Till Debt Do Us Part: Resolving Financial Sources of Tension Between Couples

On This Episode

 

Money can’t buy love, but it can certainly start some spicy debates between you and your better half. In this episode, we’re digging into the financial face-offs that make Monopoly fights look like child’s play and exploring some money minefields that can test even the most solid relationships. Listen in as we explore how to resolve some of the most common financial sources of tension between couples.

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More Episodes

 

Check out all the episodes by clicking here.

 

Disclaimer:

 

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Marc:

Welcome into another edition of the podcast. It’s Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find them online at pfgprivatewealth.com if you’ve got questions or concerns about your retirement strategy or lack thereof.

This week we’re going to be talking about ’til debt do us part, resolving potential financial sources of tension between couples, because let’s be honest, married couples fight, and often it’s about money. That’s usually the number one reason that we get into arguments. So we’ve got five that we want to identify and talk through a little bit and try to hopefully shine some light on some places where we can talk about some of these things and maybe get onto the same page and not have these arguments. Because a lot of times these things happen in front of advisors the very first time.

Guys, not too long ago, I was just chatting with another advisor, who said he was sitting down with a married couple, they were talking, they were going over the stuff, and they were pleasantly surprised about some extra money that they were going to have. The husband says, “Great, we’re going to buy an RV and travel the country,” and the wife looked at him and said, “Since when? You’ve never ever brought this up before.” So it was the first time she had ever heard it. So we want to make sure that that’s not happening. We want to try to have these conversations, ideally with each other before we sit down with an advisor, but certainly that’s going to happen as well, because you guys, as you know, often wind up having to be a little bit of marriage counselors sometimes when it comes to dealing with finance in front of folks. That’s going to be the topic this week. We’re going to get into it.

Nick, how you doing buddy?

Nick:

Doing well. Doing well, thanks.

Marc:

Yeah. You ever run into that situation where a couple said something in front of you and you could tell the other one was completely caught off guard?

Nick:

Oh yeah. Yep. Yep. It’s-

Marc:

Par for the course?

Nick:

Yeah, that’s when the couple’s therapy hat goes on.

Marc:

That’s right.

Nick:

Probably a lot of advisors don’t work in teams like John and I do, oftentimes, and I would say one of the things that it helps with the most is just being able to pick up on the social cues a little bit easier from both people, just because people, depending upon their personality, they may show you a lot with their expression.

Marc:

Yeah. Little tandem action there. John, you’re married. I’m married. Married couples argue, right? And money’s usually the big deal.

John:

Whoa, whoa, whoa, whoa. Speak for yourself, Mark. [inaudible 00:02:15] aware of it. It’s all roses over here.

Marc:

Your wife’s listening, that’s right. Make sure you don’t say anything, yeah. But it does happen, right? And money’s the number one argument point. So, let’s talk about these five that we’ve identified here that people tend to run into in y’all’s industry.

Risk tolerance, if I start that first one, risk tolerance in investments. This is pretty simple. If you’re talking about two people, there’s a good chance one feels one way about something and the other one feels the other way, especially when it comes to being married couples. So one person may be more aggressive with the portfolio and one’s not, right? That simple.

John:

Yeah. This does happen quite a bit because everyone has different risk tolerances, personalities, and how they react to the market. What we typically do in this situation is each person will fill out their own risk tolerance questionnaire, and that gives us understanding of how to invest each portfolio. And if it’s a joint account, we usually have a discussion of, “Hey, how does this fit in the overall plan and the strategy?” So, again, hate to sound like a broken record, but we really try to have the plan dictate how much risk we should be taking, and then obviously the risk tolerance comes into play. But what we do in this situation is we take account both risks’ levels, and then we’ll try to incorporate that into the plan and make sure that it’s in line with what we’re showing for numbers.

Marc:

Yeah. This is pretty basic one here, but we want to make sure that both parties are feeling comfortable with the risk that they’re taking. It’s just that simple. So to not have the argument, you don’t want to have the portfolio 90% in the market, for example, just as throwing numbers out there, if the other person’s tolerance is only going to be comfortable with half of that or less than that. So you want to have those conversations. It’s also good to work with an advisor who can help you go through. And this is why another piece of the importance of both parties being involved with the financial planning process, so that they both are getting their needs met, as well as understanding what’s happening and knowing what their plan is. So that’s the first one.

Nick, let’s talk about the second one, retirement age. My wife and I are five years apart, and she jokes all the time, and I don’t think she’s joking, but all the time she’s like, “You’re going to retire five years before me and I don’t think I like that,” because she just doesn’t want to see me goofing off and having fun while she’s going to work. Understandable, but something you got to talk about.

Nick:

Yeah. It’s definitely something that comes up quite a bit. It’s interesting, honestly, it varies quite a bit from couple to couple. I’ve seen it go from anything from one person really enjoys their job more than another and they plan to work longer and they’re comfortable and happy with that. In the last few years, we’ve had people shift to working from home and that has kept them in the job longer. They don’t have to do the commute anymore. We’ve even had clients move maybe a little further out into the burbs because of it and start their adjustment to retirement by being in a quieter area, that sort of thing.

Also, in a funny way, sometimes couples are like, “We need to ease into this whole spending all this extra time together sort of thing. So us doing it at the same time may not be best for us as well.” Then purely from a financial standpoint, there could be a significant age gap or maybe at least three to five years where the cost of health insurance, those sorts of things for the younger one, could make a significantly negative impact on the overall plan if they were to retire early. And so they just do it. They continue to work just for that reason alone.

Marc:

Yeah. So you’ve got to have those conversations to sort that out a little bit so that you don’t have that argument or that fight over what’s going on, things of that nature. Again, this could be an easy one, but it also may not be depending on the age disparity, or even just from the financial standpoint of figuring out the ideal way to do this.

John, let’s go to number three for you here on legacy for the family, for heirs or whatever the case is. I joke with my daughter all the time, we only have the one, but I joke with her, I’m like, “I’m not leaving you anything but a credit card statement.” So she’s expecting to get nadda. She knows that’s not true, but for folks who have multiple kids like yourself, it could be simple, where one party wants to leave them a whole bunch and the other party doesn’t, right? “We worked hard for this. We want to enjoy our retirement with the money that we put together. The kids are doing fine, so I don’t want to leave as much.” And that’s certainly the source of tension between a married couple, if one’s wanting to give a lot and one’s wanting to give a little.

John:

Yeah, this is probably, I would say, my planning career here, the biggest tension one I’ve seen actually, because if you’re setting aside money to leave for a legacy and you’re not spending it, that can make a big impact to what you do in retirement. So, again, the planning does help this out where you start to kind of see it. But this is definitely one where I would say it’s a conversation to have in making sure that everyone is on the same page as far as what is the goal for leaving a legacy to kids or grandkids?

Marc:

Yeah. And the grandkids can certainly be another whole equation in that too. Although the funny thing is, is couples tend to get on the same page about the grandkids. It’s like, “The heck with the kids, just give it all to the grandkids.” But, again, you’ve got to really talk about how you’re going to separate that out.

Nick, do you see that as the biggest one as well? As John’s mentioned, that’s the thing he’s seen the most in his career. Do you see that quite often as well?

Nick:

Yeah, I would agree with him on that. That’s definitely the case for me as well.

Marc:

Yeah. It’s, again, “Let’s leave them as much as we can. No, they’re doing just fine. We’ve given them everything throughout their life. I’m not leaving them that much.” That’s what my wife and I joke about with our kid. We’re like, “I’m not leaving her nothing. We’ve given her tons of stuff. She’s doing well on her own. She doesn’t need any of the stuff that we have. We’re going to enjoy our retirement ourself.” So, we don’t have big fights about it, but you could.

John:

Mark, actually, one thing that I’ve seen at work is a kind of in-between, if this debt does become a sticky point, is I’ve seen some clients that instead of leaving money, it’s, “Hey, let’s do some things that we enjoy with the family.” So instead of just saying, “Hey, we’re going to leave you this nest egg,” maybe it’s, “We go on a vacation and we pay for everybody to come, so we create memories versus just passing away and just leaving them a chunk of money.” So that’s kind of an in-between, where it’s, “Hey, I want to enjoy my retirement. We’ll leave it for the kids. Let’s do both.”

Marc:

Gotcha. That’s a great point. Yeah, for sure. So maybe trying to enjoy that while everybody’s around is a good way of looking at that.

Let’s do number four here, housing and retirement, probably the second biggest one, more than likely. “Do we downsize, do we not? Well, we raised the kids here. I want to stay here and raise the grandkids here,” kind of thing. Like, “Have the grandkids come here for those great memories, but financially it makes more sense to downsize,” or whatever. So there’s a whole plethora of arguments that can pop up around the housing issue, Nick.

Nick:

Yeah, the housing issue, from almost like a hyperlocal standpoint here, has really become quite interesting, and, to a certain extent, in other areas as well. In our area here we’ve had really home values post-COVID double, and then interest rates go up. So there’s this stuck factor, where in theory somebody may look to downsize their home, but for what they would get for the money, the change in taxes, if there was financing involved, it’s one thing if they’d be able to pay cash, but if there’d be financing involved, a lot of times that cuts into any sort of gain that they would get. So unless they’re shifting out to an area that’s substantially less expensive or that sort of thing, people are a little bit more stuck than they had been previously, which we see that from the standpoint and the perspective of low inventory and that sort of thing.

So we’re in an interesting cycle, and it’s going to be pretty interesting to see how that ages in the next few years, because we’ve already had some clients that had looked into downsizing but wanted to stay local, and with the pricing where it’s at, it just didn’t end up making financial sense. The downside of that is that there’s more maintenance and the house is harder to keep up. So instead, they’re spending money on maybe some services related to the home that they hadn’t before. It’s pretty interesting.

Some clients that have relocated from other areas of the country where the housing markets are higher, they’ve been able to have that be a downsize that’s worked out well for them. But that gap used to be much more substantial. What they would sell a house for in maybe the Eastern Seaboard versus what they could buy something for here now, the gap is much smaller than it used to be. Although for some areas it’s still a better value, it’s changed.

Marc:

Yeah, it’s easy enough to get into these arguments about different things, and certainly anything that’s emotionally attached, like leaving money to the kids or raising the grandkid… I keep saying raising, but spending time with the grandkids in the same home where you raised your children can certainly carry a lot of emotional weight to that. But if the finance or the math bears out in a different direction and one party’s leaning towards math and finance and the other one’s leaning toward emotion, can certainly lead to arguments. And also, not having the conversations until you sit down with the advisor, probably not the best way to go about that either. “We’re going to sell the house.” “No, we’re not. We’re going to stay in the house,” and you guys are left sitting there going, “Oh boy, this is going to be fun.” So definitely something you want to have a conversation about.

Then the last one guys, is also a pretty big one as well, which is just retirement lifestyle in general. Again, what do you want to do? I used my wife and I as an example a minute ago, I’m going to retire before she does, and she travels a lot for work. Well, she doesn’t want to travel that much in retirement. She wants to be at home and enjoy her garden and so on and so forth. And I’m like, well, I’m always working from home, especially while she’s traveling now, so I want to get out and do things once we retire. So we’re in two different spaces. We’ve got to find a way to make that work as we get there. And many couples face that same kind of analogy.

John:

Yeah, this happens quite a bit in understanding and getting that aligned. I think with all these topics, I’ll say that just sitting down and starting a financial plan will answer a lot of these questions and making it come to light. And once you see the plan, you’ll really start to determine, “Hey, should we downsize? What can we leave to the kids?” Retirement age, et cetera. And then also, “What are the things we can do in retirement?” It really opens up the conversation.

Just kind of give you scenarios here. I just had a client that, she, herself, her goal was to hike the Appalachian Trail. She just did about half of it, and the husband didn’t want to do that. She did it, and then he would actually meet her at certain spots in the trail and they would hang out and then he’d fly back home. But those are things that she wanted to do, and she’s not the only one. I have some other people like that as well. If it’s that drastically of a difference, some people might do things solo off their bucket list. But the majority of the time, I’ll say, maybe we’ve been fortunate that we’ve worked with people that will actually compromise and work with each other, even if they have different bucket lists in retirement.

Marc:

Yeah. Yeah. Nick, you want to chime in on this one?

Nick:

Yeah, it’s really an interesting dynamic. I see it now more with my parents who both retired during COVID. The caveat with them is that my grandmother lives with them so that puts some restrictions on what they can do. We have a lot of clients who have that same sort of situation, which is also another reason for people to be strategic about the things that they want to do, and be able to plan around that sort of thing.

As an example, for my parents, I have an uncle that’s going to fly down and stay with my grandmother for a week, and they’re going to go travel a little bit, go out west for a wedding, and be able to enjoy that time. So, people that tend to be homebodies too, I think I’ve seen maybe struggle a little bit more than others. I would just say that any sort of engagement, hobbies, things to get you out of the house, all those sorts of things, we’ve seen have a very positive impact on people’s energy levels and how much they’re able to actually enjoy retirement.

Marc:

Yeah. Well, and again, these are five big places where we can certainly argue about money when it comes to our finances, sources of tension. Whether it’s arguing over how aggressive or not we are with our portfolio, whether it’s what kind of age we want to retire at, the legacy to leave behind, where we’re going to live, or just what overall retirement’s going to look like, why have this be a source of tension when we can have a conversation with each other? Hopefully we’ve done this already, but again, many times couples, they know they’re going to fight, so they try to avoid, or maybe they’re not as truthful, guys, as they might be with their partner when it’s just them. But sitting down in front of advisors like yourselves, now they’re a little bit more comfortable because they feel like they’ve got this mediator who doesn’t have a vested interest in the fight. They’re just there to help provide the financial information. Is that fair?

John:

Yes.

Nick:

Yeah, I would say so.

John:

Yeah, I would definitely agree with that.

Marc:

Yeah. I think a lot of people feel better about doing that in front of an advisor, but again, try not to catch your partner off guard by never having this conversation with them and just springing something on them. Talk about it, and work your way through it, and hopefully maybe use this podcast as a catalyst if you need that, if you’re having trouble with your spouse, and just say, “Hey, listen to this.” Maybe this will get you guys talking or whatever. And then sit down with a qualified pro like John and Nick to go through the process and see what it is that you need to do to tackle these items and get onto the same page. So reach out to them, pfgprivatewealth.com. That’s where you can find them online. Don’t forget to subscribe to the podcast, pfgprivatewealth.com.

You can find Retirement Planning Redefined on Apple, Google, or Spotify. Whatever podcasting platform app you like to use, just type that into search box, or again, stop by the website, pfgprivatewealth.com. Guys, thanks for hanging out and breaking this down a little bit for us this week. I always appreciate your time. For John and Nick, I’m your host, Mark, we’ll see you next time here on the show.

Mastering Retirement Cash Flow: Understanding Income

On This Episode

 

Get ready for part two of our Retirement Cash Flow series! This time, we’re diving into the income side of the equation. In our first two episodes, we tackled the ins and outs of your expenses in retirement. Now, it’s all about understanding the crucial role of income analysis. We’ll uncover the secrets of guaranteed income versus the uncertain stuff and shed light on the consequences of retiring without a clear income plan. Don’t worry if you’re feeling lost – we’ve got your back with practical solutions and expert guidance. Tune in and take charge of your retirement cash flow!

Subscribe On Your Favorite App

More Episodes

 

Check out all the episodes by clicking here.

 

Disclaimer:

 

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Marc:

Welcome into this week’s edition of the podcast. It’s Retirement Planning – Redefined with John and Nick from PFG Private Wealth, back with me again to talk about mastering retirement cash flow. So we’re going to dive into the income side of the equation here a little bit on these things that we need to discuss, and go through this crucial role of income analysis. And we’ll talk about, hopefully, some ways to highlight some points to think about when it comes to making sure you’ve got that cash flow taken care of. Because clearly, we’ve got to have income in retirement when we’re no longer getting those paychecks. So that’s on the docket this week on the show.

Once again, guys, thanks for being here. John, what’s going on buddy?

John:

Oh, not too much. Just starting to get this Florida heat hitting me and we’re only about a month into it, but I think I’m already tired of it.

Marc:

Already tired of it? Yeah, you got a ways to go if that’s the case.

What about you, Nick? How are you doing, my friend? I know you’re doing a little moving. Moving’s always fun, right? You getting that all worked out?

Nick:

Yeah, yeah. Well, luckily the move wasn’t too bad, but pretty much settled in and I got a little bit of break from the heat in July after going up north for a little bit, like I tend to do during the summer.

Marc:

Oh, yeah. Although it’s been hot everywhere. It was probably hot up there too, wasn’t it?

Nick:

It was, it was. But it was, for sure, cooler and the humidity less.

Marc:

Yeah. That’s the kicker. Yeah.

Nick:

We definitely had some warm days for sure, but I do enjoy being able to go on the fresh water up there, because I don’t do fresh water in Florida. And it’s not like I go to the beach that much anyways, but the water at the beaches here right now is just insanely hot. It’s not even worth going in.

Marc:

It’s like you get in the bathtub.

Nick:

Yeah, yeah. It’s ridiculous.

Marc:

You think, “The ocean! I’m going to cool off.” No, you’re not. But yeah, well, good. I’m glad you guys are doing all right.

So let’s get in and talk about this cash flow thing here a little bit. Why is understanding income, guys, in retirement critical for the stability of your financial strategy, and what could happen if you don’t have that clear picture?

Nick:

Yeah, so I was actually having a conversation with a client earlier today and really kind of emphasizing … We emphasize this with our clients quite a bit, that it’s super important to have income. Obviously, income is king in retirement, but not completely in lieu of liquidity, of having other funds.

So this one client had good direct income sources and then had a decision to make on a pension, on whether to lump sum, roll over or take it as an income. And because of the overall financial strategy, for her it made sense to take lump sum, roll it over into an IRA. And that would kind of give her the balance of having assets that she can dip into, versus just a stream of income that would limit her on other things.

Creating that balance is different for every single person, but we really try to emphasize trying to make sure that you understand the different forms of income, and balancing that with making sure that you have access and accounts that are invested, but are also liquid.

Marc:

Yeah, okay. I mean, that makes sense, clearly. And so, when we’re thinking about the stability of income streams, John, what are some examples of different sources? I mean, there’s some that are pretty obvious, but we want to make sure we have more than just one, clearly. So what are some of the things to think about?

John:

Yeah. You definitely want to analyze where the money’s coming from. I know the last podcast, we were talking about expenses, and that’s really where you start, is getting to understand, “Hey, how much am I spending?”

And the next step is, okay, now that I’m spending this, where’s my income coming from to cover those expenses? And you want to make a clear picture of understanding what your income sources are, because the biggest risk going into retirement is making sure you do not outlive your money. And part of that is understanding, “Okay, where is my income coming from? And how do I make sure that I maintain my lifestyle without running out at age 80 years old, and now all of a sudden I’m looking to get a job at 80.”

Marc:

Yeah, nobody wants to do that. So we’re talking pensions, right? IRAs, 401(k)s, social security, annuities, so on and so forth, things like that. Is it advisable to try to rely more heavily on one versus the other? And I think for many years, John, people would kind of say, “Well, social security’s going to make up half or more”, but I don’t know that that’s the reliable source we want to go with anymore. What do you think?

John:

Definitely not, no. Especially with … Not that anyone’s done this yet, but a lot of talk of updating the social security program, cuts and things like that. You definitely want a good balance of retirement income sources, because if, let’s say, there was an update to social security, you’d want to have something in your back pocket where you can say, “Okay, that’s okay, that’s not going to affect me too much. I can pull from this income source.”

Nick:

And things like understanding … One of the things that we walk people through as far as if they’re taking distributions from their retirement accounts, as they’re leading up to retirement, going over the whole concept of a safe withdrawal rate, being around 4%, maybe 4.5%. Rates are a little bit higher, but we don’t know how long they’ll stay that way. That helps people get a little bit of a grasp of how much money they can take from their investments safely, and look to make sure that any other sources kind of fill in the gap.

Marc:

Let’s talk a little bit about some of those guaranteed sources versus non-guaranteed, Nick, I’ll let you kick this off for a second here. What is a guaranteed income and what’s the difference between that versus non-guaranteed?

Nick:

Sure. The way that we would look at something such as the term “guaranteed income”, although there are issues with social security for the most part, we look at that as a guaranteed income source. That may be something that we toggle down as far as the percentage that they would receive, but we would look at that as a guaranteed income source. If they implemented an annuity strategy, dependent upon the type of strategy that it is, that could be considered a guaranteed income source. That would be something. It’s always important to point out to them that, although the history is pretty strong for insurance companies, when it’s an annuity, the guarantee is provided by the insurance company itself. So that’s something that’s important to know. Pension plans are usually considered pretty safe and a guaranteed source of income.

Marc:

Yeah. I mean, non-guaranteed is going to be … I mean, when we think about a normal 401(k), right, where we’re just pumping money away, but unfortunately, if you’ve got it weighted in the market or things of that nature, it’s not necessarily guaranteed. If you’re risking it, by having exposure to the markets, then that’s where that non-guarantee comes from. Correct?

Nick:

Correct. Yeah. For example, the conversation I had earlier with the client as far as … Because the question that she had was exactly that. Like, “Well, hey, if I do this lump sum rollover, is that guaranteed like the pension is?” And of course the answer is no. But I also did kind of point out to her, and this was somebody that doesn’t have a spouse but has kids, that, hey, this single life option is guaranteed for your life. But if you pass away within five years, you haven’t even gotten close to the lump sum balance and nothing would pass onto your children. So that’s something else that can come into play, where the word “guarantee” can be tricky, because it can guarantee certain aspects, but not others.

Marc:

Right, yeah. And so John, listeners have probably heard of things like paycheck versus playcheck, right? So if we’re talking about explaining, and as you mentioned, we did some expenses on the last show. If you can walk through some of the ways that we might do that.

I would think that we would want to try to use our guaranteed income sources to cover, which would be our paychecks, to cover all the have-to-haves in life. And then we use the non-guaranteed, possibly the playcheck side, as the fun items. I guess every situation is different, but is that a simple way to break that down?

John:

Yeah. So your paycheck would be associated with your fixed expenses, the things you need. Your necessities, things that you really need to make sure that are covered. Taxes, groceries, things like that, that you cannot do without.

Marc:

Rent. Electricity.

John:

Yeah, exactly. Your playcheck is obviously, as you mentioned, discretionary income, your wants. Let’s put it that way. And what we do when we’re doing the plan, and everyone’s situation’s different of course, but we’ll have a lot of people that, let’s say they’re very conservative and they just say, “Hey, I want to make sure that my paycheck items are covered on a guaranteed basis. That no matter what, I want to make sure I have this covered, so I stress a little bit less about what’s going on with the markets.”

And we can adjust the plan to basically make sure that happens for them. And then what we end up doing is, anything that’s tied to fluctuation, whether it’s the market or anything else, or rents, then it’ll be the playcheck scenario where, “Okay, this is going to cover it.” And let’s say where that comes into play is, if a year is down in the market or interest rates drop, well, all right. Maybe that specific individual might not do as much in discretionary spending in that given year.

Marc:

Yeah. And Nick, maybe depending on how you’ve saved for life or how your setup is, maybe you have a pension or not, there’s a possibility that you could have your paycheck cover everything that you need in retirement, or most of it, and you’re really just using those accounts that you’ve built up, your 401(k) or your IRA or something, as something to leave to heirs.

So I mean, there’s lots of options out there, lots of strategies. It just really comes back to, what have you done and what kind of a saver you been, and so on and so forth.

Nick:

Yeah, that’s absolutely correct. And for clients that we have that did retire with maybe a substantial pension, and they’ve been a really good saver, and they don’t really dip into those investments, we definitely put together … And their main objective is to leave money, we can work together and put together strategies to try to do that as efficiently as possible and that sort of thing.

Marc:

Yeah, because a lot of people will say, with RMDs for example. I mean, I can’t count on one hand or both hands how many advisors I talk to that have clients saying, “Yeah, I got to take this money out for the RMD and I don’t need it. What am I supposed to do with it?” But you have to do it, right?

Nick:

Exactly. So it’s like you got to take that hit from a tax perspective, but the money could always be reinvested, it can go into a different sort of investment vehicle. There’s a way to continue to have it grow. Some people will use RMDs to fund a permanent life insurance policy, to kind of shift money from a taxable inheritance to a tax-free inheritance, that sort of thing. So it just kind of depends upon, just like anything else, the overall situation and the factors that are specific to their plan.

Marc:

Gotcha. Well, John, let’s finish off with this. So, any strategies for maximizing, maybe some non-guaranteed income? Because we often think about, or hear, John, stuff like, “Hey, get your social security maximized, run a social security analysis, make sure that you’re getting all that you can there.” But how do we do something similar, I suppose, in the non-guaranteed space?

John:

Yeah. So this will be where, I’ll give you a scenario. If we’re doing a plan for somebody and all they have is social security and there’s no other guaranteed income, and let’s just assume this person’s conservative, and they have a decent nest egg where we could look at it and say, “Okay, what we could do is, from the investment portfolio, whether that’s a 401(k) or IRA or a Roth IRA, whatever it is, we could pull some money out of there, put it into one of these annuity companies that provide a guaranteed income”, and of course, disclosure based on their paying ability.

Marc:

Sure.

John:

And from that we can say, “Okay, here’s your social security. And based on the plan, we feel that together we come up with this number, you should have x amount of guaranteed income on top of social security.” And we can basically take a chunk out of the investment portfolio and put it into one of these annuity products to give, in essence, some guaranteed income.

And what that typically does, it’ll provide the person with a little bit of peace of mind where they say, “Hey”, back to that scenario of paycheck and playcheck, “I know that my paycheck items are now covered and I feel a little bit more secure about what’s happening.”

Marc:

You’re kind of creating your own pension.

John:

Exactly.

Marc:

Yeah. Okay. And again, for some folks, Nick, that’s where the strategy might play off. Because some people, obviously, especially when you think about the annuity term, some people are game to learn, some people are very hesitant because they’ve heard whatever it is that they hear. But it could be an option for folks who don’t have a lot of other resources to tap into, especially if you’re going to do something like a fixed index where you’re going to tie it to an indices. And that way you’re kind of experiencing some of the upside, but you’re also having some of that protection on the downside, so that it’s not quite as non-guaranteed as it could have been if you just left it straight in the market. Is that fair, is that accurate?

Nick:

Yeah, annuities are always a subject that can be …

Marc:

It’s a hot topic.

Nick:

Maybe volatile, yeah, hot topic sort of thing. And the way that we tend to approach the subject is, there are so many different options when it comes to annuities. There’s kind of dividing up the decision-making process between strategy and then implementation.

So what I mean by that is, oftentimes, integrating in an annuity strategy for somebody can make sense to really dovetail into what John talked about. “Hey, we’ve got an income gap that’s needed of maybe $15,000 to $20,000 a year, and hey, we can carve out this amount of money and cover that.” And then we’ll see issues arise in the implementation, where the advisor that they had worked with uses a product that is maybe super expensive or the guarantees are not good, or it’s been misunderstood or mis-sold, or the sales charge period’s a really, really long time. So the implementation is poor, and that oftentimes sets off the red flags and that sort of thing.

So just like anything else, we would look at it and we tell people upfront, “Hey, this might be a strategy that makes sense for you, it may not. We think our job is to explain to you how it works so that you understand it, so that you can say yes or no. And then we move forward with whatever you feel comfortable with.”

Marc:

Yeah, so sometimes you may have to create some alternate sources using life insurance products or different things that are out there. But again, each situation’s going to be different, so you want to identify what kind of income sources you need and then where you’re going to be getting them from.

So if you need some help, as always, make sure you’re talking with a qualified professional, like John and Nick, before you take any action on anything you hear from our show or any other show. You always want to see how it’s going to relate to your unique situation. Obviously, we’re all affected by the same kind of things; we’re going to have expenses in retirement, we’re going to need income in retirement. But how you break that down and how you’re able to utilize the things that you’ve done through your life, are going to be different from person to person.

So, get yourself onto the calendar, have a conversation with John and Nick at pfgprivatewealth.com. That’s pfgprivatewealth.com. That’s where you can find them online. And don’t forget to subscribe to the podcast on Apple, Google, or Spotify, whichever podcasting platform app you like to use.

Guys, thanks for hanging out. As always, I appreciate your time. For John and Nick, I’m your host, Mark, and we’ll catch you next time here on Retirement Planning – Redefined.

 

Mastering Retirement Cash Flow (Part 2): Understanding Changing Expenses

On This Episode

On this episode, we will continue our conversation on what expenses may change when you enter into retirement.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Mark: Back here for another episode of the podcast with John and Nick from PFG Private Wealth. On Retirement Planning Redefined, we’re going to get back into our conversation from the prior episode about cashflow. We went through some categories, housing, work stuff, healthcare, taxes, so on and so forth, on how those expenses will change either to the plus or the minus, depending on our setup. Well, this is the time to talk about the setup. So as we are assessing our retirement expenses, we’ll break these down into a couple of categories. So we’re going to talk about those with the guys. John, welcome in buddy. How you doing this week?


John: Hey, I’m doing all right. How are you?


Mark: Hanging in there. Doing pretty well. How about you, Nick?


Nick: Pretty good. Staying busy.


Mark: Staying busy and enjoying. So we’re taping this before the fourth, but we’re dropping this after the fourth, so hopefully you guys had a good fourth? Nick, you probably went up and saw family, yeah?


Nick: Heading up north to just, yeah, extended family and friends. That fourth week makes it an easier week to get away because everyone’s doing stuff anyways.


Mark: Yeah, yeah. It’s always funny when we have the holidays and we’re kind of taping the podcast ahead of time because then drop it because we’re not around, so sometimes I get confused on my dates. So yeah, again, we’re talking about this before the fourth about what we’ll probably will be doing on the fourth. So John, are you on grill duty? Because I know I am. I’m stuck on it.


John: No, no. My brother’s forcing me to have a cookout at my house, so I told him if I’m providing the house, he’s the one on grill duty.


Mark: Okay, that’ll work.

 

John: He’s visiting from Boston, so he’s excited because my other brother’s down here and my sister, cousin, and actually the best man in his wedding is married to my sister, so he decided to come down.

 

Mark: So Marketing 101. So the second you said Boston, all I hear is these Sam Adams commercials right now, “Your cousin from Boston.” Every freaking time I hear Boston, that’s the first thing I think of. Or Sam Adams beer, I go right there. All through the hockey playoffs and NBA playoffs, I kept seeing those commercials so it’s embedded in my brain. But hey, that’s the point of marketing, right, is to be those little earworms, so you go out and buy whatever it is that you go out and buy. And speaking of that, that’s my transition into the must haves versus the nice to haves. So if we’re talking about those accounts, those different categories that we went through on the prior episode, guys, how do those things now play into for our cashflow? Again, cashflow is the conversation wraparound, it’s the wrapper of this whole endeavor. We need to break this down. And do you guys do this with clients? Is it something you encourage them to do, because everybody’s individual needs and wants are going to be a little bit differently, but do you break things up in the must-haves versus the nice to haves?


Nick: I would say to a certain extent, we do. We kind of list basic expenses and discretionary expenses.


Mark: So give us some musts. What’s the musts?


Nick: So obviously housing, healthcare, food and groceries, some form of transportation, whether it’s one vehicle, two vehicles. Getting rid of debt. Those are all things that are obviously needs. [inaudible 00:03:02]


Mark: Life essentials, right?


Nick: Yeah, for sure, for sure. Depending upon the people, some things are discretionary. I would say most of the people that we work for can’t afford to have some sort of traveling in retirement.


Mark: Yeah, so is two trips a year or is it five trips a year? That’s kinds how it starts to change?


Nick: Yeah, exactly. Or even a big trip every X amount of years. So like a baseline travel budget of X, and then let’s add one of the things that we commonly do is, let’s say the travel budget is $6,000 a year from a baseline standpoint, and then every three years they want to do an additional trip of another 6,000, that’s one trip. And so we can scatter that in throughout the plan and show them what it looks like and toggle that on and off. And with how we do planning, we can show them the impact of doing something like that and what it does to their plan. So for the higher tier, nice to have. For discretionary expenses, we will use our planning software and kind of show them, Hey, here’s the impact on your plan if you want to do that. Because we always preface everything, it’s telling people that it’s your money, we’re not telling you how to spend your money or what to do with your money, our job is to show you the impact of the decisions that you make.


Mark: That makes sense, yeah.


Nick: So let’s arm you with that information so that you understand if you do these things, then let’s make an adjustment accordingly. And for sometimes it helps them put into perspective where not everything is a yes or a no. And what I mean by that is, well, let’s just say that there’s two lifetime trips that they wanted to really do, and so they like to have a bigger travel budget, but really when you boil it down, it’s like, okay, I want to make sure I go to these two places. So we make sure that we can accomplish those and make adjustments elsewhere. [inaudible 00:04:58]


Mark: Yeah, because the must … I’m sorry to cut you off, but I was thinking about this as you were saying it. The must-haves, like the housing, the health, food, you’re not going to have any kind of discretionary wiggle room. Well, you don’t want to. Now you could say, okay, we’ll eat less food, or something like that, but that’s not the goal in retirement, you don’t want to go backwards. So the place typically we do make some adjustments in the cuts are in the nice to have categories.


Nick: Yeah, and usually it’s almost more of a toggle where even to a certain extent of, we’ve had conversations where, hey, if things are going really well in the markets and we’re able to take advantage and take a little extra money out in years where things have gone well, that’s kind of the impetus to do this sort of thing.


Mark: Kind of pad the numbers a little bit.

 

Nick: Yeah.


Mark: John, let me get you on here for, besides the expenses we covered, some of the things we went through, what are some contributing factors that will affect cashflow problems that you guys see in retirement? So all these different things, whether it’s healthcare, housing, whether it’s whatever, give me some bullet points here for folks to think about on things that can, not in a category per se, but like outside effectors, outside influencers, that can really cause us cashflow problems in retirement.


John: The number one I’d say, concern for most people going through retirement is longevity. How long does my money need to last?


Mark: And that’s the great multiplier, right? Because if you live longer, it makes everything else go up.


John: Correct. Yeah. So that’s one thing we look at, and we do plans. We’re planning for age 100, and we’ll always get people like, well, I’m not living that long. But the thing is, that’s always …


Mark: What if you do?


John: Exactly. So it’s like, Hey, listen, if you live to 100, guess what?


Mark: You’re covered.


John: Your plan looks good. You could live to 90 and the plan looks good. So we always plan for, we again, overestimate the expenses, overestimate the life expectancy,


Mark: And then you don’t have to live with your cousin in Boston, right?


John: Exactly. That’s right.


Mark: All right. What else besides longevity?


John: Another big one we’re seeing right now is inflation. Because with retirement, you’re not getting a paycheck anymore, so your ability to earn is now gone. So your nest egg is providing that income for you and social security. And keeping up with inflation, especially the last few years has been a challenge for quite a few people. And mostly I would say for me, I’ve noticed my food bill has gone up drastically in the last couple of years, more than anything else is really. Because we talked about musts and nice to have, if trips go up, you could say, all right, I’m going to go on a little bit lesser trip, or not go as much, but you know, you got to eat and you got to have healthcare. So those things there are big ones to really consider going into retirement and to be aware of, is the plan [inaudible 00:07:42]


Mark: Yeah, a friend of mine, for Memorial Day, we were talking about cookouts earlier, so we got July 4th, you’re probably hearing this after July 4th, but how much did it cost you to buy this stuff? So a friend of mine posted a picture around Memorial Day that he bought three steaks, and he lived in the New York area, Nick, actually. And the tag on the thing was like 60 bucks for three steaks. It was like, holy moly. And I know different parts of the country are more expensive than others, but it was just where I’m at, it was like, wow. And they weren’t like that impressive of a steak. So to your point, you got to eat.


Nick: To be honest with you, I think there’s a little bit of …


Mark: Price gouging.


Nick: … ridiculousness and price gouging going on right now from the perspective of a lot of different areas. I just got my six months notice on my car insurance, I’ve been complaining to everybody about it. One vehicle, no accidents [inaudible 00:08:34]


John: Wait, wait, wait, wait, wait, wait. Nick, this isn’t a therapy session, right?


Mark: Well remembered, well remembered, John, from the prior episode. Very good.


Nick: Yes. I drive probably 7,000 miles a year at the most and paying almost $2,500 a year for car insurance. But the crazy part is that, so okay, if it’s always been high, that’s one thing, but two years ago when I had switched companies, it was about 1,700. So again, we take …


Mark: Inflation.


Nick: Do the math on that. I’m sorry, but 50% is not inflation, there’s some 50% in two years and it’s kind of wild. And then even just going, the area that we’re in has been massive growth in this area, but even what the restaurants are charging, and it’s just inflation impacts different areas differently.


Mark: It’s an excuse. I mean, just like anything, we’ve turned it into excuse, just like the supply chain problem issue. A friend of mine was trying to get his RV worked on and they were like, well, we’re still having supply chain issues for a valve. And it’s like, really, a valve on an RV, it’s been three years. I don’t know if supply chain issue really holds in that argument, but if companies are dragging their feet or employers, somebody’s just taking long, that’s just an excuse. And I think that’s the same thing with the inflation. Is it real? Yes. But to your point, are some of these numbers really truly justified? But they can use that, well, inflation’s bad. That’s the excuse they use in order to hit you with a 50% increase.


Nick: Yeah, and I’d say from a planning perspective, because people get concerned about that from a planning perspective, and saying, well, hey, we had much higher inflation last year than we did in our plan moving forward, and [inaudible 00:10:27]


Mark: Are we going to be okay to survive it, yeah.


Nick: Yeah, and the easiest way that we mitigate that from a planning perspective is we reprice current expenses. So in other words, repricing the current expenses allows us to take that into consideration, the increases that we’ve had, and then use more normal rates moving forward, which is how you more accurately display that from a planning side of things.


Mark: Gotcha. All right, John, so you hit us with longevity and inflation as a couple of areas that can contribute to cashflow problems. Give me a couple more before we wrap up this week.


John: Investment returns is another spot, depending on what type of plan you do or type of planning, if some people will really have their income depend on what their portfolio is returning for them.


Mark: So we’re talking about sequence of return risk, kind of thing?


John: Yeah. So if you having a down year and there’s not as much income coming in from your portfolio, well that could ultimately affect your cashflow. Or if it’s a down year, and we go back to longevity of, Hey, how long is my portfolio going to last, just have a 20% dip in the market, you’re going to be a little concerned about pulling out in that period of time, because once you pull out, you know, you realize those losses, and there’s no more recovering [inaudible 00:11:41]


Mark: Yeah, it’s a double way, it’s the market’s down and you’re pulling money out. So the truth that makes the longevity factor interesting. Okay.


John: So one more thing on this. This is really important, and especially what we’re seeing in the last couple of years where you have some type of plan where if you are dependent on that, you have almost like a different bucket to pull from in a time like this. So you really want to position yourself to be able to adapt to downturns in the market which could affect your income.


Nick: One of the things, and I’ve been having this conversation quite a bit lately, is that previous to last year, for the dozen years leading up to that, rates in return on fixed or cash and cash equivalence was so low, you couldn’t get any return on that money, that really people shifted predominantly, or at least in a large way, to take more risks, meaning more upside, so more heavily on the [inaudible 00:12:39]


Mark: Well, because the market was going up too. We get addicted to that, so it’s very easy to go, well, it does nothing but climb, it’s done it for 12 years in a row, so let’s keep going, right?


Nick: Yeah. And a little bit of that’s a circle where it’s part of the reason it kept climbing, is because people were saying, well, and not just, but it’s just a contributing factor where it’s like, well, hey, I’m literally getting zero return here. So inflation’s eating away at my money anyways, I might as well take a little bit more risk. And so earlier this year in the majority of our client portfolios, we took some money off the table because now we can get four to 5% in something that has no risk, and that lets us kind of at least take a deep breath, see what’s going on, get some sort of return, where most of our plans, we use five to 6% in retirement anyways.


Mark: Yeah, that’s a good point. You just got to be careful, right? Because we don’t know how long those rates will last either, so you don’t want to lock yourself into anything too hefty either, without making sure it’s the correct move for you. Especially, I’m thinking more like CDs for example.


Nick: Yeah. We still target things that are short term, that sort of thing. But for a retiree, even from the perspective of, let’s just use the million dollar number, there’s a huge difference between five years ago, where if you wanted to do a one year CD and you could get 0.8%, that’s $8,000 on a million bucks versus 5%, even just for a year, now it’s 50,000 of income. I mean, one is you can’t pay your bills, another one is going to be much more comfortable. So for a retiree, one of the sunny side or glass half full part of what we’ve been dealing with from an inflation perspective, is that at least there’s a little bit more return on safer money as we try to re-plan and readjust.


Mark: Yeah. No, that makes sense. So one more category here that I want to hit for just cashflow problems in retirement, John, you did longevity inflation and investment returns. I’m going to assume the fourth one’s probably just the emergencies, the things that life throws at you in retirement years?


John: Yeah, a hundred percent. Emergency funds, it’s [inaudible 00:14:44]


Mark: Got to have one.


John: … for that, because you just don’t know what’s going to happen.


Mark: Murphy’s Law’s going to happen, right?


John: Murphy’s Law’s been happening for the last three years. So basically a big one is healthcare expenses, which we touched on as a must have. So big health event could really dip into your emergency funds. Or again, especially here in Florida with the roofs, have talked to some clients and friends who basically were having homeowners insurance issues here, and then carriers are basically saying, Hey, for you to get renewed, you need a new roof. And all of a sudden it’s like, what? I just go, my roof’s fine. It’s like, well, it’s outdated, you know, you need a new one, or else [inaudible 00:15:24]


Mark: And so they’re not covering maybe the full cost or some of the cost, I guess, but they won’t insure you.


John: I had some friends actually get notices saying, your roof’s too old. If you don’t replace it, we’re dropping coverage.


Mark: Oh geez. Okay, yeah.


John: So that’s an emergency expense.


Mark: Definitely.


John: Roofs aren’t necessarily cheap, so important to have an emergency fund because like you said, Murphy’s Law, you have no idea what’s going to come up and you want to be prepared for that.


Mark: Yeah. No, that’s a good point.


Nick: The roof thing is pretty wild here too, because a lot of people have tile roofs down here. And depending upon the size of the house, a tile roof is going to cost you, what John? Between 50 and a hundred thousand dollars?


John: Yeah, 50 to a hundred grand.


Mark: Really? Holy moly.


Nick: And so, yeah, and then if you’re in a neighborhood that has association rules and all these other things, it can get a little squirrely. So just understanding even little basic things like that, where especially people that came maybe from up north where it’s just shingle roofs and 10, 12 grand, 15 maybe, and then [inaudible 00:16:25]


Mark: Yeah, I was going to say, my metal roof was like 20, and that was like eight years ago.


Nick: Yeah. So there’s just things like that where we always very much emphasize having an emergency fund.


Mark: Yeah, definitely. All right, good stuff. Talking just cashflow issues, things to consider here on the podcast the last couple of weeks. So if you’re worried about the cashflow or you’re just worried about making sure your plan is accurate for the time of life you’re in, especially if you’re one of these folks that maybe got a plan, you’re like, ah, I got a plan put together like a decade ago, or whatever. Well, it’s not a set it and forget it, it shouldn’t be a set it and forget it, anyway. Even insurance policies, sometimes it’s very easy to get one and throw it in the drawer for 20 years and forget about it, but all those things can be looked at and reviewed and see if there’s a better way to put a strategy together. So if you need a first opinion or second opinion, reach out to John and Nick and the team at PFG Private Wealth. Find them online at pfgprivatewealth.com. That’s pfgprivatewealth.com. Don’t forget to subscribe to the podcast on Apple, Google, Spotify, whatever the case might be. Whichever podcasting platform app you like, just type in retirement planning redefine in the search box. Or again, find it all online, pfgprivatewealth.com. For John, Nick, I’m your host, Mark. We’ll catch you next time here on the podcast. This has been Retirement Planning Redefined.

Mastering Retirement Cash Flow (Part 1): Understanding Changing Expenses

On This Episode

In this episode, we’ll explore many of the expenses in your life that might drastically change (one way or another) in retirement. We’ll break those expenses down further to see which ones are the top priorities and analyze some of the other factors that impact your cash flow in retirement.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Marc: Welcome back to the podcast. It’s Retirement Planning-Redefined, with John and Nick here with me to talk investing, finance, retirement, and mastering retirement cashflow, part one, is going to be the topic today. We’re understanding just changing expenses. We’re going to break this into really a two-parter here, obviously, by calling it part one. And we’ll do a little more focus on some of the other things on the next session. But for today, I want to explore some of the expenses in life and how they just change as we’re moving some things … as we’re moving from working into retirement. And things you guys see with your clients and how you work through that process for them. So that’s the topic today. Let’s get into it. John, first of all, how are you doing, buddy?

 


John: I’m doing all right. Getting ready for the summertime here.

 


Marc: If it happens. I don’t know what’s going on in the south. I’m in North Carolina, and we’ve had one 90 degree day, and it’s almost July. Totally unusual for us, so it’s very, very weird.

 


Nick: Oh, it’s hot here.

 


Marc: Yeah. It’s like two states seem to be in a weird spot. I don’t know what’s going on with the middle of the south here. It’s very strange this year. But Nick, I heard you chime in. How are you, my friend?

 


Nick: Doing pretty good.

 


Marc: Yeah. So you guys are sweltering, is that what you’re saying?

 


Nick: It’s definitely hot, yeah.

 


Marc: Well, kick a little this way because I don’t know what’s going on. It should be warmer here than it has been. So, very weird.

 


Nick: Well, I’ll trade.

 


Marc: Okay. All right. Yeah. Like today, it’s … well, we’re getting a ton of rain. Today, taping this podcast, it’s 72 for the high, and tonight’s overnight low is 58. That doesn’t happen usually in North Carolina in late July or late June.

 


Nick: Yeah. That is pretty surprising. That’s cool for North Carolina.

 


Marc: Very, very weird. So I don’t know, Mother Nature is off her meds, I guess. But what can you do? So let’s get into this conversation, guys, about changing cash flow, before I keep going down that tangent. I’ve got a few parts here I want to run through. What are some of the expenses that might drastically change one way or the other, either to saving us money or to costing us more money? Whichever way you guys want to take this, whatever you’ve seen with your clients. But let’s start it off with housing. I think housing is probably the number one expense in retirement. Correct me if I’m wrong there, but what do you think?

 


Nick: Yeah. I would say for a lot of people that maintain a mortgage past retirement, it’s definitely a significant monthly expense. One thing that we are seeing here with the tick up in interest rates over the last 12 months, we had had conversations with multiple clients from 2018 through 2021 about taking advantage of low interest rates and keeping their mortgage and that sort of thing. And for a lot of people, that makes them feel uncomfortable. But to a person, everyone that we’ve talked to that has done that, now that rates are where they are, they’ve been pretty happy about that decision and being able to take advantage and lock in those low rates. But for those people that just naturally, with the schedule mortgage that they had, and ended up paying off the mortgage by the time they retired, that drop in expenses is usually a big help. I would say one thing that jumps out that’s a reminder that we use for people is … especially because the homeowner’s insurance market here has now gone completely insane. Taxes and insurance don’t go away. So I can’t tell you how many times we’ve had a conversation where maybe somebody had a mortgage that was $3,000 a month, and they’re like, well, once I retire, that 3,000 a month is going to go away. And we point out, well, hey, about half of that is. The rest of it’s for taxes and insurance. So sometimes that drop in expense isn’t quite as much as they thought it was going to be.

 


Marc: Gotcha. Yeah. And it’s easy to do, even with downsizing, because the market’s been high. So it’s not always just lowering things just to go to that downsizing piece. John, what’s your thoughts there?

 


John: Yeah, I would say the downsizing is a big part of it. Not only if you downsize, you might be able to get some equity out of your house there. So if you downsize, buy a two or $300,000 house, you get some cash that you could do something with. But then you start looking at smaller house, less homeowners insurance, less maintenance costs, things like that, it could really be a pretty significant savings. Especially, as Nick mentioned here, with homeowners insurance. I think mine went up like 60 or 70% in a year, which was … … I’ve heard a lot of people. At first, I thought it was just me. And then I talked to some clients, friends, family, and it seemed across the board that it just shot up.

 


Marc: That’s hefty.

 


Nick: Yeah, there’s a lot people that are falling between five and $10,000 a year now. For homeowners insurance down here, it’s gone just wild.

 


Marc: Well, I imagine the big hurricane added a lot to that, right? That’s probably part of it. From last year.

 


Nick: Yeah, yeah.

 


Marc: Yeah, for sure. Insurance companies are like, we got to recoup some money. How are we going to do that? 60% hikes. All right, no more work stuff. Category two on the changing in expenses. I think we probably assume for the most part that no more work stuff means we’re going to save a little bit of money.

 


John: Yeah. So this is something that when we do planning, we definitely hit on. We have different categories of current expenses and then retirement expenses, and then we actually go one further and we’re looking at advanced age expenses. But this is one where you’re not commuting anymore, or at least to work. So depending on what your commute was, you could be saving quite a bit on gas, car maintenance expenses, things like that. And then the big one, I know when Nick and I worked in West Shore, was the lunch expense. Where it’s like every time for lunch it’s like, all right, where are we going? A good excuse to get out of the office and just get a change of scenery, you find you’re going out to lunch every day. That does tend to add up quite a bit.

 


Marc: Oh, yeah. You can spend some dough that way, for sure. So I think in this category, we feel like … and this one I think maybe drives a lot of people feeling like, oh, I’m going to spend less money in retirement. Right, Nick? I mean, this is one of those things. Well, I’m not doing all those things now, so I’m going to be saving money. But you’re also doing more stuff because you don’t have to go to work, so you may not save as much as you think.

 


Nick: Yeah. I would also say too, that this post-COVID work from home shift has prepared a lot more people to have a better idea of the expenses that have changed. We do have a fair amount of clients that used to commute, and no longer do. And so they’ve gotten a peek into what that looks like. And people are creatures of habit. Inevitably, they develop new things that they do, and usually there’s other expenses that replace previous ones, but-

 


Marc: There’s always something, right?

 


Nick: Yeah. But oftentimes, there are reasonable reductions in some of those work-related expenses.

 


Marc: Okay. Let’s go to healthcare. This one here, this one to me seems like this is not going to be going into the positive. This is not going to be putting money back in our pocket. More than likely, this is going to cost us more.

 


Nick: Yeah. I mean, for a big chunk of people, especially if they work at a company that has pretty good health benefits, and maybe they haven’t had their kids on their plan for a while, so it’s just them and a spouse or them solo. Oftentimes, the shift to what we budget for post-age 65 Medicare-related premiums, oftentimes it goes up for people. So we typically budget about $4,000 a year, and we have a more aggressive inflation number that we use on that. Oftentimes, people come in less than that, especially with a high deductible plan, those sorts of things. I just had this conversation the other day with someone, where they were going to have a pretty substantial jump. And they had worked for the same company for a long time, didn’t realize-

 


Marc: You mean a jump in the premiums?

 


Nick: Yes. Yep. They had worked for the same company for a long time. It was big company and had really good health benefits, and premiums were going to go up. So it can be a little surprising that way. If it’s somebody that’s shifting more from the perspective of, kids recently got off their plan and they’re cutting back on … maybe went from a regular health plan to a high deductible, those sorts of things. It can be a drop. But honestly, I see it more neutral or go up than I see it go down.

 


Marc: Yeah, definitely. John, taxes, let me hit you with this one. This is a big misnomer that’s been around for years. That when we get to retirement, our taxes are just generally lower because we’re not getting a paycheck, we’re not making as much. But more times than not, eight out of 10 times people are not in a lower tax bracket.

 


John: No. Typically, they tend to be in the same, if not, maybe a little bit lower. Because what you’re really trying to do when you do planning is you want to keep the person’s income where it was while they were working.

 


Marc: Right. You’re trying to fill in the … you’re shortening the short shortfall. You’re pulling from our assets to make up the shortfall based on Social Security or if you have a pension or whatever those kinds of things are. So you’re trying to keep the numbers basically the same, correct?

 


John: Exactly, yeah. So we are trying to keep the numbers the same. And we find a lot of people … I would say we find the majority of people have most of their money in pre-tax accounts. So what you’ll find is when you’re pulling out of the pre-tax accounts, you’re paying taxes on it. So this is really important when it comes to planning, where you … and we harp on this constantly. It’s a matter of setting yourself up to adjust. So maybe if you have some tax-free money, some after-tax dollars in some other accounts, you can really try to eliminate … or not eliminate. But try to lower what your taxes are going into retirement. And I’ll say one thing that happens quite often with clients, and this is only maybe a year or two that we see in retirement, is they just have a couple of years of just massive expenses where … we just had someone that’s purchasing a second home and they need to pull out of their retirement account. And all of a sudden, it’s like in that given year, that’s going to be a big tax hit. Or it’s a health expense. Or I’ve had other ones where they want to do a remodel on their house and it’s like, well, I got to pull money out of my account. And everything is pre-taxed, so they really get … we see a significant increase in their taxes in those years.

 


Marc: Yeah. And that’s why we want to get tax efficient, if we can. And maybe that’s worth looking at, trying to maybe move some money so we don’t have that tax time bomb sitting there waiting on us. Some different things. And speaking of actually that, Nick, let’s go to the next one here because you can chime in, it fits well with that. Is one of the biggest things we’re doing is pumping money, hopefully, especially the last 10 years of working, into our retirement account. Maybe that 401K that John was just talking about. And therefore we’re growing those dollars. And that is an expense that goes away once we stop working, we’re no longer feeding that.

 


Nick: Yeah. That deferral is usually the lowest hanging fruit of expenses or cash flow going down.

 


Marc: Money back in our pocket, kind of thing, right?

 


Nick: Yeah, exactly. That outflow is usually the biggest drop, especially if it’s … if you’re talking a couple that is essentially, maybe they’re both maxing out or pretty close to maxing out, they’re saving around 25,000. That’s $50,000 a year. Granted, that’s the money that they’re used to living on anyways.

 


Marc: Yeah. Because we weren’t seeing that. When we’re working, it’s going straight to the paycheck … or straight to the 401, for example. But now that we’re not working, we also don’t have the paycheck. So to me, is it truly a savings or is it a wash, because you weren’t seeing it before either? You know what I mean?

 


Nick: Yeah. I think for a lot of people it’s a wash. Realistically, in the day-to-day setting and from a lifestyle perspective, it tends to be a bit of a wash.

 


Marc: Okay. Yeah.

 


Nick: Yeah, it’s more of an on-paper reduction, more than anything.

 


Marc: Makes sense.

 


Nick: And in theory, when you start … if you want to nitpick a little bit. The money that you defer into those plans, you still pay payroll taxes on it. So there’s a little bit of a savings there. So that’s something that can factor in. And one of the changes that fits in with both the tax and retirement things is a lot of times at that point in time, they’re no longer claiming kids. Maybe the mortgage is paid off. So from a deduction perspective, there’s also a change as well from the standpoint of what they’re able to deduct versus what they can deduct in retirement.

 


Marc: Okay. And so what we’re doing is we’re talking about these categories here on understanding how our expenses are going to change, whether it’s to the plus or to the minus. And then we’ll talk a little bit more later on about how that’s going to affect us in our overall expenses and some things to cover in ways to be more efficient in that. So let’s continue on with a couple more categories here and then we’ll wrap it up for this podcast. So we went through housing, work stuff, healthcare, taxes, the retirement savings account when we’re no longer feeding the 401 animal. John, so you mentioned earlier travel and leisure, when you were talking about there’s different things we’re going to spend money on. So if every Saturday is the day I spend the most money, well, guess what retirement is?

 


John: Every day seems like it’s a Saturday.

 


Marc: It’s a bunch of Saturdays, right?

 


John: Yep.

 


Marc: It’s Groundhog Day.

 


John: The more time you have, you find yourself trying to fill the gap of what to do. And we see a lot of people that are, if they’re like golfing, they tend to be golfing a little bit more. Or fishing or whatever it might be. I’ll see-

 


Marc: But that’s the point, right? That’s the point of retirement. It’s what we’re striving for. But I think the scary part is, is if we haven’t budgeted for how much we’re … the activity. That’s when we can maybe shortfall ourselves.

 


John: Exactly. Yeah. That’s where it’s important where you’re doing a cashflow analysis for retirement. Like I said, we typically look at retirement expenses. We’ll look at what the person does for hobbies and try to estimate, okay, this is what we can expect. And you always want to go over the amount, you never want to go under.

 


Marc: I was going to ask you that. Yeah. You want to-

 


John: Yeah, you always want to go over, because-

 


Marc: … inflate it a little bit.

 


John: Yeah, exactly. I’ll tell you this … and my wife doesn’t listen to the podcast. When she’s at home more, I start to notice my Amazon bill goes up and packages end up at the door. So when there’s a lot more downtime, you tend to say, okay, what’s out there? Oh, let me go run to the store. Let me go do this real quick. And all those things add up to just added expenses, which fine-

 


Marc: Yeah. Well, sitting on the computer or the phone, you’re just like, I’m bored, I’m not doing anything. Next thing you know, you’re on some sort of shopping site because you’re like, I was thinking about this or that, or a new set of golf clubs. Right, it’s easy to do.

 


John: Home projects because Pinterest is giving you all these different ideas that you should be doing with your home. So yeah, all those things are up.

 


Nick: All right, John. This is not a therapy session.

 


Marc: No, but I mean he’s right, though. I mean, it totally … and people do that.

 


John: So Marc, that’s coming from the single guy right now.

 


Marc: Right. Yeah, exactly. Yeah, I was thinking the same thing. And you mentioned, you were talking about projects, DIY projects or Pinterest. We’re right in the middle of rebuilding … I’m building a billiards room here next to my office for the pool table. And it’s just, scope-creep has taken over. It’s like, oh, I can … I factored in the budget. I’m like, I could do it for this amount of money. And I’m way over budget. And that’s, again, if you’re retired … I’m still working. But if I was retired, that could be a real problem. If I let scope-creep get in there and I’m spending 25% more than I budgeted for this project, that could be an issue. So you want to make sure that you are inflating it, to your point. Puff those numbers up a little bit, just to be on the safe side.

 


Nick: Oh yeah, big time. I don’t think I’ve seen anybody come in under budget on anything in the last three years.

 


Marc: Yeah. And that’s with professionals, let alone doing it yourself, right?

 


Nick: For sure.

 


Marc: Okay. So that’s travel and leisure. So the last one here, last category, insurance. Many people, guys, walk into retirement saying, well, I don’t need insurance anymore. That’s also that old standard, as far as the financial services world. Well, who needs … why do you need insurance if your kids are grown and you don’t have to replace your income because you’re not worried about sending them to school. Or all that kind of stuff that you guys have heard probably a million times.

 


Nick: Yeah. So we’ll see … one of the most common insurances that go away, whether it’s at retirement or early in retirement, is life insurance. So we obviously emphasize the fact that a death early on in retirement is the bigger risk, especially if there’s outstanding debt, those sorts of things, versus later on in retirement. So sometimes we’ll have people that, maybe they’ve got three to five years left on their term policy and the premiums aren’t prohibitive. And we’ll just them keep the coverage because there’s still a mortgage, or just that additional money if something were to happen would be a big boost to the surviving spouse. But disability definitely goes away because disability insurance, by definition ensures your ability to work. So if you’re not working, then you’re not insuring anything. So that’s something that drops. And then some of these supplemental policies that maybe were provided by the employer, aren’t portable and you can’t take them with you anyway. So some of those things will drop off. So that’s definitely something that can be adjusted and adapted to reduce some of the costs.

 


Marc: Well, I think for every situation, insurance is one of those questions, John, that goes either way. Some people may not, when you guys are developing and looking through the plan, maybe insurance isn’t needed. But then again, maybe it is. Or maybe they’re using an insurance policy for the cash value policy side of things or whatever. So this one is one I think could go either direction.

 


John: It definitely could go either way, it really depends on the individual. And like we were just talking about here, each person, whatever is important to them will dictate whether your insurance is going to be going up or down. That’s really what it comes down to is, each individual, what they value and what they want to protect with insurance and what they’re … oh, okay. I’m okay without it.

 


Marc: Well, and that’s a good way to think about what we’re going to get into for the next podcast, is really assessing must-haves, nice-to-haves, things of that nature. And then how other aspects in the financial services world could affect those categories we just ran down. So we’re going to wrap it up this week. So again, these are just the expenses categories, and some major ones here to think about how they may change to the plus or to the minus with our cash flow in retirement. And we’ll be back next week with the second half of this conversation. So do yourself a favor, if you haven’t done so yet. Reach out to the team if you don’t have a strategy or a plan in place, and get started with a consultation and a conversation for yourself. You can find the guys at pfgprivatewealth.com. That’s pfgprivatewealth.com, where you can get started today on a strategy for yourself. Reach out to John and Nick there. And guys, thanks for hanging out. I’ll see you next week … well, in two weeks on the podcast. Nick, have a good one.

 


Nick: See you.

 


Marc: All right, John. Thanks, buddy.

 


John: Sure.

 


Marc: And I’ll catch you later. We’ll see you guys here on retirement Planning-Redefined, with John and Nick.

Ep 60: Top Social Security Myths, Part 2

On This Episode

This is part 2 of our Social Security conversation. We will be debunking the remaining 5 myths on today’s show.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Marc: Back for another edition of the podcast. This is Retirement Planning redefined with John and Nick from PFG Private Wealth, serving folks all around the area here. So reach out to them on the podcast, pfgprivatewealth.com is where you can find them online for a lot of good tools, tips, and resources. You can subscribe to the podcast, book some time with the team, all sorts of good stuff. Again, stop by the website if you’re not already working with them at pfgprivatewealth.com. And if you haven’t subscribed to the podcast, consider doing so while you’re there. We’re on Apple, Google, Spotify, and all that good stuff. So you can check that out. And this week we’re going to follow up with the second half of our social security myths. We did the first five on the prior episode. You don’t have to have listened to that one to listen to this one, but it certainly isn’t a bad idea to go back and check that one out. So that one came out a little bit earlier in April. So we’re going to drop this one here and get into the second half of this, the next five myths. Guys, you doing all right this week, John? How are you buddy?

 


John: I’m doing good, having a little contract work done at the house, which is, as you know Mark is –

 


Marc: Challenging.

 


John: I’m dealing with that. It’s always a challenge and fun.

 


Marc: That’s right.

 


John: Looking forward to the project being complete.

 


Marc: Yes, we need more contractors, we need more people who are in the trade services. That is for sure as there is a major shortage all across the country, really I think globally actually as well. But Nick, what’s going on with you bud?

 


Nick: Staying busy for sure.

 


Marc: Spring is here and the weather’s nice. That’s always good.

 


Nick: Yeah. Although it has been warmer here than I feel like typical this time of year.

 


Marc: Could be a hot summer then.

 


Nick: Yeah. So hopefully it cools down just a little bit for the next month so we can enjoy the end of spring.

 


Marc: Have an actual spring, not skip it.

 


Nick: Yeah, that’s all I’m asking for.

 


Marc: There you go. Well, let’s jump into some myths here and see if we can help some folks out with some more of these. Again, we did the first five, which are kind of the big five I think that many people hear often, but I’ve got some other unique ones as well. So these might appeal to some folks who are thinking about social security or getting close to that age and are wondering about some of these things that they’ve heard maybe online or on the news or whatever. So let’s jump in, talk about a few things guys. Myth number six, out of the total 10 we were doing, you can’t work and receive social security benefits at the same time. I think this myth revolves around the fact that if this applies to people who take it early, because there are some limitations. So Nick, why don’t you break this one down a little bit?

 


Nick: Yeah, just like everything else, the devil’s in the details. So essentially the way that SSA, Social Security Administration, looks at this is kind of from a tiered perspective. So they break it down in essentially three sections. So from when you’re first eligible which is 62 up through essentially before the year that you reach full retirement age, and then the year that you reach full retirement age has its own section, and then the period of time after your full retirement age. So as an example to bring that all together and make it make sense, you can have income while collecting social security before your full retirement age, but there is a limit. That limit is about $21,000, little over $21,000. And for every $2 that you make over that amount, you have a $1 reduction or penalty on your social security.

 


Marc: So almost like part-time, you could do part-time work if you took it early, so to speak, right?

 


Nick: Yeah. And a lot of times that’s kind of the ticket for some people is to work part-time, keep them busy, help them transition into retirement, and to help prevent them from having to dig into their nest egg. They might file and collect social security and those numbers kind of balance out, they have income less than the amount that would cause a penalty, and so it works out for them. In the year that you reach your full retirement age, that amount goes up to about 56,000. So essentially what they’re saying is we understand that birthdays range and that from a calendar perspective it can get a little bit tricky. So they say that you can collect your benefit and earn up to the 56,000 without any sort of penalty. Once you’ve reached your full retirement age, there’s no income limit at all. So you can do a full double dip per se in that scenario.

 


Marc: Yeah I mean if you make $1,000,000 a year and you’re 69 years old, that’s fine, right? Let it rip.

 


Nick: Yeah. What you’re giving up per se is the 8% increase per year on the social security benefit. So there is some sort of give up, but whether or not that has a big impact depends on somebody’s situation.

 


Marc: If you’re waiting till the 70, right?

 


Nick: Correct. Yeah. If you’re to wait until 70. So some scenarios that we see this work out really well are somebody hits their full retirement age, they plan on continuing to work, but maybe the mortgage isn’t paid off, so they’d like to turn on the social security with the goal of, when they retire at 70, these social security payments that are coming in, will go directly towards paying down the mortgage and they can retire without having a mortgage. Or maybe they’re behind on their retirement funds. And so they want to make sure that they can really maximize retirement savings, so they’ll collect and save it or just put the money away. So it’s like, I’m going to take this benefit, but instead of just spending it, I’m going to go ahead and save it and then I’ve had people say, this is going to be my vacation fund for our first five years of retirement. We’re going to save as much as we can, and then we’ll use that to pay for our vacations for those first five years where we’re most active in retirement, that sort of thing. So you can get strategic, but that’s kind of the breakdown of how it actually works.

 


Marc: Yeah and John, I think for many people that that’s where that confusion comes in, like my brother, for example, he’s already 65, but he is retiring before full retirement age, so he has to wait, so he can work part-time make up to that limit that Nick was just describing. But I think that’s where the confusion comes in. At least that’s what I’ve seen from my perspective. How about you?

 


John: Yeah, I’d agree with that. A lot of people confuse 65 Medicare eligible age to full retirement age and social security, so I’d agree with that. Something else that people typically miss with this or maybe just don’t fully understand is that this is based on the individual’s earned income, not household. So I’ve seen some scenarios where someone was thinking about drawing social security, they were retired, the other spouse was not, and I said, well, I can’t draw yet because our income is higher and our household income is much higher. It’s not based on household income, it’s based on the individual’s earned income.

 


Marc: Yeah, good point. All right, so that was myth number six. Myth number seven, I don’t think I’ve really heard this one before. Social security benefits are only for US citizens. This seems kind of like a no-brainer. That’s basically the case, wouldn’t it be?

 


John: Yeah this is definitely a myth, it doesn’t come down to whether you’re a citizen or not, it comes down to have you met the requirements to be eligible.

 


Marc: Okay, which is that 10 years, 40 quarters thing.

 


John: Yeah, 10 years, the 40 quarters there, and once you hit those, you are eligible for social security.

 


Marc: I wonder if some of this is for folks who retire abroad, so there’s some confusion there, because I even thought about it myself. My wife and I were joking. We were going to retire and live in Aruba part-time, and I asked myself, I wonder if you live in Aruba, can you still collect social security benefits? And I think if you have dual citizenship, I think you still have to maintain citizenship is my understanding. But it’s certainly something that you can have a conversation. That’s some of the questions that might make more sense when you’re going to the social security office versus saying, Hey, when should I turn it on? They’re probably better equipped to answer questions like that than they are answer questions about when’s the best time for you to activate it.

 


Nick: Yeah. One example that goes in with that too is you’ll have people that are considered permanent resident alien. So I can even give an example where in my family, my grandparents came from Cuba. My grandfather work was a professor at State University, and he spoke English and Spanish, but my grandmother had different issues and she never fully spoke English, so she never was able to do the citizen test, that sort of thing. But my grandfather was here his whole adult life and paid into social security, and so she was eligible for a benefit as a spouse and she has permanent resident alien status. So there’s different things like that that kind of come into play.

 


Marc: Yeah certain non-citizens then.

 


Nick: For sure.

 


Marc: Yeah. That’s cool. That’s a great example. Thanks for sharing that. All right, so myth number eight. This one is interesting, and I don’t know if this is state by state or why this myth is around, but see what you think about this one. If you have a pension, you’re not eligible for social security benefits. This just seems weird to me. I don’t think that one precludes the other.

 


Nick: Yeah, so I can kind of explain this as well. So what some states used to do with their pension system, and a lot of times it was, again, in certain states or even certain kind of counties or municipalities in certain states, they would allow, or their structure would be, instead of the person who was working for them paying into social security, they would pay into the pension. And so it was both they and the employer were paying into the pension system in lieu of paying into social security. And there’s a clause for this, what would happen. I know I for sure had some people in Illinois that dealt with this. And so because of that issue, there was this calculation that would offset the amount that they were eligible for social security. And so where people got in trouble would be sometimes what people would do is they would say, I’ll use a teacher for an example. So this whole program is called the windfall provision. And so what they would do was, so say a teacher, they knew that they weren’t going to be eligible for social security because of the way that their pension was structured, so they might work a summer job so that they could start to build in their 40 quarters and be eligible for social security, but they didn’t realize that there was an offset with how this worked. So the windfall provision, or it’s called windfall elimination provision, is something where if this sounds familiar, it’s something that you want to look into. And it was because the main part wasn’t paying into the social security, but unfortunately when they would get the scenario with the second job or something like that, that’s where it would almost penalize them because they would subtract the amount that’s coming from the pension out of the amount that they’d be eligible for social security.

 


Marc: Interesting. Okay. So the windfall provision, interesting. All right. John, any thoughts on that one?

 


John: No, run into the same scenario in Massachusetts where I’ve had some clients up there that have paid into the pension system up there, and basically they got reduction of social security benefits.

 


Marc: So it sounds like it doesn’t preclude you, it just may alter benefits.

 


John: There’s different situations.

 


Nick: Significantly. Yeah.

 


Marc: Okay. Good to know. Interesting. You never know sometimes, there’s always some sort of kernel to these things which kind of gets distorted and pulled out. So again, if you’ve got questions around this, and especially if you’re on a pension, you may want to certainly talk with your financial professional about that. And John and Nick are here to do so. So again, reach out to them at pfgprivatewealth.com. All right. Good stuff. Let’s do myth number nine. Social security benefits, John, are based on your income and assets. This one’s an interesting one, I think because I guess the confusion of thinking, if you have a, I don’t know, whatever your salary is, but then if you have a $5 million home, it’s somehow different than someone who has a million dollar home.

 


John: Yeah, that’s not the case. I mean, it is based on your earnings, which I guess some people could say, well, is that my income? And we’re going to talk about this later, it’s based on your highest 35 years of earnings.

 


Marc: But it’s not means tested, at least not now, not yet anyway.

 


John: Not means tested, but I’m glad you mentioned that. That is something that has been discussed as doing some means testing to basically help the program out where let’s say if you’re above a certain income or asset level where they start to reduce your social security benefit.

 


Marc: I mean, could you see Elon Musk ever needing or Oprah Winfrey ever needing social security? but technically they’re eligible, right?

 


Nick: With the means testing, that’s a tricky thing because the way that it goes kind of hand in hand is that people that exceed the cap, which I think right now is around 150,000, something like that in income, they no longer pay into social security. So there’s almost like a built in kind of means testing.

 


Marc: But doesn’t that have a donut hole, Nick, where it kicks back in again after a certain higher amount, you start paying again after $400,000 or something?

 


Nick: They’re discussing that, but not currently for social security. And it’s that way for Medicare, so for example, the Medicare portion of the tax is in perpetuity, and then there’s an additional amount over a certain amount of income. So what could be interesting is almost giving people an option of, and again, this is just speculation, but hey, you have the option to over this cap, you can continue to pay social security or have a means test later on when you retire. That’s something that could be interesting, almost like one or the other, or just remove the cap completely and then just have a maximum amount that could be paid out. So going back to what we had talked about in the other session, there’s definitely a way to figure this out, but somebody’s got to have the guts to do it.

 


Marc: Well for us, regular folk, I guess. So to John’s point, it’s not really based on those things. Not exactly anyway, it’s more based on your work history and your salary through the years, right?

 


John: Yeah. How many years you’ve paid into it and what those numbers were.

 


Marc: And so that just walks us into the number 10 here. So we’ll do that one. John, I’ll let you start with it then. So your social security benefits are based on your last jobs salary. And you kind of alluded to it, it’s really based on the highest 30 years, correct?

 


John: 35 years of earnings.

 


Marc: Sometimes I hear advisors say, hey, make sure you go to ssa.gov and take a look and make sure that your numbers are being reported correctly. Heard a lot of this during COVID, especially for folks who may have been laid off or things are kind of wonky to make sure those numbers do get reported correctly because that kind of thing can make an impact. And if you think about your highest earning years, John, many of us, that’s going to be between the ages of 40 and 60 or 45 and 65. So you want to make sure those numbers are correct.

 


John: Yeah, typically those are the highest earning years, and it’s always good to do a checkup every two or three years, especially after you’re hitting the 40-50 mark you really want to take a look at what did they put in there for me last year? I’d say more often than not, it’s accurate. If there are any issues, sometimes we’ll see them with someone that’s self-employed, so this comes always to the person that is self-employed and I don’t want to say determine their W2 income. It’s kind of like, how much income do you want to show for social security when you’re talking to your accountant? But that could be a negative if you’re doing some accountant stuff and showing lower income.

 


Marc: It could bother you for your earnings later, for your social security draw later on. I think about the highest 35 years when you’re talking about that, you could hear someone saying, well, I don’t remember what I made at Wendy’s when I was 16, 40 years ago. That one probably gets dropped off. So the idea of being the highest, again, 35 years versus maybe that first job way back when.

 


Nick: Just to kind of add to that context, because that social security cap has continued to go up over time with inflation it’s the highest 35 years in relation to the cap. So that’s something to understand because effectively your income income today, let’s say in theory, for example, $100,000 today compared to $75,000 20 years ago, that 75 may actually be a higher percentage compared to the cap. So there’s a little bit of nuance in there, but that’s just in general, that’s how it works.

 


Marc: Okay. All right. Well, some good stuff. John, any other thoughts as we wrap up this podcast on Social Security myths? Anything else you’d like to chime in with?

 


John: No I think we’ve hit all the points. I think we’re good. I think we did a good job debunking all these myths.

 


Marc: Certainly some good stuff in there. I think there’s a few things that might catch people by surprise. Nick, anything else before we go?

 


Nick: No, just the additional emphasis that it is a complicated decision and the good part of that is that there’s usually strategy involved and that you can do things to improve the overall planning for yourself. So just like a lot of things, the gift and the curse per se, but we’d rather have people have the ability to be able to adapt their decision making process to help make this a decision that improves their overall situation than be forced to do just the same old thing.

 


Marc: I like on the prior episode we were talking, John said that you guys can break things down a couple of ways. You can look at social security in a vacuum, but then also look at it as it applies to everything else that you have going on from a retirement standpoint. And I think that’s going to be a real advantage when folks are trying to sit down and figure out the best ways to handle something that can be actually a lot of money. I mean, social security could be a lot of income, total dollars applied to your retirement nest egg. So you certainly want to make sure you’re getting it right, and that’s what the team can help you with. So again, if you got some questions, need some help. As always, we appreciate the time on the podcast, but don’t forget to subscribe to them. And so you can catch new episodes and check out past episodes. But also just in case you need some help, stop by the website and schedule some time. Have a conversation with John, Nick and the whole team there at PFG Private Wealth. Find them online at pfgprivatewealth.com. That’s pfgprivatewealth.com to get started today. A lot of good tools, tips, and resources. And of course you can also, again, find the podcast and subscribe there on the website as well. Find us on Apple, Google, Spotify, under Retirement Planning Redefined. Guys, thanks for hanging out. As always. I appreciate your time. I’ll sign off for us. But for John and Nick, I’m your host, Mark. We’ll catch you next time here on Retirement Planning Redefined.