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. I have Mike with me today, last show in February. It is flying by.
Mike Steigerwald:
It is. It’s getting lighter longer. The sun is up-
Nate Kreinbrink:
It is. It is.
Mike Steigerwald:
… when I go home at night.
Nate Kreinbrink:
And I know we’ve kind of got spoiled there, what, a week or two ago when we’ve had some of those-
Mike Steigerwald:
Little tease.
Nate Kreinbrink:
… 60 degree temperatures and open up the windows and fresh air and be outside. A little more dose of reality as of late. But I think the rest of the week is supposed to get back up into the 40s again. So it’ll be fairly mild. So, it is-
Mike Steigerwald:
The spring tease was nice, but back to reality is right.
Nate Kreinbrink:
It is getting closer to March, March Madness, end of the season. I know like winter sports season’s winding up, transitioning into more spring training, baseball on TV. Fun time.
Mike Steigerwald:
What? Opening Day in about a month, right?
Nate Kreinbrink:
Less than a month. 20 some days I thought I saw on there the other night. So getting to that optimistic time, I know every team starts 0 and 0 and it’s going to be their year and that optimism, I guess. But until then we have tax season. And normally last week I talked a little bit of taxes and as far as Social Security, the new tax bill, the no tax on Social Security, what it actually means, how you actually qualify for it, and how that does apply to your overall tax situation.
Again, there’s a lot of, I guess you would maybe say misconceptions as far as maybe what was said in the news versus the reality of what it actually is, how you qualify for it, and the impact that it does have on your overall tax situation. So understanding those, I know talking with Andy and Mike and our tax side there, they’re kind of hitting that first big push as far as rushes of tax returns and tax preparations being done. And again, overall, I think refunds are a little bit bigger than maybe what they were 12 months ago when they got them done. Maybe not to the extent that maybe people had anticipated they’d be bigger. And I think that just goes back to the reality of what we’ve been kind of talking is a lot of these new tax rules, again, will benefit you, but maybe not to the extent that you’re thinking.
Mike Steigerwald:
Yeah. The headlines can be quite deceiving. And you hear about these things and say, oh, no tax on Social Security and no tax on overtime. And really when you dive into the weeds and find out what it means and really puts into perspective just how it may impact your individual situation. It’s not always exactly like it seems, I guess, is the point. So having that mindset going into it when you’re getting your taxes prepared probably just helps having that knowledge just to have realistic expectations of how it might turn out.
Nate Kreinbrink:
Well, and when we talked about these too, I mean, we did say, I mean, changes happen. And I joke with Andy every year right after the end of the year or as you transition into the first part of the new year, every time he goes to this tax school and comes back with this one inch think binder of all the tax changes and everything for the coming year, not the actual tax code, but just the changes and updates for the next year. And again, the tax code is always changing. And especially with this new tax bill that went into effect, the complicated part of it is that, again, a lot of these things aren’t permanent. They’re only for a few years here. So we’re kind of hitting that first year of what these new changes will be.
I encourage you as you get through your tax season, getting them done for 2025, if they’re not coming out exactly how you thought they were going to do, ask questions. They may not sit down with you and go through a full tax planning thing at that point because obviously they’re in 2025 mode preparing taxes. But once we get through tax season, sit down with your accountant, sit down with them and ask questions as far as, “Okay, hey, it came out like this. Why did it come out like this? And do I need to make any changes for the rest of the year to have them go into effect to maybe change the way more so that I want it to happen?”
Mike Steigerwald:
Yep. “What can I do to make this outcome a little bit more predictable?” Again, after this first season, maybe having a more of an understanding of really how it impacts you depending on your job, your income sources and maybe how that’s all impacted by these new tax laws. And then once you have that sort of baseline, again, easier to manage and make some changes and do more planning proactively proactively around your tax situation.
Nate Kreinbrink:
It is. And again, when we get these questions, again, the Social Security aspect and the no tax on Social Security comes up quite frequently for those that it applies to. Talked a little bit last week as far as what that part of that new tax bill that deals with Social Security actually is and how it in actuality does not necessarily deal with Social Security at all. It’s in place to offset the tax on Social Security, but in order to qualify for it really has no bearing on whether you’re on Social Security or not. So understanding those parts.
But when that question always comes up, we’ve kind of gotten into more and more discussions on Social Security and the claiming strategies that apply around that. And when you start looking at it’s definitely important that you understand what your options are. And again, there’s a lot of people that have strong feelings as far as when they’re going to take their Social Security benefit based off of what their neighbor did, what their friend did, what generations before them maybe did.
But again, I encourage you and strongly encourage you when you make that decision to really understand all the options that are out there. And the one saying that I always go back to, and I think it still holds true and will remain true, is that when you file for your Social Security benefit and when you retire, need to be two separate decisions. Just because you retire is not a good reason to turn on your Social Security benefit. You need to understand why you’re claiming it at that certain point and understand how that fits into the big picture. Because when you start looking at your Social Security benefit, it’s probably one of the largest assets that the majority of people will have to put into play in their retirement.
Mike Steigerwald:
Certainly.
Nate Kreinbrink:
And if we’re making decision on the largest asset that we have without understanding all of our options, you’re kind of doing yourself a disservice to, again, the big picture of it. And if you’re married, it multiplies it by two because, again, if you have the larger benefit of you and your spouse, you’re not just making the decision on when to file for you, but you’re making the decision on when to file for that surviving spouse too. Because at the end of the day, both of your benefits aren’t going to continue on if one spouse passes away. The smaller benefit goes away, the larger benefit continues on to that surviving spouse.
So again, it’s kind of, in essence, a longevity insurance policy, I guess you could call it, to say, “Hey, I want this bigger benefit. I want to protect this one a little bit more just for the simple fact of, I know this benefit is going to continue on not just maybe for my lifetime, but for my spouse’s lifetime as well.”
Mike Steigerwald:
Yeah, certainly a joint decision. You’re making that decision based on essentially two lives, when you’re considering when to flip the switch.
Another thing, Nate, that we hear quite a bit and has come up recently is, “I’m claiming at 62 no matter what because my dad, my mom, my brother, my aunt died early and I want to just get my money.” Certainly understandable when people have those thoughts and those feelings, but there’s also consistently improvements in medicine and stats say that we are living longer. So it’s not always going to be the case that just because dad or my uncle or my grandfather passed at a young age that I’m going to. And certainly it’s a guessing game, no one knows for sure when that day comes. But to look into the future and say, “Oh, I’m planning on checking out early.” Well, what if you don’t and you’re taking that reduction in your benefit for, really, the rest of your life?
Nate Kreinbrink:
Right. And I think too, like when you look at, again, some people, if you have not created your own my Social Security login on ssa.gov, when you get past age 60 and you hit some of these milestone birthdays, you may still be getting that paper statement in the mail. If you have created your online account, you always can log in and see what your up-to-dated statement says. But again, when you claim based off of your age will determine the amount that you’re going to get. And I think when people start looking at and understanding a little bit more as far as how that benefit is calculated, you need to really understand when your full retirement age is. Because any addition, the 8% increase for every year that you delay past your full retirement age up until age 70 is off of your full retirement age amount, your primary insurance, your PIA amount.
If you take it before your full retirement age, any reduction in benefit because you’re taking it earlier is based off of that amount. So again, if you understand that amount, anybody that was born in 1954 or earlier, your full retirement age is 66. Anybody that was born in 1960 or later, your full retirement age is 67, and if you were born in between there, you’re somewhere in between 66 and two months, 66 and four months, six months, 10, eight months, 10, whatever it is up in between there. So again, know when your full retirement age, know when those benefits are.
But again, understanding how it fits into the big picture, because let’s say you retire at 63, it’s not uncommon for people to walk off the job, have a decent size 401(k) account, but it’s all tax deferred, meaning that they have to pay taxes on all of that balance inside of their 401(k) whenever they take it out. Sometimes delaying Social Security for a year or two after you retire allows you to maybe do some Roth conversions, moving it from a tax deferred over to the Roth account while not adding that income on top of what your Social Security benefit is.
Mike Steigerwald:
Correct.
Nate Kreinbrink:
So again, it’s twofold benefit in a way. You’re getting money out of that tax deferred account at a lower tax rate, hopefully, and you’re delaying your Social Security benefit a year or two where it’s going to be bigger when you do decide to file for that benefit. So a lot of different options, a lot of things. Again, with everything that we do, it’s a specific individual decision. There’s not a lot of cookie cutter templates out there when it comes to retirement planning because your situation is different than your neighbor’s situation, is different than your coworkers. It’s just, you need to make sure that it fits you, I think is the biggest thing to take away from that.
Mike Steigerwald:
And really just highlights the importance of planning. I mean, let’s look at all the options and let’s make an educated decision based on your individual situation.
Nate Kreinbrink:
So you got questions, you need us to look over things or just kind of just put your options out there. And again, sometimes you don’t know what you don’t know. So if we can give you some of those options and have you make the most informed decision, you’re going to be in a better place.
Want to mention here before we run out of time that every month NelsonCorp Wealth Management is featuring a charity of the month. The charity for February is the Clinton Women’s Club here in town. Again, this is Nate and Mike 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 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.