10 Top Retirement Questions

Steve Kirkendall answered listeners’ calls on KPDQ radio for over 15 years. In a recent interview, he answered the 10 most important questions on retirement during all those years on the radio. You have 3 ways to get this important information:

1.    Click here to listen to this interview now.
2.    Call our office and we’ll send you a CD so you can listen in your car.
3.    Read the transcript below.

If you would like to receive a copy of this CD for a friend or relative please call our office.


WHERE CAN I GET INFORMATION ON FINANCIAL SERVICES?

I’m sure you will be surprised at the wealth of information on my website www.kirkendallfinancial.com.  Under the tab called “Learning Center” you will find articles on 1) estates and trusts, retirement, investing, tax planning, cash management and risk management; 2) calculators for those topics; 3) newsletters over the past year; 4) E-seminars on various topics; 5) glossary of terms and 6) a tax library where you will find a selection of tools and information related to taxes and tax strategies.  And, of course, you can always call me.


WHY IS ESTATE PLANNING SO IMPORTANT?

Proper estate planning helps insure that you minimize how much of your estate goes to the government while maximizing how much goes to your family and charities.  We never know when we might die and since we have paid our taxes each year, why let our government tax us again after we die?  If I’m married and don’t intentionally make part of my estate taxable up to the unified credit offset amount and I give everything outright to my spouse, which I could do without estate tax, we would only be using to credit once instead of twice a cost currently of $345,800 (a third of $1,000,000) just because I didn’t take a few hours to plan.  Also by setting up a trust I can avoid probate costs on my estate of 3-8% and sometimes years of delays.  A will is probate instruction telling the courts and attorneys what you want done and doesn’t save the 3-8% and becomes public record where trusts can do the same but can do much more than a will and not become public record.  There are many types of trusts (revocable and irrevocable) even Dynasty trusts that could keep assets in your family up to 360 years.  With so many different ways to do your estate planning it is extremely important you have an experienced estate planning team including a planner and attorney.  I ran into a family who thought their regular attorney knew what he was doing for their parents and after I reviewed their plan I encouraged them to see a specialist in estate planning which cost them an extra $4,500 but saved over $235,000 in costs on their parents’ estate when they died a few years later.  Also, I have seen too many families broken up because things were not put in writing and the heirs ended up fighting the rest of their lives.


WHAT SHOULD I LOOK FOR IN AN ADVISOR?

I believe being licensed in both insurance and securities is very important.  Without being licensed, who are they accountable to?  There is a very popular person out there on radio and TV that has no accountability (licenses) and when the name comes up with licensed people they just laugh because the person is over 8 years behind in knowledge of newer type ways to invest. Also if only licensed in one area, the advisor could be swayed to just that area.  In addition to licensing there are credentials that mean that person has taken many hours of extra training.  Just a couple of good ones are Certified Financial Planner ® (CFP), Chartered Financial Consultant (ChFC) and Chartered Life Underwriter (CLU).

I also believe experience is almost more important than anything.  My service to my clients has spanned six presidents.


I’VE CHANGED JOBS.  WHAT SHOULD I DO WITH MY OLD RETIREMENT PLAN (401-K, TSA, 457, 403(B), (PRETAX PLAN)?

When you change jobs, you don’t have to leave your 401(k) or other retirement plan at your old company.

It may be best to transfer it to an IRA to have a much larger choice of how to invest those funds.  On a transfer it still stays tax deferred and you don’t even have to show you moved it on your tax return.  On transferring to IRA, there is no maximum like the regular IRA has and if you wanted to you could still add your regular IRA each year to it if you qualify.

Remember an IRA is just an IRS umbrella that could be funded with almost any kind of investment.

SHOULD I JUST CASH OUT MY 401(k)?

No.  Unless you are over 59-1/2, taxes and penalties can take half your account, and if you’re over 59-1/2 it will be added to your current income which may put you into a higher tax bracket.


WHICH RETIREMENT OPTION SHOULD I TAKE?

There are different payout options with retirement plans.  Some will only pay a monthly amount which you must take a reduction to protect your spouse and if you both died the balance is kept by the company.

If you have an option to transfer to an IRA, that may be your best option, especially if you are married because when you die your spouse could be the beneficiary with children as contingent beneficiaries.  The IRA could be funded with many different types of investments.

If your plan will only do monthly payments and you are married you should consider the payout that protects your spouse.  In the event you die first, this can be very important because there will be a loss of social security when one of you dies.

Be very careful when buying life insurance to protect your spouse’s income.  You will need it guaranteed to not lapse the rest of your life and you will only be using the after-tax difference to pay for the policy.  Example:  You get $500 more payout monthly if you don’t protect your spouse.  You must pay tax on that $500 before you buy a policy to protect your spouse’s income.

If you’re single, you may also want to transfer to IRA to give you more investment options and not lose control of your money.  With most company monthly payout plans once you start you lose control of your money.  An IRA can give you many more options.


ARE THERE WAYS I COULD MAKE MY OLD ANNUITIES OR CASH VALUE LIFE INSURANCE WORK BETTER FOR ME?

Yes!  The IRS allows tax deferred 1035 exchanges (which is just a way to move to a better annuity without current taxation) that when done properly you don’t even have to show on your tax return that you moved them.  Be sure to check what expense your old company might charge before moving.  With some old annuities that are paying too little you might want to go into the next generation of newer type annuities.  On your old cash value life policies you might save on cost or get more death benefit because of newly updated mortality tables.  We’re living longer and/or that old health problem is not as bad as they thought in the past.

It usually doesn’t cost for a review to see if you can do better.


WHY ARE ROTH IRA’S SO IMPORTANT?

First, let me explain how Roth IRAs differ from traditional IRAs.

With a traditional IRA, you defer income taxes on your contributions until you take withdrawals.  Your earnings are also taxable when you take out the money and a potential 10% IRS penalty if under age 59-1/2.  So you save taxes going in and pay taxes when you take out money which most people today believe taxes are going up for everyone.

With Roth IRAs, contributions are made with after-tax dollars so withdrawals are tax-free when you are over 59-1/2 years old and held at least 5 years.

2010 Roth conversions are very important since there are no earned income limitations.  Today if you make more than $100,000 per year you can’t have a Roth.  In 2010 there is no maximum cutoff.

Even though they are funded with after-tax dollars if the profit is held at least five years and comes out after age 59-1/2, it’s tax free even to my beneficiaries.  So why not let it be taxed now so it can come out tax-free later.

Remember:  In 2010 anyone can roll-over existing IRA’s to a Roth IRA.  If you have other pre-tax type plans you could transfer to an IRA then convert to a Roth.  Also the tax bit is spread out ½ in 2011 (not 2010) and ½ in 2012.
 

SHOULD I TAKE MY SOCIAL SECURITY AS SOON AS POSSIBLE EVEN IF I DON’T NEED IT?

And when should I start taking Social Security? 62, 65, 66, 67, ???

Yes!  Especially if you are at full retirement age (100%).  Let’s say you’re turning 66 and it’s your full social security retirement age why not start taking now instead of waiting until age 70 to get 132%.  Because at 70 you could pay it all back with -0- interest and restart at age 70 payout and in the meantime be earning on those funds.  Remember you pay back with no interest.

If you retire early on social security and don’t need it you probably make too much to have it make sense since they take one dollar for every two you earn on the job of the amount over $1,180 monthly until you reach your full social security age.  It’s only on the job income that counts, not IRA’s, pensions, investment, etc. in figuring how much they will take.


HOW DO I KNOW IF I’M GETTING GOOD FINANCIAL ADVICE?

I believe the most important thing is that they are telling you what is negative about what they are advising.  There is NO, yes I said NO, investment that doesn’t have something negative about it.

Investment negatives can include potential drop in income, principal risk, purchasing power risk from a falling US dollar, inflation risk, etc.

By knowing what is negative you can decide if it’s something you can work with.  If they don’t tell you they are in essence saying they don’t care about you so why do business with them.  Will they talk with your attorney, your accountant or a trusted friend?  Also stay away from making any investment decision the first time you meet someone unless you are already very knowledgeable about the investment.


WHY IS IT IMPORTANT TO START RETIREMENT PLANNING AS SOON AS POSSIBLE?

Most of us will be working 40-50 years knowing we want to retire comfortably and sail off into the sunset or just do what we want.  Since we are living longer as the years go by we should plan for those 30-50 years of hopefully not working.  How do you know you’re there unless you have a plan?  I’ve seen people get to the age they thought they could retire and find out they’ll run out of funds in their 80’s.  I admire those grey-haired folks working at very low paying wages in their later years for not giving up but if they had planned before and known that working one to three years longer could have added 10-15 years on the end, I believe they would have.  To have $50,000 buying power of today’s money using 3% inflation you would need to have $163,100 which is 6% of your goal of $2,718.364.  If I am earning 8% for 40 years means I need to set aside $431 monthly in pretax dollars.  In after tax dollars it’s less than 9% of my income.  What if I wait 5 years to start (35 years to go now) same goal.  I would now need to put $1,185 monthly pretax which in after tax dollars in now 24% of my income.  Ouch!!  If I couldn’t do it at 9% how can I do 24%?  This is why estimates are that 80-85% of Americans will not retire at their same standard of living.


CONCLUSION

In the 10 Questions there are probably many, many more ideas that should be covered.  I have just given brief answers that I hope you will seek professional advice from someone like myself before moving on any advice.