Announcer:
It’s 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 Incorporated, a broker dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated. 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, got Mike Steigerwald with me, second week in May. It is graduation weekend for some area high schools. Kids are counting down. It’s like less than 10.
Mike Steigerwald:
Oh, yeah.
Nate Kreinbrink:
It is here. Summer’s close.
Mike Steigerwald:
Yeah. Spring went pretty quick. I mean, honestly, now we’ve had a nice little stretch some beautiful days, no clouds in the sky.
Nate Kreinbrink:
That is true. It’s been a little stretch of niceness and it’s hard to believe that we’re saying, but probably could use a little more rain after last month when it seemed like we never was going to stop. Probably getting close.
Mike Steigerwald:
Yeah. Yeah. It’s funny how that works.
Nate Kreinbrink:
I know all those spring sports and everything that are outside and spring activities that are outside, it was a rough go of it for a little while. It seems like something was canceled all the time.
Mike Steigerwald:
Yes. A lot of delays and cancellations in April.
Nate Kreinbrink:
No, exciting time of the year obviously. I mean, kids are getting excited. I’m sure teachers are getting excited. Maybe parents not so much as they get to this time of the year, but it’s wet fast so enjoy it, behave, be safe, all that good stuff, and enjoy what this time of the year has to offer with it.
So again, Mike and I were talking. We actually walked up the hill this morning through some of the road construction and kind of went over a couple different topics, but one that kind of always seems to kind of continue to pop itself up is again, that transition from working into that next phase of your life into retirement, and then obviously all the psychological and the mental stuff that goes through that to mean doing that. But again, switching that regular paycheck where you are getting that I work so many hours, I’m going to get paid this and my check comes in and we do it all over again.
Well, when that spigot shuts off and you’ve got to turn on your other ones, whether it’s a pension if you’re fortunate to have one, social security, and then any other retirement savings that you may have, that’s when some of the questions start looking up. And I think it’s important that people realize that when you make the decisions for each one of those, it can’t be a decision by themselves strictly. Like you need to make sure that you’re tying that decision into the other ones that you have so that it’s all working together.
And Mike kind of brought up a question that came up at one of his meetings as far as someone talking about spending down their own retirement assets to delay social security. And in a way they’re true, but it’s not necessarily the full picture.
Mike Steigerwald:
Yep. Yep. So the key there is, like you said, Nate, would be looking at the whole situation and what avenues do you have? What options do you have to get your cash flow from? If social security is an option, if pension is an option, sometimes people have quite a bit in savings that they could live off of for a little while while maybe delaying a social security benefit to let that benefit grow and increase.
We’ve seen it a lot and that was just to me an interesting dynamic, a question that came up and said, “Well, should I spend this down to X dollars before I … ” And really the answer is, as always, it really depends on what other buckets do you have to pull money from, and the best way to unwind this. How many times do people come in and they’re right at this moment of transitioning from working to retiring and now here’s my pile of stuff and here’s what I have. How do I unwind this in the right way? And that’s really what people need help with.
Nate Kreinbrink:
Right. I think too, the magical question, and I bring this up a lot of times when I’m meeting with people and this kind of is a joke and lighthearted, but in a way it’s the truth. I mean, essentially we’re planning on how long we’re going to live, right? And then that’s going to determine the best one to take each one of those different income streams. And again, if you tell me how long you’re exactly going to live, I’ll tell you exactly when you should take your social security benefit, when you should take this one, so that way you maximize it.
Obviously no one has that right answer, so we’ve got to kind of hedge it to see, again, if we live longer than what we are expecting, which again has been the trend, I mean continuing on, we’ve got to make sure that in those last few years that we’ve still got the assets to look at it. And the other part of it is just understanding the types of income that you’re switching from. When you have your wage income, you get that paycheck and you say, “Hey, this is what my gross amount was and I’m taking out federal tax. I’m taking out state tax. I’m taking out FICA tax. I’m taking out retirement savings from that.” Well, at the end of that, well, this is what is left over.
When you go into retirement, the majority of your income is probably only going to be subject to federal tax. A lot of it is not subject to state tax. You don’t have to pay the FICA tax out of it. So again, if you have $3,000 worth of wage income versus $3,000 worth of retirement income, that $3,000 worth of retirement income is going to go a little bit farther than what that wage income is because you just don’t simply have all those taxes coming out of it. So there’s all these different things that are going around to it, and delay in social security has been a hot topic for a while. It’s going to remain a hot topic.
There’s some articles that I’m seeing that people are kind of switching their tune a little bit as far as waiting all the way until 70, but again, it all depends on how long you’re going to do it. Do you want more paychecks of a smaller amount or are you able to delay that? And that’s where I think that meeting that you were talking about they were referencing is I’ve got some retirement income or retirement accounts that I can bridge a gap to delay this a couple years and then when I switch it on, I’m going to get less paychecks than if I did it now, but those paychecks are going to be bigger, and those paychecks then are going to continue on for the rest of my life.
And where this really becomes another level to it is if you’re married, because if you’re the spouse that carries that larger social security benefit, your benefit is the one that is going to continue on should one of you pass away. And so you’re not necessarily at that point making the decision just for yourself, you’re making that decision for the surviving spouse, because that’s the one that’s going to continue on. So there’s different layers, there’s different levels to this as you get into it. But again, it’s all important because a lot of these decisions for the most part is it’s a one and done. Like you’re making it and you’re living with it.
Mike Steigerwald:
Irrevocable decisions. So it’s the same, Nate, when we look at those situations with pensions, right? If people are working for a company that has a pension plan and I’m nearing retirement, that will play a big factor in terms of the payout structure. What structure am I picking for that benefit? Am I taking a monthly check? If I’m married, how much would go on to a spouse if I predeceased them?
Also, what does it look like for the lump sum? Does that maybe sometimes make sense to take a lump sum to gain the control of that asset? If I’m unmarried and I flip that pension on and I start receiving my check and God forbid something happens and I’m gone three months later, that all disappears, right? I cannot pass that on to anybody who I would choose to. So having that lump sum option and maybe gaining some control over the what happens to the funds can be pretty powerful.
Nate Kreinbrink:
It is. And then I think that’s a reality too as far as, again, where individuals are at, what is needed to fund their retirement. The question that everyone always brings up is, “Well, how much do I need to have to retire?” Well, you can’t really answer that question until you answer the other side of that question and that is, well, how much are you going to need?
Mike Steigerwald:
Right.
Nate Kreinbrink:
What is your debt? What is your expenses? What are you planning to do? That is going to determine how much you’re going to need to have to fund that retirement, but people always want to look at it the other way and say, “Hey, I need to have this. Okay, how can I spend this?” Well, we got to look at expenses that will determine how much you’ll need to have to safely retire. And again, like Mike said, like when this boils down to it, we’re making these decisions on longevity, and these actuarial tables. And when they figure these pension estimates, and social security when they average this thing in here, at the end of the day, these amounts that they’re going to do it, they’re pretty spot on with where you’re going to be.
And I’ve run hundreds upon hundreds of social security strategies and analysis. Well, if I take it at 62 and I live to be this, how much am I going to get? If I wait to 65 and then I live to this age, where’s that crossover point? Like where’s my break even to waiting versus there? And I’m going to tell you it all boils down roughly to right around 80 years old. Within a year or two each way, anytime that you claim it, it’s literally always going to be, that’s going to be the intersection.
And so if you, or if it goes to a surviving spouse, live past the age of age 80, any year that you live by that, you’re better off waiting. Again, if you have health issues, whatever that may be or whatever the case may be, if your benefit from a spouse is the lower benefit, maybe you take it a little earlier. Well, again, it’s anywhere right around that a year or two, right around the age of 80. That’s where that break even point is.
Mike Steigerwald:
Magic number.
Nate Kreinbrink:
And that’s where they actuarily have it figured out, and they have this thing dialed in pretty darn close every single claiming strategy that you’re going to look at. So again, it’s important. It’s something that again, any discussions that you can have prior to heading into retirement to kind of have some of these things laid out and having a plan in place. Again, it goes back to not what you have, but what you keep, and a lot of times that goes back to what can we keep in your pocket and what can we pay less to the IRS as far as in the form of taxes? And that comes along with planning.
That comes along with having a plan with your pension, with your social security, a spouse’s social security, investments, retirement income, where that is coming from, what is taxable, what is not taxable? When do we want to maybe assume a little bit more tax than what we have to for a long run of doing it? All could go on and on. Each one of those topics could be a radio show in and of itself. But again, high level stuff, trying to cram as much as we can into this short time, but hopefully that you’re understanding that it definitely helps to sit down with somebody.
Mike Steigerwald:
Seek help ask questions.
Nate Kreinbrink:
That’s exactly it. It’s too much to kind of take on for the first time and for the majority of people, it’s the first time retiring.
Mike Steigerwald:
And the only time.
Nate Kreinbrink:
And the only time.
Mike Steigerwald:
Hopefully.
Nate Kreinbrink:
Hopefully they get it right on that very first time. Why not work with somebody that has done it on a daily basis?
Mike Steigerwald:
Right.
Nate Kreinbrink:
But again, have questions, give us a call. Did want to mention here before we run out of time that every week NelsonCorp is featuring a charity of the month. The charity for the month of May is the God’s Will Giving Center in Morrison, Illinois. Mike, I appreciate you joining me today.
Mike Steigerwald:
Of course.
Nate Kreinbrink:
Again, this is Nate and Mike with this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. 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 Incorporated, a broker dealer, member FINRA SIPC, Investment Advisor Representative, Cambridge Investment Research Advisors Incorporated, 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.