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, 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.
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 Kreinbrink bringing you today’s program. Hard to believe we are into May. It’s moving right along. I know kids at home definitely have that final countdown on for a number of days of school they have left in the year. I’m sure they’re not the only ones, teachers included, parents. It is moving right along. Hard to believe that another school year is coming down to another close. So want to wish a great rest of the year to all the students, all the teachers. Finish out strong and transition into summer. I know we also have coming up this weekend, Mother’s Day. So want to be the first two wish all the mothers out there, a very happy Mother’s Day.
Hopefully it’s a special day for everybody. Hopefully weather cooperates and you can get outside and enjoy some of the beautiful weather. I know it’s been a long time coming, so hopefully it is here to stay and we can get outside and enjoy that. For today’s program, a lot of topics kind of in the news recently. We have some key inflation data reports coming out later this week. Fed raised interest rates again last week by a quarter of a percent. Seeing what that does to play with the markets. Big picture wise, wanted to kind of tit on retirement planning again. It is a topic that continuously comes up. Those individuals that are within a couple months from maybe retiring, those individuals maybe a couple years out from retiring. Ultimately, it is the goal for everybody as you are working, how long do I need to work?
What do I need to have saved in order to be able to retire and make it work for me? I know we always run the joke as far as that we only want to retire once. So again, it’s a lot to kind of transition into that next period and what it all entails. And oftentimes it becomes overwhelming with people as they get closer to that data and they realize all the decisions they need to make, how everything all kind of plays together and everything kind of all happening at once. And I think the first thing that needs to be answered, and it’s the most common question that I get when people start asking me about retirement, is how much do I need to have and how much do I need to have saved in order to retire? Which seems like a fairly straightforward question, but obviously as with so much other things in our business, it’s kind of a gray area because in order to answer that question, you have to first answer the second part to that question, which is what do you need?
And that is looking at expenses, that is looking at any debt, that is looking at what type of lifestyle you want to live in retirement and coming up with that number. Once you have that number, you’ll be able to get a little bit closer on as far as answering that first question as far as how much you need to have. Because again, the more you need in retirement, the more debt you have, the more monthly income you need to fund the lifestyle that you want to live in retirement will determine how much you need to have. The more you need, the more you’re going to have to have. The less you are going to need, you’d have very little debt, pretty simple lifestyle, then obviously the less you would have to have saved in order to fund that retirement. And I encourage people a lot of times, especially those within a year or so of retirement especially, is to sit down and make a budget.
Go through your monthly expenses, see how much you spend, write everything down, and kind of do that month over month over month over month leading up to your retirement. That will give you a pretty good idea as far as what it will need in order to live off of retirement. And oftentimes when people do that little exercise, they become kind of overwhelmed as far as how much they are actually spending in these certain areas. And maybe there are some areas where they could cut a little bit. But again, what that does is it gives you an idea as far as what you will need in retirement for expenses, for obviously your utilities, any remaining debt you have, anything like that to do that. So again, answering those two questions, answering that second part first will help tremendously as far as in answering that first one and giving you an idea.
And obviously the further out you are from retirement, you start having those discussions, the more opportunity you are going to have in order to kind of continuously save, save more, see where that’s going to come into to play. Maybe attack debt a little bit quicker than maybe what you thought you were in order to answer those questions. So again, one big concept is people head into retirement. The next big one is starting to look at those cash flow items. And obviously the biggest kind of, I guess unknown to a lot of people, one of the biggest assets that people will have in retirement obviously is their social security benefit. And there’s still so many unknowns as far as the options that people have as they transition into claiming social security that oftentimes, again, the old adage, you don’t know what you don’t know, which ends up having people kind of file for that benefit maybe earlier than maybe what they should have.
Maybe leaving some options on the table where they could have maybe potentially had a bigger benefit for a longer period of time. But again, understanding your social security benefits and the options that are available to you. And we always say when you retire and when you file for social security benefits needs to be two separate decisions. Again, it doesn’t mean that when you retire, you can’t take social security, but we don’t want to file for social security just because we are retiring. We want to look at every other option that is out there and understand, okay, what is the benefit to filing now versus maybe delaying a year or two or three or a few years down the road? Are there any other opportunities that are available to me that I can take advantage of before turning that income switch on?
When you look at your social security benefit, it’s important that you know what your full retirement age benefit is. So if you were born in 1954 or earlier, your full retirement age is 66. If you were born in 1955, it’s 66 in two months. If you were born in 1956, it’s 66 and four months and so on up until if you were born in 1960 or later, your full retirement age is 67. If you take it prior to your full retirement age, so if your full retirement age is 66 and you take it at 64, you’re going to have a reduction of your benefit because you’re taking it early. Likewise, any year that you delay your benefit past your full retirement age up until age 70, you will get an 8% increase every year, again, up until age 70. So again, it’s important to know that and know that if I do take it early, I am locking in a reduced benefit for the rest of my life.
If I would pass away and I am married and my benefit was the bigger benefit, now my surviving spouse would then get that reduced benefit as well. So again, it’s looking at it maybe not just necessarily for you, but if you are married, we want to look at coordinating those benefits to see how that is going to play out, not just while the two of you are alive, but again, under the unfortunate circumstance that one spouse passes away, is that survivor benefit that’s going to continue on to the surviving spouse going to be enough to help them out with it. Another part of cash flow that goes into it is pensions. Understanding what options are available to you if you are fortunate enough to have a pension through your employer. Is there a lump sum option? What are the monthly payout options and how much are they going to be if it’s just paid out to you as the worker?
Or if there’s payout options to pay out to a surviving spouse? Which one of those we want to look at? Understanding Medicare. Medicare, obviously eligibility is normally 65 for people, but understanding the options as far as that are out there for it. Your part A, your part B, your part D drug plan, your any [inaudible 00:09:14] policies, any Medicare Advantages, Part C that goes into it. So again, there’s all these different options out there. It becomes overwhelming. The closer you get to 65, you will get a bunch of stuff in the mail because you are on their magical mailing list that you are getting close to Medicare age. So they are going to start sending you and bombarding you with a bunch of literature. It’s important that you talk to somebody that you trust that understands it, that says your unique situation, what conditions you have, what doctors you go to, what prescriptions you have, what is going to be the best option for you, and make sure that you plan accordingly with that.
Don’t just take a plan because your neighbor or your coworker did. It usually does not end well for that because it is all different situations. And then obviously any tax planning. We talk tax planning, we talk taxes the third Wednesday of every month with Andy Ferguson or Mike Vanzutan with NelsonCorp Tax Solutions. Tax planning and retirement is one of your biggest things that people kind of overlook. Taxes and your health insurance are going to be your two biggest expenses in retirement. We can kind of control taxes by doing some planning. Again, when we retire, our income usually takes a little bit of a dip, okay? Prior to any social security, prior to any pension coming in, we want to look at when that income dips, are there any tax planning concepts that we can take advantage of during those years to maybe bridge the gap to delaying social security a little bit?
All of that goes into play in order to maximize your assets. Again, and we always say, it’s not what you have, it’s what you keep. And a lot of times that what you keep is determined on how much you pay in taxes on that money. Again, those money coming out of traditional 401ks, traditional IRAs, 403Bs, things like that, it is taxable to you in the year you take it out. Okay. If I take it out in a lower tax bracket year, I’m paying less tax. More in my pocket, less to the IRS. If I take that out in a higher tax bracket, well, that obviously the opposite is true. More tax being paid, more to the IRS, less in your pocket. How can we plan? How can we maximize that? And obviously we want to have a plan for the unexpected. We all know life happens.
If things do go as unexpected with a car repair, house repair, health condition that needs, whatever the case may be, how are we going to address that plan and how are we going to be able to address that plan and stay on course with our normal retirement? So again, a lot of stuff to kind of think about as you navigate through this. Again, it can be overwhelming. Again, you want to work with somebody that, again, has done it before, has helped people navigate it through them, different transitions of life. And again, making sure that we have all of our bases covered because again, it should be that transition. We don’t want to have any other additional worries, any additional stress because it is a change. Changes doesn’t necessarily have to be bad, but it also, again, can become overwhelming and we want to make sure that we get that taken care of.
You have questions on any of that, you’re thinking about it next month, next year, down the road, whatever the case, give us a call. We’d be happy to sit down and kind of start that discussion and that process with you. Before I do run out of time today, I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of May will be donated to the YWCA Children’s Center. Again, this is Nate Kreinbrink with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
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 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.