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 representative securities offered through Cambridge Investment Research Incorporated, a broker, dealer, member of 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.
December is flying right by. It is hard to believe we are into the second Wednesday of the month already. A lot of school Christmas programs, school choir concerts, Christmas parties, Christmas events, all that is in full swing less than two weeks until the big Christmas day. It is, again, extremely hard to believe that we are at this time of the year and that we are so close to that Christmas event. You still have time to do shopping if you have not got that done yet, but your days are winding down. I know it goes by quick, it comes up on us quick, but definitely excited for this time of the season, the excitement of holidays brings. I want to be able to extend those holiday wishes to everybody. Spending time with friends, with family, and just enjoying the year. Sometimes years are tougher than others, but again, enjoying this time of the year and what the true meaning of the season actually is brought about and making sure you do enjoy that.
So I want to wish an early Merry Christmas will be on next week with Andy Fergurson, with NelsonCorp Tax Solutions, talking a little bit of tax ideas the third Wednesday of every month like we do. But again, getting close. If you have not done your shopping, like I said, just a reminder, you are running out of days.
So getting into topics for today, I had Mike Steigerwald from our office on last week and we kind of talked beneficiary planning, making sure those accounts that are beneficiary designated, ensuring that those are up-to-date, that they’re still how we want that money to be distributed upon our death, making sure they’re updated if you have life changing events, making sure that those get updated along with that. And extremely important, but something that again, it is not oftentimes thought about as frequently probably as it should. So check your beneficiaries, your retirement accounts, your life insurance policies, any annuity contracts that you may have, making sure that they’re up-to-date. If you do have a trust that is constructed, making sure that it is still how you want things to be distributed. And then again, also when you have those life-changing events, you get demarried, you get divorced, you start a family, things change or whatever, you kind of want to keep those things updated. So big reminder for that. It’s always important to do those.
Today I wanted to kind of focus a little bit more on a topic that I think applies to the vast majority of people out there, and that’s your own personal retirement account at your employment. So I’m talking about 401(k) plans, 403(b) plans, SIMPLE IRAs, 457 plans. Depending on where you work will depend on what type of plan that your employer has available to you, but understanding a little bit about those plans and ensuring that you’re maximizing it to the fullest of its potential.
The first thing that I want to start with is understanding what percent or what dollar amount that you are putting in. So when you elect into these plans, you’re asked to say, “Hey, what percent of your paycheck do you want to put into your retirement plan?” Or you can elect to have a flat dollar amount put in each pay period. So looking at that and say most people say, “Hey, 3%, 5%, 10%. Max it out if you’re able to do that.” You would like that.
And then each pay period that gets elected or debited and then deposited into the retirement account that is available to you. As that percentage continues on, it usually does not change unless you physically go in and make that change to increase an amount that you are saving. So we want to make sure that whatever percent that we are putting in, is it still relevant and am I able to put in a little bit more? And if you can, I would strongly encourage you to do it. As we always say, nobody’s saved too much or started too early. So a little bit more going in will definitely help going into that.
The second part of that contribution amount has to do with what your employer would put in for you. And this is usually through some type of a matching contribution. Now, it’s usually common for employers to say, “Hey, we’ll match up 100% of your first 3% that you put in, or 5% that you put in. We’ll match 100% of the first 3, and 50% of the next 2 or 3% that goes in. It’s extremely important that you know what that number is. And if it is at all possible, making sure that you are putting in 100% of whatever they are able to match. If they’re going to match 5%, you need to do anything you can to put in at least 5% into your plan. Take advantage of that money that your employer is willing to put into you for you saving.
So again, if it’s 5% and you put in that full 5%, you’re essentially putting in 10. So again, understanding what that amount is. It’s fairly common for people not to know what the full match is that their employer is willing to do and then they seem to find out that they’ve been leaving money on the table potentially because they’ve not been maxing out the amount that their employer is willing to do. If they’re willing to give you that free money for your retirement, you need to make sure that you can take that.
And then going back to your contribution amount that you’re putting in, it seems to be more common these days that these plans have built into them where your contribution amount would increase by 1% every year. So this is essentially forcing you to increase your savings every year. A lot of times this is part of your plan and you have to physically go in and opt out of that if you don’t want that to happen, which is again, a good thing I think for people to increase their savings. If they get a little bit of a pay raise, we’re going to raise the amount that we’re putting in to coincide with that. So understanding the amount that’s coming out, when it’s coming out. And again, is there anything that you’re leaving on the table as far as any company match with it?
So now flipping sides with your retirement plan. Once the money’s put into it, what do we do with it? A lot of times this is where we get a blank stare from people. It’s like, “I put it in there and it’s in there. I don’t know really how it’s invested or how it’s allocated or even what it’s doing.” And this, again, like I said, is not uncommon because people look at their investment options that are available inside of their plan and they become overwhelmed. They don’t know which fund to pick. A lot of times they’ll look at the 10-year history of all the funds that are available and say, “Hey, over the last 10 years, this one did really well. I’m going to go into that one.”
Now there’s some things that can not be the best thing when you look at it from that way, but that’s a whole different topic for a different show with it. But if you don’t make an election, it’s fairly common for retirement plans, specifically 401(k)s, is that if you don’t elect how you want your money allocated inside your plan, the default is a target date fund. These are very common inside 401(k) plans, and there’s a 2030, 2035, 2040, ’45, ’50, ’55, ’60, and so on. Every five years, this is how these funds work and they’re separate funds.
Now, these funds, you get defaulted into the one that coincides with when you are probably going to turn 65, and that’s the target date fund that they pick as far as your default. Now these funds work basically like an autopilot, so they get a little bit allocated more towards the fixed income, the bonds, the closer that you get to age 65. Doesn’t matter what the markets are doing, whether they’re up, whether they’re down. The farther you are away from age 65, the more equity exposure you probably will have. The closer you get to age 65, the less equity exposure, the more fixed income bond positions they go to.
And again, there’s pros and cons just like any other thing that we talk about out there with target date funds. But it’s important that if your money’s going in there, you know that there’s certain requirements that these funds have to be allocated in at all times. They don’t look at market conditions. They don’t look at it, “Is the market up. Is the market down? What is trending? What are interest rates? What are all these things?’ They don’t look at that. There’s certain requirements that these funds have to be in at all times, whether the markets are up or down.
Again, good and bad, pros and cons with everything, but understanding the differences between these and make an educated decision to see how your money’s invested. And again, understanding that money that goes in isn’t necessarily going into your current allocations. Usually when you log into your 401(k) plan, you’ll have an online portal or something that most of them have now where you can go in and adjust the investments that you have inside of your 401(k) plan or your retirement plan. But there’s also a separate section where you can then adjust any contributions. So just because you rebalance your current investments doesn’t necessarily mean that your contributions are going to be rebalanced accordingly whenever they go in. There’s usually two separate transactions that you have to adjust to say, “Hey, any new money coming in, this is how I want it to be allocated. In my current money, this is how I want it to be reallocated or rebalanced to.”
So understanding the differences to those. Otherwise, we’ve seen it where individuals come in and they thought they had adjusted their plan to maybe seven or eight different positions inside their plan, but they come in and they have nearly 20. Because their old allocations are still getting the contributions, they’re not getting mapped over to the new ones. So understanding how those are. End of the year is a common time where plans send out maybe notifications to their employees that, “Hey, we’re going to be changing some funds starting next year. We’re getting rid of this fund, but we’re replacing it with this one. If you don’t do anything, your fund that you did have, any new money is going to be going into the new fund.”
But it’s common this time of the year for those notifications to come out. If you get those, you have questions, just give us a call. We’d be happy to kind of go over a lot of the plans with you and kind of go through some of the options that are available to you in there so that way when you make the decisions on your own as far as allocating them, you kind of have an idea as far as what you’re going into, what it’s going to do and how it’s going to impact you. A lot of times we see where people are taking on a lot more risk than what they really think they are inside of their plan. Or the flip side of that, they really don’t have much exposure. They don’t really have much upside exposure in there, and they thought they did. So we just again, want to make sure that whatever risk tolerance, whatever comfort level you have with investments, that it mirrors how your money is kind of allocated and is sited that inside of your plan to make sure you’re on board.
A lot that goes into it, a lot is thrown on the plate of employees when it comes to retirement plans, and it’s usually something they’re not familiar with. They get overwhelmed. So usually nothing is done, which again, usually not a good thing so we want to make sure that that’s taken care of. So I’d be happy to sit down with you, answer any questions on your plan that you may have. Give us a call. We can definitely get that on the schedule and help you out with that.
But running out of time here, I wanted to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of December will be donated to the Sleep and Heavily Peace program out of Comanche. Again, this is Nate 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 of 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.