Ep 9: Social Security, Part 3

On This Episode

This is part 3 of our social security conversation. This week we talk about what aspects you should consider before you decide to start taking social security. Everybody’s situation is different, but this may help you get a better idea on when you should start reaping your benefits.

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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:

Speaker 1: Thanks for tuning in to a another edition of the Retirement Planning – Redefined Podcast. As always, I’m here with John and Nick, Financial Advisors at PFG Private Wealth. Nick, what’s going on buddy? How are you this week?

Nick: Doing pretty well. How about yourself?

Speaker 1: I’m hanging in there, not doing too bad. Are you guys still sweltering down there? We are here in North Carolina. It’s been pretty dang hot the last few days, and it’s in October, so we’ll see how this plays out. You guys still burning up?

John: Yeah, we had two days of a little less humidity.

Speaker 1: Uh-huh (affirmative).

John: And then it just came right back.

Nick: Yeah, yeah, the humidity dropped off and it kind of was a little bit of a tease like taking the dog out in the morning. It was like, “Okay, this is not bad.” Especially even in the shade during the day. But came back with a vengeance the last few days. So hopefully we kind of get back to the… The heat, I don’t mind as much as the humidity, but winters.

Speaker 1: Yeah. When you got to use a butter knife to cut the air, because it’s so thick with moisture and whatnot. Now that was Nick’s voice. The other voice is John’s. John, how you doing buddy?

John: Great.

Speaker 1: Hey, well that’s good. Oh great. I like that. Well, very good. Well good. Then you’re going to be ready to roll on this conversation. It’s part three of our ongoing chat about social security. And we covered a few things the past couple of weeks. If you’ve been listening to us, we talked some mechanics, we’ve talked taxation, we’ve talked funding, some overviews of some of those things there. And if you did not listen, well go sign up at the website. It doesn’t cost you anything to subscribe to the podcast. So go to pfgprivatewealth.com, that’s pfgprivatewealth.com. That’s their webpage. You’ll be able to find lots of things about the team, as well as the podcast. And subscribe to that on Google or Apple or whatever you’d like.

Speaker 1: You can also just call them if you ever have questions, or get tripped up and you want to have a conversation. And you should before you take any action. You should always check with a qualified professional like John and Nick. They are financial advisors. (813)286-7776 is the number to reach them at. (813)286-7776. But again, we’re talking social security. We covered a lot of those things. So now let’s talk strategy a little bit, gents. Big question that always pops up, and that’s usually number one for most people is when should we apply for benefits?

Nick: Yeah, so this is always a good one. My dad actually just hit his official social security birthday. He just turned 62, and of course the thing that he wants to do the most more than anything in the world, is start taking income.

Speaker 1: Turn it on. Right?

Nick: And so the first question that we have to anybody that hits 62, and is interested in potentially starting to take their income is, “Do you have any other earned income?” So the social security system is set up where if you have earned income, so earned income specifically on an individual basis, then there is an earnings test on how much you’re making. And if you decide you want to take your social security benefit, whether or not there’s going to be a reduction. So what we mean that is again, using my dad as an example, he’s a retired fireman, he has a small business, so he has some income from the business, but he has a pension.

Nick: So pension income does not count towards this income test. It’s only the earned income that he gets from his business. At the same time, the income that my mom makes as a nurse, does not count towards his test for his social security. So understanding that it’s based upon an individual’s income, and that it’s an individual’s earned income, that limit is about $18,000, 18 to $19,000. It changes a year-to-year and it’s been inflating up.

Nick: So for every dollar that you earn above that amount, they start to reduce your social security benefit by 50 cents. So it’s about a 50% reduction. So what we’ll tell people is, a lot of these other factors start to come into play on whether or not they need the money, what they’re going to do with the money. And we’ll kind of get into some of those details a little bit more. But understanding that there is a penalty, or a reduction in the benefit that you receive if you take it before your full retirement age. And understanding how they calculate that’s really, really important.

Nick: So a really basic example is, if we say that somebody is going to earn $24,000 of income, so they’re going to be about 5,000 over the limit, and there’s going to be a reduction in their social security. That reduction isn’t nearly as bad as somebody that’s maybe earning 40,000, where they’re almost going to zero out their social security benefits. And since they took it early, there is a permanent reduction anyways. So it does become kind of a more complicated response and an answer, but it does help to get people thinking and understanding and kind of strategizing on what makes the most sense for them.

John: So to jump in here, in the year you reach your full retirement age actually that penalty goes away. So basically, let’s say your full retirement age is 67, and you turn 67 in June, once you hit your birthday, you can earn as much as you want. And from that point moving forward, there’s no penalty on any earned income for that individual. And kind of back to what Nick was saying, very important that people do understand that it’s based on the individual’s income and not household. Because I have run into some scenarios where some clients previous to us got some bad advice, and they actually did not take the social security, because an advisor told them it was based on household income. So there was a couple of years that they wanted to take it and they didn’t, because they got bad advice.

Speaker 1: Yeah, that’s not good. So yeah, you want to make sure-

John: No, that’s why Nick kind of stressed that.

Speaker 1: Okay, so let’s talk about 62 as a magic number, first. If you go as soon as you can, Nick, you mentioned your dad. A lot of people do that. They’re like, “I’m going to run right down and turn it on as soon as I can.” That might be the right decision for you, but it may not, because you could be looking at a reduction in your benefit. Correct?

John: Yeah. So I’ll use my parents’ example here.

Speaker 1: Oh go for it.

John: So once they hit 62 they were done. They were done working, they wanted to retire. And we had the conversation of whether they should take it or not. And we decided that it was best for them to go ahead and take it at 62. So the negative to that is you do get a reduction of benefit, which could be anywhere from 70 to 75%, which was okay for them, because they actually had some pension income.

John: So when we were doing their plan, we looked at it and said, “Hey, we’re going to take a little bit of a hit in your guaranteed income from social security.” But they had some pension income, which helped out, which is why we kind of decided for them that it was okay to take. And again, everyone’s situation’s different, but just understand that when you do take at 62, you get a reduction of benefit, and that reduction of benefit is permanent.

Nick: So then kind of going from there, that range between 62, which is when you’re first eligible, up to your full retirement age, which is actually determined by the year that you were born. So for somebody that’s in their early sixties now, their full retirement age is most likely 66. For somebody that might be in the thirties and forties, it’s 67 or later.

Nick: But once you hit that full retirement age and your statement that you receive on an annual basis, or when you log in to see it, it does tell you, that’s kind of the point at which you can receive your full benefit amount. There are no earnings tests anymore, there are way less rules, is kind of the easiest way to think about it. However, let’s say that your situation allows you, maybe you have a younger spouse, and your younger spouse is still continuing to work. Their income still is enough to support the household and you don’t need additional income. You can let your benefit continue to grow, and it grows by 8% simple interest. And that number caps out at age 70.

Nick: So once you get to age 70, there is absolutely no point in waiting any longer, because your benefit does not grow at all. So an important thing to kind of take into consideration as far as that goes, is we’re going to have a separate session on spousal benefits and widow benefits. However, spousal benefits do not grow with those 8% increases. Spousal benefits do maximize at the full retirement age. So again, we’ll kind of get into more detail on that a little bit later on. But just wanted to make sure that we took that into consideration. And one of the most common questions that we’ll get, “Should I take it at 62 should I take it up for retirement age? What about in-between?”

Nick: So there isn’t a hard difference between 62 and full retirement age. The benefit will continue to increase. So we’ve used my dad as an example a few times. So although he just turned 62, we looked out over the next year, and we realized that the need to take the benefit this year didn’t necessarily make a whole lot of sense, but we’re going to revisit it next year. So this is something that you can kind of reevaluate on a year-by-year basis, or really even a month-by-month basis. Essentially what happens is that benefit grows by about a half percent per month. So that can does continue to grow. So it’s not like if you wait between 62 and 63 you’ve been penalized or anything like that. It is something that does continue to grow.

Speaker 1: Yeah.

John: So one of the main questions that we get when deciding is really the break even point. So deciding, “Hey, if I take at 62, I’ll have this amount of money versus full retirement age.” And the break even is usually mid to late seventies, let’s just say 76 to 77 years old. Looking at it in a vacuum, without any other parts, that’s when people determine, “Hey, if I waited until 60, my full retirement age, once I hit 77 it would’ve been better to wait for that.”

John: But one thing to consider is that, just looking at a vacuum, really we’re missing a lot of key points here. So a reason to take at 62 could be health. So as far as, I’ll use myself as an example, because I’m currently injured with my back. But in my twenties, I could do a lot more than I can in my thirties. So someone might want to take it at 62, so they can enjoy between 62 and 75, and have more money to go on vacation. So those are things that you really need to consider besides the break even point.

Nick: Yeah, I would say from a strictly planning standpoint. So if we take out some of the lifestyle decisions that factor into this, if we take a look at it from the standpoint of strictly finances, there tends to be, dependent upon people’s situation, there tends to be kind of a magic number for the nest egg. So in other words, dependent upon how much people need to take out of their nest egg, if waiting on social security forces somebody to take an unreasonable or an unsustainable, which are all right from their nest egg, we’re probably going to go ahead and have them take the social security.

Nick: Because maintaining that nest egg for as long as possible is really important. And if that number isn’t there, if they just for whatever reason haven’t been able to save, or get to that number that’s right for their specific situation, a lot of times taking that social security is going to alleviate the pressure on the nest egg. It’s going to help us sustain through maybe some negative points of the market, and allow them to live the lifestyle that they want to live in that early five to eight year first portion of retirement. So that’s a huge driver from a financial standpoint, to kind of make the overall plan work.

Nick: Things like life expectancy come into play, although that can be a little bit tricky from, we’ll kind of refer to that as the crystal ball planning. Where we try to plan for a long period of time not maybe what happened with your parents or things like that. So there are a lot of different factors but that helps kind of bullet point some of the key things to consider when trying to decide on when to apply.

John: Yeah, no I just kind of jumped in with something that just popped into my head about something to consider where, client situation, where they had a really good strong social security benefit and pensions, but they really didn’t have a lot of liquidity. So not a lot of assets.

John: So strategy that we’re using for them, is we’re actually taking the social security once they hit the full retirement age, because they are still working. And instead of letting that benefit build up, we’re actually saving that into some type of retirement plan. So when they do fully retire, in this situation it’s age 70, they’ll actually have some type of nest egg that isn’t just income. It’s actually a nest egg they can pull on. So we are taking the benefit, full retirement age, but we’re actually saving it to provide some liquidity in retirement.

Nick: Yeah. And so maybe a real world example of that is we work with a decent amount of local faculty at some of the local universities, and their plans have structures where they can save money into the different retirement plans. So in that scenario, maybe they have a pension, they’re going to have a good pension when they retire, they have social security benefits. It’s going to cover their expenses. But because of those things they save, let’s just call it maybe like $200,000 into their nest egg.

Nick: So what we can do is turn on that social security, and bump up the savings that they’re putting into their 403(b), or some other sort of employer-based retirement account, offset the taxes from an income tax standpoint as they’re taking that. Because again, going back, that benefit’s going to be taxable or at least includable in their taxes, offset that, build that up, try to really bump up their nest egg by another hundred, hundred plus thousand dollars a year. And give them a little bit more peace of mind when they retire.

Speaker 1: Well, really, really good information here on this podcast edition of Retirement Planning – Redefined. We’ve been talking about really kind of the strategy of taking social security. This is part three of our ongoing series of social security. When should you apply for benefits? A lot of good information covered. The great thing about a podcast is if you’re going through and you’re listening to it and you didn’t quite catch it, or you’re not quite following, you can always back up and listen to it again. Unlike a radio show or something where you just kind of catch it in passing. And especially easier if you subscribe to them.

Speaker 1: So make sure you go ahead and subscribe to the podcast at pfgprivatewealth.com. That is pfgprivatewealth.com. But if social security is tripping you up, do not feel alone. It definitely can be that way for a lot of folks. Reach out and call John and Nick and have a conversation with them. Get yourself on the calendar at (813)286-7776. That’s their number if you’d like to reach out to them. (813)286-7776, serving you here in the Tampa Bay Area, at PFG Private Wealth, where John and Nick are financial advisors.

Speaker 1: And with that we’re going to say goodbye this week for the podcast. Tune in next time, when we’re going to continue on with social security, and talk about spousal and widow benefits in part four of our ongoing social security series here on Retirement Planning – Redefined with John and Nick, financial advisors at PFG Private Wealth. Boys, I’ll see you next time. Thanks so much for being here and for everybody listening we’ll talk to you next time here on the podcast.

Ep 8: Social Security, Part 2

On This Episode

We continue our discussion on social security this week. Today’s show will focus on how you can integrate social security in your retirement plan and some variables you may need to look out for when doing so.

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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:

Speaker 1: Thanks for coming back in with us. As we talk here on retirement planning redefined, we always appreciate you joining us here on the podcast. With John and Nick, financial advisors at PFG Private Wealth, and we’re going to continue our multi-part series on social security. We talked about a few things last go around on the podcast, and we’re going to continue that on this time as well. John, how you doing buddy? How’s things going?

John: I’m doing good. How are you doing?

Speaker 1: I’m hanging in there. Doing pretty well. I think I’m doing about the same as Nick. At the time as podcast, our teams did not fare well this past weekend in football. How are you doing, Nick?

Nick: Good. While we lost, I’m still cautiously optimistic.

Speaker 1: Yeah, that’s right. That’s good.

Nick: I’m okay.

Speaker 1: That’s how fans do it, right? You still stay optimistic even when they break your heart over and over. We’ll save that for another time, but I do want to continue on our conversation about social security. We had some good chat the last time. We has some good conversation about things to consider, so we’re going to continue this piece on. As we teased the last time, and if you didn’t listen to it, make sure you go and check out the prior episode. You can go to PFGPrivateWealth.com. That is PFGPrivateWealth.com, and you can subscribe to the podcast, Retirement Planning Redefined, you can subscribe to that and listen to past episodes as well as future episodes. Let’s get into this part. We’re going to talk about how to integrate, really, social security into your retirement plan. So what’s a few steps to start and start thinking about when it comes to the integration of it?

John: Yeah, you know, one thing we wanted to touch on with social security is just how important it is in someone’s retirement plan. A lot of people don’t realize it really equates to almost 30 to 40% of their retirement income, and a big factor of why it’s important, it’s actually inflation protected. On average, historically, social security is average about 2.6%. So it’s really nice to have a set of income that’s actually going to be going up with cost of living adjustments. It makes a big difference.

John: Just kind of give a quick example. Let’s say if you’re starting social security now, it’s $2,000 per month. Within 20 years at 2.6%, that’ll be about $3,340 or so, which is a big jump in income. It’s important to understand how valuable that is in how much that really does help out someone’s retirement plan.

Speaker 1: All right, so let’s talk about some taxation and some benefits there. Nick, what are some things to think about when it comes to the benefits of the taxation?

Nick: From the standpoint of I guess making sure that people understand how social security works. From conversations that we’ve had, a lot of people are under the impression that because social security was funded via the payroll taxes that we talked about in the last session, they’re under the impression that there’s not going to be any sort of income tax when you start to receive it.

Speaker 1: Right.

Nick: As many people do know, that is incorrect. The formula that they use to calculate how much of the benefit is taxable to somebody is a little bit convoluted. Essentially what they do is they look at a modified adjusted gross income number, which includes your adjusted gross income, half of the amount that you receive from social security, and then a tax exempt interest, aka, interest from municipal bonds. They add that together, and then they really kind of look at a chart. And then dependent upon if you are single or married, it’s going to determine what percentage of your benefit is going to be includable in your taxable income.

Nick: If we were to say that your benefit amount was 2,000 a month, and your combined, that income formula that we kind of talked about, puts your income over about $38,000. 85% of your benefit, or about 1,700 of the 2,000, is going to be added to the other income sources that you have to determine how much you’re going to pay in tax. We just like to make sure that people understand that although that benefit is coming in, oftentimes they look at the gross amount, and they don’t necessarily understand that, hey, once you’re on Medicare, your Medicare, it gets deducted out of that. You’re probably going to want to have some sort of federal income tax withheld from it. That benefits starts to drop down. So that’s something that we always make sure we focus on and make sure that people understand.

John: When we’re doing planning, and people find out that the social security is taxed, they are not happy.

Nick: Yeah, and sometimes we get asked when did that happen or how did that happen? It really happened in the 80s, during the Reagan administration, is when it took place. Realistically, for most of the people that we’re working with, they’ve been in the working world for 30 years, and that’s been in place. It’s not something that’s necessarily very new or anything like that. There’s really minimal ways that you can actually reduce the impact on taxes. Realistically, the only other sort of income that’s not includable in that is any withdrawals that you’ll take out of a Roth IRA. So dependent upon their overall situation, and dependent upon the structure of what they’re going to have to take out, required minimum distributions and those sorts of things, we may look at different strategies, like converting traditional money to Roth money, and determining if that makes sense.

Nick: I’ll say this, that people do tend to hate taxes, and I know that sounds kind of funny, but the point being is that sometimes they’ll try to make irrational decisions just to try to deal with maybe a tax issue without figuring out that hey, you know, they may only be paying an effective tax rate of 12 or 13% on their income, which in the scheme of things is really low. And so making sure that they understand that, and that they don’t need to make rash decisions with how they structure their decisions is an important kind of thing. Social security just kind of factors in, it’s important for people to understand how it works and how it’s taxed. It’s more of just kind of an FYI sort of thing.

Speaker 1: Well, really good information here. We’re talking about how to integrate social security in a retirement plan. John, did you have another point about the taxes here on this?

John: Yeah, so one thing that we do in planning is we really start to map out someone’s taxes into retirement, and a big chunk of that is their required minimum distribution age 70 and a half. If we can see how much taxes they’re going to pay, we can really make some strategies for someone’s social security based on that. But again, the plan kind of gives you the roadmap so you can make the right decision based on your situation.

Nick: And to kind of add on to that. More specifically, when we map that out and we look at it, what we’re looking to see is when those required minimum distributions are due at 70 and a half, because people, by default, like to put them off as long as they can. Sometimes it will actually make sense to start taking money out of their IRAs first and wait on social security. Whereas the default for most people is take social security first, and then take out the money for the required minimum distributions. Structuring those decisions together as one is a really important way that you can kind of add in some tax planning into your overall retirement planning.

Speaker 1: All right, so we’re going to continue our conversation on the next podcast as well, part three if you will, about social security. But before we get out of here for this particular episode. Any other thoughts about some of the things we’ve covered today, gents?

John: Yeah, so it’s kind of going back to what we first talked about with social security being important in someone’s plan and inflation. The reason that is is when you have a portion of your retirement income that’s guaranteed, it really helps us kind of map out how we should invest or basically implement a distribution strategy from the rest of the assets. So having that base of, let’s say, 30,000 guaranteed income coming in, that’s going up with cost of living, helps us really map out the rest of the investments and how we should strategize behind that.

Nick: I think another good tool or, you know… Because as an example, my father has a pension, he’s a retired fireman, and I have to constantly remind my mother what kind of the equivalent of a lump sum of dollars would be if he would have a lump sum versus the amount that he gets every single month through the pension. If we’re saying on average the social security benefit amount for somebody that’s been working for their full life, and waits until their full retirement age to take it, is around 2,000 per month. Let’s say it’s a dual family household, so we’re talking about 4,000 per year. That’s really the equivalent of a safe withdrawal rate and a million bucks.

Nick: One of the super common questions that people ask us is how much can I take out of my retirement account each year? The safe withdrawal rates around 4%, so 4% on a million, $40,000 a year. 2,000 a month times two is closer to $48,000 a year. So we’re talking about one plus million bucks. If that money was sitting in an account at least generating income, even though you couldn’t invade principle, that sometimes gives people some perspective on how valuable that social security income really is to them in our overall planning.

Speaker 1: Well again, we are talking about social security. We’ve gone through a couple of pieces the last couple of podcasts. We’re going to do another one coming up in just a couple of weeks here, and continue on with our conversation with John and Nick, financial advisors at PFG Private Wealth, around social security. If you have questions and concerns, and you probably do because social security can be quite confusing to a lot of us who don’t deal with this every day. Well then reach out to the guys, give them a call and let him know, because they do obviously work in this arena every day. Having a conversation, getting a second opinion if you’ve already got one, maybe you have no plan at all, or maybe you’ve had no conversations around it,. Well, just reach out and let them know that you’d like to talk.

Speaker 1: 813-286-7776 is how you can reach out to them if you’d like. here in the Tampa Bay area. 813-286-7776. And of course, you can also just go to the website, PFGPrivateWealth.com. That is PFGPrivateWealth.com. Check out the team on the website there as well. You can also subscribe to the podcast on whatever platform you choose, Apple or Google, or so on and so forth, and listen to past episodes as well as future episodes. So guys, I’m going to say bye this week for you, and we’ll be back next time here on the podcast, so make sure you tune in for more Retirement Planning Redefined with John and Nick from PFG Private Wealth. We’ll see you next time.

Ep 7: Social Security, Part 1

On This Episode

Today is the start of a multiple part series on social security. We’ll be discussing topics such as the state of the fund and reforms that are aimed to help the program and more, so tune in and catch up on social security.

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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:

Mark: Hey gang, welcome into another edition of retirement planning redefined with the boys from PFG Private Wealth Financial Advisors, John and Nick, once again here on the program with me as we talk about investing, finance and retirement. Always go to the website and check them out at pfgprivatewealth.com that is pfgprivatewealth.com. While you’re there, subscribe to the podcast. Give us a like and check us out and all that good stuff. Subscribe to it for past episodes as well as future episodes. And of course anytime you hear anything, you’ve got a question or concern, give them a call before you take any action. 813-286-7776 is the number to call. If you hear a useful nugget of information and you want to learn more, again, reach out to them at (813)-286-7776. Guys, I hope you’re doing well this week. Nick, what’s going on man?

Nick: Yeah, we’re doing well. Staying busy for sure. Today what we wanted to do is kick off a multi session on social security.

Mark: Okay. Cool.

Nick: And we just want to let everybody know. We know that some of the people that’ll be listening to this will have become familiar with us through either the more comprehensive classes that we put on around town or via a financial wellness workshop. And social security has been one of the hot topics for a long time and it continues to be as it is more in the news with the different pressures and some of the funding issues and those sorts of things. And then obviously with everybody, so many people and so many baby boomers getting closer to retirement, although we will be getting into it fairly comprehensively in this session, we just wanted to make sure that everybody knew that if they were interested in having us come in, whether it’s some sort of association or an employer based kind of program, we like to do the lunch and learns or some sort of financial wellness workshop.

Nick: And we’ve got about a 50 minute session that we’ll do on social security. And from the feedback that we’ve gotten, it’s been one of the most positively embraced sessions that we’ve done. So we just want to let people know that if they wanted a more comprehensive overview on this or they thought it might be beneficial for their employer or fellow employees or coworkers, that that’s something that’s available.

Mark: Awesome. Yeah. When we get into that we’ll have this multi-part series on the podcast regarding social security. And again, as Nick mentioned, if you want to talk with them, (813)-286-7776, (813)-286-7776.

Mark: John, how are you man? You doing all right?

John: I’m doing great. How are you doing?

Mark: I’m doing very well. Thank you for asking. And you know, Nick got us all set up there for the conversation. So what do you say we dive into it? How does it work? I mean, what’s the crux of the whole social security situation here we’re looking at?

Nick: Most people are obviously familiar with the fact that they are eligible for social security and they pay into the system, but not a lot of people are familiar with how it all works and ties together. We always like to start off in explaining people how the program is funded. A lot of people have seen on their pay stub where it might say FICA and they’re not really quite sure what that is. But out of that 7.62 that comes out of your paycheck for those FICA tax is 6.2% of that is for social security. And one of the things that we have found over the years is that many people are not familiar with the fact that the employer also pays in 6.2%. Some people have this idea that the program is fully funded by the government and really it’s fully funded by them and their employer.

Nick: Letting them know that about 12.5% of their income each year is going into the program towards them is something that is important for them to understand. And for some of the higher income earners, they may have noticed at a certain point of the year that their paycheck gets a little bit bigger. And usually that’s because payroll tax is capped, so people no longer pay in on earnings over … In 2019 on earnings over $132,900. And as we talk a little bit about some of the things that’ll change over time with the program, one of the things that’s in the news the most is that cap and removing that cap so that it’s similar to Medicare where people will pay on, no matter what their earnings are, they will continue to pay into the system.

John: That cap’s actually been going up aggressively. You know, I think a few years ago it was $112 Nick, and I think now they’ve jumped it up to one $132.

Nick: Yeah, yeah. They’ve definitely been indexing it up faster than inflation, that’s for sure.

Mark: Yeah. And depending on what happens in the elections coming up next year, you know, depending on who gets in, there’s conversations that that 6.2 could be raised as well. So if you’re still working, so that could go up substantially as well.

Mark: How much can somebody expect guys? I imagine that’s a big question that always comes up is, what are we looking at? I know you can get your estimates, obviously, from the website. They don’t even send those little papers out anymore I don’t think. They used to send them out every year, then it went to every five years. I’m not sure if they even still do that.

John: They do occasionally, and I’m not sure the exact how often, but I know that from our classes we’re starting to have guests say, yeah they’re getting the statements. But it’s based off of your earnings record. And one thing that’s important to understand, it’s actually your highest 35 years. So a lot of people when I first started working, I think the first year I was 18 I made like $12,000.

Mark: That’s pretty good for 18.

John: You’re [crosstalk 00:05:20]. Yeah, exactly. Your highest earning years are really later in life, once you hit your 50s and 60s. So that’s important to understand if someone’s thinking about retiring early to make sure that they look on the statement and see, Hey, what years do I have that are significant in here? Because if I stop working my last seven years, you know the benefit that I’m seeing on my statement’s actually going to be less.

John: Because when you get your statement, what it shows if you continue to work up until that age, not if you stopped. So that’s important. Another thing we tell our clients and anyone that comes to our classes is to make sure that you look at it, see if there’s any zeros in there. Because if you do have zeros in your highest 35 that will actually bring down your benefit and that’s something you may want to consider maybe working a couple of extra years to make sure that you maximize your social security retirement benefit as best you can.

John: And you’re right, you can go on social security.gov and pull up your statement. They’ll ask you a lot of funny questions. What was the color of your first car? Most likely most people get locked out unfortunately, but it’s good to go check it out if you haven’t done that in awhile.

Nick: Yeah. Another thing to just make sure that people know from the standpoint of those highest 35 years is that’s in relation to the cap. And so you know that cap that we mentioned earlier, that $132,900, it’s in relation to that. Just because there may have been a period of time, we’ve seen it in some circumstances, where maybe somebody took some time off to stay home with the kids and then they’re returning to work and before they took time off they were making a higher income. And although, from a pure dollar standpoint they may be making more dollars now as in relation to the cap, that may not necessarily be the case.

Nick: That highest 35 earning years is in relation to that cap. And with how social security date change the mailing out of the [inaudible 00:07:04] and that sort of thing, we absolutely recommend that people, although it can be a little bit of a pain from the process, to really get logged into the site, make sure they understand how to access that statement, make sure they understand how to read that statement. Especially from the standpoint of people that we have that are self employed. We have them double check their statements to make sure that their income is being correctly recorded because they may be paying in their self employment tax, which is essentially payroll tax. Making sure that that’s recorded properly so they’re going to get the benefits that they’re entitled to down the road.

Mark: Yeah. Now guys, I’ve heard through the years that if you see those zeros on there like John mentioned that that’s not really on the social security to fix that. That falls back on you in trying to follow up possibly with past and employers. Like if you know you earned something in a given year and you’re seeing a zero, is that still how it is? Is that the way that it goes? Do you need to talk with the social security office about that or do you need to track down that past employer?

John: You do need to reach out to them and Nick’s, I believe, grandfather did that and Nick can share that story.

Mark: Oh, all right.

Nick: And this was years ago, so I don’t know any details on it, but my grandfather was from Cuba and so he had a natural distrust for the government. And when he was a professor at the University of Rochester and when he went to retire and file for social security, he did not agree with the amount. And due to his non-trusting nature, he happened to have every pay stub that he ever had in the basement. And so he was able to figure that out. Luckily now we have things that are more electronic and we do have people try to keep some sort of record and haven’t had anybody recently deal with that in any sort of deeper way.

Mark: That’s good.

Nick: But usually a tax return will help. And tax returns are one of the things that we have people … We’ve got a portal for clients and we have them upload those tax returns so that they can be a really good resource down the road in case there’s any issues.

Mark: Well that’s cool. Yeah. I mean I’m 48 and I think about myself and I think God, if I had to go back and figure out who I worked for when I was 20 and what they owed me or whatever, or what I paid in, I don’t know where I’d start. So that was awesome that your grandfather actually kept all that stuff. Because I know that for a lot of people that would be definitely a challenge. But that’s just something I thought about and I wanted to bring that up and get your guys’ opinion on that.

Mark: So if you’re talking about things that are really important to people, obviously a big question for boomers, and I’m sure you get this at the wellness events that you do and just in general is the constant question of the health of the fund. Is it going to be around?

John: Yeah, that is a 100% the main question we get at the workshops and also when we’re doing planning for clients. But as it states today there’s actually a surplus and the fund is actually growing. There’s roughly $2.9 trillion in it and when you say trillion it doesn’t really in reality mean much, we have no idea what that actually equates to.

Mark: It sounds like a lot.

John: [crosstalk 00:09:56] Surplus, it is a lot. But the surplus is about $3 billion a year between money that’s coming into it through the payroll taxes and also the interest earned on the balance. Just to kind of give some people some numbers because they’re always asking. In 2023, 2024 that surplus actually will stop. So it’s actually going to be going into a deficit and then in 2034 the fund’s basically exhausted and then it’s just going to be paid through basically money coming in through payroll taxes and then the money’s going to come out. An then in 2034 when that happens, based on the numbers, the estimates, is looking like there’s going to be a 21% reduction of benefits. So you’re going to get 79% of the benefit owed to you. And again, that’s if no changes happen, which we’ll we’re going to go into shortly. Nick will start it up where we’re talking about some of the reforms that already have been happening and that will continue to happen.

Nick: And we do tend to … Some of these will probably be repeated throughout the series about social security. And earlier I mentioned the increase in max earnings, removing that cap. That’s probably one of the lowest hanging fruit from the standpoint of people getting on board with making higher income earners continue to pay into the system. Right now, the earliest retirement age that somebody can collect benefits from is 62. So that’s an age, especially with the longevity of people’s lives and people just living longer overall, that 62 will probably start to increase. I’m sure people will be grandfathered in at a certain age or certain, your worth and before it will be grandfathered in, but-

Mark: It seems like that’s a really-

Nick: John and I suspect that our-

Mark: Yeah, that seems like the easiest one too for a lot of things. Right? Just push it back for people under a certain age, like 50 and under or something, just push it back.

Nick: Yeah. And social security … The trickiest thing and probably one of the biggest reasons that not much has been done with it is because, frankly politicians are worried about not getting voted back into office, so-

Mark: Yeah, it’s a political poker chip for sure.

Nick: They [inaudible 00:11:53] can down the road and try not to tick people off at least to a certain extent. So raising that initial retirement age from 62 probably upwards of … They’ll probably ease it in, but I wouldn’t be surprised if John and I, our initial retirement age is closer to 65 or higher.

Nick: They’ve talked about doing means testing from the standpoint of if people have a certain amount of income on that they wouldn’t collect their social security. I think that one will probably be a little bit more difficult because usually that’s income focused and honestly there’s a lot of ways around that.

Nick: But another thing would be that cost of living adjustment, and that’s been tinkered with a little bit really over the last decade as inflation stayed low for a little while and interest rates were really low. But that could be something that they adjust. But realistically what we think will be the easiest things to do will be to take up on the payroll tax, potentially have employers put in a slightly larger percentage than the actual employee. It’s something that they can do. Increasing that cap or the earning cap or removing the cap in general, and bumping back that initial retirement age, are all things that we think will be a big deal.

Nick: The other thing could be the, really the increases, the percentage increases that social security provides for people that defer taking their benefits. So if they wait, any year after full retirement age, there’s an 8% increase. And so that’s something that’ll probably drop as well.

Nick: The good news is that this is pretty actuarial and really all you have to do is math to figure it out. It’s just going to take people being willing, people being the government, being willing to make the changes.

John: Yeah. And they’ve already, in 2015 they actually closed some of the loopholes which we’ve been seeing a lot of in planning some strategies that people were using are going away, which helped the program out. They’re already doing some things. And the big thing that … One of the things Nick talked about was the cost of living adjustments. To me that’s one of the ones we need to keep an eye on because when we’re doing planning, it really helps out the plan when you have some type of guaranteed income that actually goes up with inflation.

John: Historically, social security has gone up about 2.6%. It’s been low over the last five or six years due to inflation, but that’s actually a pretty nice benefit when you look at what you start with at let’s say 66 and what you end up with that age 85. It’s a big amount. When you look over that 20 year period.

Nick: Probably the one people want to fight for the most to maintain from the standpoint of anybody that’s likes to be active or have a vested interest in the topic, that cost of living adjustment’s really, really important for them.

Mark: Absolutely. Well, let’s take that point and segue into an offer for you guys. If you’re listening and you want a free maximization strategy and the social security guide to anyone who emails in, just email john@pfgprivatewealth.com that’s john@pfgprivatewealth.com. Again to get that free maximization strategy and social security guide here on the program.

Mark: And I that’s going to do it for us this week on the podcast guys. Really good information to start this week, talking about social security here on the show. We’re going to continue on, as Nick mentioned earlier on, and do a multi-part series on this next time here on the program. We’re going to talk about integrating social security into your retirement plan, making that part of the plan and some things to look for and think about in regards to that.

Mark: You’ve been listening to retirement planning redefined with John and Nick financial advisors at PFG Private Wealth. Again, that’s PFG Private Wealth and that you can find them online at pfgprivatewealth.com and subscribe to the podcast while you’re there. Don’t forget to email John if you’d like to get that social security maximization or give him a call at (813)-286-7776. If you’ve got some questions about your own social security, get on the horn with them. Come in for a consultation and a conversation. (813)-286-7776. This has been retirement planning redefined for John and Nick. I’m Mark and we’ll see you next time.

Ep 6: The Challenges Of No More Paychecks, Part 3

On This Episode

It’s time for part 3 of our discussion about one of the most challenging parts of transitioning into retirement, dealing with the fact that you’re no longer receiving a paycheck from work. Today, we’ll discuss specifically how to turn your nest egg into paychecks with strategies like living off of dividends and using an income floor.

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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 Killian: Hey everybody, welcome into Retirement Planning Redefined with the guys from PFG Private Wealth, John and Nick, financial advisors here with me once again as we talk about investing, finance, and retirement on the program. Anytime you’re listening to the podcast and you’ve got a question or concern, jot it down, jot this number down, give them a call and talk to them about it before you take any action with anything you’re listening to that’s financially related, 813-286-7776. Well, that’s a mouthful. Let me do that again, 813-286-7776 is the number to call, and of course you can go online to PFGPrivateWealth.com. That’s PFGPrivateWealth.com, and while you’re there, subscribe to the podcast so you can get upcoming episodes and check out past ones and all that good stuff.

Speaker 2: John, what’s going on man? How are you?

John Teixeira: I’m good. How are you doing?

Speaker 2: I’m hanging in there. Trying not to melt. At the time of this podcast, it’s about 8 million degrees, I think, on the outside. Nick, what about you buddy? You hanging in there?

Nick McDevitt: Yeah. Yeah, we’ve had a ton of rain lately-

Speaker 2: Which just makes it worse.

Nick McDevitt: Giving me flashback of living up north, but …

Speaker 2: Well, aside from the heat and all that fun stuff, what else is going on with you guys? Do you guys got anything cooking, no pun intended.

John Teixeira: Yeah, so tonight we’re actually excited to, we’re doing some volunteer work tonight, and there’s a group that Nick and I are part of. It’s called the 13 Ugly Men. That’s exactly the response whenever people hear that name. But no, it’s a great organization. It’s about 30, although it’s 13, there’s 35 guys in it. We throw events and donate to local Tampa Bay charities. And part of the donation, we actually do hands on work. So we’re donating to a charity called Gigi’s Playhouse, which Nick and I actually interviewed, and he’s on the charity committee for, for our group.

Speaker 2: Nice.

John Teixeira: And we’re throwing a Halloween event. The goal is to donate about $25,000 to them. And tonight we’re doing some hands on efforts, which Nick can kinda touch on, cause he set it up.

Nick McDevitt: Yeah, man. The organization supports people with Down Syndrome, and so they have a lot of different programs that they have. So tonight we’re going to go in and kinda run an evening of Bingo and bring in some food, and kind of play Bingo, and there will be a broad range of ages there and stuff like that. So, so we’re looking forward to that tonight.

Speaker 2: That’s awesome. That’s really cool. I appreciate you sharing that with us. That’s very cool that you can do that.

Speaker 2: And maybe what we can do is we can talk on another podcast about how you can get involved with that particular thing if you’d like to help. But that’s awesome that you guys are doing those extra things out in the community here in the area. So, well, with that, let’s turn our attention to this week’s podcast, which is to continue our conversation about strategies to turn that nest egg into a paycheck. We covered several things last time to your cash reserves, bucket strategy, so on and so forth. What are some other things we need to think about?

John Teixeira: Yeah, so you know, like we talked about last week, there’s a lot of different strategies and really we let our financial plan kind of dictate which is best for the individuals based on needs and goals.

John Teixeira: So as you mentioned last, week we did go over the two year cash reserves bucket strategy. Another one that we’ve been utilizing, and depending on the situation, is basically just living off of your dividends and interest. So that’s where you have your principal and whatever dividends interest is spun off either monthly or quarterly, that goes into a spend account, and that basically becomes your paycheck moving forward. Some of the benefits of kind of utilizing this would be you don’t have to worry about your money running out, because you keep your principal intact, and you’re never really dipping into into it. So, the fear of money running out goes away.

John Teixeira: And also we see this a lot where someone’s interested in leaving some type of legacy to somebody.

Speaker 2: Right. Sure.

John Teixeira: Basically like, “Hey John, Nick, I have this money here. I want to leave it to my kids, I want to leave it to whoever. So I’m just going to live off of the interest in dividends.” So that’s kind of one way to look at it.

Nick McDevitt: And I would say this is a strategy we wanted to talk about, because we get asked about it. However, with how the markets have changed over time and how people spending in longevity has changed over time, it’s become less of a common strategy, with one of the big reasons being yields are down significantly over the last 20 years. Where years ago you could get a really good CD rates and things like that, where you can get a decent paycheck from that.

Nick McDevitt: So some of those challenges are, it’s tough to find a yield, whether it’s via dividend, whether it’s via fixed securities, to give people the amount of income that they need. And so what’ll happen is they’ll chase that yield and give up growth opportunities, which then essentially makes it difficult for them to keep up with inflation over time. So dividend rates will change over time and at the onset people kind of see it as, “Hey this is what my parents did,” but maybe their parents had a pension or their parents expenses were a lot lower.

Nick McDevitt: And we like to talk about it because, and it’s interesting, it’s usually men that bring it up and more focused on like individual stock or individual bond investing, which is less common now. So although it is a lot more rare, we do like to bring it up at least to address it, so that people understand how it works that depending upon their overall situation it can be, but most likely some of the other strategies we’re going to discuss are probably going to make more sense for them.

John Teixeira: Yeah. And kind of who this works for is really someone who has a very large nest egg and…

Speaker 2: Okay.

John Teixeira: …and necessarily doesn’t need more than the dividends interest will spin off. And as Nick mentioned, this environment does make it very challenging because interest rates are low, and then people will kind of go to stocks for that to try to find some extra dividends.

Speaker 2: Right.

John Teixeira: But we [inaudible 00:06:24] some of the equity corporations, they’ll actually change the dividend on you. So that’s a big risk where, and I know Nick touched on it, but I’ve seen where some companies will have a specific dividend and then recession hits or the stock isn’t doing so well, so they need some growth, so they’ll go ahead and lower their dividend, which could really affect your monthly income.

Speaker 2: Okay. All right.

Speaker 2: So that’s kind of a living off a dividend type of strategy to turn that nest egg into a paycheck. What’s another one? Is there something else we can also share with the listeners?

Nick McDevitt: Yeah, so another one again, depends on the situation, is kind of creating an income floor.

Speaker 2: Okay.

John Teixeira: So this is where you look at, “Hey, what’s my guaranteed income that I have coming in?” And most people, clearly social security is number one. But some other people might have a pension and what they’ll look at is saying, “Okay, what’s my guaranteed income?” And we’ll do an exercise and do all their expenses, but we’ll divvy it up where we have our fixed expenses and then our discretionary. And what we’ll try to do in this situation is match up their guaranteed income with their fixed expenses. So no matter what happens, it gives them peace of mind to say, “Hey, no matter what happens in the market or health, I know that my fixed expenses are covered.” And we make sure that those fixed expenses are covered for life.

John Teixeira: The risk of running out of money necessarily for those fixed expenses really isn’t there. And then some challenges to this, what we see in why. Again, it’s not perfect every situation, but some challenges with it is, does that leave you with enough liquidity? Do you have enough money? What if you need to tap into a little bit more. And then also the big one with this I would say is inflation. I don’t know if you want to add anything to that, Nick.

Nick McDevitt: Yeah. So, realistically there’s only a few ways to kind of create the guaranteed income floor, and we’ll end up talking about that kind of later on down the series of a podcast. But, John mentioned the social security. They may or may not have a pension, and so the only other way to create, essentially a guaranteed income, would be through some sort of annuity, and there are different sorts of annuity.

Nick McDevitt: So when John refers to the not having enough liquidity, meaning that, to provide the guaranteed paycheck that they may be looking for, there may not be enough in assets to do it in a large sum of money. So usually if we’re looking at something like that, we only like to attribute up to 20% of their overall nest egg into a strategy like that.

Nick McDevitt: So typically it’s people that, where something like this would make sense is somebody that may be a conservative investor, somebody that has maybe a lot of longevity in their family and they have a significant fear of running out of, or outliving their money. Maybe they’re only guaranteed source of income is social security. So they’re looking to kind of build on and have some additional security from that standpoint. So, going through and trying to find other ways to help increase that floor is a pretty typical process that we use with people.

Speaker 2: Okay. Yeah.

Speaker 2: So again, each of these strategies may or may not be the right fit for the individual. It’s a matter of going through and talking about some different things and looking at stuff to see which is going to work best for you.

Speaker 2: You mentioned kind of earlier on that you’re just living off the dividends. What about somebody who might be in a situation where they do need to sell off the investments, maybe as needed type of thing. So more of a withdrawal strategy, I guess.

Nick McDevitt: Yeah. So what we’ll kind of refer to that as is like a systematic withdrawal. And frankly this is pretty much the most common way.

Speaker 2: The norm kind of thing.

Nick McDevitt: Yeah. How people handle their income from their assets in retirement. The majority of people, their nest egg is comprised of some sort of combination of funds, whether it’s mutual funds, exchange traded funds, in some sort of diversified portfolio.

Nick McDevitt: And what we’ll do is, kind of after we go through the planning, and we figure out – Hey, your plan kind of tells us that we need to pull out, we’ll call it $3,000 a month from the nest egg, and they want to receive it on the first of the month, each month. And from the standpoint of their advisors and kind of portfolio managers, we’ll structure it so that that money deposits automatically into their account. We decide which investments that kind of sweeps off of, and we do it via kind of an automatic quarterly rebalance to make sure that we’re keeping the portfolio diversified in what the overall objective of the account. And then, realistically, this helps them deal with the ups and downs of the market. And really they’re only spending what they need.

John Teixeira: So, one of the things that Nick kind of said here…it’s important that you have a very good advisor, because you are looking at your advisor to make sure they customize the portfolio to deal with some challenges like a market downturn. So, that is a big risk with this, because if the market goes down and you need to sell off your investments, the worst thing you can do is really start selling off big chunks in a down market.

John Teixeira: So it’s important that your advisor has some strategy in place for that. And then also, again, a challenge with this would be depending on the person’s mindset, they might get afraid of spending too much, because the risk of running out of money and the kind of spiral down effect of tapping into your principal is always there.

Nick McDevitt: So it’s really important. I think you’ll notice as far as who the strategies work for is really who’s saved a lot of money. So it’s important to save as much as you can, because it allows you the ability to really use any of these strategies and be comfortable with it depending on your situation.

Speaker 2: All right. Well there you go.

Speaker 2: So there’s a few things to consider, to think about. We were, again, continuing our conversation about ways to turn our nest egg into paychecks and retirement and if you’ve got some questions, if you’ve got some concerns you’d like to talk with the team about how to do that, talk with John and Nick, give them a call at 813-286-7776, that’s 813-286-7776, to talk with John and Nick, financial advisors at PFG Private Wealth, serving you in the Tampa Bay area.

Speaker 2: Go to the website, PFGPrivateWealth.com. Again, that is PFGPrivateWealth.Com – check them out there, as well as subscribe to the podcast, and give us a chance to share a bit more of these things with the each and every week by subscribing on whatever platform it is that you happen to like. Apple. You can find us on Apple podcasts, on Google play, Stitcher, iHeart, various things like that. Thanks for listening to this edition of Retirement Planning Redefined. For John and Nick, I’m Mark, and we’ll see you next time here on the program.

Ep 5: The Challenges Of No More Paychecks, Part 2

On This Episode

It’s time for part 2 of our discussion about one of the most challenging parts of transitioning into retirement, dealing with the fact that you’re no longer receiving a paycheck from work. Today, we’ll discuss specifically ways to get more comfortable with the transition from working to retirement.

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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:

Speaker 1:           The rules of retirement have changed. No longer can most of us rely on social security or a single pension to fund our futures. We’re living longer in retirement, doesn’t just last a handful of years anymore. Instead, you might stay retired for 20 or 30 years and maybe even more. We need to look at retirement through a new lens with fresh eyes, with a new approach and plan of attack. Here to answer the call are financial advisors, John Teixeira and Nick McDevitt at PFG Private Wealth Management, serving you throughout the Tampa Bay area. This podcast is retirement planning redefined, and it starts right now.

Mark:                   Hey, welcome into another edition of Retirement Planning – Redefined with John and Nick, financial advisors at PFG Private Wealth, serving you here in the Tampa Bay area. We’re going to talk about investing, finance and retirement as we usually do here on the program. And you can find John and Nick at their website at pfgprivatewealth.com. That’s pfgprivatewealth.com. Of course, you can also give them a call and come and see them in their office in Tampa Bay at eight, one three, two, eight, six, 77, seven, six. That’s eight, one three, two, eight, six, seven, seven, seven, six. If you hear something useful, interesting nugget on the program and you want to talk more about it before you take any action, always check with a qualified professional. Reach out to John and Nick, give them a call at that number. Eight, one, three, two, eight, six, seven, seven, seven, six. Guys, how you doing this week?

John:                    I’m doing good. How are you?

Mark:                   I’m hanging in there. Doing all right. Just surviving the summer, the dog days. How about you Nick? You doing all right?

Nick:                     Yeah, doing pretty well. One of the things that we like to do is present on different retirement topics. And earlier today we did a lunch and learn or what we can refer to as a financial wellness presentation over at the University of South Florida at their College of Public Health.

Mark:                   Oh nice.

Nick:                     So that’s something that we enjoy doing and covered a specific topic and something that we’re looking to do more of.

Mark:                   That’s very cool. So yeah, lunch and learns. What’d you call it, financial wealth class?

Nick:                     Wellness. Financial wellness-

Mark:                   Wellness, I like that.

Nick:                     Yeah.

Mark:                   Was the turnout out, good people enjoy it?

Nick:                     Yeah, it’s usually a small, at those sorts of things it can be tough for people to get away. So usually we have somewhere between eight and 15 people in the room and we present for 45 to 50 minutes and just try to keep it light and really focused on a single subject at that period of time. We like to do that with different local companies as well. So it’s something we enjoy doing.

Mark:                   No, that’s very cool. So if our listeners to the podcast want to be involved in those in the future, is that something they can reach out to you guys or find that on the website at all, or just give a call if they’d like to attend those things? Or are they kind of closed door deals?

Nick:                     We usually go through the employer.

Mark:                   Oh, okay. Oh, I gotcha. Okay.

Nick:                     So if they are an employer, really no cost to the employer and it’s definitely a benefit for their employees.

Mark:                   Sure. Yeah.

Nick:                     And we bring in lunch and go over a couple of different topics. But they can absolutely reach out to us and I’ll let us know and connect us with whether it’s an HR department or their employer.

Mark:                   Yeah. Okay.

Nick:                     Cover different topics.

Mark:                   Very cool. Well, yeah. So if you’re listening to the podcast and you think that might benefit your fellow employees or you’re an employee yourself, give them a call. Eight, one, three, two, eight, six, seven, seven, seven, six. Ask about the lunch and learns or the wellness classes. So you guys, John, have both of you guys presented this thing or do you guys take turns?

John:                    This one here we both did.

Mark:                   Okay. Very good.

John:                    We do a lot of stuff as a team.

Mark:                   Nice. Very cool. Well good. That’s exciting. We’ll have to talk more about those in the future coming up. But I do want to address what we mentioned last week since we teed that up and I want to kind of go back to that conversation. We talked last week about just the stresses and some challenges of not having a paycheck anymore when we transition from working years to retirement years. And so let’s talk a little bit now as I had mentioned about just some strategies on how to create that paycheck, if you will, from our nest egg.

Mark:                   Now I think most of us realize we have to do this, but it becomes kind of … It becomes daunting for people who just obviously don’t do this all the time to think, “Well, how do I turn my IRA into income,” and so on and so forth.

John:                    There’s a lot of different strategies to use. And when we do planning, we don’t just say this the only one that worked. There’s a lot of different ones and it’s really depends on kind of how the person ticks, kind of what they’re comfortable with and what their goals are. So we’ll go through, we talk about a few of them, but we’re not … Whatever we talk about today, it’s not going to be all of them.

John:                    But you know, one that a lot of people feel comfortable with is where we do two years of cash reserves where we’ll basically set up a separate account and almost be like a payroll account where that’s where their money’s going to filter from for the next roughly two years or so. And again, that number can change depending on the individuaL. But that’s where if hey, they have social security coming in and pension, we’ll look at, hey, what your income gap. So if their expenses are 50,000 and let’s say social security covers 20,000 of that, basically we’ll have this account that generates 30,000 a year and that might come up monthly.

John:                    And that’s one strategy. And what that will do is it’ll provide a little bit of peace of mind, which we discussed last week, where hey, if the market does turn down, you have a special place where you can go and not be worried about, “Hey, do I need to pull on my investments while the market’s down?”

Nick:                     So the way that we’ll kind of have that conversation with them is almost back into it and take them through a situation of, even if we go back to kind of 2008 where there was the great recession. And we go through and look at historical market and show them here’s how long it took the market to bounce back. Even if we were to run into this sort of situation, how much would they specifically individually need? What would make them feel comfortable to hold in cash so that they wouldn’t make a rash decision.

Nick:                     And one of the things that we have kind of seen is that two year number seems to be a bit of a magic number for people. But ultimately it’s getting them to start to almost program themselves to remind themselves that, hey, this is here. If these things happen, this is here. But overall, our goal is to have this mini strategy to help us implement our overall broad base strategy.

Mark:                   We talked in the prior podcast when we were discussing this a little bit about the market and how it can affect people and make people nervous when they’re first making that transition. And one of the pieces that I know that also gets when you’re building the strategy to deliver that paycheck, you also have to plan for this to evolve through retirement. Because you got to plan, you got to put inflation in there. That’s something that you’ve got to make sure that you’re working on. You’ve got to look at all those little extra pieces that come in there. And that’s why getting together with a good team to build to that good strategy is going to be helpful.

Nick:                     Yeah. One of the ways that will … It’s become pretty popular and in the more in-depth retirement classes that we do teach, the six hour classes that we do at the local community colleges, refer to it as a bucket strategy, which a lot of people are familiar with. It’s in a general sense. So the way that they’ll identify with it is, we essentially say to them that, “We’re going to task your money with different jobs.” There’s going to be a short term, mid term, a longterm. Those short term money is where we don’t want to take the risk but that longterm money is the money that we want you to kind of think and remind yourself that we’ve got this 2030 year plan for you. And if you look in reverse in how you invested your money 20 or 30 years ago, this longterm money needs to be invested in the same sort of way. Focused on longterm growth to help make up for the money that you’re going to spend in those shorter time periods.

Nick:                     And we found that people definitely relate to that. They understand that and when they think about it from the standpoint of, instead of them working their money, that bucket of money is working longterm for them. People have been able to grasp that pretty well.

Mark:                   I got you. Yeah, because we’re talking definitely longterm. I mean obviously the number one fear is people running out of money before they run out of life. And just to veer off for a quick second. Do you happen to know who the oldest, not the … No. But you take a guess at the age of the oldest person in the world right now. Either one of you.

John:                    [inaudible 00:07:50] seven.

Mark:                   What’d you say? One oh seven?

Nick:                     Yeah, I’d probably go like one 15.

Mark:                   Yeah, Nick, you’re the winner. Actually you’re closer. It’s actually Mr. Tanaka, he’s 116 years old. 116, can you imagine that? So I know that’s like totally not the norm, it’s the exception to the rule. But we’re getting there more and more where when you guys are doing this, kind of to Nick’s point a minute ago, you got to plan this stuff out a much longer to have these income streams past 80 or 85. You’ve got to be pushing this into the nineties a lot of times or maybe even a hundred, right?

Nick:                     Yeah. When we plan, we always start off our plans planning to age 100. And we used to get heckled quite a bit from potential clients and existing clients about that strategy. But actually, because a lot of people that we work with come through our class, they see the importance of planning for longevity. And I would say probably in the last 18 months we’ve actually had people asking us, more than one, asking us to plan past a hundred. So I think that sentiment is actually starting to kind of permeate people’s thinking and if they have longevity in their family, people have started to focus a little bit more on that. And making sure that they’re focusing on being able to kind of stave off inflation and plan for longterm.

Mark:                   Yeah, I just, I don’t know if I’d want to be a 116. either one of you guys?

John:                    I’m going to say no to that depending on what technology brings at that point.

Mark:                   Right. I guess that’s true. Yeah.

John:                    As of now, no.

Mark:                   What about you, Nick?

Nick:                     I’d have to ask Mr. Tanaka what it’s like.

Mark:                   That’s probably a good idea. I don’t know, man. I just, I couldn’t imagine it. But yeah, I mean that’s going to become more than norm the more technology continues to go.

Mark:                   So yep, well really good conversation here with the guys talking about the fact that you you’ve got to create a paycheck for retirement and you got to make sure that that nest egg is going to [inaudible 00:09:38]. So we covered a couple of cool things to think about. The cash reserve, the two years, the bucket strategy, the dividends, keeping the principle, income floor, all these kinds of things we touched on. So if you have some questions, if you have some concerns, you have some thoughts about it, make sure you reach out to the guys, give them a call. If you’re interested in some of that wellness classes and lunch and learns, give them a call. Reach out to them at eight, one, three, two, eight, six, 77, seven, six. That’s eight, one, three, two, eight, six, seven, seven, seven, six to talk with John and Nick, financial advisors at PFG Private Wealth, serving you in the Tampa Bay area, here from their office as well as in Tampa Bay. And pfgprivatewealth.com is where you can find them online. That is pfgprivatewealth.com.

Mark:                   Guys, anything else you want to touch on this week before we go or shall we wrap it up until next time?

John:                    I think we’re good.Till I think we’re good.

Mark:                   All right, well with that I’ll say thanks for tuning into the podcast. You’ve been listening to Retirement Planning – Redefined for John and Nick. I’m Mark. We’ll catch you next time you’re on the program.