On This Episode
Droves of workers are retiring early or taking a break from work as they change career paths. It’s become known as The Great Resignation. On this episode, we’ll highlight some of the key takeaways of a recent Forbes article and explore a lot of the impacts on retirement planning from across different age groups in the wake of this massive workplace shift that’s underway.
Forbes Article: https://bit.ly/3JtbbeQ
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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 in to the podcast. Thanks for tuning in to another edition of Retirement Planning Redefined with John and Nick, as we talk investing, finance, and retirement. And we are going to discuss the Great Resignation on this podcast. And if you’re not familiar with that, well, that’s been all the mass exodus of people leaving work over the last three to four to five months. And we’ve got some interesting key takeaways here to talk a little bit about this. Droves of workers retiring early, or taking a break as they consider this career path, that’s been called now the Great Resignation, and there’s a Forbes article, we’ll probably take a link and put that in the show notes as well. But guys, what’s going on? How you doing Nick?
Nick: Good, good. Staying busy, kind of getting rocking and rolling to start off the new year. So, you know, I think a month or two ago we had hoped that maybe it’d be a little less chaotic from the standpoint of the whole pandemic thing, but I think everybody’s just kind of plugging away and recovering from the holidays.
Mark: Yeah, definitely. John, how you doing my friend?
John: I’m good. I’m good. Doing good.
Mark: Yeah. Nothing, nothing too crazy going on. Into the new year all right?
John: Yeah. Yeah, it was quiet. So just hung out with family locally here and in Tampa area. So it was just a nice little break and like Nick said kind of excited to be back to doing some work here and the holidays it’s always nice, but at the same time, I’m kind of ready to get back at it.
Mark: Yeah, exactly. So have you guys heard this term, the Great Resignation, are you guys a little bit aware of this and what’s your thoughts? We’ll get into it here, some data here in just a second, but just have curious if you’ve heard it or not.
Nick: Yeah, I definitely have. I think it’s interesting. I think depending upon who you talk to, their interpretation of it is a little bit different, but in my mind it’s really, it’s kind of, to kind of think about it from the perspective as almost like a real estate market, there’s a buyer’s market and there’s a seller’s market. And I think that really what’s happened is not all, but many companies have been slow to kind of improve wages and pay and benefits and things like that and so this has kind of put things into kind of the worker’s hands a little bit more and given them a little bit of leverage from the perspective of competitiveness from a company standpoint. And that obviously, that doesn’t deal with the people that are in between or are waiting to kind of figure out what they want to do with their whole life, that sort of thing, but more specifically, the people changing jobs and how difficult it’s been for employers to keep employees.
Mark: Yeah. I mean, it’s definitely all over the map and John, we’re going to talk a little bit about it from the different age groups, but for the most part, we’re going to look at it as it affects retirees and pre-retirees, but have you seen some of this stuff? Are you familiar with it?
John: Not necessarily the term itself, but yeah, we’ve seen a lot of this with our own clients that are basically doing some job changes or just outright, just retiring early which I know we’re going to get into. But yeah, we’re seeing quite a bit of this. And then we see it when we’re trying to personally and work wise trying to get service work done. It feels like-
Mark: Big time.
John: Feels like no one’s working anymore. My local Dunkin’ Donuts here, I can’t go in to get a coffee because they don’t have enough workers, so everything’s drive through. But it just [crosstalk 00:03:23] seen across the board.
Mark: And that’s part of it. Yeah. And that’s part of it. So a lot of times, I think, when we think about this what’s happened in the pandemic, we automatically go to the lower paying scale jobs, the fast food type jobs, and that’s definitely a big piece, but for an example, 4.2 million people quit their job in October of 2021. So just a couple of months ago and there’s been a lot of other people quitting. So there’s been, I think somewhere now around six, six and a half million, I think over the last four to four and a half months. And it’s not just the lower end stuff. And of course it’s also unknown how long these people will stay out of work. Some of it could be retirees or pre-retirees that are just like, you know what, I’m not going back.
Mark: I’ll use my brother as an example, he’s 63 and he’s like, as long as they keep me working from home, I’m going to stay. But the minute they tell me, I have to go back to the office. I think I’m going to pull the trigger and retire early, even though his plan calls for him to wait till 60, his full retirement age, which I think is 66 and seven months or something like that. So let’s talk about it from that’s kind of standpoint, guys.
Mark: I’ve got three takeaway categories here, or actually four. I’m going to kind of give you guys the headline and let you guys roll from there a little bit on this. Okay. So we’ll dive into it, hit it however you’d like, not just the lower income scale, but also the upper end, or people just closer to retirement things that you might be seeing or hearing. So number one, if you are going to step away early, taking a break from Social Security, whether it’s short term, long term or whatever, don’t sell short that, the impact that, that can have to your long term benefits.
Nick: So, depending upon how long you are out of work, it’s important to keep into consideration that when you’re not earning an income, you’re not building up your Social Security credits and so that’s something that can impact you down the line. And I’ve actually had this come up a little bit lately where people don’t quite grasp the impact, the positive impact of Social Security, or how much, or how important it is to their overall plan. So it is a big deal and you want to make sure you still have your 10 year minimum work history. It’s important to remember that, really the benefit that you receive is a cumulative kind of record of your highest 35 years of income.
Nick: So every year that you have a higher year than a previous year, adjusted for inflation, that’s going to knock out the other years and you really kind of help bump that benefit up.
Mark: Right. And if you’re stepping away in your fifties because of this Great Resignation type of thing here, that’s some prime earning years. So that’s where I say you could be putting a big dent in that.
Nick: Yeah, absolutely. And realistically it always does kind of go back to the whole plan concept of that we really try to harp on people about, is we have had some people retire early because we have had a bull market for the last 10 years and they’ve done a good job with saving and those sorts of things, but we kind of verified it through the planning, the whole retire really early on a whim or not really looking at it from an analytical standpoint can definitely be pretty, pretty dangerous.
Mark: Yeah, for sure. So you definitely want to make sure that if you are stepping away from Social Security, you’re looking at what it could do to your long term strategy, six months, a year, retiring early, whatever the case might be. Just make sure you’re strategizing that with your advisor.
Mark: John, talk to me a little bit about takeaway number two, the 401k isn’t a rainy day fund, is kind of the category I had. Because over the last two years, and even the last six months, there’s some pretty interesting stats about what people are doing with their 401ks.
John: Yeah, yeah, for sure. I mean, during COVID 2020, there was some ability to actually access for 401k funds or retirement funds without any penalty.
John: And not even have to do a loan and that’s gone away. So now, not that… Fortunately for our clients, and I think we do a great job educating them, we haven’t really seen too much of this where clients are taking out 401k loans. But I have had conversations with some individuals that have done that. And it’s just kind of like, “Hey, how much can I pull from my fund? I did this, what are the impacts of it?” So it’s just important to fall back to the plan. And we do a… One of our biggest recommendation’s to make sure that people have an emergency fund and whether it’s three to six months or a year of emergency savings, because, as you know the pandemic hit in 2020 and no one saw that coming and you just don’t know what’s going to happen in the future. So it’s important to have an emergency fund to help out in certain situations like this, so you avoid pulling from the 401k loan because you really want to let those assets grow for your retirement and not access it for rainy day funds- [crosstalk 00:08:10].
Mark: Kind of a stop gap.
John: …. on things like that.
Mark: Yeah, yeah, yeah. What’s some negative impacts of doing that though, John? I think one of the things people get lost on is just the compounding of it over time, right?
John: Yeah. So you take out 40 grand out of it, basically, especially, let’s say you did that in 2020, let’s say you took out $40,000 there, you just lost the compounding over the next year and a half, two years of which has been really excellent in reality [crosstalk 00:08:33] with what the market’s done. So not… You’re just not losing that $40,000, you’re losing what that $40,000 could have grown to, which is the importance of having, again, the rainy day fund, so you can let that money in there, let that money grow for you and earn and work for you.
John: And then nevermind then you’re paying money back into it that are after tax dollar. So there’s a lot that goes into it that you really need to evaluate it. Sometimes it’s you have to because you have nothing else to pull from.
John: But it’s always important to plan and make sure that you… This is the last resort.
Mark: I hear a lot of advisors say taking that loan against it is usually the later, like if it’s kind of like the last in the line, if you really need it, okay, here’s where we can go. But let’s try not to. Just simply from a multitude of reasons, especially with the resignation, right? If you take a loan against your 401k and you leave the job, you have to pay that back. Correct?
John: Yeah. That’s a great point that you bring up. Most companies will give you 30 days to pay it back. So example, you take out that $40,000 and all of a sudden it’s, “Hey, we’re downsizing,” and you get a pink slip, and not only you got, now you all of a sudden you got to pay 40 grand back to your 401k within, a 30 day period, maybe 60 day period. And if you do not pay it back, you’re going to be paying taxes and penalty on that, on those dollars.
Mark: Pretty stiff. Yeah.
Mark: Yeah. So that’s another takeaway for that. And Nick, let’s stick with the 401k for a minute for the next one. If you are in this kind of nomad thing where you’re jumping out of one job, you’re waiting a bit, maybe going into another, looking for a better option for yourself, seeing who’s hiring, whatever the scenario is, take that 401k with you, right? Don’t just leave it back behind at the old place.
Nick: Yeah. It can be, realistically the more accounts people have, the more places, the more often things are overlooked, not checked up on, not taken care of, so we definitely are fans of consolidating. Whether it’s rolling it into the plan at your new employer or rolling it into an IRA where you can control the assets yourself or work with an advisor to manage them for you. Just like so many other things, it’s one of the things that former or past employer 401k plans are oftentimes one of the most overlooked and non-adjusted things that we’ve seen people kind of not take care of.
Nick: And then they lose a lot of long term money on it because of that.
Mark: Well, you got to think about the vested portion too. Right? So if it’s, let’s say you’re 50 or something like that, and you’re pondering this, make sure you under… that you’re getting the fully vested part before you jump on. There are some people that could say, well, all right, maybe I’d better stick this out a little longer or whatever the case is.
Nick: Yeah, absolutely. There are some people that… It’s much more common for people to move from one employer to the next these days. Especially in certain industries where they can be almost more of a tech role or consultant role, things like that. And sometimes, because of that, their employer has put in a decent amount of money, so an employee’s contributions are always vested, it’s always their money, but they could have substantial employer matching that vests over three to five years. Or some other sorts of benefits, even if it’s not exactly the 401k, but maybe there’s a stock plan that has vesting. It’s important to take those things into consideration because we’ve seen people leave tens of thousands of dollars on the table.
Nick: Not realizing that it was a factor they should have taken into consideration before they switched employers.
Mark: Yeah. Don’t leave that behind. Right? So definitely take it with you, whether you’re rolling it from the old one into the new one. And if you do it properly, it’s not going to, it’s not an issue, right, Nick? So if you’ve got it in the old one and you roll it to the new one, you just go through the proper channels and there’s no taxable event and so on and so forth. Same thing if you move it to an IRA, correct?
Nick: Correct. Yeah. The goal is always to make sure that it’s rollover, it’s not taken as a lump sum distribution-
Mark: To yourself.
Nick: Yeah. So you always want to make sure that when the rollover happens, it gets paid directly to the new custodian. So it’s not written out to you. It’s written to the new custodian, whether that’s a Fidelity or a Vanguard or whoever it may be, it’s paid directly to them, the funds go over and that avoids there being any sort of tax liability or penalty if somebody’s under the age of 59 and a half.
Mark: All right. So let’s go to the fourth takeaway here, guys. I’ll let you both kind of jump in and out on this. John, I’ll start with you. It seems like this whole resignation thing is kind of tailor made for those early retirement dreamers. Kind of go back to my brother’s conversation there about, Well, if they… I’ll retire a couple years early, if they make me go back to the office kind of thing, but I’ll work from home.” So it’s enticing for sure, but point out some challenges to just ponder if you are retiring early, ahead of what you originally planned, you guys kind of divide up a few of these, if you would, but John go ahead and start with a couple of bullet points to think about.
John: Yeah. One of the things that I think about is qualifying for Social Security. The earliest you can draw Social Security is age 62. So, if you’re retiring at let’s just call 57, you got a decent gap of where you can’t take any Social Security. So you really have to evaluate are there any other income sources coming in like a pension or maybe some real estate income or whatever it might be. And then if there isn’t, is your nest egg able to sustain your plans. [crosstalk 00:14:06].
Mark: Five years, yeah.
John: Yeah. Is it able to work if you’re using your nest egg to basically live off of for that period of time. So those are one of the things. And then you always want to of look at as one, we’ve had situations where one spouse might retire early and the other one’s still work and they say, “Hey, we could live off of just one income for the time being. And if we need any extra money, we have the nest egg that we can pull from as needed.” So that would be a big one to really look at.
John: Another one that we come across quite often is healthcare coverage. I’d say one of the main reasons that people don’t retire. From our standpoint, what we see is really healthcare. So they wait till they’re 65, so they can draw on Medicare. And prior to that, they just kind of look at the cost of going to the Marketplace and say, you know what, this is probably a little too rich for my blood, so [crosstalk 00:14:55] kind of hold off.
Mark: And if you use your example of 57, I mean, you’re talking eight years, what are you doing in that gap? Right.
John: Yeah. And we’ve seen everyone’s situations different in what their premium is, but I’ve seen some premiums for individual at that age at $10-11,000 per year. Nevermind, the coverage isn’t as good. So that’s [crosstalk 00:15:12]-
Mark: And that’s not per person too. Right. So if you and the spouse.
John: Yeah, yeah. Yep. That’s per person.
Mark: Can your retirement accounts handle that for that setup that we just talked about or whatever the case might be and then realizing that that’s also, that your retirement is now going to be longer, right, because you’ve retired early, so it’s the kind of great multiplier. So those things just kind of compound and go up from there. Nick, do you agree with that and what’s some things you see?
Nick: Yeah. For sure. It’s definitely a slippery slope when you start to factor in. We’ve got some clients who work for large employers, their total health premiums for the households can run $2-3,000 a year for both of them. So when you go and you take… You go from $2-3000 for both of you while you’re working to somewhere between $8-20,000 a year before Medicare age, it can be pretty substantial. And oftentimes, for many people, there’s going to be a price increase, even when they’re on Medicare from if you were working for a company that was a larger employer and had pretty inexpensive health benefits. So that makes a huge, huge difference.
Nick: And one way that some people have managed things from that perspective are with some of the Marketplace options out there will kind of connect people with specialists that can help on the medical insurance side of things. And you may be able to take money from taxable accounts that don’t have large gains to put your income lower so that you don’t pay as much, but in reality, to be frank, usually the only people that can do that are ones that have saved substantial amount of money into a non-qualified account, which usually means they have a lot of money. So, it’s less of an issue. So really looking at that, looking at the different types of accounts, when you create your withdrawal rate, and figuring out, hey, how can we keep your income taxes low, not a only for a short period of time when you’re in retirement, but kind of building flexibility throughout your retirement, where you’re not just letting this tax bomb grow, or you’re not using all of your Roth money first or leaving it all for the end.
Nick: It’s usually kind of a bit of a balance. So we harp on it a lot, but this is really where there’s so many factors and things like this. That this is where kind of software and the tech tools that we have today really help us tailor make a plan, come up with a really good income and liquidation strategy, help us figure out what kind of gaps are we going to have between the time that you retire and when things like Social Security are going to kick in to help supplement the income, and then when Medicare’s going to kick in to help reduce expenses. So, it’s definitely a puzzle and fortunately we enjoy putting the pieces together.
Mark: Right. Well, look, if you’re on the fence, well, if you already did the resigned and walked away, hopefully you had a plan in place, but if you’re not, if you’re among some of those folks that are still considering, I’ve heard some interesting stats that they think that’s going to happen. Again, early on the first half of 2022, make sure you’re talking with an advisor about all the different things that could happen if you do step away early. Most people, hopefully do, but sometimes you just get frustrated or whatever the case is. And a lot of it does have to do with this kind of going back to work, staying working from home, it got good to us, we really kind of, in some ways, very much so enjoy being able to work from home, in other ways we kind of missed the camaraderie. So there’s a lot of different things to just kind of take into account before you pull the Great Resignation.
Mark: And with that, we’re going to wrap it up this week. We’re going to knock out an email question here real fast. Whichever one of you guys want to tackle this, but we’ve got one from Rebecca who said, “Guys, every six months or so I tell myself, I need to start saving more for retirement and I pretend like I’m going to get serious and actually do it. But then I can’t stay motivated to increase my savings. I’m putting a decent amount in the 401k and I have a pretty nice balance there, but it feels like I could be doing more. It’s the beginning of the year, I want to be more motivated. How do I do it?”
John: This comes up quite a bit. And I’d say the easiest way to save is probably the 401k, because it’s done through payroll and you really, once you start saving in to it, you really don’t miss the money coming out into it and you can always adjust it. And we’ve had some people where they say, “Hey, I’m putting enough into my 401k, what else should I do?” And the first step is just really just setting up an account and you can start with as little as $25 a month, or $50 a month, but once that account’s open, it’s much easier just to say, hey, let me up this. So I would say the first step is look at the 401k and if you don’t want to continue contributing to that, just open up an account somewhere with your advisor or on your own and just set it up monthly, and then you can always adjust it as needed.
Mark: Yeah. Or maybe a Roth, right? If she wants to look at a tax, something more tax efficient. So…
Mark: That’s another way to look at it. But yeah, I think if you automate it and you just put it in play, Rebecca, that should hopefully get you… You just, if you don’t see it and you don’t think about it and it’s just happening in the background, then that’s the beauty of it, so then you don’t have to worry about necessarily getting motivated. But another way might be to sit down with a professional and start getting some advice. It doesn’t matter really on your age, the sooner, the better. So if you got questions, need some help, reach out to John and Nick, go to the website, pfgprivatewealth.com. That’s pfgprivatewealth.com.
Mark: Don’t forget to subscribe to the podcast on whatever platform you like to use, Apple, Google, Spotify, iHeart, Stitcher, just type in Retirement Planning Redefined, or again, just find it all at their website, pfgprivatewealth.com. If you got questions, need some help, John and Nick are here for you.
Mark: Guys, thanks for hanging out. I appreciate it. Talking to me about the Great Resignation and we’ll talk about it in a couple of weeks here, we’ll see what’s going on.
Nick: Thanks, Mark
Mark: I appreciate your time as always. Guys, thanks for hanging out with me. We’ll see you next time here on the podcast, with John and Nick, this is Retirement Planning Redefined.