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 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. 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. Got Mike joining me today. Nice walk up the hill today.
Mike Steigerwald:
Beautiful morning.
Nate Kreinbrink:
It is a beautiful morning. It’s always nice when we can just walk up the hill and take that nice little stroll and knock the dew and grass clippings off of our shoes. But it’s nice to be out there. And the green grass and no coat and-
Mike Steigerwald:
It’s wonderful.
Nate Kreinbrink:
And I think we’re going to have some continued run with that as an extended forecast, although a few showers. For the most part we’re going to continue to keep these temperatures. Was outside last night, sitting outside with the youngest one, rebounding for them, and was getting eaten up by bugs. So that time I think is here.
Mike Steigerwald:
The worst part of the weather change is when bugs come out.
Nate Kreinbrink:
So I’m going to have to make sure I have my stash of bug repellent and continuously applying so it’s enjoyable to be outside. But it is a fun time of the year. I know schools final countdowns are well underway. I think teachers and students included can see that finish line and it’s close, days, I think, are under 20 for a lot of the area schools so we are definitely getting close. I know the state track qualifying is coming up, seeing a few area athletes qualified for tennis, and then obviously the summer season with softball, baseball is underway. I think games will be starting here I think next week already and be hot and heavy with that season as we transition too.
Mike Steigerwald:
That’s right. Mother’s Day coming. Happy Mother’s Day to all the mothers out there.
Nate Kreinbrink:
Yeah, absolutely, absolutely. And again, it’s a fun time. I know, again, seeing the warmer temps and spring weather and all that is definitely a well-welcomed invitation, keeping the windows open, fresh air, all that stuff.
Mike Steigerwald:
Beautiful thing, yes, it is.
Nate Kreinbrink:
With that, I think sometimes we also see a timing of individuals retiring at this time. They don’t want to retire in the middle of winter, they don’t want to retire when it’s cold outside. They kind of have a time period where I want to retire and basically-
Mike Steigerwald:
Go do stuff.
Nate Kreinbrink:
Go do stuff and be able to not sit at home. And so we’ve seen quite a few of those over the last couple of weeks come through the office and meet with them. And I think it’s one thing that continues to remain is just the overwhelming nature of one, just not only making that decision, but then the now what. Now what do I do? That okay, I’ve decided to retire now, what do I need to have in place? What can I do ahead of my final date that I’m working? What do I do right after it? What do we do going forward with that? And I think, again, it’s an overwhelming decision. Again, I’ve talked about the psychological decision as far as retirement, transitioning from getting a paycheck to now I’m entering in a world where I’m going to have to live off of my savings and not get that regular paycheck and will my savings provide me that regular paycheck that I need to get by not just for the next couple of years, but for potentially 30 plus years of my retirement and how it all works together.
So again, it’s a lot to take on for these new individuals. But again, looking at it and saying, Hey, if I’ve got 30 days before I do, what can I start getting in place? And a lot of times it’s start looking at what is cash flow going to look like? What is, again, taking this paycheck away, what am I going to need on a monthly basis to do that? And what are the other options? Do I have a pension? When am I going to claim social security? If I’m married, are we coordinating that insurance? So again, we could talk a whole show on each one of those topics.
As far as for this thing, obviously going to hit broad, very high level stuff with some of this stuff for today. But again, I think it’s looking at it and ahead of when you retire, if you have a pension, contacting HR and having them send you out that pension packet and going through your different options, do I want to take it as a lifetime benefit where it’s paying to me? If I go that route, am I going to add a survivor benefit to it where something is paid out to a surviving spouse should I pass away or is there a lump sum option and is that the best option to do to just roll that over to an IRA account, have the flexibility and the liquidity when I want it, how I want it to be able to take that money.
Mike Steigerwald:
A little control, right?
Nate Kreinbrink:
Right.
Mike Steigerwald:
You could determine if that gets passed down to next generations in the event that you’re no longer here. And one of the things I’m thinking about, as you say all this Nate, is people only get really one shot at this, right? And people that are going through it really only pretty much go through it one time. So there are going to be questions along the way and there’s going to be guidance and help that’s needed. And certainly seek that help if you’re not sure on which box to check or if you don’t know what some of the paperwork means. Because sometimes, oftentimes really, those decisions are irrevocable. You can’t change once you select how your pension’s paid out. Once it’s done, it’s done.
Nate Kreinbrink:
Right, and I think that’s the nature of it. And I think the added pressure that people feel when filling that out, is it like, well, I think I want to go this one, but I don’t want to mess it up and-
Mike Steigerwald:
Is it the best?
Nate Kreinbrink:
Yes. And so I think once you sit down with somebody and kind of just lay it out and say, “Well, if you pick this, this is how it’s going to happen. Down the road, if you want this, well, you can, or you can’t do it with this option because of how this works.” So then you transition over to the other one. Again, it needs to be an individual decision. Just because your coworker picked this option doesn’t necessarily mean that’s best for you or vice versa how that thing goes with it. But again, when you look at it, again, a lot of the pensions do have a lump sum option because again, they would rather just pay you out your pile of assets that you have there and basically be done with it. They don’t have to worry about paying you a check for the rest of your life.
Again, you have the flexibility, the liquidity, the control over it. And again, if you don’t spend it and you pass away, it goes to your beneficiaries. Depending on the other way, it would depend on how you selected your options with that one. So again, a lot to go into that while you’re still working, before you even get to your actual retirement. Once you hit that actual retirement date and you get your last payout check, whether it was for the last week that you worked, whether it was your last vacation pay, your last bonus pay that was paid out, whenever that last paycheck hits, you’re able to at that point in time, look to roll over your 401k if that’s an option to you. So again, you can take the money that you have in your 401k, roll it over to an IRA account. If you have Roth money in your 401k, that goes to a Roth IRA. And now you have the flexibility outside of the plan and not necessarily limited to just the fund options inside of what the plan has.
And again, we’re seeing a lot of times with these plans that again, they may have 15 different options, but over half of them are target date funds. And that’s what you’re kind of limited to as far as selecting, I want to put 10% in here, 20% in this one. Well, over half of them are target date funds so the only options that you have if you don’t want to go that route are very limited in what exposure you may want to pick to go that route. So again, you want to work with somebody to make sure if that’s the route you want to go and that’s best suitable for you, that you get that done correctly because you don’t want have that done incorrectly and all of a sudden, that big nest egg that you have, you’re paying taxes on a hundred percent of it all in one year, and all of a sudden you’re like, this hurts and this is-
Mike Steigerwald:
Surprise.
Nate Kreinbrink:
Yes, it is. So again, there’s a lot of little things that go into that. And again, having, as Mike said, it’s the first time for the majority of people, and when I work with somebody that has done it before, that has been through it that knows some things to try to avoid or some hiccups to smooth out along way to help with that. And then again, the next phase after that part is just looking at it from, okay, what am I going to need now from a cash flow? I was getting this paycheck, I don’t have this paycheck anymore. Am I going to turn social security on, am I going to delay that? Do I have a pension? And if so, when is it starting and how much is it going to be? Am I going to need to take a little bit out of my retirement account to offset that for a few years or whatever the case may be?
Mike Steigerwald:
Bridge a gap.
Nate Kreinbrink:
Bridge a gap. And that’s again, a big decision. And then at that point then, what is my withholding? Because my income drastically changed possibly. I was making X, now I’m making Y, maybe I don’t need to withhold as much, so I don’t want to take out more than what I have to. So again, there’s all these questions that kind of lead to another question that leads to another question. And again, they’re all tied together. And making one wrong decision is probably going to negatively impact a couple other decisions that you’re going to look at. So it is kind of a domino effect, per se, when you look at it.
And a lot of times you’re starting to look at stuff like that and you’re like, you know what? I never even thought of that. And they didn’t even think of, okay, now I’m going to retire, I’m looking at cash flow, this is what I need, but I’m only 63, so where is my insurance going to come from for the next two years until I get to 65? Never even thought about that. Well, now that’s another variable that comes into play. So a lot to think about, a lot to go through. But again, it doesn’t have to be overwhelming.
Mike Steigerwald:
Absolutely some big decisions. So like I said, I mean, the biggest thing I would say is seek the help if you need it. I mean, people are out there, we’re here to help. And if you have difficulty going through paperwork, or like you said, checking boxes, before you actually turn anything in, best to seek that guidance.
Nate Kreinbrink:
Right. And I think it also is the earlier you start having these discussions, the better. I mean-
Mike Steigerwald:
That eases a lot of pressure.
Nate Kreinbrink:
You thinking you’re going to retire in a year or two. I mean, you get to that point, start meeting with somebody at that point.
Mike Steigerwald:
Yeah, start talking about it now.
Nate Kreinbrink:
Because now you can start going through some of those different scenarios and not feel the pressure of like, well, I’ve got to make this today because it’s deadline tomorrow. I’ve got to do this. So again, looking at it, and another point that we’re not going to have time to dive into a lot, but Mike and I were talking about it on the way up here, is how social security ties into this. I think people have this preconceived mindset that I’m going to retire so that means I’m turning on social security. I have always said since day one and whatever, when you retire and when you file social security needs to be two separate decisions. Just because I retired is not a good reason that I’m going to turn my social security on. Now, in some cases it may work out that that’s the best option to go, but again, just because you retire is not a good reason to turn on social security the next day.
You want to see, as you said, is there any opportunities? Is there anything that we could maybe do by delaying that, getting that bigger benefit later on, but allowing us to maybe get some money over from a taxable account over to a Roth account at a lower tax rate before I turn that on. And if that’s the case, I’d rather pay less in taxes and have a bigger social security benefit. So again, there’s a lot of things in play, a lot of moving parts, which is why it is not a one size fits all answer to somebody when they’re trying to retire.
Mike Steigerwald:
Big decision, certainly.
Nate Kreinbrink:
So again, if you’ve got questions with some of this stuff or if you’re thinking about in the next year or so, or a couple years down the road, what do you need to start doing now? Sit down with us. Again, you will not regret it. And again, it will ease a lot of that uncertainty that you will have making that big decision in your life. But before we run out of time, I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of May will be donated to the Speak Out Against Suicide program. Again, this is Nate and Mike 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 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.