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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/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 on KROS. This is Nate and James joining me today. Another kind of brisk fall morning out there on the walkup today. Getting a little chilly.
James Nelson:
Yeah, fall’s definitely here and we know what’s right behind that. [crosstalk 00:00:59] here.
Nate Kreinbrink:
Hard to believe we’re at the end of October. You see all the plans for Halloween, trick or treating, and all the parties in school coming up and-
James Nelson:
A parade on Monday.
Nate Kreinbrink:
Parade on Monday. The year’s definitely moving right along.
James Nelson:
Yep. Yep. No doubt. I know my daughter’s hoping for a decent night on Monday. We’re going to be in the parade on one of the floats. Usually it’s about 10 degrees that night, so we’ll see.
Nate Kreinbrink:
It looks like it’s supposed to get cold again.
James Nelson:
Yeah, we’ll see.
Nate Kreinbrink:
On this week’s program, I know the last couple of weeks we’ve talked kind of more specific on the overall planning process that we look at when we sit down with individuals from tax planning, to social security planning, things along those lines. But today, we wanted to kind of bring it back a little bit and kind of talk bigger picture and just try to get an understanding as far as how all these pieces work together. I know we sit down with people usually on the first meeting and then they’re always so focused on the investments and the rate of return inside of there, but they completely lose sight of how all those other pieces kind of fit together and the impact that it has.
Nate Kreinbrink:
Sometimes a lot more substantial than what they think as far as just looking at maybe a 1% better return here or there or whatever they’re invested in. So again, we want to make sure we look at tax planning. I know we’ve had Andy from our NelsonCorp tax solutions on a couple of times and him talking as far as things to start looking at, things to look at the end of the year that you can maybe make some changes to be able to impact your plan. Social security planning, we hit that quite frequently. And when we look at cumulative benefits that individuals get over their lifetime, when they’re getting back three, sometimes four times the amount that they’re putting in, that’s a big number.
Nate Kreinbrink:
And a lot of times it’s the biggest asset that they’re making decisions on throughout their retirement. And they’re making those decisions uninformed, blindly, and just kind of doing whatever the norm is. And that’s where we just want to make sure people understand all the decisions that they’re making, all the options that are out there for them to make and how they all fit together and impact each other.
James Nelson:
Yeah, no doubt. And you hit the nail right on the head by talking investments. That’s the sexy part, everybody likes talking investments and rates of return and all that great stuff. But yeah, I mean when you’re looking at tax planning, making a few decisions on where to save money, whether it’s a Roth IRA, a traditional IRA, 401k, Roth 401k. Making those decisions can have a much greater impact than rate of return. You just mentioned social security, making good decisions relating to social security can have a much bigger impact than rate of return generally speaking.
James Nelson:
So yeah, they’re all important decisions. You don’t get a statement when it comes to social security decisions on how much money you’re ahead, like investments and tax planning. Nobody really pulls out their return and takes a look at what that overall impact is. You do get a monthly or quarterly statement on your investments and I think that’s why it’s at the forefront for everybody and everybody likes focusing on that. But those two big topics can have a huge impact on the overall retirement plan.
Nate Kreinbrink:
Right. And I think too, a lot of times people think retirement planning, they think of the year or two right before they’re going to head into retirement. And I think it’s extremely important that people start having a basic plan in place as early as possible. And I think it really hits home when you look at the different accounts that you can save your money in and the different tax consequences that each one of those accounts have. Not only now when you make those contributions, but 30-40 years down the road, maybe when you’re in retirement or throughout your retirement, how they’re going to be taxed and how that’s going to impact you. Most people when they come in, they have all their money saved in a traditional pretax 401k IRA, one of those two accounts. So they’ve got the deduction for when they put the money into it, it’s grown tax deferred.
Nate Kreinbrink:
However, when they take that out, it’s taxable income to them on top of their social security benefit, on top of any pension that they have. So what we’re seeing is that they’re bumping themselves up to a higher tax bracket. They’re getting charged more for their Medicare premiums because of all this income that they have coming in in retirement. And people always give us that argument to say, “Well, I’m not going to be working, so I’m going to have a lower income at that point in time in retirement.” Well, we don’t see a lot of people that make a 70, 80, a hundred grand a year that are living off of 20. You’re going to be real close to right where you are throughout your working career. So again, we don’t know what taxes are going to be in the future. So if there’s some planning that we can do throughout your working career as far as where you’re saving your money at to help alleviate some of that tax burden later on, we want to start doing that and putting those things in place.
James Nelson:
No doubt, because it doesn’t happen overnight, right?
Nate Kreinbrink:
Right.
James Nelson:
I’ll make a Roth IRA contribution one year and I retire the next, how much impact is that really going to make? You’re right. It has to start early and it has to be over a period of time to get that leverage. We’d rather have that growth in a tax-free world versus a taxable world. The 401k is great. If you’re saving there, that’s great, but if you’ve got 20-30 years time horizon, we’d love to have at least some of that growth on the Roth 401k side so some of those dollars are tax-free when you get your retirement. So you’re exactly right. You got to start early because you’ve got to get the leverage and that compounding effect in the right account.
James Nelson:
The other thing that we talk about is Medicare. Medicare kind of gets overlooked I think by a lot of people, but this is the time. I know Nate, you’re more well-versed with Medicare than I am, but this is the time of year where people either sign up or can make changes to their existing plan and something that everybody should probably look at depending on where they’re at or where they were at last year. I think a lot of people think it’s more or less a set it and forget it. Well this time of year is when you should be reevaluating and see if you are on the correct plan or if you do need to make any changes, this is the time to do it.
Nate Kreinbrink:
Right. And that’s exactly right. When you look at this open enrollment period, it goes from October 5th … or October 15th to December 7th every year. And basically, if you’re currently on Medicare and whatever plan you have, you can change your plan during this time so that way it goes into effect January one of the coming year. And it’s extremely important that people look at this and take advantage of this opportunity every single year. Not just right before they turn 65, they get signed up for Medicare and that’s the plan that they’re on for the rest of the life. Their health situation changes throughout their lifetime. I know with the different plans you either pay a little bit higher premium every month and you don’t pay as much when you go to the doctor, or you pay a smaller premium every month, but you pay more when you go to the doctor.
Nate Kreinbrink:
Now again, your health changes year, after year, after a year. Drugs, if you have … for your drug plans, there’s different drugs that are covered at different rates year, after year, after year. So if you have a new prescription or anything like that, we want to make sure that we sit down and we go over the different options to say, “Okay, this is what I had. This is what I’m looking at going forward. Is there a better plan out there that suits me?” And if we can look at all the options to make sure that you’re not paying for more Medicare coverage or more drug plan coverage than what you actually need, that’s more money that stays in your pocket, that you can save to put elsewhere and to fund your retirement. So again, the options are out there. We just want to make sure that people are aware of them and make sure that they’re taking advantage of any opportunities that they maybe can look at with changing their plans.
James Nelson:
And the actual plans can change too, right Nate?
Nate Kreinbrink:
Yes.
James Nelson:
I mean, even if you don’t have any changes in your life that the plan that you’re on may have made some tweaks over the year and maybe that no longer fits you. So it’s important that people look at this, reevaluate, talk to somebody who knows this area and reevaluate each and every year to see if you’re on the right path. So all of these items play into it. The last one would be estate planning. We spend a lot of time talking about wills versus trusts, powers of attorney, all that good stuff. Nobody knows when they’re going to need it or which documents going to be the most important. But it’s good to have those documents in place and current.
James Nelson:
Powers of attorney, for example, if they’re over 10 years old, you’re not going to get a provider to even take them really anymore. This is just the world we live in with liability. Those are very important decisions. Very important to get updated. If there’s a medical issue, somebody needs to act on your behalf, make sure those powers of attorney are current. And then again, making sure the estate plan’s in order so people are in good shape if something terrible were to happen.
Nate Kreinbrink:
Right. And I think when it comes down to it, is it’s basically that transition. The transition from the accumulation stage, which is kind of the easy part. Just put money away, save money. It’s just the decumulation or the spend-down part of it where you’re taking all your savings. What is the most effective way to take this pile of assets that I have? How is it going to last me throughout my retirement? What is the most efficient way that it’s going to last me? And again, retirement is not something that people do every day, so it’s usually a onetime thing and it’s big decisions that are all hit at one time. So we want to make sure that we’re understanding everything, working with somebody that has done it before, that knows what to look for, and that can maybe help you out throughout the course of your retirement.
James Nelson:
Yeah, no doubt. Give us a call if there’s any questions we’d love to sit down with you.
Nate Kreinbrink:
I did want to mention real quick that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of October will be donated to the Special Olympics of Eastern Iowa. James, thanks for joining me again.
James Nelson:
Absolutely. Again, this is 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 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.
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