Announcer:
It’s time now on KROS for Financial Focus. Brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA S I P C investment advisor, representative Cambridge Investment Research Advisors Incorporated, a registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s financial focus program.
Nate:
Good morning. And welcome to this week’s financial focus brought to you each and every Wednesday morning right here on KROS. This is Nate, James joining me today. Kind of another hard idea as far as what the weather’s going to be like going on in here. We’ve had, I think almost about all four seasons again for another week, and it looks rain, cold, wind, who knows what we’re going to get for the next ones. It’s been kind of challenging.
James:
Yeah. Another cold start makes it challenging too for sports. You know, I know a lot of track meets have been canceled. You’re getting in the swing of baseball, I’m coaching soccer. So yeah, it hasn’t been all that fun getting out and practicing with conditions so far this year.
Nate:
40 mile an hour winds trying to hit a popup to the outfield and trying to get it to a kid is not fun. You got to play I so it falls in there and it’s just blowing all over. Definitely a circus when you’re trying to do that. But again, it’ll probably be like other years where all of a sudden, when it turns, we’re going to go straight to 95 and it’s just going to just start heating up. No, again, we had a middle school track meet last night and talking to a few guys, they’re looking to get out in the fields as far as to get planning and to get all that stuff going, for a while there we were kind of short and kind of drought and needed the rain. Now it just seems like it’s not giving us a chance for it to dry out and to get out and get everything planted.
James:
Yeah. I think farmers are going to battle it here for the next couple weeks it looks like. But one of these days we’ll be able to-
Nate:
One of these days we will. And again, then we’ll complain that it’s too hot. So I guess it’s always something. So again, getting into to program, I know James and I had talked, had Andy Ferguson with NelsonCorp Tax Solutions on last week, kind of just recapping the tax season, just hitting a few things that he had saw throughout reiterating those individuals that filed for an extension past the April 18th deadline. That’s just an extension to file your taxes, not an extension to pay, should you owe in to them. So again, wanted to hit that again.
Nate:
But James and I was kind of gone over a few different things in an area that we’ve seen kind of a lot lately with some of the meetings that we’ve had is the pension options and lump sum versus taking the monthly paychecks and where that fits into everybody’s individual situation, what things they need to look out, how it plays into the big picture with other assets they had saved. I mean, obviously social security too is kind of the same decision making process when you go through it. But understanding what those options truly are, not just for you, but if you’re married, what that would mean for a surviving spouse as well.
James:
Yeah. And understanding that the environment that we’re in right now, where a lot of these companies continue to want to offload these pension plans. So this lump sum option, which used to be only available, I would say maybe 40, 50% of the time, who knows? Now it’s almost 100% of the plans offer this lump sum option to kind of roll the money out, now it’s yours and you’ve kind of got control over that. Now that’s not all bad, I mean, there’s pros and cons to both, taking a lump sum pension gives you kind of control of the money, control of your own destiny versus being subject to any issues that the former employer may have. So that’s generally a positive.
James:
You also have liquidity now, where if you do need to take a chunk of money or you need to put your hands on just more than a monthly check, you now have that option as well. So, it’s becoming a more common offer and I think more of that’s going to continue just given the low interest rate environment that we’re in, companies are just struggling to make these pension plans work, struggling to make these payments, so more and more of this is going probably continue to happen and people need to know their options and they need to weigh those options.
Nate:
Right and I think you hit it there where it said, where does this fit into your monthly cash flow in retirement? And again, it definitely comes down to, okay, you being in charge of your big pile of money versus the pension plan being in charge of your money. And again, if you’re a discipline saver and then you can roll it out into your own accountant and take the monthly distributions as needed, you can make that last throughout your retirement. We’ve read stories, we’ve seen horror stories as far as individuals that do that though and basically treat that big pile of money that gets rolled out for their entire retirement as a piggy bank. Next thing you know, we’re 10 years into this thing and we’ve pretty much blown through it all and we have nothing left for the last 20 plus years of our retirement.
Nate:
So again, there’s different things and how disciplined are you when it comes to your own liquid assets, being able to, again, make this money last. Do I want to just have that pension plan send me a paycheck for the rest of my life and/ or my spouse’s wife and not worry about it? Or am I good enough taking that big pile of money and then be in kind of my own banker as far as the monthly distributions that come out of that.
James:
And there’s a risk either way, right?
Nate:
Right.
James:
I mean, even if you wanted the lifetime income and you wanted to take that pension check, there’s no guarantee that the company’s going to be able to make those payments 20 or 30 years down the line. We’ve seen several, Nate, where companies have to tweak the rules, just at some time downstream and now instead of getting 2000 a month, I’m getting 1500 a month because the pension plans running out of steam. So it is, it’s a risk either way, you take the lump sum and markets don’t cooperate, that’s the risk of having the money in your name. So it’s trying to balance those things, trying to see where that fits and the overall plan. Some people liquidity’s not a big deal, they were a good saver and they’ve got 401k money, they’ve got IRA money to kind of fall back on.
James:
They may rather have that check. Some people, it is a big deal and they don’t have as much liquid money and they prefer to have that cash available to them if they need it. So it’s really trying to weigh the options and figure out where that fits in your situation versus kind of a blanket statement that take the pension or take the lump sum. I think some people think it’s a pretty easy decision. It’s worth some analysis and it’s worth having some conversations and weighing those options.
Nate:
Right. And then normally that decision comes down to when you have a retirement or you have a separation event later on, as you enter into retirement, you give your kind of two week notice or whatever to the company, they send you a packet, you elect whatever option you want to do and you move forward. We’ve seen it a couple times here just recently with a few clients that we’ve met with, as far as John Deere offering a different pension options to employees that are currently still working and basically allowing them to elect how they want their retirement monies that they put in versus what the company has put in, which option they want to look at, and that’s again choosing now while I’m working what I want my pension to look like when I retire.
Nate:
So again, that’s a transition and something that, again, one of the first ones that I’ve seen allowing the workers to pick that while they’re still working, but again, they get this packet saying, Hey, you need to make this decision, you need to turn this in by a certain date and then we’ll go with it. It’s a little overwhelming. And then again, looking through the packet, understanding what those options are and what is going to be best for them and what are they giving up? What are they gaining by each side of those options? It’s an important decision and we want to make sure that you understand which side you’re picking.
James:
And it’s not an easy decision. I mean, but like we said, there’s pros and cons to both. The other thing that I think gets overlooked sometimes is even if we do make that election to start the pension and take monthly income, there’s a fair amount of decisions within that one. How am I going to get that payment? Is that for my life only? Am I going to include my spouse as a 50% recipient if something happens to me? 100%? Sometimes 75% an option. Then you’ve got the 10 year certain where you know that for a period of time, it’s going to be paid. So, even making that election to draw the pension, draw the monthly income, that’s not everything, there’s more detail that lies in that decision and in trying to calculate those numbers too, is very, very important.
Nate:
Right. And I think people don’t necessarily always understand that option as well, too. You pick a single life, you pass away, payments stop.
James:
Right.
Nate:
There’s nothing else that’s getting passed on or whatever. You pick a spouse, you pass away, your spouse gets payments until the end of their life, then payments stop. The 10 year certain, again, you look at it, somebody for 10 years is going to get it and 10 years and one month, nobody’s getting anything anymore. And that’s again, another part of the trade off as far as again, should you need the money how is this going to get passed on? Should I died early? Should I live a long life? Is there going to be anything left over? How does that get treated too? And each side is different with that as well. And again, you gain things. You give up things with whichever route that you go to.
James:
And I think that’s a big driver generally in conversations to taking that lump sum option is, what happens if something happens to me? I want to be able to hand the money off to either a spouse, kids, grandkids, whatever the case may be. I would say that’s a primary driver of taking that lump sum option as having that option to hand money off.
Nate:
And again, just flexibility. I mean, the guaranteed paychecks, you turn that pension on, you’re going to know that you’re going to get X amount of dollars every month for whatever option you pick. You need a little bit more? Well tough, you’re going to get this amount. You don’t need it this month? Tough, you’re still going to get that amount. So you have that guarantee versus the flexibility where you rolled over to a lump sum, you don’t need any next month or whatever, you can shut it off for a month, you don’t necessarily have to take it or you’re going on vacation and you need a little extra, you have that flexibility to take a little bit more than maybe what you got in there. So a lot of different options, a lot of different boxes to kind of go through, to check, to see which one kind of fits for you. You’ve got questions on that? Give us a call.
James:
Yeah, absolutely.
Nate:
Did want to mention real quick before we run out of time that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of April will be donated to the Clinton County Resource Center. James as always, appreciate you joining me this morning.
James:
Sure.
Nate:
Again, Nate and James with NelsonCorp Wealth Management, bringing you this week’s financial focus, thanks for tuning in and have a great rest of your week.
Announcer:
Financial focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly, registered representatives securities offered through Cambridge Investment Research Incorporated, a broker dealer member FINRA S I P C. Investment advisor representative Cambridge Investment Research Advisors Incorporated, a registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information visit our website at www.NelsonCorp.com