Announcer:
It is time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research, Inc., a broker/dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now, here’s today’s financial focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate Kreinbrink bringing you today’s show. Second week of October, David Nelson was on last week for the monthly 30-minute live session. Kind of went over some current economic news, especially kind of the impact of lowering rates, what that might do for the markets, and getting into some of those impacting financial accounts that’s impacting what that’s going to look like for interest rates going forward.
And again, obviously as that changes, we’ll continue to kind of update you and see how that moves forward to the end of the year and what the Fed decides to do. But again, it is hard to imagine where we’re at. I think after these last couple weeks of warm temperatures and feeling like summer was here and where those were sitting at, these cooler days that we’ve had here over the last day or so has definitely been a welcome. And it’s getting closer to officially say fall is here and actually feeling like it, and hopefully, again, gets rid of those little pesky bugs that are such a pest when you’re trying to sit outside and enjoy it. It’s definitely part of the season as it comes into it, but hopefully those go and we can enjoy some cooler evenings sitting outside, leaves will start changing. I know with the rain finally that we’ve gotten, hopefully we’ll be able to see the grasses just green up just slightly again instead of seeing the brown dying grass that we had out there.
But it is, it’s hard to believe that we are into pushing middle of October. The year, as always seems to be the case, is flying right by. And just wanted to take today’s session and touch on a couple of different topics. As we get into this time of the year there’s always certain end of the year planning that we do, but we are really coming close on the start of the Medicare open enrollment period, which starts October 15th and runs through December 7th.
Now, this applies to those individuals that are on Medicare that may be looking at maybe doing some changes to their current coverage that they have. A lot of times we see this as far as people looking at their drug plans. And again, as the years go by, maybe your prescriptions, what you take has changed. Maybe as we get into a new year, sometimes what is covered by certain drug plans changes. So we want to make sure that on an annual basis like this, that we continuously take a look at this and see if the plan that you have is currently the right plan for you and what that means going forward with it.
Because, again, a lot of times we see that plans do change, maybe a prescription that was maybe a tier one is now a tier two or tier three, or in some cases not even covered anymore. We want to make sure that we’re looking at it. I know some of the bigger changes that we’ve seen just kind of in general across the board is that monthly premiums have went up. There was a plan that was a $0 monthly premium, that is no longer. There will be a monthly charge for that one. So if we were sitting on that just to have a drug plan, we maybe want to look at and see if that’s still the one to stay on. Or again, if there’s a better one out there for, again, changing plans, changing needs, and what that looks like, so that way it can go into effect there January one with the new plan. So, you got any questions, give us a call. I’d be happy to do that. But again, it’s the Medicare open enrollment period that starts next week, October 15th, and runs through December 7th. So that’s on the horizon.
But the main topic for today I wanted to spend some time on is we talk a lot about financial planning and being prepared for transitioning into that next phase of life. And when we talk about it, a lot of times we talk about the savings aspect of it, and again, amassing a coal pile that is going to be tax efficient, but yet in a way that it will fund your goals in retirement. And a lot of times that is through your 401(k) plans, through your employer, 403(b) plans through an employer, maybe outside savings through IRAs, through Ross, investment accounts, looking at pensions, deciding which option, if you have an option for a pension, what is the best option for that, when to take social security?
And these all go into it. And the thing with that is, is that those decisions are all essentially on the left side of the pendulum. They are assets that are coming in. But the most frequent question, the most common question that I get when I’m sitting down with couples or individuals when they’re looking at transitioning from the working field where they’re getting a regular paycheck into retirement, where they’re looking to maybe flip the switch on instead of saving, maybe taking distributions, is how much do I need to have saved in order to retire? And when I get asked that question, at first, it was always, “Well, it depends on where you’re at.” But the more I’ve done these, the more plans I’ve ran for people, and just the more kind of in-depth I’ve gotten with some of this planning prospects is that, again, what you save obviously is important, but you can’t answer that question until you answer the other question on the right side of that pendulum. And that is, how much are you going to need?
And that answer to that question will determine how much you need to have saved on the left side. Because, again, you can have a decent-sized savings saved up for retirement, but if you have a lot of debt, if you have a lot of bills, if you have a very expensive lifestyle, you’re going to need a lot more on the other side of the column to kind of fund that retirement. Whereas on the flip side, if you have very little debt and you don’t need a whole lot to live off of with your monthly expenses, pretty basic lifestyle, again, you don’t need as much as someone that has the complete opposite of that.
So again, when you’re starting to look at retirement planning, again, what you have saved, your assets, your income, that is obviously important, but we also want to make sure that we’re equally giving the due to what we need to live off of. And a lot of times that is just managing the debt load that you have going into retirement. So, again, as you’re starting to put on the calendar some days or some years where you’re like, “Hey, I am looking to retire,” and this year or on this date down the road, we need to look at it to say, “How can we go into that timeframe with the least amount of debt as possible?” And that’s, again, looking at it to say, “Hey, I need to start paying some things off or getting to that point.”
Because, again, if you don’t have that regular paycheck coming in, you have got to replace that income from some other means. And whether that is a pension, whether that is social security, or distributions from retirement accounts, investment accounts, or you’re going back to work part-time, to replace that income that you needed to pay for those debts. So the closer that we get to it, we want to look at what we still owe on a mortgage. We want to look at any car loans that we still have, credit card debt, any other debt that’s out there, to say, “Okay, hey, how can we get this down to a manageable amount?” Whereas when I transition into retirement, I’m really looking at it to say, “I’m comfortable being able to fund the needs that I have in order to make this thing work.”
And again, when we’re looking at debt though, again, I’m not saying that all debt is bad. There’s debt that you can carry that may have a favorable interest rate, that maybe your investment accounts are making a little more as far as the rate of return than what you’re paying in interest. So again, there’s a lot of variables that go into it. And especially know that I hear it all the time where someone owes 30,000 yet on their mortgage and they just want to get it paid off, and the only assets that they have are pre-tax retirement account assets. They just want to take it out and just pay off and be done with.
It sounds good in theory, and I get the reasoning behind it, but the consequences of that decision are going to be that you’re going to have to take out a pretty high amount above that 30,000, for example, that you would need to pay off your mortgage, because that money is taxable to you. It is subject to tax when you take a distribution from tax deferred accounts. Traditional 401(k)s, traditional IRAs, simple IRAs, traditional 403(b)s, you got the deduction when you put it in, it grew tax deferred, but it is taxable to you when you go out. So paying off that mortgage that seems like such a great idea on the surface, is going to cost you maybe into the next tax bracket in order to do that. It may also potentially push you into the next tier for Medicare premiums.
So again, there’s a lot of consequences that come to some of these decisions. And again, the sooner that we can start having these discussions, the sooner we can start looking at different scenarios, different ideas, and coming up with the best one, you’re going to be in a much better spot. And again, that’s one thing that I think oftentimes is overlooked, is how much are you going to need from a cash flow standpoint to fund your retirement that you’re envisioning? And again, making a budget, knowing how much you spend each month on certain things. What is your average utility bills? What is your average fund that you need to go out and have and what are you spending on vacations and things like that? So again, we get a better picture to know how much we’re going to need to have saved in order to fund that retirement.
So again, just a different way to look at it, but I think it gives an idea as far as the comprehensiveness of looking at this thing, and it’s not simply as straightforward as, “I have to have X amount of dollars saved when I do that, I’m good.” Well, that may be the case, but it’s not a blanket statement that is going to be good and true for everybody because of the variability of what people need to live off of in retirement. So again, give us a call. We’d be happy to sit down with you, have these discussions with you, put some things on paper, run it through our programs, and again, trying to dial things in and have a road map, so that when you make that decision, you’re confident that it’s the right one. So let us know. I’d be happy to sit down with you.
Before I do run out of time, I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of October will be donated to the Reach 848 program here in Clinton. Thanks again for tuning in on this Wednesday afternoon. Have a great rest of your day.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research, Inc., a broker/dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.