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 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. 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. Normally, first Wednesday of the month is the 30-minute live session with David Nelson. Plan’s a little bit different this week. He’s going to be moving that to next week. So that live 30-minute show will be aired next Wednesday, July 12th. So we’ll have the abbreviated, just 10-minute informational session today.
Hard to believe we are into July already. Yesterday was July 4th. Hope everybody had a safe and enjoyable 4th of July holiday. Weather was great, as you hope for that part of July. Looks like all the festivities down at riverfront, fireworks and the parade and everything, again, very well ran. A big support to all those who are involved with getting those activities put on for our community. Being able to showcase that riverfront and get everybody together to, again, obviously celebrate our independence and togetherness.
Again, moving into July. Hard to believe, like I said, that we are there. Tournament baseball, tournament softball, I know continues tonight for a lot of area teams. Softball just getting kicked off, baseball into the second round for some schools. Some of the other area bigger schools are getting ready to transition to that part of the year. So want to wish the area teams best of luck as they continue on that tournament journey. I know, usually have a representation from teams in this area. So again, want to continue that, and again, wish all those teams good luck as they continue on that.
So wanted to say with today’s program … I know last week I was on. Gave a rundown as far as retirement savings from day one up until through retirement. Just starting out saving, how to put that first $20 a month away. The priority of paying yourself first. Not saving what’s left over, but saving as part of your scheduled bills. Throughout retirement, taking advantage of any matches that you’re fortunate enough to get from any employer. Make sure you are taking full advantage of that, obviously through retirement. And ended with social security pension and that kind of cashflow through retirement.
Wanted to spend today’s program focusing more on that part of it. And again, once you are in retirement, what does cashflow look like? Because again, that is the biggest change from when you are working, you get that paycheck either every week, every other week, once a month. However it is that you’re paid, you have that steady paycheck coming in. You know that if you report to work, you’re going to get that paycheck. That allows you obviously to fund the cashflow, the bills, the going out to eat, the groceries. Whatever the case it may be, you’re going to have that. Psychologically, that’s a big change when you get to retirement. Okay, where is that cashflow going to come from? I don’t have that regular wage paycheck coming in like I did when I was working. How am I going to offset that cashflow and where is that going to come from?
Now again, every situation is different and the answer to that question is different with everybody. Obviously for the majority of people, social security is going to be a regular paycheck that you have. Unless you are a school teacher in Illinois who has their own separate pension, a retired railroad worker who has their own special pension who did not pay into social security. Okay, you’re more than likely going to have to make the decision as to when you are going to take your social security benefit. And when you do is a big piece of the puzzle when you put it together with all of your other pieces. Your retirement savings, 401ks, 403(b)s, IRAs, Roth accounts, any other savings you have in the bank, if you are fortunate enough to still have a pension that is going to give you a monthly paycheck. Where does that fit into the pieces of the puzzle?
And again, I’ve said it before on shows, and again, I think it rings true throughout that when you retire and when you take social security needs to be two separate decisions. So again, when you retire is not a good reason to say, I’m going to turn social security on tomorrow because I retired. In some instances, that may be the case. That may be the best benefit and way to maximize it. That again, I’m going to retire, I’m going to flip on social security, that’s going to supplement my cashflow. In other instances, that is not the case. Sometimes there may be some planning to look at where it may benefit you more to delay that social security benefit a year or two or three until you get to full retirement age. In some instances, all the way out to 70.
And why you do that is to be able to take advantage of those years where your income is lower. Essentially, you are potentially in a lower tax bracket. And why that is so crucial is because if you’re like most people, the majority of your assets that you have saved and put away through a 401k, through a 403(b) at work, any matching contributions that your employer has put away for you over the life of … or your working career. Again, are normally in tax deferred accounts. Meaning there was a tax deduction when a dollar was put into that account. You’ve got the tax deferral from when that contribution was made, all the way up until retirement when you take that money out. When that money comes out, it is taxable to you at whatever tax rate is at that point in time, on top of whatever any other income that you have.
So again, being able to delay that social security benefit allows you to have that benefit grow. Every month that you delay that benefit, it is going to grow. Every year that you delay it past your full retirement age up until age 70, you’re going to get an 8% increase on that benefit. And again, that benefit will cap out at age 70 as far as any growth. Obviously any cost of living adjustments that they put out each year will be on top of that benefit. So again, being able to delay that, I get a bigger benefit and it may allow me to do some things with my tax deferred accounts, whether it’s taking money out of that account at a lower rate, whether it’s looking at Roth conversions. Converting that money from a tax deferred account where I am taxed when I take it out, essentially putting it into a Roth account where I will never pay taxes on that money ever again.
So again, I have to pay taxes to get it from the tax deferred IRA, 401k over to a Roth, but it’s a one and done type of thing. I pay taxes, I get it there, that money stays in that account. Again, as long as it’s open for five years … there’s a few other things. But again, it’s essentially going to be able to be came out tax-free to you. Any earnings that are inside of that account, could possibly be tax-free as well to you. So again, it’s looking at all of those things, understanding when is the best time to take my benefit. If I am married, we want to look at both of those benefits and coordinate how we claim those benefits. Taking one as a husband, the other one as a wife, and not coordinating to see how that fits into the overall tax picture is doing you an inservice and you may not be benefiting and maximizing the benefits that the two of you can get.
So when we look at spousal benefits, again, we want to look at which benefit is bigger, the husband’s or the wife’s? Which benefit is going to be bigger when I collect it? And that is the benefit that we want to look to maximize as much as possible. Again, does that mean you have to wait to age 70 when you do that? No. Does that mean we want to push that down a little bit and be the last one to turn on? Absolutely. And the thought process behind that is, is if one of the spouses pass away and there’s a surviving spouse, one of those social security benefits is going to be gone. The lower benefit will stop, right? The higher benefit will continue on to the surviving spouse.
So if you are married and you are the spouse that has the higher benefit, you’re not necessarily just making that decision for yourself, but you are making that decision for potentially a surviving spouse to be able to maximize the amount that they are going to get as well. So again, you throw all that into the equation, again, when you claim your benefit and when you retire needs to be two separate decisions. It’s very important to understand all the options that are out there currently. How you can compliment that into your other assets, to your other plans that you have, looking at it from a tax planning standpoint. Again, social security benefits in and of themselves are not taxable. They become taxable when your income is above certain thresholds. That brings social security into the taxable front.
So again, understanding what decisions … you may take a dollar out of an IRA account. That may bring in a dollar of social security benefit because that puts you over a threshold. So again, looking at all that stuff, understanding how it all can comes together, will help you be able to maximize it. Will help you have a plan. Again, we always say it’s not what you have, it’s what you keep. And if you can keep more in your pocket, pay less in taxes by knowing what you are looking at, being able to do that tax planning, will put you in a much better spot. And will be able to maximize the assets that you’ve all spent your whole life, again, sacrificing, putting away, to get to this time in order to be able to use it most efficiently.
Questions on any of this? Again, I know it’s a lot to cover in just a short 10-minute segment. But again, extremely important. Social security benefits, for the majority of people, will be one of the largest assets that they have. And a lot of times, people are making decisions on the largest asset that they have, not knowing exactly what all their options are. And we just want to make sure that everybody understands all that. Put everything out on the table, decide which one is best, and see how it fits into your overall plan. So again, you’ve got questions, let us know. We’d be happy to sit down with you.
Did want to mention real quick before I run out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of July will be donated to the Grove Pocket Park in Clinton. This was created by Gabi Bird Art and supported by the Clinton Hometown Pride Public Arts Fund.
Again, I appreciate you guys tuning in on this Wednesday morning. This is Nate Kreinbrink with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again 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 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.