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 of 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, another wonderful Wednesday morning in February here in beautiful Midwest Clinton, Iowa here. Looks like we got some weather coming, starting to, rain is on the way up here today.
But again, just looking at what’s ahead of us, it’s all going to depend on how that front kind of slides on through. Is it going to stay rain? Is it going to be more sleet freezing rain? Is it going to be snow? What type of mixture of both? Again, it’s going to be a wait and see, and a lot of the area schools have either canceled or continue to be on delay waiting to see kind of how that turns out. Just a reminder to be safe out there today, drive carefully, and take your time if you do need to go anywhere.
Fun time of the year though. I do say that we get to the end of February next week, beginning into March getting to be a little bit warmer, hopefully temperatures starting to see on TV for major league baseball. Spring training has started, pitchers, catchers position players have reported. I’m always excited to see that because that’s kind of the early sign of spring and warmer temperatures ahead.
I know I’m looking forward to getting baseball season started and getting outside, being able to enjoy that with it. I want to wish a big congratulations to the area teams Clinton and Camanche bowling teams. Had some great representation out at the state tournament, again, a big congratulations to them. I was talking to Gary today before the show, unfortunately I think basketball season is done for most area teams from that. But again, another great season. A lot of teams to look forward to moving forward in the area. So again, want to continue, wish them the best luck as they transition to the next sport, whatever that may be for most of them, track and field with it so.
Getting into today’s show, I know the last couple of weeks last week we had Andy Ferguson on with NelsonCorp Tax Solutions just talking tax season, tax planning, some of the changes he saw. Obviously we’ve got a little bit of time before that in mid-April, tax deadline. But again, don’t wait till the last minute, your tax preparer will definitely be appreciative of getting stuff in early. And as he always says just make sure you have everything when you bring it in so they don’t have to sit and wait, and wait on that last document. Make sure you have everything, get them into them.
So obviously economy-wise, markets are continuing to kind of fluctuate with news on inflation reports. What is the Fed going to do moving forward with interest rates, jobs, reports? All of that continuing to play a factor into where markets are going. Obviously inflation has came down since its peak at the end of last summer. We saw the January report come out, not quite be as favorable as what they had maybe anticipated raising by about a half a percent there.
But again, understanding that the overall trajectory of that inflation is coming down. It’s obviously not going to be a straight line fall like people I guess had hoped or maybe thought it was going to be. It’s going to be more probably of a bungee, kind of down, maybe up, down up a little bit. And make sure that we have our portfolios and our investments and our cashflow and our planning. Again, being able to accommodate those changes, that volatility in the markets and have a plan for it.
And I think that’s going to be the overall topic for today is just kind of continuing to hit on that planning topic. I know we talk all the time as far as retirement planning, financial planning, tax planning and how they all fit, and what you can do depending on whatever stage it is in your working career. If you’re just starting, where should you start saving money? If you’re midway through, where do we need to start looking at for cashflow in retirement?
If you’re at that time to make the decision, are you financially able to do it and are you able to take on the change of having a steady income? What is your income going to look like when you do get to retirement? And then obviously in retirement, how does your cashflow look and how can we maximize the assets that we have? And again, retirement planning is a big topic, and it’s a very broad topic and people hear it, they understand, “Oh yeah, I need to plan for when I get to retirement,” but they don’t necessarily understand exactly what it means, and what they all need to be looking at.
The big focus when I meet with people, especially for the first time when they come in and saying, “Hey, I wasn’t looking at retiring, how much do I need to have to retire?” And that’s a trick question because, again, how much you need to have in retirement is a hundred percent depending on what you need. What are your expenses? What are your debt? What is your lifestyle going to look like? What are your goals? That number, when you answer those questions will determine how much it is that you have to have in retirement.
Because if you look at, again, how much you need to have or how much you save, that’s going to dictate how much you basically can spend in retirement. Most people want to look at it from the other way and say, “Okay, this is what I’m going to need. How much do I need to have and where’s my cashflow going to come to look at fulfilling those goals in retirement?” And cashflow is that big thing.
Again, if we have just straight investment accounts in Social Security, how can we maximize that Social Security benefit and look at getting the most out of that? And then obviously bridging any gap with any additional retirement funds that we have going forward. If you are fortunate enough to have a pension, how does that play? If you do have a pension, what are the different options available to me and which one fits best with my situation in order to maximize everything else to it?
Again, that pension plan is a big piece to the puzzle, but again, it is just a piece to the puzzle. And we want to make sure that that pension plan, the Social Security, the tax planning, everything else is going to try to fit together in order to move forward kind of together rather than not having one decision maybe negatively impact another section with it. And again, if you’re going to look at continuously savings, if you’re still working, and then have a few years for retirement, where is the most beneficial way for me to start saving money, and how is that going to impact me, not just now, but later on in retirement?
Can I do some proactive planning while I am still working with how I am saving money in order to be in a better spot later on? And again, we compare it to, okay, which pocket are you going to put it in? And again, understanding that different pockets are usually going to be taxed differently in retirement. That’s the main difference between the different options as far as when you, where, and how you retire. Is it in the Roth bucket where it’s basically after tax money, money that you had already paid tax on? You’re going to put it into the Roth portion, whether it’s a 401(k) or it’s a Roth IRA.
Again, you are not going to get the tax deduction in the year that you put that money into those accounts; however, that money will continue to grow tax free. And barring you take that money out after 59 and a half, 100% of that account would be tax-free when you take it out. Obviously there’s some things as far as pre-59 and a half to look at with it. But again, big picture-wise, you put it in, no tax deduction, tax-free on the back end compared to the traditional IRA, traditional 401(k) plans that most people are comfortable with, and have maybe been kind of pushed to save because of that immediate tax deduction that you get in the year that you put that contribution in.
Yes, you do get that tax deduction, it does help on that year’s tax return; however, all you are doing is kicking that tax liability down the road to an unknown tax period, and having to pay taxes on that. That money continues to grow, you pay taxes on not just the money that you put in, but also the growth that that money had when you tax deferred it. You deferred that tax to a later period in time. And so we start looking at taking money out in retirement, out of a traditional IRA, out of a traditional 401(k), we are just adding to our taxable income in retirement.
Now again, sometimes that is going to be beneficial as far as what your income is, but again, if you have, again, fortunate enough to have a pension, you have Social Security benefit, and now we start adding some of these on top of it, it’s going to push you up into a higher tax bracket than I think what a lot of people maybe realize, or can kind of understand of where that is. So again, understanding how you are saving, what bucket you are saving, how it is taxed now, how it is taxed when you take it out, and how does that all fit into the big picture.
Social Security I just mentioned again, but another big part of that puzzle. And understanding how Social Security benefits are calculated, understanding how they are impacted by when you claim them. Everything is based off of your full retirement age. Your full retirement age is based off the year you were born. If you were born in 1954 or earlier, your full retirement age is 66. If you were born in 1960 or later, your full retirement age is 67.
And if you’re born somewhere in between there, there’s some little break points in there. It’s going to be 66 in two months, 66 and four months and six, and eight, and 10 months, all the way up until that point so. Anytime that you file for a Social Security benefit, and it doesn’t matter what type of benefit it is, if it’s your own benefit, it’s a spousal benefit, if it’s a widows benefit, anytime you file for a benefit prior to your full retirement age, your benefit is going to be reduced.
Just again, it’s going to be reduced if you file for your benefit prior to your full retirement age. If you wait till after your full retirement age, again, your personal benefit will increase 8% every year up until age 70. So again, that is on your own personal benefit will increase 8% a year from every year past your full retirement age up until age 70. So again, where do you fall in there? Where does claiming your Social Security benefit fall in the big overall financial picture? And if you are married, how are we going to coordinate the filing between your benefit and your spouse’s benefit?
Understanding if one of the spouses passes away, what does that do to Social Security benefit? The lower benefit is going to stop. The bigger benefit is going to continue. So a lot of times when we have married couples, we like to look at it from a collective decision, not just a husband decision, or a wife decision. Let’s look at it collectively and see if we can do some planning now in order to kind of have a little bit of comfort and maximize that benefit for a surviving spouse.
And again, estate planning. This is always coming up in meetings that we are doing. What can you do now to ensure that things are taken care of following your death? And again, that is making sure beneficiaries are updated, making sure your intentions are clear, whether it’s in a will, whether it’s in a trust. Making sure that any documents like that, a will or a trust are the same as what your retirement account beneficiaries are. Any life insurance policies, any pension plans at work that have a surviving benefit, annuity plans. Anything that has a beneficiary, we want to make sure that the beneficiaries are updated and they are the same as far as what any other estate planning document listed as.
It avoids any confusion, and again, makes things a little bit cleaner after your passing. So a lot of stuff to kind of go over, a lot of big picture stuff I kind of touched on today. But again, it just goes to show all the different pieces that are out there, and how they need to fit together, how having the discussions prior is going to make it easier on once you get to retirement and so on past that. And just giving you that peace of mind that, “You know what? Things are taken care of. Never would’ve thought of that, but I’m glad we discussed it and now we can take care of it.”
So you got questions on sitting down with one of us over in NelsonCorp, be happy to kind of go through some of this stuff with you, and start getting your roadmap put in place so that you do come to times in the markets that we are at, we have a plan for it, and we know that we are prepared, and that we can weather it, and kind of move forward to better time.
So again, you got any questions, give us a call. I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of February will be donated to the Children’s Discovery Center. Again, thanks for joining me this morning. 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 representatives securities offered through Cambridge Investment Research Inc., a broker dealer member of 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.