Four Simple Tips to Boost Your Savings for Retirement

Episode 4: Audio automatically transcribed by Sonix

Episode 4: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment, and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to All Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yelisey Kuts are retirement planning specialists here to provide a unique and conservative approach to managing your money. Now, here are your hosts. Trey Peterson and Yelisey Kuts.

Trey Peterson:
Welcome to All Things Financial. Yelisey Kuts and Trey Peterson. We're so looking forward to the information that we have to share with you today. We're talking about Get more in 2024. And we actually have a quote that we want to start with. But before we do, we have a YouTube channel, All Things Financial that we want you to check out. We're going to be making videos, uh, a couple a month. We're going to hit about 40 of them this year. And our goal is just to share information that has an impact on you preparing for retirement and winning with your money.

Producer:
And now for some financial wisdom. It's time for the quote of the week.

Trey Peterson:
Uh, words of wisdom to kick off this show. Um. Let's see. The quote is by Roger Babson, and it's more people should learn to tell their dollars where to go instead of asking them where they went. That's good advice, right? A lot of a lot of times people, uh, they don't actually budget, right. We see that all the time. And a lot of times, um, it's when they actually do start budgeting, when they, when they write down and take a look to see what happened in the previous month or in the previous year. Uh, the look of shock that we see on people's faces when they actually see where the dollars went. And it really what it comes down to is, um, by living your life that way, by by not budgeting, by not knowing where your dollars are going, you end up not saving for retirement. You end up inadequately saving for retirement. It's very difficult to do that. Uh, the easier way to go is to just decide and determine ahead of time how much you want to put away for retirement savings, how much you want to spend in each specific category in your life, whether it's a fixed or variable expense. And that is what's going to lead to savings that are adequate for your retirement. Yeah. So quick overview. One of the things I always appreciate is when people tell me the things that we're about to talk about. So today we're going to talk about closing in on retirement.

Trey Peterson:
Tips for catching up on retirement savings. We're going to talk about ten ways to improve your finances. Uh, how many know that when you win with your money, everything else in life is easier? Uh, so different steps you can take to win with your money. And then do you have a retirement tax bond? We're going to talk about how something called RMDs, those required minimum distributions can really be a pain if you don't have a plan for them. And we find that probably 80 to 90% of the people that we meet with that are over 50 have never had a conversation around those RMDs. So that's a big piece of what we're going to talk about today. And then of course, inflation. You know, one of the things that we've all noticed, whether it's gas, whether it's the grocery store, is that inflation has been significant the last three years, really since Covid. And what nobody's really talking about is the compounding effect of inflation, the fact that over the last three years, it's up at least 20%. And even as we get it under control, those costs are probably never going to come down. Uh, Yelisey , I don't know. Did you watch the Super Bowl and, and see the cost of those tickets this year? I saw the cost of the tickets. Uh, but I, I hate to admit I missed the game this year.

Yelisey Kuts:
Uh, well, I have a friend that does well, and, uh, he paid 25,000 for one ticket to the Super Bowl. Uh, I think I heard the average cost is, like $11,700 a ticket. So, uh, inflation is real. Yeah, yeah. And and saving for retirement has never been more important. Um, it really doesn't matter what age, obviously, as people get it, we call it the retirement red zone as people get, you know, to to keep playing off the Super Bowl analogy there. Um, but as people get closer within that ten year window of retirement, um, you know, for some people, panic sets in, they realize that they haven't done enough in terms of their retirement savings. Uh, but for others, even people who have done a good job saving for retirement, they realize that sometimes retirement comes with all kinds of unexpected expenses and things related to health care that really can drain your retirement savings. Um, and there's all kinds of unpredictable things. Life doesn't always cooperate. So we really want to emphasize the retirement red zone. What are you doing prior to retirement, and especially in those early years of retirement? And as we get closer to the end of of today's podcast, we're going to talk about some strategies that that can help you win and help you be on track for your retirement. Yeah. One of the first ones we're going to talk about is understanding your cash flow and being willing to adjust.

Trey Peterson:
You know, one of the things that that we see so often is as people prepare for retirement, they really have a false sense of how much they need for income. And, you know, when you look right now, most people, when they write down their expenses, they write down their fixed expenses, right? Maybe they still have a mortgage, insurance, taxes. And what they're not doing is they're not looking at their total living expenses. And one of the things that's a challenge is if you still have debt in retirement and you're stopping that paycheck, and now your income stream from Social Security, a pension, investments, maybe some real estate, now that income has to also cover some of that debt. More and more people are finding that it's difficult to reduce their expenses by 25%, where historically, people understood that the reason you pay off your debt is because in retirement, your income is going to be less than when you're working. And so you want your expenses to be about 75 to 80% of what they have. But maybe the last decade or so. Well, one of the one of the big issues we're seeing is is obviously debt. Uh, I recently read that Americans own a record of 1.1 trillion in credit card debt, and it's pretty significant. Y'all say, can you talk about that a little bit? Yeah. So the household debt and credit report that recently came out, uh, it shows that in last December, actually, uh, total household debt grew by $212 billion.

Yelisey Kuts:
So currently, uh, the, the the household total debt in the United States is 17.5 trillion. And as you mentioned, credit cards represent 1.1 trillion of that. So that's huge. It obviously, you know, we're talking about, uh, you know, when we're talking to retirees or those getting close, we're looking at ways that they can reduce the the expenses that they have, where they can actually manage their cash flow. For some people, they're looking to relocate to areas where they can spend less on housing. And just like the cost of living is lower in certain areas in the country, and they're doing what they can to make sure that they're developing habits that will carry them through retirement. Meanwhile, you look at what's happening in the country and debt is at an all time high. Credit card debt specifically is Trey mentioned 1.1 trillion. Um, and the other thing is that people are carrying their debt for month to month at a greater percentage as well. So right now, 49% of credit card holders are carrying their debt from month to month. That's up from 39% in 2021. So of course. We we talk about inflation so much. I think most of our listeners are probably sick of hearing about it, but it affects us in a very real way. And in order to pay for the things that we're required to pay for on a daily basis, it's requiring a lot of people to take out consumer debt.

Trey Peterson:
And actually that debt figure, um, when they when they compare the types of things that people are purchasing, it isn't necessarily items like buying a new vehicle or purchasing things that that you know, are going to be paid off in 60 months or something like that, like a vehicle or a different type of loan. But it's actually just to pay for daily living expenses, which is a little bit more unusual compared to what we've seen in the past. So as we often encourage you, as you're getting closer to retirement, look at the ways that you can scale back some of these things. Look at how you can adjust your living expenses. Because, you know, frankly, a lot of times people have have no idea. They have no idea how much they're spending. Uh, in fact, I don't know about you, Trey, but typically when I ask somebody, what are your monthly expenses? Uh, sometimes people say something like 3000 or $4000 a month, but by the time we actually dissect everything and go through their actual expenses, when it comes to all the discretionary spending, charitable giving, vacations, things that come up randomly throughout the year, like sometimes we're doubling and tripling that number, that initial number that they give us when we find out what their true expenses are. Well, there is some good news.

Trey Peterson:
So, uh, over or at least a quarter of Americans are saving at least 10% of their income. When you add employer matches, uh, the average American is saving. Of that, 25% is saving 11.3% of their income. Now, typically what we recommend is the fastest you can get up to 12 to 15%. And then every year that you get a raise. So if you get a big raise, uh, add 1% so that before you know it, you've got at least, you know, 15 to 20%, maybe 25% of your paycheck that's going towards retirement. And I think the other thing that I tell people is not all of that has to go into a 401 K, you know, you and I were in the in the investment and the insurance business. He runs the securities, I run the safe money. But one of the things that that we look at is that money doesn't necessarily have to be invested in the market, right. You can invest in that small business that you have on the side. You can invest in real estate, which down the road ends up being an income producing investment. And really the name of the game in retirement is income. And so every, every so often people say, Trey, who are your happiest clients? I bet it's the people with 2 million, 3 million, 5 million bucks. And what's interesting is our happiest clients are typically not those that have the largest 401 K's in IRAs.

Trey Peterson:
It's those that have the most guaranteed income, meaning that between Social Security and a pension or Social Security and real estate, that they're not touching that nest egg, that million bucks, that half a million bucks, that 3 million bucks, because all of their expenses are covered by guaranteed income. And what gives them so much peace is that it doesn't matter what the market does, because they don't need the money. It's there if they want to take a big vacation, if they want to spoil their kids and their grandkids, but really, they're living off guaranteed income. Uh, one of the things yellow said that we're going to talk about is, uh, catch up contributions. Can you talk a little bit? Yeah. So obviously, uh, it's in everyone's best interest for you to be prepared for retirement. The government doesn't want to have to pick up the tab, right? They don't want to have to, uh, subsidize folks who haven't done a great job saving for retirement. Uh, so they're encouraging us. They actually, they they want us to put money into our various employer sponsored plans or traditional IRAs. And actually, if you're over the age of 50, they have something called the catch up provision. So right now, this year, IRA contributions, you can contribute as much as $7,000 a year, unless you're over the age of 50. And then you get to do an additional $1,000. So in total, you can you can put up to $8,000 a year.

Yelisey Kuts:
You can defer your compensation. You can reduce your taxable income by eight grand by by contributing to a traditional IRA with 401 and and many employer sponsored plans. That number is 23,000 for the average American. But if you're over the age of 50, it's actually an additional 7500 dollars, bringing the total contribution up to 30,500. So you can reduce your taxable income by 30,500. And Trey mentioned that, you know, the average the average person in America currently is contributing about 11%. As you get closer, as you're in that retirement red zone, we encourage people to do as much as they can, uh, and ideally 12 to 15% into your employer sponsored plan if you can do it. Obviously, depending on what your lifestyle is and how much income you need to maintain that, maybe you have some limitations there. Uh, simple IRAs, of course, you can contribute as much as $16,000 in additional 3500 with a catch up provision bringing it up to 19.5. Um, you know, and for a lot of folks that that really makes a difference because in the earlier years, you maybe didn't have the discretionary ability to to be able to contribute or at least to max out your account. But maybe once you reach your 50s, uh. Maybe things have changed. Maybe you're able to downsize. Maybe, uh, you know, the kids might be out of the house at that point, allowing you to have more discretionary income, allowing you to to max out those contributions.

Yelisey Kuts:
No. That's good. Uh, the other things we want to talk about Nondeductible IRA contributions. Yeah. Well, so this one's actually a little bit interesting. So most people just assume. Well, if I contribute to my IRA, I'm lowering my taxable income. I, I get to defer that type of income and I don't get to pay taxes on it. Um, that's true, but the one exception is, and this is important to know, is if either you or if you're married, your spouse, if you currently contribute to an employer sponsored plan, that IRA contribution might end up being nondeductible. In other words, you can't deduct that. You can't remove the contribution from your taxable income. And we actually see this a lot where people think that they're that they're reducing their taxable income, but actually they're contributing to an IRA and they can't deduct it. And it's either because they're contributing to a 401 K, 403 B, or their spouse is contributing to A41K or 403 b. So right now, if you're single and your income is above $87,000 and you contribute to your employer sponsored plan, your IRA contributions will be nondeductible. If you're married, that number actually goes up to 143,000. But what if you're married and you don't have an employer sponsored plan? Maybe your employer doesn't offer a 401 K, but your spouse is contributing to his or her 401 K, that actually you can have up to $240,000 in income, uh, before that IRA contribution becomes nondeductible.

Yelisey Kuts:
And the reason why I bring all this up and I know it's it's maybe we're spending a little bit of time on this, but I think it's important because a lot of times people still make those nondeductible IRA contributions when instead they should be contributing to a Roth. If you're contributing to an IRA and it's nondeductible, what's the point? Instead, take that contribution amount and instead direct it to the Roth IRA. As long as you haven't exceeded the income thresholds there, which we'll talk about later on. Yeah. The fourth thing that we want to talk about is market volatility. I think one of the things that we see a lot around market volatility is as people get, I wouldn't say within 5 to 7 years of retirement, they have a challenge with risk. And and by the way as you get near retirement, it does make sense oftentimes to reduce your risk depending on your expenses. But if you've been thinking, you know what, my risk tolerance, I'm not sure it still fits my current situation. One of the things that Yeliz and I do really well is we help people understand. What is your current risk level? Are you being rewarded for the amount of risk that you're taking? If you're not sure, or maybe you haven't had a second opinion in a long time, or you haven't heard from your advisor in a long time, give us a phone call.

Trey Peterson:
We would love to give you a second opinion to see. Can we improve things? Or is the advisor you're working with already doing everything that they can do to maximize your returns? The other thing is, you know, that we see is over 2020. We've seen a lot of people, I would say, not just walk in wisdom, but maybe be more fear driven. So what is the conversation look like if we reduce our risk? Have you looked at the long terme impact of also reducing your returns? And one of the things that we do well, Elsa, is, you know, as I manage the safe money, as you manage what I call that growth bucket, you know, do people understand the amount of risk that they have overall? Are you looking at your plan holistically, and are you also making sure that you're going to be happy with your returns in three years, five years or ten years? So if that's something you haven't done in a long time, our website is, uh, G wealth.com. You can reach us at (612) 286-0580. And we do a complimentary risk analysis. But you say what are some other ways to improve finances in 2024. Yeah. Well I mean I think that risk is a huge one. Making sure that whatever amount of risk you have, whatever, however your your portfolio is put together the composition of your portfolio, that it matches your goals and objectives.

Trey Peterson:
Like if you're somebody who if if the market dips 10%, 15% and you can't sleep at night, maybe you need to make some adjustments. But for a lot of folks, it's it's really just having a good understanding of what's actually happening and making sure that if their portfolio is aligned with their risk tolerance and where they are in life, and depending on their other sources of income and and resources that they have, then they should be able to to make good decisions. And a lot of times people don't make good decisions, right? They're actually they're driven by fear. And and really we we see people make mistakes in this area all the time. Uh, sometimes people think that, hey, you know, I actually had somebody the other day who said, hey, I have my investments in like five different places because I want to. I want to spread out my risk. I want to make sure that, you know, maybe if one advisor isn't doing. As well as the other advisor. I'm spreading out my risk and probably I'll be okay because somebody's doing doing what's in my best interest. And when we looked at their statements like nobody, if you were to have all of their assets in one place, nobody would put together the portfolio that they had, right? Because they had way too much exposure to a specific sector, or maybe they had way too much that was looking at the S&P 500 only.

Trey Peterson:
Uh, maybe they had no diversification at all. But but seemingly from the outside, they had their they had all their investments in a variety of different places. They had a million different mutual funds, a million different individual stocks. And that person found comfort in that, even though that's not what conventional wisdom would tell you to do. So you want to make sure that we're aligned properly, that our risk tolerance matches our goals and objectives and where we are in terms of retirement. Yeah. Very good. Uh, different ways to improve your finances in 2024. Number one, short tum financial goals. Goals that are achievable within a year. One of my favorite quotes and you say you've heard this, is that we underestimate what we can do. Short tum. And we overestimate what we can do. Long terme. And one of the things that I think is really important is it's great to have big goals and long tum goals, but what are you doing today to make a difference in three months, six months, nine months and 12 months? So one of the things that we help people with is what I call a financial checkup. So maybe your expenses are $6,000 a month today. Do you know what they're going to be in 12, 24 and 36 months? Have you had somebody put something together showing you that based on paying off those credit cards, maybe you have a vehicle that's going to get paid off.

Trey Peterson:
Maybe within 3 or 4 years your home gets paid off. What is the financial landscape look like when you don't have any debt or you have very little debt? And those are things that can really impact you. Some of the other things that most people never do is they don't check their credit score. They don't look to see the health of, how am I doing? Is there debt out there that should be paid off? Uh, you know, Dave Ramsey calls it that snowball. Are there do we go after the smallest thing or the biggest thing or the highest interest thing? And how do we make sure that we pay things off in order to make sure that you have a great credit score, because you may be like one of many of our clients, and your plan is to downsize within a year before or a couple of years after retirement. And so you're looking at interest rates and you go, hey, I want to make sure that my credit score is above 800 so that I get the lowest interest rate possible because I'm making a movie, you might be going from a 3% interest rate to 7 or 8. And so these are little things that matter. What are some others yellow say that you could think of that would help in, uh, impact 2024 for the next year? Yeah.

Trey Peterson:
And I think this is a great segue into our next topic. Uh, we're going to talk a little bit about Roth conversions. Uh, but also, you know, our tax code as it is today, the Tax Cuts and Jobs Act is set to expire at the end of 2025. And for a lot of people, that means that, you know, it. Obviously it depends on where you are. Maybe you're still working and maybe this next section doesn't apply nearly as much, but it's still important to get a grasp on on what you can and should do, potentially in those earlier years of retirement. And by the way, uh, even if you're still working, there may still be opportunities. You know, we have a lot of small business owners that in some years maybe they have unusually high expenses. Right? And they're able to deduct those expenses from their income, which lowers their income to the point where they look at Roth conversions. And that might be very, very attractive for them in that specific year. Uh, you know, during Covid and, you know, we had a lot of businesses that did really well in 2020, 2021, but a lot of businesses that didn't. And revenues were down during that time. So we actually had many of our clients who said, hey, you know, my my revenue was up here for the last couple of years.

Trey Peterson:
I was I actually couldn't even make any Roth contributions, let alone I didn't want to do any Roth conversions because of the tax bracket. I was in. But my revenue is down as much as that sucks. Like, what can I do? So we took advantage of some Roth conversions. We converted money that they had in pre-tax accounts, whether it was a 401 K or an IRA, and we transitioned those dollars into a Roth IRA because revenues were down, they were to lower tax bracket and it made sense to do that. But for many of us, uh, the Roth conversion conversation is something that happens in those earlier years of retirement. And we actually have a few different, uh, things that we outlined here. Um, that might make sense for folks that are considering a Roth conversion. Uh, and first of all, it's for those who end up retiring early, those that may be in their early 60s, prior to the age of, uh, of 65, when you're required to, to sign up for Medicare, Medicare Part A and B. And before I jump into that trade, is there anything you want to add to to the Roth conversions for folks that are that haven't retired yet? Some opportunities there? Yeah, I think, you know, first of all, one of the things that I tell everybody is, you know, let's say you and I are retirement planning specialist, so not that we're salespeople. We kind of fit into that role.

Trey Peterson:
And what I tell everybody is it's really sexy to talk about Roth conversions today. And so what I would encourage you is make sure that when you're having these conversations that you understand that the person or the team that should be executing a Roth conversion should have a partner that's literally a CPA who isn't just a tax preparer, that's an order taker, but it's somebody that's what we would call a tax strategist. And I think a lot of people don't realize that there's a big gap between somebody that prepares taxes and somebody that does tax strategy. And so one of the things that does make us unique is that right here in the Guardian office, right under our umbrella, we have two CPAs that have specialized in in tax strategy, Jim for decades and Matt, for over a decade. And what's neat about Matt, for those of you that have real estate. We have one of the only CPAs that I. I know that owns, uh, dozens of investment properties himself. And so when it comes to tax strategy, he's actually personally invested because he needs it for his own situation. So I just share that to say, as if you've never sat down with a tax specialist or what I would call as a tax advisor, that's something that that we need to do. You might have a great financial advisor. You might have somebody that prepares your taxes, but if you don't have a tax advisor, you need to sit down and see the difference that a tax strategist can have for you.

Trey Peterson:
Yeah. And it's critical, especially in the next couple of years. Uh, if nothing changes, the current tax code is is expected to sunset. And it's just going to go back to the way it was. Right. So we'll still have the 10% tax bracket, but rather than the 12% that'll turn into the 15% tax bracket. Um, and really one of the reasons why, you know, we we expect that to happen at a minimum is because of our national debt. Our national debt is $34.2 trillion, 34.2 trillion. And actually, for those of you that that, uh, are interested in looking this up, a great website, although it won't make you feel good, but it is something that is is eye opening is the US debt clock. Org. Right. That doesn't make anybody feel good, right? If we ran our own household budgets the way that that we run uh, our national budget, we would have some problems. But you can actually have real time updates and you can see the, the various amounts that are dedicated to, uh, spending in a number of areas in our economy here in the US. But it actually has a live clock that updates how much of our debt we currently have. So that's a big deal. So because of that, more than likely taxes are only going in one direction.

Trey Peterson:
Uh, obviously it depends on a lot of things, but more than likely they're going up. So we want to make sure that we're aware of that. And we're utilizing some of these strategies that we're going to talk about. Uh, but the first one is Roth conversions before enrolling into Medicare. So Medicare is actually, uh, we've talked about this before, but it's a means tested program. It's means tested. That means depending on what your income was two years ago, that determines how much you have to pay for your Medicare Part B premiums. So Medicare Part A is free, Medicare Part B comes at a premium. So your income totally determines that. Um, and really when it comes to, uh, that the, the amount that you pay for your premium, it's based on something called Irma and it's not your favorite. And Irma stands for income related monthly adjustment amount. So if your income is above $103,000, your modified adjusted gross income as a single person or above $206,000. If you're married, then you you are going to have a problem with Irma. You no longer get to pay the base premium for Medicare Part B. So, um, before the age of 65, though, um, before you have to deal with with Medicare and your premiums for a lot of folks, they look at that and they say, hey, eventually my income is going to be high. I don't want to do the Roth conversions then, because I have to deal with Irma.

Trey Peterson:
But prior to the age of 65, maybe this is my opportunity to take advantage of some of these Roth conversions when my Medicare won't be affected. So that's a great opportunity for some folks. Uh, the only thing that I would caution you and say is, uh, here obviously in Minnesota, you might be receiving some health care tax credits that could be affected by the additional income prior to the age of 62. So if you're shopping the open market for your health care plan, uh, prior to Medicare, uh, if you're taking advantage of those health care tax credits, you have to be aware of how much that Roth conversion might increase your income. And there's also a phaseout on those health care tax credits. The other, I think, big thing you all say that we talk about is, you know, the second window for those conversions. And, uh, one of the one of the ways that you can convert more money from your IRA to your Roth is by delaying your Social Security. Now, a lot of people think that Social Security is synonymous with I retire and then I turn my that benefit on. But one of the ways that you can create more space in your tax bracket is by delaying either your, your spouse's or both of your Social Security benefits. Now, the additional benefit to delaying Social Security isn't just, uh, those Roth conversions, but it's growing a benefit that has great guaranteed growth.

Trey Peterson:
You know, you look from age 62 to your full retirement age, whether that's 66, 66.5. And for probably most of our listeners, 67 during that time, your benefit grows at that 6.25%. But from 66 to 70, your benefit is getting a guaranteed 8%. Three reasons why that's a great thing. Number one, Social Security, uh, guaranteed return. Number two, there's a cost of living increase. So many of you know, the cost of living increase or that cola it's designed to match what they announce is inflation. So that's averaging about 2.75% over the last ten years. And then the third reason is only a portion of your Social Security is actually taxed. So one of the things that we often say is that the name of the game in retirement is to create more tax free income. It's not just about having income, but how do you create income that's tax free. And so that's something significant that if you have not had a conversation around RMDs before, we'd love to have that conversation with you and the way that they work. I won't go to detail, but is at age 73 to 75, depending on your date of birth, you have to start taking something they call a forced withdrawal. Now, for many of the families that we serve, they don't need the RMD. They're living on Social Security pensions.

Trey Peterson:
Maybe they're living off a non retirement account, but the government says we don't care whatever the balance is. On December the last day of December, the year or the year of your birthday, we're going to force you to take out a percentage of that, which is about 3.91%, and then it grows every single year. So one of the things that we want to help you with is make sure that you give the maximum amount of dollars to your beneficiaries, to that charity that you love and the least amount to Uncle Sam. We believe in paying every dollar to your own taxes, but not leaving a tip on the table. Now, let's say anything to add to that. Yeah. Um, you know, and and this is right in line with what we're talking about in terms of Roth conversions. Sometimes I want to take a step back, though, because a lot of times people people think that, hey, well, can you explain this? Uh, you know, in terms of what is a Roth conversion, why don't I have more money in a Roth? Why is it even beneficial to have a Roth? And the biggest reason for that is when it comes to a Roth conversion or even a Roth contribution. The reason why you want money in a Roth IRA is because that those dollars you've already paid taxes on, but then the growth, all future growth and earnings when the money is in the Roth IRA is going to be tax free.

Trey Peterson:
Obviously, there's certain guidelines and rules that you have to abide by. Uh, you can take it out within the first five years. You can't take out the money prior to the age of 59.5. But assuming it's a qualified distribution from a Roth IRA, all of those earnings will be tax free. That sounds like a really good deal. Especially, you know, when it comes to a Roth IRA, the earlier you can put money in there, the better. Uh, but why don't you have more money in a Roth IRA? People ask that all the time. Well, if it's such a good deal, why don't I have more money in a Roth IRA? And a big reason for that is maybe in those earlier years, it was more beneficial to contribute to a traditional IRA. You got to reduce your tax burden in that specific year. Uh, another reason is maybe you made too much if you're a single person and you make more this year than $161,000, you actually can't make a contribution to a Roth IRA if you're married. That number is $240,000. You literally can't make a contribution if you've exceeded those income limits. So how is it that folks who have who have made more money than that per year, how do they have Roth IRAs? Well, it's through conversions, and that's really what we're talking about. So the second window that we're talking about, uh, you know, as Trey mentioned, is prior to turning on Social Security, maybe prior to turning on your pension, prior to maybe some additional income sources that you might have in those earlier years of retirement.

Trey Peterson:
That might be the key opportunity in the window that you have for those Roth conversions. Uh, when it comes to those RMDs, folks, there's a lot of anxiety around RMDs. The additional income that RMDs add, uh, for some folks, means that you're running up to those Irma tables that we talked about for Medicare. Maybe it's going to put you in a higher tax bracket for the rest of retirement, and a Roth conversion could actually alleviate some of that tax burden, because you're reducing your traditional IRA account value by converting it to the Roth IRA. And in turn, you're reducing the RMD, the required minimum distribution that you'll have to take at the age of 73. One of the other things I want to jump into as we, you know, kind of get close to wrapping things up, is what happens if you're forced to take a pension. One of the questions I get you all say we get a lot is atrium. I'm trying to decide do I roll over the pension or do I take the payments? And the first thing that you really have to determine is based on the size of the pension is do you need the income? So one of the things a lot of people don't realize is that they have this pension.

Trey Peterson:
They have the option to roll it over, but they might be living on Social Security alone. And, you know, obviously a lot of people need money from the IRA or from the pension, but we see people that they plan on turning on the pension and they don't need the income. So that conversation looks more like, why wouldn't we roll over your pension invested in an IRA? That way you're not forced to pay tax on money that you don't need when you go to pull money out, when you need it for that big vacation for those home projects. Now you only pay tax on the money that you need, and you may have years that you don't need to take anything, and you may have years that you need to take bigger chunks of money just based on what's happening in your life. The other thing I tell everybody is on choosing, you know, if you do need the income between taking the payment or taking the lump sum is it's not an emotional decision, really. It's. The math decision. So if your pension as an example is 500,000, but they're going to pay you 50,000 a year if they keep that, well, that's a 10% guaranteed payout for the rest of your life. Now, 10% is significant because when we look at, you know, going and buying a pension through an insurance company, which is what we would call a self pension, otherwise known as an annuity, that annuity isn't going to pay 10%.

Trey Peterson:
The highest payouts we're seeing are five, six, 7%. So if you need the income, then you wouldn't roll over that money to an outside annuity. The only reason you would the only benefit Nelson you can touch on this is that when you have that money, the annuity, you actually own the asset where when you take those guaranteed monthly payouts, depending on how you take it, when you or you and your spouse pass away, whatever money is left does not go to your beneficiaries. The insurance company keeps it. Any thoughts on that? Yeah, I think that's a really good point. Um, one thing I encourage everybody to do, uh, if you if you need the income, if that's what you plan on doing, you should still shop it out. You know, most pensions aren't giving a 10% payout. Most pensions are very competitive. But occasionally we find that, hey, just by shopping it out and rolling the pension over into an annuity, for instance, uh, there is an insurance company that may be able to offer a higher payout. And when it comes down to it, like, you know, it doesn't matter whether you're with the pension or whether you're with the insurance company. Uh, at the end of the day, the dollars that you receive on a monthly basis, that's what you're bringing with you to the grocery store.

Trey Peterson:
So you want to make sure that you've at least shopped it out to see who's giving me the highest guaranteed payout for the rest of my life. And if you don't need the income, especially if it's putting you in a higher tax bracket, or just increasing the amount of income that you would normally need, uh, maybe it is better to have control of the asset, uh, whether or not you roll it over into a self pension, as Trey mentioned, with an insurance company or you simply roll it into your traditional IRA, you might have way more flexibility when it comes to what happens to those dollars when you pass away. Right? You might have intentions where you want to leave it to your spouse. Okay, well, most pensions would allow you to have some type of spousal continuation if you choose the payout options. But what if you don't want to leave it to your spouse? Sometimes we're talking about estate taxes and dealing with that. If we're on the upper limits there, and maybe you just simply want to leave it to another beneficiary, maybe a child, maybe somebody else entirely. Well, rolling it out to a traditional IRA would allow you to have that type of flexibility in those options for legacy planning. Really good. Uh, as we wrap up, I want to go into, uh, this week in history.

Speaker5:
It's this week in history.

Trey Peterson:
All right. A big historical moment on this date in 1969, the Boeing 747 flies for the first time. I was on one last night, and I was like, this is so amazing that it actually, it's interesting that really, if you think about it, for what, less than 50 years we've had commercial airplanes like that, maybe 60 years. So what a cool time to live in 2024, when we can fly across the country in just a couple hours. The other thing that happened February 9th, 1969, is it the 747 was certified in December of that year. It entered service with Pan Am on January 22nd, 1970. The 747 was the first airplane called a jumbo jet as the first wide body airplane. Um, how about birthdays? February 10th? Uh, it's a couple days ago. What do we see for that for this week in history? Uh, before we jump into that, the funny thing about airplanes, you know, my my folks are from Ukraine, and, uh, they're they're both. Both my mom and dad are from very, very small villages in western Ukraine. And my dad was actually he's one of nine brothers and sisters, and he was the first one to ever board an airplane. And if you look back, I mean, like, this is just, you know, my dad's 67 years old.

Trey Peterson:
Uh, but if you look back, just like 100 years, people didn't travel nearly as much as they do now, like the people in his village like that, that area around them like that was the only place they got to travel. So it is actually fascinating how quickly technology changes nowadays. And and with that, the opportunity for innovation. And obviously there are some concerns over certain jobs being eliminated in our economy and, and the effect that that could have, especially as, as folks are getting older and maybe it's a little bit more difficult for them to acquire new skills that keep them competitive. Uh, so it's something that, of course, we're all always aware of as we help people navigate those pre-retirement years. Wonderful. Well, uh, I'll wrap up and then you can yellow say, I think the biggest thing that, that we want to help you do is in 2024, we want to help you get more out of your money. If you're wondering, how do I maximize these dollars that I've worked so hard for and you've never had a second opinion? Uh, on our website, we've got our calendar G Wealth comm. You can give us a phone call (612) 286-0580. And we'd be happy to help make sure that you're maximizing your dollars in 2024.

Producer:
Thanks for listening to All Things Financial. You deserve to work with retirement planning specialists who care about your money, and take a unique approach to your financial and retirement needs. Visit All Things Financial.com and set an appointment today.

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