SHOW NOTES: 2019-10-17 MiM

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Last Week’s Question of the Week: For persons turning 65 today, what percentage are likely to need long-term care in the future? Under 30%, or more than 50%?

ANSWER: Morningstar’s 2018 report tells us that persons turning 65 today have a 52% chance of needing long-term care support and services.

HOST: Your discussion today revolves around the TOP TEN MISTAKES people often make with Retirement Planning.

KLAAS FINANCIAL: Being retirement planners, IDEALLY, we help people AVOID these mistakes, so hopefully when our listeners hear 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 THEIR PENSIONS OPTIONS – If you have any pensions coming to you… many times people are making hasty decisions when they fill out their forms. 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 health insurance 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 sometimes be a little tricky.

  • 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.

Other mistakes:

  • 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: TRYING TO TIME THE MARKET – Typically, to make up for “lost years”. This is never a good idea, managing for risk becomes even more important.

HOST: What other mistakes should we avoid? Like “get rich” schemes perhaps?

KLAAS FINANCIAL: Here are a few more common mistakes to consider…

  • MISTAKE #7: FAILURE TO BE AWARE OF FRAUDS AND SCAMS – consult your trusted advisor vs. falling prey to scammers who will prey upon your desire to grow your savings supposedly quicker and safer.
  • MISTAKE #8: SUPPORTING YOUR ADULT WORKING CHILDREN. This can seriously take a dent out of your retirement. Keep in mind they have many years ahead to work and save for their future retirements.
  • MISTAKE #9: NOT STAYING ACTIVE – Socially, mentally and physically.
  • MISTAKE #10: 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 slowly and get some professional guidance.

Money in Motion Listener Question Corner

HOST: Now a question in our Money in Motion Listener Question Corner, one of your listeners, Dan sent an email asking: “I have heard that if I want to retire at 55 and leave my job that I can use my retirement money sooner?”

KLAAS FINANCIAL: Thanks Dan for emailing us your question!
Great question! I think what you have heard about is the “Separation after 55 Rule” which possibly may apply to you.

The age 55 exception is one of the exceptions to the 10% early distribution penalty for retirement plan distributions taken prior to 59 1/2. It allows certain individuals to take distributions from their retirement plans at 55 or later (instead of 59 ½) without being subject to the 10% penalty.

In a nutshell, if you separate from service from your employer in the year you are turning 55 whether by retirement, quitting, fired or laid off distributions that you may take from your retirement plan are not subject to the 10% early distribution penalty if you are no longer employed for that company (or what the tax code refers to as “separation from service”). Note, however, that the distribution would still be subject to federal income taxes.

Don’t confuse the date of the distribution with the separation from service date (the date you stop working with the company that sponsors the 401k). For example, if you stop working when you are age 54 and wait to take the distribution from the former employer when you turn 55 or later, the age 55 exception won’t apply. To qualify for the 10% penalty exception, separation from service must occur in the year the person turns age 55 or older.

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