FOCUS ON WIN: WHAT’S IMPORTANT NOW?

Tim:[00:01:19]Welcome to this episode of Pilot’s Portfolio guys. This is the Financial
Planning Show where we talk about all things financial planning, investment related all things
personal finance and how it relates to you and your life as a professional pilot. My name is
Timothy P. Pope. I am a certified financial planner and principal at 360 Aviation Advisors,
where as the name suggests, our focus is the professional pilot. I’m also a GA pilot for the
Mighty 1 72 and the Sirius SR 20. In today’s episode, we are going to talk about how to
focus on WIN., So, W.I.N, that acronym stands for What’s Important Now, I’ve, I’m sure that
you’ve, heard that before. So let’s talk about that as it relates in a financial planning concept.

[00:02:20]Now, before we do that, I do want to give a quick shout out to an airline that gave
me a good laugh. So a few weeks ago in Charlotte we had the CLT runway 5K, and I think
these runway five Ks, I think they happen, you know, different airports around the country.
but at Charlotte Douglas this race raised money for aviation education at one of the local
community colleges. And if I’m nothing, I am consistent. I love aviation education. So in the
summertime we sponsor OB Baps ACE Academy, so aviation career exploration for students
13 to 17. And with this opportunity to sponsor the race. And raise money for the community
college. You know, I’m all about helping young people discover the aviation industry helping
them plug in, find their place, whether that’s a pilot, the maintainer, dispatcher, you know,
aviation manager, whatever.

[00:03:16]You know, it doesn’t matter if they love the game. I think that there’s a spot for
everybody to participate. And so we sponsored the race and Charlotte shuts down a runway,
shut the course, actually take you up runway three six left. And then you circled back and
you started travel south down taxiway whiskey. And so it was a great time. A lot of people
got out there super early. The buses started busing people at like 5:40 in the morning.
Couple thousand people were out there. They had a triple seven that everybody ran
underneath. You know, it was a great time as the race concluded first place, you know, got a
hundred thousand miles from American Airlines, and then second place got a thousand
dollars gift card to fly on Delta. And, you know, you waited around and, kids were taking
pictures and blah, blah, blah. You know, just hanging out. They had you know, a lot of things
out there, and then the person that finished dead last in the race, finally crossed the finish
line and the announcer comes on and is like, Hey everybody, we have to acknowledge, you
know, whatever that person’s name was. And they said, you received a $500 gift card for
being last from Frontier Airlines.

[00:04:31]And I remember like, I’m walking across going to take pictures with the kids. And
I’m walking across and I hear that and I’m like, why? Who would sponsor last place? Like,
why in the world would you do that?And then I realized, I’m like, okay, you know what?
Somebody at Frontier they have a sense of humor. They can laugh at their expense a little
bit. And you know what? It works because I’m talking about it, so shout out to Frontier for
you guys cracked me up and you know, I hope that person who finished last place, I hope
they enjoyed their flight to wherever they’re going. All right, so moving on. In other aviation
financial news there’s some interesting things coming out of American Airlines for the pilots.
You know, the apa’s releasing more information about your cash balance plan. And, you
know, I’ve been talking to my clients about it and, one of the unique and attractive things that
you guys are going to have is it looks like you’re gonna have a choice of whether you
participate in the cash balance plan. It looks like it’s every three years. Okay. It’s pretty
unique to you guys right now. As cash balance plans go in the industry, United tried to put
out a cash balance plan with an annual choice.That has not passed yet. So between the
Delta, the American and the Southwest plans, we should probably have a future
conversation about the features between the three of ’em, because while the cash balance
plan all serves similar purposes, which is deferring more of your taxable income and making
it tax deferred until retirement, there are some different features between them.

[00:06:10]And I think that would be interesting to know what those features are. But, the
opportunity to have choice at American in that cash balance plan and every three years you
can opt in and opt out. I think that is pretty stinking cool. Focusing on WIN. So what’s
important now, if you guys are like most pilots and most people when you think about your
financial goals, you have probably several of them that come up, often the challenge that we
run into is like, okay, so what should I be working on right now to really move the ball
forward? We think about saving for retirement, buying a new home or buying a second
home. Is it time to getting into rental real estate or some other type of real estate
investment? Diversifying my investments beyond the market? Sometimes increasing
complexity, maybe getting into some illiquid things. So is it time for that? Maybe it’s getting
kids through college or maybe it’s paying off debt, what should I be working on? Because it
seems particularly you have a high income, high W2 income, it seems like there’s a lot of
opportunities and a lot of goals that you want to solve for, and sometimes it can be
challenging to figure out what you should focus on first. So when we think about this
question, should I save for retirement while I have high interest debt?

[00:07:27]You know, a lot of times I’m thinking about credit card debt I don’t even know what
they are right now. 26%, 29% kind of thing. You know, there could also be some high interest
personal loans out there, you know, loans with double digit interest rates on them. So should
you be saving for retirement when you have that kind of debt? My answer’s gonna, it’s gonna
depend. I’m gonna give you two scenarios with two different answers here. So let’s say that
you’re at a regional carrier and the company is giving you a 401k match, meaning you have
to put in 5% you know, of your salary, and then they’re gonna match you dollar for dollar up
to 5%. In that case, when you put in a dollar they give you a dollar. That’s a hundred percent
return on the dollar that you put in. That’s pretty attractive. So in that case, you have high
interest debt. You will want to contribute up to your match of your 401k, and then after that,
you’re gonna apply everything else to that high interest debt, and you’re really gonna focus
on that, right? So if you got a 5% match in your 401k, it could be regional, could be business
aviation, whatever. You probably don’t wanna find yourself putting, say, 10% or 15% of your
salary towards retirement while you still have this high interest debt that’s sitting there, you
know, accruing interest, right? So that’s one case. Go get your match, that free money, that
100% return, and then you’ll focus on paying the debt down. But if you are at a major carrier,
you know that’s giving you 17% of your compensation in your 401k, and that’s by the way,
without you putting a dollar into your 401k, and in January it’s going up to 18%.So if you’re at
a major and they’re giving you 17, 18% to your 401k, then in that case, you’re not gonna
wanna put anything into the 401k and you’re gonna wanna focus on that high interest,
whether it’s credit card debt, whether it’s a personal loan, you focus on the high interest debt
first. And then once that’s paid down, then you’ll come and you’ll start to, focus on your
retirement savings and add to that, because the money that you put in from your paycheck
to say your 401k, let’s say you’re gonna get a hundred percent stock portfolio, let’s say
you’re gonna expect 10% return. Okay, well that 10% your high interest debt at 26% is 16%
higher. Right? And so, that money is not doing, its best work in that case and you can think,
well, hey, I need time in the market absolutely. You do need time in the market and that’s
why we want to get high interest debt paid off as quickly as we can because the power of
compounding works. On both sides, right? The debt side and the equity side. [00:10:09]So,
you know, that’s one thing is should I be saving for retirement while I have high interest
debt? And the answer is, well, it depends. It depends on what kind of retirement incentives
you have at the carrier or if it’s business aviation at the company that you work for.

[00:11:30]So that’s one. The other question is, Hey, should I buy a new home or should I be
renting? And to be quite honest with you, I think. The decision to buy or to rent is a pretty
personal decision, and there are a lot of factors that can sway you on one, you know, one
area or the next. Maybe you move to a new city, maybe you’re moved in base and you
wanna rent, you know, for a year and figure the place out before you, you know, you make a
commitment. Cool. Right, no problem. Maybe you’re that same person and you already
know, right? You have friends in the city and you’ve done your due diligence and you’re
ready to make that commitment. Right? No problem. I know folks that prefer a really low
maintenance arrangement. You know, they might rent or they might do a town home or
something like that, so I think there’s a lot of personal decisions about should you rent or
should you buy. If you decide to buy how much home should you buy? I think that that’s a
completely different conversation, and that one should be led by some financial analysis,
right? It very much has an impact on your current and your future financial success there.
Have you ever heard the saying house poor? And that just means somebody has so much of
their monthly income going towards, house payment and associated house cost, that they
don’t have much money to do many other things. So you certainly wanna avoid buying so
much house that you can’t save for something like, let’s say your retirement.

[00:13:00]And even though the airlines are giving you 17% NEC and soon to be 18%,
depending on when you start, I mean, if you start pretty early and you have great faith that
nothing’s gonna change or things gonna stay the same over your career. You might pop
down a really big mortgage that takes a lot of your paycheck, wouldn’t recommend it, but that
might be something that, somebody finds themselves doing. But let’s say that you don’t start
early, and by the way, when I say early, I mean like 35 or earlier. Okay. Let’s say you start,
say at 40, and by the way, you start the airlines F 40 and say, maybe your retirement savings
also needs getting started around 40, that kind of thing. Well, we can’t rely on just the NEC,
like we are gonna have to make contributions. In addition to the NEC and probably in
addition to the 401k as well. So when you think about that, that’s one case you, you know,
we don’t wanna be house poor, so we can make contributions to our own retirement or, you
know, retirement aside. I tell folks all the time, right now pilots do not have an income
problem. Which means that things are tilted in your favor that where you can save
abundantly for your future, but you can also enjoy the fruits of your labor now. And so when
we think about that, typically we think about a brokerage account like, Hey, maybe I’m saving
in a brokerage account because right now I’m doing all the things that I’d like to do, but at
some point I might find other interests and I might want to direct funds towards that. And so
the brokerage account is really, is that account where there’s no strings attached.

[00:14:34]And you can do just that. Being house poor would prohibit you from making
contributions to your brokerage account. And, you know, that might be too tight for a lot of
people. And so when you think about, Hey, should I buy or should I rent? That’s a personal
decision. And you’re gonna have to figure out what works best for you. But how much to
spend on the mortgage or the monthly rent. Certainly we want to exercise some financial
analysis to figure out what is gonna give me the most flexibility currently and in the future.
Another question that we really run through a lot is, should I save for retirement or should I
help pay for my kids’ college? That’s another one where, what’s important now, and it is just
a widely known fact that college has gotten so expensive, over the past 20 to 30 years. and
it’s really easy for kids now to have a six figure price tag, for their education. As parents, we
want our children to do well, however we can help them. But sometimes, this question
comes up, and it could be for a number of reasons, it could be, hey, somebody got a life start
on their retirement savings, and now it’s time for the kids to go off to college, should they
scale back on retirement savings? Or should they defer their own saving for retirement in
order? To help their kids go to school. The one thing that, if you could boil it all down and
say, well, you know what, a long times the kids could take out a loan to go to school, but
there’s no retirement loan that you could take out.

[00:16:11]And if you are flying in the 121 World, hey, right now it’s age 65 and then you’re
going to be done. Okay, and so. maybe you can go find a gig somewhere else, but who
knows, right? This is the aviation industry after all. Like there’s no guarantee that you’re
gonna be able to command a high income, doing that. and then the other thing is every year
that you, you guys rely on the medical, alright? So, hate to defer your own retirement
savings in order to pay for school, and then something happens with the medical. Your loss
of medical is great in the 121 world, but 50% of your salary may not, you know, be what you
need to save and hit your retirement goals. So when you think about that, the kids can take a
loan for college, but you can’t necessarily take a loan for retirement. Here’s the other side of
that coin though. If you started saving early. Or maybe there’s an inheritance or whatever.
Life has so many twists and turns, but maybe you figure out that you’re actually on track for
retirement. Maybe you’re ahead of track, maybe you’re above goal when it comes to your
retirement savings. I think that would be worth knowing. So then when you have this
question, should I save for my retirement or pay for my kids’ college? Maybe if you hadn’t
saved in a 529, you know, up till this point. And so now you’re saying, well man, goodness, if
you know that you’re ahead of goal and you know by how much, then that can also influence
your decision.

[00:17:35]Well, maybe you can throttle back on some of the retirement savings, cash flow,
some of the kids’ school. And then once that’s done, you know, continue saving where else?
I think that point there it’s valuable to know when you’re on track for your retirement goal and
maybe when you’re overfunded in retirement. Understanding that knowing what the risks are
and what happens in different marketing conditions can give you a lot of freedom, and
flexibility to make some of these choices. So, those are like three common things that we
work through and just, you know, a few scenarios. I think quite frankly, the decision matrix of
life usually has so many more, decisions and trade offs that we’re faced with every day. And
a lot of ’em have the financial impacts, and we often have to decide which ones that we
should really, focus on first, because timing matters, right? Returns matter interest that you
pay interest, that you earn matters, time in the market certainly matters, and the nice thing
about financial planning is, you know, you can lay out. All the financial goals there, and then
sometimes the ones that you absolutely must get started on will just jump right off the page
at you, and then you could just, that’s where you start.

[00:18:47]But then other types, you’re gonna figure out, hey, like I have more discretion here,
like I have more choice. And you can understand what those trade offs are and what they
mean for you, and then pursue them accordingly. So. With this episode, focusing on when,
what’s important now, I think it all ties back to your financial plan and then that’s gonna help
inform you of which opportunities, whether investment related or just life enhancing
opportunities that you take advantage of, and then which goals you also focus on first.So
with that, that’s gonna do it for this episode of Pilot’s Portfolio. Thanks for listening, and we’ll
see you on the next one.