WHEN DO PILOTS NEED MORE THAN AUTOMATION? WHAT TO DO WHEN YOUR FINANCIAL LIFE GETS MORE COMPLEX

[00:00:00] If your financial questions are no longer about, Hey, am I saving enough? But maybe instead they’re questions like, is there anything else I could be doing besides maxing retirement accounts? Or, why does my CPA only talk to me in March? I wonder if I could use a little more tax planning throughout the year.

Or maybe you’re asking yourself questions like, Hey, I wonder if I could stop flying earlier than 65. I don’t know if I will, but I’d love to see what the numbers say. Or perhaps you’re wondering, am I saving too much and can we spend more now? Or what should I be doing with my excess cash flow? Should I be paying down the mortgage?

Should I buy a rental property? Should I invest more in my brokerage account? Or maybe it’s a question like, Hey, I know I’ve saved enough for retirement. But when I transition into retirement, how will I turn this portfolio into a steady income stream? If those are your questions, did you, my friend, have transitioned from automation only [00:01:00] into the coordination phase of your financial life?

You are listening to the Pilot’s portfolio, the show dedicated to guiding professional pilots towards a future of financial success and stability. Fly along with your host Timothy P. Pope, as he provides financial planning insights. And answers to your burning questions and dives into real life stories from fellow pilots who share their successes and cautionary tales.

The pilot’s portfolio takes off now. Well, welcome to this episode of Pilot’s Portfolio. Glad to have you guys along with us today. Today we’re talking about what’s in your portfolio, or rather the systems that you use to make it all happen. My name is Timothy P. Pope. I’m a certified financial planner specializing in the planning needs of the professional pilot, and I’m a principal at 360 Aviation Advisors where we help [00:02:00] successful professional pilots who have outgrown DIY investing with a well-rounded focus on their financial planning.

Focus on retirement investments and tax, and we help our clients plan for and navigate life’s inevitable changes. So we’re glad to have you along on today’s show. Today I wanna talk about automation and how it relates to your financial planning strategies and your investment management. You know, we’ll explore questions like when to use automation.

Its benefits, its limitations. And how do you know when you’ve outgrown automation? Now as a pilot, you are used to and comfortable with the benefits of automation. You know, I have friends who own Teslas. Some of them are pilots, some of them are not pilots. And it seems that the. Just in my experience, the pilot Tesla owners seem to be really embracing, they really embrace the self-driving feature.

You know, the non-pilot Tesla owners are a little more [00:03:00] reserved and you know, they kind of tiptoe and maybe wade into it. And I kind of joke with my pilot buddies. I’m like, Hey, you guys blast off. You climb out soon thereafter. Uh, you hit the autopilot button. And then you begin monitoring the system. So you get it.

So just like in the cockpit automation, it’s an extraordinary tool. It reduces workload, it increases precision, expands your capabilities as a pilot to operate in complex environments. And just like in the cockpit, you know, you monitor the systems. You’ve trained to understand what it’s doing, to understand why it’s doing it.

And when conditions change, you’re more than capable of stepping in to help out. So that dynamic. Automation paired with oversight. I think it’s a really helpful way to think about your financial life now, early in your career, you know, automation likely played. A fairly important role in helping you reach your financial milestones and building your wealth.

When you were establishing your emergency fund, you [00:04:00] probably set up recurring amounts that went into a savings account, each pay period, until you were able to level off at your desired emergency fund. When you begin saving in your 401k. You know, you’ve used automation to invest a certain percentage of your paycheck every pay period into your 401k out of sight ever out of mind, right?

So you never saw the money, it was invested in the account. And periodically, you know, when you checked your balances, you saw how a little that you invested consistently over time can certainly add up. It’s also like probably before you made too much money to invest directly into a Roth IRA. You probably set up regular recurring transactions to invest in your Roth every month, and so by the end of the year.

You max it out. When I think about this use of automation, it’s great. Yeah, it, it helped you build strong financial habits, which in turn helped you build assets. The compounding market returns gave you momentum. [00:05:00] And when you combine all of that together, you can see the powerful effects of automation, right?

It reduces behavioral mistakes, prevents procrastination, you know, ensures consistency. But at some point in your career. When does automation stop being enough? So specifically, you start to think about where you are now. Maybe in your early to mid forties, maybe early to mid fifties. Your income by itself ranges between 400 to $500,000, you know, and then you add your spouse’s income on top of that, your tax bracket is high.

You look at your net worth and it’s multiple seven figures. You’re starting to think seriously about retirement and you have other goals too, and other questions. Will I have enough to retire? How much do I need to retire? Perhaps you and your spouse are are interested in early retirement, or at least we have conversations with clients about the option to retire early.

Maybe you’ve always wanted to [00:06:00] have a second property, A vacation home is now a good time. How should you approach that transaction? What will the impact be on your other long-term goals? You know, what steps should you be taking to minimize your lifetime taxes? All of a sudden, tax efficient investments, you know, take on a whole new meeting and they’re, they’re more important than ever.

Some questions you may have is, how can you support your grown children in their early adult lives? So while on one hand. You’re still focused on growing what you have, but on the other hand, you have also squarely entered the financial coordination phase. So it’s not only growth only, now you’re starting, you have all these moving parts, and you need to coordinate them.

You’re coordinating tax exposure with retirement income. Maybe you’re coordinating the liquidity with risk tolerance. Maybe you’re coordinating the increased enjoyment and [00:07:00] fulfillment of life now while also ensuring that your long-term goals are still sufficiently funded and coordination. It doesn’t happen automatically.

There’s not a great automation for coordinating, and that’s really where the heavy lifting when it comes to financial planning, that’s where it comes in. So early in your career, automation may have been the majority of the solution. You’re building habits, you’re building assets, you’re building momentum, and automation is incredibly powerful during that phase because it reduces behavioral mistakes.

So let’s make this tangible. Okay? So if you’re earning, say between 500 and $600,000 of W2 income, you are likely in the 35% marginal federal bracket. So that means every additional dollar of taxable incomes is costing you 35 cents. In federal taxes, and that’s a before state taxes. So while automation will continue to invest your money faithfully, [00:08:00] it’ll rebalance your portfolio, it will adjust your glide path over time if you are using target date funds.

And a quick word about target date funds, you know, if you’re choosing to use them, this is certainly one of those systems that you want to exercise your oversight with. And be careful about the use of some target date funds because. Not all of them are created the same. Okay. Some of them have an absurdly high level of cash.

Embedded within the fund. Some of them are priced pretty expensively. None of them factor in if they’re being used in a pre-tax account, a Roth account, or a taxable brokerage account. And you really should take a look at how they plan to adjust your investment allocations. That’s your mix of stocks and bonds over time, so you certainly want that lined up with your specific risk tolerance.

And then your goals risk capacity. Okay. And so when your income and assets reach a certain level, those [00:09:00] trade-offs really begin to matter, not just in theory but in real dollars. So, you know, you, you think about your earning between 500,000 and $600,000, you know, per year of W2 income. We reduced that down to taxable income there.

What automation will not do is pay. I’m hearing a lot of things about Roth conversions or partial Roth conversions. Should I be doing that? Is now a good year? What about if I have a market pullback, or should I be shifting my contributions to pre-tax in light of future brackets? What can I expect my future brackets to be?

Is there, our clients know, we talk about a valley of opportunity for that moment from when you retire to when you have to start taking M RMDs, which are required minimum distributions. Is it, do I have a valley of opportunity? If so, how long is it? How I’m go? How am I going to take income during that time?

Or automation won’t answer [00:10:00] questions such as, what happens if we decide to retire at 60 versus 65? Or what happens if we’re forced? Maybe I lose my medical at 60 and I don’t make it all the way to 65. Or maybe we’ve decided, you know what? We’ve always wanted that vacation property or that airplane, or that boat, whatever it is, and we’ve decided that we’ve got the income.

Now why don’t we, you know, why don’t we go ahead and, and make that purchase? Which accounts should we take the money from to raise cash? In the most tax efficient manner, or when should I sell those investments? So automation it, it can execute instructions, but what it doesn’t help with is it doesn’t help you evaluate those multi-year trade offs.

Those, those what ifs scenarios that working with all of the pilot families that we work with, we know it’s important. Typically, you, you know, you spend time developing [00:11:00] that baseline. And then you start to move into, okay, well, what’s next? We’re in a good spot, but where do we go from here? How can we enhance our lifestyle from here?

None of this is an indictment against automation, and I mean automation, it’s about efficiency and it should be used, but automation by itself, you know, I think it lacks the strategy and the judgment that’s required. When you are transitioning from the purely accumulation phase to the coordination phase of your financial journey, your strategy requires engagement from you, engagement from your team.

It requires stepping back and asking, Hey, is the current system that I’m using still aligned with where I’m heading? Like strategy and judgment. They recognize which changes in your life can easily be absorbed. You can carry on. And on the flip side, strategy and [00:12:00] judgment, also recognize which changes in your life.

Force us back to the drawing board to redesign and update your plan. Now, before we keep going, I’d like to mention this at 360 Aviation Advisors, we help successful professional pilots who have outgrown DIY investing. We help them coordinate retirement planning. Investments and tax decisions with ease and clarity.

Because at a certain point, building and preserving wealth to support the life you enjoy takes a team, learn more. Visit 360 aviation advisors.com. That’s 3 6 0 aviation advisors.com. Now back to the show now. Let me address some questions that might have just naturally popped up as you’ve been listening to this.

So one is, hey, if automation has worked for me so far, why should I rethink it now? And I [00:13:00] think that’s a great question. First, I think we have to acknowledge that, look, we’re busy people and we’re doing all the things. We’re going to work, you know, we are caring for the family. We’re being a spouse. What we sometimes fail to recognize is that our financial life changes and evolves just kind of slowly and over time.

So I wanna highlight this change. Initially, the objective may have been, hey, early on, it’s to get our investment accounts to grow, to build assets, to decrease debt, to increase your net worth, to stay consistent, and for those goals. Automation is great. But as your income increases and as your tax reality shifts and your overall financial position moves from, hey, relatively straightforward to whoa, this is getting a bit more complex.

So as all of those changes happen, then your strategy also needs to change. Now this doesn’t mean to abandon [00:14:00] automation, just kind of toss it. No, it just simply means to supplement it. Now we’ve got automation and now we’re gonna add strategy and judgment there. I’ll give you a few examples. So as I mentioned before, previously you may have contributed directly to your Roth IRA, kind of on autopilot.

The next thing you know. Your modified adjusted gross income is above the allowable range where you can contribute directly to a Roth IRA. And so now instead you need to do a backdoor Roth IRA strategy and we encourage our clients to do this in a lump sum manner versus setting up an automated monthly contribution, which could then be subject to earnings or losses.

And quite frankly, it unnecessarily complicates matters. And I’ve seen many, many well-intentioned folks run into taxes and penalties on, you know, this one. Another one is your tax withholdings. So in the past, your tax situation may have been, you know, saved easier income taxes were taking outta your paycheck.

You dumped your documents off at your CPA, they filed them and you either [00:15:00] received a refund or you know you had to pay, but it wasn’t that much lately. Maybe it seems like you’re either owing a large amount of taxes at tax time due to under withholdings, or you’re receiving a huge refund, tens of thousands of dollars due to over withholdings.

So. What may have been on autopilot in the past, filing your W four and moving on with your life now requires some mid-year check-ins, whether that’s at the end of Q1, a mid-year beginning of Q4. That’s typically what we do, and we adjust the tax withholdings or set up estimated payments as required. So tax time is far less exciting and far more predictable for you.

So those are just a few examples of, Hey, why should I be rethinking automation now? Another question that might pop up. I talked about target date funds before, and I hadn’t gave you a warning of like, Hey, if you’re gonna use ’em, here’s some things to think about now. Target date funds are designed to manage your allocation over [00:16:00] time.

They adjust your risk exposure gradually as you age by shifting the amount of stocks and bonds that you have in your portfolio. They’re like the easy button when it comes to investment, and a lot of your 401k plans will default to these target date funds if you choose nothing else. So just like with most things, you know when something is convenient and easy, we usually give something else up as a trade-off, and in this case, it’s customization and control.

When you think about the different types of accounts that you undoubtedly have at this stage in your career, you’ll have some accounts that are tax deferred, meaning, hey, you’ll pay taxes on the money when you pull out in retirement, you’ll have some accounts that are tax free, meaning you’ve already paid taxes on the principle and you shouldn’t have to pay taxes on the gains as long as you meet certain criteria.

And then you’ll have some brokerage accounts which allow you to possibly pay lower long-term capital gains rates as long as you meet certain criteria. So we have three different account types, which usually means. [00:17:00] We’re gonna invest in those account types differently to maximize their unique features.

Now, at this stage in your career, having control, especially control over taxable distributions from your investment funds is of utmost important. It’s usually not a nice discovery when you get your 10 99 end of January, sometime in February, and you realize, whoa, wait a minute. This fund in my brokerage account has issued a massive capital gain.

But I really didn’t buy or sell enough fund last year. Doesn’t matter, that income is still going to find its way on your 10 40. In fact, that happened at a really large investment firm a few years ago. Their funds issued quite large capital gains that caught their investors by surprise, and there was a lot of noise about it.

So if you are over 50 years old and your catchup contributions are forced to be Roth now in 2026, those contributions are going to be in your tax-free account. [00:18:00] If you’re not careful, the target day fund will invest those dollars just like your pre-tax money, and that may not align with your personal goals or your personal risk tolerance.

So again, here you may be giving up control of items that have a significant impact on your bottom line over time in favor of convenience. And you may say, well Tim, that sounds like a lot of work. I don’t have time in my day to take back control of these items, and that’s a fair point. But we work with pilots who have outgrown DIY investing.

So just because you take back control doesn’t mean you necessarily need to be the one doing it. You just need to know that it’s being done. Hey, pilot, are you looking to save 20% on the sale or purchase of your next home? Let me tell you about a friend of the show, beacon Relocation. With Beacon’s exclusive real estate benefit, you can save thousands.

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Buyer credit varies in some states. Contact us for details. Another question you might ask yourself is like, okay. I’ve listened to this episode. How do I know if I’ve outgrown automation? And look, if you’ve identified with some of the points that I’ve made along the way, it’s likely that you have [00:20:00] either transitioned from an accumulation only phase.

Into a coordination phase of your financial journey. So if a small percentage differences in tax rates or withdrawal rates, or even rates of return translates into tens of thousands of dollars a year for you and your current portfolio, and even more over time, you’ve likely entered the coordination phase.

If you’re within 10 to 15 years of retirement, you haven’t run a forward-looking projection. You need to, right? Because you’ve entered the coordination phase, whether it seems like you have or not. If your financial questions are no longer about, Hey, am I saving enough? But maybe instead they’re questions like, is there anything else I could be doing besides maxing retirement accounts?

Or why does my CPA only talk to me in March? I wonder if I could use a little more tax planning throughout the year, or maybe you’re asking yourself questions like, Hey, I wonder if I could stop flying earlier than 65. I don’t know [00:21:00] if I will, but I’d love to see what the numbers say. Or perhaps you’re wondering, am I saving too much and can we spend more now?

What should I be doing with my excess cash flow? Should I be paying down the mortgage? Should I buy a rental property? Should I invest more in my brokerage account? Or maybe it’s a question like, Hey, I know I’ve saved enough for retirement, but when I transition into retirement, how will I turn this portfolio into a steady income stream?

If those are your questions that you, my friend, have transitioned from automation only. Into the coordination phase of your financial life. And if you’ve begun to sense that your financial life has become more interconnected, more complex, more consequential, it may be tied to move beyond autopilot. So you can visit 360 aviation advisors.com.

That’s 3 6 0 aviation advisors.com. You’ll also find a link. In the description, in the show notes today, and if you’re ready to partner with advisors who understand [00:22:00] your industry, your contracts, the realities of your career, your financial lifecycle, as a professional pilot, let’s talk. Also big shout out to our sponsors, beacon Relocation for supporting the show, helping you guys save money on your next real estate transaction, whether it’s locally or across the country.

Thank you to Beacon for your support. So thanks for joining this episode of Pilots Portfolio. We’ll see you on the next one.

Thank you for joining this episode of Pilot’s Portfolio. If you found this information helpful, spread the word and share it with a pilot button, or if you have questions. And there’s something that you would like to hear discussed on the show, send us an email. You can find the address in the show notes.

For those of you who are ready to learn how we help professional pilots with their financial planning needs, schedule an appointment. Until next time, keep the shiny side up and we’ll see you on the next [00:23:00] episode.

Pilot’s Portfolio is hosted by Timothy P. Pope. Timothy P. Pope is principal owner of 360 Aviation Advisors. 360 Aviation Advisors is a registered investment advisory firm regulated by the state of North Carolina in accordance and compliance to the securities laws and regulations. 360 Aviation Advisors does not render or offered to render personalized investment or tax advice through pilot’s portfolio.

Information provided is for informational purposes only and may not be suitable for all investors and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.