. One of our lecturers of the college,
but also the class of 1980 alumnus. So where you are, I hope you’re safe. I hope you’re healthy. I hope your family are doing well
wherever, they’re with you or elsewhere. I know this is a trying time for everyone. The college has come together with the
help from alumni and faculty and staff to provide activity, engagement activities
for you to learn to grow and to help. Most importantly to create a sense of strong
community within Claremont McKenna College, whether you’re a student, alumnus,
alumna or a parent, faculty or staff. I do encourage you to follow
us on Instagram and Facebook. Our Instagram handle is @CMCalumniandfamilies and then the Facebook page
is the private CMC community, you can follow, you can engage that way as well. A few quick things about zoom. I suggest putting it on speaker
view, which is on the top right. You can do gallery view or speaker view. Speaker will send it right to the person asking,
so you’ll see me right now and pretty soon Gary and whomever asks a question later on. I also suggest you keep yourself muted
unless we call on your for a question. That way we don’t hear the dogs or the pots
and pans being washed in the background. We’ll of course give time for questions
and we’ll unmute you when that happens. There is a chat feature which
you’ll find at the bottom, when you click that little chat
icon it will pop up to the right. You can enter your name and your class year or your parent year there,
just to say a quick hello. When we do the Q & A portion, you can also
either virtually raise your hand which is at the bottom of the participants bar or you
can just enter the question in the chat feature and I’ll follow up with you that way. Today we’re thrilled to have Gary
Birkenbeuel, CMC Class of 1980. He should be presenting at
alumna weekend tomorrow. But we unfortunately had to postpone alumni
weekend until October for obvious reasons. Gary is one of our lecturers at
the economics department at CMC. Gary retired from Ernst & Young in 2017. And currently serves on two boards. One is the Board of the American Film Institute. And also a company in Pasadena
called Tetra Tech. Today Gary will be speaking on
financial health and investing, especially in today’s current economic climate. And as I mentioned for the Q & A portion
you can either enter in your question in the chat feature and I’ll call on
you or you can virtually raise your hand and I can see the hand raised
in my participation area. And at the end we’ll unmute
everyone, we can all come together and say hello and enjoy each other’s company. So without further ado, Gary
I hand it off to you.>>Gary Birkenbeuel: Thank you very much. I really appreciate it. The – you know this was a brain
child of the alumni reunion weekend, and I wish we were all together, especially those who would have
been participating in the weekend. The – I am going to use a set of Power
Point slides that I’ll just refer to and I’ll go through those in just a sec. But I would say whatever I say here, I am not a professional personal
financial counselor, nor am I a tax person. I am just a person who was
an auditor in my career at EY and so anything I say hopefully is something
that resonates a little bit with you. But if there’s something more
particular you really ought to use your own professional
about some of this stuff. I thought I’d go through a few things
and I’m going to share this screen here. Let’s see if I can get there, there we go. And so I thought I’d share a few things with
you all today and my – my background is here. I’ve been teaching part time very
part time, at CMC since 2016. I spent my entire career with
Ernst & Young from Claremont. I can’t believe that, that I was
at one place my entire career. Had a number of different responsibilities
there and now I am semi-retired teaching at CMC and on a couple of boards
and really enjoying all that. Here’s what I plan to talk about today. To give you a little update on a
course that I’m teaching at CMC. And it’s really an exciting course, it
kind of dovetails with this – with this ->>Hey Gary, I don’t mean
to interrupt but if you want to hit resume slide show it will
go to a full screen in there.>>Gary Birkenbeuel: Okay, okay bear with me. Here we go. Technology is not my strong suit. But anyway, I was going to just quickly go
through this course that I’m teaching at CMC. It’s really interesting I think
and the students are enjoying it. I talk a little bit about the CARES Act. Mostly speak about those things that affect
individuals and not all the other aspects of it. Talk a bit about the importance of
emergency funds, managing your investments, financial planning, taxes, social
security and estate planning. I’ve been told by the CMC
professional that many of the folks on the call are getting a little closer to
that period of time when they might be thinking about retirement, that it’s a little
bit of a baby boomer kind of crowd. So if some of this stuff is not that
interesting, you can just sleep. For the first time ever the
college has allowed us to teach a half credit course
in personal finance. So this is not something that ever has
been offered at CMC and to my knowledge any of the other five colleges as well. And so it is a pass/fail course. It’s open to all the students,
any student can take it. We’re over sold. There are probably 30 people in
this course and its set up for 20. We had to move to a different arena, a different
room to handle all the kids and these are some of the things that we really
just talk about as a group, a lot of personal budgeting for the kids. So they can understand what it’s
going to be like when they graduate and are out there in the real world. The importance of emergency funds and
I’ll hit that a little more later. We talk a lot about dealing with debt. It’s probably one of the bigger changes from
when at least I was going to school to now. Student debt is incredibly prevalent. Probably I would say 805 of the kids in my
class have some sort of student debt whereas when we were all going to school or
when I was you know I wasn’t nearly as prevalent as it is today. Credit cards, loan debt, what a credit
score means and how that’s calculated. I have the kids do a tax return so that
they at least can navigate themselves through a pretty simple tax return. We talk all about insurance, life insurance, primarily health insurance, car
insurance, things like that. And then we get into investing and
probably the single biggest asset that the young people have
is the power of compounding. And if they start early they can really grow
their assets and I try to help them understand that that 40-50 year horizon that
they have is a real benefit to them. You go through buying a car, leasing a car. Talk all the way through, all these
different types of investments, what it means to buy a stock or
a bond or an ETF or mutual fund. We even talk about buying real
estate and things like that. We just spent a very interesting
session on planning for elder care. I don’t know about you all but it is something
that I think our generation just wasn’t really that preparing for and as
people are living longer, caring for your elders is something you
got to talk about, you got to plan for. And then this is the one where
they all fall asleep when we talk about a retirement and estate – estate planning. But I felt it was important to touch on it. So the students really have loved it and
I’m very grateful to Diana Graves the Dean of Students who has sort of sponsored this. She’s really been a champ. And let me just say I should have said on the
get go, I planned this for about 40 minutes with about 20 minutes of questions. But if there are questions throughout,
and you all want to help me navigate through those questions I’m
happy to stop at any time and take some questions however
you guys want to handle that. So the CARES Act, it’s something we’re
all reading about every single day. I’m only going to it some highlights of this
that may or may not be pertinent to some of you. One of the things you know that
require minimum distributions that you have to take at 72.5 years old. They’ve been suspended for this year. So that if you don’t – if you’re that
age and you don’t’ want to take anything out of your retirement account,
you don’t have to. And if you did take money out
before all of this came about. You can put that money back with no penalty. So that was I think one of the real benefits
of this for those who are in that situation. Small businesses and – and not for
profits as you know have been applying for this PPP or paycheck protection program. And it’s been a good program to allow
small businesses to keep their employees. I think it’s got all those logistical challenges
that government programs have, and I have – I understand that Congress is
in the middle of adding to this, another 4 plus hundred million dollars. So we’ll see how this shakes out. You’ve all heard if you earn $75,000 or
less adjusted gross income as a single filer or $150,000 less as a married filer,
you can get this $1,200 payment. And $500 for every child who is a qualifying
child and that I think is helping a lot of people through some tough times. Student relief program, all those loans
have been suspended for through September, so that people who do have those loans don’t
have to make those payments and the interest on those are not being accursed
during that time. Tax relief, you’ve all heard that we don’t have
to file our taxes until July 15 or federals. Most every state has followed suit with
that, but I would recommend you check with your own state where you live. Make sure that they’re doing that. For students who get an income from an employer,
they don’t have to pay their income tax, their employer tax during this period of time. And that’s been a really great benefit for them. Unemployment benefits really
expanded even independent contractors and our GIG employee economy,
people can get that and it is at least in California up to $600 a week. And the number of weeks that
has been expanded from 26 to 39. Renters and home owners, you know
they’ve gotten relief on foreclosure. And so during I think four month
period of time those disclose – those foreclosures have been
put on hold for folks. And hopefully that helps people out
also with their monthly cash flow. A lot of different ways that the
government is trying to help people who have been you know, seriously
impacted by this. Some of this is a little repetitive. I guess I would say right now
we don’t have to pay our – if you pay quarterly takes you
don’t have to pay your April payment or your June payment until July 15. And – and that’s a pretty good benefit. And the other thing is if you are expecting
a refund, hopefully you filed and you filed as fast as you could and you got
your refund or – or it’s in process. So I would say if you’re getting a tax
refund, you definitely don’t want to wait. You want to file that thing
as fast as you possibly can. So one other item from a
charitable giving standpoint. I thought this was an interesting
aspect to this. Most of the time charitable
giving as a ceiling where it is – can only go up to I think it’s
30-40% of your salary or your income. But now that’s been waived and you can – you
can detect a charitable donation if you are in that situation up to 100%
of your adjusted gross income. And if you don’t itemize your deductions,
your charitable deduction becomes a credit and not a – and not just a deduction. So it goes up above the line. So there’s some real opportunities to continue
to give if you are in that enviable situation. Turn to emergency funds. And we talk about this a
lot – a lot in our class. But this crisis has really
underscored the importance of – Like anything else, cash is absolutely king. And yet you find in the American
population well less than 50 [inaudible] population
has an emergency fund. And you’re seeing that at the lowest
levels where people are living on the edge. Now they’ve lost their jobs. And they are really hurting, in a big way. And yet when you think about it,
it can be such an easy thing to do. So let me just walk through a couple steps
to kind of maybe refresh everybody’s memory. The first thing you got to do is
say you’re going to do it, right? You got to decide to do it. And then if you’re – if you’re in that situation to do it normally people would say a
three month salary kind of emergency fund. But now in a period of crisis,
you might want to consider more. If you have more dependents at home, if
you’re children have moved home you may want to have more like a four, five, six month
kind of fund there for – for an emergency. But you have to understand your balance
sheet, your own personal balance sheet. What do you owe? What are all the debts that you have? You then have to take a look at your
monthly income statement and what are – what’s the income you have coming in
versus what are your expenditures? And we even have done this in our
household when this crisis started. We really looked at our discretionary
expenditures and have done everything we possibly
can to reduce those, so the car washes. Certainly as you can tell, the
hair – the hair appointments. We can’t go to the barber anymore. The – the gyms that we were paying
$50, $60 a month to go to the gym. You know and you can’t do it
so where we just cut those out. And the more you can reduce your
expenditures, the more you can earmark that money towards an emergency fund. Your credit cards, so many of the credit cards and other lenders are working
with you right now. Just a couple of examples, most of the auto
insurance companies are giving a rebate for a couple months on auto insurance. I lease a car and my car company said that I
don’t need to make a couple months payments on my – on my lease if I
don’t – if I don’t have to. And so there’s a lot of ways that your creditors
I think will work with you through all this. Monitoring your investments,
absolutely critical. I’m going to talk about that a little bit later. So I might – I might hold on that one. Where you can convert your
investments to cash if you need the cash and still preserve their
value I’d say do it, you know? Why not, because you don’t how
long this thing is going to last. And the age old adage with this is discipline
and making sure that you pay yourself first and so taking that $50 a month out
of your paycheck first for savings, for emergency funds is –
is really one of the keys. And that’s one of the things I’m
trying to instill in the younger folks in this class that I’m – putting on right now. And then the last thing you
know is kind of take a breath. You know don’t panic. This – this is going to pass and we
will get to the back side of this. So don’t do anything rash. I wouldn’t – I would urge everyone not to do
anything rash from a financial standpoint. Those are just a few tips. Managing your investments the – you know
this is the age old challenge that we have, and whether you’re 60 or 70 or 25,
the time value that you have versus – versus the asset pools that you have
today are the two real tricky challenges. And you know not selling in
a down market is something that I think everyone should
really try to adhere to. When you look at this, one of the things
that you see over 20 year performance of the market is for the most part Munis bonds
and other types of bonds are pretty steady eddy. You know they may be three to five
percent sort of interest rate or dividend. And you’re going to see the
stock market be volatile, right? It’s going to be up and down and up and down. Right now we’re in a period of time where the
market – stock market is down and yet most of the bond markets are – are doing better. And you can see in that circular area here
that’s where sometimes people need money. They panic and they sell in a down market. And – and that’s not a good thing. Generally if you can, and I’m the
last person to give investment advice. But generally if you can you
want to do things like this. So when the stock market is high and the
bond market is lower than the stock market, you want to recalibrate and sell – sell some
stocks and maybe redistribute your portfolio. When the market is down and that second dotted
box you – you might want to sell some bonds and take advantage of some opportunity to
rebalance and buy some stocks when they’re lower as – as odd as that might sound, there’s – there
are some good opportunities out there right now. Generally what the pros will tell you is
sort of a 60/40 stock to bond balance. That depends on a lot of different things,
your risk tolerance, your age, how – how often or how quickly
you’re going to need your cash. But you can see after 2019 we probably all got a
little bit out of whack with our balance there, and our stocks were probably dominating our
portfolio because the market went up so much. And so it – it – I think the
market has recalibrated for us now. But if – if you are still out of balance it’s
– it’s not a good – not a bad time to rebalance and it’s just a good healthy thing
to be thinking about all the time. Global equities, I – I know that they have not
performed well in the last three to five years. But I would say over all we do have to remember that the US economy is really only
about 25% of the global economy. And it is very important I
think to have some portions of your investment portfolio in
some kind of global security. So even if that’s a mutual fund or an ETF
it just helps with that whole balance. This is just a sample of what a
balanced portfolio might look like. It – please don’t take this
to the bank whatsoever. But for kicks. Now here’s another one, you know if you want
to look at it a little more simplistically, you can look at it this way as well. So a lot of people will ask if I’m holding
cash and I invest it all the way right now. Because the market is down, when is
the market going to hit its bottom? Should I try to time the market and
hit it when it gets to the bottom? Well if you can time the market and you’re
really good at that, then more power to you. I would say that it is from my perspective,
impossible to try to time the market. And so I’m much more of a believer
of a steady investment portfolio, reallocating dollar costing, allocating if you
do have some investments that have gone down and you can buy low now to get
that total purchase price lower. That’s – that’s I think a very
smart thing I you can do it. But trying to time the market in my
opinion is somewhat of a losing game. And you – it could be very dangerous
as well because you never know when you’re going to need the cash. Again, this just another slide on risk
tolerance and what yours might be. I’ve also been big advocate of making sure
that you’re doing some tax efficient investing. Because you know as that age old adage it’s
not really what you make, it’s what you keep. And so a little bit of my portfolio
is in some tax efficient investments. And I would encourage all of
you to think about that as well. Okay enough of trying to play Charles Schwab. I spend a little bit of time again because of what I’ve been told
demographics of the audience are. On some issues related to retirement. I’m getting closer to retirement. I am semi-retired myself so you know things do
change and for your spouse if you are married, they don’t’ always marry you for lunch. They marry you for lunch. They marry you for better or worse. But you’re home a lot more, so here’s a couple
things to think about and here is something that I found out of financial world magazine. Some of the worst mistakes we make when we’re entering retirement
is not changing our lifestyle. It does change. There’s no question, particularly from a
financial [inaudible] maybe failing to move to a little bit more conservative
investment [inaudible]; I need that cash. I think really thinking through
the decision of applying for Social Security, too early, too late. I’m going to have a few slides on that in a bit. Spending too much money too soon, you
know taking – getting that Mercedes Benz and taking those – those three $30,000
vacations in the first year of your retirement. You know a lot of people think you’re
only going to be retired for 15 years. But the average retirement this – these days
is anywhere between 16 and 30 years long. So I’d say don’t blow it all too early. Being where – especially in today’s social
media environment so many frauds and scams are out there, you really have to be aware of
it because they’re out to get your dough. I think cashing out of your – your
retirement plans too early can – can be a real challenge for folks. Not doing efficient tax planning and
thinking – thinking through those years is – is a problem here’s one that I’m guilty
of supporting my adult working children. I don’t – I don’t always adhere to this. Think you can get sucked in by your children who
– who want to get their retirement money before or their estate before you pass away. Sometimes some folks particularly
here in Southern California, we’re really house rich, but cash poor. And it can be a challenge. You know from a cash standpoint. So having that mansion you know can
really be a challenge for folks. And I think this is so important the last one. It has been for me, you know
staying physically fit. Staying socially active. Having friends and – and things to do is
really an important thing to be thinking about as you’re entering into retirement years. So this is kind of fun, these are cities –
this is where the low – the low score wins. It’s like golf where these are some of the
cities around the country just a smattering. Where the cost of living is lower or higher
depending on where you might live and some of these cities might resonate with you. Some of this is because of taxes. You can see New York City 1.78 really
almost double what it is in Denver Colorado. And so it really does matter
oftentimes where you decide to retire. This is a slide that will tell you
the 10 best and 10 worst and this is from 2018 so it changes all the time. But you can see some of the worst ones are the
high tax and high cost of living type of places. And [inaudible] right in there as one
of the – but it’s financially to live. So this is kind of an interesting slide. We all think about how much of my
retirement savings should I take out? And how long will that big pot of gold
last and you can see here that if you are in that traditionally 5% withdrawal rate, your –
and you – and you are only making 4-5% on your – on your income from that, then you’re
– you’re not in too bad shape, right? I mean you could – you could
last as long as 40 years. But if you dropped down to
only making 2% you know then that 5% is only going to last you 26 years. And if you’re starting to take out in the 9-10%
range and you’re in the 3-5 you can see that – that’s not maybe going to last you
as long as – as you might think that retirement amount you might need. So this is kind of an interesting slide for
all of us who are entering into retirement. Taxes, I’m not going to say too much about this because every person’s situation
is so different. But here’s kind of the facts,
just some facts and figures. You know the top, these are all federal. The top ordinary income rate is 37%. We’re still paying .9 on Medicare, capital
gains right now today is still at 20%, although California doesn’t have a capital
gain, rate is ordinary income for dividends. And you can see some of these others. It is – it has been the change in the tax law
the 2017 Act really has hurt high real estate and tax states, so that second to last bullet
they itemized deductions, the mortgage interest. And the state income taxes
are – are limited to 10,000. So that’s – not the mortgage
interest, I’m sorry. Not that one. And so that has – that has hurt folks
who live in high – high tax states. And pretty much none of us pay the AMT anymore. Here’s kind of a breakdown of the 2020 rates
and you can see you start married filing joint at 622,000 if you’re lucky enough
to be making that much money. You know that’s where you’re
paying the highest rates. So Social Security, what to do without one. As you know I’m 62 myself, you can
start collecting when you are 62. But you’re going to take an 8%
decrease every year below your – your FRA, or your full retirement age. For now, for people like myself that
– that age is about 67 years old. That’s where you get full retirement. You do get some deduction,
depending on how much you make. If you’re still working at that point in time
and it’s basically $2 or every $1 you make and so $45,000 which is not that much. If you wait until you’re 70 to start collecting
you – you – you aren’t faced with that. You get what you get and
that’s – that’s what you get. And I – I talked to a lot of people about
Social Security and when to start collecting. And it such a personal decision,
so some people need the money, some people don’t need the money. Some people have themselves wait
until they are 70 and yet their spouse who worked maybe it’s beneficial
for them to start earlier. So some people have differences
between their spouse and themselves in terms of when they start collecting. And I’ve seen that a lot. Health enters into it as well. If you’re not as healthy and
you don’t think you’re going to live a life you know that’s 90-100 years
old, you may want to think about starting to collect a little bit sooner than
somebody else might think about. But it is a – a very, very personal
decision and a lot of variables go into that. There’s kind of a full retirement age for
different folks depending on when you were born. Myself, I was born in 1957 so
I’ll hit that at 66 and a half. I do think that we’re going to give
the slides to the engagement group and you guys can have these
slides or download them if you – So here’s – this is just another way
to hear – see what the haircut is. Depending on when you start collecting, I’m’
not going to spend too much time on this. This is the slide I was mentioning, the
dollar limitations that you get depending on how much you are making and how much
you’re Social Security would be reduced, depending on how much you make. I’m going to wrap this up with just
a short segment on estate planning. And it looks like we’ve got
a fair number of questions so we might have time to take a few and just – Why is it important, right? Well a lot of reasons, you know. The financial ones are to minimize your
state taxes I you have done really well and you know you have a combined estate that’s
over $23 million between you and your spouse. You know you want to try
to minimize those taxes. It also helps to eliminate probate costs. Who wants their estate to get into
the hands of the court and lawyers and all those things make you
know, cost a lot of money. It does minimize those professional fees. But there’s an awful lot of non-financial
reasons why you want to make sure that your estate is well delineated. Who is – if you still have young children, who is going to be the guardian
of those minor children? How is your property going to get distributed? What are your medical directives? What are your burial directives? Things such as that are – you know all
go into preparing a will and a power of attorney and all those things. And – and so it’s really critically
important to think this through. Certainly while you still
have all your faculties. Right? Who wants to do this
when they are failing? Just some facts and figures, this
all sun sets under the TCGA in 2025, but right now the top state rate
is 40%, $11.5 million per person and that’s why I said $23
million if you’re married. You – you can have a gift exclusion per
child and it’s actually not just children, it’s any person that you can
give $15,000 a year as a way to decrease your estate that’s
non-taxable to the person and to you if you give a gift to that person. So if you wanted to and you ah the ability
to give as much as $30,000 to each one of your children or grandchildren
or things like that, that is something that you certainly could do. Most estates look like –
something like this, right? You got your real estate, your life insurance,
all your after tax investments, your IRA’s and pensions and those things all
go into what make up your estate. And for most of us, for most of us our estate
is going to go to our surviving spouse, or if you’re not married they’re going to go
straight to the person that you designate. Sometimes you can set up a
trust and there’s complexities with those trusts, credit
shelter, marital trust. There’s other types of trusts. I’m not going to get into those because
they are a little too complicated for you know, for this session. The – I think I’m going to skip
this one but just in purposes of – when and how often should you
review your will and your estate? I would say when you have a big
life event, you should review it. A marriage, a divorce, a birth, a death,
grandchild birth, your children have children. Those types of events [inaudible]
to relook at your estate. If you relocate to another
place you should look at that because different states have different laws. Law changes, this TCGA in
2017 had some massive changes to how wills and estates were set forward. And then if nothing else I – I check
it every five years just to do it. Because I think that’s a healthy thing to do. It may not change anything but – but
it is a really healthy thing to do. Okay, that gets me through
my kind of prepared remarks. I hope – I didn’t hear any snoring going
on, so I hope people are still awake. And I’m very happy to take any
questions that anyone might have.>>All right, thank you Gary. Gary if you’d stop sharing your screen for me. Then we can get to our chat group. We do have a number of questions. We have Mark Schwartz, Art Dodd, and Norm Jones. So what I will do right now
is start with Norm Jones who is the first one to raise his hand earlier. Norm you’re unmuted if you
want to ask your question.>>Norm? Okay well we’ll move
on to Mark Schwartz then. Mark, go ahead.>>Mark Schwartz: Thank you. My question is are there any changes to the
federal AMT, alternative minimum tax rules as a result of CARES or other
recent federal legislation?>>Gary Birkenbeuel: Mark
that’s a good question. I don’t believe that the AMT
rules changed with CARES. I have not read word for word CARES, but I
don’t’ believe there’s been any changes to AMT. Now the PCGA as you, I’m sure
know, that changed a lot. The AMT rules, so most individuals, not
all but most individuals are not going to have to worry about AMT anymore. I know before the TCGA it used to be in AMT. And I had to pay extra in taxes
every year because of that. And ever since the AMT I have not had to worry. It’s only been two years, 2018 and 2019
but I haven’t had to worry about AMT. I don’t think CARES Act did
anything to it to my knowledge.>>All right, next up we have Art Dodd. Art I’m unmuting you if you
want to ask your question. A reminder to everyone else to either
raise their hand to participate or put something in the chat feature. Jane you’ll be next.>>Art Dodd: Hey Gary good to see you,
so shout out to our 1980 prospects. Not yet 62 myself but my
question if you have any insight or opinions regarding the hits
to state and local budgets? Is there going to be great debate over what
is essential here in the early 21st century or will they just kind of be what
they’ve done in past financial crunches. It’s furloughs and layoffs, etc.>>Gary Birkenbeuel: Boy that’s a big question. I would say first of all they’re
going to be super hurting. Just like individuals are hurting. And here in Southern California you know, we
read every day whether it’s a city or a county or the state of California just
how hurting they are going to be. My guess is that there will be a
dramatic increase in services so – so many of the services that we get today
those are going to be cut back in a big way. So just those basic things the trash,
the cleaning [inaudible] pipes, all those things there’s just not
going to be nearly as many things – they’re not going to have the ability to do it. So yeah, if you have a problem and you’re
expecting your local city person to come fix it, I think you’re going to have to wait an awfully
long time and yes, there’ll be furloughs. So whatever the employment roles
were their – they will be a lot less and particularly here in California. What this is going to crystallize is
the short fall that we have in pensions. And it’s going to really be a challenge, because
those pension funds are really being impacted because of the stock market going down, so the
unfunded pension liability that we face here in California, both with state employees and
as well, teachers is going to be gigantic. And probably take a lot of years to get
back to where we were at the end of 2019. So I would suspect some pretty big
changes on the government front, mostly from a service standpoint. And you know when that happens
what you tend to see as well is governments who want to raise taxes. Right? Because they need the money, so sales
tax initiatives, bonds, all those things. My guestimate is come the next ballot
time we’re going to see a lot of things on the ballot to try to raise money. And don’t forget the public school
systems as well in all that. You are talking mostly about municipalities, but the school systems are
going to be radically impacted. And not least of which the Cal State and
UC system here in California they’re – they’re going to have major short falls. So see where that takes us, but I think it’s
going to be a long time before we get back to where we once were from
a financial standpoint.>>All right, moving to Jane Cohen next. Jane you’re unmuted and then we’ll go
to Alan Delsman and then John Becker.>>Jay Cohen: Yeah, hey it’s actually Jay Cohen. [inaudible] making me dinner
downstairs, how’s that for a trade? Thanks so much for doing this. I appreciate it. I was just wondering if you were looking at
today’s investment environment if you had to think about a conservative assumption for
rate of return on a portfolio, balance return. What kind of range do you
think we’re talking today?>>Gary Birkenbeuel: That’s a good question Jay. And you may know more about this
than I do, but I would say you know in the past year [inaudible] here in
California reduced their estimated assumptions on their rate of return. And I think they reduced it from a long term
rate of seven to six or somewhere in the sixes. You know if you – if you took out
this challenge that we have right now where the markets dramatically gone
down or whether it’s a hockey stick that it goes back up, or some kind
of U-shaped oval and it goes back up. It’s hard to say but how long till we get
back to [inaudible] close to 30,000 on the dow and what a more realistic
average rate of return be? It’s anybody’s guess. But I would say there’d be so much
pressure and coming from so many variables. I think that – that long term rate of six might
be better served to be more in the 4.5-5 range. That would be my guess.>>All right, next we go to Alan Delsman. Alan you’re unmuted, go ahead.>>Alan Delsman: Hi, how are you Gary? Thanks very much. This was more a comment as
you can see from my video. I am subject to RMD’s and I thought
this was a wonderful tax break I got, but my accountant pointed out that
there was also a change before this that changed the inheritance
part of the RMD from the lifetime and the beneficiary to only five years. So his argument was that if it has a
sizable IRA or an estate tax problem, you might be better taking it out actually. You’d be potentially at a lower rate than
your beneficiaries or the state tax rate. So it ended up not being such a
wonderful idea in my situation.>>Gary Birkenbeuel: It’s a mixed bag Alan
and I think it is something you should consult with your professional on, but this Cure Act,
which was – which was voted and put into law in December of 2019 did raise the
age that you have to take your RMD’s and so that was raised from 70.5 to 72.5. The offset to that is that for those
beneficiaries if the individual was to pass away they now have a finite
life of [inaudible] and they have to take that that – those monies. And I think that life was
over a 10 year period of time. So there were some tradeoffs. I don’t – I’m not 100% an expert in those rules. But I still think that there’s some good
planning to do even for someone like yourself. And – and I would encourage you
to talk to the right people to – to make those good decisions
for yourself and your family.>>Alan Delsman: Yeah thanks very much.>>Next up we have John Becker,
John you’re unmuted, go ahead.>>John Becker: I have a
statement and then a question Gary. I work for Sysco, the food distribution guys. And just to give you an understanding
of how profound this is. Our sales are down 60-70%. So all we do is provision restaurants, institutions that have cafeterias
and things like that. And it’s profound in terms of
the shock it is on our market; so it gives you an idea of how bad things are. We’re working on modeling the rebound. But Gary a question for you is in your circle
are you seeing talk of a complete restructuring? Of at least the federal level income tax
and other taxes given the impact of the jobs and what was it, the jobs act of 2017. Basically to address the massive deficits
that we were already seeing build up and also that are going to be compounded
now by all these relief acts. And if so, when do you see those taking effect?>>Gary Birkenbeuel: Yeah, good question. That’s a real crystal ball. I would say my – I am not a political scientist. But I don’t think anything will
happen before the November elections. The only thing that would happen would
be some of these short term relief type of situations that Congress is passing. It’s just politically nothing is
going to go on until we figure out who our next President is
going to be and figure out who – what the complexion of the
Congress is going to be. And so generally if – if you’re in either
your new term, let’s say Joe Biden wins. They try to get something done in the
first two years of their administration. So if there were some big tax changes. And if there were I would say those would be
a little bit more Robin Hood type tax changes where there’d be higher taxes for
wealthier folks and lower taxes or no big tax change for middle level folks. And if it is – if it is President
Trump who gets reelected, my guess is that there may be something going
on, but then more likely than not you know, Congress is going to be tough
for Congress to work with President Trump unless it’s a Republican
dominated in both the House and the Senate. Then they might be able to get something done. That’d be my guess.>>That was so well nuanced.>>All right, next up we have Rick Tivey. Rick you’re unmuted if you’d
like to ask your question. Rick? Rick your microphone is off too maybe.>>Rick Tivey: Can you hear me?>>Gary Birkenbeuel: Yep we can hear you.>>Rick Tivey: Okay I’m just going to
say if you look at the state budget, about 56% of the state’s budget goes to K through 12 community colleges,
the UC’s and states. So in the last recession when state
budget went from $139 billion [inaudible] that was a same percentage cut in education. So I would anticipate the same going forward.>>Gary Birkenbeuel: Yeah
I would agree with you. I think there’s going to be
all kinds of changes also. I mean think about classroom sizes. Are parents going to be willing to send
their children to a place where there’s 300 in a class all sitting a
foot away from each other? There’s a flip side to that thought as well,
we’ll – will finally online learning take hold and online learning is more cost effective
than – than in the classroom learning. And so their – I think everyone is
going to have to think out of the box, but learning itself is going to be greatly
impacted by this and – I do think there’s going to be a lot of pressure on all these school
districts, K through 12, higher education, all kinds of things that are – that
we’re all going to have to face.>>All right we have time for one last
question if anyone wants to put it in the chat box or raise their hand. I know its dinner time on the East Coast. So we’ll do one last call. We have about 30 seconds left. All right, well seeing – oh,
oh Cammie says she’s very happy that the kids are getting
personal finance, our students. So Gary thanks for – thanks
for working at our alma mater. It’s very much appreciated. We’re very glad they have your expertise. Just everyone knows we did record this. We will post this online with our virtual talks that have happened over the
last couple of weeks. This Friday we have professors Cameron Shelton and Manfred Kyle talking
about consumer confidence. And their work with the Lowe
Institute of Political Economy, so I encourage you to join us on Friday as well. Otherwise I’m going to unmute everyone and you
can all say hello to Gary and a big thank you. Whatever you want. Everyone is unmuted, everybody be safe.>>Thank you.>>Thank you Gary. [ Cross talking ]>>Gary Birkenbeuel: Well
thank you guys very much.>>Thank you.


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