Retirement Questions The Baby Boomer Generation Is Asking

On This Episode

 

Each generation is currently navigating a unique part of the retirement planning experience. With many baby boomers preparing for the transition into retirement, we’re going to focus on some of the top questions this age group is asking in today’s episode. Stay tuned to see what you can learn from John and Nick this week on Retirement Planning Redefined!

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Disclaimer:

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

Here is a transcript of today’s episode:

Marc:

Every generation is currently navigating a unique part of retirement planning experience. No matter what generation you’re in, there’s going to be different questions that you might want to tackle. So on this week’s episode, we’re going to talk about that from the baby boomer standpoint, here on Retirement Planning Redefined.

Welcome to another edition of the podcast, folks. Retirement questions that every generation should be asking themselves is the docket this week, and we’re going to touch on the baby boomers. We may come back around to some of the other generations right now, but I think for most of our listening demographic, the boomers are certainly going to be ones that want to pay attention. It’s interesting, guys, the boomer term has become polarized. It used to be one thing to say just baby boomers or whatever, but now they get a little offended, I think, with the whole boomer thing. It hasn’t gone very well on social media the last couple of years, but either way, we’re going to talk about that demographic from 1946 to 1964.

It’s so funny with these age things, they keep changing it. I was looking at the one for generation X, which is what I am, and now they’re saying late ’70s when it used to be like ’83 or something. So I think they just changed these numbers based on what they want to have happen for conversation pieces. But anyway, we’re going to get into that with John and Nick this week. What’s going on, John? How you doing, buddy?

John:

Doing all right. Actually getting ready for, Nick and I are bringing some Easter baskets to the local children’s hospital here. We’re going to be handing them out this coming up Friday.

Marc:

Oh, very cool.

John:

We’re excited for that.

Marc:

Yeah, very cool. That’s nice, you guys are always doing some cool charity things going from around the area, so very, very cool. What’s happening, Nick? How are you doing, buddy?

Nick:

Good. Staying busy, along the lines of what John was talking about, the group that we’re involved in, we’re working on a big derby party here in St. Pete, so big event. So that’s fun to works the other side of the brain, and then we’re just staying busy with… We’ve got one thing that’s been interesting, John and I were talking about it earlier, this area is growing pretty rapidly, and it feels like we’ve had more clients than ever that are looking to move out of the area and slow down a little bit. So, it’s starting to become a little bit of a trend recently, so.

Marc:

To move away from Tampa?

Nick:

Yeah, yeah. Move away from Tampa or further out to more of the outskirts of the area, but we’ve had some clients recently like Panhandle, Georgia, North Carolina. The growth here has just been pretty overwhelming.

Marc:

Monstrous, yeah.

Nick:

Yeah, and-

Marc:

There’s a lot of states that are that way, right? I mean, there’s a number of states where I think people, everyone’s flocking from places like New York and California, and it’s just like, okay, stop. We can’t handle it.

Nick:

Yeah, it’s interesting because this area, the east coast of Florida has always been like the Atlantic coast south, and then the west coast of Florida where we are has always been a little bit more low-key. Still a decent size, but a little bit more low-key, and it has that feeling like developers and everybody is trying to make it more similar to the East Coast. I think that’s kind of pushing some people out, but even because obviously Texas has been a place that’s been a popular area for people to move to for some of the similar reasons, whether it’s taxes or just how the government runs or whatever their reasoning is. But one of the biggest differences, just reading about Austin, which is I would say Austin’s most similar to this area in certain ways from a size perspective and all that, but they’ve had a huge drop, cost-wise in housing because they’ve been able to maintain supply. Whereas the housing here is just completely insane at this point, especially in St. Pete.

Marc:

I was going to say, across the country, it seems like it’s really inventory’s low. So, just a lot of people that just aren’t selling, well, because the prices of houses through the roof, so you’re not selling the one you’re in because you know that when you buy another one, it’s going to cost you just as much or more. So, it’s interesting.

Nick:

For sure, that’s definitely had an impact. This area specifically because of the influx, there’s also been some interesting articles about how much corporate owned, single-family housing there’s been. But I mean, you’re talking 11, 1,200 square foot houses in St. Pete for 800 and up, [inaudible 00:04:23] how things shift.

Marc:

It was on my list, a roundabout way to talk about some different questions that every generation should ask themselves. So housing certainly can apply to any generation. I mean, even folks in our baby boomer conversation today could have been thinking about downsizing or whatever the case is in retirement and that certainly could play into that question. So that’s one we tackled without really even setting it up to tackle it. So we’ll just jump in and talk about a few more of these things.

But again, with everything being so wild right now, it seems like from a financial standpoint all across the spectrum, whether it’s inflation, housing costs, food costs, whatever the case is, how do you manage all that? So risks, whatever risks guys, is going to be top of mind, especially if you’re a senior. My mom is 82 going on 83, and she’s constantly worried about the various different kinds of risks that may affect her at that age. Market volatility, social security, whatever it might be. So let’s just start with the market volatility. Whoever wants to take that one.

Nick:

Yeah, so from a market volatility standpoint, it’s very interesting from the perspective of how things seem to work these days from a market perspective. I don’t have the exact numbers, but I know last year, essentially needed to… The majority of the growth in the market, although we had a great year, the majority happened within a seven to 10 day market window. So your chances of if you’re not just holding and studying the market, your chances of really getting the returns that you’re looking for are very difficult. So volatility, the swings up are substantial and the swings down can be. I think a lot of that has to go, can be attributed to the algorithm based trading and high frequency trading and things like that have an impact on that.

Marc:

And if you’re a senior, none of that interests you, right? So I mean, that’s [inaudible 00:06:18].

Nick:

No. No. Yeah, absolutely not. But for a lot of people in that generation, they’re used to the returns being more steady throughout a single year or the perception from that perspective at least versus like, hey, if you miss a month and it was a good month, then your returns could be next to nothing. So it’s pretty interesting.

Marc:

Yeah, managing that risk, for sure.

Nick:

Yeah, it goes back to that classic perspective of the asset allocation continues to be as important as ever.

Marc:

Yeah, for sure. John, if you think he just mentioned steady income. So if you’re a senior, best approach for transitioning from a steady income like your job, for example, to retirement withdrawals, that’s usually a massive hurdle for anybody going into retirement but obviously right now, these are the boomers. I just read actually today that we’re taping this guys, I think four million people were going to be retiring this week, four million this week.

John:

It’s a good number.

Marc:

Crazy, right? So, how do you deal with that scared-ness of, okay, I had a paycheck last week and now I don’t, I got to use my retirement money and turn that into paychecks. That’s a big hurdle for people.

John:

It’s a huge hurdle for people. This is one of the biggest things we see when we’re doing retirement planning for clients that are transitioning. It’s, I used to work and get my paycheck every biweekly, whatever it is, and now it’s gone. There’s a fear of spending their money they’ve been saving all these years. I’ll tell you, the best thing to do in our opinion, is to develop a financial plan and a strategy for retirement income. So you really have to put the pen to the paper and determine, okay, what are my expenses? How much do I need? That’s going to be the first step. Then after that, it’s looking at, hey, what are my income sources? We talked about social security last week, we’ll touch on it a little bit more here, but hey, how much is social security going cover? Okay, what other sources do I have? Really evaluating where’s the money going to come from? Once most people see it, it provides peace of mind and a little bit of, okay, this is what I’m doing. You got to have the blueprint. Once the blueprint’s there, you feel much better about what your approach is.

Marc:

Well, we all want to know we got mailbox money coming. We all want to know that when we go out, and I know most of us don’t go to the mailbox anymore to get it right, but it’s the same idea that when you go open the mailbox, the check is there. That’s what you need to know. That’s that comfort factor that you need to know. So that’s turning these accounts that you’ve been building up through your working years into this retirement income. So certainly, that is an importantly huge question for baby boomers to ask themselves.

We’re talking about wealth and building wealth and working through the years. Nick, I’ll throw this one at you. I’m going to hop around here a little bit, but passing on wealth to the next generation without sacrificing your own retirement, is also another huge question that boomers are asking themselves because they want to know that they are going to be fine, but a lot of times they want to leave something behind. I just was looking this up real fast. Experts are putting that number between 40 and $100 trillion right now that they’re estimating in the great wealth transfer conversation, which is what boomers will be leaving to their kids and grandkids over the next 20 years. $100 trillion. Man, that’s crazy money.

Nick:

Yeah, it’s pretty wild. What’s interesting is I think the baby boomer generation has done a good job of accumulating assets and saving.

Marc:

Oh yeah, great job.

Nick:

There’s also, I would say, versus maybe their parents’ generation, they spend a little bit more. It’s interesting, a lot of the people, I wouldn’t even call it half-and-half, maybe around 30, 35% or 40%, leaving money for them is incidental, where their focus is primarily on themselves. A lot of times these are people that have done a good… They’ve helped the kids get through college, kids have good careers, and-

Marc:

Right, we’ve saved it, it’s ours, let’s party, right?

Nick:

Yep, so they want to travel. Obviously travel is the most popular thing that people tend to want to do. So having that conversation changes things. For those that are highly focused on leaving the money, and what’s interesting is where I’ve seen it happen a little bit more is because people like to, in their mind, it makes it easier for them to segregate money. So we’ve had a few recently where their retirement plan looks good, their thought process with the money that they have saved and accumulated and leaving it to their kids is incidental like, hey, if there’s money there, great, if not, we want to take care of ourselves first. But, they’ve also inherited money maybe from their parents or a brother or sister, and they say, all right, well this is going to be the money. I consider this found money, and so this will be money that I’ll try to leave and pass down. So it’s been interesting seeing that thought process.

But with the way that current estate tax exemptions are from a tax perspective and avoiding estate taxes, that sort of thing, for most people, that’s not an issue. But for those that are, maybe they’ve got kids that are high-income and they would like to leave them money that has less of an impact from a tax perspective, depending upon their situation, we might look into life insurance options or even converting to Roth options to help them pass on money and not have a major negative impact to their overall plan.

Marc:

Yeah, because you want to figure out how to… If you do have it in your mindset to transfer some wealth upon passing, and I think probably the healthy approach that a lot of people take is, we’re going to do what we want to do, we’re going to be fine, and whatever’s left at the end, fine, transfer that over to the kids or grandkids. You want to make sure that you’re doing that as efficiently as possible. So some strategizing there is certainly going to go into play.

John, I’ll throw this back to you, whether it’s leaving money behind or even how you set up your social security, because you talked about it a minute ago and readdressing social security. Maximizing social security could impact what you do have left over at the end to leave behind because that’s not something you can pass on. So it’s a matter of figuring out how you want to structure these things to maximize your benefits and get everything out of it that you can while you’re still here.

John:

Yeah, yeah, if you’re able to maximize your social security and figure out what’s best for you, what that ultimately does is you’re dipping into your own investments a little bit less because you have that strong social security income stream. So if there’s more investments left over, your beneficiaries, whoever your beneficiaries are, will have a bigger balance coming to them. So definitely, we talked about it before, we always stress on it. You don’t want to take social security decision lightly. You want to make sure that you’re strategizing for your situation on how to maximize those benefits.

I believe it was last week that we talked about the cost of living adjustment in social security. So if you delayed yours, people have been getting 6% or 7% increases, and if you were taking yours later, you get a bigger balance. Those 6% or 7% over the past few years have really added up. So, very important to make sure that you take what’s best for you in social security and not just take it lightly. I hate to say this, but you don’t want to listen to your neighbor on what they did because you’ll be surprised how many times we’re meeting with people, it’s like, my neighbor’s doing this, and it’s just like, huh, okay, well-

Marc:

That’s your neighbor, right.

John:

What does your neighbor do? Well, they’re in tech. It’s like, okay, well.

Marc:

It’s a little bit different, yeah. Well, thinking about that social security conversation, so getting a maximization ran, going through the planning process, going through a strategy session with you guys, and having it stress tested and having that maximization ran will help you see that because that’s a great point. Are you riding the horse that brought you, which is your retirement, or the government one? I know technically it’s our money, the social security, the government, but it’s like figuring out the best balance between those two when you’re going to start pulling things from whatever account. So, good stuff right there to think about when you’re talking about for generations. Go ahead.

John:

One thing Mark, with that. With social security maximization, a lot of people don’t realize is there are these calculators that you can look at and say, hey, you put in your numbers, you put in a spouse’s number, and it will shoot out, hey, this is the strategy, but it doesn’t take into account other factors, as far as, do you have a pension? Things like that. How you want to figure out what’s the best strategy is when you look at your social security and how it affects all your other assets and income streams, then you can figure out what the best approach is because when you just look at social security in a vacuum, there’s other factors in there that really make a big difference on what the best strategy is. A lot of people will just go online, hey, what’s the strategy, maximization strategy, but it doesn’t give the overall picture.

Marc:

A great point, really good point right there. So let’s wrap it up with one final piece here to think about, Nick. Of course, we could go forever on this topic, but we’ll just… Some couple of concise points to think about when you’re talking about addressing healthcare costs in retirement. Obviously for boomers, this is a huge concern, really for anybody, if you’re alive and human right now on the planet. Healthcare is obviously growing out of control, but certainly a big concern when you’re elderly.

Nick:

Yeah, I think, and this is almost a tiered approach. So the first thing or aspect that needs to be addressed is if you plan to retire before you’re eligible for Medicare. So having a plan in place and understanding what those costs could look like. So for the majority of people, if they want to retire before age 65 and they need to get healthcare coverage outside of their former employer, then we tell them to typically budget between $800 and $1,000 a month per person. For most people, that’s going to be a huge increase in costs. They might be able to float it and they also might be able to reduce that cost substantially if they have money saved that are non-retirement funds. So non-qualified accounts where we can keep their income on paper down and they might be able to qualify for a subsidy. So that’s phase one.

Then phase two is, once you are eligible for Medicare at age 65, making sure that we’re budgeting somewhere between 4,000 and $5,000 a year and having them talk to a person, and we’ve got a couple of resources that we’re very happy with and we refer people to, because depending upon their overall situation. Again, if they, especially people that are coming from working for a large company that maybe had really good benefits and they’re used to paying maybe a couple hundred bucks a month for coverage for themselves, that may actually be an expense that goes up.

Then the phase leading into those two things are, are you eligible for a health savings account at work? Are you putting money in? Then that money that is getting put in maybe something that we could use to help mitigate some of these costs and be efficient from a tax perspective. Then also help you cover maybe potential large, actual purely out-of-pocket medical expenses that start to approach and happen down the road when you get to your 70s, 80s, etc, where these things pop up. People live longer, whether it’s some sort of acute care or if it’s some sort of need for long-term care, which is expensive, but-

Marc:

Yeah, crazy [inaudible 00:17:57].

Nick:

Really, the key to that is the overall plan, making sure that we test those numbers out in the plan and that we’ve got a strategy to approach it.

Marc:

Yeah, because if you don’t take a strategy into account with that, if you’re married and you’re a senior and you’re like, hey, we’re going to just take care of each other because it’s just going to be cheaper, it’s a wonderful sweet and noble sentiment that has no basis in reality because it’s just not smart. It’s such a taxing physical thing, a mental thing, to take care of one another without having some sort of help in there. So you’ve got to plan and strategize for it, whether or not it is daunting to do, yes, but if you don’t start having those conversations, it’s only going to get worse.

I mean, my wife jokes with me all the time. I mean, I’m 52, and she’s like, I can’t pick you up now, I can’t imagine trying to pick you up when you’re 72. She’s 70, it’s just not going to work. So you’ve got to have a good strategy for healthcare to address the rising cost because it is going to continue to do so. Again, these are some questions for boomers to really think about and ask themselves.

If you need some help, if you need to sit down and start that planning session, that strategy conversation because you’ve been putting it off or you’ve addressed a few things, not all the things, whatever it looks like, reach out to John and Nick and get yourself onto the calendar at pfgprivatewealth.com. That’s pfgprivatewealth.com for a consultation and a strategy session of your own. Don’t forget to subscribe to the podcast, Retirement Planning Redefined on Apple, Spotify, Google, YouTube platforms, whatever, you can find us on all those major platforms. Just type into the search box, Retirement Planning Redefined, or again, go to pfgprivatewealth.com. That’s going to do it for us this week for John and Nick, I’m your host, Mark. We’ll catch you next time here on the podcast.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Mistakes You’ll Regret and How to Avoid Them

On This Episode

 

“Learn from the mistakes of others. You can’t live long enough to make them all yourself.” – Eleanor Roosevelt… Ever wish you could foresee financial missteps before they happen? On today’s episode explore some real-life stories of regret and arm yourself with the essential dos and don’ts to ensure your money works for you, not against you.

Subscribe On Your Favorite App

More Episodes

 

Check out all the episodes by clicking here.

 

Disclaimer:

 

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

Here is a transcript of today’s episode:

Marc Killian:

“Learn from the mistakes of others, because you can’t live long enough to make them all yourself.” Eleanor Roosevelt said that, and we all certainly wish that we could foresee financial missteps before they happen, so on today’s episode, John and Nick are going to share some stories with us and talk with us about money mistakes we might regret and how to avoid them here on the podcast. This is Retirement Planning Redefined.

Hey, everybody, welcome into the show this week, as John and Nick and myself are going to talk about those money mistakes and hopefully ways to avoid those. So we’re going to get into a few of them this week. And as always, if you’ve got some questions, you need some help, reach out to the guys before you take any action on something you hear on our show or any others as it relates to your situation specifically. We all have these universal things that apply to us, but individually in the nitty-gritty is where we need the qualified professionals to really help us dissect and do the right things for our retirement. And John and Nick can be found at pfgprivatewealth.com. That’s pfgprivatewealth.com. Get yourself onto the calendar and don’t forget to subscribe to the podcast. John, what’s going on, buddy? How you doing?

John:

I’m doing pretty good. How are you?

Marc Killian:

Hanging in there. Doing pretty well. Looking forward to talking to you guys today about these money mistakes and seeing what we can do about them. Nick, my friend, what’s going on on your end of the world? You doing all right?

Nick:

Yes, sir. Staying busy.

Marc Killian:

Yeah? Just keeping busy. Well, that’s good. It’s that time of year. We are into, I don’t know, we’re right around November about the time we’re doing this, so we’ll see. The year’s winding down quick and so it’s always something coming fast and furious. So let’s talk about a few of these things so hopefully we can avoid them, especially in the fourth quarter. Sometimes we start to maybe spend a little bit more money than we realize. So let’s get into today’s conversation a little bit, guys. And I want to talk about IRA withdraws, whether it’s a loan from I guess a 401K or I know that you can’t do it from different kinds of accounts, or just taking them out prematurely. Why is this a money mistake that people might regret? Because I’ve talked to a lot of advisors and it seems like everybody universally says this is the last place to access money early if you need it. If you needed something for an emergency or something’s happened, most people seem to advise against pulling money out of these types of accounts early. Why is that? Whoever wants to tackle it.

John:

Yeah. I’ll take that one. So yeah, the main reason why you want to avoid this is it can be riddled with fees and there’s a 10% penalty. If you’re under 59 and a half, you don’t qualify to take the distribution out, so what you’re doing there, and we talked about it last week, is Uncle Sam has a liability on your money. You’re just basically giving Uncle Sam 10% of your money. And then on top of that, you’re paying taxes on any withdrawal. And if you’re already currently working, now you just actually raise your tax bracket, so you could be paying additional taxes and this is money that’s just lost. And what you’re really losing out on is the growth potential down the road. So it really is a lost opportunity cost of, hey, if you pulled out 40, 50 grand over whatever, a couple year period, well, depending on how long you were going to wait until you retire, that’s 50 grand of six, 7% potential compounding growth. That could really add up and could be a detriment to your overall retirement strategy.

Nick:

I would add to that, too, from the perspective of a lot of times, the reason for taking out the funds isn’t necessarily the best, and there could be other ways. If it’s a last resort, that’s one thing. If it’s something where it’s for an update to a house or different things like that or even certain types of debt consolidation, we’ve found that literally the money just disappears almost to the standpoint of it never gets replaced. When that expense goes away, they don’t catch back up and reemphasize savings or things after that. The money comes in quick, it feels easy, it goes out quick, and then they just move on like it never happened, so it really can put people behind the eight-ball.

Marc Killian:

Yeah. And I definitely like the point of not only is there the immediate impact, but there’s that future impact that John talked about by losing the ability to continue to grow that money for our future self. So certainly a money mistake that we could regret and why many advisors, most advisors advise not doing that and looking for some other alternatives. Let’s talk about lifestyle creep. It’s not a song from Radiohead. It’s like you get to that peak earning years, I suppose, and the kids are out of the house.

I’m there now, guys. I’m 52, the kid’s in the Navy, she’s doing well. My wife and I are doing all right, and so I’ve been splurging a little here and a little there on some extra items and we’re enjoying ourselves, but I’m also being mindful not to let it get out of control because there is that future me still waving, saying, hey, don’t forget about I need some of this money, too, when you’re 75. So you got to be careful with that. You guys see that sometimes when folks get to this age where they’re like, hey, I’ve worked really hard. I’m going to treat myself a little bit.

Nick:

Oh, yeah. Definitely we’ll see that. And we always joke with people that we’re not the money police and we’re not here to tell you that you can or can’t use your own money or those sorts of things, but to just show you the repercussions of decisions, both good and bad. So those years in your fifties where you’re able to save really make a big difference. And so sometimes we’ll even phrase it like, okay, well, maybe you’re going to splurge on a certain type of vehicle or a second home or something like that.

Marc Killian:

That’s big splurging. Yeah. Wow.

Nick:

Yeah, yeah. So what can we do from the perspective of, okay, a little bit for you now and a little bit for you later sort of thing. Because sometimes it’s as simple as, all right, let’s just start an automatic deposit into a separate account and at least force it. Let’s see how it feels. Because a lot of times people will adjust to having a little less take home income or they’re used to having a certain amount of money in the bank and maybe it’s substantially higher than it was five or six years ago, and they get almost addicted to looking at it, and now it’s like, all right, well, you’ve reached that. Now let’s deploy some of what we’ll call the new money elsewhere and start to save it to try to make up for that creep a little bit.

Marc Killian:

Yeah. It’s all about balance. And of course, John, I was talking about just buying season hockey tickets and he’s talking about buying an extra house. But either way, it’s all about finding that balance so that you don’t get that lifestyle creep out of control a little bit. And John, I’ll throw this one at you since you’ve got the little ones there. Another one of the big money mistakes people are starting to really wake up to is I paid too much for my kid’s tuition and I can’t finance retirement. So I told my daughter this. When she was 20, I was like, all right, you need to get your stuff together because you ain’t staying on my couch forever. And besides, you don’t want me on your couch whenever I’m 70 and you’re in your forties or whatever and you’ve got your family and you’re raising your kids and I’ve had to come live with you because I gave you too much for college, or I helped you too much along the way. It’s got to be about balance on this as well, I would think.

John:

Yeah, yeah, a hundred percent. I think most parents, they want to provide obviously as much for their kids as possible.

Marc Killian:

Of course we do.

John:

They’ll say, oh, I don’t want them to have all these student loans coming out of school. I just want them to focus on school. But a hundred percent. You can’t go at 59 and a half or 65 and say, hey, I need a retirement loan. That’s not an option.

Marc Killian:

The only choice there might be maybe a reverse mortgage, and that’s the conversation of the day.

John:

Right, exactly. So you don’t want to catch yourself in a situation where it’s like, hey, in your high earning years, you’re really, hey, let’s help out with school. And then all of a sudden they’re done and you look at your nest egg and it’s like, wait, I got to work extra or I have to adjust my lifestyle. And you really back yourself into a corner. So there’s other ways to go around it. Maybe they do take out a student loan and once they graduate, maybe you assist them in paying it back, but at least you have that option to really adjust it to your situation.

We’re talking about mistakes and how to avoid them. What you especially want to avoid is backing yourself into a corner at the 55 plus age, because that’s a lot of times where you’re a high earner and companies might look at it and say, hey, we need to downsize. I’ve had a few clients where late fifties, early sixties, and they’re looking at it like, hey, I got to go find a job somewhere. And they weren’t planning for that. So you definitely want to leave yourself flexible to adapt to any situation that’s going to come up.

Marc Killian:

Yeah. Since I was talking about hockey a second ago, we’ll use that as an analogy. You definitely don’t want to have two guys in the penalty box, two of you in the penalty box, and have it be a five on three because it’s just going to be a little rough right there. So making sure that, again, balance is going to be the key, right? Making sure that you can handle helping the kids without sacrificing your future. And they don’t want you to do that either, ultimately.

At the moment they feel like they do because it’s great to have mom and dad help, but when it comes back around years later and they have to help you, they’re going to really regret that decision as well, so that’s why we’re trying to highlight some of these areas for you to avoid. And Nick, I’ll toss this one to you. Similar in a way, but instead of helping your kids, you’re helping yourself because you chose to retire early. And if longevity risk is the great multiplier to all the other risks we face in retirement, and that’s just the years we live longer, I would think that retiring too early is almost like longevity risk on steroids.

Nick:

Yeah. I think the retiring too early thing is usually if there’s a really strong plan, meaning financial plan, retirement plan done, I think we feel pretty comfortable with the level at which we do plans and give people just input on, hey, we feel comfortable with you retiring. We don’t feel comfortable with you retiring. But for example, recently, a new client, somebody that is going to retire a little earlier than maybe is considered typical reviewed the plan that they had been working off of the last maybe 5, 6, 7, 8 years, and the rate at which the plan had expenses dropping for the client jumped out to me as a red flag.

And so it’s not only from just a standpoint of, hey, in theory it doesn’t make sense to retire too early and all these different things, but also just showing the importance of second opinion or the importance of the plan, importance of inputs in a plan where in our opinion, cutting expenses by 50% between 70 and 80 is a pretty tricky thing and can be very misleading with the security that you feel with your plan. So yeah, things like drawing down the money too early, whether it’s taking Social Security too early. Those increases that people have gotten in the last three, four years in Social Security, especially those that have waited are going to make a really substantial difference because they’ve been so high, and just anybody that took those real early and locked in those gains on much lower numbers, they’re going to feel it 10, 15 years down the road.

Marc Killian:

Yeah. I don’t have the exact data in front of me, but I just saw something not too long ago that talked about waiting three years, just three years to retire, delaying it three years, made some crazy number difference in the math for retirement. It was pretty wild. I’ll have to find that. We’ll have to talk about that on a future show, but it was pretty interesting, just the massive difference that it can make. So certainly important. Hey, if you want to retire early and the numbers bear out, cool, but just I think that’s the point. Run the numbers. Make sure that you truly can pull the trigger and retire early so that it doesn’t bite you along the way.

Because you certainly don’t want to get to 80 and be like, oh, okay, now I got to go back to work. That wouldn’t be good, so let’s not do that. John, let’s talk about the last one here. I want to have you chime in a little bit on different taxable buckets. We were just talking a couple of weeks ago about kicking the can. We’re so used to it. That’s what we’ve been taught. Pumping into a 401K, defer, defer, defer, and many people, if we’re talking money mistakes again, is I didn’t really explore other tax buckets and I regret doing that. So maybe it might’ve made more sense to look at Roths, for example, or something else.

John:

Yeah. Going back to our last session, this is when you look at your nest egg and you say, wait, Uncle Sam’s getting about 15 to 20% of this, and you realize, hey, I should have done some Roth money. But yeah, that’s definitely something. We see a lot of people going into retirement where Roths weren’t too popular really 10 or 15 years ago, and 401Ks, that is, and now it’s more popular, so more people are doing it. But definitely right now, we’re seeing a lot of people where most of the money’s pre-tax and they’ll go into retirement and realize how much they’re paying in taxes and just saying, hey, I wish I had some tax-free money to really help the burden of the taxes I’m paying. And again, the tax rates could change, so just being able to adjust and pivot depending on what’s happening.

Marc Killian:

Yeah. I definitely think that it’s something worth investigating, having a conversation, but there is some things they have to think about, too. So I know it’s been the hot topic lately to talk about we’re doing Roths or conversions, Nick, but if you are considering doing so, make sure that this is also money that you’re not going to need to access right away because there is a five-year hold, correct? If you’re converting?

Nick:

Correct. Yeah. So if you’re going to implement conversions into your overall strategy, it’s really important to have it road-mapped out because we’ve seen people that have converted too much or converted money that they expected to be able to use within that five-year window, and then it defeats the purpose. And or maybe they don’t have money outside to be able to pay the taxes. So yeah, it’s really important to have a broad-based strategy when you’re looking to do that.

Marc Killian:

Yeah. Because I know it’s been a hot topic and a lot of people have been really pushing the importance of getting money, paying the taxes now at the lower rate that we’re in, because we’re all pretty sure the tax rates are going to go up, yada, yada, yada. And so it’s been a big focus, but don’t just get sold on it because it’s the thing, and then all of a sudden, to your point, someone’s saying, hey, I got a million bucks. Let me start converting all of it because you’re going to jack yourself up in tax brackets that way, too. So there has to be some strategy to that as well. Just like everything in finance. Make sure that you got a good strategy in place for all the different pieces, the income side, the taxation side, Social Security, all those pieces need a strategy to them in order to be effective and working together within that strategy.

So if you need some help, that’s what the guys do day in and day out. Get yourself onto the calendar. Or if you know someone who’s in a situation that does need some help, share the podcast with them. Let them know to reach out to them or just stop by the website, jot this down. Pfgprivatewealth.com and share that with those that might benefit from the message. Pfgprivatewealth.com is where you can find John and Nick, financial advisors at PFG Private Wealth. And don’t forget to subscribe to the podcast, Retirement Planning Redefined on Apple, Google, and Spotify. Guys, thanks for hanging out. Nick, buddy, I appreciate you as always.

Nick:

Thanks, man, and enjoy your hockey.

Marc Killian:

Absolutely. Going to do that, and to your mom as well. She’s a new big fan as well. So go hockey. And John, my friend, I hope things are going well for you, and thanks for hanging out, buddy.

John:

Yep, have a good one.

Marc Killian:

Yes, sir. We’ll see you next time right here on Retirement Planning Redefined with John and Nick.

Retirement Planning’s “Hidden” Questions

On This Episode

 

The retirement planning world is filled with plenty of advice and suggestions, but there are critical questions lurking in the shadows – the unasked, the overlooked. These are the questions that can help define the comfort and security of your retirement future. On this episode, we unearth and tackle these hidden, but essential questions about retirement.

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Disclaimer:

 

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

Here is a transcript of today’s episode:

Marc :

The retirement planning world is filled with plenty of advice and suggestions, but there are some critical questions that sometimes get lurking into the shadows or unasked or just overlooked and that’s the questions we’re going to talk a little bit about today here on the podcast. So check it out here this week on Retirement Planning Redefined.

Hey, everybody. Welcome into the podcast. Thanks for tuning in as John and Nick and myself talk about today’s topic, which is some hidden or overlooked questions in retirement planning. So the guys are going to help break this down this week on the show. Thanks so much as always for being here and listening and if you’ve got some questions, make sure you reach out to the guys at pfgprivatewealth.com. That is pfgprivatewealth.com. Get yourself some time onto the calendar and you can also subscribe to the podcast on whatever app you like using. Find it all right there at pfgprivatewealth.com. Guys, what’s going on? Nick, how are you, bud?

Nick:

Pretty good, pretty good. Happy that we’ve worked our way into football season and we’re starting to get some tease of cooler weather. I’m excited about that.

Marc :

Yeah. Very good. John my friend, what’s happening in your neck of the woods? You doing all right? How’s the little ones?

John:

Good. Little ones are good. They’re seven and four. So they keep getting older and a little bit more-

Marc :

Weird how that happens, right?

John:

I know. Personality’s definitely coming out I’ll say. My kids are completely different and we’re like, “How did this happen?” One is very reserved and shy and the other one’s a complete maniac, but they’re great.

Marc :

Yeah. It’s like they look at each other as they’re going through things and the stuff that we don’t see as parents and they’re like, “I’m going to be the opposite of this person,” or whatever the case is. It’s always funny how the siblings, now I just have the one, but I’m one of seven myself so I certainly can relate to the siblings, but myself, I only have the one kid and she’s all of it rolled into one. She’s got a little bit of everything going on with her so there’s definitely nothing happening. There’s nothing hidden about that kid that’s for sure. She puts it all out there.

And that’s my segue into the topic today for retirement plannings hidden questions. I think guys for some of these, they’re not necessarily hidden as much as maybe overlooked is the better term. I think we know it, we keep it in our mind somewhere, but we tend to just either forget about it or we put our focus someplace else during the journey towards retirement. So you’ll see what I mean here with this first one.

The question might be, how much are these tax deferred savings eventually going to cost me in taxes? And so you can kind of see where I’m going with this. If you’re pumping away into the 401k ’cause you’ve been told that’s the thing to do for 40 years, you kind of forget that eventually you know it, but you forget, eventually Uncle Sam’s going, “Hey. Where’s mine?” Right? So how much is it going to cost us?

Nick:

Yeah. I would say that’s definitely a topic that we talk about quite a bit, especially with the required minimum distribution age getting pushed back. Some clients that have allocated a large portion of their retirement funds to pre-tax accounts and then maybe have their expenses low and don’t plan on taking out much money at least initially early on in retirement can get a bit of a surprise when those required minimum distributions kick in.

And so that’s something that we try to plan around where oftentimes accountants are usually focused on taxes today. So a lot of times they’ll suggest, “Hey. Defer those until you only have to take them out and use other money first,” and we tend to try to split that money up, take some of the money out of the pre-tax accounts earlier on, make it kind of blend with some of the other non-qualified funds so that when the required minimum distributions kick in, it’s not such a huge surprise and maybe causes income above and beyond what they expected to have.

Marc :

Yeah. And John, ’cause a lot of people, let’s just use a million dollars ’cause it’s a round number and it’s easy, but it’s kind of sexy, right? It’s got this allure to it like, “Hey, I’m a millionaire.” But if you’ve been pumping this all into one of those type of accounts, you’re not really a millionaire. You’re more like a 700,000 aire because the government wants their share again, right?

John:

Yeah. Yeah. It’s something that’s always there and if you start to look at it, you want to estimate I would say on average, again everyone’s different, but I’d say 10% to 20% you could expect would go to taxes. Obviously if you withdraw it in one year, it’d be a bigger chunk than that, but when you retire, we’re looking at effective tax rates between 10 to 20 sometimes 25%.

Marc :

Yeah.

John:

Not that we like to look at rule of thumbs, but if you’re looking at a balance sheet and wondering, “How much of this is going to be mine?” That’s a decent place to start.

Marc :

Yeah. It’s a good place to start the conversation, right?

John:

Yeah. Yeah, exactly. But it’s something to be aware of and this is where the planning becomes very important to understand, “How much taxes am I going to be paying per year?” And that’s where it’s important, whoever you’re working with when you’re doing your retirement plan, they should be able to show you that at any given year how much you’re going to pay in taxes and that way you have an idea of like, “Hey.’ The big thing with this too, especially this day and age, a lot going on in the world and-

Marc :

Just a little bit.

John:

Yeah. Big question is are taxes going to go up? So if a lot of your money’s pre-tax, and we’re going to get to this later I believe, if taxes go up, that’s a bigger hit that Uncle Sam’s going to take out of your nest egg. So it might be 10% or 15% when you first retire, but all of the sudden it could be 10 years in and that’s a bigger chunk they’re taking depending on the rule changes.

Marc :

Yeah. That’s a great point. And so using that same million dollar analogy here, Nick, the next question that again gets looked at, but maybe not looked at the right way is how much can I pull out of this joker each year? And so talking about rules of thumb a second ago with John, it’s easy to do the back of the napkin and do the 4% thing, but if you did that off a million dollars and you say it’s 40 grand, well if you don’t have a million dollars, ’cause again, you got to pay the taxes and you got more like 700,000, now you’re at 28 grand, so on and so forth. So it becomes a real, I don’t know, sliding scale as to what you can withdraw each year.

Nick:

Yeah. It could be a tricky thing, especially because, and I would say even the landscape has changed a little bit. So for example, clients that retired five years ago when interest rates were really low and the money that they needed to take out of their nest egg wasn’t going to just be this concept of interest only or dividends only because the ability to be able to do that was minimized with where rates were. So we do talk about the 4% rule to give people an idea of and a better grasp of understanding of, “Hey. When you look at your nest egg and you’re trying to figure out how much money can I really take?” That’s an easy calculation for people to make so that they understand, “All right. 40,000 for every million,” because some people are under the impression that they can take out a lot more for example. And so helping them understand, “Well, hey. Maybe not quite,” is a big thing.

And that also, kind of what you alluded to, where 40,000 from maybe a non-qualified account is different than 40,000 from a retirement account because of taxes and especially if they’re living in a state where there’s state income tax, that sort of thing.

Marc :

Gotcha.

Nick:

So we discussed that 4% rule with people so that they have a better understanding of it, but then it really helps us emphasize the importance of having a withdrawal or a liquidation order, helping them understand, try to focus on some short-term, mid-term, longer-term assets and almost kind of assigning a job to different types of accounts because some accounts we’re going to spend down a little quicker. Other accounts we want to let grow, but especially when it gets to times like these where the markets are a little haywire and people are getting nervous, sometimes they want to bail and try to emphasize it’s important to still make sure that you keep some long-term investments in play.

Marc :

And that’s a good point ’cause that’s going to lead me to my next little hidden one here that we’ve been reawakened to John and that’s our friend Mr. Inflation. Not that he’s our friend, I’m being sarcastic, but-

John:

Not my friend.

Marc :

Not my friend at all, right? But we’ve been reawakened to it, but forever in a day it was like, “Okay. It’s just there. It’s not that bad. Two and a half, 3%, whatever.” But now people are going, “Well wait a minute. Is this going to derail my plan?”

John:

Yeah. We are seeing quite a bit of that. Everyone’s inflation rate’s different. That’s one thing that we will say is that everyone has a slightly different inflation rate depending on what you do, what’s important to you-

Marc :

The things that you buy. Yeah.

John:

Yeah. So example, I’ll tell you where I’ve seen my biggest expense has been food. Fairly well and all of the sudden it’s like to try to go eat something that’s a little bit good for you, it’s like, “Man, this is getting expensive.”

Marc :

Exactly. That kind of hit my ear funny. I’m sorry. I’m going to cut you off real fast just to ask you to expand on that some more, but people might go, “Wait a minute. The inflation rate, it’s 4.5%. Why is it different for different people?” But that’s a great point. How you live and your lifestyle, and we’re not even talking like living super high on the hog now, go to the grocery store or other places, you know it’s still not 4.5%. They don’t factor so many things into that number. It’s really kind of a misnomer, right?

John:

Yeah. Everything’s different. As we know, energy costs are different, food, and then what do you like to do in retirement? Do you plan on traveling? Are you doing more activities where it doesn’t cost anything? Then guess what? If you’re just hiking and doing things like that where you live, then not going to be a big impact for you, but if you like to travel and do other things that result you get on a plane, going out to eat, things like that, it’s going to be a whole different experience. Again, we harp on this, but it’s important to do the plan and if you are working with an advisor, maybe they have the ability to categorize each expense and have it have a different inflation rate depending on what’s happening in the world.

Marc :

Nick, are you guys taking into account a higher inflation rate currently for folks to adjust that or do you still look at the historical over the long-term rates and say, Okay. Historically we’ll probably be somewhere back down in that three or 4% range over time?” Or do we need to adjust for that in the interim?

Nick:

So the way that we’ve been handling it, because we think it’s a little bit more efficient to look at it, is it’s a little bit more work. So every couple years we have people update their expenses. So we have an expense worksheet. So the key being that when they update their expenses, we can account for their inflation over the last few years. And then we’ll use a more traditional rate moving forward ’cause the tricky part with using a higher rate is that’s over the lifetime of the plan. So we’re talking 20, 30, 40 years.

And normally that’s not something that happens. So we know that oftentimes there are these spikes, which we’ve had in the last couple years. So we want to reprice that in and take in accounting for what these higher expenses that they have are and then use a more traditional rate moving forward because the amount that we would have to increase it over the last couple of years would be higher than it would be over a 10, 20 year period.

Marc :

Gotcha. Okay. Makes sense.

Nick:

So that’s kind of what we found to be the most accurate. And again, there’s things where, as an example, had a friend that got into a car accident either late last year or earlier this year and they were forced to get a new vehicle versus if they hadn’t gotten into a car accident, they wouldn’t have wanted to. So they were forced to get a new vehicle and with where prices were on used vehicles-

Marc :

At the time, yeah.

Nick:

Yeah. Just like crazy pricing. So that is something that specifically impacts them differently than somebody that doesn’t need to buy a vehicle and can just wait until things slow down a little bit. So that’s just kind of a good example. And we’ve got people who, if they’re renting, I live in downtown St. Pete and I rent and the rent in downtown has doubled over the last five years. There’s things like that versus somebody who’s in a mortgage and that’s a little bit different. So those are just kind of some examples of why we want to reprice where things are at, update our baseline, and then kind of move forward in a little bit more traditional and keep an eye on it.

Marc :

Yeah. And John, you said a second ago, how you’re living, the kind of food you’re getting or whatever, but also where you live. So another hidden question might be, is where I live going to impact my retirement situation? I can’t see how it wouldn’t. What you’re going to be doing there in Tampa, for example, where you’re at John versus where I’m at, I’m in sticks. Just even property taxes are going to be vastly different from county to county and so on and so forth or state to state.

John:

Yeah. Where you live will make a big difference and one example Nick just actually gave where it’s renting versus owning. That’s going to make a big difference depending on what’s happening. But no. It definitely makes a big difference. I was just up in Boston a couple of weeks ago and I saw some of that inflation up there as I was up there and I’m like-

Nick:

Wow.

John:

Tampa’s catching up, but it’s still not there and it’s just like, “Okay. Things cost a lot more up here.”

Nick:

Yeah.

John:

So it does make a big difference and then of course, where you live, is that where you’re going to spend most of your time? Again, are you traveling? You know what I mean?

Marc :

Well with Florida being a retirement destination, a lot of times people will do the moving to Florida. I don’t know if I would move there just for the tax benefit. Is that big enough to wag that dog or it should be moving there because you want to move there for various other reasons? Oh, and then there also is the benefit of the tax situation. Is that a better way of looking at it or just, “Hey, we’re going to move from New York to Florida because the tax rates are better.”

Nick:

I would say that the lifestyle that people used to have when they came to Florida, and this is in all parts of Florida, but obviously Miami, Lauderdale, Naples have always been pretty high and areas like Tampa and St. Pete have lagged a little bit, but now a regular middle class home in Tampa is going to cost you 500 plus thousand where six, seven, eight years ago it could be you might have to move out into the suburbs a little bit more, but the high twos to 300. And so it’s going to be interesting to see how it does impact that traditional, unless you’re coming from a city like a Boston where the values are still much higher.

Marc :

New York. Yeah.

Nick:

There’s a lot of places where, I’m from Western New York, Rochester, New York, the value of the homes were never that high, but the tax difference was substantial and now it’s a lot cheaper to live there even with the taxes than it is here to have the same sort of house and neighborhood and when you factor in car insurance has gone insane here, property insurance has. So it’s going to be interesting to see how it impacts it.

Marc :

For sure. Well let’s do the final one here. We’ll wrap up with pit questions and Nick and I were just talking about some significant ladies in our life getting into hockey, his mom, my wife. And I asked my mom, I was like, “Hey, you want me to take you to a hockey game?” And she’s 82. She’s like, “Honey, I could never get all the way down the stairs and then back up again.” But the question becomes is should we be planning, especially if you’re in this what they call the sandwich generation, if you’re in this 45, 50 range, 55, for caring for your elderly parents. It’s certainly happening happening more and more.

John:

Yeah. I would say definitely something you want to look at in your plan and something you just want to be aware of it and the potential of that happening and then you want to have conversations with siblings if you have siblings on, “Hey. If this were to happen, what are we going to do in this situation?”

Marc :

What do they have? What does mom and dad have? And then what do we need to shore up possibly?

John:

Yeah. So it’s having all these conversations with the whole family of, “Hey. Do you have long-term care insurance in place?” “Okay, you don’t. Okay. What’s the nest egg? What’s the income coming in?” So something you definitely want to have a discussion on and I think Nick has shared a couple of stories and I have a couple of my own where we’re seeing where maybe it’s not financially impacting the couple that’s retiring, but it’s impacting their lifestyle. So I’ve had some scenarios where clients couldn’t do the things they wanted to do because they were caring or taking care of a parent, not necessarily financially ’cause the finances were fine, but they were physically doing things and had to be present. So it really impacted some of the things that they were able to do.

Marc :

Yeah.

Nick:

Yeah. I can speak to that ’cause my grandmother lives with my parents. It’s been over 10 years now.

Marc :

Wow.

Nick:

And it’s real life for them as far as what John just talked about of being able to travel and do the things that they want to do. They get some breaks where, for example, now she’s up staying with an uncle up in Rochester. So they’ve been doing a little bit more like traveling and trying to do things to enjoy that, but-

Marc :

They have to plan out their activities more.

Nick:

Yeah. Much more so. And let alone the stress of taking care of someone and all that kind of thing. So I think that one of the best pieces of advice to potentially give people is to, and that generation can sometimes be a little more difficult when discussing money. It feels like they’re getting a lot better, but being able to have conversations with them to understand what do they have? Do they have their documents in place? Who are the executors of their estate? Or is it a will? Is it a trust? Is there going to be issues that may be a fallout from how things are written? What can be done now to clean that up? And even things from the perspective of, ’cause sometimes parents will start to want to gift money or do different things and we’ve seen that that generation oftentimes has a lot of non-qualified money.

So maybe it’s stock accounts or things like that where if they sell to try to gift some cash to kids or grandkids or whatever, they can incur some serious taxes ’cause oftentimes that generation has held their accounts for a long time. And so even just understanding like, “Hey. Well if you leave these types of accounts after you pass, it’s going to be much more tax efficient than leaving these other types of accounts.” So let’s be smart with how we have some sort of liquidation in there and work through that.

Marc :

Gotcha. All right. So those are some hidden questions that you may want to consider and have top of mind or at least readdress when you’re talking about getting a retirement strategy into place. So if you’ve got those questions, again, reach out to John and Nick and subscribe to the podcast. Find all the information at pfgprivatewealth.com. That is pfgprivatewealth.com and subscribe to Retirement Planning Redefined with John and Nick on Apple, Google, or Spotify to catch future episodes as well as checkout past episodes or just find it all at pfgprivatewealth.com. For John, for Nick, I’m Mark. We’ll catch you next time here on the podcast. This has been Retirement Planning Redefined.