Latest / Money In Motion with Klaas Financial / Common Mistakes and Pitfalls When it Comes to Retirement Planning

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Common Mistakes and Pitfalls When it Comes to Retirement Planning · Money In Motion with Klaas Financial

0:00
Speaker 1: And our phone lines. They are open to you right
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Speaker 1: That's six oh eight three two one thirteen ten. Get
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Speaker 1: Claws Financial will be complimentary to you again their number
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Speaker 1: six oh eight four four two five six three seven.
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Speaker 1: And joining us this week our CJ. Closs and Eric Schwartz. CJ.
0:50
Speaker 1: How you doing this morning?
0:52
Speaker 2: I'm doing great, Sean?
0:53
Speaker 3: How are you?
0:54
Speaker 1: I'm doing really good? Eric? How have you been my friend?
0:57
Speaker 1: Not too bad?
0:58
Speaker 3: How are things going on with to you?
0:59
Speaker 1: Sean can't other than the stuff in the air eye
1:03
Speaker 1: that is so bizarre, but that's for another day. Otherwise
1:06
Speaker 1: doing great, doing great. So we're gonna be talking this week.
1:10
Speaker 1: This is for folks that say, I wonder what they
1:13
Speaker 1: talk about on COSS Financials, Money and Motion. I wonder
1:16
Speaker 1: what the program's generally about. They'd probably say retirement And generally, yeah,
1:20
Speaker 1: we talk a lot about retirement on retirement planning, but
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Speaker 1: often talks about very nuanced areus this week we are
1:25
Speaker 1: actually talking specifically retirement planning, and we're gonna be talking
1:28
Speaker 1: about pitfall. So it's going to be a really, really
1:31
Speaker 1: informative program you You're definitely gonna want to take notes
1:34
Speaker 1: and pay very close attention for a couple of reasons.
1:36
Speaker 1: One a program will be exciting and engaging in a
1:38
Speaker 1: lot of great information for you. But also, if you
1:41
Speaker 1: pay close attention, you'll have a chance to win a
1:43
Speaker 1: fantastic prize. With the Class Quiz question the week, our
1:46
Speaker 1: friends from Class Financial have provided a twenty five dollars
1:48
Speaker 1: gift card to I hop tell you a little bit
1:50
Speaker 1: later on the program, how you can win that prize.
1:53
Speaker 1: Little tip as mentioned, listen closely to the program just
1:56
Speaker 1: about every show, the question and answer come up during
1:58
Speaker 1: the program, And before we get to this week's conversation
2:01
Speaker 1: about some of the pitfalls and how to avoid them,
2:04
Speaker 1: let's actually look back at last week's program get the
2:06
Speaker 1: class quiz question Leak can answer there as well.
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Speaker 3: Yeah, so last week our question was what is the
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Speaker 3: maximum a forty five year old employee can contribute to
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Speaker 3: their four oh one K plan in twenty twenty five.
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Speaker 3: Now this does not include any employer contributions, and Scott
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Speaker 3: Fromuana Key knew that the correct answer was twenty three thousand,
2:28
Speaker 3: five hundred and that is if you are under the
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Speaker 3: age of fifty and thirty one thousand dollars if you
2:33
Speaker 3: are over.
2:34
Speaker 1: And last week's was not a true or false, which
2:37
Speaker 1: Scott fine work their good work on getting that. Of course,
2:40
Speaker 1: you can be like Scott just by paying attention to
2:42
Speaker 1: the program getting to exactly how you can win a
2:44
Speaker 1: little bit later on the show. As mentioned, of course,
2:47
Speaker 1: phone lines are open six o' eight three two one
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Speaker 1: thirteen ten. That's six o' eight three two one thirteen ten.
2:52
Speaker 1: If you have questions for Eric and CJ, our retirement
2:54
Speaker 1: planning professionals from Class Financial, love to have you join
2:57
Speaker 1: us this morning. So as we kind of get back
3:00
Speaker 1: and do a little bit of a deep dive into
3:02
Speaker 1: things into retirement planning, we're going to be unpacking eleven
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Speaker 1: pitfalls that can derail your golden year. So CEJ, let's
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Speaker 1: find let's talk about ways to kind of steer clear
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Speaker 1: of these common mistakes.
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Speaker 2: Yeah, exactly, Sean, you mentioned it, but we are are
3:18
Speaker 2: kind of niche or our focus as a financial planning
3:20
Speaker 2: firm is all around retirement planning. Now, we work with
3:24
Speaker 2: people across the age spectrum, but our average client I
3:29
Speaker 2: believe is right around sixty six or sixty seven years old,
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Speaker 2: which just means that we are really really well versed
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Speaker 2: in things like distribution planning and sustainable distributions and Medicare
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Speaker 2: and social Security. And furthermore, when you operate in this
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Speaker 2: space over fifty years or so, like we have, you
3:47
Speaker 2: also identify some clear pitfalls. And so some of those
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Speaker 2: pitfalls that can derail you or what we call golden
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Speaker 2: years or just think your retirement years are the items
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Speaker 2: we're going to be covering today. So let's begin with
4:01
Speaker 2: kind of pitfall or mistake number one that we commonly
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Speaker 2: see people making in retirement, and that would be number one,
4:09
Speaker 2: being overly aggressive in your portfolio late in your career.
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Speaker 2: So imagine markets have done well for you over the
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Speaker 2: last thirty forty years as you've been working, feeling really
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Speaker 2: good about how much return you've received by taking on risk,
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Speaker 2: You understand that risk, you feel fairly diversified, and this
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Speaker 2: is all good, like good, good good, But then you're
4:31
Speaker 2: getting a year or two before retirement and you just
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Speaker 2: kind of say, ah, whatever, markets you know rewarded me,
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Speaker 2: it's all going to work out in the end anyways. Well,
4:41
Speaker 2: for those who don't know, there's this concept called sequence
4:44
Speaker 2: of returns risk, and it has to do with basically
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Speaker 2: the impact of negative returns in your portfolio early in retirement,
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Speaker 2: and does that impact vary compared to say, an impact
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Speaker 2: of the same magnet tude midway through your retirement, And
5:03
Speaker 2: believe it or not, there's just kind of some numeric
5:06
Speaker 2: phenomenons that occur, and we could show you the math
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Speaker 2: on this if you ever wanted to see it. But
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Speaker 2: the numeric phenomenon is if that market correction or severe
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Speaker 2: decline happens early in your retirement where you need large
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Speaker 2: distributions from your portfolio, it can have catastrophic effects to
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Speaker 2: the longevity of your portfolio. Okay, the risk of running
5:27
Speaker 2: out of money. So mistake number one to avoid is
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Speaker 2: remaining overly aggressive in your portfolio later in your career
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Speaker 2: without slowing down to assess your need for income. Now,
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Speaker 2: mistake number two would be ignoring health insurance costs. So
5:44
Speaker 2: Eric can attest this is probably the greatest, single, greatest
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Speaker 2: driver to when people retire. Now it's not always because
5:53
Speaker 2: people aren't assessing the cost. It's more just because it's
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Speaker 2: an annoyance. And so what I mean here is that Medicare.
6:00
Speaker 2: For those who don't understand Medicare, we've done entire shows
6:03
Speaker 2: dedicated to the topic. By all means, listen back to
6:05
Speaker 2: our podcasts and just do a little Google search to
6:07
Speaker 2: find our old versions of the Medicare specific shows. But
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Speaker 2: Medicare typically kicks in for Americans at sixty five under
6:15
Speaker 2: most circumstances, So if you're retiring prior to sixty five,
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Speaker 2: you have to figure out what you're going to do
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Speaker 2: for health insurance to cover that gap. And as there
6:23
Speaker 2: can attest it's typically people don't want to retire until
6:27
Speaker 2: sixty five because of that component part alone. Dealing with
6:30
Speaker 2: the Affordable Care Act, or dealing with COBRA, which is
6:33
Speaker 2: just this extension of your group health insurance, or trying
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Speaker 2: to jump onto a spouse's plan, jump onto the VA.
6:40
Speaker 2: These are different things that could apply to you, but
6:42
Speaker 2: it just gets tricky. So what we would say is,
6:45
Speaker 2: if you're going to retire quote unquote early, which would
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Speaker 2: be before sixty five or before Medicare kicks in, you're
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Speaker 2: just going to want to pause and figure out what
6:54
Speaker 2: your strategy is. And I some people go, it's all
6:58
Speaker 2: the same, it doesn't matter. Let me be clear with you,
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Speaker 2: be a little more pointed. We have people who have
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Speaker 2: plenty of money who retire early and pay less than
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Speaker 2: fifty bucks a month for a low deductible health insurance
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Speaker 2: plan through the Affordable Care Act. We have other people
7:16
Speaker 2: who very well to do retire early but didn't plan
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Speaker 2: appropriately and are paying over one thousand dollars a month
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Speaker 2: for a high deductible health insurance plan. So I don't know.
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Speaker 2: You tell me, does it pay to plan? Is there
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Speaker 2: a difference between those numbers? You get the idea it matters,
7:35
Speaker 2: you do want to slow down and make sure you
7:37
Speaker 2: understand the component parts that are going to impact that
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Speaker 2: health insurance cost before medicare.
7:42
Speaker 1: Talking this morning with CJ. Closs and Eric Schwartz. They
7:45
Speaker 1: are our retirement planning professionals from Class Financial Prime Time.
7:48
Speaker 1: If you've got a question, love to get you on
7:50
Speaker 1: the air right now at six'oh eight three two one
7:53
Speaker 1: thirteen ten. That's six oh eight three two one thirteen ten.
7:55
Speaker 1: Gets you on the air with CJ and Eric. Of
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Speaker 1: course talking this week about some of those retirement Pitvall's
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Speaker 1: working through eleven of them. We got number one, number two,
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Speaker 1: and then of course I will look to number three
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Speaker 1: or just a moment, I got a guess that, you know,
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Speaker 1: making mistakes around planning for taxes. That's got to be
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Speaker 1: a big one as well, isn't it.
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Speaker 3: Eric. Yeah, this is a space where we see people
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Speaker 3: making mistakes kind of at any stage of life, but
8:20
Speaker 3: looking specifically at retirement, we see plenty of them as well.
8:24
Speaker 3: So I'm going to go through our mistake number three here,
8:28
Speaker 3: which is having some tax blind spots and specifically in
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Speaker 3: retirement when we look at taking large withdrawals from retirement savings.
8:39
Speaker 3: Maybe you want to pay off a mortgage, or you know,
8:41
Speaker 3: an auto loan, or you just want to take out
8:44
Speaker 3: a large distribution for a down payment. People often forget, Yeah,
8:50
Speaker 3: you have that large retirement account right there that you
8:53
Speaker 3: can draw off of. But when a lot of times
8:55
Speaker 3: when you take money out of those accounts, you're paying
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Speaker 3: taxes on it. Right if you have a pre tax
9:00
Speaker 3: retirement account, you are paying taxes on those dollars, and
9:04
Speaker 3: that can bump you into a higher tax bracket. That
9:07
Speaker 3: can increase your tax bile income to the point where
9:10
Speaker 3: it impacts your Medicare premiums, which we'll talk about here
9:13
Speaker 3: in a moment. So just understanding that while you do
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Speaker 3: now in retirement, have access to your retirement accounts, and
9:21
Speaker 3: they can be very tempting sitting there a large balance,
9:24
Speaker 3: but there are tax implications to actually drawing dollars out.
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Speaker 1: Now.
9:30
Speaker 3: Another tax blind spot or mistake we see people making
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Speaker 3: is not fully understanding their required minimum distributions. This is
9:39
Speaker 3: a topic we love to talk about on the show.
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Speaker 3: A lot rmds begin at age seventy three for most
9:46
Speaker 3: folks who are retired right now. Depending on the year
9:49
Speaker 3: you were born, so you know, some people are earlier.
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Speaker 3: Some people may actually not even have rm ds until
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Speaker 3: seventy five. But a lot of people don't realize that
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Speaker 3: these mandatory withdrawals from from pre tax retirement accounts in
10:03
Speaker 3: for one case, they're taxable, and they can push you
10:06
Speaker 3: into a higher tax bracket. And if you've actually failed
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Speaker 3: to take an R and D, it can result in
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Speaker 3: a ten to twenty five percent penalty, and that is
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Speaker 3: on the amount that you were supposed to withdraw from
10:17
Speaker 3: your retirement account based on your R and D for
10:20
Speaker 3: the year. Social Security this is another space that people
10:24
Speaker 3: misunderstand the tax code. So often people will say to me, well,
10:29
Speaker 3: I'm pretty sure that my Social Security benefits aren't taxable.
10:33
Speaker 3: This is another thing we've talked about on the show,
10:35
Speaker 3: and they are absolutely taxable. So up to eighty five
10:40
Speaker 3: percent of your Social Security benefit can be taxable, and
10:44
Speaker 3: that depends on something called your combined income, which is
10:47
Speaker 3: your adjusted gross income plus any non taxable interests that
10:52
Speaker 3: you received throughout the year plus one half of your
10:55
Speaker 3: Social Security benefit. So the more income you have from
11:00
Speaker 3: sources beyond social Security, the closer you're going to get
11:04
Speaker 3: to that eighty five percent number. Now, just a quick
11:07
Speaker 3: note in the state of Wisconsin, here we do not
11:10
Speaker 3: tax Social Security benefits, but again the federal government will
11:13
Speaker 3: tax up to eighty five percent of the amount that
11:17
Speaker 3: you receive. Another space in tax blind spots is people
11:22
Speaker 3: passing up the opportunity to do ROTH conversions. So we've
11:26
Speaker 3: talked about this before as well, converting funds from a
11:30
Speaker 3: traditional IRA to a ROTH IRA before required minimum distributions begin,
11:36
Speaker 3: and this is often most opportune in low income years,
11:41
Speaker 3: maybe in the early part of retirement. This can help
11:45
Speaker 3: you reduce your future r and ds in your overall
11:48
Speaker 3: tax liability. But if you just if you just kind
11:51
Speaker 3: of convert dollars and you just pick a number out
11:53
Speaker 3: of the air and say, I'm going to do you know,
11:55
Speaker 3: thirty thousand dollars this year, and you don't do any
11:58
Speaker 3: planning around it or think ah at a time, you
12:01
Speaker 3: can run into those issues we were talking about earlier,
12:03
Speaker 3: with large withdrawals impacting your tax bracket, impacting your Medicare premiums,
12:10
Speaker 3: and so we want to make sure we're being much
12:13
Speaker 3: more strategic around it than just saying I'm going to
12:15
Speaker 3: pick a number this year. State taxes, so I mentioned here.
12:21
Speaker 3: I mentioned here a moment ago that state of Wisconsin
12:24
Speaker 3: does not tax Social Security, but people often overlook the
12:28
Speaker 3: impact of state income taxes because it's just I think
12:30
Speaker 3: they look at it as small compared to their federal
12:34
Speaker 3: tax liability. But this is still something you want to
12:37
Speaker 3: consider in retirement, especially here in Wisconsin, as it relates
12:41
Speaker 3: to not only your ordinary income from your retirement accounts
12:45
Speaker 3: or your pension, but also in the case of capital gains,
12:49
Speaker 3: So when you're selling positions that have gained value, you
12:55
Speaker 3: pay a federal capital gains tax, and then you also
12:59
Speaker 3: do have some tax do at the state level. Last
13:02
Speaker 3: thing I want to talk about in tax blind spots
13:05
Speaker 3: this is something called the Medicare IRMA surcharges. So I've
13:09
Speaker 3: been kind of referencing this as we go along, and
13:13
Speaker 3: I know IRMA sounds like the name of a very
13:15
Speaker 3: nice lady, but it is actually a Medicare We refer
13:20
Speaker 3: to it as a Medicare penalty, so it stands for
13:22
Speaker 3: the income related monthly adjustment amount. And what this means
13:27
Speaker 3: is once you are on Medicare, if your income exceeds
13:31
Speaker 3: certain thresholds, you actually will pay more for your Medicare premiums,
13:38
Speaker 3: so you're getting the same coverage, but you are just
13:40
Speaker 3: paying higher premiums, which is why we refer to it
13:44
Speaker 3: as a penalty. And the penalty doesn't actually come until
13:48
Speaker 3: two years later, so people often forget, Like you know,
13:52
Speaker 3: two years later, they'll get their their letter from Social
13:55
Speaker 3: Security that tells them what their Medicare premiums are going
13:57
Speaker 3: to be, and they're like, hey, why are these double
14:00
Speaker 3: or whatever it might be. So we want to watch
14:03
Speaker 3: out for our taxable income thresholds and make sure we're
14:07
Speaker 3: not causing problems on your Medicare premium.
14:09
Speaker 1: And I thank you Eric for keeping it clean there.
14:11
Speaker 1: I don't I have a feeling they'd probably say more
14:13
Speaker 1: than hey what are these?
14:15
Speaker 2: Yeah?
14:15
Speaker 1: Yeah, exactly, probably thanks, we can't say on the air
14:18
Speaker 1: when they open up that envelope. Really important guidance this
14:21
Speaker 1: morning from our retirement planning professionals, Eric Schwartz and CJ. Closs.
14:24
Speaker 1: Of course they come to us from Class Financial online
14:27
Speaker 1: Coss Financial dot com. That's Class k l Aasfinancial dot com.
14:32
Speaker 1: And Eric, I know one of the groups you work with,
14:34
Speaker 1: our folks with pensions, and you want to be very
14:36
Speaker 1: careful there as well. Don't you.
14:38
Speaker 3: Yeah, that brings us to mistake number four, making what
14:41
Speaker 3: we would call like a hasty pension decision. So we've
14:45
Speaker 3: talked a lot about pensions in the past as well,
14:48
Speaker 3: but when it comes to retirement, a pension is a
14:52
Speaker 3: great tool to have to build your retirement income plan.
14:55
Speaker 3: But you have a lot of choices when it comes
14:57
Speaker 3: to how you draw the pension out. You might have
15:01
Speaker 3: the option for what we call a single life annuity,
15:04
Speaker 3: which is a monthly benefit for the remainder of your life,
15:09
Speaker 3: but if you have a spouse, they would would not
15:12
Speaker 3: benefit from that pension in the event that you passed away,
15:16
Speaker 3: So it pays as long as you live, but as
15:18
Speaker 3: soon as you pass away the benefits end. You could
15:22
Speaker 3: also choose what's called US joint and Survivor annuity, which
15:26
Speaker 3: offers a reduced payment compared to the single life annuity,
15:29
Speaker 3: but your spouse receives benefits after your death. Right, So
15:34
Speaker 3: you agree in the you know, in the early retirement
15:38
Speaker 3: years and basically as long as you're live, you agree
15:42
Speaker 3: to take a lower monthly amount in exchange for the
15:46
Speaker 3: promise that if you pass away and your spouse is
15:49
Speaker 3: still living, they will receive benefits for the rest of
15:53
Speaker 3: their life. Finally, you have the option to do a
15:57
Speaker 3: lump sum payout, which provides you know, a large sum
16:00
Speaker 3: of cash, but you want to make sure that you're
16:03
Speaker 3: you're thinking about what you're going to do with that
16:05
Speaker 3: in terms of maybe rolling it over to an i
16:07
Speaker 3: RA in comparing that that financial benefit to what you
16:13
Speaker 3: could receive in some sort of annuity payment arrangement. You
16:18
Speaker 3: need to be able to evaluate the pros and cons
16:21
Speaker 3: of each of those, and our main message here is
16:25
Speaker 3: just slow down. A pension is a huge decision when
16:28
Speaker 3: you're trying to decide how you're going to how you're
16:32
Speaker 3: going to collect that, and I mentioned a single life
16:35
Speaker 3: annuity and a joint and survivor annuity. There are many
16:37
Speaker 3: variations in between. So work with an advisor, someone that
16:42
Speaker 3: you could trust to make the right decision here and
16:44
Speaker 3: don't don't jump to any decisions right away.
16:47
Speaker 1: Talk this morning with Eric Schwartz and CJ. Closs. They
16:49
Speaker 1: are our retirement planning professionals from Class Financial online. Class
16:52
Speaker 1: Financial dot com. That's Coss k l a A s
16:55
Speaker 1: Financial dot com. Great website and resource. Learn more about
16:58
Speaker 1: COSS Financial. They're telephone numbers eight four four two five
17:02
Speaker 1: six three seven. No charge for that initial get to
17:04
Speaker 1: know your appointment tech loss Financial. It will be complementary
17:07
Speaker 1: to you. Again, they're number six oh eight four four
17:09
Speaker 1: two five six three seven. We'll continue our conversation with
17:12
Speaker 1: Eric and CJ. We will do that next as Money
17:14
Speaker 1: in Motion with Coss Financial continues right here on thirteen ten.
17:17
Speaker 1: WIBA joined this morning by CJ. Closs and Eric Schwartz.
17:20
Speaker 1: They are our retirement planning professionals from Claus Financial. The
17:23
Speaker 1: website Coss financial dot com. That's spelt coss k l
17:27
Speaker 1: aas financial dot com. There itself a number six o
17:29
Speaker 1: eight four four two five six three seven. No charge
17:33
Speaker 1: for the initial gets to Know your appointment tech loss Financial.
17:35
Speaker 1: It will be complementary to you. Talking about and going
17:38
Speaker 1: through eleven pitfalls when it comes to retirement planning odds.
17:41
Speaker 1: Before the break, talked about some pension decisions and hastily
17:45
Speaker 1: made ones and mistakes that can be made there. Eric,
17:48
Speaker 1: what about I'm speaking of mistakes that can be made
17:51
Speaker 1: a lot of companies have a matching opportunity there and
17:55
Speaker 1: sometimes people don't take advantage of that, do they?
17:59
Speaker 3: No, you're right, they don't. Chant and that's mistake number
18:01
Speaker 3: five for us today. So leaving your company match on
18:04
Speaker 3: the table. So, if you have a retirement plan four
18:07
Speaker 3: one K, four H three B, whatever it might be,
18:10
Speaker 3: through your employer, and they offer to match a percentage
18:13
Speaker 3: of what you put in or a percentage of your income,
18:17
Speaker 3: and you're not putting money in there, you're not getting
18:20
Speaker 3: the match. You're just turning down free money. Okay, So
18:23
Speaker 3: maximize your contributions to your employer's retirement plan to capture
18:27
Speaker 3: the full company match. So your employer will contribute a
18:31
Speaker 3: certain amount of money to your four to one K
18:34
Speaker 3: based on how much you contribute. So for example, it's
18:37
Speaker 3: usually expressed as a percentage of your salary. Maybe it's
18:40
Speaker 3: three percent or even five percent. But let's look at
18:44
Speaker 3: an example here. If your company offers a four percent match,
18:49
Speaker 3: they will contribute four percent of your salary for every
18:52
Speaker 3: dollar that you contribute to your four oh one K. Now,
18:55
Speaker 3: some companies will match dollar for dollar, while others will
18:58
Speaker 3: do like a partial match, so they'll match half of
19:02
Speaker 3: what you put in up to a certain amount. But
19:05
Speaker 3: the match is often subject to a vesting schedule, so
19:08
Speaker 3: you need to stay with the employer a certain number
19:10
Speaker 3: of years to receive the benefit before it's fully yours.
19:16
Speaker 3: But the most important piece here is if the if
19:19
Speaker 3: the employer says I will match five percent or I'll
19:22
Speaker 3: match every dollar you put in up to five percent,
19:25
Speaker 3: and you only put in two, while you're missing three
19:28
Speaker 3: percent of your salary that your employer would match if
19:32
Speaker 3: you just put that that extra money in. So mistake
19:36
Speaker 3: number five leaving your company match on the table. Make
19:39
Speaker 3: sure you are fully maximizing those retirement contributions from your employer.
19:43
Speaker 1: Talk this morning with Eric Schwartz and CJ. Closs. They
19:45
Speaker 1: are our retirement planning professionals from Coss Financial telpho number
19:48
Speaker 1: six soh eight four four to two five six three seven.
19:51
Speaker 1: No charge for that initial get to know your appointment
19:53
Speaker 1: tech costs financially, it will be complimentary to you. Again,
19:56
Speaker 1: they're number six oh eight four four to two five
19:58
Speaker 1: six three seven. Real quickly before we get to CJ. Eric,
20:01
Speaker 1: are there some limits that folks need to know about
20:03
Speaker 1: when it comes to those contributions, when it comes to
20:06
Speaker 1: those those plans, are those those matching?
20:10
Speaker 3: Yes, Actually we talked a lot about those last week.
20:13
Speaker 3: Now that you mentioned it, maximum level that you can
20:17
Speaker 3: contribute to your employer retirement plan. It does depend on
20:20
Speaker 3: your age, but in twenty twenty five that limit is
20:23
Speaker 3: twenty three thousand, five hundred if you're under fifty, thirty
20:27
Speaker 3: one thousand if you're over fifty, and if you are
20:30
Speaker 3: specifically aged sixty two sixty three, you can put away
20:33
Speaker 3: about thirty four thousand, seven hundred and fifty dollars.
20:36
Speaker 1: Great, great guys there you mentioned. Of course, we've talked
20:39
Speaker 1: great depth about that stuff. If you head on over
20:41
Speaker 1: to classfinancial dot com you can listen to that podcast
20:44
Speaker 1: as well. Sign up for the weekly Market Pulse newsletter.
20:47
Speaker 1: So ceja, I got to guess we kind of work
20:48
Speaker 1: our way through some of these mistakes. Many folks don't
20:51
Speaker 1: know the best time to begin their Social Security benefit
20:56
Speaker 1: or of course there's other folks are thinking they're just
20:58
Speaker 1: going to keep working in definitely, and that can be
21:01
Speaker 1: a mistake, can't it.
21:03
Speaker 3: Yeah.
21:03
Speaker 2: Yeah, So we're going through, you know, kind of top
21:05
Speaker 2: mistakes we see as retirement planners. And you know, as
21:08
Speaker 2: you as you heard Eric talking about there just a
21:11
Speaker 2: moment ago. One of these areas is taxes, which covers
21:14
Speaker 2: so much. But but again, I really encourage everybody if
21:18
Speaker 2: you're not picking up on all of this, by all means,
21:20
Speaker 2: call our office and we can meet with you, or
21:22
Speaker 2: just go back and listen to this podcast, because we're
21:25
Speaker 2: touching a lot of pretty critical elements where we see
21:29
Speaker 2: big mistakes. But you're right, Sean. One of those areas
21:31
Speaker 2: us becomes kind of misunderstanding social security, or said another way,
21:35
Speaker 2: would be drawing social security before you fully understand it.
21:39
Speaker 2: So again, we've done entire shows dedicated to each one
21:44
Speaker 2: of these mistakes, and I would say we've done entire
21:46
Speaker 2: shows to sub sections of each one of these mistakes.
21:51
Speaker 2: So social Security for those who don't know, And by
21:54
Speaker 2: the way, when I say social Security is actually like
21:56
Speaker 2: four or five different core parts of it. There's SSDI,
21:59
Speaker 2: there's there's retirement benefits, there's survivor benefits. There's a lot
22:03
Speaker 2: of different parts of Social Security. But I'm just focused
22:05
Speaker 2: on Americans who have a retirement benefit through Social Security.
22:11
Speaker 2: The earliest you can typically draw your own retirement benefit
22:15
Speaker 2: or even off of spouses is at age sixty two.
22:17
Speaker 2: The latest you can draw is age seventy, and I
22:20
Speaker 2: shouldn't say that the latest you can draw is age
22:22
Speaker 2: seventy and then delayed retirement credits end at age seventy
22:26
Speaker 2: or above. And then there's this age right in the
22:28
Speaker 2: middle called your full retirement age that is somewhere between
22:31
Speaker 2: sixty six and sixty seven for all Americans currently, So
22:34
Speaker 2: again think sixty two, sixty seven, seventy. These are the
22:37
Speaker 2: three key ages relative to social security that you should
22:40
Speaker 2: be aware of. The question is when do I draw?
22:43
Speaker 2: Today's show is focusing on mistakes, so I unfortunately can't
22:47
Speaker 2: go through a full evaluation of when you should draw.
22:50
Speaker 2: That is a personal discussion, not to mention, it has
22:52
Speaker 2: a lot of tentacles attached to it around things to consider.
22:57
Speaker 2: If you're interested in that again, call our office or
22:59
Speaker 2: go to one of our other podcasts where we discuss that.
23:03
Speaker 2: But of course that leads the mistake number seven, which
23:06
Speaker 2: is relying on indefinite work, or maybe not even indefinite work,
23:11
Speaker 2: but work beyond the typical age. So what do I
23:16
Speaker 2: mean by this? Well, Eric and I often will hear
23:18
Speaker 2: something like the following, Hey, life has thrown me some curveballs,
23:22
Speaker 2: and like, I just I haven't saved enough, but it's
23:26
Speaker 2: not a big deal, Like I'll just work forever.
23:28
Speaker 1: And I know people.
23:29
Speaker 2: Are kind of joking when they say that, but they're
23:32
Speaker 2: kind of serious. And I certainly think that if you
23:35
Speaker 2: got laid off or had a health issue, that you
23:37
Speaker 2: could probably repurpose yourself and do something to generate some income.
23:42
Speaker 2: But our concern is the following that, while it's kind
23:46
Speaker 2: of a joke, it's also some level of almost like
23:49
Speaker 2: haziness in people's planning because they feel like they're behind,
23:52
Speaker 2: and therefore they would rather shove their head in a
23:54
Speaker 2: hole and not just assess the risk and assess what
23:58
Speaker 2: they need to do, and just kind of say I'll
24:01
Speaker 2: work forever, not knowing what could potentially happen there. So
24:04
Speaker 2: listen from somebody who does this for a living, meaning
24:06
Speaker 2: I work with people way before retirement, in retirement, through retirement, death,
24:12
Speaker 2: to the next generation and the generation thereafter.
24:14
Speaker 1: You get the idea.
24:15
Speaker 2: I have the blessing of getting to see all of
24:17
Speaker 2: these phases. This whole idea that you're going to work
24:21
Speaker 2: indefinitely or just work until you're seventy or seventy five
24:25
Speaker 2: doesn't happen very often. Saying you can't it just doesn't
24:28
Speaker 2: because typically either a health issue an energy issue, and
24:33
Speaker 2: energy meaning like your personal energy or the employer says
24:37
Speaker 2: I'm done, and I know some of you are going well,
24:40
Speaker 2: but I'm a high paid salesperson. They wouldn't do that.
24:45
Speaker 2: That tends to happen as well, So who knows. I'm
24:48
Speaker 2: not predestining you. I'm just saying, be cautious of that
24:52
Speaker 2: being a core part of your financial plan. We would
24:55
Speaker 2: suggest sit down with a good financial advisor, a good
24:58
Speaker 2: retirement planner to actually assess the gap between what you
25:01
Speaker 2: have and what you need, so that maybe you can
25:04
Speaker 2: just save a little bit extra and not have to
25:06
Speaker 2: rely on the uncertainty of future work.
25:10
Speaker 1: What about the kiddos there, CJ. Let's bring them into
25:13
Speaker 1: this conversation.
25:15
Speaker 2: Yeah, yeah, great, great points. So that leads to mistake
25:18
Speaker 2: number eight, which is prioritizing kids or kids education over retirement. Again,
25:25
Speaker 2: I get it. I have three young children.
25:27
Speaker 1: I used to.
25:27
Speaker 2: Speak more I'll say brashly about this, just like why
25:31
Speaker 2: would you ever do that? Well, now I have children,
25:33
Speaker 2: and now I speak a little bit more patiently about it.
25:36
Speaker 2: What I would say is it doesn't change the harsh reality.
25:39
Speaker 2: And the harsh reality is there's a subset of people
25:42
Speaker 2: that we work with who will say, oh, little Johnny
25:45
Speaker 2: or little Susie, like wherever they can get into school,
25:48
Speaker 2: whatever their dream is, We're just here to support them.
25:51
Speaker 2: And Eric and I go, uh, what if they get
25:55
Speaker 2: into Notre Dame that's like eighty five thousand dollars a year.
26:00
Speaker 2: That will wipe you out. You will not be able
26:02
Speaker 2: to retire. And they're like, we'll figure it out. Eric
26:06
Speaker 2: and I go, what do you mean, Like, explain to
26:09
Speaker 2: me what you mean by will figure it out. So listen, everybody,
26:13
Speaker 2: I get it. I have one child in college right now,
26:16
Speaker 2: I have another one who's in her sophomore year of
26:18
Speaker 2: high school. I get where this comes from. I'm around
26:22
Speaker 2: all the parents that the dance things, the soccer things
26:25
Speaker 2: who say this stuff, and I have to often in
26:28
Speaker 2: my personal life keep my mouth shut because they're not
26:30
Speaker 2: asking my opinion. In my professional life, I get to
26:32
Speaker 2: go on the air and tell you my opinions. So
26:34
Speaker 2: what I would say to you is, don't say those
26:38
Speaker 2: kinds of things to your kids. Don't say it's an
26:40
Speaker 2: open check book, because if you do that, you run
26:44
Speaker 2: the risk of prioritizing your children over your own retirement.
26:47
Speaker 2: Here is every single time what we hear from from
26:51
Speaker 2: kids of parents who do that. Here's the following. They
26:54
Speaker 2: become adults of their own and they go if I
26:56
Speaker 2: had only known what my parents were doing, I would
27:00
Speaker 2: have never applied to that school. So is that another
27:03
Speaker 2: way your kids when they grow and see you in
27:07
Speaker 2: poverty or not able to retire because you put them
27:10
Speaker 2: through an expensive school, all they will say is like
27:12
Speaker 2: I was a kid, I didn't know, but I would
27:15
Speaker 2: have never wanted to put my parents in that kind
27:18
Speaker 2: of financial ruin. So be cautious, everybody. I'm focusing on education,
27:22
Speaker 2: but this could be other things as well, like paying
27:24
Speaker 2: for private you know, tutors and everything through the nose
27:28
Speaker 2: and not saving for your own retirement. Find some balance.
27:31
Speaker 2: I love when you're generous with your kids, I'm not
27:33
Speaker 2: anti that, but find some balance to make sure that
27:36
Speaker 2: you can both retire and provide something for your children's future.
27:40
Speaker 1: Great perspective this morning talking with CJ. Claus and Eric Schwartz.
27:43
Speaker 1: They are our retirement planning professionals from Class Financial to
27:46
Speaker 1: website class financial dot com. That's k l aa S
27:49
Speaker 1: Financial dot com. The tell what number six oh eight
27:52
Speaker 1: four four two five, six three seven Take it down
27:54
Speaker 1: the home stretch? Do the class quiz question. We can
27:56
Speaker 1: also get number nine, ten and eleven. We will do that.
27:59
Speaker 1: Next has Money in Motion with Class Financial continues right
28:02
Speaker 1: here on thirteen ten Wiba joined by our retirement planning
28:05
Speaker 1: professional CJ. Closs and Eric Schwartz. Of course they come
28:08
Speaker 1: to us from Class Financial online Clossfinancial dot Com Telpha
28:11
Speaker 1: number six So eight four, four, two, five, six, three seven,
28:14
Speaker 1: talking this week about when it comes to retirement planning,
28:17
Speaker 1: Eleven pitfalls that can derail your gold in years. Left
28:20
Speaker 1: off at number eight talking about kiddos. What about Eric?
28:23
Speaker 1: Another area when it comes to retirement planning, let's kind
28:26
Speaker 1: of get into those areas that that we should be avoiding.
28:29
Speaker 3: Yeah, so mistake number nine here is excessive portfolio withdrawals.
28:34
Speaker 3: So overspending in early retirement can deplete your savings and
28:39
Speaker 3: cause problems for you down the road. So make sure
28:42
Speaker 3: that you're aiming for a sustainable withdrawal rate. So a
28:45
Speaker 3: good rule of thumb is you know to start somewhere
28:47
Speaker 3: between four and five percent of your portfolio annually. Of course,
28:51
Speaker 3: this depends on your age and your financial situation and
28:54
Speaker 3: a lot of other things, but there's a good spot
28:56
Speaker 3: to start. But this is a particularly harmful mistake because
29:01
Speaker 3: of something actually CJ mentioned earlier, which is this idea
29:05
Speaker 3: of sequence of returns risk. So these excessive early retirement
29:09
Speaker 3: withdrawals can become a really big problem when you're withdrawing
29:13
Speaker 3: large amounts during a market downturn early in your retirement.
29:17
Speaker 3: Even if markets recover later, which we would expect they would,
29:21
Speaker 3: your smaller portfolio has less potential to rebound, right, So
29:24
Speaker 3: that would increase the risk that you actually outlive your money.
29:29
Speaker 1: And a lot of.
29:29
Speaker 3: Early retirees these days might need to fund thirty to
29:33
Speaker 3: forty years of retirement because people are living longer, and
29:37
Speaker 3: excessive early withdrawals can actually drain your savings that was
29:41
Speaker 3: meant to last a whole lot longer than it may
29:43
Speaker 3: end up doing. And finally, by drawing a lot of
29:47
Speaker 3: dollars out earlier in retirement, you just have reduced compounding.
29:51
Speaker 3: So you're withdrawing too much early and that reduces the
29:54
Speaker 3: potential of your remaining assets to grow, and that's just
30:01
Speaker 3: undermining the long term viability of your portfolio. So make
30:06
Speaker 3: sure we are being responsible with the amount we're drawing
30:09
Speaker 3: out of your retirement account early in your retirement years.
30:13
Speaker 3: Especially but the other end of your retirement years, so
30:19
Speaker 3: not your early years, but your later years. That's where
30:21
Speaker 3: we come to mistake number ten, which is neglecting long
30:25
Speaker 3: term care planning. Long term care costs can be huge CG.
30:29
Speaker 3: And I say this all the time, and it's never
30:33
Speaker 3: anything people want to think about, and it's generally a
30:36
Speaker 3: space where people will make jokes about, oh, I'm never
30:39
Speaker 3: going to go into a retirement home. You know, I'll
30:42
Speaker 3: come up with another solution and whatever that might be.
30:45
Speaker 3: But people love to avoid this. But avoiding it doesn't
30:50
Speaker 3: make it go away, and failing to plan for potential
30:54
Speaker 3: long term care needs can devastate your retirement savings. So
30:59
Speaker 3: I'm not saying everybody needs long term care insurance or
31:01
Speaker 3: anything like that, but make sure you understand how it
31:04
Speaker 3: works and what strategies you can implement to protect some
31:09
Speaker 3: of your savings from the cost of long term care.
31:12
Speaker 3: So don't avoid this because it's coming for everybody. Our
31:17
Speaker 3: final mistake number eleven here is not having a formal
31:23
Speaker 3: retirement plan. Okay, so many people have a kind of
31:26
Speaker 3: a vague idea of how they want to retire, but
31:29
Speaker 3: they don't really ever take too much time to think
31:32
Speaker 3: about it or put it down on paper, so to speak.
31:35
Speaker 3: But putting together a formal retirement plan, it allows you
31:39
Speaker 3: to kind of visualize your goals. Most importantly, it allows
31:42
Speaker 3: you to track your progress. And then tracking your progress
31:47
Speaker 3: that allows you to actually adjust as you need to
31:50
Speaker 3: as you move through your retirement years. And you know
31:53
Speaker 3: this would include like your income needs, where that income
31:57
Speaker 3: is going to come from of you know, good look
32:00
Speaker 3: at your budget and your goals. So just remember proactive
32:04
Speaker 3: planning is the key to a successful retirement. And if
32:08
Speaker 3: you need a place to start, give us a call.
32:11
Speaker 1: Great data, make that start that conversation. Make that call.
32:14
Speaker 1: I get his pig phone. Gave a call Costs Financial
32:15
Speaker 1: teleph number six oh eight four four two five six
32:18
Speaker 1: three seven. Want to hold on to that's telephone number
32:20
Speaker 1: as well. It's time now for the class quiz question
32:22
Speaker 1: the week. It works like this, just a moment, I'll
32:23
Speaker 1: ask you the class quiz question leak. You'll then have
32:25
Speaker 1: thirty minutes from the today's program to call the Class
32:27
Speaker 1: Financial office right here in Madison at six oh eight
32:29
Speaker 1: four four two five six three seven. If you are
32:32
Speaker 1: on the first call, correct answer, you'll win this week's prize,
32:34
Speaker 1: which is a twenty five dollars gift card two I OP.
32:37
Speaker 1: This week's class quiz question leak Is this true or false?
32:40
Speaker 1: Choosing a joint and survivor annuity option on your pension
32:45
Speaker 1: will allow your spouse to receive benefits after your death.
32:48
Speaker 1: Is that true or is that false? Telephone number six
32:51
Speaker 1: oh eight four four two five, six three seven. Don't
32:54
Speaker 1: forget as well. It's Cross Financial Office right here in Madison.
32:56
Speaker 1: No charge for that initial get to know you appointment
32:59
Speaker 1: that class financi It will be complimentary to you again.
33:02
Speaker 1: They're number six O eight four four two five six
33:04
Speaker 1: three seven CJ. Eric. It's always great chatting with both
33:07
Speaker 1: of you guys. Enjoy this beautiful day and we'll talk
33:09
Speaker 1: real soon.
33:10
Speaker 3: Thanks Sean, Thanks Sean.
33:11
Speaker 1: Doctor Greer comes your way next right here on thirteen
33:13
Speaker 1: ten WIB eight