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Retirement Planning - Redefined
17 minutes | Jun 24, 2021
Ep 35: Not Your Father’s Retirement
If you’re of the age that your mom and dad retired 20 or 30 years ago, the world was a much different place when they walked away from their paychecks. Let’s talk about how things are different now. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: email@example.com Disclaimer: PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance. Transcript of Today's Show: For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/ ----more---- Speaker 1: Hey everybody. Welcome into the podcast. It's Retirement Planning Redefined with John and Nick from PFG Private Wealth. Hanging out with me to talk about this being not our father's retirement now. That's our podcast topic this week, not your father's not our fathers, whatever you want to say, we're going to go into this conversation about how things are so much different even just 20 years ago when it comes to retirement. And some things to think about before we walk away from that paycheck. And there's a lot that's obviously changed and obviously we're seeing a lot of turmoil coming off of COVID and things of that nature. So there's a lot of good topical stuff in here for us to discuss, but let's jump in and say hi to the guys first, Nick, what's going on, buddy? How are you doing? Nick: Pretty well, staying busy. Speaker 1: Staying busy. Well, that's always good. John, how are you, my friend? Last time we talked you were having some troubles with the kids. Everybody not sleeping and things like that. Doing better? John: Yeah, for the most part, actually, I don't know if I've mentioned it. We got them to share a room which has helped their sleeping habits a bit. So we've been sleeping through the night. So it's been a few years, my friend, of consistent nights of sleeping. Speaker 1: There you go. John: Starting to feel pretty good again. Speaker 1: Yeah, I like that. Well, very good. So you never know what's going to make the trigger there. So I'm glad to hear that. Do you guys remember these commercials? I'm a little bit older than you, but I know a lot of our listeners might remember these as well, if you guys don't. But back, maybe late '70s, early '80s, Oldsmobile was trying to rebrand and make the Oldsmobile a little bit cooler. And so they had these commercials and it would always say things like, "It's not your father's Oldsmobile." You guys remember those at all? Nick: I do actually. Speaker 1: Yeah. And so they would try to rebrand it that way. So that's kind of the idea I had for today's conversation. It's not our father's retirement. My dad retired in '93. He passed away in '96. So he didn't have a very long retirement, but even just the principles and some of the things are completely different here 30 years later. Speaker 1: So let's talk about a couple of these things and how the world's changed and how really planning has also changed and what you guys do and what folks need to consider when they get closer to retirement. First of all, the concept of retirement is not actually that old, a hundred years ago you didn't retire. You worked until you dropped. Right? So really retirement's only been around since, the idea of it really since the late '30s, '40s, '50s, '60s, so on and so forth. And it was this thing where you got to 65, you retired, you were done. Maybe you sat on the front porch and did little, but nowadays more and more people work beyond 65. They want to, not just have to, they want to, and that's okay. Right? There's nothing wrong with that. John: Yeah. I would definitely, we see that in our office here, Bob Perry's 76, 77, he's still working. We joke that his wife won't let him retire, but he really enjoys coming in and the environment here and just being with everyone, it gives him stuff to do and he provides a lot of insight for us as well. So it's great to have him around so I could see where in his situation or other people's, if they're somewhere they enjoy, what's the point of retiring if you enjoy it? Speaker 1: Right. Exactly. And not only that, Nick, but a lot of times people, again, they just want to do some other things and maybe you don't need the full job income, like you used to have, the big career, but maybe you do need a little extra money to help with the plan or something, but it's just a way to kind of have some fun and maybe make a little extra scratch on the side. Nick: Yeah. I think ultimately what happens is that almost one analogy to think about, you see things like football players, baseball players, et cetera. Here you have people that retire early, they maybe have a career 5 to 10, maybe 15 years. And obviously their situation is a little bit different from a perspective of the money that they're retiring with and the bandwidth they have to route the time between retirement and their life expectancy. However, there's probably a little bit more similarities than people realize where ultimately when you see interviews with people like that, the things that you hear them talk about are missing the structure, missing the comradery, coworkers slash teammates, those sorts of things. Nick: So, there's actually a lot of similarities and it's almost keeping that sort of structure and help keep my mind sharp, keep people engaged. We definitely see patterns from the perspective of, there are some people that they do a great job of having hobbies and they know that when they retire, they've got a list of things that they want to do, whether it's travel, whether it's hobbies, whether it's a small sort of business. And then you have people that really struggle. And I was having this conversation actually with my parents this weekend. My dad is a retired fireman, but he's been working, he had his own small business for the last maybe 15 years. So he retired as a fireman really early. Nick: My mom's a nurse. She works a couple days a week now, but she's looking to slow down. And my dad was talking about a friend of his, maybe like 10 years older, that still does some work because he can't just sit around, he's got to stay busy. And my dad was like, "Well, he needs hobbies." And I said, "No, you need some hobbies. You don't have any hobbies." And he looked at me like, "I had never really thought about that before." And we've had different conversations, but the point that I'm trying to make is a lot of times, we look at other people, we look at other situations and we perceive ourselves in a different way. And sometimes just taking that self inventory and asking ourselves these sorts of questions, it really is important because there's many more similarities that we realize. So... Speaker 1: Yeah. Nick: So we've tasked my nieces who are younger to help, start coming up with some hobbies for my father, their grandfather, to keep him sharp and engaged. So... Speaker 1: Well, I think we went through this cycle. Like I mentioned earlier, a hundred years ago you just worked until you dropped. And then we said, "Oh, we can do this thing called retirement." And then people started retiring and sitting around and doing nothing. And then you wither away that way too. So I think we've now started to learn over this past a hundred years that, okay, it's got to be a bit of both. You, you work really hard, you get to retirement, you hit retirement, but you still need to be active. You still need to do things and have things that interest you, if you want to just sit on the front porch and make wicker baskets, then that's great, do that, if that's what you want, but more and more people are- John: Real quick, Nick loves making wicker baskets. Speaker 1: Does he really? I got to get one now, I need a custom wicker basket. Nick: No wicker baskets. Speaker 1: Oh man, just crushed my dreams right there. But anyway, I think that's a really great point is having something to retire to. Now, the next point on this guys, is being retired, it can be more expensive nowadays than working. So, we used to see that 20% less is what you need in retirement. Well, that might not be the case now. And we've just been having conversations as well about inflation and stuff. So it can be quite expensive to retire if you're not careful. Nick: It absolutely can. Especially depending on where you live from the perspective of the things that you may be looking to get into or do. I live in a downtown area in St. Pete and I absolutely see how, anybody that lives in this space, all you have to do is walk down the street to grab a coffee, to grab a lunch and depending upon your lifestyle, you've just got more time on your hands to do the things that you want to do. So, so why wouldn't it be more expensive if we're just doing these things more often, more frequently, so it can definitely be the case. And that's even from a discretionary standpoint, let alone the health care costs and all the things that people do to stay healthier, stay more engaged, live longer, all those sorts of things. Nick: And ultimately, one of the things that we'll have conversations with people, sometimes people come in with an open mind thinking like, "Hey, this might be happening. I may spend more money." Other times we have people that they're absolutely convinced, " No I'm going to spend 50%, 60% of what I spent before." And that's sometimes the question to them is, "Why would you? Is that what you want to do? Or is this just something that you read?" Because I would guess ultimately you want to enjoy what you've saved up for and worked hard for. So, at what point in life or maybe even in the last 30 years, one of the questions, at one point in the last 30 years, have you lived only for needs and realistically here in the U.S That's for most people that's not too common, ultimately we live in the things that we bought. We enjoy the times that we want to spend with others, all those sorts of things. So, that's an important conversation to have. Speaker 1: No, I definitely agree with you there. John, retirees are facing more problems than ever too. Well society, we're all facing more problems than ever before, social media, so on and so forth. Just the inundation of information, but longevity, I think maybe longevity guys might be a key to this whole conversation today because it magnifies all of these things. And that's certainly going to be the case when juggling more problems because we're living longer, so much longer, the body's able, we're figuring out lots of great ways to keep the body going, but sometimes we're having some difficulties when it comes to the mental side, dementia is on the rise, things of that nature. And that gets pretty costly. John: Yeah. Yeah. Previously we talked about retirement changing, people had pensions which lasted for their life. And the shift has been away from pensions to putting the responsibility on the individual where now they have just basically savings, whether it's cash or investments or whatever, but now you need to be very cautious, we have to be very careful that that's going to last you 30 plus years. And that's why it's important to have the plan to make sure that your money is going to last throughout retirement, which is really the biggest concern for retirees. Some other things we've seen popping up more recently and we've just dealt with this with a client where their they're aging parents, they were providing financial assistance for their parents in assisted living facilities and things like that, or having helpers. John: So I have one client where they're were assisting their parents with that. So they weren't really going on vacation and enjoying their time. And then the parent passed away and then with everything that's happened recently, their son lost a job and then they were not helping out their son with expenses. So it was a double whammy for them is that they can't truly enjoy retirement because they're helping family members out, which again, no one plans for this, you just happen in this situation, but it's something that you always want to keep track of. Nick: Yeah. That's kind of that sandwich generation that they talk about a little bit and it really started coming to the forefront back during the recession, '08, '09, '10, where there was a lot of kids coming out of college, couldn't get jobs, parents aging, all these sorts of things. So I would say baby boomers definitely have their hands full with all the different things that they have to juggle. And so having peace of mind of having that plan in place and understanding how their money is going to work in retirement is more important than ever. Speaker 1: Yeah. Well, and like I said, longevity is probably the key to this whole conversation. So we have to sell fun. Right? We don't have pensions now. Well, not many do. Right? So I think something like 15% or less of the population has pensions. It's an interesting statistic, but we're talking 30, 40 years. I was just chatting with somebody yesterday, guys who they're 72 and their mom and dad both are still alive. They're in their 90s and they're also dealing with helping their 40 year old children. So there's a lot in this to unpack. Nick: Yeah. Yeah. We see it all the time. We see it all the time and it can be pretty stressful. And a lot of times what we'll try to do and go through with people and this even ties into some other previous podcasts, that we'll have from the perspective of, "Hey, my kids are looking to buy a house. I want to give them money for a down payment." And we'll talk about things like, "All right, well, where does that money have to come from? How does it impact your overall plan?" Nick: So we try to walk it through and we try, we joke where we try not to be the money police and tell people what they can and can't do, but we just help them understand the impact of their decisions and trying to make sure that they do it from a perspective of viewing their retirement first and making sure that they're okay because they also don't want to be a burden down the line for their kids. So it can be a really slippery slope and making sure that the decisions that are made along the way position them to be able to help, but it can be difficult, especially like you said, planning for that 30, 40 year retirement. Speaker 1: Yeah, definitely. And it's a situation where we're just going to continue to see more of it. So having a good strategy, having a good plan is going to be paramount to getting through all these hurdles and things that we've got going on. Because I imagine at the end of the day, nobody comes in and says, "Hey, I'd like to have less of a lifestyle than I have now in retirement." No one wants to go backwards. So you want to make sure that you are having those conversations to move yourself forward or at least maintain into retirement. So that's our topic this week. So we all know things are different than they were 20 or 30 years ago. But when you really start dissecting it, especially from a financial standpoint, there's just a lot to unpack. Speaker 1: So sit down and have a conversation. If you're not already with a team that can help you like the team at PFG Private Wealth, John and Nick, and the whole team there to get on the counter, reach out to them. (813) 286-7776. If you've got some questions or concerns, reach out on the website if you'd like to as well pfgprivatewealth.com, that's pfgprivatewealth.com. Don't forget to subscribe to the show. Retirement Planning Redefined on your smartphone there. If you've got an Apple phone, for example, Apple Podcasts is already on your phone. You can just open up that app and type in Retirement, Planning Redefined, and subscribe that way or Google or whatever platform you use. Most of that stuff's already pre-installed on your phones anyway, but you can find it all at pfgprivatewealth.com. Guys, thanks for hanging out with me this week. I appreciate it. John. I'm bummed that he's not going to make me a wicker basket. John: I've been trying to get one, he won't do it. Nick: I'm not the creative type. Speaker 1: Not the creative type. All right, guys. Well, thanks for hanging out again. I appreciate it. I'll see you next time. John, take care, buddy. John: Have a good one. Speaker 1: We'll see you later. Nick, take care. Have yourself a good week. Nick: All right. You too. Take care. Speaker 1: We'll talk to you next time here on Retirement Planning Redefined with John and Nick from PFG Private Wealth.
19 minutes | Jun 17, 2021
Ep 34: Learning Through Uncommon Sense
At first glance, each of these statements seem like basic common sense that everyone agrees with. But when we look at the way people actually behave with their money, it seems that common sense is actually a bit uncommon. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: firstname.lastname@example.org Disclaimer: PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance. Transcript of Today's Show: For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/ ----more---- Speaker 1: Hey everybody. Welcome in to the podcast. This is Retirement Planning Redefined with John and Nick. Hanging out with me talking investing, finance, and retirement. Uncommon Sense is going to be our theme on this podcast. I've got some statements here that I think all of us agree are basic common sense. But yet when we go to do these things, we tend to do the opposite. We act a bit uncommon. So that's going to be good. We're going to have a fun conversation with this and stick around. We're going to jump into that. But first let's welcome the guys in and see what's going on. John, how are you, buddy? John: Good. How are you doing? Speaker 1: Hanging in there pretty good. We were just chatting before we rolled the tape here on the podcast. A little sleepy. The kids did not want to cooperate last night. But other than that, things are going good for you? John: Yeah, yeah. Things are going well. Speaker 1: Very good. Very good. And Nick, how are you, my friend? Nick: Doing pretty well. We're staying busy. The heat is starting to settle in, in Florida here. So although I'd say we had a pretty awesome spring weather wise. Speaker 1: Yeah. Nick: The humidity is starting to kick in. So kind of a realization that John and I were talking about the other day, that we can't believe it's already between COVID, chaos of everything going on, that it's already almost halfway through the year, so. Speaker 1: Well, 2020 was like the longest decade ever, even though it was only a year. Nick: Yeah. Speaker 1: And then this year seems to be hauling pretty fast. So it's going pretty quickly. Hey, speaking of the weather, actually, how did the event go? Last time, we did the podcast, the prior one, we chatted a little bit about the golf tourney you guys were working on. How'd that go? John: It went really well. We ended up having about 108 golfers total, which we were told for a first event would be excellent. Speaker 1: That's awesome. John: We hit that goal. And we're just finalizing the numbers. But it looks like we're going to be doing some pretty, a good size donations to Pepin Academies and then Southeastern Guide Dogs. So we're excited about that. And we actually, the winning team's going to get a nice invitational jacket, so we're getting them sized up. So they're excited about that. That was kind of a surprise to them. So at the end we had a tailor there, and getting their sizes and showed them the jacket and they were pretty excited about it. Speaker 1: Very cool. So are you guys hustling and bustling all through that? Did you enjoy the process of putting an event together like that? And would you definitely do it again? John: Nick, do you want to take that one? Nick: Yeah. It was an interesting sort of a learning process. It's always, just like anything else, there's a lot of collaboration. And so, a lot of people, a lot of bodies required. And it's a first-time event, having to get everybody on the same page and organized. It was a little chaotic. But ultimately we chatted about this in our meeting afterwards. Ultimately, I think the experience for the people that participated was smooth. And if you ask them, they wouldn't have even noticed the things that we did as putting it on. Speaker 1: Right. Nick: The feedback that we received was good. A lot of money went to charity. So all's well that ends well. Speaker 1: The hallmark of a good event then if the participants think it's great and it runs smoothly, they don't need not know about the chaos. Right. That's the way you know you've done a good job. So very cool. Well, kudos guys. Glad to hear that. I'll be looking forward to some final numbers later. John: Yeah, yeah. We had a very good team all around. So it was a truly team effort to get it done, so. Speaker 1: That's great. John: It was good to work with everybody. Speaker 1: That's awesome. That's great. I'm glad to hear that. And definitely look forward to hearing more about that in the future. But for now, let's go ahead and jump into our topic this week. Again, like I said, guys, I've got some statements here, some basic axioms that we all hold to be accurate. I think we all would say that that's common sense. We all agree with it. But yet what you guys see and what advisors see all across the country, a lot of times with these is people tend to do the opposite. Speaker 1: So talk through that a little bit, what you see and maybe some ways to counteract that. And we'll start with a classic, which is the buy low and sell high. You're not going to find a single person that disagrees with that theory. We do that. I don't know, gas shopping, right? Gas has been going up. So you're like, oh, hey, I heard it's 5 cents cheaper over at this station, and you'll go over there. But when it comes to investing, it's almost always the opposite: If you are undisciplined or don't have a plan type investor where you panic and you do the wrong thing. John: Yeah. And I think the reason why is really emotion. Investing becomes very emotional because it's your money, it's your nest egg. You're going to see it there. So when that dives into it just, it's very hard to make easy decisions. And a perfect example is the pandemic in 2020 when it started in March. Stocks dropped very fast. I think over like a two or three week period, there was an almost 30 to 40% drop of the S&P, and which is a great opportunity to buy stocks cheap. But what we're hearing from some people it's, hey, should I sell? And then really it should have been, should I be buying more into it? But against the uncertainty, the emotions of not knowing what's going to happen. A similar thing happened in 2008. With the bank and liquidity concerns, same thing here. Stocks were dropping. Good time to buy. But the thought process and emotion made people do the reverse. Nick: Yeah. And it's tricky because intuitively sometimes you look at what's happening and oftentimes by the time that most people in general, kind of in the general public, notice what's happening, a lot of the volatility's already happened. So in other words, once they notice it's really going down, it's already gone down a bunch and once they notice it's going up, it's already gone up a bunch. And so tend to be late on both sides, which is not good. Nick: And John and I will kind of joke with each other where I'm definitely the more emotional one out of both of us and he's less so. And so, we absolutely understand the emotions of things, and even being in day-to-day, it's important to understand how it is. It really just kind of goes back to having a plan. And that's what we try to do even back in, when everything went down with the pandemic is bring everybody back to the plan. Make them realize that, hey, we've got a plan for these sorts of things. These are unfortunate times. But we have these things baked in for happening, and so we're just going to hold the line. Speaker 1: Well, I think with emotion being the culprit there, that's why working with an advisor in a good team is helpful. I'm not going to say you guys are disinterested. You obviously clearly care about your clients and what you do for them because it's very important work. But at the same time, you can't approach it with a little bit less passion, I suppose, or panic than the person might. Because to your point, John, it's their money, right? And you guys are going to do the very best that you can for it. But it helps you make, it helps you look at things a little bit more objectively, I guess that's where I'm trying to go with that. So. John: Yeah. Speaker 1: That's a good way to do it. So, that's one. Let's go with a second one here. Not paying any more in taxes than we have to. Well, that's like a duh, right? Nobody volunteers to sign up to ... I don't think anybody's standing out on the street corner with a sign saying, Let me pay more taxes, please. Yet, when you guys start to look at things and you work with an advisor and a CPA and they start digging into people's financial and retirement situations, often we are paying more than we need to be. We're not being as efficient as we could be, I suppose. Nick: Yeah. And some of the areas that we'll see these sorts of things are, and again, this will tie into the emotional decisions, which we definitely understand money's emotional. But as an example, somebody's retiring or getting close to retiring, maybe they've got 80 to $100,000 left on their mortgage and they want to cash out a bunch of money from retirement accounts, and just pay it off quicker in one fell swoop. And they may not realize from a timing standpoint, number one, the impact that a large distribution like that could have on their taxes. And then the snowball effect that it might have on costs of Medicare or different things like that. So, having a strategy and always going back to the idea of planning long-term and having different types of accounts that have different types of taxation in retirement, it's really important. Speaker 1: Yeah. I would agree with you on that because taxes, there's all those little things like, it's not what we make, it's what we keep, so on and so forth. But there is a lot more ways to be efficient when it comes to, especially for retirees and pre-retirees, when it comes to taxes. And of course, everything we're seeing right now with increased spending and inflation and so on and so forth, taxes is going to continue to be a really integral part of our retirement plan. So it's important to make sure that you're working with somebody who is taking that into account. Speaker 1: And another important part of this is keeping costs low, guys. Like I said earlier about the gas situation or bargain shopping, pretty much everybody's looking at buy one, get one free, or 50% off things. We look for these kinds of things in all aspects of life. But then again, when it comes to investing, sometimes we're not thinking about that. You'll have the person say, I want to keep costs low. And my guy or gal only charges me 1%, and they're really not taking into account everything else, as well, right? John: Yeah. That's absolutely correct. Again, it can be taking into consideration from a common sense standpoint. But sometimes there are better times to buckle down on certain things than others. And ultimately you're just trying to make solid decisions with the information that you have available to you. So, it's anybody. You mentioned inflation. It's always interesting with things like that because anybody that has gone to the grocery store in the last two years, they know that things cost more. And so it doesn't when it's not talked about in the media as much or whatever. They might talk about it with their friends or complain about it with their spouse or something like that. John: But then when it starts being talked about in the media, it catches up. So ultimately, I think people know that these sorts of things have been happening. But now that it's being talked about more, in general, and there are other assets that are tracked more from a consumer price index and those sorts of things, to actually show inflation is a legitimate thing. Especially with all of the money that's been being printed for the last decade, really. Now it's a good time to reassess and make some smart decisions to keep costs down. Speaker 1: Yeah. No, definitely. There's hidden fees in all those little things, and that's actually going to lead into my next one here. For example, I'm going to pull a grandma-ism, guys. Another one of these axioms we hear is "don't put all your eggs in one basket". And I'm going to take this from the standpoint of people who have a lot of the same thing, they'll say, John or Nick, I've got 10 mutual funds that I got from 10 different companies, right. So I'm "clearly diversified" and I'm not getting charged very much. And they're completely wrong in both of those counts. John: Yeah. We see that a lot in the 401k space because a lot of that is the people are picking their own funds and they'll do stuff like that where they'll pick six, seven mutual funds or whatever. And they say, hey, "I'm diversified." But in reality, they're all similar type funds. So for example, they all could be large cap funds. So what that means is when the market goes up, they're all going to do relatively the same thing. Give or take some percentage points on which one's performing a little bit better. When the market goes down, they're going to do the same thing. John: The whole point of diversifying is so that the portfolio has some zig and zag. So kind of sounds weird to say this, but in reality, when something's going up, you want something else going down or not doing what the other investment are doing. And that actually comes down to proper asset allocation where you have maybe some large cap funds, and then you also have some fixed income funds and some real estate. So everything's not the same type of asset class. And that's really what you want to focus on. On really diversifying is not just having multiple funds, but having the right mix of multiple funds. Nick: And even in addition to that, diversify from the perspective of taxes. You don't necessarily, we feel, end up in retirement with only having pre-tax money that's going to be fully taxed at whatever bracket that you're in, in retirement. Speaker 1: Mm-hmm (affirmative). Nick: These good examples currently, there's a decent chance and we've been talking about it for years, but there's a decent chance that taxes will go up. There's a price for printing money for a long time. Whether it's cutting taxes and more spending, et cetera, eventually there is going to be a price for that. So having options from the perspective of pre-tax money, broth money, a taxable brokerage account, what that utilizes capital gains, all these sorts of things end up really paying off down the road. Speaker 1: A lot of times that whole diversification conversation comes back into play with people. And often what you guys find, John, to your point, you were talking about that a little bit is that somebody who's got a lot of the same thing. There's just a ton of overlap. And typically, it's almost always large cap or something. And if you think about this year, right, small cap was outperforming large cap in the first quarter. And maybe you don't have enough here and there. And that's that point of that having a little bit. That's when something's going up, something is going down. Most people just don't truly realize that. They think, oh, I've got a target date fund; I'm groovy. Or whatever that looks like. And then what ends up happening for the last one is that you have people then turn around and say, ooh, I want to jump in on dogecoin, or whatever, because Elon Musk made a tweet. And then the next week he makes another tweet and the thing tanks. And so market timing is virtually impossible. John: Yeah, correct. Ultimately, you can't do it. It comes back to what we talked about earlier. When people are trying to time the market, it's really emotional of saying, hey, when's a good time to get in or get out. And this was something that we saw a little bit about, not necessarily so much with the pandemic, a lot of people stayed the course and maybe because it happened so fast. But with the election at the end of last year, either way we saw people that were trying to pull out and time it depending on who won the election on when to get back in. John: And unfortunately it didn't work out. And it doesn't work ... Either way it doesn't work out because it's always so hard to say, hey, now is the right time because as we saw, the market went up. And then it's like, well, do I go in now or do I wait until it goes down? And you can find over the last five or six, seven years, if you've been waiting, you've been waiting a long time to get back in. So it's always best to have a plan and stick to your plan and make sure that you're invested correctly so you can just stay the course of what you're trying to do. Nick: And even further with that, ultimately, if you decide that you're going to exit and try to time it, the time that you have to then get back in, is usually the most basically, disgusting time to have to do it. Speaker 1: When it hurts. Nick: It's the most painful time. It's the time of the most chaos because that's usually where the bottom is. And so it's really difficult to try to time that. Speaker 1: Yeah. Nick: In fact, we've had conversations with clients before where we say, hey, our objective is to hold the line. If you want to exit, we'll exit for you, but you got to tell us when to get back in. We're not going to exit at your request and then move in at our determination. Nick: If we're going to exit, then you also have to let us know when to enter back in. And so sometimes we've found that, putting it in that, in those terms, ultimately ends up helping people just decide to hold the line. Once they realize like, oh, well, I've got to tell you when to get back in? Then that helps them realize, oh, okay, I get it. Like, I'm probably not going to be able to do that. Or by the time that I feel comfortable enough to tell you, it's too late. Speaker 1: Yeah. You're right back at that emotional sticking point, right? To your point of it's typically it's painful or it's the worst time, or it's just really uncomfortable to do it. And of course, you're trying to be right twice in something that is super, super fickle. So again, these are all some basic common sense things we can all agree on. And yet we tend to do the opposite. And that's where it comes into play to really work with a team who does this day in and day out to help us through those things so that we don't trip ourselves up. As the saying goes, "We're often our own worst enemy." So do yourself a favor if you haven't done so. Have a conversation about your retirement journey and some of the things that we've covered today on the podcast. Speaker 1: Reach out to John and Nick. As always, you should check with a qualified professional before you take any action on anything you hear anyway on our show or any others financially-related. So reach out to John and Nick at (813) 286-7776. That's (813) 286-7776. Or stop by the website, pfgprivatewealth.com. That's pfgprivatewealth.com. And don't forget to subscribe to the podcast, Retirement Planning Redefined. You can find all the information right there at the website. Again to subscribe on Apple, Google, Spotify, whatever platform you like. I'm going to sign off this week for John and Nick and myself. So thanks for hanging out with us here on the show, and we'll catch you next time on Retirement Planning Redefined with John and Nick.
17 minutes | Apr 22, 2021
Ep 33: Fact Or Fiction
Sometimes the easiest way to learn about something is make it really simple. Like some of the first true/false tests you might have taken in school, let’s play a round of fact or fiction to test your financial planning acuity. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: email@example.com Disclaimer: PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance. Transcript of Today's Show: For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/ ----more---- Marc: Hey everybody. Welcome into this edition of the podcast. Thanks for hanging out with us here on retirement planning, redefined with John and Nick, financial advisors at PFG Private Wealth. Find them online at pfgprivatewealth.com, that's pfgprivatewealth.com. Fun podcast this week, we're going to have a little fun with some financial fact or fiction and test our financial planning acuity with the guys in just a minute, but let's say, hey and see what's going on. John, how are you my friend? John: I'm doing good. How are you? Marc: Doing pretty good hanging out and doing well hope you guys are doing the same down there. Nick, what's going on with you? Any new action on that attorney you guys were telling us about? Nick: No, we're still plugging away on the golf tournament. We're looking forward to doing that. This the first time that John and I have been involved in putting together a golf tournament. We're not big golfers, it's definitely an interesting process, but we're looking forward to... I think our two charities are going to be locally Pepin Academies and Southeastern Guide Dogs. We're looking forward to raising some money for charity. And then, we also actually recently sponsored a run through the Herald Center, which is a part of the USF Tampa campus and through the college of public health, that's done to support in studies, family violence, which is a huge issue really in any community. They have a run coming up and we're sponsoring that. Anybody that's involved locally with that, we'll see the name of the podcast and those sorts of things. We always stay involved in the community, enjoy doing those things. Marc: That's great. John: But we are definitely not running. Marc: You're not running. Are you going to golf? John: We're probably not golfing either. Nick: [crosstalk 00:01:47]. Marc: I imagine planning a tourney, a golf tournament, is a bit more challenging than you might expect. You first dive into it. You think, oh, this is... And then you're like, wow, this is a lot more work than I thought. John: There are a lot of moving parts, but we have a really strong team. We have some members that have planned golf tournaments before and they're heading up the logistics. Nick and I are very organized and detail oriented, we're making sure all the tasks are checked off and everyone's doing their work, but we're really excited about that one. Marc: Dotting the I's and crossing the T's. Nick: The local steakhouse that we're teaming up with is really well known. Having them involved, this is the first time that we had paired up with them. It's a pretty cool experience as well. Marc: Very cool. Well, I'll keep asking about it and we'll keep updating things as we get closer, but for now let's play a little financial fact or fiction. I know it's a little tougher sometimes in your guys' industry, because often I've heard that saying that the answer to most financial questions are, it depends, but we'll try to do as best we can here. Like when we were in school, we do true or false of simple ways to learn things. I've got some basic statements here guys, just have a little fun with it. Fact or fiction, give us the best answer you can, based on the way the question is worded and we'll go from there. Fact or fiction, whoever wants to take this first one, your social security can be taxable. John: I'm going to say fact, although sometimes it's not, but it's based off of your income in retirement. They called it, your modified adjusted gross income in this situation, where basically it's half of your social security, your adjusted gross income, plus any non taxable interest like municipal bonds. They add all that up and depending on where that falls will determine how much of your social security is taxable. Example if you're making married filing jointly over 44 000 of that [inaudible 00:03:46] income, up to 85% of your social security is going to be taxable. That's the maximum amount of your social security that's going to be taxable is up to 85%. Marc: Okay. It can be taxable. It doesn't mean it always will be, but it can be. John: Correct. I'll say more often than not, it is going to be taxable because the limits where it's not taxable, it's married filing jointly between zero and 32 000, 0% is taxable at that point. But you'll find the majority of people, they're above that when you're talking two incomes. Marc: Got you. Okay. All right. We'll go with fact on that one, it can be taxable. Quick and easy fact or fiction. Nick, how about you, you want to take this one? Your taxes will likely be lower in retirement. Nick: There is a decent chance that may be the case, the tricky part about that, and we usually have a better idea of that within the last couple of years of retirement, when we can measure your expenses and measure what is being deployed into savings and those sorts of things. I would say that a solid percentage of people do have lower taxes, at least initially in retirement. But one of the things that we've started to see is, especially those that have done a good job of maybe managing expenses, because the market has taken such a big jump over the last, five to 10 years, there's a lot of people that have found themselves with a lot more money in retirement accounts than they expected. And they're creeping into their RMD age, which is now 72, they're going to have income that's going to be coming in via their required minimum distribution that may be much higher than their spending that could really flatten out that difference. going back to what we've said in previous podcasts, there is a decent chance that your taxes will be lower in retirement. However, it's important for us to plan for scenarios that they aren't and give you options in retirement. Marc: Yeah. And to be fair with continuing taxes possibly going to be on the rise with all the spending we're doing, it's one of those statements where again, it's in the wording, likely to be lower. Okay. But there's a good chance of anything happening in that arena. You always want to make sure you're checking them as relates to your specific scenario and plan efficiently. Try to plan to be as efficient as possible so that you can be tax efficient, hopefully in the future, just in case they do go up, because they do raise up the tax brackets. All right. How about fact or fiction guys? Term life insurance is better than whole life insurance. John: I'm going to have to say it's a, it depends on this one. I can't go fact or fiction on this one because it depends on your situation. Term-life is great for covering an immediate need. Example, having two kids, I've enough life insurance, death benefit to cover my income for the next 20 years, if something were to happen to me. Whole life is nice to have basically a permanent policy. Going into retirement, I have something that's going to last, in essence, depending on the policy and disclosures, whatever and disclaimers it's going to last forever. This one is, it can't be fact or fiction, it really depends on the person's situation. Nick: One of the things I would just throw in there on this is that, life insurance can be a topic that people feel strongly about. Typically though, it breaks down to a cashflow issue where if you have the cashflow to be able to have the right type of permanent whole life insurance, oftentimes it can be a better plan and strategy than otherwise, but it's definitely an in-depth and a topic that's important to go through in detail. Marc: Well, we're having a little fun with these, but like any financial vehicle or product there's pros and cons to everything and what's going to be right for your scenario may be different for someone else. It's all about that complete holistic strategy, if you will. And that's why working with an advisor is a good idea to do so when it comes to your scenario. And of course, if you've got questions or you need some help or whatever the case might be as always check out John and Nick, and have a conversation with them if you need some help, or if you have something that sparks your interest a little bit, go to pfgprivatewealth.com, that's pfgprivatewealth.com, and you can drop them a line there while you're on the website. Lot of good tools, tips, and resources. Here's another one guys. Medicare will cover most of your medical needs in retirement, fact or fiction? John: I'll say fact that the right type of Medicare policy will cover most of your medical needs in retirement. Again, disclosure, everyone's situation is different and Medicare only covers certain things. But I'll say from your basic health needs, going to the doctor, prescriptions, if you have the right type of Medicare policy, it will cover quite a bit of that. As far as any disabilities, that's where Medicare does not really kick in for that. A lot of people get confused. Marc: Hospital stays, basic doctor visits, things like that. But it doesn't do dental. I can be interesting. My mom had, with her Medicare, she had some cataract stuff done and it covered portions of it. There's definitely some outliers there, which is why they've got the 47 million supplement programs that go in there. A lot of stuff to talk about for sure and it doesn't do anything with long-term care. John: Correct. It's important just to understand what it covers. Both Nick and I, we know a good amount about it, but we've both gone to some seminars and presentations and make sure we're up to date on the latest. But we typically, when it comes to that point in the planning, we refer this out to a couple of people that specialize in it because there's so many different policies of so many different nuances. And again, it's all about finding the right professional and what fits your needs. Fact, some of the time, fiction some of the time as well. Marc: Yeah, exactly. Well, I guess with these, it's really just a fun way to do it, but ideally when it comes to financial stuff, there's always a depends caveat, if you will. One more here, we'll have this last one, then we'll take an email question to wrap up this week. As you get older, you should gradually shift from stocks to bonds. That's been a thinking for a very long time fact or fiction, or maybe has that changed? Nick: I would say that it obviously depends upon where you're starting from. If you've been a typical investor that has been comfortable with market risk throughout your life and you are starting from a place of maybe having a 70/30 stock to bond or a 60/40 stock bond portfolio that shifting to decrease your risk does make some sense. We've seen plenty of people that haven't really taken enough risk from the perspective of market risk. Not taking enough market risk, can create things like longevity risk and your money lasting for you, those sorts of things. If you're going to make shifts, it's important to be shifting in the right way. Making sure that you're looking at stocks that are on the lower risk side of things is important. But I would say in general, the key is to tie your investments to your overall financial plan. But in general, it will make some sense for many people to reduce some of their stock holding risk as things go forward. With the caveat that when you're getting your access to the fixed side of things, the bond world, you need to do it much more carefully than maybe you had to 10 or 15 years ago. It's a much more convoluted space than it was. And so that's something where there are many people that under-appreciate the risk that you can have in the bond space. Marc: All right. Well, that's going to do it for fact or fiction, and we're going to wrap up this podcast with an email question again, if you'd like to submit your own, stop by the website at pfgprivatewealth.com, that's pfgprivatewealth.com. Greg's got a question for you. Greg says, "Guys, I'm being offered an early retirement package from the company I worked at. It also includes a severance package and pension buyout. It seems wise to consider this anything to think?" Anything that he should be thinking about, questions to maybe ask? Nick: Yeah. Good question, Greg. Nick and I are seeing quite a bit of this coming up where clients are near retirement, few years away, and all of a sudden it's, hey, I got the severance package and this pension buyout, what should I do? And the first thing we do is really to say, "Hey, let's run the numbers and the plan and see if you can retire with that severance package and what the pension buyout is." And we'll evaluate it and give our recommendations based on, again, the plan. I'll say it's definitely worth comparing your options in that situation. One thing you want to consider is the financial health of the pension itself. Is it fully funded or is it underfunded? Because we have seen some pensions that aren't fully funded and there's some financial risks of that pension. In that scenario, I would say you might want to go ahead and take the money. Nick: And then, reverting back to the plan, what are their current income needs versus liquidity? Just to give you an example of a plan we're doing, client had a couple of pensions and didn't really have much liquidity. When a situation like this came up, we evaluated it based on the income that it was spinning off and what a lump sum could do. But, we looked at it and said, "Hey, this, this could be a nice option to give you some of the liquidity, which you currently don't have", because he had two pensions and social security, but didn't have a lot of liquid assets he could draw on if needed. Another thing to consider is beneficiaries. We've seen a lot of clients where they say, "Something happens to me with this pension, basically the money goes away. I don't feel comfortable with that. I'd prefer the lump sum buyout. At least if something happens to me within the next 10 years or 15 years, someone's going to get something versus in the pension option that I'm given, they're not going to get anything." And again, there's different pension options and we review it all. And then, we've seen some scenarios where the pension guaranteed income was so excellent, we didn't even consider a lump sum withdrawal or any other type of contracts that provide guaranteed income because it was so strong. Marc: Some good questions to ponder there, Greg. Thanks for submitting that in. There's obviously a lot of information that you didn't share with us. If you'd like to have a more in-depth conversation about exactly what they're offering, you definitely reach out to John and Nick. You can call them at 813-286-7776, but that gives you four or five things there to think about. Again, 813-286-7776. You can give them a call and have a conversation with them. Of course, with the podcast, subscribe to the show folks, if you have done so already. That way you can catch up new episodes when they come out, you can also check out past episodes and all that good jazz. You can find it all at pfgprivatewealth.com. It's really the easiest way to get in touch with the guys, If you'd like. Marc: You can drop an email question, you can book some time with them. You can subscribe to the podcast, just a lot of good tools, tips, and resources there at pfgprivatewealth.com. That's pfgprivatewealth.com and that's going to do it for us this week on the podcast. John, Nick, guys thanks for hanging out with me and good luck with the upcoming events. Nick: All right, thanks Marc. John: Thanks, have a good one. Marc: We appreciate it. We'll see you next time here on retirement planning, redefined with the guys from PFG Private Wealth, serving you here in the Tampa Bay area. We'll talk to you next time on the podcast folks.
22 minutes | Apr 15, 2021
Ep 32: Are You Flirtin' With Financial Disaster?
Let’s talk about some of the areas of your financial life where you might be flirtin’ with disaster and don’t even know it. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: firstname.lastname@example.org Disclaimer: PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance. Transcript of Today's Show: For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/ ----more---- Marc Killian: Hey everybody. Welcome into this week's edition of Retirement Planning Redefined podcast. We appreciate your time, hanging out with John and Nick and myself as we're talking, investing, finance and retirement. And of course you could check them out online if you've got some questions or need to follow up or have a chat about your own situation, get your retirement planning redefined at pfgprivatewealth.com. That's pfgprivatewealth.com. Don't forget to subscribe to the podcast while you're there. A lot of good tools, tips and resources to be found. Marc Killian: And on this go-around, we're going to talk about flirting with disaster. As Floridians, there's certainly always the case where we have some disastrous situations can come up from time to time, but we're going to talk about these from a financial standpoint and some areas in our financial life where we could do this and not even realize it. First off, let's say hey to the guys. What's going on, Nick? How are you? Nick McDevitt: Doing well. Doing well. How about yourself? Marc Killian: Doing pretty good hanging in there. Looking forward to today's topic. Got some good, easy fixes I think for a few of these things, as well as some that are maybe a little more complicated. We'll dive into that. Let you guys share. But John, how are you? John Teixeira: Doing good. Doing good. Nick and I are actually in the process of planning a golf tournament for a couple of charities here locally with... the group we're in is, again, 13 Ugly Men Foundation. And we're partnering up with Bern's Steakhouse to do a golf event at TPC Tampa Bay. So, we're excited about that coming up. Marc Killian: Very Nice. Yeah. Keep us posted on that. We'll definitely like to learn more as we get closer to there. Well, hopefully, you guys won't have any disastrous situations come tourney time, but let's talk about them today. I got about five here, guys, I want you to just break down for us. And, like I said, some of these are kind of easy fixes, so let's start there. They can definitely cause a lot of havoc, but, again, they are easy fixes. So, out-of-date legal documents. Not the sexiest thing in the world, but a pretty easy thing to fix. Nick McDevitt: This is something that is a common oversight, a common mistake that people make. Some of the instances that we see where the documents are out of date or just not going to accomplish the things that they're hoping to accomplish. Our scenario's somebody moved from out of state and the... many people don't realize that from an estate planning standpoint, from a legal document standpoint, a lot of those documents are different from state to state. So, that's an important thing to review if you are somebody that has recently moved. A few years back, there were updates in Florida to durable power of attorney rules. And so, that's a reason to have a review. Nick McDevitt: But just like anything else, it's important to make sure that you have in inventory or you take an inventory of what you have. Something like this, people never... or oftentimes, people don't realize how long it's been since they have updated their documents. There could be children that are alive now that weren't before, parents that were alive then that aren't now, a previous marriage, et cetera, et cetera. So, making sure that those documents are updated and chatting with an attorney about that is a really important thing. Marc Killian: Yeah. We tend to set it and forget it with a lot of those. What are some of the key ones we should think about, John? John Teixeira: I would say one of the biggest ones is a second marriage. That's where you really want to pay attention to who the beneficiaries are, who's getting what. And there are certain rules in the state of Florida. And, of course, defer to the professionals and attorneys on that, where a spouse is entitled to a percentage of the assets. So, if you want to make sure that, if it's a second marriage, you have kids in the first marriage and you don't want to disinherit them, you want to make sure your documents are definitely up to date. John Teixeira: Another one we've seen, and Nick mentioned it, people moving in from out of state. If you have assets in other states, it's important to make sure that you kind of have some documents for that state where the other assets are. So, example, I'm from Massachusetts. My parents have a house up there, so they had to make sure that... they basically had a will for up there and down here. Marc Killian: Yeah. I got you. Now, a lot of times, the misconceptions with wills are if you have a will, the saying goes, you will go through probate, whereas a trust allows you to maybe not do that. Is there some other main documents that we should have? I'm assuming the power of attorneys, correct? Nick McDevitt: Yeah. Durable power of attorney, a will. Oftentimes, people will confuse a traditional will with a living will. And essentially end-of-life documents are important to have. Marc Killian: Like a medical power of attorney obviously, right? Nick McDevitt: Yep, exactly. So, there's kind of that core package that most attorneys will review with you, help you recognize, "Hey, is this out of date? Is this still applicable?" And we always recommend, obviously with any sort of legal topic, that you're communicating with either an attorney that you have and are familiar with or we obviously have a few attorneys that we work with that we send clients to that we know and trust and will help make sure that they get through the process. Marc Killian: But it's often not as costly as we think it's going to be too, to get these things handled. And once you get them in place, again, out of date, if you're just making some adjustments, usually can be done through a phone call. So, kind of an easy fix, right? Nick McDevitt: Yeah. We've definitely seen, especially over the last year, many, many companies, including law offices, have put their tech into hyper drive to make [crosstalk 00:05:18] easier for clients. So, yes, sometimes mentally things will feel overwhelming and that will slow us down from doing it. And this is one of those things that doesn't need to be super difficult and can be done pretty easily. John Teixeira: Yeah. And we actually have something we give to clients, it's kind of a wills point checklist. It's like 24 questions to consider, almost like a prep before you go see an attorney so you feel like, "All right, I'm a little bit prepared for this." So, if anyone does want that, they're more than welcome to shoot us an email or call the office and just mention that and we can get it to them. Marc Killian: Yeah. Again, folks, stop by the website, pfgprivatewealth.com. Drop them an email. John or Nick @pfgprivatewealth.com is where you can email them. Yeah. That's a great point. So, thanks for bringing that up as well. Marc Killian: And, John, you mentioned another marriage, for example. So, the BDs, the beneficiary designations, having those incorrect, another easy fix. And it's not just... we tend to think of, I don't know, one item or one type of account, but there's multiple places where you're going to have these beneficiary designations. And updating these is, again, a pretty easy thing to do. Marc Killian: I had somebody teach me that there's a couple of Ds to remember, to kind of trigger you to double-check these: if you get a divorce; if you have a death; or a disability; or at minimum, at least once a decade. That way, you get the four Ds, if you will, to maybe update these or take a look at them. John Teixeira: Yeah. Those are all really good ones. Actually, kind of going back to the will stuff. So, if you do have beneficiaries on some of these accounts, it does bypass probate. So, if there's a beneficiary on a life insurance or a retirement account, it doesn't actually go through probate; it goes directly to that beneficiary. So, that's always kind of good to know. John Teixeira: But yeah, divorce, very important one to update. Can't tell you how many times Nick and I have done some reviews with some clients that are new clients and it's... we've seen on the 401(k)s especially because that's kind of a set-it-forget-it type thing, where you have an ex-spouse on there. We've unfortunately seen some people with 401(k)s where they get auto-enrolled. They just never put a beneficiary on there just because [crosstalk 00:07:27] signed up, it's auto-enrollment for the company. So, those are two important things to really take a look at. John Teixeira: And we don't see this too often, but we have seen some people just kind of just have a fallout with some beneficiaries, whether it's a child, a niece, nephew, whatever it may be. And we've seen some changes from that where it's, "Hey, to be frank, I just don't like this person anymore." Marc Killian: I mean, it happens. It definitely happens. And so, we're talking IRAs, life insurance policies, 401(k)s, things of that nature. John Teixeira: Yep. Marc Killian: Okay. All right. So, those are, again, pretty easy fixes for some of that stuff. And the havoc they can wreak... I imagine having somebody come in and the new spouse is saying, "Hey, I found out that the old spouse is still on this life insurance policy." That's not good. And that's not an easy fix at that point, but it can be taken care of ahead of time pretty darn quickly. Marc Killian: Let's move to some more complicated one here, guys. You could be flirting with disaster, talking about the ticking tax time bomb. Obviously, that is going to continue to be a mainstay of conversation in retirement planning in general because it's such an important part of it, how we're being... if we're being as tax-efficient as possible, I should say. But with the continued spending that we're seeing as a nation, it seems like this is only going to become more and more of an issue. Nick McDevitt: Yeah. So, one of the things that we try to... so, when we talk about a tax time bomb, what we're typically referring to is when people only save into accounts that are tax-deferred, a.k.a. traditional 401(k), a.k.a. traditional IRA. And so, when they are in retirement, the thought process is like, "Hey, I'm going to have lower taxes. So, no matter what, this is going to be a better deal for me." Nick McDevitt: And the thing that we try to focus on with clients and with people in general is that there's a lot of uncertainty on what we know is going to happen from a tax perspective. And so, our really emphasis is not necessarily to be right, as far as, "Hey, we know that X, Y and Z is going to happen"; it's that you have options so that no matter what, you can adapt to what's going on. Nick McDevitt: And the tricky part about that is if you're two to three years out from retirement, you're at your highest earning income years, you don't have any Roth money for example or any just regular investment account funds put away, we may continue to have you save into a pre-tax account. But then once you retire, we may look into trying to do some Roth conversions or make some adjustments or plan for kicking in a strategy when you do retire. So, it's not like it's necessarily the easiest thing to navigate. Your best bet is that, as soon as you can, start to save money into different places so that you not only are diversifying your investments, but you're diversifying how you're going to be taxed in retirement, is really a thing that we emphasize with clients. Marc Killian: Yeah. And that's a good point as well because this is not as easy as a fix, but it's something you can get on pretty quickly simply by working with an advisor, having them review your scenario and your situation and saying, "Okay, how can we be more tax-efficient?" and looking for ways to do that. And I just saw the other day that they're estimating about 40 trillion is what's sitting out there in uncollected taxes on traditional IRAs or 401(k)s. The government's kind of salivating over this estimated $40 trillion as people go through these retirement accounts and start to pull the money out or whatever the case is. So, certainly places where you could have those conversations and hopefully be more tax-efficient. So, again, if you need the help with that, make sure you're talking to a qualified professional like John and Nick. Marc Killian: What about flirting with disaster, guys, when it comes to just no plan at all for long-term care expenses? This one obviously is going to be even more complicated, but most people just ignore it. I know it's a daunting subject sometimes for folks, but there's things you can do. John Teixeira: Yeah. So, you're right on that. Most people do ignore it. And there are some options out there. They used to be much better. Unfortunately, they've kind of gotten just not as strong. 10 years ago, you could get a really good policy from a good provider. And nowadays, a lot of these providers have left the space in essence and they're not offering it anymore. John Teixeira: So, what we've kind of seen more is kind of, and Nick goes through this part in the class, some hybrid vehicles where it's a life insurance and a long-term care policy kind of bundled up in one. We've had situations where, from a planning standpoint, maybe getting... it's very hard to qualify for it so we've had to put in some buffers to self-insure. Again, not covering the whole cost of it, but just trying to help out in the event that something were to happen. It's very important, just limited options out there currently, but it's definitely worth exploring your situation to see what fits for you. Marc Killian: Yeah. And I imagine you're going to exacerbate that by not having the conversation. So, if the options are becoming a little bit more limited and you're also not taking the time to discuss it, you could be putting yourself even further behind the proverbial eight ball. So, definitely have those conversations. Don't just stick our head in the sand, especially when it comes to long-term care expenses, whether it's the 2 out of every 3 people or 7 out of every 10. Whatever the case is, it's happening more and more because we're living longer. So, we therefore have to deal with those outcomes that come with it. Marc Killian: One more here, guys, on some places we can flirt with disaster. And then we'll probably wrap up with an email question that we got into the site as well. But that's the classic 60/40 portfolio. First, just run it down for us, what that is for folks. And then why might you flirt with disaster on that? Nick McDevitt: Sure. So, there's a little bit of jargon in there, of course. We try to stay away from it as much as possible. But a 60/40 portfolio is what's considered 60% stock, 40% fixed income or bonds. And it's tricky because really, the way that people invested a short while ago was different than the way that people are investing now. And really, what also happens... so, for example, these last few years, as bond yields or returns from bonds have gone down, people have kind of flirted a little bit more with taking more risk on the stock side. And so, it's really important to make sure that when you are evaluating your overall portfolio and looking at how much risk you're willing to take, that you really understand how these different parts work and move together. Nick McDevitt: So, really, what it boils down to is that it's important for you to have a liquidation order. So, for example, what some people used to do is, "Hey, I'm going to have a 60/40 portfolio. I'm going to pull from my account every single month without any sort of strategic plan on how I'm going to pull that money out or where it's pulling from." And when we have corrections in the market or volatility in the market, where we'll see people really suffer is let's say they had a million-dollar portfolio. We get a big pullback. All of a sudden, your statement debt, two months ago said a million bucks, says 800,000 or 750,000 now. It can make you or prompt people to overreact to the market. Nick McDevitt: And then once that overreaction happens, basically you're locking up your losses. You're selling at lows. Then you're going to want to buy back at highs. And so, it's really, really important to make sure that the portfolio and the allocation that you have lines up with truly how much risk you're willing to take. Marc Killian: Yeah. John, it seems as though the 40% in bonds... I mean, the bond market's been just as volatile as of late for a while. So, that seems like maybe one of those rules of thumb that might be a bit antiquated, going with that standard 60/40. But again, everybody's scenario is different, so, like a lot of things, I imagine that it might be fine for some and not for others. John Teixeira: Yeah, of course. And, like we say, we really want to start with a plan for the client and dictate the investment options and strategy based on that plan. There are some other what we consider fixed income vehicles that can kind of substitute the bond market that we've been utilizing when necessary. And, again, works for some people; doesn't work for others. But it's good to know your options and how it works for you. Marc Killian: Yeah. Versus trying to see- Nick McDevitt: And just to your point there, Marc, too- Marc Killian: Oh, go ahead. Nick McDevitt: ... as far as the bond side of things. In general, as interest rates go up, bond prices go down. And so, one of the ways that we have built around that, just for clients, for those people listening that are clients, are essentially creating bond ladders in their portfolios that aren't as negatively impacted as rates do continue to go up. So, there are ways to work and to build around these things, but typically, especially people that are holding this money in their 401(k)s, those sorts of things, there may be significant limitations to how they can adjust to them there. And that's where they can get in trouble. Marc Killian: Yeah, no, great points. Exactly. I mean, that's kind of the point of doing the podcast as well, is to share some of these things for not only existing clients, but obviously for potential clients that might be listening to the show and just hopefully offering some good nuggets of information along the way. Marc Killian: And with that said, that's going to kind of wrap up our flirting with disaster. Again, five areas where you can jump on these things and maybe get these corrected pretty easily. At least a couple of them, for sure. And the other ones, it's worth having those conversations with an advisor, if you're not working with one, on how to be as efficient as possible. Marc Killian: With that said, let's wrap up with an email question this week. Again, if you'd like to stop by the website, we certainly encourage you to do so at pfgprivatewealth.com. A lot of good tools, tips and resources there. While you're there, you could subscribe to the podcast on Apple, Google, Spotify or whatever platform you use. You can also drop the guys a line as well at pfgprivatewealth.com. Marc Killian: And here is an email from Andy who says, "How much of my portfolio, guys, is it okay to have invested in just one stock? I'm sitting on about 2 million, but almost half of it is with one company." Nick McDevitt: Well, that's enough to have a panic attack. So, usually, if you're asking if you have too much in one place, you do. But all kind of joking aside, where we typically see this sort of thing happen is in one of two situations. Nick McDevitt: So, situation number one, was inherited from a parent. And maybe that parent worked for a company for many, many years or they invested in that company for a long period of time. And now, all of a sudden, that money has ballooned into a big amount. And due to a combination of tax rules and laws, plus sentimental value, all of a sudden, that holding makes up a significant portion of the underlying portfolio. Nick McDevitt: And option number two is just somebody that has worked for a company for a long time, 30, 40 years. They've been buying the company stock for years and years and years. And maybe the stock has performed well and there's this kind of emotional and financial attachment to it. And so, in this situation, oftentimes what we'll do is we'll show them a comparison of that stock to the S&P 500, for example. And oftentimes, the S&P 500 itself has performed similarly or even a little bit better. And we'll show them like, "Hey, look at, you can have the same sort of upside potential or growth potential by holding an ETF or an index fund versus just holding that one stock and protect yourself a lot more." Nick McDevitt: And another question that we'll pose to them sometimes that we've gotten good results from in the past was, "Okay. So, if I was going to hand you a $2 million lottery ticket and you were going to invest that money, would you spend half of it on one stock?" And the answer is usually a cross-eyed look like, "No, are you crazy?" And so, that's exactly the same sort of thought process, where usually it's just way more risk than somebody needs to take. There's ways to still have similar performance and reduce the risk by quite a bit. And it's just not really worth it at that point in time, is typically the case. Marc Killian: All right. Great question, Andy. Thank you so much for submitting that into the show. I know it's cliche, but as your grandmama might've said, "Don't have all your eggs in one basket." So, have those conversations. And certainly, you're thinking about it, to Nick's point, if you took the time to drop an email to the show here. You're obviously probably already thinking that direction anyway. So, follow up. Have a conversation with some qualified professionals like John and Nick from PFG Private Wealth. Marc Killian: And that's going to do it this week for us on the podcast. Thanks for your time as always. We appreciate it. Always check out with a qualified professional, as I mentioned, before you take any action on anything you hear on this show or any other. And you can find it all at pfgprivatewealth.com. For John, for Nick, we'll see you next time here on the show. Thanks for your time. We'll talk to you later.
19 minutes | Mar 18, 2021
Ep 31: Where Crisis & Opportunity Meet
To write the Chinese word for “crisis,” you combine elements of two different Chinese characters. One character means “danger” while the other one means “opportunity.” Translated into English, it means “opportunity riding on a dangerous wind.” Let’s discuss how some of these crises might actually be opportunities, depending on your situation and perspective. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: email@example.com Disclaimer: PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance. Transcript of Today's Show: For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/ ----more---- Marc: Time for another edition of the podcast. Thanks for hanging out with us as we talk investing finance and retirement here on Retirement Planning - Redefined with John and Nick from PFG Private Wealth, and we're going to talk about when crisis meets opportunity here on this episode of the podcast. But first I'll say hi to the guys, and then we'll dive into what that means. What's going on, Nick? How are you? Nick: Oh, doing well, doing well. It's been a really busy start to the year. People are anxious to kind of check in and go over things and all that kind of stuff, so we're enjoying catching up with everybody and just kind of walking them through where we are and how things are going. Marc: Good. Yeah. As the first quarter winds down, I imagine that's the case. John, what's going on with you, my friend? John: Oh, not too much. As Nick mentioned, just a very busy start to the year, so yeah, get in touch with everyone has been good. And I think the last time we said the weather's starting to warm up around here, so we have two or three months of some really nice weather, then it's going to get scorching hot. So just try and enjoy the nice 70s to 80s for the time being. Marc: There you go. Exactly. Well, so what we're talking about this week here on the podcast is some people view certain things that are going to happen to us in retirement, or that happen to us in general, when it comes to our financial lives as a crisis, and other look at it as an opportunity, right? So I'm going to give you guys a couple here. I'll let you guys expound on those based on what you see or what you do, and we'll just discuss some of these ways that these crises, if you will, might actually be an opportunity, a good way for you to look at it, maybe change your perspective just a bit. Marc: Now, John, I know we're in totally different spaces when it comes to this, you and I, but I am an empty nester. I've been one now for, well, actually about two and a half years going on three years. But for some parents the idea of empty nest is a very joyous one. My wife and I were pretty surprised at ourselves. We were like, "Sweet. We love her, but bye, do your thing, have a good time." And for others, obviously, there's a very sad attachment and sometimes they have trouble with it. But from a financial standpoint, what's some things to think about here? John: Some of the things you can think about is definitely your cash flow. I would assume for the most part is now you have a little extra cash flow. So from a financial standpoint, I think, in the last session we talked about in the 50s having a little bit extra money to save. Marc: Right. John: We see that quite a bit when kids are out of college. You're no longer paying for college bills. Your electricity, water bills, maybe gone down a little bit. Marc: Cell phone. John: And the big one is groceries. Marc: Groceries. John: That really shot down for certain people here, and it really gives you an opportunity to either save some more for retirement or go on some more vacations and travel, you know? Marc: That's a good point. Nick, I wasn't trying to leave you out there, but I know that you don't have any little ones yet, so I just was getting John's take on that. What do you see though, from a planning aspect? Nick: Yeah, it's interesting because we almost see this happen in kind of like two phases. So, for a lot of our clients, the first phase is when the kids go away to school. It's kind of like ... Or even from the standpoint of when the last kid goes away to school, so there's that period of time where they're away at school, but they'll come home on breaks, and maybe during the summer they stay at home, and so there's a little bit of adjustment. But while they may not be at home, they may still be on the payroll per se? Marc: Right. Nick: And then there's that kind of full shift into, all right, they're gone, they're off the payroll and what now sort of thing. And for some, depending upon the age that they are, that's where grandkids may come into play. And so there's a little bit of a transition where maybe you're watching the grandkids a couple of days a week, and people tend to kind of like having some sort of interim between they're being a crazy household versus an empty household. Nick: But really that recapture of money that was being spent, saving it, putting it away, so that's one of the most effective tools I would say that we have to kind of help people with this process is if we're able to show people. Maybe they're somewhere from five to eight years out from retirement and it's like, "All right, our expenses have dropped by a thousand dollars a month with the kids kind of shifting out of the house. We had originally planned to retire at 65, but if we save this thousand dollars a month, is there a chance that we could retire at 62, 63, 64?" Nick: And so, kind of going through a planning process and showing them like, "Hey, yeah, in some cases, if we can recapture those dollars, if we can put that money away, we can get you into that next phase of life a little bit quicker." There's a huge relief for many people that comes with that where there's less ... Even if they are going to continue to work, knowing that they may not necessarily have to work, there's a huge kind of mental relief that we see in people. And so I've seen that really alleviate some of that mindset change quite a bit. Marc: Gotcha. Yeah. And so whether you view the empty-nest syndrome as a crisis because you're like, "What are we going to do? We're all by ourselves." And maybe it's a standpoint of you got to spend more time with your spouse. It's just the two of you. Who knows what your viewpoint is? But at the same time, you could look at it as an opportunity to maybe put away more for retirement, whether it's they're half off the payroll, completely off the payroll, to both of the guys' points here. So try to find the opportunity in that versus necessarily the crisis. Marc: All right, so let's move to the next one, guys, and that is market downturns or market crashes. You know, obviously they're going to be stressful no matter what happens. I mean, just what we saw a year ago now last March with the downturn due to the pandemic. And so I get where the crisis can come into play, so what some things to think about in the event that we want to try to turn that mindset into more of an opportunity? John: Yeah, so when we have downturns in the market, a good opportunity is really buying into it. It's like you have a store that's going out of business and they have their going out of business sale and you kind of jump in there and see what they have that you can get at a very discounted price. Same thing with stocks. John: I mean, just to give an example of one, and I kind of use this in the class, because I feel like I'm always there, is Disney. Their stock dropped quite a bit last March when we started to shut down, and that was a great buying opportunity if you had some cash on the sideline to take advantage of it, because it's really skyrocketed since then. And I'm just using Disney as an example. There's a lot of other ones as well that we can discuss, but you know, if you're ... position yourself to really take advantage of a market crash, you can really put yourself ahead and when the things rebound. So, there's definitely some opportunity in market crashes. Marc: I think people sometimes immediately latch on to the paranoia side of it. But if you had a good plan in place, it might not feel as much of a crisis, I guess. Nick: You know, one of the conversations that we'll have with clients as they do shift into retirement, for those that may be a little bit skittish about the market in general, or if we have concerns that some market volatility will kind of derail them from their plan, just maybe overall that the market stresses them out a little bit, what we'll do is kind of figure out. Like, "Hey, how many months of expenses will make ... If we hold X amount of months in cash to cover expenses, will that put you in a place where you'll feel comfortable?" Because with a crash there's two parts. Number one is to not bail and to cash out at a loss. Number two is if you have cash handy to put that cash, like John said, and enter it into the market and take advantage of the upside. It can be significant. Nick: So for clients that are fully retired, being able to have some of that cash set aside to be able to take advantage of opportunities, and also prevent them from acting in a way that is not good for them longterm can be important. And for those clients that are actually still working and still actively saving into accounts, saving on a monthly basis or on a consistent bi-weekly basis helps, whether it be [inaudible 00:08:23] cost averaging is what a lot of people know it as, helps you buy in at times when the market's low or at a discount, once it bounces back, you can really bounce back in a significant way, and make a difference. John: Yeah, So another opportunity you can do in a market crash is really do some Roth conversions on IRA assets. Marc: Good point. John: So what you would do is ... And I think we've discussed this in kind of one of our last sessions. But now that this has come back up, it's probably a good time to bring it up again, is if your IRA balance drops, that could be a good opportunity to convert it and pay less taxes on a lower balance at that point in time. Marc: Okay. All right. Certainly some good points to think of, and again, we're trying to show some areas, silver linings, if you will, where something might feel like a crisis or seem like a crisis, but maybe there's an opportunity there to be had. And of course, a lot of that comes down to, as I mentioned, just having a good plan in place that'll help you alleviate some of those feelings because you'll know what to expect as you're walking into some of these scenarios. Marc: Number three, guys, maybe a little bit tougher, obviously, to plan for, but still something that has to happen. And this is one that I think just gets avoided mostly because people are afraid to talk about it, but it's long-term care, and maybe that's the crisis is the continual rate hikes or something like that. Nick: Yeah. With clients that have long-term care policies, we try to make sure that we explain, and when we do our classes, we walk through this section. We try to make sure that we explain so that they fully understand that premiums for traditional long-term care policies can go up, and anybody that's really purchased a policy in the last decade is really starting to see that now. And so, those policies do have what are called non-forfeiture options, so they have the ability to either keep their premium the same and reduce benefits, or pay more and keep their benefits the same. And we really try to take it on a case-by-case basis, but it's important to take it into consideration and understand because it is absolutely a factor that can impact the overall planning, and is just really another reason that when you're planning for expenses for clients, building in buffers on expenses and making sure that the plan works well, this is an important space to make sure that you cover. Marc: Yeah, certainly some good points. And sometimes maybe it's just a good reminder, a kick in the tush that we sometimes need, to just look at some of the things we're a little bit afraid of addressing. And nobody likes thinking about it, but it is part of life, so it's certainly worth having a conversation. Marc: One more here guys, and that is the crisis, and we saw this obviously a lot in the last 18 months or so of downturns, getting laid off, in this case, whole industries really suffering due to the pandemic. It's certainly going to be tougher to look for opportunities there, but from a retirement standpoint, and we're not necessarily talking about people that are in their 20s or 30s or 40s, but from a retirement standpoint, any things we can try to find here to turn that into an opportunity? Maybe getting laid off early, the first thing that would pop into my mind is that if you had a good plan in place, you'd be able to know if that's necessarily a bad thing or a good thing. It might just be saying, "Okay, well, it's time for me to go ahead and retire and I know I'm going to be okay." John: We've seen that situation's come up recently where we've had clients laid off and it's like, "Hey, Nick, John, let's get together to do a meeting." And in the meeting, it's, "All right, let's look at how the plan looks without you working currently," and we find out it doesn't look as bad as they thought, and it kind of makes them feel a bit better about their current situation. John: We've also had some other scenarios where maybe it doesn't look great, but it's, "Hey, you don't need to go work full time anywhere. You can go find something that you enjoy to do and maybe work part time and the plan still looks solid." So, that's something to just keep an eye on is if you are laid off, you don't necessarily need to get back to the income that you were making before. Maybe you can now go do something else that maybe you enjoy more or a second career, and maybe at part time, your plan still works. And that's where it's important to plan ahead and make sure that you have the ability to make decisions and be able to monitor those. Nick: Yeah, I would add, in reality for somebody that's within a couple of years of retirement, the money that they are going to save in those years, if they've done pretty well up until that point ... So, let's say for example, somebody is planning on retiring at 65 and they get laid off at 63. Well, the money that they were going to save between 63 and 65 wasn't going to have a huge, huge impact on their overall plan and make it rapidly improve. However, not having to dip into the money that they've saved in those couple of years will be important. So kind of along the lines of what John said, it's like, "Hey, if we can ..." We'll go through the plan and say, "Maybe you're used to making a hundred grand a year, but if you can find something making 40 or 50 that can help you avoid having to dip into your accounts, let your accounts to continue to grow, and even if you can't save for these next couple of years, it lets you hold the line, that can be really a win-win and make an impact." Nick: So between that and kind of sticking with the fundamentals of trying to make sure that you have six plus months of expenses in cash and really kind of the tried-and-true things from a planning standpoint, can help people get through that. And we've also seen people kind of have a sense of relief where they were getting burned out at work. They weren't really happy there anymore. They didn't realize how much it was taking out of them and just literally a month or two to regroup kind of refreshes them, and they end up in an opportunity that's a lot better than the one that they were in anyways. Marc: Yeah. Some great points for sure. I mean, try to find that opportunity in it. Maybe if you're lucky enough to have a position where a pension was involved, maybe they've offered you a lump sum buyout, whatever the case is, or the monthly. So, it's worth having those conversations to find out where you stand, because it may not be that crisis that you initially thought it was. Marc: But it's the gut punch when you first find that out, sure. But if you've got a plan in place or you go and you find out and you have those numbers run, you may certainly find, to the guys's point, that you could be in better shape than you realized. And it's interesting that the way you guys phrase that, because my brother's actually right there now. He's 63 and he's going to be ... They're going to be closing up the business here that he works for in the next couple of months. And so he's at that cusp as well, and he's like, "Well, I'm going to take a look at my numbers again." And so he sat down and talked with his advisor, and he's like, "I think I can just go to part time," to John's point, "and just do some things that I want to do now." There's a couple of little hobby ideas he's been thinking about doing. Marc: So you never know, right? You got to look for the opportunity where you can. And it's hard to sometimes not focus on the crisis, but with a good strong plan in place, that'll certainly help you do that. And that's kind of the whole point. That's one of the reasons we do the podcast is to shine some light on some areas to think about that. Marc: And you've been listening to Retirement Planning - Redefined. Stop by the website at PFGprivatewealth.com. Check out the guys there. A lot of good tools, tips, and resources. You can contact them to come in for a consultation or review or talk about your situation. You can find the podcast there, subscribe to it that way, or drop us an email here as well on the program. And we've got one this week we're going to wrap up with. Jane has a question for you guys. She says, "It's about 401k funds. If I don't use the target date retirement fund, is there a certain number of funds that I should allocate within my 401k? I don't want to under or over diversify. Is there a right number of funds or does it really just depend?" John: Our answer to almost everything is, "It always just depends." It sounds like Jane, she's not doing the prebuilt kind of option, which is the target date, and is looking just to really build her own portfolio, which is fine. But it's really more important as far as how many funds you have to get into the right asset classes. So, 401ks do a really good job of making sure that you have a lot of different asset classes to choose from. And when I say asset classes, large cap, small cap, bond funds, international, that's the way you want to diversify within a portfolio. John: It really comes down to your risk tolerance, which again, with the 401k platforms, they typically have a questionnaire for you when you sign up or on the website. And then once you determine that, I'm just throwing it out there, if you're moderate, then you're going to want a certain mix of those asset classes to make sure you have a good portfolio for you. Easier said than done, so it's really important to work with a financial professional to make sure that you have the right number of funds and you're diversified in the right asset classes for your situation. Marc: All right, there you go. Thank you so much for the question. We certainly appreciate it. And you know, every situation's a bit different. There's universal truths to apply to all of us, and that's one of the reasons, again, we do the podcast to share some of those things, but every situation can be uniquely different when it comes to retirement planning. So, reach out to the team and give them a call if you have some questions at (813) 286-7776. Marc: Don't forget to subscribe to us at Retirement Planning - Redefined on Apple, Google, Spotify, iHeart, Stitcher, so on and so forth. You can find all the information at PFGprivatewealth.com. Guys, thanks for your time this week. I appreciate it as always. John, have yourself a great week. Nick, you as well, my friend. Nick: Thanks, Marc. Thanks. John: Have a good one. Thanks. Marc: We'll talk to you a little bit later here on the program. This is Retirement Planning - Redefined.
22 minutes | Mar 10, 2021
Ep 30: This Is Why You Never Assume
We often see people making certain assumptions about retirement that just aren’t correct. Let’s explore some of those on today's show. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: firstname.lastname@example.org Disclaimer: PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance. Transcript of Today's Show: For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/ ----more---- Marc: Hey, everybody. Welcome into Retirement Planning Redefined. Thanks for hanging out in the podcast with us as we talk investing finance and retirement with John and Nick from PFG Private Wealth. On this episode of the podcast, we're going to talk about not making assumptions reasons, why to never assume. We all do it as humans, but when it certainly comes to retirement, there's some ways and pretty easy ways to just not make these assumptions, but yet it does happen. So we're going to talk through that a little bit, got a couple of bullet points we're going to go over, but first let me say, hey to the guys. What's going on John and Nick? How are you doing John? John: I'm doing good. I'm doing good. I don't know if I mentioned it on the past podcast, but we moved to a new house and it's been a couple of months and just settling in. So getting some new furniture, which if anyone's ordered furniture recently, everything's back ordered by about two months. So we finally have some of that trickling in and so it's nice to settle into a new place and then getting ready to enjoy it with the weather turning around here. Marc: Very nice. Yeah. If you bought or tried to buy a lumber as well, holy moly. Lumbers through the roof if you've gone even to just a Lowe's or something to get some plywood. It's pretty crazy. But Nick, what's going on with you? How are you? Nick: Just staying busy. No complaints. I have a friend coming down to visit. He was one of the early people to get vaccinated, so he's coming down to visit in another week or two. So that'd be kind of cool we'll do everything outside and all that kind of stuff, but to have some sort of activity and a friend in town will be a good time. Marc: Yeah. Absolutely. Absolutely. Well, good. Well, I'm glad you guys are doing well. So let's jump in and talk about this week's topic, making assumptions. As I mentioned before, I mean, it's common right? We're humans. We do it in all sorts of areas and ways in life, but when we're talking about retirement, there's a few of these that maybe just don't hold water anymore. So let's start with a classic one here guys. I'll spend less when I retire. I mean, we've heard that for a number of years and I get it, but at the same time, I just think with the cost of everything going up, the way it is, and my dad used to tell me when you get to retirement and he got there, he's like, "Every day is a Saturday," and he's like, "I always spend the most money on a Saturday." And I thought that was a good way of looking at it because you're inclined to just do more, at least you want to anyway. That's the goal of retirement right, is to get out there and do those things you've wanted to. Nick: Yeah. Well, one of the things that we oftentimes talk about with people is really the whole goal of this planning process and the work that we put in over the years that are leading up to retirement is to allow you to not have to spend less, to want to spend the same. Maybe you'll pay a little bit less on certain things here and there. Maybe you got the house paid off, but really from a lifestyle standpoint and your analogy that your father used of every day's a Saturday is correct in a lot of ways. And so a lot of times people, depending upon the conversation, people will focus on needs versus wants, but very rarely do people live a lifestyle of needs only. And so, the beauty of planning is we can try to kind of build some of those scenarios in, but ultimately, and we'll kind of say it to people up front is like, "Don't you want to live the same sort of lifestyle, so why don't we budget and plan for that?" John: Yeah. And we see a lot of people when they go to retire, a lot of those kind of bucket list of vacations happen, and I'll tell you those aren't cheap. So it's kind of it's... we call them what? The go-go years, where it's time to really start doing things and if you plan correctly, you do want to spend the same amount of money if not more, to really start enjoying your Saturdays every day. Marc: Yeah. And if you think about the go-go years John, in that respect, you're doing more in the first couple of years of retirement, but you're starting... Yeah, maybe there's some trade offs like I think there's some statistics, like people go out to eat more in their thirties, forties and fifties. As you get over 60, you start going out a little bit less and less. And we'll just take COVID out of the equation for right now. And even with that's the case, you're going to start trading that off for other things. So yeah, you might spend less than this category, but you may spend more in another category. So just the general assumption that you're going to spend less in retirement is typically a false one, especially if you are having some dreams and some lofty things that you want to do again, COVID aside or not right? So that's one classic one to ponder. Another one that goes right along with it guys is the taxes will be lower. Typically, we think our tax rate will be lower in retirement and maybe that used to be the norm when the tax rates, there was a wider range in them. I mean, I'm talking 20 or 30 years ago, but I don't know that that's the case anymore. What do you guys see? John: When we do planning for the most part, I'll say we see taxes drop a little bit, but Nick and I really try to kind of build a worst case scenario and we're historically in very low tax brackets. So when we're doing planning for our clients, we make sure that even if the plan showing lower taxes, that we adjust their plan to taxes do go up. At some point they're going to go up, I'm assuming with all the spending the government is doing, that they can adjust to that. So although we have seen that, we definitely do not make plans based on that and when we run some numbers, we kind of stress test to say, "Hey, what if taxes do go up into retirement?" So one of the big things that we'll see when people retire is they do have a little bit more deduction. You have that deduction of, once you hit 65 on your taxes, and then also you're not paying social security tax anymore because there's no more earned income. So that tax does get lowered, but from an income tax standpoint, maybe a little bit, but again, not enough to really say, "Hey, I'm going to be spending a lot more because my taxes are lower." Nick: It can also very much be a production of how you have saved over the years. So for example, if maybe you're eligible for a pension and you have a pension which is going to be fully taxable when you receive it plus the money that you saved has gone all to pre-tax accounts, to pre-tax 401k, pre-tax IRA and you don't happen to have any Roth accounts or any accounts that are what we would refer to as non-retirement non-qualified accounts, that can have a significant impact as well. So it's not as simple as a total income number. It can also be, "Where is the income coming from and how does that impact the overall situation?" And just like John said, the probability of taxes going up in the future is fairly high with the debt levels and those sorts of things. Marc: Yeah. I mean, just some quick numbers. Right now, I think it's around 75% or so the federal budget is allocated towards entitlement programs. I mean, think about that. So what's it going to be 10 years from now? And that's not factoring into your guys' point, some of the stimulus stuff. So it's going to continue to be a situation where I think everybody's in the same agreement that it's going up. It's just a matter of when, when they're going to do it or whatever the case is. So being prepared and not just making that assumption again, that you'll be in a lower tax bracket. That's the goal if you're working with a good team and working with guys like yourself to get to plan, to keep your taxes as low as possible. That's always the goal, but just don't assume it's going to happen. Marc: Let's talk about the college conversation, guys. We'll try to stay away from those, "Should it be paid off or should it not be by the government," well, if we can. But just in general, the thought from a retiree standpoint, especially for people who've had kids later in life and they really want to help them with retirement... or excuse me with college, that's great. We all love our kids. We all want to do things, but at some point, do you guys see a situation where people can put themselves behind the eight ball for their own retirement and now they're becoming a burden on their kids later in life because you've sacrificed your own retirement to help them get started? That's a slippery slope. John: Yeah. So actually oddly enough, I just had this conversation today where a client had some money that was freed up and their kids are young and they're in daycare. So there's some extra money now that they're going to school. I mean, the question is, "Hey, what should I do with that?" And part of the conversation was, let's start looking at your overall retirement plan to see what that looks like before you start socking away all this money into a 529 plan or any other college savings plan because there are loans for college. There's no loans for retirement. Marc: Right. Maybe a reverse mortgage will be about the only thing way you could finance a retirement. Maybe right? But that's totally another conversation for another day. John: Yeah. And when the kids get to that point of school, depending on how you structure your retirement assets, there are some ways that you can access those retirement funds to help them pay for school. And kind of the way I view it is that you can tap those funds to pay for school and still kind of maintain your retirement. So it's always something you really want to take a look at and just plan for and be prepared. Nick: Yeah. I would say that our default is, typically save first for yourself and for your retirement and then we can build in strategies and structures for saving for college expenses for the kids. We really don't know what that space is going to look like 10 or 15 or even 20 years from now, whether college will be fully required for everything or what sort of programs will be put in place, even the ways that students will be able to qualify for things like financial aid and those sorts of things. And so, anytime a plan is too heavily focused in one area, we oftentimes see mistakes. And so it's difficult with this conversation because it can be a very personal conversation. Oftentimes, it's based upon the client's experience when they were children, whether or not they had to go through it themselves. Nick: And that can go both ways like, "Hey, I don't want this burden to be on them," or, "Hey, I learned a lot by having to do that and I'd like my kids to do the same sort of thing." And so just like so many other topics, we really try to talk about the financial side of things and help them understand the impacts in that space and then get their feedback on their personal feelings about it, and then try to find a way to kind of mold those two together to make it make sense from both a preferential and personal standpoint as well as a financial standpoint. Marc: That's a great point. Yeah, exactly. Because it can be, and everybody [inaudible 00:10:29]. it's almost like the same conversation around legacy planning right? Some folks say, "I don't want to leave anything to the kids because they're doing just fine," and others say, "I want to leave as much as I can." So yeah, it becomes a very personal conversation, but just be careful because what we've seen over the last couple of years is people sacrificing a little too much. And then again, like I said, it comes back around and you wind up being a burden. You're in your seventies and you need help with retirement and now you're trying to lean on your adult kids who are maybe just starting their own families. And so it's just a slippery slope. So just be careful. Nick: Yeah. And one other thing on that. You pointed out the legacy planning and that's kind of a good point because, and we consider that factoring in the overall throughout the whole planning. But a lot of times what we will see are, "Hey, we paid for school so we are going to spend our money in retirement and use our money in retirement," or the vice versa where it's like, "Hey, we didn't help out with school so we'd like to make sure that we leave some money." So again, it's a multi-tiered sort of conversation. And ultimately, we always try to focus on control. Be in control of your own money, be able to have as much of an impact as you can on your own personal decisions. And so, sometimes knowing like, "Well, hey. If I can help them out down the line afterwards, that may be a way to "make up" for not having put away as much money for their education or whatever." Marc: That's a good way of looking at it. And again, it's all very personal things. So just, again, the topic this week on the podcast, it's just not making the assumption that you have to help your kids through college before you worry about retirement savings because they can get you into a bit of a pickle. One more here, guys, on the main topic this week, and that's the classic "I'll never be able to retire" kind of assumption. And I think what we find, and you guys tell me what you see in your practice is many people just assume that and they never take the time to sit down and go through a planning process and find out if they're right or wrong because they are just terrified and they're assuming they're going to be wrong. And more times than not, they're actually not. People find that they're in better shape than they thought they were when they go through the process typically. John: Yeah, I would agree with that. Nick and I do the classes and a lot of those people are kind of in that position, it's time to start looking at it. And we've had a lot of scenarios where people feel that they haven't done enough. And when we do the plan, it's, "Hey, you're on track and it looks really good," and it produces a nice kind of sense of relief for some of those individuals. I definitely will say, never assume that and it's better to take a look at it sooner rather than later because if it's vice versa where you need to start saving more, we do find that people in their fifties, kids have moved out. They're kind of off the payroll. And now if there's a time to really catch up, it's going to be in your fifties to sixties. So it's really important to build that plan, see where you're at and if you're on track, great. Let's enhance that to give you more flexibility down the road and if you're not on track, now is the time to really... it's better to start planning sooner rather than later versus, "Hey, once you hit 60 and it's like, your working years-" Marc: It's going to be harder right? Nick: Yeah. And just like so many things in life, we've had conversations with people like this. And the reality is, is that we can't change the past. So we really try to emphasize the present and the future and decisions that can be made moving forward. It can be difficult for us as advisors sometimes because ultimately, we tell clients, "We can't care more about your money in your retirement than you do." So the number one factor in this whole thing is that it has to be an important thing for you and you have to be motivated to make changes if you are behind the ball and we'll absolutely help you get there, but I would say one of the biggest mistakes that we'll see is that people get paralyzed by the concern about mistakes that they've made in the past, and then all of a sudden, it's five years, 10 years later and they've just really doubled up on the mistakes. And so the sooner you can make changes the better and less focused on the past and more focused on the present and the future. Marc: Absolutely. So some good points to ponder there as we're talking about not making assumptions for retirement. And of course, if you've got questions or some concerns, you need a little bit of help, you want to get a second opinion on a plan you might have, or even the first opinion if you've never taken the time to do so, reach out to the team, go to the website, pfgprivatewealth.com. That's pfgprivatewealth.com. You can click on the podcast link right there at the top of the page. There's a blog. And there's a contact section where you can send us an email to the show if you'd like to do that as well. You can find all those goodies at pfgprivatewealth.com. And like I said, if you want to send an email question, feel free to do so. And we've got one this week, we're going to toss out to you guys. Bo sent one and he said, "Fellas, I need about $5,000 to live on each month in retirement and my social security and pension is looking about to be $5,300 a month. You think that means I can leave my 401k behind to my son? What do you guys think?" Nick: So there's a couple of things with this question. Ultimately backing up a little bit, we're always concerned when people provide flat numbers like this. I think I've been doing this since '07 and John you've probably been doing it at least as long, I think an an extra year. I don't know if I've ever seen anybody come in with $5,000 a month flat on expenses. It's an awfully convenient number. And so first thing- Marc: Well, he does say, "I need a [inaudible 00:15:58]," I guess, so we'll give him the benefit, but yeah. Nick: The first thing that we like to do is kind of peel back those numbers and make sure one of the things that we've learned kind of throughout these years of doing this are that sometimes when people post questions like this, some people think pre-tax and some people think net of taxes. And so first backing up to see in reality, depending upon how they're calculating the numbers, that $5,000 expense number might actually be closer to 6,000 or 6,500. And then the social security and the pension numbers may be net versus gross. So the first things that we'll make sure that they understand will be, from a cost of living standpoint and projecting out the numbers for the social security, are they using a cost of living and which number are they using it? And then for the pension also, the same thing. I would say at this point, depending upon where the pension's coming from, if it's coming from a private company, typically we don't see cost of living's built in. If it's coming from some sort of like state or a municipality employee, then there will be some cost of living's built into that. Nick: So making sure that they calculate inflation on both income and expenses is going to be a huge deal. So as far as being able to leave the money, the first conversation that we're going to have with them about specifically, "Hey, am I going to be able to leave my 401k money behind?" We'll be making sure that they understand how required minimum distributions work and what that looks like. So as an example, making sure that they understand that starting at age 72, they're going to have to start pulling money out of their account so that the government can tax that from an income standpoint. And that doesn't mean that the client has to spend that money. It means that they will pull it out so that they can pay the taxes and then either they can save it or they could spend it. Nick: So just like so many other things, it's a pretty nuanced... it's a question that on the surface seems super simple like, "Hey, I did the math. My income is 5,300. My expenses are 5k. I look great. Let's just plug along. And my goal is going to be to leave my money behind for my son." So kind of diving into making sure that they first understand how those factors are going to work from a planning standpoint with things like inflation, how they understand that the required minimum distributions are going to work, pulling that money out and then really focusing and drilling down on if it's very important for them to leave money, for Bo to leave money to his son. Nick: Let's figure out what might be... is that the best way to leave the money or are there other things that we could do to leave that money? Like for example, does it make sense for him to start doing conversions to convert his traditional money to a Roth account, which can be a much more effective tool to be able to leave? What sort of income bracket is his son in? If he leaves pre-tax money, is that going to be a tax bomb for him? Those sorts of things. So on the surface, it looks like a very kind of basic question, but in reality, we're going to have to peel back and look at kind of the other factors and then really strategize to figure out ultimately what's the goal and can we find more efficient ways to accomplish that goal? Marc: Yeah, exactly. I think the first thing that I thought when I read that was 5,000 now, what is it going to be in 10 years? So with inflation, I mean that 5,000 might be 10, so who knows? So some good thoughts there for Bo to consider. Thanks so much for the question. We certainly appreciate it. Nick, thanks for handling that one. And that's going to do it this week here on the podcast. Again, if you've got questions or concerns before you take any action, you should always check with a qualified professional like John and Nick at PFG Private Wealth. Give them a call at (813) 286-7776 or stop by the website, pfgprivatewealth.com. Don't forget to subscribe to the podcast, Retirement Planning Redefined. You can find all that information at the website. Of course, you can also just search it out on Apple, Google, Spotify, or whatever platform you like to use. And for John, Nick, I'm your host Mark. We'll see you next time here on the show. And this has been Retirement Planning Redefined.
18 minutes | Feb 16, 2021
Ep 29: Annuities Breakdown, Part 3
This is the final installment for our annuity mini-series. We will wrap things up by diving into fixed-indexed annuities. We get more into the finer details of some properties of annuities and also take a look at how these contracts are typically structured.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: email@example.comDisclaimer:PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.Transcript of Today's Show:For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/----more----Speaker 1: Back here for another episode of the podcast. Thanks so much for listening to Retirement Planning Redefined with John and Nick from PFG Private Wealth. They are financial advisors serving you here in the Tampa Bay area. 813 286-7776 is how you get ahold of them if you've got some questions or concerns about anything you hear on our show, or really any others when it comes to your retirement plans. Speaker 1: And this week on the podcast, we're going to continue on with our annuity session. This is part three, and we're going to talk a little bit about indexed crediting strategies as well as indexing methods. And that sounds fancy, so we'll let the guys break it down. But first, we'll say what's going on. John, how are you, my friend? John: I'm good. I'm good. I was, this morning, just getting some quotes on artificial grass. It was- Speaker 1: Oh, that sounds fun. John: ... very interesting to look at the different samples of them. Speaker 1: The different samples of artificial grass. All right. Who would've thought, right? John: Not me. Speaker 1: It's a strange thing you can do. That's for sure. Nick, how are you doing, buddy? Nick: Definitely not looking at artificial grass, but doing pretty well. Staying busy. Speaker 1: Good. At the time we're taping this podcast, your Bills won a playoff game, yeah. Nick: Yeah. Yeah. First time in quite a while. And they continue to take years off of my life, but at least it's a lot more enjoyable to watch now. Speaker 1: I totally forgot to ask you, because as a Bills fan, you finally get rid of Brady in your division, but he moved to the town you're in. Nick: Yeah, it's pretty interesting. I mean, I've been in Tampa Bay since '03. I moved down the July after they won the Super Bowl, so they were pretty popular. And then Florida is such a different town from a sports perspective, and Tampa Bay, specifically is obviously all I have experience with. But there's so many people from other areas that it's just different. Whereas, the Bills, in Western New York, are kind of like a way of life. It's been an interesting... The Bucs have a chance, we'll see, to be the first team to play a Super Bowl in their home stadium, which would be kind of interesting. And then if it ended up being against the Bills, that would be double interesting. Speaker 1: Yeah. Some of those ghosts could be haunting them, so they're probably hoping to not see him once again. But, anyway. Nick: Yes. Yes. Speaker 1: We'll get into financial topics and we'll talk sports another time, but I just wanted to ask you about that. So good stuff, indeed. So guys, what am I talking about or what are we talking about here today on this annuity session? What are some of the features and some of the things we need to be thinking about? Nick: Yeah, this will be the last in the series of the annuities that we talk about. And just like anything else, we view ourselves as informational and educational. And because annuities are such a topic that there's so much information out there about, there's plenty of positives and plenty of negatives, that we want to make sure that we go through these different things. Nick: And so this session is going to be focused on what are called fixed index annuities, which can be confusing, just like anything else. There are some more moving parts, but we have found over the years that for those people that are pretty conservative and risk averse in looking for opportunities to have some sort of upside from the market, but are not comfortable having much downside, that these are something that can make sense for them. So we're going to spend the session kind of going through and talking about them. John: To compare these to the last session we talked about, you can expect a higher interest rate than a fixed annuity, over a long-term period. And comparing it to the variable annuity, it doesn't have the same potential because you're tied to a specific index and there's some restrictions to it, which we'll go through. John: So this is really a good hybrid in between, if you're looking for, like Nick mentioned, you want some principal protection. But the negative to a fixed annuity is, hey, I'm locked into this rate, I can't really get much more. How can I get more? And then this fixed index would actually accomplish that because if the market does go up, there's potential to actually go up with the market to a point. John: Something to understand with these, again, important in all annuities, understand the fees that you're in. And while typically... Again, I hate using the word, but we have to. Older contracts, we haven't seen fees in these, but there are some newer ones where they are having some fees within the contract. And the way that they explain that is, hey, if we put this fee in here, well actually, there's more growth potential on your crediting methods. John: So just understand if you're looking at any of these, like anything, you want to look at the surrender period, you want to look at the surrender charge, you want to look at the fees. I mean, those are three important things to look at in any annuity contract, and especially with these. Nick: So in general, the term index annuity really comes from the structure of how they credit growth inside of these contracts. One of the most popular indexes that are used in these sorts of contracts is the S&P 500. And the way that the contracts essentially work is they will offer different indexes that they will provide crediting towards, and use that index as the barometer for how it works. Nick: So just to super simplify it, what'll happen is they'll say, okay, there are different rates and John's going to different sorts of structures and John's going to kind of get into that. But they'll say, okay, between the time that you open this contract and a year from that period of time, we're going to track the index. In this case, we can call it the S&P 500. We're going to track the performance of that index over time and then we're going to give you a percentage of the performance of that index. And that percentage can change for year to year, and they declare it on each anniversary. Nick: And so that's what provides you with the upside within that contract. However, and this is the reason that many people will use this sort of contract is, if the S&P 500, in this example, let's say it drops 10 or 15% between now and 12 months from now, you're not going to participate in that down portion, that downside, you're just not going to get credited anything. So essentially what ends up happening is that you're flat for the year. Nick: So when these things talk about not having the downside or protecting your principal, that's what they're referring to. So if the S&P 500 is up 10%, you'll get a percentage of that growth and John, we'll talk a little bit about how they may credit that. However, if it's down 10%, you're just going to not lose any money that year. It's going to be flat. Nick: So that's the general principle of how it works and which index is used, how much they credit, that's all the due diligence that happens when people choose which contract to go with, but in a very basic sense, that's how it works. John: Yeah. And to really explain it, I think, let's give an example of that. So if you're in a participation rate, and let's say you start with $100,000, and like Nick said, the most popular one is the S&P 500. And by participation rate, let's say it's 50%. So what that means is you're going to get 50% of the S&P 500 on the upside. So if you're in contract January 1, 2021, they'll look at the S&P 500 on January 1, 2022. If the S&P 500 has gone up let's say, 20%, your contract is going to credited 10%. Again, that's 50% of the 20% gain. So if you start out with 100,000, your account is now at 110, okay? John: A benefit to this is that actually your 110 now is your new floor. So when you get credited, that's actually your floor moving forward. So, example, let's say year two, you're still in a 50% participation in the S&P, S&P goes down negative 10. You're year two, basically what's going to happen now is the 110 is now your floor, you stay at 110. Now you move on to year three to see what the S&P 500 does. John: So that's one crediting method, participation rate. They also have a cap rate. So, that's kind of like a ceiling. So, you could have an S&P 500, again, index that you're monitoring or are kind of shadowing. And your cap is 6%. So what that means is, you're going to get up to 6% of the S&P 500 growth. So same example, 100,000, let's say you have a 6% cap. The S&P goes up 20%, in this scenario, you only get 6% because that's your ceiling, okay? So basically 6% your cap, that's all you're going to get that a hundred thousand now, after the one year, it's going to be at 106, because you got 6%. Year two, again, S&P drops, you stay at your 106. John: So, just important to understand the different crediting methods. There's one more called a spread. This is kind of like a fee, but it's only taken off if there's gain. So a spread could be like 1.5%. And again, let's use the S&P 500. If it goes up by 7%, they take 1.5% off of that gain. In the same idea. You get the credit for that year, it locks in your balance at that point in time, and that's kind of your new floor. John: So important just to understand you have participation rate, cap rate, and a spread. Those are the most popular, they're not the only ones. There's actually a lot more, but those are the three that we typically see. We don't have enough time today to really go through each one, but those are the most common. And I'd say kind of when we're using these strategies, those are typically the ones that we use, because they're just simple to understand. Nick: Yeah. And some of the other things to look out for, if let's say you already have an existing contract and because these insurance companies, they can change those rates that John walked you through from year to year, maybe one year your cap was 6%, but they drop it to 3% on the S&P 500, it may make sense to look at another index. So most contracts have a menu of indexes that you can choose from, from year to year, and they allow you to change your choice on an annual basis. Nick: So what we've seen is people may get complacent and they've had the same index for a couple of years and because they know that there's not really market risk per se, they just leave it. And they haven't realized that those rates have changed and what they've been in, their potential is much lower. And, usually what ends up happening is that they may lower some, but they may increase others or there may be other opportunities and other portions. Nick: So it's important to look at it on an annual basis, take a look and see what changes they've made to the contract and if it makes any sense to make a change. And some of the options aren't just a one-year option, they may offer a two year option. That could have much better rates and that could be an opportunity as well. Nick: So even though it's a vehicle, a tool that can be used, sometimes there's complacency that kicks in because there isn't perceived risk and just like anything else, doing your due diligence each year and adapting to what's happening within the contract can really, really pay off for people and they can try to maximize or take advantage of the opportunities that are within the contract. Speaker 1: It sounds like any financial product where sometimes people just want to set it and forget it. And that's not always the best strategy having. And that's where you can do with reviews and things of that nature, but just kind of checking on these things is certainly a good idea is what I'm hearing. Nick: 100%. 100%. And I will say too, that in our last session on variable annuities, we talked a little bit about some of the riders that are available that can provide people with guaranteed income. And many times there are those writers available on these fixed index annuity contracts as well. So they can be a tool that provides future guaranteed income, but maybe provides options with less fees than a variable contract or higher guarantees than a variable contract, which is something that can be used from a comparison perspective. John: Yeah. And to jump into what Nick was saying about the indexing methods changing, it's important when you're looking at some of these companies that you go with a quality carrier and look at their track record. Because the last thing you want to do, and we've seen this where, one company might be offering a very competitive cap rate, let's say 8% or something like that. And then once you're in the contract with them, they all of a sudden lower their cap rate to four. And it's like, Whoa, now I'm with this company for the next seven years, because that's my surrender period and they've just lowered their rates on me, you know? John: So that's where doing your due diligence on what company am I going with, what's their ratings, what's their track record? Are they a good company I want to be with for the next five, seven years? And that's where it's important, if you're working with an advisor that they're doing their due diligence, and you're doing your own to make sure that if you're going to be with this company that they're going to do right by you, if you're going to be with them for that period of time. John: It may sound like we harp on it quite a bit, but the pitfalls are important to understand. Make sure that the company that you're looking at is a reputable company and has strong financial ratings. Pay attention to the surrender charge period with these contracts, where people have that and tripped up is we've seen people locked into contracts that are 15 years long, 18 years long, which really can be pretty tricky. So making sure that you understand how that's structured. And then, like John said, getting some historical background on how often they change their indexing rates. And if they're really just kind of using teaser rates to get people locked in. John: So just like anything else, it can be a piece of the pie. And oftentimes where it's most appropriate would be for people that are pretty conservative investors looking for a little bit more potential, especially in this current environment where rates for CDs and money market accounts and that sort of thing are so low. Speaker 1: Yeah. Again, when we talk about these things, it's always important to remember and realize that like anything in life, you should always do your own due diligence, as well as when you're working with an advisor, or when you're looking for an advisor to work with. Make sure that you're going through the proper steps, do some of the homework, and then take the time to find out is this product right for you? Don't just jump into anything because it's something you hear on any particular show or a talking head or whatever the case is without seeing how it might relate to your specific situation. Speaker 1: And if you need help with that, whatever type of annuity it might be, or any other financial product, because annuities can be a bit polarizing, have those conversations reach out to John and Nick, they're here to help in the Tampa Bay area 813 286-7776. If you've gotten this email through a newsletter or a blast or something like that, or whatever the case might be, and you haven't yet subscribed to the podcast, feel free to do so, certainly would be appreciated. If you'd like to get more content as they come out, you can simply go to pfgprivate wealth.com. You can find the podcast page there, pfgprivate wealth.com. Speaker 1: You can also find a lot of good tools, tips, and resources, and reach out to John and Nick. You can also subscribe through your favorite app or whatever that might be. Just search out retirement planning, redefined, and hit the subscribe button. A lot of times it's a heart or a thumbs up or something like that, search the type retirement planning redefined in the search box, or just call 813 286-7776. Speaker 1: John, Nick, thanks guys for your time in this series on annuities, a lot of good information. They do get a little complicated sometimes, so again, it's really important for people to understand and have a good working knowledge of this, especially if they're considering it. So I appreciate you guys sharing some of your knowledge. John: Cool. Thanks Marc, have a good one. Speaker 1: John, appreciate it, bud. Take care of yourself and we will talk next time here on Retirement Planning Redefined with John and Nick from PFG private wealth.
19 minutes | Feb 4, 2021
Ep 28: Understanding Annuities - Variable and Fixed
This is part 2 of our annuity mini-series. We focus on two types of annuities on this episode which are the variable and fixed deferred. John and Nick explain what are significant about each of these and how they may fit into a retirement plan.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: firstname.lastname@example.orgDisclaimer:PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.Transcript of Today's Show:For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/----more----Marc Killian: Hey everybody. Welcome into the podcast. Thanks so much for hanging out with us today as we talk investing, finance, and retirement with John and Nick, once again, here on the airwaves with me on Retired Planning Redefined. Marc Killian: We're going to pick up with our conversation on annuities. We are doing this series, or this session, on annuities and we're going to talk about fixed deferred annuities, as well as variable annuities today on the show. But before we get into all of that, let's say hey to the guys. Nick, what's going on, buddy? How you doing? Nick McDevitt: Good. Good. Just we're in the new year now and things are off to the races for sure. It's been a hectic start to the year. Marc Killian: What races? We don't know, right? Nick McDevitt: Yeah. Yeah, yeah. Yeah, that's true. Been a hectic start to the year, but looking forward to the new year. Marc Killian: John, how about yourself? You're doing all right? John Teixeira: Yeah. Doing good, just busy. And like Nick said, it's been an interesting three weeks to start out the year to say the least. Marc Killian: I don't know if you guys saw that meme that says, "I'd like to cancel my subscription to 2021. I tried the seven day free trial and I'm not happy with it." John Teixeira: Yeah. Nick McDevitt: Yeah. I've seen ones too where it's like, "This is week 54 of 2020. Marc Killian: Something like that, yeah. Pretty interesting times that we're continuing to live in. John Teixeira: Actually, my wife, I got the vaccine, first one, yesterday. Marc Killian: Oh, did she? John Teixeira: She's a nurse, so she was nervous a little bit, but also excited that she could just not have to think about it once she gets the shot. I think it's six months to a year, roughly, that they say the immunity from it... To be determined, but I think six months at least [crosstalk 00:01:36]. Marc Killian: I hear depending on which company you get it from, it's a series of shots and they say maybe you might feel bad for a day or two after it. How'd she do? John Teixeira: Not too bad, although last night we were putting one of the kids to bed and she comes in and she's like, "Hey, where's your EpiPen?" I'm like, "EpiPen? What do you need that for?" Her throat started feel like it was tightening up, but it went away within 30/40 minutes, so that was it. Honestly, shes doing well and- Marc Killian: Good. John Teixeira: She's doing good. Marc Killian: Good. Good to hear. Certainly interesting. Obviously, the virus itself affects so many people different ways and then apparently the vaccine does the same. My business partner, his wife's a nurse and same thing with her. She got the shot a couple of weeks ago and had a really bad headache was her side effect from it, but I think that was about it. So, you just never know how it's going to affect everybody, so I'm glad to hear she's doing well and be curious to keep an eye on that, as we move along, how the vaccines and all that stuff's going. Marc Killian: But for now, like I said, let's talk about annuities. Let's get into part two of this. I mentioned at the top of the podcast kickoff, we're going to talk about two types today: fixed deferred and variable. So let's start with fixed deferred, guys. John Teixeira: Yeah. So, fixed deferred annuities, recapping what we went through last time, anytime you get into an annuity, you really got to look at the company you're going with because the guarantees are based on the issuing company and how strong they are. But just go over a fixed deferred annuity. John Teixeira: It's very simple, similar to a CD issued by a bank, just issued by an insurance company. You have a guaranteed rate. There are some that just give you a minimum interest guarantee where they'll say your minimum interest is 1%, but it can fluctuate based on some factors. The most popular ones that we typically use are where there's a multi-year guarantee where it will say, "Over five year period, you're getting 2.5% or 3% over that five-year period." John Teixeira: Typically,... I say typically because there's always some outliers... typically, no fees, again just comparing it to a CD, no fees on it. You're just getting your 2.5% for that five year period or three year period, whatever you pick. We typically find that these rates are normally a little bit higher than CD rates, so it's very competitive in that space. "Just looking for something just very simple. Let me just get a fixed rate. I don't want to worry about any of these other moving parts. I just want a fixed interest rate with no risk." Nick McDevitt: Yeah. And I would add to that from the perspective of... from a functionality standpoint, as far as how the rates are fixed, there are some similarities with CDs. But it is important to understand that CDs typically have FDIC coverage or insurance because they are issued from a bank up to the limits that the FDIC provides, whereas the guarantees and the CD are going to be from the insurance company. Nick McDevitt: So, we know that that's a concern that people have when they bring it up or talk about it, so we always like to point that out. And then, on top of that, from the perspective of keeping in mind that annuities, by rule, by default, they have limited access to money until 59-and-a-half or after. So, if it's money that somebody is using that is a non-retirement account and they're younger than 59-and-a-half, it's important to make sure that they remember that rule, that 59-and-a-half rule. Nick McDevitt: But the positive is that it does provide tax deferred growth. In other words, you don't get a 1099 from the bank or from the insurance company every year on your interest like you would in a non-retirement account if it was in a CD. So, the rates, the taxation, and the protection side of things are some differences between those. John Teixeira: Yeah. And also, and just going back to what we talked about in the first annuity session, there are surrender periods on this. There are surrender charges, which will make them different than CDs. So just, if you need a recap of that, just go to our last podcast and we went through the basics of annuities, which is going to apply really to the fixed, the variable, and the index, which we'll be going through. Marc Killian: All right. A lot of times when people think about different financial products, we often hear about the three qualities of money where you're looking for growth, safety, or liquidity. And every different kind of vehicle provides different things. Often, when we think of annuities, we think of maybe the growth and the safety aspect, but without some of that liquidity you guys were talking about. Marc Killian: But again, since there's different kinds of annuities, you want to check and see really what the pros and cons are going to be for your specific situation. So, a fixed deferred might be something that worked really well for you and your situation, but again, you want to go through that with an advisor. And then, the variable, this tends to get more of the bad rep, I suppose, so break down some of it on the variable annuities for us, guys. Nick McDevitt: Sure. Essentially, what a variable annuity is and what it does is it combines the structure of being able to invest in mutual fund-like investments, where in a variable annuity they're called sub-accounts. So it combines that with the chassis of an annuity, which provides tax deferred growth on the growth of the account. Nick McDevitt: So, these became a little bit more popular back in the 80s where you would have high-income people that were looking to save additional money; maybe they were maxing out their 401k plans, or their retirement plans at work. They are in a high income, maybe a high income state or just, in general, high federal tax bracket, and so they were looking for additional ways to invest their money and they would use the variable annuity contracts to provide them with that tax deferred growth on the dollars and not get a 1099 each year on their investments. And so, over time, as tax rates changed and really became a little bit more favorable over the last 20 or 30 years, the popularity of the contracts became less than less. Nick McDevitt: And then, what the insurance companies did was they started to add different riders and different guarantees onto these contracts, almost like an additional layer that comes over the top, that provided some additional guarantees to really just incentivize people to use them. And so, John, if you want to talk a little bit about some of those guarantees, and really the reason why many people that really have owned them over the last 10 or 15 years own them? John Teixeira: Yeah. I'll start with some of the less common ones and we'll end with probably the most common, and Nick does a good job expanding the income ones. But they have somewhere, basically, your principal's guaranteed and not so popular anymore, but I've seen some contracts where you might get in today and they'll guarantee your principle payment over a 10 year period. John Teixeira: So example, you put in 100,000, they guarantee you over the next 10 years if the market goes down, you'll at least walk away with your $100,000, so you get a principal guarantee and they'll have a term period where they'll put that guarantee. So example, year nine, your account's at 80 grand; you put in 100. Once you're at the 10 year anniversary, they just give you your 100,000 back. John Teixeira: There are some death benefit guarantees to it where we've seen some contracts where, again, your principal payment has a death benefit, so if the market drops, you at least get what your principal payment was. And then, there's actually some riders where the death benefit will increase automatically irregardless of what the market is doing. What's very popular maybe about 10 years ago was long-term care riders on this where they'd put, if you qualify for long-term care insurance... so, lose two of your six ADL's... the annuity would kick in some type of income for long-term care expenses. Those have really dwindled down over the last few years because of just the cost for facilities. John Teixeira: Nick, I'm not sure if you see too many of that nowadays. I know I haven't seen any good ones, but I'll let you talk on if you've seen any good long-term care riders on these contracts. Nick McDevitt: No, I haven't seen that that much and really the main rider that we see on the different contracts are what are called guaranteed withdrawal benefits or guaranteed income benefits, sometimes referred to as GMIB or GMWB. When we do our classes, we really try to harp on these from the perspective of just explaining how they work. And really, in this sort of venue, this sort of avenue, what we would just recommend to people is that if it sounds familiar that you have a variable annuity, and/or a variable annuity with some sort of income rider that you know guarantees you some income, it's good to have somebody help you review that contract and make sure that you understand how it works. Nick McDevitt: So essentially, there's just like anything, there's both sides, and then the truth is in the middle somewhere. These sorts of contracts, they can be good and, just like anything else, some are better than others. There are some contracts that have really held up over the last decade, 12/15 years, that have been beneficial, even to the extent where insurance companies will offer incentives to the contract owners to essentially try to buy them out because the guarantees are good. Nick McDevitt: So essentially, what happens and just to use an example, let's say that you have a deposit of $200,000 into the contract and the insurance company is going to go ahead and offer a rider that has a guaranteed appreciation on that initial deposit. Usually, it's either a simple interest or a compound interest, so that's important to know. Because some companies might say, "Hey, we offer 7% growth on the rider," but it's simple and over time a 5% compound could beat that. So, it's important to understand how that works. Nick McDevitt: And then, at a certain point in time, they offer a guaranteed withdrawal amount off of that guaranteed appreciation amount. So just to use basic numbers and try to help people understand how it works, let's say you deposit that 200,000 and over a 10-year period, which is usually the maximum growth period of those riders, that goes ahead and it doubles over the 10 years. So the guaranteed appreciating amount on the rider goes to 400,000 and then maybe they guarantee you a 4% withdrawal rate on that. So, it's the 4% on the 400,000, so that'd be about 16,000 a year. Nick McDevitt: Normally, the way that those will work is that that 16,000 a year is guaranteed for your lifetime; so even if the underlying account balance goes to zero, the income is guaranteed for your lifetime. Some of them also will offer a guaranteed income for both lives, so if you are a married person, for you and your spouse. Nick McDevitt: So, where people will get a little bit confused is that they may assume that that 400,000 number is their money, is like the real money, and if they wanted to cash out in year 10 or 11, that they can actually cash out that 400,000 number, and that's usually not the case. Usually, it's the underlying value, which inevitably because of expenses and things like that is going to be lower. So in this situation, it could be something like 300,000, which is the actual... what we'll often call real money. So, just like anything else it's really important to... We really just emphasize and harp on the fact that it's important to know what you have; it's important to understand how it works; it's essential to know how it impacts your overall plan. Nick McDevitt: So with these contracts, we do think that they can be a fit in many people's plans, especially if maybe there's not a pension or something like that. So it's important to understand how they work; make sure that the guarantees that you thought are built into it; and make sure you understand how it factors into your plan. I would say, from the standpoint of pitfalls to avoid where we've seen people really get into trouble are if they put too much of their nest egg into it. We typically recommend a maximum of 20 to 25% of investible assets into something like this. If you're going to do it because of some of the negatives. John, if you want to jump in on just some of the negatives overall, so that people understand the things to look for? John Teixeira: Yeah. Devils are in the details on these things. You just need to understand your limitation to your money in some of this, where some negatives we've seen is where someone's doing their withdrawal benefit and they try to take extra money out, more than what the guaranteed amount that's on the contract, or what they're supposed to. It could really mess with how long the money's going to last at that point, or what your minimum pension benefit's going to be: your income withdrawal. So that's something to really understand. That's why Nick was saying, "You don't want to put too much into this because if you need access to money, this is not where you want to go." You almost want to set it up and if you're going to do the income withdrawal, just forget about it from a accessing standpoint, more than what your income withdrawal is. So, that's something to be aware of these. John Teixeira: Why these typically get a bad rap and Mark, I know you mentioned at the beginning, it's really the fees. When you put a income benefit on this, you can look at anywhere from 3 to 4% overall in fees. So there's a mortality expense fee, [Jim's 00:15:22] throwing out some averages, could be 0.95%. There's an admin fee, could be 0.2. The investment you're going into could range anywhere from 0.3 to 1%, and then the rider itself, which is that guarantee, can range from 0.5 to 1.4. John Teixeira: So you could see that when you start adding all that up, it really makes a big difference, or really adds up a big amount in the fees. Not saying that's necessarily bad; it's just important to understand what you're in and how it works for you. Nick McDevitt: Just to follow up on that, the fees are usually coming out of the performance, not out of the riders, so that's important to understand. And again, just like anything else, it's important to understand how things work and how it fits into your overall plan, and just get an analysis on it, and making sure that it's working how you expect it to. Marc Killian: Yeah, exactly. At the end of the day, we're doing a little session here on annuities, a couple of episodes on this, but like any financial vehicle, you want to make sure it's the right fit for you by working with an advisor. You can learn some information and certainly get a good working knowledge. Many folks do not want to understand the complete nuts and bolts, and that's why they turn to an advisor. But finding the right one for you and the right product for you is paramount really in anything that you do. Marc Killian: So, as always, before you take any action, you should check with a qualified professional like John and Nick at PFG Private Wealth. You can call them at (813) 286-7776; that's (813) 286-7776; before you take any action. If you've got some questions, you can also go to the website: pfgprivatewealth.com. Shoot them an email that way; contact them that way at pfgprivatewealth.com. Marc Killian: Don't forget to subscribe to the podcast. We'll be doing another episode on annuities here, coming out very soon. So, subscribe to the podcast on Apple, Google, Spotify, whatever platform you'd like and that way you get new episodes as they come out, as well as can check up on some past episodes. It's Retirement Planning Redefined. Search that in any of the boxes or any of the apps... excuse me... as you'd like to, whether it's Apple, which is probably on your phone already. Apple Podcasts or Google Podcasts, already pre-installed on your phone most of the time. Just open up those apps, type in Retirement Planning Redefined. You should be able to find it that way, and that's another way you can subscribe. Marc Killian: And that's going to do it for us this week here on the podcast around annuities. Again, we were talking about fixed as well as variable. If you've got questions, reach out to John and Nick: (813) 286-7776 for John, for Nick. I'm Mark. We'll see you next time here on the podcast.
24 minutes | Oct 29, 2020
Ep 27: Understanding Annuities - The Basics
There are a lot of strong opinions on annuities. Some people heavily advocate for them, while others claim they are a bad investment. Today John and Nick will break down the basics for us by discussing what an annuity is and some important terms to know.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: email@example.comFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Speaker 1: Hey everybody. Welcome into the podcast. Thanks for tuning into Retirement Planning Redefined with John and Nick from PFG Private Wealth. We appreciate your time as we're going to get into understanding annuities, we're going to do a series on annuities, several podcasts coming up but we're going to start out with the basics, annuity basics. So, stick around for that, we're going to get into that in just a second. But first, let me say hi to the guys. What's going on, Nick? How are you? Nick: Staying pretty good, just waiting for the weather to cool down a little bit here in Florida. We are ready for, I guess what we would consider our winter or fall one. Speaker 1: Do you get fall? Isn't it just summer, winter? Nick: I feel like when I first moved here, there was some fall back in '03, '04, '05. But the last few years, it feels like it's just kind of jumped from one to the other. But whatever it is, where it's not 90 plus and sticky out, I'm ready for it. Speaker 1: Right. Yeah. John, how you doing my friend? John: I'm good, I'm good. I'm with you. I was thinking we're just chatting about the weather and it's still 87 here and it feels like 92 and I'm ready for a low 80s and no more humidity. Speaker 1: There you go. Yeah, the humidity can be the bear, that's for sure. Well, good. I'm glad you guys are doing well since our last time chatting here on the podcast. So, we've got a lot to cover, we're going to try to keep this into our timeframe. We're trying to keep this into a digestible amount of time for folks here. So, let's jump in and start talking about annuities, understanding them and again, as I mentioned, we'll start with the basics. Speaker 1: It's just really important to understand them because they can offer some things to people, it can be a vehicle that some may find useful. There's risk reduction, retirement income, tax deferral, death benefits, so let's just get into some of this stuff. What is an annuity to kind of start off with guys? John: When you break it down, it's a contract with an insurance company. So, that's kind of the premise of it all and what that contract, typically, you're getting some type of guarantee and we'll dive into that a little later but it could be some type of a principal protection guarantee, income guarantee, death benefit guarantee. So, that's what you're looking for. And it's really important again, kind of going back to understanding it because it is a contract with an insurance company, so you need to understand all the details of it, just because it could come back to bite you. And we've seen that happen quite a few times as we're doing some reviews with clients. They just don't truly understand how it works because these are pretty complex vehicles and there's a lot of moving parts. John: So, it's just important to understand how, going back to the overall plan, how does the tool work with everything else? And then one thing that we, again, being a contract, the guarantees are based on the paying ability of the company that you're with. So, one of the things that we always kind of look at is what's the rating of the company you're going with because if you want to set the contract for some type of guarantee, you want to make sure that they're going to be around to actually give you that guarantee. Speaker 1: Right, yeah. Yeah. So, Bob's insurance is not necessarily the best idea, right? Nick: Yeah. And I will say one other thing that we like to preface this sort of conversation with and part of the reason that it is so confusing for people is that there are many different subsets or different types of annuities. And so, oftentimes people have heard the term annuity but they don't realize all of the different types and that their experience may pertain to one of 10 different types. So, as we get into the differences and kind of the nuances, we'll kind of joke sometimes in our classes that we almost wish that they were called different things. It's like saying, "Hey, should I buy a vehicle? Well, do you want a car? Do you want a truck? What are you trying to do? Is gas mileage important to you? Is off-roading important? What is it?" And that same sort of mentality is important when you are talking about it. Speaker 1: Well, you could think about that analogy Nick with and just leave it at cars because many people would just say, "I need to get a new car." Even when they're looking at like an SUV or something like that, they don't really refer to it that way. So yeah, that's a great way of thinking about that. And we will cover, we we'll get into, like I said, we're starting with the basics today but we'll get into some of the different types, their names, what they are, so on and so forth. So, John gave us kind of what the gist of it is. There's a couple of phases to think about, what are the phases? Nick: As we get into it and when we're talking about deferred annuities, there's essentially what's called an accumulation phase and a withdrawal phase. So for the accumulation phase, what that is referring to is, between the time that you initiate or deposit money into the annuity and between that starting point and then the period in time in which you start withdrawing money, it's called the accumulation phase. And that's important to know because there's different rules, which we'll sort of get into but that accumulation phase is important to understand because by itself, an annuity does provide tax-deferred accumulation or tax-deferred growth during that phase. Nick: So, if somebody says an example of that is the easiest way to compare it is, client has $100,000 in a money market account at the bank and they get to collect, when they get interest on that account, they get a 1099 at the end of the year, they pay taxes on the interest in the year that the interest is incurred. In the annuity, in its own chassis, it's going to provide tax-deferred growth, which means that that growth just compounds without having to pay any taxes on it until the point that you start taking it out. That's a pretty big deal and could be a really useful tool for higher income earners that are looking to put money in places that are more tax beneficial especially if we do enter into a higher tax bracket, phase, which we may in the next four to eight years. Nick: And then for the withdrawal phase, it is that money starts to come out. So, the first thing that people need to understand is that when you take that money out, if it's non-qualified or non-IRA money, there is going to be some form of taxation. It's going to be ordinary income, which means whatever tax bracket they're in, those withdrawals, as long as they're part of the gains that have happened in the contract, those earnings are going to come out first and they're going to be taxed at ordinary income. Nick: So, understanding how that works is kind of an initial importance. There is a term and a methodology of taking out money inside of an annuity via what's called annuitization. Again, this is one of those things where you wish that they would just come up with words that aren't confusing, annuity, annuitization, et cetera. So, annuity is basically like a noun, it's a type of account. Annuitization is an action essentially. Annuitization is when the company liquidates your lump sum of money and starts paying you in it whether it's a monthly or an annual payment. And one of the benefits of annuitization is that they can actually spread out your gains over a longer period of time and it can be a more tax-efficient way and can guarantee you payments over a certain period of time. Nick: And so, in one of the other future series, we're going to get into that process a little bit more. But the easiest way for people to think about it is kind of like a pension payment, a fixed amount of money that's going to be paid out over a certain period of time. And then, there are guaranteed withdrawals and we'll talk about that a little bit where you can kind of structure how you want to take out withdrawals. So, it is confusing, there's a lot of moving parts and it's a good example of why we're going to have in-depth series on this. Speaker 1: Yeah. That's a good example of why to work with an advisor as well to help you go through some of these things. And John, there's definitely caveats that go with it. There's things you'll want to know, some big bullet points if you will. Give us a few of those in the basics of an annuity. John: Yeah. Important again, any contract you go into important to understand what the rules are and these are things you want to consider. So, similar to an IRA where there's that 10% penalty if you withdraw before 15 and a half, annuity has the same scenario. So actually, this just came up with some advisors I was working with and we were doing some planning and the client needed money in a four-year period and really needed to, they wanted to make sure there was some guarantees to it. So, it was discussed of kind of an annuity to provide some type of principal guarantee. But by the time they would need the money, they would have only been 58. So, it was decided, "Hey, this isn't a good vehicle for you because you can't touch it 'til 59 and a half due to do that 10% penalty." John: So again, important when you're going into anything, just understand the rules because had they put that money into it and then in four years when they needed it, they wouldn't be able to access it penalty-free. So, just important to understand that one. Another one that we see a lot of people mistake or not understand how it works is the surrender period. Some of these contracts basically, when you give the money to the insurance company, there's a period of time where you actually can't get access to all your money full and clear. And this is separate from the 59 and a half but the surrender periods can be as short as three years. So, let's say you give your money to XYZ insurance company, they give you these guarantees and they tell you, "Okay, for a three-year period though, you can't get full access to your money. We're basically keeping it." John: So, it can be three years and we've seen as high as 16. And that's one of the things you really want to understand what you're getting into because unfortunately, we've seen some people where they've gotten to the 16-year period, is that they had no idea they we're getting into it and they have limited access to their funds. And we'll go through ... There is a piece of money you can get at but you just want to make sure how long has this contract going to be before you can get out of it. And with that is what we call the surrender charge. So, let's say your surrender period is seven years and in year five, you want to pull out money. Well, there's actually a descending surrender charge. So in year five, if you decide, "Hey, I can't do this anymore. I need to get access to my money," the insurance company might charge 4% of your principal for you to actually get out of the contract. John: So, an example of that would be seven-year contract. First year surrender charge could be 8%, second year would be 7% and so on. So, that's where you really want to understand exactly, "What's my surrender period? And if for whatever reason, I need to pull out of this contract early before the surrender period's up, how much am I going to get charged to do so?" Again, it's all about reading the fine details in the contract. Nick: And within that, many contracts have a 10% free withdrawal amount that will avoid you having to pay a penalty even that surrender charged during that surrender period but that can be confusing as well. And sometimes, that's used to oversell or kind of force people into not necessarily force, but convince people to put more money than they feel comfortable with into something like that. But many of them do allow for a 10% withdrawal each year. John: Yeah. So an example of that, so I'm glad you brought that up, Nick is, let's say you had $100,000 in an annuity and you're in year three. And you don't necessarily need to cancel the whole contract but you do need access to some funds, you could pull out. Typically we see a max, they allow up to 10%. We've seen some as low as 5%. But in a 10% scenario, you could pull out 10 grand in that year free and clear of any charges. So, that's important to understand exactly what's your free withdrawal amount. And then, one thing to understand is once the surrender period is up, so if you're in a seven-year contract, once that seven years is over, you can move your money wherever you want or you can keep it in the current contract. So, once a surrender period's up, it's 100% liquid at that point in time. Nick: And just one other thing on that surrender period, if somebody out there is evaluating them, a good question to ask is whether or not the surrender period is what's called rolling or not on rolling. So, what that means is that if it is a non-rolling surrender period and it's a seven-year contract like John explained or kind of detailed, the seven-year period starts when you first deposit the money and it never extends. So, you can make an additional deposit down the road, say in year five and that new deposit does not have its own seven-year surrender period, it only has two years left just like the rest of the money. Nick: So, that can be a really useful tool for somebody that's trying to sock away some money, make ongoing contributions to it but still maintain access to their money. Whereas a rolling surrender charge period, each deposit has its own seven-year surrender period which can get really squirly and hard to keep track of. So, that's an important thing to look out for. Speaker 1: And so, you mentioned some of those bullet points there, John, to think about, you mentioned guarantees and the insurance company and so on and so forth. Are there protections in there? A lot of times people wonder what kind of creditor protections are there? Nick: So, creditor protection tends to vary from state to state, which is actually a good kind of segue. So, one thing that people may notice, especially we're in Florida and we have a lot of people that live in different states, et cetera, or at least part of the time. Insurance companies are regulated state by state. So, even though XYZ insurance company may have contracts in 50 different states, the rules and benefits that they provide in each state can be different. So in Florida, and this is always something where you want to, before you make any major decisions, you want to check in with an attorney, especially in estate planning or asset protection attorney, somebody that really works in that space. Nick: But in the state of Florida, annuities fall into one of the categories that have a level of asset protection via loss, kind of joke that it's the OJ Simpson rule, why he became a resident here many years back after he was found liable in court for the murders back in the '90s were because the State of Florida provides asset protection on annuities for their residents. So, that is an area where we'll have people that are high income earners, maybe physicians, specialists in medicine, things like that, where they're very worried about asset protection, they may use annuities as a place to put money for growth but also provide them with a level of protection. Speaker 1: Okay. And does that apply to a probate things of that nature in some protections, wills, so on and so forth? Is that caveat also? Nick: So, probate typically is the process of essentially the court system, implementing the direction of a will or your estate and there's a fee for probate. So, because an annuity is considered an insurance contract, you can actually list the beneficiary in the insurance contract, which will allow that process after a death of the funds to transfer directly to your beneficiaries and avoid them having to go through probate to get those assets, which can be a savings of somewhere from three to 5% of the assets in there. And not only that, it keeps it private instead of a public process, which probate is, but it just is a much cleaner way to be able to leave assets by listing the beneficiaries in the insurance contract, which is the annuity in this case. Speaker 1: Okay. So, let's talk about some more basics here. We often hear the term riders, make sure you get something with a rider and this has that so on and so forth, different options. John, what's a rider? John: So, a rider's basically an additional piece to the contract that you can add, some type of guarantee or some type of benefit. And let me preface it by saying, most riders will have some type of cost associated to it. So, an example of a rider would be like a death benefit. You could put a death benefit rider on the contract where your initial principal payment, that's your guaranteed death benefit. So, if you were in a, we're talking about variable annuities, but if you're in a variable annuity and the market dropped, you put in 100,000 and the market dropped to 80 due to market fluctuation, your death benefit stays at 100 or there could be a rider where the death benefit could potentially increase each year by a guaranteed rate. John: Some other riders could be like a principal guarantee where you can't lose any of your initial purchase payment amount. And then, the most popular one that we see is a guaranteed income rider, where it will guarantee income throughout the life of the contract similar to, when Nick was talking about what the pension and we'll dive into this a little bit deeper on how this works in some of our future sessions, but when people are asking questions like, "Hey, what is this rider?" It's typically some type of benefit or guarantee within the contract. And there is more often than not some type of fee associated with it and it's important to understand how that fee works and then how the rider works on your contract if you like that type of benefit. Speaker 1: It kind of goes into the factor of, is it worth it or not for that purchase that you're making for what it is you're trying to accomplish, right? What you want that vehicle to do for you. John: Yeah and with the annuities, it really all comes down to the guarantees and if that's what you're looking for. Are you going to be guaranteed against some type of loss, guaranteed some type of income and is the cost of that guarantee worth it in the annuity contract? And for some people it's great, it really gives them peace of mind and for other people, they don't want to pay that extra fee or any type of cost on their money. Anything I missed there, Nick? Nick: No, I would just say the way that you want to view any sort of, really any sort of investment vehicle itself, but especially annuities are through the realm of yourself, your specific situation, your plan. Because there are so many different variations of annuities and there are lots of bad ones and there are a bunch of good ones. Oftentimes, where we see the biggest mistakes made are when people implement a strategy that was good for their friend, their neighbor, their brother, their sister, but not good for them. And so because of that, and because of that decision it's like, okay, these are bad," where instead it should have been, well hey, you used the wrong strategy, you used the wrong type, this wasn't something that made sense for you because X, Y and Z. Nick: So, when you kind of evaluate these sort of things and as you kind of listen through the upcoming sessions and we talk about the positives, the negatives, some of the features and the benefits, et cetera, you really want to look at it through the realm of yourself and your specific situation because your brother, your sister, your neighbor, your friend, they may have different tolerances for risks, for expenses, their income levels may be different, they may have a pension where you don't. So, every situation is different and I think that gets amplified by a significant amount when it comes to annuities and it's part of the reason why they're so often misunderstood. Speaker 1: Well, and like any financial vehicle you already said that you want to make sure what's the right fit for you. There's so many vehicles out there, so many different financial products, there's pros and cons to everything. And so, it's finding the right balance, the right fit for you. Well, we're going to wrap this up here in just a second. So, you mentioned, actually John mentioned variables, there's basically three types. So, what are the three types we will be covering on the future conversations? John: Yeah. So, we're going to jump into fixed annuities and breaking down those and the pros and cons of variable annuities and then also fixed index annuities. We're really going to try to do a good job of giving people details so they have the education and the knowledge to have good conversations, whether with their advisor or for themselves to really figure out if it's the best decision for them. Speaker 1: Makes sense. And so, we'll finish it off by saying, make sure you subscribe to the podcast if you haven't done so yet, they'll also send this out for those folks if you're getting that already. You can do a couple of things. You can either just go to the website, pfgprivatewealth.com, that is pfgprivatewealth.com or you can type in retirement planning redefined on whatever app you're using like Apple or Google or Spotify. You can find it on all the most popular apps as well, just type in retirement planning redefined in the search box and you should have that pop up and you can subscribe to it that way. Speaker 1: If you've got questions or before you take action, you should always call a qualified professional like John or Nick at PFG Private Wealth. They are financial advisors here in the Tampa Bay area. So, give them a call at (813) 286-7776, it's (813) 286-7776. And we'll also address guys that we'll find a little bit here, it's just a bias. You kind of alluded to it. People, they hear things and it's like, "Oh, I don't even want to talk about them because I know they're all bad." So, we'll also discuss a bit of the biases for them and against them. John: Yeah. So, with the biases, we find a lot of people based on stuff they read and articles and things they've listened to, they really come in with a bias, whether for them or against them. And one of the things that we like to just say is say, "You have an open mind and just learn about it and figure out if it works for your plan because if you're reading an article and it's telling you that annuities are bad, all the stuff," and I'll say like, "Fisher Investments, they're really dog annuities," but when you look at it, what they do is asset management. So, their primary focus is getting money, going into stocks, bonds, mutual funds, things like that. So, they're not really offering annuity so they're basically, they're going to be against them. John: And vice versa, we've seen some advisors that aren't actually licensed but they have an insurance license and all they can offer is an annuity. And guess what's the greatest thing out there? It's an annuity for you because they can't do anything else. So, whatever you're reading, you got to kind of look at it from a perspective of, "Is this person open-minded to it?" And that's where Nick said it's really important to look at the tool, the annuity, the pros and cons to it and does that fit with your plan and what your goals are? Speaker 1: Well, that's a great way to end the podcast this week. Thanks so much for your time here with John and Nick as we were talking about understanding annuities on the podcast. This has been Retirement Planning Redefined. We appreciate your time. Make sure you hit that subscribe button on whatever app you use or reach out to John and Nick at pfgprivatewealth.com and we'll see you next time.
16 minutes | Sep 16, 2020
Ep 26: How To Process A Rollover
Last episode we talked about the different items to take into account if you are thinking about doing a rollover. John and Nick will discuss how to actually process a rollover and some common mistakes to avoid.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: firstname.lastname@example.orgFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Marc: Thanks for tuning in to Retirement Planning Redefined with John and Nick from PFG Private Wealth. We appreciate you tuning back into the podcast. We're following up with our prior session on rollovers, if it's right for you, having the conversation and this session is going to be a little bit more about how to kind of go through that. Some of the differences, some of the biggest mistakes sometimes that people might get themselves into when attempting to do this. So we're going to dive in and get started. We're just going to just hop right in. Marc: Nick, differences between rollovers and transfers. Let's just start there, kind of break it down a little bit for us. Nick: Yeah, I would say, the reality is, is that this space from the standpoint or the perspective of the process of taking your money from one place in a retirement account and putting it into another place in a retirement account, the jargon or the terminology gets intermingled quite a bit. And some of those terms that get intermingled are rollovers and transfers, and we'll talk about it a little bit more, but from the perspective of a direct rollover versus the 60 day rollover. Nick: Just to kind of back up a quick second, when we are discussing or having this conversation we kind of preface it from the standpoint of the money that we're talking about is money that is held in a retirement plan of either a former employer, so maybe it's 401(k) or 403(b), and you are looking to move that money elsewhere. Nick: Your options are typically you can take that money and you can do a direct rollover into either traditional individually held of IRA. Or if the funds are Roth funds, you can move it into a individually held Roth IRA. Or if you are employed with a new employer and you are eligible, you have to check with them, you may be able to move the money into the new plan at work and do it that way. Nick: When you are doing that, usually when you are executing kind of this process, it either has to be done via a form, or via a phone call. Some places require a form and we've seen a lot of people make mistakes on completing the form correctly, so oftentimes we'll help clients with it. And then if it's a phone call, the issue is that you're dealing with somebody and I will say the level of service probably over the last few years at companies has gotten better, but we still see a lot of mistakes. Nick: Oftentimes you are working with somebody that's working in a call center and although it is their job, mistakes happen. When you are kind of doing this process, understanding that the terminology of executing a rollover is when you are moving that money from that retirement account into an IRA or a new plan. A transfer is when you have an existing account that is an IRA or a Roth IRA, and you are moving it from one custodian to another custodian. Nick: I'll use an example just to try to make it a little bit more easily understandable. A direct rollover example is, okay, Mrs. Client, she just got done working at her company and their 401(k) was held at Fidelity. And now Mrs. Client would like to move the money from Fidelity into the IRA that she opened up at Vanguard. She's able to call up and get the process going of processing that roll over from Fidelity, the 401(k) to the IRA at Vanguard. A transfer is you already have an IRA or somebody already has an IRA. We can say at T. Rowe Price and they have a new IRA, they no longer like T. Rowe Price, they have a new IRA at Fidelity, and they want to move that money from T. Rowe Price to Fidelity. That is a custodian to custodian transfer. And the reason that we mentioned that is because there are some limitations on what are technically rollovers. Nick: John, can you give a little bit of an example of exactly what a 60 day roll over it? John: Yeah. There actually kind of two ways to do it where if it's coming from a plan. Let's say if it's coming to you directly. So John Teixeira gets a check from the plan, I have 60 days to put that into my IRA. Or if let's say I have money in my IRA, and for whatever reason, I might need the funds and I pull it out, I have 60 days to put it back into the plan, and that would be a kind of a 60 day rollover period. John: Important if you are processing it that way, definitely keep good records. You want to keep the records of when the money was distributed when you received it, and then when you deposit it, because if you ever were audited, you have to prove that the money went back in within 60 days or else everything is taxable. Nick: And the issue with that 60 day rollover and what kind of give an example of kind of one of the most common ways that we'll see it as a mistake is that you are only eligible to execute I believe it's one of those per calendar year. Is that correct, John? John: Yeah, that is correct. Nick: So if somebody is making a mistake or even doing it on purpose, if they by mistake execute more than one of those in a year, there's some pretty significant penalties that are involved in that, and that's really something that you want to avoid. What we always like to see is the money moving directly from one custodian to the other custodian. And when that happens, the check is made payable from the old custodian to the new custodian. And we'll kind of talk about that in a little bit more detail, but I wanted to give a kind of a quick example of where we see this mistake happen the most often. Nick: The reality is that the majority of the people that are listening to this with how things are set up currently, they may not run into this too often, but where we have seen this issue come up quite a bit is if they are helping their parents with finances. Maybe their parents are in their 70s or 80s. And oftentimes that age demographic loves CDs and they love chasing rates at banks. And there will be confusion from the standpoint of, hey mom has a CD at BB&T Bank, and the CD is actually inside of an IRA. And she goes into the branch to move the CD from BB&T bank over to Bank of America because Bank of America is offering an extra 0.2%. And so she's working with the teller at the bank and she says, "Hey, I want to take out my money because I'm moving it to another bank." Nick: What we've seen happen is that teller will sometimes have that check made payable to the client, to mom, in her name. And at that point it's considered that starts at 60 day window. The reality is that we want that check made payable to the new institution for the benefit of mom. This is where we've seen issues kind of pop up and arise where mom might try to do this a couple of times a year. Now she has done more than one 60 day rollover in a year because it was done incorrectly. It wasn't necessarily her fault and it just creates this total kind of quagmire and tax nightmare. Nick: We always like to kind of bring that up to make sure that people understand that that's an issue. And again, because the terminology is oftentimes intermingled and not done correctly, having that done the proper way is really important. I know John does a good job of explaining the best way that people can make sure that they execute that properly. John: Thank you, Nick. I do a very good job at explaining that, actually. So I appreciate that. So yeah, just kind of walk you through the process of doing a direct rollover. First step is contacting the investment provider for the retirement plan and you need to determine, can they do this over the phone or is it a form as Nick mentioned earlier? Let's just assume it's over the phone and you're putting your money into, let's say TD Ameritrade. TD Ameritrade is the custodian, they're the ones holding the funds. They're like a Fidelity or Vanguard. So you want to make sure that check is made payable to the custodian, and that way you're not the one getting the receipt of the funds, it's the custodian, and that's the main reason why it doesn't kind of execute that 60 day rollover kind of window. John: It's a direct transfer to the custodian and the checks going to be written out to in this example, TD Ameritrade for benefit of you. So if I'm doing it, it's going to be check's going to be made out to the TD Ameritrade for Benefit of John Teixeria. Now, once you receive that check, we were going to say it now, do not sign the check, because it's actually not written out to you, it's written out to the custodian. We do have some people that will say, "Do I sign it?" Or, "I signed it. What do I do?" Don't sign it. There's no need to. John: Once you receive the check, the next step is now it needs to get deposited into your IRA. And if you're working with an advisor, typically you pass it off to him or her. And if you're just working directly with an investment company, you're going to want to go ahead and get it to the investment company and have them deposit into the IRA for you. If you are mailing checks, just some people like to be cautious and kind of make sure it has some type of a tracking number which is something you can request from the retirement provider, not necessarily, but some people just prefer that so they can kind of keep track of where it's at. Marc: Okay. So obviously there's a lot that can go into this and there's mistakes that are going to happen as you just alluded to. So what are some things to maybe avoid, just kind of some simple things to check off for folks? Nick: I would say the first one and we talk about this whole process in the class that we teach. And I have a slide that I bring up and it's a huge picture of a train fire. The biggest mistake to avoid again, is to do a lump sum distribution when the money's paid directly to you. That is the number one. And I know we've kind of harped on it quite a bit, but it can be confusing because especially on some of the forms that companies use. They say, "Hey, I want to take all my money out, because I'm going to move it to this new place. So that's a lump sum distribution, right?" Nick: Well, depending upon where it is, that might mean that that money is coming directly to you, which it enters you into that 60 day window, which is what we want to avoid. Making sure that you do a direct rollover versus a lump sum distribution is really important. That's probably the number one mistake. John: Yeah, and if we see the lump sum, what the 401(k) or whatever, 403(b) provider will have to automatically do. If I were to receive the money directly to me, they would have to withhold 20% automatically. 20% is going to uncle Sam, so that could create an issue if you're trying to get all your money back into another IRA within 60 days. Marc: Well you mentioned 401(k), and then you said another. I would assume that this is kind of the same for several of those alphabet soups, right? Whether it's a 403(b) or TSP, is that same kind of process in general? John: Yes. Yeah. Marc: Okay. John: I mean, yeah, exactly. Employer retirement plans, it's- Marc: Gotcha, okay. Because sometimes people- John: ... across the board. Marc: ... get confused by that, right. They'll think, "Oh, well I don't have a 401(k). I have a 403(b) or whatever." John: Yeah, 401(k), 403(b), 457- Marc: Right. John: [crosstalk 00:11:41] plans. Marc: Right. Yeah. John: All of them. Marc: All of them. Yeah, the whole alphabet soup. Exactly. John: Yeah. Marc: Nick, any other mistakes to avoid anything too that we might've missed as we're kind of winding down here? Nick: I know it's come up a couple of times, but sometimes people will worry about timing. From the perspective of there's... As an example, the last five months really kind of post-Corona market drops, et cetera, et cetera. And people will say, "Hey I've lost a bunch of money in my account, is now the time to move it? Should I wait for it to bounce back?" And the reality is that you want to take a broader perspective and look at it from the standpoint of that you're moving it from market to market. So the goal is to do it as quickly as possible, but the perspective of, hey, should I let this bounce back before I move it? Isn't necessarily always valid because as long as you're in a similar allocation and maybe even a better allocation with a higher level of management, the reality is, is your bounce back could be quicker and/or better potentially by making a change the sooner the better. It all depends, but that's usually a pretty low priority variable in the whole conversation is time. Marc: Okay. All right. Well, there you go, folks. So as always, there could be some moving parts here, it's not always very too complicated, I suppose, maybe is a good word, but it can be, especially if you're not focusing. The best way to do it is to avoid some of those mistakes by reaching out and talking with a qualified professional before you take any action, getting some helpful tips, getting some advice, whatever the case might be. But before you take action, reach out to someone who does this on the regular. So call John, call Nick, give them a jingle at (813) 286-7776, that's (813) 286-7776. When you're talking about doing a rollover and if it's right for you, there's just a lot of questions that they can help you walk through and get you some advice going in the right direction. Also, stop by the website at pfgprivatewealth.com, that is pfgprivatewealth.com. Marc: While you're there, subscribe to the podcast, Retirement Planning Redefined, you can find them on Apple, Google, Spotify, whatever platform you choose. So there you go, that's going to do it for the series here on rollovers guys. Thanks for your time as always. I appreciate it. Obviously, there's so much that goes on in the financial world. It's good to just do these since you're not doing classes right now, doing a lot of things online or podcasts. It's good to go through and kind of get this information out for folks. Nick: Thanks, Marc. John: Thank you. Marc: Appreciate your time. We'll talk to you next time here on Retirement Planning Redefined with John and Nick of PFG Private Wealth, and we'll see you next time.
17 minutes | Aug 21, 2020
Ep 25: Is A Rollover Right For You?
Company retirement plans can be expensive and many people are considering to rollover their account. But what considerations should be thought about before you take any action? Today John and Nick discuss the fee structures, investment options, and a few more factors when deciding if a rollover is right for you.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: email@example.comFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Marc Killian: Hey, welcome into the podcast folks. Thanks for tuning in here as we talk about retirement planning redefined with John and Nick from PFG Private Wealth. What's going on, guys? How you been, Nick? What's up buddy? Nick: Doing pretty well, doing pretty well. Just kind of getting settled back in over the last couple of weeks. With the lockdown going on as long as it's been going on, I decided to take a little bit of a road trip. So I drove up north and stayed up north for about six weeks total. Marc Killian: Oh, wow. Nick: Yeah. So it was pretty cool. The virus situation in my hometown is a little bit better, which is Rochester, New York. Once we knew that we weren't going to be meeting face to face with any clients here anytime soon as the numbers got worse here locally, I decided I needed to take care of my cabin fever and get out of Dodge a little bit. Nick: So I drove up, made some stops. Stopped in Savannah and Pittsburgh on the way up, and then outside of Philadelphia and DC on the way down. Stayed with friends and family and had a good time. It was good to get away. Marc Killian: You couldn't get any more diverse than saying Savannah and Pittsburgh in the same sentence. Nick: Yes, yes, definitely. But I'll tell you what, I was pretty impressed with Pittsburgh. Marc Killian: Oh no, it's actually a nice town. They've made a lot of changes. I used to live not far from there, back in the late 70s, early 80s. I was just a kid, but yeah, I've definitely made a lot of changes. Nick: Yeah. Yeah, it was my first time there so I'll be back. Marc Killian: Very cool. Well, nice extended holiday. John, what about you buddy? I know you got the little one there. Did you do anything with the little baby? John: Yeah, so we normally, the last couple of years, we've gone up to Pigeon Forge, Gatlinburg area and rented a house there. But this time, after that last drive with a seven month old for 11 hours, I decided I didn't want to do that again until she was facing front because she doesn't like being in a car. We decided to change and go to Sanibel Island here in Florida. John: So that was nice, actually. I'm not normally a like sit around the beach type person, but we had nothing to do. So it was about a week of just nothing to do where normally on vacation I'm either going up to Boston where I'm from and I'm seeing a bunch of people and doing all this other stuff, or going to Pigeon Forge and just trying to do as much as we can within a week period. But this time it was actually pretty relaxing where we'd wake up and we wouldn't figure out our day until about 10, 11:00. It was a change of pace for me, so it was actually pretty nice. Marc Killian: Very cool, yeah. Well, we're going to talk today about rollovers. Actually, we're going to do a two part series on rollovers and things to know and think about. But I want to ask you real fast, this kind of bit of an extended vacation, did she put the phone down a little bit? Because I got to say for my wife and I, when we can put the digital leash away for a little bit, you just feel so better. Did you get a chance to do that at all? John: I did at Sanibel and it wasn't because I wanted to, I was kind of forced to with the service. Where we were at, the service where we stayed, it wasn't the best. So it kind of forced us to do that, and the wifi was terrible. So, it was nice. Marc Killian: But you wound up saying that you really had actually a great time. I think your words were, "Yeah, I actually really enjoyed it." So that might've been part of it, having that digital lease put away. What about you, Nick? Did you put it down? Nick: So, the first week that I got up to Rochester, I kind of used that as a vacation time and I was a little bit more unplugged. It was really the week of the fourth so it was pretty easy. But then the rest of the time I was still working. It was just that working remote up north versus down here. Marc Killian: That's okay. Nick: Summertime's always a little bit slower, so I would take my time in the morning to knock stuff out and definitely used it less than I normally do, which is normally like a 24/7 schedule. So it was good. Marc Killian: I mean, even a week. So that's my public service announcement to our podcast listeners is even if you can give yourself just a few days from time to time just to put that digital leash away, it does wonders for how you feel. Sometimes we just have to kind of set it down and step away from it. But anyway, I'm glad you guys had a good time. Good, safe, little bit of a holiday break there. Marc Killian: So let's get back to work and let's talk about rollovers. As I mentioned a few minutes ago, we're going to do a two part-er here on some things to know. Deciding on a rollover for your retirement funds, if it's the right thing for you. That's pretty much the first step, right John? Determining if it's in your best interest. John: Yeah. And that will happen. We're getting a lot of questions right now. "Hey, I have a 401k plan at a previous employer or a job change," and the question is, "Should I roll it out and what's the process?" Which next week, Nick will go into details on what the process is. John: There's definitely some factors that you need to kind of go through. I'll say one of the main ones is the investment options in your current plan. So, we work with a lot of different people and we've seen some plans where it's really limited as far as what you can go into. They might only have 15 different options and the selections really aren't that good. We've also seen some other plans where there's 20 or 30 options and there are some good tools within the platform to use. John: So to me, that's the first step is really evaluating, what am I options within this 401k plan or retirement plan at work? And is it enough for me to be efficient and actually build a quality portfolio? Especially in this kind of volatile time period that we're in. Nick: If I were to jump on that a little bit from the perspective of not a lot of people realize that really the size of the plan that they are in is the determining factor for what the fee structure is in the funds that they use. So, sometimes they can be in a fund that costs much more inside of the plan than it would even outside of the plan. So there's a lot of different variables to take into consideration on that investment selection process. Marc Killian: Well, are they limited more so in those types of plans? When you're talking about that, you mentioned the investment options. A lot of times, I do think people feel that they are a bit more limited, and I know advisors think that. Is that how you see it as well? John: Yeah, you're limited to what they are for you, and then also some plans actually limit how many exchanges you can do per year. I'd say nowadays, that might be rare, but it's still out there. So that's something you want to look into where if you're thinking about rolling it over, let's say you go into just an individual retirement account, IRA, really have unlimited investment choices. It's kind of an open architecture platform and there's no limitations and you can almost invest in anything you want to. When you have that open architecture plan, that's where you can really be creative and efficient on your portfolio and making sure that you have the right choices to weather some volatile markets. Marc Killian: Yeah. Well, Nick, you mentioned fees. So let's dive into that a little bit because often that becomes the case for people. When you get down to all the different nuts and bolts, it's the fees that they tend to be most interested in. Nick: Yeah. I mean, we find on a pretty consistent basis that when we tally up the aggregate fee that they're paying inside of the 401k plan and we compare it to what we can do outside of the plan, especially with how prevalent exchange traded funds are these days and with how much lower the costs are, that oftentimes, even if we combine the expenses on the underlying holdings in the portfolios that we manage and add in our investment management fee, they're coming in either equal or under what they were paying fees before. The fees are now more transparent than they were before because oftentimes, as many have come to find out over the years, they don't really understand what fees they're paying in their 401k plans. So many times we're able to reduce the fee and then add on a much higher level of management, as well as roll in additional services like the planning services, et cetera, et cetera. So, quite often you can get a lot more for the money. John: And to go with that, a lot of people don't realize within a 401K plan, there's a lot that goes into it. I mean, there's the advisor that's on the plans getting compensated. There's typically a third party administrator, which basically helps out with the construction of the plan and the filings and stuff like that that gets compensated. The fund company are using. So that's why we see, just to reference what Nick said, the fees can add up in there as important to understand what type of plan you have and what your fees are. Marc Killian: Yeah, definitely. And is this consolidation of accounts, can that help kind of bring all that into, I guess, better focus? Nick: I would say absolutely. So there's a couple of things that I've seen pretty much on a consistent basis from the standpoint of experience working with clients are that number one, obviously, when you consolidate it's a little bit easier to have a good grasp on what your overall allocation is from the underlying investments. Nick: But quite frankly, what I would say is the bigger benefit is that when people have their accounts scattered in multiple places, they tend to just be more anxious about their overall situation in general. They feel like they don't necessarily have a good grip on what they have and what's going on. They don't have a full understanding of what their overall strategy is. There's usually not a plan in place, which is a big indicator of anxiousness and anxiety when it comes to the whole retirement planning conversation. Really what that ends up then leading to are just poor decisions. So, non-coordinated decisions, maybe making a rash decision when we were going through what we were going through a few months ago when the market initially dropped. Nick: So it's really kind of a trickle down, snowball effect where consolidating accounts, building a plan, having a concise roadmap for where you're trying to go with how your investments are managed and making sure that they correlate to your overall plan really helps with your decision making process and peace of mind. Marc Killian: If people want to have someone do this for them, they want to kind of delegate that out, what's some steps to think about? What's some stuff they should be working towards? Things of that nature. John: Yeah, so all the factors we've already gone through is part of that and what we find that when people are near retirement or in retirement, they really don't want to do it themselves anymore or have to check on it on the 401K platform. So what they're looking for is to work with an advisor and have them do it for them in retirement so they don't have to worry about it. It's just kind of something else where it's off their to do list and it provides some peace of mind. John: So we've seen a lot of that where clients and prospects are... No one's monitoring this for me and I definitely need some help and I don't want to do it so I need to hire someone. So that's another reason to consider rolling it out. Marc Killian: For a lot of people. I talk to guys all across the country, guys and gals, and it seems like the level of service sometimes from the providers or from the companies gets pretty frustrating. I mean, even prior to COVID, same kind of thing, right? You feel as though you got to go through this process and it's automated a lot of times, or you're just not getting the answers you want. Nick: Yeah. I would say, because the reality is that inside when the funds are inside of your 401k, it's still your responsibility and your obligation as the account holder to make any investments, decisions and changes. From the standpoint of needing or requiring any sort of guidance, if you're calling a 1-800 number and you're talking to people in a call center, oftentimes those people don't have a good grasp and understanding of your overall situation. If you have gotten to that point where you're looking to make those sorts of changes, you're probably under some sort of stress or duress and having guidance and having somebody that understands what you have going on is a pretty big deal. Nick: We saw that quite evident during the end of quarter one when the market was tanking with COVID and just being able to have conversations with clients, them knowing that, hey, we understand their situation and what's going on, we understand the longterm planning. And them knowing that, as part of our services and when we're managing assets for them, the changes that we make inside of a portfolio are proactive. We're going to automatically make those changes for all of our clients at once versus on a one-to-one, or one off basis, makes for a much more efficient process and a lot more peace of mind. Nick: So it's a much higher level of service. I mean, sometimes we refer to it as, if you use a sports analogy, going from the minor leagues to the major leagues where it's just a whole different service level and engagement level, which we think is really, really important, especially as people get closer to or are in retirement. John: Some other things to consider are, we have seen some people get aggravated with the 401k plan moving to a different company where all of a sudden it might've been Vanguard and they're changing to Fidelity and that requires blackout periods and stuff like that. Some people just don't enjoy that process because now it's time to really keep track of it. John: Or if you move, it's your responsibility to tell basically the human resource where you moved to so they could start sending all the notifications to you. So there's just kind of just some inconveniences with keeping the money yet a retirement plan that you may or may not be aware of. John: I've actually seen one plan where they got audited and no one could touch the funds for a couple of months because they were doing an audit investigation of the plan itself. So it's your money, but at the same time they were auditing so some people's funds were frozen. They weren't happy campers for that month period. Marc Killian: I bet not. That definitely can be a pretty frustrating situation. So hopefully that'll help you out a little bit here, folks on the first part of our series on deciding on rollovers, if it's the right for your retirement funds. Nick, anything you want to add before we sign off for this week? I know we're going to talk more about some things next week. Nick: No, I think this was a good overview and I think the reality is that, in our session next week, we'll get into the details a little bit more of how you actually process these and the things to look out for and that sort of thing. Marc Killian: Fantastic. All right. Well, I'll tell you what, for that we're going to sign off then. So if you've got questions or concerns, again, about doing a rollover or if it's right for you, reach out to John and Nick, give them a call at (813) 286-7776. That's (813) 286-7776, or go to PFGprivatewealth.com. That's PFGprivatewealth.com. Marc Killian: While you're there, subscribe to the podcast, click on the podcast page. You can check out past episodes, you can listen to future episodes. You can subscribe to them on various apps that are out there. Or if you're using Apple, let's say, just type in retirement planning redefined in the search box and you can also just like it that way. So lots of different ways you can find us, and we certainly appreciate it. We'll see you next time here on Retirement Planning Redefined. For John and Nick, I'm your host Marc Killian. We'll talk to you next time.
19 minutes | Jul 9, 2020
Ep 24: Importance Of Risk Management & Asset Protection
When it comes to retirement planning, many people focus on filling in an income gap, or making sure they will have enough money to get them through retirement. While this is fundamental to the plan, it's important to make sure your assets are protected. John and Nick will explain what investment vehicles have some sort of protection and will also give a hypothetical example.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: firstname.lastname@example.orgFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Speaker 1: Hey, everybody. Welcome in to Retirement Planning - Redefined with John and Nick of PFG Private Wealth, serving the Tampa Bay area. Thanks for tuning into the podcast. As we talk investing, finance and retirement, and we're going to jump in and get started with the conversation. Guys, I hope you're doing well. We were kind of laughing right before we started the session recording here that John's been doing some swim lessons with his kids and it's been going really well. And I wanted to make the joke that Nick, you finally learned how to swim. Nick: Yeah, no, all joking aside, I can swim and swim well, but besides that- John: You're welcome, Nick. We've been doing some Zoom swim lessons [crosstalk 00:00:41]. Speaker 1: Zoom tutorials on swimming. Nick: Yeah. I get in the bathtub with goggles and see what happens. But no, I've been doing well. Things are starting to slowly get back to normal from the standpoint of, I want to say last week I went out to dinner for the first time at a restaurant outside in a few months, so that was pretty cool. So things are slowly starting to get back to normal, although it's going to be interesting is some of the numbers seem to spike here, how things will adapt over time, but no complaints, no complaints here. Speaker 1: Yeah, it will be interesting to see as this cluster bang of a year continues to wobble on. So we're about halfway through 2020 at this point. So we've still got a lot to go, so we'll see how it shakes out. But that's good. Glad to hear that there's some good positive spots here and there. So let's jump into our topic. So let's review the importance of risk management and asset protection. Let's just start with a basic overview, Nick. Nick: Yeah. So for those that are listening that have been through our class that we hold at the local colleges, this will sound a little bit familiar, but we've had a couple of things pop up with clients and questions from friends and things like that. So we thought it would be a good topic to re-review where oftentimes people get focused on the fun or more exciting aspects of planning, which may be investments or talking about retirement and those sorts of things, but really risk management is a super important part of overall planning because really the objective is to increase your probability for success by reducing your risk. And then ultimately, overall the goal by doing that is to do it while keeping your costs down. So when we go through the planning process with clients, we do review their property and casualty insurance. We're looking for how their accounts are titled. We're looking and analyzing things from the standpoint of, "Are we making sure that things are protected?" Nick: So we always like to make sure that people do realize, because it isn't necessarily something that is top of mind and oftentimes, when you talk to people, the reality is that when they're shopping out their homeowners insurance, their car insurance, they end up having been with the company for a long period of time. Usually it's price dependent. So we've seen where people made a change to cut costs, six, seven, eight, nine, 10 years ago and now they're in a completely different financial situation and they haven't made adjustments to correlate to that from a risk management standpoint. So we just kind of want to walk some people through that. Nick: So one of the first things that we review and talk about and help people to understand are that, there are certain assets that are creditor or protected in the state of Florida. This is something, again, we're not attorneys, we're not property and casualty agents, but these are topics that we review. And this is one of the perfect examples of something there where we can provide feedback, give you help, provide you with questions to ask and then help connect you with or you connect with an existing relationship that you have with a property and casualty agent, with an attorney if there are legal documents that need to be involved, that sort of thing. But in the state of Florida, it's important and many people know that you can declare your primary residence as your homestead. Nick: And there are a lot of protections built into declaring your home a homestead. So many people just focus on the tax benefits and that's one thing, but really it provides a creditor protection and asset protection for your home. So that's a big deal. If you own non-qualified annuities and/or have life insurance that has a cash value component to it, those are protected in the state of Florida. Qualified accounts, so in other words, 401k, IRA accounts, those accounts are protected in the state of Florida. One kind of caveat to that where we'll have some people say, "Well, hey, I'm 60, 70 years old and I've got these accounts and my home, why do I need any sort of additional protection?" And one of the things that we like to remind people are that those qualified accounts, you do have to start taking money out at a certain point. And at the time that they go from qualified to non-qualified that becomes something that could be available. Nick: From the aspect of different types of trusts, there are certain types of trusts that can be set up to provide protection for assets that's absolutely 100% in the realm of working with an attorney. John's going to talk about one of the misconceptions that a lot of people have when it comes to trusts. And just a basic thing that is important for people to consider, let's say you own a business and you are not structured as an LLC, you could be putting yourself a little bit of risk from that standpoint. Speaker 1: Yeah. Certainly there's a lot of pieces in there. So again, homestead, annuities, qualified accounts, LLC, certain trusts, some of these things are the protected assets or at least in Florida. John, what are some of the non protected? John: Yeah. So some of the non-protected assets would be cash accounts or your bank accounts, things like that, CDs, non-qualified investment accounts. Someone might have a brokerage account that they're just putting money into monthly, or just maybe just put a lump sum in there. Just understand that just because your retirement accounts are invested and you have investments there and they're [inaudible 00:06:27] protected. If it's in a nonqualified account with investments, it's not protected. John: One other thing with the qualified accounts is to understand that there are limits to what is actually protected. So actually an ERISA plan, which is a 401k, 403(b) type plan, it's typically fully protected, no matter what the amount is and IRA, and this does go up, it used to be a million, and I believe right now it's about 1.3 million if an IRA is actually credit protected. John: And then a recent rule change in the past few years, inherited IRAs are no longer credit are protected. So it's important to understand that if you inherit an IRA from somebody, it is not credit protected at all. Something that will come up, Nick mentioned with the homestead where your primary home is credit protected, any secondary home you have is not. So that's a misconception we see sometimes if you have a rental property, or let's say your, like a second vacation home, it's not credit protected. And then with the businesses, if you're a sole proprietor and you never develop any type of LLC, so example I have a [inaudible 00:07:32], but I'm not LLC, that is not creditor protected. So that's why it's important to, if you're working with an attorney, you want to ask these questions, "Hey, should I create an LLC with the business?" And you definitely want to have them help you draft the documents so they're done correctly. John: One of the biggest questions we get when we're doing planning and part of the planning is we look at the estate side of it. We don't draft any documents, but we are knowledgeable enough to have people ask the right questions and point them in the right direction. But it's with trusts. A lot of people feel like, "Hey, if I set up a trust, does that protect my assets?" And if it's a revocable trust, the answer's no. So a revocable trust basically just get to the meat of it. You still have control of that trust. So you either are owner of it, or you make decisions of it. And basically with that, it's still considered part of your estate [crosstalk 00:08:22] and for that reason it's not credit protected. Nick: Yeah. And just for further emphasis on those protections kind of tend to kick in after you pass and the trust stays, but while you're alive, it's includable in your estate and it doesn't provide those protections. And one other caveat or thing to consider think about are for those non-qualified accounts, non-qualified investment accounts or non IRA, if you hold them jointly in the state of Florida using Tenancy by the entirety for those types of accounts, if you hold it with a spouse, so it has to be with a spouse to use that, that does provide some additional level of protection. Although it's not the same as like a retirement account per se. John: Definitely, as you can tell, it gets confusing. So you definitely want to ask the right questions if you're wanting to know what is and what isn't and just asks the right people and adviser will know enough, and attorney would defini
12 minutes | Jul 7, 2020
Ep 23 : Should You Be Thinking About Refinancing?
With rates being at historic lows, a lot of clients have been asking questions about refinancing. So this week we answer the biggest questions people have.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: email@example.comFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Marc: Hey everybody. Welcome in to this edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. And we're here today to talk about investing, finance, and retirement. And we're going to talk about refinancing actually a little bit here on this first podcast. Guys, what's going on? Nick, how are you, buddy? Nick: Doing pretty good. We're staying busy. Today we're in the little bit of a midst of a market pullback, so today's been an interesting day. But besides that pretty good. Marc: Good, good. Yeah, it's been a little all over the map the last week or so the market has been for sure. So John, how are you, my friend? John: I'm good. I'm good, I'm actually just started coming back in the office this week. So it's been nice to say the least, although I miss seeing my kids 24/7, it's nice to have a little break from screaming madness. It's a good change. Marc: Yeah. A little mental break from time to time is certainly a good thing. Well, I mentioned we were going to talk about refinancing. So a lot of people have been sending questions in that they are thinking about it with the rates being what they are. So let's dive in and talk about it. Why refinance? John: Yeah. So over the last month, Nick and I have got a lot of requests of just really helping clients as far as just analyze, "Hey, you know, the rates are dropping, and is it now a good time to refinance?" And, full disclosure, we're not mortgage brokers. We're not in that industry, but we're familiar with our clients' situations. So we're able to at least help them navigate and ask the right questions in this situation. So we've definitely seen an uptick over the last month. So we figured this would be a good time to kind of discuss it. John: So just understanding really initially what a refinance is. And it's basically, you're taking your current mortgage and you're paying it off with a new one. Some reasons why you might want to refinance is obviously the biggest one is lower interest rate environment, which we're seeing currently. And when interest rate's lower, and Nick correct me if I'm wrong, typically rule of thumb, a 1% drop, you may want to look into it. It could really reduce your monthly payments, and over time it could really help you build equity in the house as well, if you're going to be in there longterm. John: So, just a quick example. A 30 year mortgage at 5.7%, let's say 300,000 mortgage balance. The payment on that's about $1700 per month. Let's say the interest rate's dropped to 4%. That same 30 year mortgage payment's going to be about $1432, roughly $271 per month saving. You're looking at about $3,250 per year, which is a pretty big number. And then especially if you're looking at, if you still have 20 years left in the mortgage, that can really add up. So, that's one thing you want to consider. Nick: Yeah, I would say one of the other times where it can make a lot of sense is, let's say for example, you took out a home equity line a couple of years ago and use the home equity line either to make improvements on the home, purchase a second home, use it for a down payment on a second home, or whatever the reason may be. A lot of times those equity lines had a really, really good rate in the first year or two. And then they start to kind of jump up. So the consolidation of the two together, and while reducing the payment and also potentially reducing the term of the loan can be a really useful scenario, situation for people. John: Yeah. And I'll say one thing, when we do a lot of planning with clients, one of the biggest goals we see is, "Hey, I want to make sure my mortgage is paid off when I go to retire." So now could be a good time to analyze and say, "Hey, I'm 10, 15 years out from retirement. Do I want to adjust to a 10 to 15 year mortgage?" And we've been finding in this environment, we've seen clients keep the payment the same as they're currently doing, but they're shortening the terms. So again, it's really just a matter of your situation and what works for you. Marc: Well, are there any right moves? I mean, how can we determine is it the right move to make, is there some things, some bullet points we can kind of consider? Obviously talking with the qualified professionals, the right people, goes a long way, but is there some things we could go through on our own checklist ahead of time? John: Yeah, I mean, the main thing really is how much are you going to be saving monthly? So you kind of start there and evaluate that. And then you kind of look at it longterm. One of the biggest negatives with refinancing is the closing cost, which can range from application fees, to recording fees, and whatever else. And we've seen them range from 1% to almost 4% sometimes. John: So you want to evaluate, "Hey, is it worth refinancing, incurring those costs into my mortgage?" And that's where it's important to work with someone to help you analyze and crunch those numbers. And one of the biggest things that we've seen, it depends how long you going to live in the home. So you want to ask for an amortization schedule whenever you're looking at it to say, "Hey, if I'm going to only be in the home for 10 more years, does it even make sense to refinance this?" And that's one of the biggest things I think people don't take a look at, is just figuring out, "Hey, how long am I going to be in this house and does it make sense." Nick: Yeah. That term, that length of being in the home is probably the biggest reason that it may make sense for somebody not to refinance. Because the reality is that the monthly payment, if it's staying the same or reducing, if it's very small, because there are costs associated with refinancing, it may not make a whole lot of sense unless you have kind of a strategy and a longterm plan. So we have seen those scenarios where people have said, "Hey, we don't plan on being here any longer than a couple of years, does it make sense for us to spend this, to do that?" And we recommended no, dependent upon the situation. So that's absolutely something to keep in mind. Nick: I will say as well, that there are companies out there that will kind of advertise "no closing costs" or "we pay your closing costs," that sort of thing. And while that may be true, and they still may be offering good rates, one other thing to make sure you do is we always recommend get three offers from three different companies, banks or lenders, because we've seen, "Hey, we'll pay your closing costs, but you're going to pay more on the rate." You know, they make it one way or another. But we've had clients recently getting quotes at anywhere from 2.5, to 3, 3.25, dependent upon the length of the term, dependent upon if it's their primary residence versus a rental property, those sorts of things. So, all things to consider, keep in mind. Marc: Well, if you are refinancing, some might say you're resetting the clock. You're adding years. I mean, obviously you've got to have these conversations. You might get a lower rate, but you might be tacking on more years. Nick: Yeah. And I would say that it's rare that we're going to recommend anybody tack on any extra years. The one thing that I will kind of comment on is, their other habits have a big impact on whether or not something like that could make sense. So for example, if somebody is, by default, a very good saver, and let's say a 30 year mortgage will add on five years. But let's say it's going to free up $500 a month. And the reality is that they're not going to be in that home for more than another 10 years. And they're really good at recapturing that money. So in other words, instead of paying that $500 a month, they've proven over time that they're a good saver and they're going to actually save that $500 or even set up a schedule to save that money right away. And maybe they're very comfortable in the market and investing and their thought process is, "Hey, I'd rather have control of this extra $500 a month than have the lender or the bank have control of the money." Nick: That's a scenario that we may consider saying, "Okay, that's something that could make sense for you." But I would say that it's pretty rare where we're going to really kind of give our okay or green light on somebody extending the term of their loan. Usually it's keeping it the same, reducing it a few years, and if we can reduce it four to five, six years and keep the payment the same, that's oftentimes a win for the client. Conversely, if the reality is that having that mortgage payment a little bit higher for them is a forced, quote unquote, savings by reducing their liabilities, that's something that we take into consideration and that's the important part of us understanding and knowing our clients, knowing their tendencies and helping to put them in a position to succeed. Marc: Well, if you're thinking about refinancing, again, you need to go through of these questions. Why do you want to do it? Is it the right move? Have the right conversations with the correct people. John, anything in the summary that you want to add as we kind of wrap up this podcast about this? John: Really, just if you're thinking about it, just make sure it aligns with your overall financial plan and your goals. It's just important. You don't want to do it just because the rate has dropped. You really want to make sure it makes sense for you. And we highly recommend working with people that understand your situation versus just someone random that's just trying to go ahead and "He
17 minutes | Jun 4, 2020
Ep 22: Case Study- Implementing Roth Conversions
We spent last podcast talking about what exactly a Roth conversion is. Today we will examine a financial plan and see how implementing Roth conversions can potentially improve this situation. Case Study Before Implementing Strategy:Dual income Household: Ages 55 & 53 Existing Accounts:$500k Pre-Tax 401k Funds$25k Roth IRA Funds$50k CashMortgage on the home – paying extra on mortgage ($250/m) (5% rate on 30 year loan, 10 years in)Income:Person 1: $110kPerson 2: $60kCurrent Savings strategy:Total Joint Savings 18% of income ($30.6k/yr.) – all into pre-taxEach person has 3% company match for pre-tax ($5.1k/yr.)Total being saved: $35,700EE Contributions: $30,600ER Contributions: $5,100 New Strategy:Refinance Mortgage to a 15 year loan with significant reduction interest rate lowers total monthly payment, allows for $250/m extra payment recapture & additional $150/m savingsNew Total being saved: $40,500401k EE Contributions: $21,400Pre-Tax: $15,900Roth: $5,500401k ER Contributions: $5,100Roth IRA Contributions: $14,000Person 1 strategy: EE Total: $23,600, ER Total $3,300EE Pre-Tax 401k Contribution: $11,100 (10%)EE Roth Contribution: $5,500 (5%)ER Pre-Tax 401k Contribution: $3,300 (3%)Max Roth IRA: $7,000Person 2 strategy: EE Total: $11,800, ER Total $1,800EE Pre-Tax 401k Contribution (No Roth Available): $4,800 (8%)ER Pre-Tax 401k Contribution: $1,800 (3%) Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: firstname.lastname@example.orgFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Marc: Hey, gang. Welcome into another edition of The Retirement Planning Redefined Podcast with John and Nick from PFG Private Wealth. Mark Kelly in here along for the ride as we talk investing, finance and retirement with the guys. And this week, actually, we got sort of a follow-up to our prior podcast. We're going to talk about implementing ... Really a case study about implementing Roth strategies into your plan, some things to think about there. Again, if Roth conversions are on your mind, this is a great podcast for you. And as always, if you've got questions or concerns, let the guys know. Reach out to them at PFGPrivateWealth.com. John, what's going on this week, man? How are you? John: I'm good. I'm good. Nick still hasn't taken me up on that race offer, but I picked up some yoga in the meantime. Marc: Oh, okay. John: So, I'm doing well. Marc: All right. So rowing and yoga. After a couple of weeks, you should be lean and mean and you should be ready to roll. John: I'm trying. I'm trying to get in shape for when I go back out in public. Marc: Did you get the quarantine 15? John: Yeah. A lot of Oreos eating over here. Marc: Oh, yeah. I hear you. Nick, how are you doing, bud? Nick: Pretty good. Pretty good. Yeah, John's definitely going to have to spend a little bit more time rowing before he can catch up. I've got a month head-start on him. Marc: Oh, okay. Nick: And luckily, the irony for me is because I've been forcing myself to get out I've actually been losing weight, which is kind of nice. Marc: Oh, nice. Nick: And going out to eat a little bit less. It's funny when you see what kind of difference that makes, for sure. Marc: Yeah. It really does. And everybody has their vice. Oreos, as John was mentioning. Everybody's got their vice. Yeah, during the quarantine, in lockdown, I certainly was no stranger to my own vices as well. And I was like, "Yeah, this isn't good. I'm getting fat." Not happy about it so I'm right there with you, John. Wasn't Oreos but just as bad. Marc: Anyways, let's jump into our topic this week and talk about this case study, really, and ways it helps you see implementing how a Roth conversion may or may not work. Nick, take it away. Give us a quick breakdown on what this is and just walk us through it. Nick: Yeah. What we wanted to do with this session is kind of mix it up a bit where ... One of the things that we found just communicating with people, especially in the classes that we typically do is when we walk through almost a little bit of a case study and give a sample example of a household, what they have in assets, what they have in income, how they're currently saving and the things that we can do with pretty minor changes within the structure available to really try to improve their overall situation and planning. Nick: The scenario that we had put together was a dual-income household, ages 55 and 53. Marc: K. Nick: And their existing accounts were pretty heavily dominant to the pre-tax side. Half a million dollars in pre-tax 401K funds. They had about $25,000 in Roth accounts, $50,000 in cash between checking and savings, 30-year mortgage ... About 10 years in to a 30-year mortgage. And they were paying an extra $250 a month towards the mortgage to try to get it paid down. Nick: One of the most common questions that people have when they come in to see us or come into a class is, "Hey, I'm saving. I'm doing a good job with saving. But am I saving in the right area? Should I be paying this extra money towards the mortgage, et cetera?" The breakdown in income was person one, $110,000, person two, $60,000 of income. So, total household income of about $170,000. And the reality is that both of them were getting a company match into their 401K and they were saving ... Between the two of them, they're saving essentially 18% of their income but they're putting it all into pre-tax accounts. The Roth accounts that they have on their balance sheet are essentially accounts that they've had for a long time. They funded it early on and then at a certain point they got phased out because they made too much in income. Nick: Their main question or, I should say, potentially goal when they came to us was, "Hey, again, we have a good income. We're living comfortably. We live within our means. We save a good amount of money. But are we doing it the right way?" One of the first things that we did was evaluate the mortgage and, really, what we've seen in John's work on these quite a bit with a few different clients is that mortgage rates have obviously dropped in the last .... These clients were 10 years in so mortgage rates have dropped. And they went ahead and spoke to their credit union and they were able to refinance. One of the things you always want to look into is try to keep down closing costs, et cetera. And they were able to reduce the payment. Nick: And so, really, with rates where they are, they were able to go from having 20 years left on their mortgage to refinancing to a 15-year mortgage, which is something that they felt much more comfortable with. When we discuss mortgages, we always have the conversation of pure finance decisions versus a comfort level as well. They were able to reduce their monthly principle and interest payment by $150 a month over their 30-year. Essentially, what we're able to do is we're able to recapture the $250 a month that they were paying extra towards the mortgage to try to shorten it, take five years off the mortgage with the refinance and save an additional $150 a month. Really, we've got a $400 a month savings plus we shaved five years off the mortgage automatically. The goal being how do we redeploy that money? Nick: John, any tips for people when they're looking for refinancing on the mortgage and some things to look into? John: Yeah. One thing, you just want to analyze what the rates are, what you're currently at. I know a lot of people use the rule of thumb of basically if you can lower it by one percent it might be a good idea to at least look into it, and that's where we start is look into it depending on what rates are and what your current rate is and then work with an advisor or some type of mortgage specialist to evaluate exactly, does this make sense for me? A decent website just to see where rates are at is BankRate.com. Just be wary putting your name into anything because we have had some people where they ... "I put my name into this. I'm getting bombarded with phone calls from everybody." BankRates is a good place to view but ultimately, you definitely want to work with someone and just figure out what's best for your situation. Nick: For sure. From there ... Again, part of the emphasis for us, and I know that a lot of our listeners and our clients have heard us talk a lot about the importance of balancing ... Trying to create some sort of balance or equity in portfolios from the standpoint of we want to diversify future taxation and current taxation. With this client, they were very heavy on the pre-tax. Half a million in pre-tax, only $25,000 in Roth dollars. Client one, essentially their plan at work allows for Roth 401K contributions where client two, their plan does not allow for Roth contributions. That's one of these things where sometimes households we've seen when there's a dual-income household they try to make everything even and it's not always the best strategy when we look at it from a global standpoint. Nick: The other thing that we've seen people not necessarily consider or quite realize or understand is that when their employer is making a match contribution for them, those match contributions are pre-tax contributions so there's additional money going in. Previously, for the household, they were contributing on their own about $30,000 a year into retirement accounts and they were getting about $5,000 a year of company contributions. And now, after the refinance, what we're actually able to do is increase the amount that they're saving. Nick: One of the first things that we'll look at for clients is the income test on whether or not they have the ability to contribute to an individual Roth IRA account. This household came in underneath the limits, which means ... And they're over the age of 50, which means that all of them are able to contribute $7,000
14 minutes | Jun 1, 2020
Ep 21 : Roth Conversions
With our tax brackets being at historically low rates, many people are looking at implementing Roth conversions in their plan. John and Nick will explain what exactly this concept is and how this may be able to save you some dollars on taxes in the future.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: email@example.comFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Speaker 1: Hey everybody. Welcome in to this edition of "Retirement Planning - Redefined" with the team from PFG, private wealth serving you in the Tampa Bay area. John and Nick once again with me on the show, as we talk investing, finance, and retirement. Nick, buddy, how's it going? How you doing, man? Nick: Pretty well. Pretty well. Just still kind of moving through this pretty crazy time, but no complaints. Pretty fortunate overall. Speaker 1: Good. Good, good, good. John, how you doing, my friend? John: Doing good. Doing good. Recently purchased a rower. Nick sold me on it. He got one about a month ago, and he's been ranting and raving about it. And I joined the club. So, done a couple of sessions and excited to do a little more. Speaker 1: A rower. So it's like an exercise machine, like one of those rowing, or actually going out and rowing in a boat? John: No, no. Rowing in my garage, an exercise machine. Speaker 1: Gotcha. John: Once I get good, I might link up to Nick and we'll race down some fake river on a video screen. Speaker 1: There you go. We'll have to set that up. We'll have to shoot that on Zoom or something. That'd be good. Nick: Yeah, ranting and raving may be a little bit of an overstatement, but. Speaker 1: Just a little? Nick: As to be expected these days. Speaker 1: Gotcha. Well, there you go. Well, hey, at least you're exercising, doing things to stay fit. It's good for stress and all that kind of stuff as well. So, always good. Speaker 1: Well, listen. Today on the topic, basically we're going to talk about Roth conversions. If you determined a Roth was right for you, are you interested in converting if we're going from a traditional to a Roth? Things of that nature. So, we'll just jump in and start talking about it here today on the podcast. John, let's kick it off with tax liability. If you've determined that a Roth is right for you and you are interested, let's talk about some of the key components to maybe consider in tax liability would certainly be one of those. John: Yeah. Yeah. Just understanding how a Roth conversion works. When you convert a traditional IRA to a Roth IRA, you pay income taxes at your current tax rate, and in return for that, you're getting tax-free withdrawals during retirement. And we'll talk about different strategies with that as we go on on this. But just to give an example, let's say someone's taxable income is $100,000, and they meet with their advisor and decided it's a good idea to do some type of conversion. They say, hey, let's go ahead and convert $50,000 of your traditional IRA to a Roth. Your new taxable income for that given year is $150,000. So that's how it would work from a tax liability standpoint. Whatever amount you're converting ends up being added to your taxable income for that given year. Nick: Yeah. And the biggest thing we like to just remind people when they do a conversion is they want to make sure they have the money off on the sidelines to pay that tax. They don't want to do it with the converted money, especially if they're under 59 and a half. Speaker 1: Okay. All right. So, with some of the monies and stuff like that, you want to, again, make sure you're having those conversations, to the guys's point. So what kind of strategies should we employ to kind of work our way through this? Kind of like the lump sum approach, we do it over time? There's lots of conversations out there about ways to go about a conversion. John: Yeah. So one of the things that we do, we focus quite a bit on retirement planning. And when we do that, we're able to actually model out and estimate what someone's going to pay in taxes throughout their retirement. And we have certain scenarios where someone might go ahead and retire early. And let's say, they retire at 62, and they don't really have much income coming in other than maybe lowered social security amount or they have some non-qualified, basically non retirement assets that they don't have to pay income taxes on. And we would look at that. There could be a period from 62 to 72 where they're not paying much in taxes. John: So what we'll do is we'll develop a strategy over that five to 10-year period where we're actually converting the traditional IRA in increments throughout that period of time to really take advantage of that period of time where they're in a lower tax bracket. John: Well, if you look at that through the life of someone's 20, 30-year time horizon, that can make a big difference in their overall tax liability throughout their plan. So it's a nice thing to be able to look at and say, hey, what am I going to pay in taxes? And how can I take advantage of paying less ultimately overall? I know I've been talking a lot here. I'll let Nick jump in on kind of the flexibility of having different buckets of money, whether it's pretax and after tax, going into retirement. Nick: Yeah, really, both fortunately and unfortunately, one of the things that we tell people that they can count on while they're working and then in retirement is that there will be changes. And usually the area that there's most often changes are in tax law. And we've seen that over the last couple of years. And so, sometimes people get a little bit caught up on the thought process of which is better, pretax or Roth money. And in our minds, and when we say it a lot, but we try to continuously emphasize it, is that it's important to have options. And so, to have options, you need to adjust how you contribute or take advantage of Roth contributions and that sort of thing, so that not only are you diversifying from an actual investment standpoint, but from an account type standpoint, which means giving yourself flexibility from a tax standpoint as you take out withdrawals. We find that really, really important. John: Yeah. And where that comes into real life is, let's say someone wants to buy a car in a given year. They don't want to take out a loan. You don't want to take out 40 grand out of a taxable account. That's really going to increase your tax liability, where if you had some Roth money, you might say, hey, I don't want to pay any more taxes. I'll just pull it from that. Or it could be some type of health emergency where it's unexpected and you're pulling 40 to 50 grand out in one pop for whatever reason. So, it's nice to have that option to avoid paying unnecessary taxes. Speaker 1: Okay. So, when we're talking about doing these conversions, obviously clearly taxes right now are lower. And so, that's something that is appealing to people, but we also have been dealing with this down market. Is that another component that should be obviously considered? And what's your thoughts from a conversion standpoint with that in play? John: Yeah. And everyone's situation is different, and this is something that, this recent downmarket, some people took advantage of, where basically, the market dropped almost 30%, 40% from the high. And they went ahead and said, let me go ahead and convert my IRA and this lower balance, pay tax on the lower amount, so when it recovers, basically everything's tax-free moving forward. So, just a quick example of that is, say you had an account that was a $100,000 before the market dropped. Assuming 15% tax liability on that money, and it's a $15,000 tax hit if you were to pull it out. After a 40% drop, the account balance is 60 grand, and a 50% tax on that is $9,000. So you're looking at about a $6,000 tax difference at that point in time. But the reason you would do it is obviously after market downturns, just typically recoveries and all that growth that you get is now tax-free moving forward. So, that's a nice little benefit. Speaker 1: Well, and again, any time you're thinking about that conversion, always check with your advisor, always talk with an advisor. If you're not working with one, reach out to John and Nick and have a conversation with them about it. But it's certainly, even before the whole COVID thing in 2020, it's just been a very popular conversation point, due to the fact that the tax rates that we're in have been so low. So again, if you do have questions around, is it a good time to convert, should I convert, things of that nature, make sure you're running your specific scenario past a qualified professional financial advisor like John and Nick. And of course, you can always reach out to them at (813) 286-7776. That's (813) 286-7776. Or go to pfgprivatewealth.com. Speaker 1: Okay, guys, another place to consider would be the legacy portion. Is that something we should throw into that mix for converting? John: Yeah. So a Roth IRA is actually a great vehicle to pass on to beneficiaries because they receive it tax-free. So, some strategies that Nick and I have implemented with clients in the past is basically converting it so their heirs can get it tax-free, and kind of this scenario where someone doesn't necessarily need the IRA money for income today. It's more of a kind of a cushion for them. And the goal is to pass it on to kids, grandkids, whatever it might be. So, to just kind of give a situation here, client's 68. Don't need the money for current income. Tax bracket's 12%, one of the lower ones. And kid's, daughter's, in a 35% tax bracket. So, the strategy that this person is doing is, over a 10 to 15-year period, again, going back to estimating the taxes, they're converting pieces of the IRA to a Roth. Okay? John: Now
19 minutes | May 7, 2020
Ep 20: Peeling Back The Curtain
On this week's episode, we check in with John and Nick on how things are going personally with their families, communities and clients.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: firstname.lastname@example.orgFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Speaker 1: Hey, everybody. Welcome into this edition of Retirement Planning Redefined with the team from PFG Private Wealth. Got John and Nick here with me as always, financial advisors. Guys, what's going on? Nick, how are you, my friend? Nick: Oh, doing pretty good. Just been just like everybody else, working remote, working from home, kind of biding my time through this process. Speaker 1: Yeah. Yep. John, yourself? John: Yeah, pretty much the same. Like Nick, working from home and just keeping myself occupied with some things to do around the house. Speaker 1: Yeah. I saw somebody, a lot of times people say, well, we're all on the same boat together. And I thought, I don't think that's quite accurate. And so, I saw something that was cool. It said, we're all in the same thunderstorm together, but we might be rowing different boats. And I thought, that's probably a little more accurate. We're all in the same massive storm here and everybody's got different little nuances. The different states are doing different things, different people are dealing with economic issues, issues different than others, health issues, personal issues, stress issues, whatever. So it all falls into a same storm category. I thought that was kind of a cool way of putting that. Nick: Yeah, I think the personal experience that people are having, like what you said, is pretty drastically different from not only region to region and state to state, but family to family. Speaker 1: Yeah, true. Nick: Dependent upon what occupations are and/or just ... there's so many different factors that it's going to be interesting to see what movies come out down the road and the different forms of media and when we can actually look back and just kind of- Speaker 1: Oh, yeah. That'll be really interesting. Yeah, for sure. Well, we're going to go easy today, actually. We're just going to keep it in this vein. We've been spending so much time talking, doing multiple series parts on different things. We thought we would just scale it back a little bit this week and just have a conversation about just life and just peel the layers back, if you will. So we kicked it off a little bit with personally you guys are doing okay. How's the families? Everybody okay there? John: My end, yeah, everyone's good. We got to just remind some people listening, I got a one year old named Aria and a four year old named Olivia and my wife Jenny. So yeah, we've just been quarantining here and trying to keep them busy, and they're definitely keeping us busy. Nick knows, I threw out my back a couple of weeks ago. I think I was just chasing around the kids and then doing way too many home projects now that I'm stuck at the house half the time, so. Nick: I definitely, I haven't thrown out my back and I also have not had to chase around a one year old and a four year old. But I've been able to, a couple times, spend some time with immediate family, parents, brother, sister-in-law, nieces. And my brother and sister-in-law, they're still working. My sister-in-law is a nurse and my brother has a business that's considered essential. And so, my nieces are nine and 10. And so, my parents, they haven't been working because of everything. And so, they've been able to take care of the nieces that's extra time with them. I got to see the experience of what it's like for them to attend school remotely and some things like that. So it's been a little bit different perspective. Speaker 1: Are you zooming in and being a guest teacher for a day? Uncle Nick going to teach them about whatever? Nick: No, definitely not. I quiz them on some things here and there, but some of this common core stuff and some other things, it's pretty, pretty wild. So I'm there for moral support. Speaker 1: John, you got to give us the skinny. Can he substitute teach? John: Definitely not. Nick: Only due to patience. Speaker 1: You got the math down, right, but the patience level maybe is a little different? Nick: I could present and not allow any questions. Speaker 1: There you go. There you go. Community-wise, how's things in your specific area? We pulled the curtain back before here on the show. Clearly, you obviously were social distancing. We're all remote in our houses doing the podcast, but even prior to that, we were already doing that because I'm actually in another state when we do these shows. Of course, you guys are there together at the office or whatever the case might be. But how's the community near you? How's things going there? John: Yeah, so pretty good. Nick and I are both involved with a nonprofit group called the 13 Ugly Men. And one thing that we did as our membership here, we did Feeding Tampa Bay. So we donated a hundred thousand meals to those in need during this time that you need to eat and don't have the funds to go ahead and do that. So that was pretty cool, because we did a match donation and then we coupled it with a Facebook Live event where we had a DJ playing and then people were tuning in. Maybe they were bored at home and needed something to do during happy hour and they locked in and have a little bit of music to listen to. So it was interesting to see, using the Facebook platform to engage in our guests that usually attend our events and using that platform also to raise dollars. And again, Nick and I are both in that group together. And then, Nick's also involved with Casa so he can jump on that because I know they did some type of thing, Nick, so. Nick: Yeah, so Casa's a domestic violence organization in Pinellas County in St. Pete and I've been on the board there for, it's got to be over, around close to 10 years now at this point. And may have mentioned it in a previous podcast, but when this whole thing was starting, I had been following the news in pretty significant detail and my main venue to gather news is Twitter. And on Twitter, I had seen a post by the founder of the company Slack, which is a tech-based company that's actually stood out over this period of time. I know they've gotten a bigger footprint during this period of time, but... Nick: So the founder of Slack, they had gone public last year, and he and his fiancé had created a foundation and they had decided to donate a million dollars total to four different sectors of nonprofits. And I had come across it and they did a matching program. It was a five-to-one matching program. So essentially, if a local organization that fit into their four tiers, and one of the tiers was domestic violence, if that organization was able to essentially secure donations and then forward the proof of donation to their foundation, they were going to match at five to one. And, pretty amazingly, we were able to rally both the board and local donors to raise, we raised $25,000 locally and the founder of Slack matched it with $125,000. And so, we were able to raise $150,000 in less than 24 hours. Speaker 1: Wow. Nick: Which was pretty awesome. Speaker 1: Yeah. Nick: So, it was pretty cool. Speaker 1: No, both of those are amazing. That's awesome, guys. Kudos for that. That's really, that's great. And I imagine that, obviously, those things are very well received. We're seeing a lot of that stuff happening all over the place, but that's really awesome. You guys are continuing to do that right there in the backyard, so to speak. And with your own clients, obviously, right there in your backyard, again so to speak kind of thing, how's things going with that? We briefly talked about some of that a couple of weeks ago. Still going okay with the working remote? Are people adjusting to that a little bit better? How's that going? John: So yeah, I think people are. Nick and I have actually been doing, before all this happened, we started doing more remote meetings. And I think clients are finding that it's actually a pretty efficient way to meet and it actually maybe helps us meet with them more often, where they're not having to drive and coordinate schedules and it's just a little bit easier. So I think one of the things we'll see coming out of this is that we'll probably, even when this is over, probably start doing more remote meetings with the screen shares. And then once we get back into the office, we'll probably do more video stuff. But I think things are going to change and go more in that direction based on people just becoming familiar with the platforms and being comfortable with it. Speaker 1: Yeah, it's one of the things that we've seen a lot as well. I interview a lot of people all across the country and some, especially for the client base being retirees, pre-retirees, a lot more folks have embraced it I think than initially thought, which I kind of thought that'd be the case. I mean, just because you're older doesn't mean you're not tech savvy. But I know that there's points where some folks feel a little uncomfortable still and it is different, I suppose, being on a platform like Twitter or Facebook, for example, versus being on a Zoom call with a camera coming in and catching you in the living room. But again, you're scheduling these things and you've got time. There's secure ways to do document portals for transferring delicate information. And that stuff's been out there, in the cloud anyway, for a while. So I am generally seeing across the country that more folks are embracing it than I think maybe some skeptics originally feared. Nick: Yeah, I would definitely agree with that. It's pretty typical. Oftentimes, whether it's new technology or adaptation to what's going on is oftentimes s
19 minutes | Apr 23, 2020
Ep 19: Market Downturns And Recoveries
Today our discussion revolves around bull and bear markets. We will break down the basics of what each of these types of markets mean and take a look at some historic trends that are relevant to this topic.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: email@example.comFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Marc: Hey, everybody. Welcome into this edition of retirement planning redefined. Mark here once again with the guys from PFG private wealth, John and Nick joining me as we talk about investing, finance, and retirement from the confines of our own happy homes as we're still on lockdown doing this thing here. Everybody doing okay? Doing safe, John, how are you bud? John: I'm doing good. I'm doing good. How are you? Marc: Not too stir crazy? John: No, no. I get out a lot, do a lot of walking, some biking, and I got some kids to entertain me, so that might make me a little stir crazy, but not sitting in the house. Marc: Yes. I see a lot of people doing the homeschool thing and they're like, "Mommy needs a teacher work day bad." All the moms that are doing homeschooling and whatnot. Mine's grown, so that would be frustrating and kudos to those folks that are doing that. Nick, what about you? But how are you? Nick: Pretty good. The area that I live in downtown in St Pete, the waterfront's pretty close by, so I have been at least every other day either taking a jog or taking a walk over there. The water tends to put your mind at ease with it. Marc: Isn't it interesting how like ... I mean, could you find the time to do that before? It's almost like we do get this interesting time to reset and appreciate some of the little things that we just seemed to gloss right over before. Nick: Yes. Living in the area, I've tried to make sure that I take advantage of it, but even with that I still hadn't always. It's interesting, you do see from the standpoint of ... St Pete, it's pretty well known. There's a lot of waterfront parks, so they've done a good job protecting the waterfront and there's definitely a lot more people. You can tell because I would try to snack a run during the day and that sort of thing previous times, there's definitely more people out than was typical. People are doing a pretty good job of distancing themselves, but there's definitely flocking to that sort of environment. Marc: Yes, you've got to be careful, if you get too many in there, they'll wind up shutting it down. They'll lock it. Nick: Yes. Marc: I know, I saw that with a lot of places like here where I'm at, we'd go out to the lake or whatnot and you were allowed to go use the ... the parks are closed, but you could go to the state parks, but you could go to the lake. You go get on the lake, you get on the boat, and then people were hanging out putting their boats together, chit chatting, and drinking beer or whatever the case might be. It's like, no. Sure enough, they closed the lake. You've got a whole lake stay, stay apart from one another a little bit. Just right around your boat, do some fishing, whatever. Marc: Don't make a party out of it, but they did, so they closed the lake. Well, it is what it is. It's part of this paradigm we're living in. Hopefully, we're getting closer. Every week is bringing us obviously bad news, but there's some positives, there's some things that are starting. We're starting to see numbers decrease in places here and there, so hopefully that will continue on. We're going to continue on with our ongoing series that we've been doing the last couple of weeks about just in general things to think about during this downturn. Guys, we're going to pick it up this week with market downturns and recoveries. John, why don't you kick us off with our friend, the bear, since we were in the long bull forever in a day it seemed like? Now, we're hearing about the bear so much. Just give us an overview here. John: Yes, so just want to define kind of what is a bear market and basically a bear market is when there's a 20 percent drop from the recent peak. Let's just say like a 52 week high, so when it drops 20 percent from that standpoint, we're now considered in a bear market. Just a little bit of history. Since 1926, there's roughly been about 16 of them and they happen on average about every six years or so. Just some tidbits. When you're dealing with this type of bear market, and we're probably repeating ourselves from our last sessions, but you never want to be selling off of your portfolio, especially at the bottom. It's really important during this time frame just to remain focused and just remember it's a longterm strategy. Just stick to your overall plan. Marc: Okay. Those are some things to kind of keep in mind with the bear marker. Nick: I would say too real quick, just one last thing on the bear market because we have gotten a few questions on it. Some people had asked about once they finally checked in on their 401K and they're making their regular contributions, should they stop making those contributions, and will that help them? I'm quoting a few people here, but, "What's the point of putting in the money if I'm just going to lose value on it in a week? Those sorts of things. That just has to do with averaging into the market, again buying on a discount. Even though it's going down, the next contribution that you make will be able to buy in at a lower price. When things bounce back, buying in at those lower values are what help people bounce back faster. Marc: Yes. It's all part of the strategy, right? With every situation, you want to make sure that before you take any action of any kind that you're checking with your advisor and how your plan is situated and set up or if you don't have one, get one because that's going to help you answer some of those questions as to how you may or may not want to look at different vehicles, different investment ideas, strategies, so on and so forth during anytime, but obviously during a downtime as well. Since we covered the bears, let's talk about the bull. Actually, I think at the time we're taping this, I saw that Germany posted and said one of their indexes pulled out of the bear. That might be encouraging news, but what's a bull market, Nick? Nick: Really, the bull is just kind of the opposite where we're talking about a 20 percent increase in stock prices. Historically, there's been around 14, about 14 bull markets. Really, these going to last for quite a bit of time. I mean, the reality is that post great recession of '08, '09, for all intents and purposes, we've been in a bull market situation for ... a previous too, this coronavirus induced issue over a decade. The tricky thing with bull markets when they, especially one that lasted as long as the most recent one did, is people can become a little bit complacent. They can forget what feeling any sort of loss feels like or looks like. Again, redundancy can sometimes be annoying, but it does help to kind of get it to stick in people's head. It goes back to the importance of the plan, sticking to the plan so that again we're taking that into consideration and helping us make our decisions. Marc: Well, if we're going to talk about the history of a little bit, and John, you started to touch on in some of that, let's jump in, kind of kick off, and discuss a few of the things because we called this market downturns and recoveries, so let's look at a few of those, some of those I guess peak moments and how they looked on the down as well as on the upside. John: One of the more famous ones is black Monday, October 19th, 1987. I was a little boy then, so I wasn't really paying attention much to what was going on. For some of our listeners, they might remember. It was basically triggered by a computer as tradings and basically the fair evaluation of the dollar against Germany's currency. John: That kind of caused it and it was actually pretty quick compared to some other ones. It lasted about three months. In total, the S and P pulled back about 33 percent. In turn, we've talked about what follows the bear is typically the bull. Recovery took roughly 18 months and then as Nick mentioned, basically in the initial phase is when you see a lot of your gains, so in the first 12 months after that, the S and P gains were about 21 percent. That's why it's important to just stay the course and always stay invested because you don't want to miss that initial upfront of the basically rally up. Marc: Got you. We've heard a lot of comparisons to this one, the drop of 87 and the speed of it to what we saw obviously with the beginning of the coronavirus as well. We probably saw a lot of that on the news from time to time. Nick: For sure. We just want to emphasize that this is not to be confused with the Showtime show, Black Monday, although for those that haven't seen it, it is pretty funny. It is a very adult to show. In these times, if somebody is looking for a little bit of dark humor and levity, the TV show on Showtime's really funny. Marc: I'll have to check that out. Let's go to the big big boy here because that's probably the one that's most ... obviously, besides this, fresh in our mind is '08. John: In '08, the main trigger there that caused it was really the housing market in the US basically collapsed. That lasted really from late 2007 to 2009, roughly 17 to 18 months. The dip for the S and P from the peak was about roughly 57 percent down from the highs. The recovery took roughly three years or so, but the 12 months following the pullback, the S and P gained about 68 percent so again, important to stay invested because you just don't know when that rally is going to happen. Marc: Yes. The recession, that one ... I think that's where people also ... guys, I'll let you continue on with this analogy in a second, but I think that's whe
17 minutes | Apr 16, 2020
Ep 18: Investing In Down Markets
It can be tough to see the silver lining in times of volatility, but when the market is down oftentimes there are some great investing opportunities. John and Nick give us some key tips on how to take advantage of a down market.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: firstname.lastname@example.orgFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Mark:Hey, everybody. Welcome in to this week's podcast. Thanks so much for tuning in to Retirement Planning Redefined with John and Nick from PFG Private Wealth Financial Advisors. Going to talk with me again about investing finance and retirement. Hopefully you've been listening to our series we've been doing the last couple of weeks on, well, really just what's going on in the world in general. And we're going to continue on with that theme by talking about investing in down markets this go around. First off, let me say welcome in guys. Nick, how you doing, bud?Nick McDevitt:Doing well, doing well. How about yourself?Mark:All right. Hanging in there considering all things. Hopefully everybody's safe and staying home and staying with the shelter-in-place and all that good stuff and not going too stir crazy. John, how you doing, buddy?John Teixeira:I'm good. I'm good. It's funny, as I'm quarantined here I'm taking a lot of walks so I'm actually meeting more of my neighbors now that I'm supposed to be stuck at home.Mark:Isn't that interesting? All the different things ... So many conversations had about how our life is so different. If you want to look silver lining, there's a lot of silver linings we can find in this. I know it's tough when people are getting sick and passing away and all, but there's so many things that we're slowing down and maybe realizing stuff that we didn't need or we didn't have to use or we didn't rely on.Mark:I was talking to somebody yesterday and they were ... This sounds like I'm joking, but they're like, "My Starbucks budget. I didn't realize how out of control it was." I know that's a minor thing but coming out of this, I want to think about how to be better about not drinking so much coffee, or at least drinking so much overpriced coffee.John Teixeira:You can ask Nick how he's doing with that. His Starbucks budget's pretty high.Mark:Was it? How you doing, bud?Nick McDevitt:It used to be until I bought myself an espresso machine ...Mark:Okay.Nick McDevitt:... About a year and a half ago.Mark:Yeah?Nick McDevitt:Yeah. I took care of that expense issue a little while back.Mark:But you can relate, then, to what they were saying, right? They were like, "It was out of control!"Nick McDevitt:Oh, for sure. Yeah. Especially because I typically drink lattes instead of just regular coffee.Mark:Right.Nick McDevitt:Those are a little bit harder to make at home.Mark:Six bucks a pop. Seven bucks a pop. Whatever it might be.Nick McDevitt:Yeah. Yeah. So, I brought that cost in-house and good machine pays for itself pretty quickly.Mark:Yeah. There you go. See, look, there's an investing tip right away!Nick McDevitt:There you go.Mark:Right off the bat. Boom! A bonus thing you didn't know. All right. Let's talk about investing in down markets, guys. John, talk to me about proper asset allocation. Let's just jump in and spend some time on some of these pieces, okay?John Teixeira:Yeah, yeah. I think we want to recap from our session the last time where we really talked about planning. We go from the standpoint of the plan really dictates your investment strategy. Once you have your plan in place, it tells you, "Hey, this is how you should be invested, whether it's conservative, moderate, aggressive growth for income." But once you determine that, you really need to develop the right allocation of investments within your portfolio. And once you determine that, hey, I'm going to be ... I'm just throwing this out there ... 60% equities and 40% bonds, you really want to stick to that strategy. And when you're building that portfolio you want to put into things like diversification as far as not having all your eggs in one basket and really develop a zig and a zag in your portfolio.John Teixeira:In reality ... It sounds kind of weird to say, but you always want something going down while the market's going up, per se, because what will happen is when the market's going down hopefully that asset class with be going up. And that's one that we do in our portfolios. We're really trying to make everything work together as a unit. And part of that is ... I'm going to throw out a term people probably haven't heard ... Is correlation of assets. And that's how we can determine exactly how are these assets correlated so when one goes up, is one going down? If one goes up, is the other one not doing anything at all? And when you structure and put that all together you can really build a good portfolio for someone to weather the storm a little bit in this type of volatile market.Nick McDevitt:Yeah. And zig and zag also happens to be John's favorite dance move as well. He really tries to tie into that as much as he can.Mark:Do the zig, do the zag. All right. There you go. I can see you.John Teixeira:Nick's just a little jealous. He has no zig and zag.Mark:Ah.Nick McDevitt:Yep. It's true.Mark:I would have pegged you as a stanky leg kind of guy, myself.John Teixeira:You got me right.Mark:All right. Nick, what's your thoughts here?Nick McDevitt:Really, from the asset allocation standpoint, really what you need to take into consideration to determine that the plan helps create the parameters and what makes sense from a planning standpoint. But then there's also the emotional aspect of it and people's previous and historical experiences with the market can play in. Any client that we bring in, we go through a risk tolerance process where essentially they're answering questions that have to do with risk. Typically, it's probably the process that people like the least ...Mark:Right.Nick McDevitt:... Because often times, they want us to tell them. "Hey, this is what you guys are here for, right? Is to help guide us through this." And they answer to that and the feedback on that is, yeah, we're going to tell you if you're not necessarily taking enough risk for the plan or if the answers you're providing are outside what your plan is telling us makes sense. But at the same time we want to make sure that the amount of risk that they are going to take is something that's comfortable to them, even during uncomfortable times, which, obviously we're in right now.Nick McDevitt:That work up front. One of the things that we really do emphasize with people that we work with is we do a significant amount of work up front. Our process is probably a little bit more in depth and tedious than a lot of other advisors out there that tend to focus on, "Hey, let's get the money in and then we'll dial in after that." Where we say, "Let's get the plan done. Let's do the work up front to make sure that we don't have to overreact or make emotional decisions at the time where we are the most emotional." We can kind of revert back and say, "Hey, remember, this is why we did what we did. Here's the process that we went through. We spent a lot of time doing this. This is why it makes sense."Nick McDevitt:Making sure that as we approach retirement we have a plan for adjusting the risk and early into retirement. But also, making sure that we're not getting out of all market risk. Not being in the market has a cost, an opportunity cost, and that's its own risk. That work that we do up front in determining that asset allocation and the risk really helps us weather through the tough times.Mark:That's really great points, here, as we're talking about investing in down markets. Again, proper asset allocation, risk ... Obviously, those are all key factors in there. What about just the value that an advisor brings? I've been saying for ... I do tons of shows and podcasts all across the country and I've been saying for a while now that as we're moving through this Coronavirus epidemic, never been a better time to have an advisor and, really, in so many ways you should have one anyway. But going through this, people aren't sure where they stand or they aren't sure how things are going to look on the other side. And I just think that the value of an advisor is immeasurable right now.Nick McDevitt:Yeah. We obviously have a little bit of built-in bias that we do feel that we add value and we are important, but the reality is that there's been studies that have been done and Vanguard has done a pretty good study and we'll talk about that a little bit, but the reality is that during times like this having someone to share concerns with, to be able to talk to ... One of the things that we really emphasize early on and when we work with people is the importance of communication, where we want to be heavy on technology, heavy on communication. We want to make sure that people are comfortable having difficult discussions and conversations with us because that allows us to really do our job.Nick McDevitt:We're really hamstrung when we don't have the information that we need. So, when we can be a sounding board for clients ... Even though I know all of these things, I will say I was still a little bit surprised how far a five or 10 minute conversation with clients over the last month went where, really, they just needed some affirmation, a reminder of what's going on, a reminder of what we're going through, and that although it's looked different we've been here before. And the feedback that we've gotten from people has been very positive and that's where some of these studies ... And John can talk about it a little bit more in detail, the Vanguard study, where the studies have shown that the performance that people who work with an advisor have versus people that don't work wit
14 minutes | Apr 9, 2020
Ep 17: Planning Through Volatile Markets
We talked last time on some of the financial impacts the Coronavirus had caused, but now we will discuss how to plan to get through tough times and market downturns. John and Nick will talk about a few suggestions they have when they see situations like this and how to withstand a volatile market.Helpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: email@example.comFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Mark: Hey everybody, welcome into this week's edition of Retirement Planning Redefined with John and Nick of PFG Private Wealth. Here today again to talk some more about the, well the coronavirus, like we can't not talk about it. It's the only thing going on in the world it seems like. And we're going to talk about retirement planning for this volatile market. Mark: So guys, welcome in. How are you this week? I'll start with Nick. How's it going bud? Nick: Oh pretty good. Just trying to be a voice of reason for people during this crazy time. Mark: Are you doing your part, staying safe, staying home, all that good stuff? Nick: Yep, I [crosstalk 00:00:32]. John: So let me jump in here. Nick's been doing his social distancing for the last three years so he's pretty good. Mark: Good stuff. How about you John? Nick: For at least three weeks, at least three weeks. Mark: At least three weeks? Yeah. Mark: How you doing John? John: I'm good, I'm good. I'm more upbeat today. I feel rejuvenated. I'm ready to roll. Mark: Well that's good. And that's tough, that's a challenge we're all going to face because a lot of us have been doing this for about three weeks already and we're looking at another month going through April at the time we're taping this. We've still got a few weeks to go, so we'll see how it plays out. But there's news every day, it's changing all the time. So we'll see how this plays out. But we thought it'd be worthwhile to at least go through some conversation about retirement planning through or during this volatile market. So let's just kind of jump in and talk about the overall importance of a strategy. Nick, I mean we talked about it long before this downturn happened and more than ever I think that it benefits to work with an advisor because it's a little bit easier some would say when markets are up and things are good and everything's going swimmingly well, than it is during downturns. And if you don't have that roadmap, it certainly can make things more cloudy. Nick: Yeah, it's been interesting. John and I both started in the industry in about '06, '07, so right at the kind of onset of the recession. And after we kind of got through that period of time, people were still afraid of it and what happened in that period of time for three, four, five, six, seven years. And since the markets have been going up for so long, planning has become more prevalent and people have understood that it's an important thing to do. It seems like some have done it almost because, okay, well this is what we're supposed to do, so we're going to do it. Nick: And now the feedback that we've gotten from clients is that it's really kind of clicked to them how important the planning is and how much peace of mind kind of re reviewing it and understanding parts that maybe they didn't quite get when we first set up the plan or in the first couple of reviews, realizing the importance of the plan as we move through times like this after having kind of a smooth sailing decade really. So we can't emphasize enough the importance of clarity and even just helping to avoid rash and unsmart decisions we can kind of put it that way. So the confidence level that we've seen for people that have a plan versus those that don't, from the standpoint of we've been introduced to new clients and we've gotten referrals kind of through this period of time and it's definitely a drastic difference. Mark: Yeah, definitely. Mark: Well John, let's talk about some of the things that the plan determines. Let's go through a few things to consider in there. John: Yeah. We like to say the plan determines what type of investments you should be going into and what strategy within those investments. And that's where Nick and I really try to focus on, "Hey, let's get an understanding of what your needs and goals are. What are you trying to accomplish?" And once we determine that, secondary always comes the investments and one of the things that with the investments go, we try to curtail or develop a comprehensive strategy for each individual person because everyone's different, everyone's risk tolerance is different. But the plan really dictates how much risk you should be taking. John: So we've had scenarios where basically we're doing a plan and the person when we first meet they're pretty aggressive and then when we do the plan it's, "Hey your plan works very strong at four to 5% rate of return, so why are we taking all of this unnecessary risk?" So really when you do something like that, you could be putting more scenarios where failing happens in the plan because there was a pullback. So we really have the plan dictate how much risk you should be taking, which with our clients, if we see it working around four or 5%. Not that we just aim for that, but we kind of scale back on the risk we're taking. Which I'll tell you right now, some clients are appreciative of that strategy, of just saying, "Hey let me gear what I'm trying to aim for a rate of return based on my plan."John:Other things that we really look at is someone's risk tolerance, which I think in the last month or so people's risk tolerance kind of shifted a little bit because they saw some real volatility because we've been almost in that 10 year bull market with not a lot of pullback. So we really try to figure out, "Hey, what's someone's risk tolerance and how much can they mentally afford to lose?" There are some scenarios where we might stress test the plan and that's a case by case depending on the individual. But it's important that you kind of take a look and just stress test it to figure out exactly how will my plan work with any type of market pullback? And then we're going to touch on this later in the next session next week, but importance of kind of building the right asset allocation in your overall investment portfolio. Mark: Well Nick, a lot of people had the question, especially with the heavy downturns, it came so fast, obviously in response to the virus and so on and so forth. You have people saying things like, "Why don't you just close the market?" Right? They want you to shut it down or whatever. And we thought, well we closed it a little bit during 9/11 but that was a little bit of a different scenario. But you're effecting liquidity by doing that and that's another key component to an overall plan is understanding liquidity as part of the strategy. Nick: Yeah. So the speed at which this happened, one article that I read had pointed out that this bear market happened in half the amount of days as the one during the great depression, which was kind of an eye opening sort of thing to think about where it really only took us about 21 days to get here. And so the speed at which that happened, literally when you think about it, in between the time that people get their monthly statements, they've lost a significant amount of money. So to tie into the planning, and this is something that we've tried to reemphasize with clients as something that we take into consideration, but I think it's also helped maybe shed a little bit of light on us spending a little bit more time talking about it with clients as we're putting together the plan is having a liquidation order and a liquidation strategy. Nick: And so what we mean by that is, people tend to look at their money as one pot of money and they don't necessarily think about it as, some people refer to it as the bucket strategy and a lot of times that makes the easiest way to understand, where we have short term, mid term, long term money and in understanding that even if you are two years from retirement or in your first couple of years in retirement, et cetera, we still have a long time horizon. And we don't just shut things down from the standpoint of the overall investment strategy and shifting the cash and those sorts of things. Nick: So we try to review and make sure when we have clients that are taking monthly withdrawals, we usually look to set up six to 12 months of expenses, dependent upon the client, dependent upon what they're comfortable with from a risk standpoint. Set up six to 12 months in their account of cash so that they know they have that income. The emphasis that we've made with clients on keeping a cash reserve where some feedback that we've gotten over the last few years, "Hey, interest rates are so low. This money's just sitting there. I hate not having it do anything for me," et cetera. Nick: And we've kind of tried to hold the line and tell them, "Hey, we understand but that money will come in handy." And really the peace of mind that people have when we go through it and we kind of walk them through. It's like, "Hey, look at between the money that you have in cash in your bank account and the money that we have sitting in cash to be sending you your withdrawals, we have a year to two years worth of income without you having to sell any of your other holdings, which gives your money time to bounce back and not realize these losses that we've seen," really starts to help people understand the importance of having that liquidation order and liquidation strategy. Nick: And then also, from the standpoint of having the big broad based game plan, having a premise or an idea of when we're going to start social security, but then understanding that, "Hey, when things change like they are right now," saying, "Hey, let's look at t
16 minutes | Apr 2, 2020
Ep 16: CARES Act
The Coronavirus (COVID-19) is having a dramatic impact on our daily lives and many people are taking a huge financial hit from lost wages, a volatile stock market, and general economic uncertainty. Congress recently passed the CARES Act to try and help alleviate some of the financial impacts. John and Nick will give us the rundown on this new bill.https://floridadisasterloan.org/https://www.sba.gov/funding-programsHelpful Information:PFG Website: https://www.pfgprivatewealth.com/Contact: 813-286-7776Email: firstname.lastname@example.orgFor a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/Transcript of Today's Show:----more----Speaker 1: Hey everybody, welcome in to this edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. And boy, guys, welcome into yet another week of bizarro world. What's going on? How are you? Nick: Pretty good. Staying busy. We've just been kind of proactively trying to reach out to clients and put our psychiatrist hats on for the last few weeks. But we're kind of bunkered down working from home and just trying to stay in touch with everybody. Speaker 1: Yep. John, how are you man? John: Doing good. Doing good. Definitely doing the challenges of working from home with two little ones and homeschooling and all that, but we have my parents helping us quite a bit, so that's been a nice relief. Speaker 1: Okay, good. Yeah, I think we're all in that boat, so one good thing about all of this is we have the technology right now to continue to do some business and work. We're staying home, we're staying safe. So if you're checking out this podcast, don't worry, we're not doing anything wrong. We've been practicing social distancing, which is a new word in everybody's lexicon, for a while. We do these shows remotely anyway, so we're kind of ahead of the curve in that respect. But you can still work with John and Nick. If you've got questions or concerns, you can still talk with them via virtual meetings and things of that nature. And today we're going to break down the CARES Act a little bit. And Nick, I know you've got something you want to share real fast before we do. Nick: Yeah, the big thing that we wanted to make sure that we pointed out for this is that we see this session as more informative and not advice based. So we just want to make sure that everybody knows that sticking to the plan is ultimately the primary goal. And if any of the provisions of the new act and the new legislation are something that people think that may be something they need to take advantage of or use or might be applicable to them, we highly recommend that they consult with not only their advisor, whether it's us or someone else, but a tax professional as well. We just don't want to see anybody harmed longterm from any of the provisions inside of this act. Speaker 1: Yeah, definitely. Well, let's go ahead and jump into some of those provisions and let's talk about some of the things inside the CARES Act. Whoever the guy is or gal that gets the job of naming things there, they've been on a roll lately. They got the SECURE Act, the CARES Act, they all have these, whoever the czar of acronyms is ... John: Yeah, they definitely make you feel good, huh? Speaker 1: Yeah. Really. So hit us with some of these provisions, Nick. What do you got? Nick: Sure. So the first provisions that we're going to kind of review and go over are provisions that make people's money inside of their retirement accounts a bit more accessible without incurring penalties. So as an example, investors are now able to take out up to $100,000 in 2020 without paying the 10% early withdrawal penalty, which can be a big deal. So normally the early withdrawal penalty is a 10% penalty, so that penalty is waived for any anybody at any age. And then although that withdrawal will be a taxable withdrawal, taxes can be avoided if the money is replaced in those accounts within three years. So essentially what happens is, if someone needs to take out $50,000 from their investment account, their IRA, or 401k account, and they're taking it as a distribution, not as a loan, then the 10% penalty is waived if they're under 59 and a half. Nick: If they replace the money over three years, they can avoid any sort of tax on it, but they can also spread the tax on the distribution over three years, which then kind of builds in some flexibility and time to pay that back. So that's a pretty big deal. The distributions can be taken for corona-related issues, but really the rules are pretty loose. So we do recommend people kind of document what in theory they're using the money for and why, just so that they have some records. And for those of us out there that may need to take advantage of loans out of a 401k. So maybe you say, "Hey, I don't want to take a distribution. I want to take a loan." Typically, and these are usually plan sponsor dictated, but typically the maximum amount that somebody could take out via a loan is 50,000 and actually what's happened is they've increased that limit up to 100,000 of a fully vested balance. Nick: So that's a pretty big deal as well. And the biggest difference there, though, that people want to understand is when you take a distribution out versus a loan, a loan is typically going to have a preset repayment schedule. So if cashflow is a significant issue, the loan may be much more difficult to manage than the distribution. And the last thing, for those of our clients out there who are due to take required minimum distributions or RMDs, they are actually waiving that requirement for this year, which is kind of a big deal. So the thought process with that for people is, "Hey, maybe you don't need the distribution from your account, you don't need that additional income, and you're trying to let your account balance back after the hit it's taken in this market cycle. So why recognize the loss while you can keep the money in there for now?" And we just kind of pick up where we left off on next year. Speaker 1: Okay. John: Also, one thing with the loans as well that people should be aware of, and again it's up to the plan itself, is that if you leave your employer, so let's say you take out a loan and then something happens, you were to be laid off in a few months. Some plans have a provision where you have to pay back the loan within 30 to 60 days of your separation, so that's going to be important. If you're looking at that as an option, just understand that, "Hey, if I take out 50,000 due to what's going on right now," if you were to be laid off or separated from service in the near future, you may have to pay that 50,000 back in a certain timeframe. So it's just important to really understand where you're getting into and just really talk to a professional that can walk you through it. Speaker 1: Yeah. And obviously with the CARES Act, it's very fresh. At the time we're taping this podcast here, it just was a few days ago. So there's still going to be a lot of data coming out. The guys are sharing some good provisions and thoughts with you, but as always, as they mentioned, please check with a qualified professional before you take any action and see how it's going to affect you. So John, on that kind of front for a minute, how do you feel about these changes overall? Do you see these as being effective? John: Yeah, so I think anything to help people out during this time is good. Definitely a lot of people are nervous and scared, especially if you've been laid off or let's say your company is slowing down and you're not getting as much work. So this definitely helps alleviate some of that stress, saying, "Hey, you know what? I have this in my back pocket that I can access without the penalty, and there's nice rules in place where I can put it back in and avoid the taxes." So we ultimately think that's good. But as far as when we, and I believe our next session we're going to talk about planning, you definitely want this to be kind of a last resort type thing. You don't want it to be the first kind of bucket of money you go towards, cause when you save for retirement you want to set that money aside for retirement. John: So when we do planning for clients, we try to make sure that, "Hey, we have three to six months in emergency savings." Which basically this would constitute accessing that right now, it's an emergency and you have three to six months to kind of get you through your everyday living expenses. So we would say definitely kind of try to access some other money first. But this is the last resort. Again, it's just a nice thing to have in case you need it. Speaker 1: Yeah. Yeah. And I was going to ask you that. I was going to say, did it make sense from a financial retirement planning standpoint? But you kind of answered that question for me. So you kind of view this as hopefully people are going to view this as a last resort should they need it. John: Yeah. And like Nick mentioned, you really want, if you're working with someone important, to before you do anything, talk to that person you're working with to make sure what you're doing is right for your situation. Because as we know, and we say it when we teach our classes and we'll say it now and we say it during our podcast, everyone's situation is different. So everything depends on what's important to you and what your goals are. Speaker 1: Yep, absolutely. That is a given. Well, Nick, let's talk a little bit about the unemployment benefits. What's some data and some things to consider in this area? Nick: Yeah, so there's been a couple of changes in this act for unemployment benefits. So typically unemployment benefits are state to state, which will stay the case. However, really for corona-related unemployment what they have done is increased the amount that people can collect to an additional $600 per week for really the next four months. For example, in Fl
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