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 bringing you today’s show. It is the second Wednesday of June, moving right along here. I think you can safely say we are officially into summer. Kids are all out of school, settled into now their summer routines, whatever that may be. And again, temperatures have kind of reflected that a little bit as the 90 degrees, a little humidity is definitely making its way back in the last few days after a pretty nice little stretch of mild, I guess you would say, weather there for a few days. But again, warmer temperatures, we know what that brings. And we’re looking at it for today and tomorrow with some chance of some pretty decent storms coming in later this afternoon and then into tomorrow afternoon as well.
So again, take it with what we can get it, but it does feel good to get that rain that we desperately needed again. Even after all that rain we had earlier this spring, things were getting a little dry again. So grass is going to green up again. Mowers are going to get back out, but again, along with that comes the storms and humidity sometimes. So again, get out there, enjoy it. Enjoy a lot of the activities around our area that are, again, becoming more frequent as we get more into summer. A lot of stuff going on. So again, get out, enjoy it and support some of those activities and events that we do have in our area.
So for today’s program, there’s a lot of topics I was kind of debating on going over today, but again, one that continuously comes up, either one, just general discussions with people I run into at maybe some kids’ events or whatever, some calls that just come in or, again, even at review meetings with clients that I work with and all that is, again, just that transition into retirement and the, I guess you would say readiness and preparedness of getting into that retirement world.
And again, when you start looking at it and breaking it down, there’s some big things that we want to look at that may not necessarily be what the main focus is for a lot of people as they answer the question, are they able to retire and are they prepared to retire with what they’ve done? And again, the easy part of that whole dynamic is looking at, “Okay, well, how much do I need to have saved?” And then people look at numbers, whether it’s through their 401(k) plan, whether it’s through IRA accounts, Roth accounts, investment accounts. Whatever it is that they may have, they want to look at numbers. And again, that million dollar term is being thrown around a lot.
And again, that is a sizable part of money that could do a lot of good for you as far as cashflow in retirement. But as they say, and we know that with, again, inflation, which is a big term in the headlines as of late again, but we see it in everyday thing, whether it’s at the grocery store, the gas pump, buying new clothes, going shopping, whatever the case it may be is things are costing more. And that million dollars that it was 10, 15 years ago versus now maybe doesn’t quite get as far as what it used to.
But again, with that dynamic, you look at your cashflow with the savings that you do have. I mean, if you’re fortunate enough to have a pension, how that plays into it, and then of course the decision on when to file for your Social Security benefit. And those are the main cash flows and assets that people have as they head into retirement. And they want to look at that side of the ledger solely, but again, from our side of the world and then what we really want to focus on is again, is how much money do you need because that other side of that dynamic is what’s really going to drive how much you need to have saved or what you need to have for cashflow in retirement.
If you’re going into retirement with a lot of debt coming still out there, whether it’s a mortgage, a car payment, a credit card payment, a vacation home payment, or you’re helping maybe kids or grandkids with student loans or whatever the case it may be, what is your lifestyle? What is it that you have to have each month to pay your bills the way you are currently doing it? That answer will determine how much you need to have as far as heading into retirement. Again, the answers to those questions varies differently and has a big varying impact on what it is that you want to have. If you’ve been diligent as far as paying down debt, not having any debt, heading into retirement and it’s just your basic utility bills, again, whatever it is that you need to do to live off of, that number’s going to be a lot less than what it would be is if you have all that debt coming into it.
And that’s simply the starting point as far as when we look at it as far as people answering the question, “Am I able to retire at the end of the year in 12 months or at the end of next year?” Whatever the case it may be, but that gives us an idea as far as where they sit.
Once we start getting to that question, we move on to the next one and break down the cash flow a little bit more and determine kind of what it is that they’re going to be looking at from a tax standpoint because again, for a lot of people, your two biggest expenses in retirement are your healthcare and taxes. With taxes, we can do a little bit of planning. I know Andy, Mike, and that whole team there at NelsonCorp on the tax side kind of does a great job as far as planning and going through some of these scenarios with the people that they work with and looking at it and understanding that dollars in retirement are treated differently from a tax standpoint, depending on what bucket they’re being pulled out of and what type of income that dollar is every time.
So again, understanding those dynamics is where we really want to look at because again, in retirement, a lot of what our income is does dictate sometimes what we pay for other stuff. When I say other stuff, for example, Medicare. Or if you’re not yet 65 and you’re getting marketplace insurance, a lot of that is what you’re paying for those monthly premiums is based off of what your income is. And so when we talk a lot of these planning strategies as far as Roth conversions, for example, or we’re taking money out of our tax deferred accounts to pay a bill or to take out just a little bit each month, again, that is raising our income, which is then going against maybe what we are paying for those insurance amounts that we have. So again, when we make those decisions, again, it’s very important to make sure that every decision that we make is kind of joined hand in hand with everything else that we’re doing because a lot of times in retirement, one decision is going to impact a lot of the other stuff. And so it is all kind of like a puzzle that needs to kind of fit together in having a plan.
And when we look at this and when we have this out on paper, we put together a full financial plan for individuals and we put it up on the screen and we walk through this, what does this year look like? What does five years look like? What does 10 years look like? What does it look like if one spouse is no longer here? How does that change the cash flow and how does that change the tax impact? Because again, a lot of times, I mean, it’s very common for one spouse to have their other spouse on as primary beneficiary, pretty straightforward. Well, if that’s surviving spouse then inherits all these tax deferred accounts, meaning IRAs that again are going to be taxable when we come out, they’re still going to have to start taking money out when they hit that age where they’re required to do that, okay?
Now that income now is being treated not on the filing status as married filing jointly, but as a single tax filer. So if there’s a pension in play that continues to a surviving spouse, the larger social security benefit is going to continue on to that surviving spouse. Those tax deferred retirement accounts are going to be named to the surviving spouse where they’re going to have to take money out to live off of and then again, add that to their income. It’s very likely that that surviving spouse is now pushing up into higher tax brackets because tax brackets change when you have a different filing status.
So again, it’s planning for the worst and hoping for the best is one kind of common theme that we always look at. But at the end of the day, what we’re trying to do is maximize the assets that you guys have individually saved and been disciplined and kind of sacrificed to amass the pile of assets that you have. At the end of the day though, we’ve got to look at it, and no one focuses on this side, it is how are we going to break that pile down? And again, ultimately what we want to strive to do is pay less in taxes so more stays in our client’s pocket and less goes to the IRS.
And when we look at doing some of these strategies and what we’re looking at doing, that’s ultimately what we’re looking at doing because again, when we’re doing that, every little bit helps. And again, sometimes the old adage of, “You don’t know what you don’t know” comes into play with a lot of this stuff where again, what they thought they were doing was great. It wasn’t hurting anything, but there may be a different way to do it that may be more beneficial and more tax efficient for them to get the same amount of cash flow that they were looking at.
So a lot goes into it, a lot of questions, a lot of unknowns, but if you’ve got questions or you’re thinking about in the next few years maybe making that transition, give us a call. We’d be happy to sit down with you and kind of walk through what your individual situation looks like.
Before I run out of time here, I did want to mention that every month the team at NelsonCorp is featuring a new charity of the month. For the month of June, we are focusing on the society of St. Vincent DePaul. Again, this is Nate Kreinbrink with NelsonCorp Wealth Management bringing you 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 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 representative 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.