On This Episode
Maybe you’re close to retirement and think you don’t have nearly enough money saved. But let’s talk about some reasons that the news might not be as bad as you think.
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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, everybody. Welcome into another edition of the podcast. It’s Retirement Planning Redefined with John and Nick, Financial Advisors at PFG Private Wealth. You can find them online at pfgprivate wealth.com. That’s pfgprivatewealth.com. A lot of good tools, tips, and resources there as well as a way for you guys to find the podcast, listen to past episodes, subscribe to it, all good kind of stuff. We are going to talk about opportunities for late bloomers in retirement this go around on the podcast. [inaudible 00:00:28] what’s going on? John, how are you, buddy?
John: I’m good. How you doing?
Mark: Hanging in there. Not doing too bad. Hope things are going well for you. Nick, you doing all right, my friend?
Nick: Yep. We’ve had some nice fall weather here lately, so I’ve been enjoying that.
Mark: There you go. Humidity finally-
John: Yeah, I get to put a hoodie back on and no humidity
Mark: Vacation [crosstalk 00:00:47].
John: By enjoying, Nick means he’s just open up his balcony door versus going outside.
Mark: Gotcha. Let the wind in. All right. That’s all right. Hey, I’ll take it. That’s good. Let’s talk about these late bloomers here. Maybe you’re close to retirement and you think you don’t have nearly enough money saved. We mentioned that on the prior podcast a couple of weeks ago. That’s often the case with people. They feel automatically like well, I know I don’t have enough, even though you have no idea because you’ve never sit down and done a plan and gone through a process to try to find out, but let’s just assume that you don’t have nearly enough or you think you don’t. There’s some good news. There’s some places we could actually gain some ground pretty quickly.
Mark: Guys, I’ve been using this analogy for this. I turned 50 this year and Memorial Day is kind of the unofficial kickoff to summer. It’s not actually summer, but everybody just kind of treats it like it is. It’s kind of how summer starts. 50 seems like the unofficial kickoff to retirement because it’s when you start going, I better get serious. Right? When people turn 50, they start to think about this a little bit more. Catchup contributions is a great way and you can make some serious dent in the savings that you need with some of the things that government allows us to do once you turn 50. Talk to me about that.
John: Once you turn 50, you can do catchup provisions, which if you have a individual or retirement account, AKA IRA, you can put an extra 1,000 into it if you’re above the age of 50. If you got yourself and a spouse, it’s an extra two grand you can put in there. Most people, where we kind of maximize the strategy is in the 401k where you can actually do an additional 6,500, which is a nice way to not only save, but also reduce your taxes. With the 401k, it’s pretty easy because you just contact your payroll provider or go online where your investments are and a couple of clicks and there you go. As we say, once it’s done through your payroll, it’s easy to just set it and forget it. You just adapt to what you have as your net income moving forward. Definitely once you hit age 50 something, you need to start consider just saving more to hit your goals in retirement.
Mark: Oh, yeah. I mean, $6,500, that’s not chicken feed, especially over, let’s say, 15 years. If you’re 50 and you’re planning to retire at 65, that can add up. That can make a nice dent in catching up from being behind. Now, I know you don’t have kids to speak of. John, your kids are too little just yet, but kids coming off the payroll, this is something you guys still deal with. You have a lot of clients that, when you get 50 plus, hopefully you’re making the most money in your life that you have. Usually that’s the case for a lot of people when they’re in 50 plus. As my dad used to call us, biscuit snatchers, come off the payroll because we’re no longer doing things like the car insurance, cell phone. As a matter of fact, my daughter’s out working and doing things as a young adult and she’s actually paying the cell phone bill for her mom and I, so how about that?
Nick: This is interesting. I would say that over the last, probably six, seven years, we’ve seen this get pushed back a little bit where it tends to be the kids start to come off the payroll with clients that are in their early 60s, but it’s substantial and it’s usually a huge relief. We’ve got clients that have been able to bump up their savings by 1 to $2,000 a month with kids graduating from college or whatever it may be. It makes a huge difference, whether it’s saving more money, whether it’s using that additional money to maybe help you achieve the goal of paying your mortgage off by the time you retire. Recapturing those funds is a really, really big deal. When they come off the payroll, just figuring out a way to try to recapture at least 50 to 60% of that could make a huge difference to help somebody catch up.
John: You like that term biscuit snatcher, don’t you?
Mark: You like that?
John: You used that in one of our workshops, so…
Mark: That’s what my dad used to call us because he loved his biscuits and I was always running and snatch one and take off with it. You’re going to get this at some point, John. Obviously, you do this for your clients. You help them navigate this now, but with your two little ones one day, you’ll be having all these extra things and then they’ll come off the payroll. I mean, it could be sizeable. You could be paying their car payment, their cell phone, car insurance, maybe some health insurance, so it adds up.
John: I actually just experience some of that because… And my wife works. She’s just actually wrapped up her master’s program for nurse practitioner, but we had a nanny for that period and that just stopped. That just freed up some cash flow, which was pretty significant for us, but so I know the feeling of it.
Mark: A lot of places and a lot of opportunities for “late bloomers” in retirement to gain ground if you’re behind. Another one, guys, is disappearing debt. Maybe you’ve got some things… Again, we’re going to use this analogy of the 50 range, like 50 to 60. You’re getting into that pre-retirement stage. You’re trying to make sure you’ve got enough. My wife and I just got our boat paid off, just I think last month or two months ago, something like that. She just paid off her car. Now, she’ll probably get another one between now and the time we get to retirement, but still, you get the idea. Credit cards, things like that, that stuff’s really starting to dwindle down. [crosstalk 00:05:56].
Nick: Being able to recapture those is a big deal. The car thing is still an interesting thing just from the perspective of growing up up north and you have to deal with rust and the wear and tear of winters have on cars and all that, whereas down here in Florida, they can last so much longer. That’s a good example of something that people are able to leverage to help recapture some money to save. Like you said, that mortgage going away, getting that paid off or eliminating that credit card debt. I’ve had a few clients that in the last 12 to 24 months, they’ve been able to wipe out debt that they had had from… One was healthcare related and a couple of other things. Being able to redirect that money and that’s always the key is to recapture and redirect. That can make a big, big difference.
Mark: Especially the credit card stuff because there’s the whole bad debt, good debt thing. Take those high interest things first and get rid of those. Since we mentioned the home, that’s another place, so maybe a downsize is on the radar. In this area, a lot of people doing the condo kind of thing. Maybe you don’t want to do the big house. Maybe you’re moving from up north, Nick, to your point a minute ago. The difference is maybe you want to think about it from a everything needs to be on the first floor because my knees can’t handle the stairs standpoint. Either way, prior to recently now… Recently, the housing market’s been pretty crazy, so selling it, you might get a lot of money, but you also might pay a lot of money for the next place, but it could be potentially a place where you could capture some more gains as well.
Nick: Replacement cost is high right now, but downsizing can definitely be something. We’ve had a few clients do that recently. We’ve also had some clients, and this is a good reminder of the… For example, we’ve got one client that has had a beach rental that they’ve been using to rent out Airbnb for a while. They’re going to take advantage of the market by selling their primary residence at a pretty high number and then going ahead and no longer renting out the Airbnb rental and moving into that space. That’s something that they’re able to take advantage of.
Nick: Then not only that, but from a strategy standpoint, there’s that capital gains exclusion that’s out there where a married couple can exclude up to $500,000 of gains in a property. They’re able to exclude the gain in their primary residence and then we went through and reviewed that if they then live in the rental that would’ve been previously the rental, if they live in that for two years and then sell to maybe shift into another property, that they can exclude the gains in that if they wait the two years. There’s some strategy that can get involved in that space to help you on taxes and help you also downsize.
John: One thing with the downsizing, and we’ve run into this a couple of times where I would say just be careful with downsizing because we’ve had some scenarios where someone thought they were downsizing and when we started to really evaluate the costs of everything, it really wasn’t much of a downsize.
Mark: Good point.
John: It needs to makes sense, especially when you take in account, property taxes here where you can homestead and when you move, you can transfer it over, but sometimes you don’t get the biggest bang for your buck. It’s just as important to really evaluate the new house. Does it need renovations? Things like that. The maintenance costs, and that’s where you always go back to the plan when making these type of decisions because we’ve seen scenario areas where someone wanted to, we actually evaluate it and it’s like that doesn’t make sense to do it.
Mark: Another great point. There’s so many reasons to consider it. Obviously, there’s the financial potential as we’re talking about this particular go around, but as I mentioned, it could also be something where you need to simply because you cannot physically handle the house anymore. You got to take a lot of those things into consideration, but right now, we’re talking about how to use the money to gain ground. It’s just another way you could potentially make up some of that if you’re a late bloomer. Then the final one is maybe the twilight career. If you want to find a silver lining through all this pandemic stuff, it’s the fact that the world has definitely embraced telecommuting from work, or just all kinds of different really, jobs and things that you could do remotely. Maybe you do need to make some ground and maybe you can’t do the full corporate job or whatever it was that you were doing as your main career, but a twilight career could be there. You could be selling your crocheting stuff on Etsy or whatever. You could be consulting just from your kitchen.
Nick: We’re in an era where workers have a little bit more power right now post and I guess still on the tail end of COVID. We’ve had clients that have been able to… Sometimes we call it the make my day strategy where they’re important to the company. They know it and they go through and they negotiate. They’ve been working from home, at least for a portion and they’ve still been productive, so they’ve gone to their employer and said, “Hey, if I can work from home three days a week, I’ll continue to stay here for X amount of time,” or just using some of the stuff that’s going on as leverage because companies are having a really difficult time hiring. It’s become very, very competitive. We’ve had some clients go ahead and use that to their leverage. Then like I said, it’s just they take advantage of that until they’re no longer happy and then they exit.
John: We’ve seen a lot of people a little different where they start working part-time and really start getting into hobbies that they enjoy for income, photography, event planning, things like that. There’s definitely a lot of different avenues you can go in this period of time here because we’ve seen quite a few people churn hobbies into income.
Mark: That could be a great way to not only offset the shortfall you may have or even whatever the case might be, but it’s also just something to do. I mean, just keeps you active so why not “double dip”? Get something out of it. You’re getting some activity, something you enjoy, but also adding a little something the to the income levels.
Nick: I was going to also mention that where one thing that we have found from some people is not having a purpose or a routine has been very difficult.
Mark: Oh, yeah.
Nick: Some people handle it better than others, but in general, people need some sort of purpose. Some people are able to take that extra time, spend it with kids, grandkids, travel, do all these different things and they’re very comfortable or they have an active social life and it works out well. A lot of people got a lot of those interactions via work, and so not having them anymore, spending an extra 40 hours a week with their spouse, as much as they love them can be a little bit much. Whether it’s volunteering, whether it’s finding something, just having an open mind and looking for something that fulfills you and gives you purpose is a really big deal.
Mark: You got to have something to retire to as well, otherwise you just turn into a couch tater and you don’t want to do that. Those are so some places where you can make up some ground if you are a late bloomer in retirement, meaning basically you feel like you started too late or you don’t have enough put away. Of course, how do you know? Well, you know by getting a plan put together to see if you are even behind because again, you might not be. Reach out to the guys, to the team at PFG Private Wealth. Stop by the website, pfgprivatewealth.com. Get scheduled to come in for a consultation and find out, first of all, even if you are behind and if you are, then you can look at some of these options and some of these opportunities that we highlighted today on how to make up that ground, pfgprivate wealth.com. That is pfgprivatewealth.com. Don’t forget to subscribe to the podcast while you’re there on Apple, Google, iHeart, Spotify, whatever platform you like to use. You could find it all at the main website, pfgprivate wealth.com.
Mark: While you’re there, you can drop a line as well and we take those from time to time here on the show. Let’s wrap up with an email question from Elizabeth. She says, “Guys, I have a pension fund from a previous job in a different state. It’s been sitting there for years, but I do have the option to take the lump sum and invest the money myself, or just leave it there and get the monthly pension once I retire. Thoughts?
John: This is coming up quite a bit lately with pensions offering these lump sum payouts for participants. It really important to evaluate if you take that lump sum, what type of income could you expect from it on a, basically, lifetime basis. What goes into that is really your risk tolerance. What could you expect to achieve from a rate of return based on how much risk you want to take? Again, you want to look at this from a conservative standpoint. What we’ve done in the past with clients, we might compare it to maybe doing their own type of guaranteed income stream through some other financial vehicles and see is it similar and maybe provide some more flexibility they’re comfortable with, the financial health of the current pension. I wish there was an easy answer for this, a yes or no, but as always, it depends on your plan and your situation, and what works for you and, and your family if you have beneficiaries. There’s a lot of different factors that go into this.
Nick: Testing it through the plan’s so important, especially John alluded to the beneficiary aspect. For example, we’ve had a fair amount of clients that maybe they’re single, whether it’s widow, divorce, whatever, and their beneficiaries are their kids. The thought of having worked for a company for a prolonged period of time and what would be a substantial pension. Their kids not being able to benefit from that at all if they were to pass away early doesn’t sit well with them. They’ll look for alternatives. There are a ton of factors that go into that, but comparing and using realistic variables when you’re making those comparisons is really important.
Mark: I mean, it’s one of those things where a lot of times, you do have more controlling options if you take the money in lump sum and do it yourself, but it’s not the right fit for everybody. Definitely a great question. Reach out and call the guys and have a one on one conversation or share some more details for sure. 813-286-7776 is how you can get ahold of them if you’ve got questions of your own, 813-286-7776 or again, stop by the website, pfgprivate wealth.com. That’s all our time this week here on the podcast. We appreciate you guys as always, for John and Nick. I’m your host, Mark and we’ll see you next time here on Retirement Planning Redefined.