If Financial Tools Had Yearbook Awards

Graduation season is here, and we’re handing out “class superlatives” to popular retirement tools and strategies. Taylor hands out “yearbook awards” to some of the most talked-about financial tools and strategies and breaks down where common financial advice can fall short. Tune in to learn which strategies deserve a spot in your retirement yearbook, and which ones might be holding you back.

Here’s what we discuss in today’s show: 

🎓 HSAs Deserve More Love: Triple tax advantages make them incredibly powerful

💸 Dividend Chasing Has Tradeoffs: Higher payouts can create tax and growth issues

📄 Fine Print Matters: Variable annuities often come with hidden complexity and costs

🛑 Cash Isn’t Free: Sitting on too much idle money can quietly drag down returns

🧾 Taxes Confuse Everyone: Most people misunderstand how tax brackets actually work

Resources:

Website:  https://www.demarsfinancial.com/

Phone: (509) 536-9556

Schedule an introduction call with Taylor: https://bit.ly/demarspodcast

Check out Taylor's YouTube Channel: https://www.youtube.com/@TaylorMadeRetirement

Taylor's Newsletter: https://demars-financial-group.kit.com/827c64fe0e

Disclaimer: Since we don't know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Demars Financial Group, LLC or its members cannot be held liable for any use or misuse of this content. Advisory services offered through Demars Financial Group LLC, a Registered Investment Advisor. Demars Financial Group is not affiliated with LPL Financial.

Transcript

SPEAKER_02 0:00

At the time of this recording, it's graduation season. Caps, gowns, and yearbooks are full of superlatives with things like most likely to succeed or who's the most popular. So today we're gonna have a little fun. Imagine you're on the yearbook committee at the School of Financial Planning, and we're gonna dive into what tools and strategies win in each category.

SPEAKER_00 0:22

Welcome to Taylor Made Retirement, where we explore what it takes to build a retirement that works for your money and your life with third generation certified financial planner Taylor DeMars.

SPEAKER_01 0:37

Welcome in. This is Taylor Made Retirement with Taylor DeMar's Certified Financial Planner at the DeMar's Financial Group. And Taylor, we're having a little fun today's episode. I think we're gonna shift gears from the traditional conversations we've had and have a little bit of a of a different exercise today. I don't know if you had a if you were a class superlative at all when you were coming through school, but we're gonna apply some of those today and let you hand them out.

SPEAKER_02 0:58

I love it. I love it. Yeah, I thought we'd just break the mold a bit with this topic. But uh to answer your question, no, I didn't have a class superlative. And to be honest, I didn't even go to my own my own high school graduation. I uh my dad had a uh a bucket list trip lined up, and so I went for that instead.

SPEAKER_01 1:13

Yeah, I think you'll remember that probably a little bit more than the graduation anyway. So probably a better decision. All right, well, we're gonna jump into today. Remember, you can always get your retirement readiness roadmap started by clicking the link in the description or just visiting demarisfinancial.com and just click that could we be a fit and get that started. All right, so let's start off with most underrated. So if we're handing out this superlative, Taylor, where would you go?

SPEAKER_02 1:35

Yeah, most underrated, I think it applies to universally all age groups, but especially for those that we're talking with who are, you know, down the home stretch to retirement. And HSA is the Unsung hero of retirement accounts. Okay. And I think it doesn't get as much attraction because it's a relatively low contribution amount that you can put into it, but it is the only triple tax advantage account out there. No taxes going in, no taxes as it grows, and when used appropriately, no taxes on withdrawals. So many people think of it as just uh a debit account or say, oh, I'll just all just get my ibuprofen or band-aids uh with it. But uh it's for me personally the first account that I fund when I'm trying to save. And I think for clients that are leading into retirement, it's still worth investing into because it's just got that super powered tax advantage to it.

SPEAKER_01 2:23

Yeah, I guess it's just most people just aren't aware of of quota quite how to use it, right? I think people are just maybe have heard about it, but most people just aren't quite sure how it's used. So it makes sense that it's underrated.

SPEAKER_02 2:34

Yeah, and I guess just uh that could be a whole podcast episode of it itself. But just as a quick tip, I mean, you can contribute, I mean, you have to be eligible, of course. So you have to ensure that your health insurance plan is uh allows you to contribute to an HSA. But if you can, for an individual, you can in this year, 2026, contribute $4,400, and then uh for a family up to $8,750. And if you're over $55, you can do an extra $1,000 as a catch-up contribution. So you put that money in, you get a tax deferral, and then instead of using the dollars in that same year for you know needs big or large, if you can afford to wait, is just let it grow like an investment account. It is more like a traditional IRA, but you can take it out, but you don't restricted by non-medical spending. So that's that's my thought around it is just try and defer and delay using those uh those dollars.

SPEAKER_01 3:22

Gotcha. All right, we're gonna learn more about that health savings account listed as most underrated here as we kind of kick off our class of perlatives. Uh, what about most overrated? So, this is something that everyone talks about it, but the reality is it just doesn't match the pitch.

SPEAKER_02 3:34

Yeah, um, I feel like this idea came up for me because there's been a strong number of clients that I've seen this year that their former advisor pitched them on this awesome investment portfolio plan and such, and it was focused around dividends. And don't get me wrong, dividends are a hard thing to paint poorly. But when it comes to retirement, dividends are a strong argument for many people because it feels like income. It feels like you're replacing your portfolio, your paycheck with a portfolio income stream, and people want to say, oh, I can live off the dividends and such. But what they overlook is that in retirement, you're not looking at just creating income on a month-to-month basis. You've got to think over the long term. And too often what I see with portfolios chasing high dividends is that they're concentrating in slower growth sectors by design, right? I mean, companies like a Netflix or or NVIDIA that are growing fast and doing well from a price standpoint, they're not paying out a dividend. It's more of those mature companies like a like a Johnson ⁇ Johnson or a Coca-Cola or these other, you know, well-established companies that are able to pay them at uh a dividend, but they're not necessarily growing year over year as much. So not only are you uh sacrificing longer-term growth, but you're largely getting a bigger tax bill. And many times I don't see people even using the full dividend amount that is coming because they got other income sources, other strategies. So they're overpaying in taxes just for the sake of feeling good at night because they're getting uh a dividend income stream, if that makes sense.

SPEAKER_01 5:01

Yeah, it does. All right. So that's that's a good one to just be aware of why it might get the label most overrated if we were handing that out. All right. Most likely disappointment is our next superlative to hand out. So for this one, you know, it sounds great in the brochure, but when the conditions change or the expectations meet reality, it just doesn't always deliver. So what would you classify this one as?

SPEAKER_02 5:23

Another situation I've seen several times this year is clients coming to me with uh their variable annuities and they bought them because of the pitch, right? Like you said, the brochure sounds great, you got guaranteed income. They're told they're just market upside, and there's a great tax deferral element to it. But once client, once the honeymoon phase you know goes away and and and they're no longer talking with the advisor that sold it to them because frankly, that advisor has no incentive to help them anymore after they get their commission, they start really reading the fine print and seeing that you know, with every guarantee, there's uh there's a catch, there's a cost, right? That wasn't talked about. And many times that comes by way of uh surrender charges, meaning you can't get as much as much money out as you hoped unless you pay certain fees or costs. Uh, there are mortality and expense fees, sub-account fees, writer fees. They're just it just kind of feels like you're just getting tacked on with all these additional expenses. And many times by the time a client nets everything out, the guarantees cost more than they're worth. I'm not saying that the you know the product of a an annuity or a variable annuity is inherently evil. It's just, in my opinion, rarely the best tool when there are better options for what people are trying to solve. And I feel like that makes sense because this type of product gets pitched as an investment, but at its core, it's it's an insurance product, right? Uh we can't gloss over that fact. So when you try and buy an insurance product that's meant to outpace or outperform your traditional investments, it rarely does best at both.

SPEAKER_01 6:46

Okay. Very good. We're going through our class superlatives. If we had to hand out some your book awards, what would Taylor give? We're about halfway through here. Here's our next one I want you to hand out for us. Most expensive. So this is the one where the fees, the taxes, or even the missed opportunity would quietly eat into the returns.

SPEAKER_02 7:03

Yeah, there's so many suspects here. Um I feel like the one that stands out to me that is commonly overlooked is what we would call cash drag.

SPEAKER_01 7:11

Okay.

SPEAKER_02 7:12

And many times that's just the uninvested cash sitting inside of a client's portfolio. And not just their investment accounts, but in their savings accounts. I see many clients that come to us either because they got an inheritance or they got uh scared of the market and they sold off, or they sold off some assets. For whatever reason, they built up a decent size of cash and they're sitting on the sidelines wondering what they should do with it, or they just forgot about it, or the other advisor just has a reason for sitting on the sidelines and not investing the money. And that is expensive, right? When you think about the opportunity cost of just the last calendar year in 2025, we're looking at the the total market return was 18% for the ASP 500. Now, if you were trying to invest to match that benchmark, you're missing out on some significant money if you're you're letting that just sit instead of cash earning 0.01%. So cash drag is something that I'm always looking for from an investment standpoint, not because we're trying to you know squeeze every drop out of the lime, but it's important to be able to make sure that it isn't overlooked and just forgotten about.

SPEAKER_01 8:12

Well, it's a little concerning that you said there was a lot of uh of culprits, potential culprits for this one. Do you see a lot of people that you work with that come in that that maybe you're taking on some investments that are a little more expensive than they should be?

SPEAKER_02 8:25

Yeah, um many times I would say mutual funds are a common suspect. You know, there's there's a million different ways to get your money invested, and I feel like mutual funds are some of the old guards approach. And so when a client comes to us and they've got a portfolio full of mutual funds, I feel bad for them, but I also I feel excited because I know we've got so much value to unlock for them because they don't realize things like uh, you know, pass-through capital gains. It's not a it feels like a kind of a hidden cost because these types of funds make you pay taxes on gains that you didn't even know happened, right? The portfolio managers have sold something off. And even if you didn't sell for the mutual funds, even if you didn't make money on the mutual funds, you're probably might be liable for paying taxes on those uh funds. So, and plus just the expense ratios, you know, apple for apples are usually more expensive on mutual funds. A lot of extra dollars that don't need to be paid go down the rabbit hole for mutual funds. So there are less expensive ways to invest than just mutual funds alone, is another common suspect I see.

SPEAKER_01 9:24

Yeah, reach out if you wanted to maybe just have your portfolio evaluated, maybe get a second second opinion on some things that you're doing to see if if that's a a good idea or not. Again, you can get in touch at demarsfinancial.com. All right, what about the teacher's pet? I don't think anybody wants to fall into this category either, but this would be, you know, something that a lot of financial folks love to recommend, but maybe it's not always the best thing for the client.

SPEAKER_02 9:48

100%. I feel like when it comes to just staying on this theme of investing, a common benchmark that people stick to and stick to for too long, in my opinion, is the classic 6040 stock-to-bond asset allocation for their portfolio. And it makes sense on the surface because hey, you're thinking 60% of your portfolio, the majority is there for long-term growth. And then you got a solid portion of it, 40% in fixed income or bonds. And when you start our retirement ready to roadmap process, it's a seven-meeting process. So we can't do everything at once. So we do put a 60-40 portfolio as a placeholder, but once we get to our investment pillar, the real goal is to be able to reverse engineer what their custom asset allocation should be for a client based on their spending forecast, so that we can feel like we've got a time-segmented approach to say, okay, how much do you actually need in bonds? Our litmus test is to have five years of withdrawal needs, so we can feel like we can uh weather the next market downturn, uh be it short or long. But the teacher's pet, in my opinion, is too many people start and end with the 6040 portfolio just because it's just the cookie-cutter approach and people say, hey, don't fix what's not broken. But in my opinion, if people are entering retirement, they they deserve more than just the standard status quo.

SPEAKER_01 10:58

Yeah, maybe it's not a bad thing, but you could be doing better. Why not? Right? Why not be doing better in that situation? So I like that. The 6040 would be our teacher's pet. All right, let's hand out one more here on Taylor-made retirement. Let's go with most misunderstood. So people think they know what it does, but they usually don't. Taylor, what would this be?

SPEAKER_02 11:17

Man, just the common suspect of taxes.

SPEAKER_01 11:20

Okay.

SPEAKER_02 11:20

And I'll get a little specific, but taxes are just so misunderstood. And maybe it's the conspiracy theorist to me, but I think it's by design. You know, our our public uh school system doesn't teach about taxes, and no one really goes into that unless you're venturing on your own, like listeners in this this episode. But the government, I think, does a good job of keeping taxes a little foggy. So one of the common suspects of that people misunderstand, I think, is the difference between a marginal tax rate and an effective tax rate. Now, marginal tax rate is what you see when you look at the tax table rates, right? It starts for at 10%, 12%, 22%, 24%, et cetera, go down on the federal level. But your effective rate is, I think, where people get misquoted because they say, oh, I'm getting taxed at, you know, call it 24%. And what they don't realize they're talking about is that top marginal rate. Which it's true that if you earned additional dollars at work or if you took out more withdrawals from like an IRA, yeah, those are getting taxed at the highest rate, right? As it stacks higher and higher. But too many people don't realize that your effective rate is a lot harder to calculate. It's not impossible. It's it's just you got to do a little bit of math to be able to figure out, okay, how much should I actually pay in taxes and divide that by my total income? That percentage is your effective tax rate. And so it's far lower than most people realize, making taxes less scary. But you got to look through the lens of both sides, right? It's like the difference of looking at a statistics uh data set between the median and the average. They seem like they tell a similar story, but they they there are different angles that are important to compare against.

SPEAKER_01 12:52

And I I think people just might as not assume that tax planning isn't a big part of uh financial planning, right? Just it seems it seems like it'd be last on the list of just what you would think of when you think of financial planning, but it's a big part of what you do, isn't it?

SPEAKER_02 13:05

It is. I would say it's a core focus, but it's not the first or second or third, really. Uh because if we don't we like to say we don't like to let the tax tailwag the dog. So making sure we're leading with our clients' ideal lifestyle first, making sure we understand the investment flow, and then building out a tax plan to optimize the rest is our preferred order of operation, so we're not getting ahead of ourselves. I love that.

SPEAKER_01 13:26

Well, I think that's a pretty good little breakdown of of all these different things, and I think it was fun kind of packaging it up and uh little yearbook awards. I know with with class ending for for a lot of people, and maybe you have kids or grandkids graduating, it's a kind of a different approach to take to this. But I thought it was a little bit of fun, it was a lot of fun, and I think you did a good job kind of breaking down each of these, Taylor. So appreciate that.

SPEAKER_02 13:46

Thank you. I enjoyed it as well.

SPEAKER_01 13:48

Yeah, if you have questions or look, you want to begin that retirement readiness roadmap, want to start that process, just click the link in the description, or just click could we be a fit on the website, demarsfinancial.com. That'll do it for us here on another edition of Taylor Made Retirement with Taylor Demars Certified Financial Planner. I am Ben George. Hope you have a great week. Talk to you again soon.