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 of FINRA/SIPC, 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 Kreinbrink:
Good morning, and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate James joining me again today. Another pleasant morning out there today, and we’re just not quite there with that snow yet. It’s still hanging around a little bit.

James Nelson:
Yeah.

Nate Kreinbrink:
It’s going to be a while, I think, before it’s all melted.

James Nelson:
I know, but at least the forecast looks good and slowly we’ll get rid of this stuff, I think.

Nate Kreinbrink:
I think so too. 60 degrees [inaudible 00:01:09] maybe the extended forecast, which is a great thing. Good time of the year, I always like it to know the warmer weather coming around. Obviously, high school sports, a lot of teams heading out to state in the area. I want to wish them the very best of luck as they make the journey to represent Eastern Iowa out there in Des Moines. Again, wish them the best of luck. But just a good time of year, exciting, warmer temperatures. I think everybody is more than excited to see those coming in.

James Nelson:
Yeah. Spring training too, Nate. You forgot that.

Nate Kreinbrink:
Baseball.

James Nelson:
Baseball’s back, so that’s nice to see you, finally.

Nate Kreinbrink:
So today’s program, I know the last couple of weeks, we’ve kind of broken down some specific topics. James and I covered social security and claiming benefits and coordinating those between spouses. The week before that, John was on with me and we talked 401Ks and what you should do and what your options are as you transition from working into retirement. Obviously, having Mike and Andy from NelsonCorp Tax Solutions on for a couple of weeks talking tax planning, tax preparation, and what people should be looking at with that. I think it just goes to show and it’s a reminder of just all the different parts that go into the planning process. There’s different pieces to the puzzle, and they all need to fit together in order to move forward and move forward effectively. And I think that’s where, again, that planning process that we always talk about, having a plan, sticking to that plan, understanding how they impact each other is extremely important as you transition from working into retirement, and am I going to be able to make this work?

James Nelson:
Yeah, absolutely. And I think one of the topics that we maybe haven’t chatted about a whole lot recently, it’s just been the investments, that’s the fun part. Everybody likes talking investments. Social security and Medicare and estate planning, taxes maybe not as exciting, but the investments generally are. And that, again, goes back to an important piece of the overall plan, having a coordinated strategy, whether it’s 401K, retirement money while you’re still working or money that may be invested outside of a retirement plan, having a coordinated plan and process there is very important, especially as we get towards, we’re back to basically all time highs in the markets.

Nate Kreinbrink:
Mm-hmm (affirmative).

James Nelson:
The bond market acting funny right now with real low interest rates. And now since bouncing the last couple of weeks, we’re just in a strange period of time in the investment world. We’ve got another stimulus package probably coming down the line here in a pretty short amount of time. So, again, knowing how some of these changes are going to impact a portfolio is vitally important. And when we find we sit down with people, maybe it’s on autopilot, set it, forget it, participants know that money’s going into their retirement plan, but maybe don’t know quite how that money’s being allocated or how that money’s being invested, having that conversation and make sure clients know what they own, especially in these times, is crucially important, and again, a very important part of the overall planning process.

Nate Kreinbrink:
Right. And I think we go back to the old adage that comes up all the time, “It’s not what you have, it’s what you keep,” and understanding exactly, okay, everyone does the heavy lifting as far as accumulating assets up until retirement. The hard part is breaking them down, and how do we effectively utilize those assets in, one, the most tax efficient way in order to keep more money in your pocket essentially and paying less in taxes and whatever the case that may be. One other aspect that comes into play and people don’t necessarily realize this as much is the Medicare and how Medicare premiums are determined. And essentially what they’re doing is they’re looking back two years to your income that you’re making in that year or two years ago’s income, and that income is what’s going to determine how much you pay in your Medicare premiums.

Nate Kreinbrink:
So if you had a big windfall of money or you took a big distribution from a tax deferred account on top of your pension, on top of a social security, it may trigger a tax on your Medicare premium where you’re going to end up paying more. Oftentimes, double, triple, I mean, there’s five different tiers so it continues to go up if you continue to hit those thresholds. So, again, what you do, decisions that you make, have an impact down the road. And if you’re not having those, you’re going to have something really bad happened to you unexpectedly from something that happened possibly years ago.

James Nelson:
Yeah, that’s a critical point there, because I think that gets ignored a lot of the time. Medicare is not something that a lot of folks are paying a whole lot of attention to until they’re really there.

Nate Kreinbrink:
Right.

James Nelson:
And that’s important. Going back two years, that makes a huge difference. The other big one I feel like, Nate, is the required minimum distribution.

Nate Kreinbrink:
Mm-hmm (affirmative).

James Nelson:
That was always that goofy age of age 70 and a half where you you’ve deferred taking money out of those retirement accounts long enough, the IRS basically says, “Hey, you’ve got to start taking a percentage out.” It’s between 3% and 4% the first year, and then goes up each year beyond that. So that’s one that gets ignored. And, again, if people close their eyes to the factor, they don’t feel like they need the money, “Hey, I’ll worry about it down the line,” that age 70 and a half now has been bumped back to age 72, which is a little easier for everybody to remember, but still, it could be an issue if there’s not any planning done and it’s ignored. That could be a big number and really blindside folks with a tax bill if they’re not ready for it. So yeah, I think the Medicare premium and the RMD amount are two things that probably are not looked at quite yet.

Nate Kreinbrink:
Right. And I think people come in a lot of times, like James said there, and not knowing that they’re creating that problem for themselves later on.

James Nelson:
Right.

Nate Kreinbrink:
And they think they’re doing well, and they are. They’re putting money away in their 401K. It’s tax deferred. They get that tax deduction. Everyone’s happy. Any company match goes into that pre-tax bucket of money as well on the 401K. They walk off the job, they have this big pile of money, and they don’t understand that big tax liability that’s going to be hitting them at age 72. And, unfortunately, we have to look at sometimes the bad instances in life. But, again, if one of the spouses passes away, now all of a sudden that surviving spouse has that tax deferred account. Now, all of a sudden, they’re filing taxes as a single tax payer instead of a married filing jointly tax payer and all of a sudden those taxes that they thought they were paying at a certain level are up higher, because they’re up in a higher tax bracket.

Nate Kreinbrink:
So, again, it’s a lot of that planning and understanding again today, it may be 10 years, it may be 20 years, it may be 30 years down the road, whatever the case may be when you hit these magical milestones as far as in the financial world, but understanding that what your situation is now and what it’s going to be for you later on. And, again, we don’t know what taxes are going to be at that point in time, but again, looking at it and giving yourself options to be able to do some planning, to be able to have options as far as where do I pull money for income, maintaining a certain tax level, is only going to benefit you as far as throughout your retirement.

James Nelson:
And I think it goes back to you can’t really change one thing without impacting most of the others, right?

Nate Kreinbrink:
Absolutely.

James Nelson:
You can’t change the investments without maybe impacting your tax situation, your social security, and your Medicare premium. I mean, they all almost go hand in hand, and I think that tends to get overlooked as well. Somebody wants to make a change over here, how is it impacting the other things? And generally people find out after the fact. So just knowing that a lot of these pieces really go hand in hand, and if you make a change in one area, it’s probably going to impact the others. And that’s, again, what our planning process does, is it really maps that out. It really shows the overall plan on, “Hey, if I change this, what’s that going to impact over on the other side of the ledger?” And it’s a really good thing for people to go through that process and see it, otherwise, a lot of these things can get overlooked and really cause problems down the line.

Nate Kreinbrink:
Right. And I think it just goes simply to people just don’t know what they don’t know.

James Nelson:
Mm-hmm (affirmative).

Nate Kreinbrink:
And it really comes down to that. It’s not like they’re potentially, I mean, inadvertently missing anything. They just don’t know all the things that go into it, because, quite frankly, they haven’t retired before.

James Nelson:
Yeah, right.

Nate Kreinbrink:
So they haven’t been through this, they don’t know what exactly to look for moving forward. So that’s, again, before you make that big decision in your life, and it is a big decision, I mean, you’ve been working all these years or whatever, now all of a sudden I’m going to go to a point where I may not potentially have that steady paycheck and have I done enough up to this point to be able to make it work? And that’s where, again, working with somebody that has been through it, that has helped people transition, that is going over and checked all these boxes to make sure we have it covered, that nothing unexpected, you don’t want to have that unexpected expense or tax bill or something come up when you’re retired and you don’t have that steady income coming in, because it’s tougher to adjust to it, it’s tougher to adapt to it and to be able to handle it.

Nate Kreinbrink:
So, again, if you’re getting close, I mean, at any point in time, it doesn’t hurt to sit down with people and just go over what you’re doing. “Am I on the right track? Am I doing the right thing? What would you recommend?” There’s a lot of different questions. Again, it’s like going to the doctor and getting a second opinion.

James Nelson:
Yeah.

Nate Kreinbrink:
I mean, it does not hurt to get a second opinion and just to have another set of eyes on it and helping you out along that way.

James Nelson:
I think more than anything it’s answering that question, “Hey, can I retire?”

Nate Kreinbrink:
Right.

James Nelson:
“Hey, I’ve got this magical date. I’ve got this timeframe where, hey, I want to call it today at 62 or 65 or whatever. Is that doable?” And most people, I think it’s a shot in the dark and they hope it’s going to work out. Going through the planning process really helps answer that question.

Nate Kreinbrink:
And you look at both sides of the pendulum on that side? I mean, everyone looks at, okay, assets, how much do I need to retire on? Well, you have to look at the other side too and it plays a bigger importance on it is, what do you need? I mean, what debt do we have coming into retirement? What are we going to need to live off of? That will determine how much you need to have in order to retire. So a lot of times, people always think about, “Okay, this is what I have. Is it going to work?” Well, you have to look at what you need. I mean, what am I going to have to pay in order to do that? So a lot goes into it. We be happy to sit down with you, look over it, and provide any guidance that we could. Again, James, we get rolling on this show, time goes really fast once we get rolling on these topics.

James Nelson:
Yep.

Nate Kreinbrink:
But did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of March will be donated to the Arch of Clinton. James, as always, appreciate you joining me this morning.

James Nelson:
Yep. Happy to be up here.

Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management bringing you this week’s Financial Focus. Thanks again 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 representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member of FINRA/SIPC. 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.