Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives. Securities offered through Cambridge Investment Research, Inc., a broker dealer. Member of FINRA/SIPC. Investment advisor representative. Cambridge Investment Research Advisors, Inc., a registered investment advisor. Cambridge and NelsonCorp Wealth management are not affiliated. Cambridge does not offer tax advice. Now, here’s today’s Financial Focus program.

Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here KROS. Well, this is Nate. James’ joining me again today. Last show of August. Kids back in school.

James Nelson:
Hard to believe.

Nate Kreinbrink:
Hard to believe. Labor Day weekend coming up here and flipped the calendar to September already. Man.

James Nelson:
Yeah. Certainly feeling like September-October weather out there today. I kind of liked this August weather. I’m not big on the heat. Kids back in school. It’s a busy time.

Nate Kreinbrink:
It’s been nice to open up the windows although I don’t necessarily like what’s coming after. I did see on an article the other day that Farmers’ Almanac is calling for another rough January-February.

James Nelson:
Don’t say that.

Nate Kreinbrink:
We’ll see how true that holds up.

James Nelson:
Hopefully not.

Nate Kreinbrink:
As we get closer to the end of the year, I know James, you sat in on quite a few of them, I’ve had quite a few of them, as far as individuals looking to possibly retire at the end of the year and some questions that they may have as far as what they should be doing maybe now and then obviously at retirement with their retirement assets. It brings up a lot of different questions as far as what they should be doing. Obviously, keep it in the plan until they retire. Keep it in the plan after they retire. Roll it over to an IRA at retirement.

Nate Kreinbrink:
We’ve seen a lot more of people going the route of inservice rollovers, where if you’re over 59 and a half and your plan permits it, you’re able to take a chunk of your 401k assets and roll it over to the IRA while you are still working. Obviously, there’s no tax consequences due on that transaction. But again, I think it’s something that people are really starting to look at a lot more, especially with the volatility that we’ve seen in the markets coming back into it, maybe some limited options inside of their 401k, and maybe gives them a better approach and a better kind of state of mind as far as how they’re invested as they move forward nearing retirement or at retirement.

James Nelson:
I think people are starting to realize they can’t take that big hit. You know? We haven’t seen a lot of volatility in the last several years until now, and I think people are starting to become aware of that. Hey, I can’t take a 30 or 40 or 50% hit if this thing goes deeper. Where does that leave me? I can’t retire on time,” blah, blah blah. Yeah. I think people are noticing that. It’s also becoming more obvious to them that 401k plans have a lot of liability, which means they have to really cut down on their investment options. They’re all pretty plain vanilla options and people are expecting a little bit more. The IRA route, doing an inservice rollover, like Nate said. Most plans allow it at age 59 and a half or greater.

James Nelson:
People are starting to realize that maybe I can get some better investment options, hopefully increase performance, maybe get some professional management on that money leading up to retirement for an extra couple of years versus waiting until 62 or 65 when I retire and then I roll the money over. I think the volatility certainly played into that, but also the fact that people are starting to understand that investment options are limited inside the 401k plans and they want something else.

Nate Kreinbrink:
Right. I think that it comes down to the big thing, like you said, it’s just that limited investment options and then that management advice that they are kind of their hands tied as far as the inside of their 401k plan. Now again, this needs to be understood that not all plans do allow in-service rollovers, so you need to check to make sure your plan does allow it. Again, you do have to be 59 and a half or older to be able to do that. But if your plan does allow it and you are over that, I think it’s definitely something that you need to consider because as James said, the volatility that we’re going and especially for these people that are looking at retiring at the end of the year, maybe at the end of the first quarter of 2020, their account balance in their 401k is at one of the largest times that it’s been.

Nate Kreinbrink:
They’ve been through ’08-’09 when their account was basically cut in half, and they all of a sudden take a big hit. We have some volatility that comes here towards the end of the year if that happens. They can’t afford to have their account be hit like that again. Again, that guard rails approach that we always talk about as far as our money management, being able to kind of get out of the way, having someone that does it on a daily basis do that for them I think allows them to be able to kind of regroup, relax, and just make that decision on whether or not it is the right time for them to retire without having the fluctuation as far as their account balance possibly going into there.

Nate Kreinbrink:
Again, it’s really something that I think people often don’t consider. They see it in their plan if it is an option. They don’t really know what it means. Then they look at, “Well, I’m going to be retiring in a couple months anyways.” Well, I think we’ve seen over the last obviously couple of weeks, I mean particularly, but over the last year or something, volatility can hit and it can hit hard at any given time. Again, yes, you may be only a couple months away, but again, we still want to be able to protect that asset so it is the biggest, so we can take full advantage of that during our retirement.

James Nelson:
I go back to just looking at the amount of plans that we look at on a daily basis. Most of the stock positions are fine. When markets are working, nobody really cares, you know? Things are moving up. It’s the fixed income, the bond side of things, the more conservative holdings in times like now that generally we see the plans lacking. They’ve got an international bond fund and a US bond fund. Well, you know, that’s not very good options. That’s nothing basically. Again, I just think people are becoming more aware of that and expecting a little bit more. The IRA route is perfect because you’ve got tens of thousands of investments versus maybe a list of 20 or 30 different funds. Anyway, I think people are aware of that and certainly when volatility picks up, they become much more aware of that.

Nate Kreinbrink:
Right. I think even going a little bit farther with the fund options inside of plans is yes, they may have 20 or 30 of those plans, but probably over half of them are target date funds, meaning that they’re just going to get more conservative the closer that they get to retirement. If you want to go to a particular sector or particular asset class that you want to get to as far as the exposure that you want, you’re limited to what you can get in there. Then as far as… I mean, with the stock options, having anything as far as international emerging markets, things along those lines. We’ve talked in numbers times. David’s been on the show talking numbers times.

Nate Kreinbrink:
As far as the US market, I mean given everything considered, has been one of the leading markets globally. International market, emerging markets have been hit hard and have been down low for quite a period of time. Whereas potentially look into the future with a crystal ball, US markets go down, there may be some opportunities elsewhere globally that we would maybe want to look at, where inside of 401k plans you don’t have those options.

James Nelson:
Right. Right. It’s just limited. Again, from the company’s standpoint, they’ve got a lot of liability. We’re not throwing the company plans under the buss. We get it. It’s just limited. The other big item is lump sum pensions. We talk about this all the time on the show. Again, companies continue to move this direction where they’re offering lump sum pension buyouts for employees that have been there long enough to have a pension. They’re saying, “Hey, we’ll give you a lump sum check or you can take your pension as is,” and that’s something that people consider. Again, a lot of companies in the area are doing this and continue to do this with employees that have been there for quite some time.

James Nelson:
Pensions are kind of turning into a thing of the past. But those that still have that option, they see that big number. Maybe that’s a good option. Maybe it’s not. We really stress the importance of sitting down with an advisor. Sit down with us and we’ll crunch those numbers because there is a big difference between what one person may be offered compared to maybe somebody else who hasn’t been there as long or whatever the case may be. It’s not a guaranteed thing where we want to jump on that big lump sum, but in some cases, it really can make sense.

Nate Kreinbrink:
Right. I think that just comes down to trading in a lifetime check versus the liquidity, the flexibility of having the control of how you’re taking that money out. Again, like James said, it goes down to every situation. I mean, those individuals that may be have a little bit higher expenses, whatever, that maybe not as high of a 401k balance or something like that, it may make sense to have that lifetime check to make sure that they have a steady stream of income coming in. Whereas someone that maybe doesn’t quite have as much debt, that really has the flexibility, that they don’t necessarily need that additional flow of income every single month, social security would have that.

Nate Kreinbrink:
Maybe a spouse has a pension that they don’t have that lump sum pension with, maybe that rollover comes into play. But again, all those other options that we talked about as far as having it managed, having it fit into the overall retirement plan, coordinating it with social security, Medicare, social security taxes, all that type of stuff all comes into play. Again, making one of those decisions without factoring in everything else is basically making a decision blind. I mean, you have to make sure you know what making that decision, when you make that decision, and how it’s going to impact everything else not only five years down the road, but at that magical age of 70 and a half. When one of the spouse dies, how’s that going to effect the pension?

Nate Kreinbrink:
Can you do it single life or can you have it continued onto a spouse? Again, everything that needs to be considered and made and done correctly.

James Nelson:
Yeah. It’s no different than the conversations we have with social security. A lot of people make these decisions based on, “Oh, the guys at work said that they’re taking a lump sum, so I better take it too, or the guys at work are drawing social security at 62, so I might as well.” It really makes a difference. When you’re hired, how long you’ve been there, all of these things play into it. Please don’t make that mistake where “everybody else is doing it, so I should jump on it as well.” It might not be the the perfect scenario for you.

Nate Kreinbrink:
Right. I think as we all said and the main thing too is don’t wait until the last minute. I mean, don’t say, “Hey, I’m going to look at retiring next month. I’ll go talk to them after I retire when I have some more time.” You want to start talking now as early as possible, years ahead of time just to have an idea to make sure that when you do make that decision and you walk out the door of your employer for the very last time, you’re confident in your decision and you know what’s going to be taken place.

James Nelson:
Yup, exactly.

Nate Kreinbrink:
We are kind of running out of time, but I did want to mention that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of August will be donated to the Gateway ImpACT Coalition. 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 the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative. Securities offered through Cambridge Investment Research Inc., a broker dealer. Member of FINRA/SIPC. Investment advisor representative. Cambridge Investment Research Advisors Inc., a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.

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