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. This is Nate Kreinbrink bringing you today’s show. September, moving right along. We are into the second week of September here, although it looks like we are getting to get that last summer warm up the next few days, hitting mid to upper eighties. Still remain a little cooler in the evenings, but nice to keep that warmer weather along a little bit longer. Obviously, we know what’s behind it. Again, for those Friday night football games, the cross-country meets soccer matches, just everything that’s going on outside, continuing that pleasant weather as long as we can take it, because again, we all know it will turn, suddenly fall weather turns into winter weather and everything with that. But again, enjoy it. Should be a nice few days, a little chance of rain to come in, but again, we need that as well to keep these things going with it.
Again, today marks September 11th, the day that comes up on the calendar that obviously stands out above all others, remembering where you were, again, watching the news, watching the videos, seeing the pictures, seeing the broadcast, and everything that transpired on this day, I think as one that again, sticks out in your memories very vividly. And again, we want to continue to honor all those lives that we lost. And again, vow to never forget the tragedy that that happened that day. It’s a day that they say we will live forever and again, we will remember very vividly that day.
Getting into today’s program, I know again, transitioning into topics as far as what we want to talk about. I know there’s always a lot of topics. David was on last week with the live show talking a little more current events, things like that.
Fourth Wednesday of every month we are going to be talking Medicare. Either Mike Van Zoonen or Mike Steigerwald will be on talking Medicare. Just basically the differences, understanding the different plans, what’s going to go into all that. Third Wednesday of every month is still remaining tax. Again, Andy Ferguson with NelsonCorp Tax Solutions will be joining us, bringing us just different ideas from the tax side. Again, different strategies, different planning, what to look for, events that he’s seen, what to look for for going forward with taxes. Again, we’ve got those planned. Again, with this week wanted to just touch on a topic that maybe comes up repeatedly or seems to be one that routinely is one that people have questions on or maybe don’t quite necessarily understand what it is that their options are, what it is that they’re actually deciding between when they go to make this decision.
And what I’m talking about here is your pensions at work. If you are fortunate enough to work for employer where when you retire, you qualify for a pension, we need to make sure that we understand the different elections that we are able to make for that pension when we go closer to retirement. Again, when we look at pensions, pensions are slowly becoming a thing of the past where not many employers offer them to new hires when they come in, they’re again just simply doing away with it. Instead, electing to go with the 401(k), match contributions into your 401(k), your 403(b). You have retirement plan that you may have. But again, getting away, the employers are wanting to, again, not be responsible for having to pay a paycheck for 30, 40 years after an employee retires. Again, when they retire, they want to say, “Here’s your 401(k) plan and it’s your responsibility now to do what you want with that, we can basically eliminate you from our system and not have to worry about keeping up to date with any payments like a pension plan will do.”
Essentially a pension is a plan, a pool of money where again, money has been contributed to by the employee, by the employer over the working career. When you go to retire based off of number of years you have, based off the amount of money that you have paid in, they will come up with some projections as far as that, “We will pay you an X amount of dollars for the rest of your life, every month for the rest of your life.” The more you put in, the bigger those payments will be. Your decision then is to how you want to be able to take that money or that payment for you when you decide to retire.
When that usually happens again, you get a package, you get a projection statement saying, “Again, we will pay you a single life annuity.” A single life annuity would simply be, we are going to pay you this amount of money every month for your entire life. When you pass away the payment stop, nobody else gets anything. This is usually one of the higher payouts because they’re only paying it out over one life. But again, it’s something to look at to understand when you pass away if you choose the single life annuity, the payments will continue for your whole life every single month, the same amount. When you pass away, payments stop. There’s ones that go where you can add a beneficiary to it. Usually it’s a single life plus a hundred percent beneficiary, 75% beneficiary, 50% beneficiary. What those do is they will pay the employee X amount of dollars every month for their entire life.
If they should pass away and the beneficiary is still alive, they will continue to pay the beneficiary either a hundred percent, 75%, 50% of that benefit. Now, those benefits to the original employee are normally going to be a little bit smaller than what they would be as if they were be that single life because again, there’s potential by the pension to have to pay this out over two lifetimes. Again, there’s maybe a longer period of time. Those payments are going to be a little bit shorter than what you have with it. You have those are your two basic ones. You can get as technical as you get with some of these where again, they have a ten-year guarantee where we are guaranteed going to pay you this for 10 years. If you pass away within that 10 years, some beneficiary is going to get the remaining years left up until 10.
Once we hit that 10 years and one month, this pension stops. Usually a ten-year certain is what they’re termed as. Again, you want to look at that. It’s guaranteed to have some type of payment for 10 years to an individual, to the employee or to their beneficiary. Some of them have a step-up where you can get a higher payment up until 62. Once you hit 62, again, it coincides with the earliest that you can take social security. Then that benefit is going to go down or they have a larger payment up until age 65. Once you hit age 65, again, your pension payment can go down to an amount. Again, coinciding with a mark, an age that we’re looking at, the milestone 65 is when you start Medicare. Again, it may pay you a little bit more until you get to Medicare and then again reduce it, but you then transition over to Medicare for your insurance covering.
Again, there’s a lot of different ways to get that payment. One option too that continues to remain at the forefront is taking a lump sum. Essentially what this would be is you would forfeit any guaranteed payments throughout your lifetime to basically take a lump sum of all the money that you’ve put in, employers put in, and basically be able to roll that over to an individual retirement account, an IRA, in your name. Again, instead of the smaller monthly checks, we are taking a large lump sum rolling into an IRA. What that gives you is, again, you give up a little bit of the guaranteed nature where that check is going to come to you every single month. What you gain by that is liquidity, where you can control the amount that’s going to be coming out each month. Some months you may need a little bit more, you can take it out of the IRA.
Some months you may not need as much, you can reduce it. Whereas with the pension plan, once you lock that in and payments start, you’re pretty much locked into that payment for the rest of your life. Again, that gives you some peace of mind knowing you know exactly how much is coming. There’s no market risk, there’s no volatility that you’re going to go, you’re going to get that amount for the rest of your life. Whereas again, with the IRA, you have that flexibility. But again, there is some investment risk that comes with it. But again, a lot of times the liquidity that goes along with that when people start weighing their options, seems to be a favorite of where people like to do with it. But again, every situation is different. You need to make sure that you are looking at all sides.
Every side has pros, every side has cons. What are you willing to give up and what is that going to gain you? And that’s where you need to make your decision. How is that tied into all of your other assets as well? Again, I mentioned the earliest that the majority of people can take Social Security is age 62. Just because you turn 62 does not mean that you need to take it at 62. There’s some tax planning, there’s some other planning that we always like to look at to say, “Hey, yes, let’s delay it. This is why, and this is the opportunity that we gain by delaying it.” Again, we want to make sure that the decisions we make with the pension coincides and complements the decision that we make with our Social Security complements and is in the same realm of what we’re trying to accomplish with our other investments, any distributions we’re taking, are we working part-time?
All these things need to go into our decision-making when we make these decisions to, again, make sure that we’re making an educated choice that is not just good for us now, but also has some long-term benefits to us when we start looking at things down the road, uncertainties, how does this plan handle uncertainties and make those best choices? Again, a lot to go over trying to throw it into a small program here. But again, if you have a pension, if you have questions, if you don’t know what you should pick, again, you need to make sure that you understand what it is your options. Don’t pick an option because your buddy that you worked with for 20 years picked this option and I’m going to pick the same thing. Make sure that it fits you.
Make sure that, again, it is in your best interest to make sure that this is the best option for you. We’d be happy to sit down and direct you, review some of those options, and again, get you on that right path when you’re at that retirement age. And have questions, give us a call. Did want to mention here getting close to out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of September will be donated to the food pantry at information referral and assistance. Again, this is 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 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.