Episode 13: Financial Milestones - Specific times in our lives to take important financial action
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Peter Richon: Welcome in to the program. This is GulfCoast Financial, with the Founder and CEO of GulfCoast Financial Services, John Kuykendall; our resource for a common sense approach to planning a more stable and secure financial future. John, welcome back in.
John Kuykendall: Thank you, Peter. It’s great to be here. It’s a great day in Florida, and we’re just real happy to be here with you on the show.
Peter Richon: Always a pleasure, John, whenever we get to visit and benefit from your guidance, your experience and your perspective on what people need to be doing or thinking about in order to structure that plan and achieve those financial goals. Comfort, confidence and stability, I think, are what we all want from our money. The money has to be positioned correctly in order to achieve those.
Ladies and gentlemen, if you’ve got any questions about that, if you’d like to make sure that your plan is set up correctly, if you’d like to have some qualified eyes look over the plan and make sure there are no holes that have been left unaddressed or red flags that are glaring or maybe you’re missing, pick up the phone and give GulfCoast Financial Services a call, 386-755-9018, that’s 386-755-9018.
John, I thought we’d start off the program with this neat list of different milestones in our retirement planning progress that you’ve brought along. What do we need to be doing and thinking about at different ages?
John Kuykendall: Yeah, unfortunately, Peter, the last one, 70 ½, I’m already past that. I’ve already reached all the milestones, but hopefully our listeners out there have a way to go and we can give them a little bit of insight and help today with that list.
Peter Richon: Well, let’s flashback, then, John, starting at about age 50. Really, I think we want to start our saving and our planning and investing much sooner than this, but there are some key opportunities starting at age 50.
John Kuykendall: Yes, there are. One of the things that the government has set up for us and started several years ago is that at age 50, we have what we call the catch-up provision. If you’re in a 401(k) or 403(b), or you have an IRA, then there is a catch-up of additional money that you can put away, tax-deferred, so that you can help jump start your savings.
Peter Richon: It may seem like it’s a little insignificant, $1,000 in an IRA extra that we can begin to save at age 50, but $6,000 if we’re still employed at a company in an employer plan, so that’s $7,000 a year between a married couple. There’s two opportunities there. Over a ten year period, from 50 to 60, that could be an extra $140,000 that we are saving and investing for retirement. Maybe if we didn’t start soon enough or want to really charge up that retirement account, this is a good key opportunity to identify, John.
John Kuykendall: Yes, it is. Certainly, it’s a way that, while the government doesn’t allow us to do a lot, it does allow us to do some, and that additional $140,000 that you’re talking about compounded – because we always talk about the magic of compound interest – will just make your retirement that much better.
Peter Richon: Absolutely. Moving on, age 55. This isn’t one that I really identify as anything crucial to retirement planning, John, but what’s going on at age 55 that we need to be aware of?
John Kuykendall: If you stop working and you have an employer plan, a 401(k), you can make withdrawals from that plan without paying the 10% penalty, which applies to the IRA. With the IRA, we have to be 59 ½, and that was the next one on our list. At 59 ½, I can take money out of my IRA without that 10% penalty, but in my 401(k), I can do it at 55.
There is one other caveat, Peter, and I like people to understand this. There is something called a reg 72(t), which says that I can take money out of my account, prior to 59 ½, as long as I take it out in systematically equal payments and I don’t run out of money prior to 59 ½ or five years, whichever is longer. There is a way to get money out, and we do a lot of planning with some of our customers who are retiring early and have saved enough that we can actually supplement their income without that 10% penalty.
Peter Richon: I was going to say that this sounds like an opportunity, particularly for those that may have done a very good job of saving and do want to retire early at 55, if we’re able to. We’d like to get into those retirement accounts, but typically the 10% penalty is something that prevents us. It sounds, though, John, like there’s some really careful, specific rules on this and we need to have some very careful, specific planning to go around with that to access those funds.
John Kuykendall: Yes, and there are some penalties, too, because you have to go back and pay the 10% back. If you don’t make it, we violate the rules. We want to make sure that we consult with someone and that we do the proper planning to make sure that we’re doing it properly.
Peter Richon: Good to know. All you 53, 54-year-olds that want to retire a little early, this may be something to dig into, explore a little bit more early on and be proactive on that. Give John Kuykendall a call. He can help you out, understand those rules of the 72(t) and how to access those retirement funds at your employer a little earlier than you may have expected to be able to, without the 10% penalty. If you’d like to find out, again, give GulfCoast Financial and John Kuykendall a call, 386-755-9018, 386-755-9018.
You mentioned at 59 ½, that’s the typical age that we think of being able to access retirement funds. I don’t know why they come up with these half ages. I imagine the Republican and the Democrat negotiating on the golf course and saying, “If I sink this putt, I’ll meet you halfway,” or something like that.
John Kuykendall: It’s crazy how it would be 59 ½. I don’t understand. There’s no significance to the numbers; it’s just a number that the regulations were picked. You’re probably right. One said 59, the other one said 60, so they settled at 59 ½.
Peter Richon: Government at it’s best, there. Alright, 62, moving along here, John, the first age that we could consider taking Social Security, but maybe not should consider Social Security in every situation.
John Kuykendall: Well, a lot of people think, “Well, I’ve hit 62; I can draw Social Security. I’m going to get mine while it’s still there,” but there are significant penalties. If you’re still working and you make over a certain amount of money, you’re going to be penalized and have to give back to the Treasury part of that Social Security benefit you got. Also, if you were born in 1960, I think it is, or later, you’re only going to receive 70% of your Social Security.
Peter Richon: Right.
John Kuykendall: One of the things that we like to do here, of course, is we have that Social Security maximization report, which we can show someone exactly how to make the most out of their Social Security. Social Security, because it is one of the main things that we’re going to get a check for every month, is so important. We don’t want to underestimate the importance of that paycheck later in life, after we can’t work, so we want to make sure we do the best job with it.
Peter Richon: Absolutely. And, 65, John, another milestone here. This is, perhaps, what I feel is maybe the most common retirement age because at this point in time, there’s Medicare and the government is going to help us with some of our medical expenses from that point forward.
John Kuykendall: Yes, that’s right, at 65, we’re eligible for Medicare, but, as we found out, there is no free lunch. We are going to have to pay for Part B from the government, and we’re also going to have to have a supplement to help pay for the deductibles and co-pays, as well as a Part D, which is the drug card.
We really like to help people with this. We’re very good at it. We’ve done it now for 20 years, and it’s one of the things that we can help you with, helping you file for Medicare and also showing you exactly how much it’s going to cost for your plan and what the plan will pay for and what it won’t pay for.
Peter Richon: Lots of different plan options there with the different parts of Medicare. This is another one of those decisions that maybe there is some room to change, but it’s limited, and we really want to set out on the right path when we’re selecting what plan we’ll be sticking with.
John Kuykendall: You know, the one thing about it, Peter, is at 65, we get a one-time free. We can sign up for any Medicare plan, without underwriting, no matter what our condition is. It’s very important that we make the right decision. Also, because we have to have Part D, the drug card, there are numerous – 13 or 14 – different drug plans, and all of them are different.
What we like to do is take a look at your medication, figure out what medication you’re on, and then look to find the best plan that we can get that will cover you because not all drugs are tier one in every plan. We can really save a lot of people money based upon which plan they sign up for.
Peter Richon: Moving on, again, full retirement age, all the way up until 70, lots of different options there with Social Security. The full-retirement age, date or year is going change depending on when you were born. John, a lot of planning should go into when and how to claim and collect Social Security all the way through these years and this phase of our life.
John Kuykendall: Yeah, when we reach 62, we should be pretty well-deciding how we’re going to sign up for Social Security and what the impact is going to be, and then we need to analyze it as we go forward. At age 70, there’s no reason not to draw Social Security because you’ve maximized your benefit. While you’re going to be paying taxes – up to 85% of that Social Security benefit can be included in your taxes – there’s no reason to take it. Also, there are some ways that your spouse could have signed up sooner; there are like 687 ways or something that you can sign up for Social Security. While a lot of the loopholes have been eliminated, there still are some really significant planning strategies that we can do with Social Security.
Peter Richon: Again, if you’d like to take a look at that; if you’d like to run the reports, the analysis; find that optimal way to incorporate Social Security as the most valuable tool it can be for you, pick up the phone and give GulfCoast Financial Services a call. John Kuykendall and his team are happy to sit down with you, discuss that, run the reports, run the numbers through the computer and find those scenarios that make sense for you, 386-755-9018, 386-755-9018.
John, you mentioned 70 ½ RMDs. That’s absolutely one that, if we’ve got any kind of tax-deferred dollars, we don’t want to miss.
John Kuykendall: No, we don’t, because there’s a 50% penalty on the amount you were supposed to take out. If I’m 70 ½, and that year I was supposed to take out $20,000, if I don’t take it out, then I owe the government $10,000 for the money I didn’t take out.
Peter Richon: Wow.
John Kuykendall: We want to make sure that we manage that, but also, remember, there is some planning ahead of time that we can do, like Roth conversions and some other things, because that RMD is going to be taxable income to you. It will come out whatever we have to take out. Whether you need it or not, you have to take it out.
Now, saying that, Peter, there is some legislation that may be enacted that will increase that 70 ½ number to 72; we just don’t know when they’re going to effect that and when it will be effective.
Peter Richon: Again, if you’ve got questions about any of those earmark dates, you want to make sure you are marching forward toward financial progress and making your retirement goals and making sure that you’re meeting any requirement along the way, pick up the phone and give John Kuykendall and GulfCoast Financial Services a call. They’re happy to sit down with you, talk over your goals, look over your situation and help you understand where you are in your progress and process and make some recommendations if they see anything that could be improved, 386-755-9018, 386-755-9018.
You brought along another pretty poignant article here, very apt for this program, and it was from Money & Market’s magazine; it is “The 7 Deadly Sins of Retirement Planning for Baby Boomers.”
John, what’s your synopsis on this list? Pretty astute?
John Kuykendall: Oh, yeah, I think the list is right on, especially for Boomers. Boomers, we kind of live with that idea that we’re going to live forever, and we live in the moment, so we spend our money. A lot of Boomers have not saved enough or anything for retirement, and so they’re continuing to work; we’re seeing that in the workplace, where Baby Boomers are having to work longer, in order to just live, because they don’t have retirement savings.
Peter Richon: Yeah, number one on this list is not saving enough or anything. John, I know that you can help anybody get pointed in the right direction, but, really, if we fall into that category of number one, there’s not a whole lot you can do proactively beyond that point of just getting folks started and making sure they understand the importance.
John Kuykendall: I think, for a Baby Boomer especially, it’s kind of late to get started. I think this article says that 23% of them that were surveyed had no retirement savings – 23%!
Peter Richon: Scary.
John Kuykendall: That’s unbelievable that we could wait that long and get to be that age and not have something saved up for savings for retirement. No, there’s not much we can do. We can sit down and help them maximize their Social Security, maximize their Medicare, but there’s not a lot we can do to help them with their daily living expenses.
Peter Richon: However, if we are talking with folks who have done a reasonable job in trying to be more responsible and secure that ideal financial future, most likely the type of folks listening to this program, John, I think the rest of these are points that we all need to be paying attention to; the fear of – number two – draining down our retirement savings is real and it is preventable to some extent. We need to understand what that takes. Number three really helps us with that – not calculating a retirement savings goal. We should absolutely do that in order to try to address number two.
John Kuykendall: Yeah, and that’s one of the things, Peter, that we try to do here. We try to sit down with people and work up a retirement planning goal with them while we’re working up their retirement plan. When we run them through our analysis, we can show them where we are, what the shortfalls are, and then we can help them reposition their assets so that we can make that retirement goal. Then we need to monitor that retirement goal for every year thereafter, as long as we’re in retirement.
One of the problems I think a lot of people in retirement is we’re used to getting that check every week or every month, so we’re used to spending, and then, all of a sudden, we’re paying ourselves, but when we’re paying ourselves and making bad decisions in the market, or we have kids that we’re trying to support, or parents, it will impact their retirement plan. We have to just monitor that and make changes as we go. There’s no way that we can say, “This is your plan; it’s set for the next 30 years. Go live it.” It’s a living, breathing organ document; we have to look at it every year, and we have to make adjustments and budget adjustments, too. I’m really big on people being on budgets.
Peter Richon: Yep. The plan has to be monitored, has to be updated, has to reflect the changes in our own circumstances and the changes in the world around us, plus, if we want to ensure that don’t run out of money, there has to be some reasonable expectation for spending and expenditures.
John Kuykendall and his team at GulfCoast Financial Services can make sure that you have that plan in place to do it efficiently. They also house GulfCoast Tax Advisory to make sure that you’re getting to keep as much of your money as possible. If you’d like a review, if you’d like to get that plan in place, make sure that you’re not falling into those deadly sins of draining your retirement savings, or not calculating your retirement savings goal, give them a call, 386-755-9018, 386-755-9018.
Further down this list, number five and four really have to do with healthcare expenses – number four, underestimating healthcare costs; number five, ignoring long-term care costs. These can be catastrophic, John.
John Kuykendall: Oh, yeah. The thing is that – and even I did this. When I got 65, I thought, wow, I’m on Medicare, this is going to be reasonable, and I don’t have to worry about health insurance anymore. I don’t, but I’m still subject to co-pays. The average couple during retirement, on the low side, had to figure about $285,000 for medical expenses, up to a half a million dollars for on the high side. People, when they get to be 65, they’re thinking they’re on Medicare and not going to have expenses, and that’s not true, Peter. We need to plan for that in our retirement. It’s just amazing how I got to that 65 and I thought, wow, this is it. I made it. I don’t have to worry about healthcare costs anymore. It could be as much as $800 a month to $1,000 for your premiums, just for you and your wife.
Peter Richon: Again, we’ve got to address this. You can’t ignore it. Two of the deadly sins of retirement right there in ignoring or not understanding or underestimating the costs associated with medical expenses, healthcare, long-term care.
Number six, mishandling your retirement date. John, a lot of people – we talked about this in the first segment of the program – that period, all the way from, really, 55 up til about the age of 70 – lots of different potential combinations there of when we choose to leave the workforce, but, if we make that decision, we want to make the right decision the first time. It’s not something we want a mulligan or a do-over on.
John Kuykendall: Well, there’s not too many do-overs on retirement, unfortunately. We don’t want to retire and then end up being the bag boy at Publix, so what we need to do is plan. We need to know when I’m going to be able to retire. We need to have all of our ducks in a row. We’re going to retire almost as long as we worked, Peter, and so we have to make it the best we can make it. You don’t want to work for 30 years, and then retire for 30 years, and not be able to live and enjoy yourself; that’s not why we were put on Earth. We need to make sure that we’ve got that retirement the way we want.
Peter Richon: Again, to figure that out, to know if you’ve saved enough, if you’ve got enough to last, pick up the phone and give a call to GulfCoast Financial Services. They’ll run all of the numbers for you. They’ll run you through the calculators and different scenarios, even making the bad things happen on paper, giving you a Murphy’s Law look at retirement so that you can be confident in your decision. Pick up the phone and give a call, 386-755-9018, 386-755-9018.
Finally, on this short list here of the seven deadly sins of retirement planning for Baby Boomers, John, not setting affairs in order. Money is a sensitive subject. Talking about it with the family is sometimes a little difficult, but not doing that can lead to big catastrophes and a lot of responsibility and burden you place on your loved ones, potentially.
John Kuykendall: Yeah. The problem is that we like to procrastinate and put things off. I’m amazed at the number of people that are in their 60s and 70s that I meet with, and I’ll ask them to let me have a copy of your will, your power of attorney, your health surrogate form, and also your living will, and they all say, well, you know, we don’t have any documents drawn up. It can be catastrophic because, if I get dementia and I’m incapacitated, then if I have some asset – and I had this happen not too long ago.
I had a young lady who’s husband passed away suddenly with a heart attack. She had no money, she had three kids, but they had a half a million dollar piece of property in Georgia, but she couldn’t sell the property because it was in his name and there was no will. Going through probate, waiting for that money put the family in a strain, a bind. She was a lot in debt when she finally got some of the money – didn’t get all of it because she had to make a quick sale.
We need to make sure we have our documents in order. In light of that, tomorrow, I’m actually meeting with my attorney to go over my trust, go over my documents, make sure that everything is up to date. I do that every year. I recommend that we all have those four documents, at least, whether you have a trust or not, which is a will, power of attorney, a health surrogate form and a living will. Those four documents are paramount for anybody because when we get dementia, it’s going to take six months for us to get declared incompetent so that somebody else can handle our affairs.
Peter Richon: It’s – you mentioned it – that invincibility syndrome, where we don’t feel like we need it yet, it’s not going to happen to us, but you can’t do it the day after you need it, obviously, and it is something that, even if you’ve gotten it done at one point in time, has to keep up with changes in your life, circumstances and scenarios and changes in the world around us, so it does need to be dusted off and updated every once in awhile as well.
Set those affairs in order. It’s so important with the total planning that you’re coordinating efforts. Your legal plan, your tax plan, your financial plan all need to be coordinated. If you need any help or assistance, pick up the phone and give GulfCoast Financial Services a call, 386-755-9018.
John, you also brought along this handy list here. I think this is something that’s good for anyone listening today to maybe call up and get a copy of this. It is “Are You Ready? 12 Questions that Will Indicate if You Are Ready for Retirement.” It’s something that somebody could go over on their own time or with their spouse or family to get a feel for how prepared they are.
John Kuykendall: Yeah, it’s a great list, Peter. Actually, going over the list, these are the 12 things that we do with our clients and our prospects to make sure that they’re ready for retirement. We talked, I think, last week about the retirement income goal, where I’m figuring out how much I need to live on, what my expenses are going to be, and then how I’m going to fill that gap. That is certainly income allocation at its finest. This list is just unbelievably accurate, and I would be happy to send it to anybody that wants it.
Peter Richon: If you would like a copy of that list, the 12 questions, and it really goes into detail on numerous aspects of planning that you have to carefully think through, pick up the phone and give a call. You can go through it on your own time with your spouse, with your family – pass it along to friends who might be considering retirement – 386-755-9018 is the number to call, 386-755-9018. Just request the “Are you Ready? 12 Questions,” and you can get that in your hands; 386-755-9018.
Finally, here on the program, we’re nearing the end of it, John, closing out. You additionally brought along a recent report from two PhDs, Dr. Michael Finke and Dr. Wade Pfau. These guys are pretty serious individuals who really study finance and financial planning and retirement planning, and they’ve come up with this report. It’s based on their conclusions of many years of research, and it really talks about structuring that retirement plan. In reviewing it, when you sent it to me, prior to the program, I really felt like a lot of this echoed what you have been talking about here on the program with the income allocation concept for structuring assets in retirement.
John Kuykendall: Yeah, it’s right on target. It doesn’t talk about income allocation specifically, but, when you read this, you’ll see that that strategy is working in this document.
Peter Richon: Lots of resources that we’ve been talking about on today’s program, from the ability to come in and review your own progress, make sure you’re hitting those milestones – from that article from Money and Markets on the seen deadly sins of retirement planning – to the report, the one-page thinker piece that asks the 12 questions, so that you can reflect and understand if you are prepared to retire. If you’d like to see this report from two PhDs who have studied financial and specifically retirement planning, I’m sure that John can send you out a link to that as well.
Give a call. There’s many great opportunities to become more informed and educated, but only the proactive do. You’ve got to be serious about planning in order to achieve your goals, ladies and gentlemen. Pick up the phone and give a call now, 386-755-9018, that’s 386-755-9018.
I think we’ve covered a lot of ground today, John, but we always appreciate your guidance and perspective, pointing out what’s important in our planning process.
John Kuykendall: Thank you, Peter. It’s great to be here. I hope we helped somebody this week.
Peter Richon: I know John and the team at GulfCoast Financial Services are looking forward to helping and assisting you in any way they can. Give them a call, 386-755-9018, or tune in again next week for more GulfCoast Financial.