SHOW NOTES: 2019-05-30 MiM

Listen to Show Audio

Last Week’s Question of the Week: What is the current inflation rate for the United States?

ANSWER: Currently the inflation rate for the United States is 2% for the 12 months ended April 2019, as published on May 10, 2019 by the U.S. Labor Department.

HOST: Your topic today looks at some areas to consider to be saving into for retirement such as Roth 401Ks, or after-tax accounts…

KLAAS FINANCIAL: Yes, we spend a lot of time on this show suggesting to our listeners that they need to be saving into their retirement plans at work. But we want to be clear: the key is to be saving enough SOMEWHERE to be able to draw from in your retirement.

  • Understand why type of plans are available to you at your workplace, is it a 403b, 401k, a Simple IRA, a SEP IRA, a 457 plan? Or is it simply a type of pension?
  • Understand your contribution limits as they vary according to the plan and your age.
  • Discuss saving pre-tax vs. Roth vs. after-tax monies and the implications. Is a Roth 401k an option?
  • Are you taking advantage of a company match of money? Free money? Yes, you need to be doing this!
  • Consider having an after-tax investment account. Having this, alongside of your retirement accounts can offer you flexibility as you go into retirement like Roth accounts.
  • Discuss how having automated amounts from every paycheck going into your retirement plan, pre-tax saves you money today in taxes, and also, forces you to be on the savings track.

If you get a promotion or raise, where are you putting that extra money? We would suggest that when possible, people should be putting away 10-15% or more of their paychecks into retirement savings, and even more if they are trying to catch up.

HOST: What are some of the mistakes people sometimes make with regards to retirement?

KLAAS FINANCIAL: Well, we want to remind everyone that being retirement planners, more often than not, we are helping people AVOID mistakes, so hopefully when our listeners hear us list these potential mistakes, bells will go off and they will proceed with caution.

  • MISTAKE # 1 – STAYING TOO AGGRESSIVE IN YOUR PORTFOLIO. Talk about possible risks of staying too aggressive in your retirement plans as you approach retirement age.
    *Important to consider age, risk, debt and your own situation is what matters.
  • MISTAKE # 2 – NOT FULLY EVALUATING PENSIONS OPTIONS. Take these slowly. Really look at options that you have with regards to payout choices as they are usually unchangeable/irrevocable once chosen. Give examples of different choices of pension options; single, joint or lump sum.
  • MISTAKE #3 – RETIRING WITHOUT CONSIDERING HEALTH INSURANCE COSTS. Discuss COBRA insurance and covering the health insurance gap between retirement and 65 (medicare eligibility age). Remember that you can begin Medicare at age 65. Does spouse have benefits to carry retiree?

HOST: What about deciding when to take their Social Security? Do people make mistakes with this?

KLAAS FINANCIAL: Yes, this can be a little tricky sometimes.

  • MISTAKE # 4 – NOT LOOKING AT S.S. INCOME FIGURES PROPERLY. discuss pros and cons of WHEN people pull S.S. benefits (taking it too early) or not early enough. Remember that the earliest you can draw is age 62, but Full Retirement age is probably 66-67 for most at this point.
  • MISTAKE # 5 – DRAWING TOO MUCH OUT EVERY YEAR FROM YOUR PORTFOLIO. Discuss generally appropriate withdrawal rates for retirees. 4-5 % depending on age and circumstances.
  • MISTAKE #6 – ATTEMPTING TO ‘TIME THE MARKET’. In an effort to make up for lost years, some try to time the stock market. This is never a good idea, so managing for risk becomes even more important.

HOST: What other mistakes should we avoid?

KLAAS FINANCIAL: We have one more for you…

  • MISTAKE #7 – NOT BEING TAX-WISE IN RETIREMENT. Paying off a mortgage with all pre-tax money in the same year may crush you. Look at situations carefully and seek professional guidance. Seek counsel from your financial advisor or your accountant before you do something that could cost you extra dollars in the long run.

Listen to Show Audio

Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.