The Financial Headwinds for American Retirees

Episode 5 : Audio automatically transcribed by Sonix

Episode 5 : 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 podcast, episode number five. We're excited today. We have some really great content on the financial headwinds of American retirees, some great stats, some great stories, and some great information that I think is going to make you better prepared if you're preparing for retirement and if you're already in, it will actually make you aware of some things that are happening. Uh, Yelisey. You want to start off with the quote of the week, and then I'll jump into kind of a review of what we're talking about today.

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

Yelisey Kuts:
Yeah. Quote of the week. Let's, uh, let's drop some knowledge here. Um, this is from Joe Moore. A simple fact that is hard to learn is that the time to save money is when you have something simple.

Trey Peterson:
But I think a lot of us still do that. Right? So until we until we do so, it's important to be intentional. Tell our money where to go instead of work. Wonder where it went. Uh, so today we're going to talk about the financial headwinds that retirees are facing. We're going to talk about the the national debt update. What does that look like? As many of you know, uh, our debt continues to increase. We're going to talk about the cost of health care and retirement, something that, uh, seems to be out of control. How does that impact you? Does it mean that you have to work longer? How do you plan for it based on your expenses, longevity of assets? Uh, we're going to share some of the latest research around where healthcare is going and then retirement red flags. We're going to point out some landmines and where we see people make mistakes. And I think one of the things that you and I are passionate about, and the reason we love education around finances, is we want to help people avoid so many of the cost and mistakes that we see people make. Um, but let's get started. Yelisey where do you want to start?

Yelisey Kuts:
Yeah, I think that that quote actually, um, you know, it kind of seems obvious, but the Federal Reserve, they have a survey of consumer finances that they release and they look at how much Americans are saving. And there's actually an interesting, uh, number that they have. And it, it has to do with, uh, savings that actually excludes retirement accounts. So it only represents average savings. And it looks at, uh, high income families and low income families and and really, the standard that we have in our industry is if you're, if you're a single person, I'm sorry if you're married, but only one of you in your household is working. You should have six months of expenses in savings saved up. Um, if both of you are working, then three months, that might be adequate for you. So there's actually the survey that the Federal Reserve, uh, releases. It shows how much Americans have on average in savings. And obviously, this comes as no surprise, but those that are a little bit older tend to have more in savings. Um, on average, though, if you're from the age of 65 to 74, you generally have about $100,000 on average in savings from 55 to 64. That's 72,000. And then those that are under 35 just have $20,000 on average. And their savings account. What are your thoughts on that?

Trey Peterson:
May I read a, uh, basically a, uh, what was it was an article on basically, like, stress and anxiety and what makes Americans happy and I can't remember. Uh, who who came up with it. But basically they said the number one thing that gives a family peace in America. So if you're married and have a kid or two, basically is is having at least $30,000 in your savings account. And I know growing up, one of the things that my dad would always say is he'd say most people spend their whole life living 30 days behind, and if they just had a little bit of discipline, they could be on time. And if they had a little more discipline, they could be ahead. So I think one of the things that successful people do is they do things that others don't do. So whether that's in a season of life where you're trying to pay off credit cards, you're trying to build up your savings, you add a part time job, or you do something, you know, for cash, like flipping things on Facebook or Craigslist. And I've heard of, you know, dozens of people paying off credit card debt or building up a savings by doing something extra at ten, 15, 20 hours a week.

Trey Peterson:
And then they find that they grow their capacity and they continue to do that. I'll never forget one of our clients, uh, one of the couples that we get to serve so well, he was telling me that what his kids were in high school or actually elementary, that he took up a paper route. And it was that, like, you know, four in the morning just to start putting away more money for his kids education. And, uh, he ended up never stopping the paper elk because he was not a high income earner. And for him and his wife having that extra several thousand dollars a year, even beyond paying for college and all, they had fun money. They had vacation money. And he found he actually enjoyed getting up early in the morning. He enjoyed the routine, and it ended up making a huge difference in what they saved for their retirement. So, you know, I think most people don't realize that if they spent 3 to 6 months doing something in addition to their full time job, they could spend their whole lifetime ahead.

Yelisey Kuts:
Yeah. And it's something that we're finding that a lot of people are having to do anyways. Now, just to keep pace with inflation. Um, I wanted to ask you, I'm going to put you a little bit on the spot, but if you had to guess who has more in savings savings that we're talking about, not including retirement savings, people who own a home or people who rent a home. And if you can also follow that up, what do you think are some of the cons or disadvantages of either of those options?

Trey Peterson:
Yeah, I think what's interesting is the American dream, as everybody knows, is to own your own home. But I think that, you know, as everyone talks about, there's more than one way to be successful. Uh, if I had to guess, just based on the families that we serve and the people that we meet, I would guess that people that have home ownership end up having more in savings. I do know that there are some states and there's some areas that people will rent and they'll, you know, they'll invest the difference of maybe the cost of home maintenance and those types of things. But I think when you look at rent and inflation and you have a mortgage that's locked in, uh, my guess is that homeowners have more in savings than those that rent. What are the stats?

Yelisey Kuts:
You would be right. So actually, uh, those who own their own home, on average will have 85,000 in savings, compared to only 16,000 for those who rent. Um, you know, and for when I became a homeowner in 2019, I, uh, for the first couple of years, I just thought to myself, man, like, I'd rather go back and rent. I didn't have to deal with the property taxes, the insurance, the home maintenance and everything that went into that. So, uh, I'm actually a little bit surprised how much the the numbers are a little bit more lopsided towards homeownership in terms of, you know, household savings.

Trey Peterson:
I think I think it has to do with habits, too. You know, one of the things that we watch and I know there's a lot of studies on this, but, you know, people that, um, you know, typically stay and build a career somewhere. I know in the past, longevity had a lot to do with income and savings, but it seems like there are changes today where I read all these different articles that say that the more you move around, you know, the more your income grows. But what's interesting, at least with baby boomers, we've not found that to be true. Typically, the people that have the largest retirement assets are those that add the same job for 20 or more years, and it's the people that moved around. Or maybe they had income gaps, or they had a year off in between getting laid off or trying something that didn't work. And so they had these seasons where they had to live off their savings. So I don't know, you know, exactly how that's related, other than, you know, the nice thing about owning a home is that, you know, your mortgage is going to be every month where when you rent, typically inflation on that obviously, you know, is significant over time.

Yelisey Kuts:
Yeah. And that's a that's a very good point. Um, but moving on to the next topic, seven financial headwinds for American Pre-retirees and retirees. So we're going to go through a little bit of history. But one of the first things we're going to talk about is, um, RMDs 401 s employer sponsored plans. And by four. So obviously we're including 403 bees for those that are in the nonprofit sector. Um, but RMDs, for a lot of folks, uh, simply, they're not needed. And if you do need them, uh, maybe you end up incorporating that in your in your income plan, just in general. Um, but prior to 1980, most Americans had a defined benefit plan. Uh, it was like 92% of people that were that had a plan. Uh, they were pension plans. Um, but whenever, uh, 41K plans came, um, became available, it really led to a lot of money getting pushed into the market. Um, it was actually one of the largest expansions in the history of the stock market. But the difference is, obviously with the pension, um, the onus was on the employer. Uh, most people had a pension plan, and really it was it was on the employer on the employer's, uh, end for, for the money to go into the pension and the employer would bear the investment risk. Well, the 401 K.

Trey Peterson:
Yeah. Go ahead.

Yelisey Kuts:
The investing at risk is I mean, obviously, you have a lot more flexibility and you have the ability to choose the funds within the plan. And and contributions are discretionary. And but it's on you. It's it's entirely on you. And as well as the investment risk.

Trey Peterson:
I think to a lot of people forget that the 401 K wasn't introduced until 1980. And what's interesting, I don't know if you have his name, you all say. But the gentleman that introduced the 401 K, he came out, I think it was like 20 some years later and he said, I made a mistake. He said when I introduced the four links, I did it so that people would have more control over the retirement savings. And what we did is we didn't educate people. So now companies weren't doing these pension plans where they put the money away for you. Uh, ten Viana is his name. And what it came out to say is he said, you know what? He goes, we made a mistake. He goes, we tried to put more power into the hands of the people, but then we didn't educate them. So now, instead of having pensions, now they have 401 k's that either they didn't contribute to for a long time, or they contributed such a small amount that they would have been better had we just stuck to the pensions.

Yelisey Kuts:
Yeah. And actually, um, one of the biggest reasons that, uh, a lot of the, the rules, even the section 401 was, was created was to, to help, um, just a lot of plans, a lot of employers. It was to prevent them from helping the highly compensated employees or executives to, to build their 401 or their employer sponsored plans. Um, so with the introduction of the rules in 1980, and I think most of it actually was completed in 1981, um, that was designed to help so that, you know, everybody who was, uh, who was an employee would have access to A41K plan, and ERISA was created to help regulate that, to make sure that people weren't, um, um, discriminating in favor of the highly compensated.

Speaker6:
Not good. Let's move on.

Trey Peterson:
To headwind number two. Ongoing wars and global instability. Uh, LSA, where are you from and what do you see going on?

Yelisey Kuts:
Yeah. Um, well, there's, there's a lot of arguments on, on wars and global instability and, and how that might affect retirees. Um, there's obviously there's two sides to this as well. You know, there's, you know, there are benefits to the economy, unfortunately, um, during times of war as well, there are people who profit and people who benefit and sectors of the economy that that do well during this time. Um, but if you're a retiree or somebody who's relying on our social safety net and you're looking at solvency issues within Social Security and problems within Medicare, and you're thinking to yourself, hey, why is so much of our our spending going towards defense? Um, why are we sending money to places like Ukraine and Israel? And obviously there's a there's a conversation to be had here. But if you're a retiree, you're probably thinking, hey, wouldn't some of these dollars be better spent on ensuring, um, the solvency of our social safety net, for instance? Um, and you wouldn't be wrong necessarily. You know, currently, one sixth of our federal spending goes towards national defense. You know, that's a huge percentage.

Speaker6:
Significant.

Trey Peterson:
Yeah. Well, uh, headwind number three, 34.2 trillion in national debt. And what's interesting, it's according to US debt clock. Org, if you've never checked that out, it's actually interesting if you go to ww.us debt clock. Org. It actually is in real uh, real time that it shows you what the US debt is looking like and you can see it climbing. So if you need some encouragement on how you're doing with your personal finances, uh, it's encouraging. But what's interesting is, you know, as far as the national debt, we're probably going to have to increase taxes in the United States. You know, you look, we're at historically low tax brackets. And with the kind of debt that we're seeing, doesn't matter what party it's in, I think we're going to see taxes climb. You also say where do you see things going?

Yelisey Kuts:
Yeah, I think that there's really only two levers that we have. We have, you know, fiscal policy and monetary policy. So fiscal policy would be Congress, um, legislation, taxation, increasing taxes. And that would increase the revenue that the government receives. And then of course, we have monetary policy, and that would be the Federal Reserve. They'd be adjusting the discount rate to, uh, to control our money supply. And that's really how we've been dealing with inflation. Uh, but probably it's going to have to be a combination of the two going forward. Probably inflation is here to stay for a little bit. Um, and taxation, you know, as, as we mentioned in the previous podcast, um, our current tax law is expected to sunset at the end of 2025. At that point, it reverts back to the, the, the tax code that we had prior to the Tax cut and Jobs Act. Um, but more than likely there's going to be additional changes eventually that will happen, even more so than just simply going back to what we had in the past.

Trey Peterson:
Well, I think one of the things that we see is that we have a lot of debt. It undermines, you know, investors confidence in the market where things are going. And it really impacts, you know, if you think about timelines of things, it really impacts those that are in and nearing retirement. Because when you're young, the volatility doesn't impact you because your money is sitting in the market, you don't need it. But now if you're about to retire or you're retiring, one of the most scary things that we hear people say is, man, I've been getting this paycheck once a month or every two weeks. Yeah. Uh, you know, for the last 40 years. Now all of a sudden, I'm stopping my paychecks. I'm not contributing to my retirement accounts. And now, for the first time in 40 years, I have to go pull money out of those accounts. So one of the things that I'll just, uh, give a shout for right now is, you know, if you are concerned about drawing on your assets and you don't have what we call a spend down plan, one of the things that we can help you with here at Guardian is, uh, creating a spend down plan with one of our tax advisers, uh, who happens to be a CPA to show you based on your expenses. How long does the money last? Are there opportunities where you can pay less taxes? If you have that spend out plan, and you can reach out to us at (612) 286-0580. And we'd love to help make sure that, you know, are you doing everything you can do to minimize your taxes?

Yelisey Kuts:
Yeah. So, you know, when it comes to rising taxes, one of the things that, uh, it's it's worth mentioning that as of January of this year, it it's currently costing 357 billion just to maintain our debt. That's 17% of total federal spending that we're anticipating in 2024, 17% of our spending isn't going towards anything other than simply to maintain the debt we already have. Um, obviously, this has been something that we've all been aware of for a very, very long time. Um, but also it's been increasing at a rate in the last couple of years. That's, that's more so than it has been in the past.

Speaker6:
Yeah.

Trey Peterson:
Headwind number four rising taxes. So understand that the national debt could lead to higher tax in the future. As the government looks for ways to manage tens of trillion dollars, uh, tens of trillions of dollars in debt. And, uh, many retirees are living on fixed income and tight budgets. So one of the things that we see a lot is someone that's been retired for 5 or 10 years and that pension that maybe was 2000 or $3000 5 or 10 years ago really did a great job. But now inflation is up. You know, even in the last three years, over 20%. And now that pension is doesn't have the same, doesn't have the same buying power that it used to have.

Yelisey Kuts:
Yeah, a lot of a lot of, uh, retirees who have fixed sources or guaranteed sources of income. Um, they tend to struggle in periods of high inflation. And of course, if if it's not just inflation, but it's if it's inflation and taxation, uh, both of those would erode the ability, whether by reducing the dollars you have or reducing your purchasing power. Um, so that's a difficult spot to be in. Um, one of the things that we'll talk about a little bit later is what percentage of Americans rely on Social Security only to meet their expenses in retirement? Uh, ideally, you know, we we used to talk about the three legged stool and a lot of our classes, you know, in fact, uh, we teach about 60 classes every single year, and we often do a show of hands and we ask, hey, how many people in the room currently have a pension or know somebody who or have children who have pensions? And that number is going down very quickly. We have fewer and fewer hands as we've been doing this for a number of years, that go up when we ask that question. So the three legged stool is quickly becoming the two legged stool, but unfortunately, and I think the number is like 40% of people, something like right around 40% rely on Social Security only. Now, obviously Social Security does have a cost of living adjustment that is tied to inflation, CPI, uh, w actually for Social Security. And we've talked about this. Um, but is that going to be enough to deal with the demands of inflation? And also if more of your dollars are being taxed, uh, what does that do for you if that's if, if you're someone who's in that position where you're mostly relying on fixed and guaranteed sources of income.

Speaker6:
Now.

Trey Peterson:
Uh, let's move on to head one. Number five, lack of pensions offered in the workplace. So only 15% of private industry workers have access to pensions, also known as a defined benefit plan, according to the Bureau of Labor Statistics. Now, here's what's interesting. That coincides with the trend that more employers are shifting to to define contribution plans such as a 401 K and the LSA. How are we seeing that impact people?

Yelisey Kuts:
Yeah. I mean, like I said, you know, the, the the person now the the person who's contributing, the participant now bears the investment risk. And back to the three legged stool. Uh, it's actually a 7% of Americans have all three where they do have a defined benefit plan, a defined contribution plan, or the 401 K and Social Security. So you can see that that number is declining. And and you know, the biggest problem and this is something that, uh, that Ted, um, I can't remember his last name, the Ted, uh, Bana, uh, had concerns with. He actually said that, um, one of the biggest problems is if he could change one thing about the 401 K, it's that everybody would would have mandatory contributions to the 401 K and that they would start early, because that's really the key to to being successful in retirement savings. It's not putting as much away when you reach the age of 50, just because you feel like you have more discretionary spending or the ability to to defer your compensation. But starting early and contributing, uh, consistently over those years, early on, prior to retirement actually makes a huge difference. So, um, currently, I think 15% of private industry workers have access to a pension, but most of us are looking at our 401 or Tsp's, our 457, our 403 BES. Uh, plans like that, where we have to make the contributions ourselves to make sure that we have enough money saved for retirement.

Speaker6:
Yeah. That's good.

Trey Peterson:
Headwind number six. Rising health care costs. So here's what's interesting. What would you and your spouse do if you had 351,000 when you retire? You might think that's a lot of money, but you may need all of that just to cover your health care costs over the rest of your life. Or a recent study showed that, um, your Medicare premiums in drugs after insurance, in part basically is going to take that full 351,000. And research says that's actually pretty conservative. What else did research find?

Yelisey Kuts:
Yeah. And it's actually the, uh, it's from USA today. That's who's, who's doing this study. Uh, they basically said that like, if you're a 65 year old man, um, you're going to need about an additional $184,000 in savings. If you're a 65 year old woman, that number grows to 217,000. Um, and by the way, this is talking about out-of-pocket expenses that won't be covered by traditional Medicare, Medicare A and B, or if even if you have a supplemental plan, um, or an advantage plan like these are additional costs. In addition to that, in addition to the health insurance that you have through the government or if you're shopping the open market. And these, by the way, are not related to Long Terme care or nursing home costs. That's, you know, if we're talking about Long Terme care nursing home, that that number would be way, way higher than $351,000. Um, so this is just out of pocket expenses related to your health care and actually why a lot of a lot of folks think that, um, CPI for Social Security should be based on CPI. Remember CPI, it actually measures it's the, the it's the basket of goods that are used to determine the average increase in cost that, uh, help us calculate inflation. And there's really eight big categories. And one of the big categories is health care, which of course those in and nearing retirement and further on later in retirement and spending quite a bit more in that category.

Trey Peterson:
Well, and and if you have expensive prescription drugs, uh, that same article said that you may need as much as 413,000 for the two. So very, very significant.

Yelisey Kuts:
Yeah. And, uh, and by the way, even though Medicare, um, if you have an advantage plan, oftentimes you can buy a standalone dental vision or hearing, uh, plan in addition to that. Or maybe it might be included in the advantage plan that you have, but that number didn't include some of those additional benefits that you may need.

Trey Peterson:
So yeah, and I think one of the things that a lot of people don't realize is sitting down with an expert that can help you plan for your health insurance is really important. Uh, a lot of you know this, but in high school, I wrestled, uh, for the number two wrestling team in the nation. And I think one of the things that made us so great is we just had the best coaches. And there's a guy named Jesse Itzler Yelisey you may know who he is. His wife is Sara Blakely. She invented Spanx, and she sold that company for $1 billion. I told my wife last week, I said, if you want to invent something and sell it for a billion, honey, I fully support that. But Jesse Itzler is a good quote. He says, and don't get outcoached. He said, a lot of the people that are winning in life that are crushing it, you're not. They're not any better than you. They're not any worse than you. They just have a better coach than you do. And when I wrestled for Apple Valley, one of the things my coach said is he said, Trey, you don't have to be the best at everything, but you need to know somebody.

Trey Peterson:
That is. And one of the things that we've done, yellow stay at All Things Financial and Guardian Wealth is we've really collected a team of experts in every area. And one of those experts is Christine, and Christine can help anybody that's listening with health insurance, with a Medicare plan, and not just finding a plan, but actually laying out kind of a plan for what are the costs going to be for the rest of your life, and how does that work within your investment plan? So if you've never met with an insurance agent that actually knows how to do long terme planning alongside of us, we'd love to do an analysis for you to show you. How does your plan look with the Medicare costs and what inflation is doing specifically in that arena? So if you have questions on that, let us know and we can help you plan for it. So instead of wondering if you're if you're going to be okay, you can know that you have a plan and you are going to be okay.

Yelisey Kuts:
Yeah. And then an important thing worth noting is Christine is independent. And that makes a big difference, because even though you might end up going with the representative who's there from Blue Cross and Blue Shield, there's Cumana or United or some other company, you might end up ultimately choosing that plan that's available to you through a captive agent. It's important when you shop it out that you actually look at every plan that's available for you. So Christine has access to everybody who can who who can sell insurance here in the state of Minnesota on the advantage side and on the supplemental side. Um, that's hugely important. And a lot of times folks come in and they have ideas on a company they might want to work with, and it's because their friend or neighbor or brother or sister in law, somebody else is using that specific plan. And even though your friends, neighbors and the people you know, uh, they're not trying to lead you astray, they don't have bad intentions. They're they're trying to give you good advice. But more than likely, the advice for them is going to be different than what it might be for you. Um, you probably don't see the same doctors. You probably don't have the same health needs. You probably don't have the same medications. Um, and on top of that, you know, Medicare is is it's a complicated topic, to say the least. But there are differences in plan availability, even based on zip code. If you live in different zip codes, you may not have access to certain plants. So it's important to find somebody who really who truly does this 9 to 5 every single day, which is what Christine does and has access to every company because she's an independent agent.

Speaker6:
Yeah. Excellent.

Trey Peterson:
Headwind number seven. Rising inflation. Inflation diminishes the real value of savings and investments, potentially reducing retirees ability to generate sufficient income to cover expenses throughout retirement. We've talked about healthcare. Obviously. That's one of the biggest arenas that we see issues social Security, it has a Cola, what we call the cost of living increase. That Cola is designed to match inflation. You know, three years ago it was 8.7%, then 8.3%. I think this year it's somewhere around 4%. That sounds very LSA. So if you look in the last three years, inflation is up 20%. And even if we do get it under control, we're probably never going to reduce it to make up for the big gain we've seen at the grocery store, at the gas station or our medical. Uh, when you think of rising inflation, what are some of the other things that are impacting our clients?

Yelisey Kuts:
Yeah. It in in speaking of getting it under control. Um, that's at my opinion. I think that's a little bit misleading because, you know, prices are never going to come back down to where they were. That's not even the stated objective. Like no one's even pretending that that's what we're trying to do. Um, or we're trying to do is get inflation back down to the objective, 2% or even 3%. Um, and that's very different than getting getting prices back down to where they used to be. And the problem is, a lot of times people don't realize the cost of living adjustment on Social Security. Like you're not given that your your Social Security benefit doesn't increase by that amount unless you've obtained the age of 62. That's when they start applying it to your Social Security benefit. So if you're 58 years old, obviously you have many years left in the workforce. But if you're 58 years old, you didn't benefit from these high cost of living adjustments. Your Social Security benefit is still calculated based on your highest 35 years, how much you've paid into the system, the credits that you've earned but you don't have the benefit of having that cost of living adjustment like anybody over the age of 62 would have, or anybody who's currently collecting their Social Security benefits.

Yelisey Kuts:
So when it comes to inflation, like I said, it's it it's a little bit misleading in terms of having it under control because, you know, a lot of the numbers that we see that seem very positive uh, today, I mean, it's it's kind of like setting the bar extremely low if you're looking at year over year, uh, like if, if we're comparing inflation today, year over year compared to where it was last year, like that's a really easy hurdle to get over because if we're not doing well compared to last year, like things are really tough. So in other words, it's it's um, I don't know, I obviously we hope that inflation gets under control because, you know, it's it's an important for for those who, who are in retirement, especially those who have a fixed income, who have guaranteed sources of income, we see some of the challenges and the difficulties, not even for retirees, but for average Americans. So it's something that that needs to we need to spend a lot of time and attention on that in terms of our monetary policy and also in terms of legislation.

Speaker6:
Yeah.

Trey Peterson:
One of the things I want to talk about is some of the red flags that we see. One of the things that you and I are passionate about is really helping people eliminate, uh, a lot of the mistakes that we see. So the number one that I'll jump into is carrying a balance on credit cards. I think one of the things a lot of people don't realize is when you have a credit card, you know, getting out of debt on it is so challenging because most people, uh, you know, their interest rate is somewhere between 20 and 30% annually. And when you look at the true cost of using a credit card that isn't paid off every single month, it almost doesn't make sense because it's it's you got to be disciplined. You got to pay them off, you know, every month. Because if you come into retirement and you have ten, 20, 30, $40,000 of credit card debt, that's going to eat away not only at your retirement but your Social Security. And a lot of that isn't going towards the things that you purchase. It's paying for fees and interest and, you know, all these significant costs that most people really can't afford. But you don't know it until it's too late.

Yelisey Kuts:
Yeah, I think too. Oh go ahead. Sorry. Go ahead. I, I think with with credit card debt too, like people who have a running balance by the way, that that number has increased the percentage of Americans that maintain a running balance. It's up like 10%. I think we discussed it in the last podcast. Um, but people who have a running balance, who have credit card debt, they just feel stuck, like it's hard to make additional 401 K contributions. It's difficult to make good decisions on your retirement savings or just savings in general. Good financial decisions are difficult to make when you're dealing with with credit card debt that's hovering over you. It's very burdensome. So it's one of those things that, um, if you need help, if you need help on in terms of consolidating credit card debt, knowing which accounts to pay off first, developing a strategy for your credit card debt so that you can finally make good financial decisions in terms of retirement savings, that's what we're here for. We help lots of folks that are in that position, and unfortunately, sometimes it's because they have unexpected needs that arise because of health care related events that happen. Um, so there's a lot of things that, you know, it it may not necessarily be your fault. Um, and sometimes folks have, you know, it just it's embarrassing. So maybe they're a little reluctant to seek help, but it's important to seek help because once you get out from under that, you can start making decisions that will really impact and help your retirement.

Speaker6:
Yeah.

Trey Peterson:
Really good. One of the other big red flags where we see people make mistakes and they don't realize they're making a mistake, is turning on Social Security too soon? I think a lot of people think that Social Security is synonymous with retirement. I retire and then I go online and I turn on my Social Security. And well, for many of you, that does make sense. If you retire early, you need to look at your Social Security like you would a pension. From age 62 to 66. Your benefit grows at 6.25% a year. From age 66 to 70, you're getting a guaranteed 8%. Three reasons why that matters. Number one is if you're married with one of two passes, you're going to lose the smaller benefit over the two. So by allowing the larger one to grow, that smaller one is not as messed for the survivor. The second thing why it matters because by allowing that benefit to continue to grow every year that Social Security gets that cost of living increase. The larger your benefit, the more it impacts you. And then thirdly, your Social Security is one of the levers that you have for creating more tax free income.

Trey Peterson:
So one of the things I'd encourage everybody is before turning on your or your spouse's or both of your benefits, I highly recommend having an analysis done to say, hey, how does turning on Social Security now impact us compared to the laying it and I'm not saying everybody should wait until 70. In fact, only 1 to 2% of people wait until 70. What I am saying is, is that you should walk through an analysis so you know the pros and cons of starting now versus delaying and how it impacts your overall retirement plan. And we've got Social Security experts right here on our staff. So if you've not done a Social Security analysis and you'd like to do that before you make a big decision on something that you've spent 30, 35 or 40 years paying into, give us a call, shoot us an email. We do that complimentary for you. And that way when you do start your benefit, you know that you started it right the first time.

Yelisey Kuts:
Yeah. So that's a lot of good information on Social Security. I think I'll just add just a couple of things then we can move on. Um, I think that sometimes people look at it very simplistically. They think, hey, if I file early, obviously I have fewer Social Security dollars coming in. The longer I wait, the more my benefit grows. I have more money from Social Security, and that's really how people look at it. What they don't realize are the additional implications. And Trey, you mentioned one of those is spousal and survivor benefits and how that might impact you when one of you is no longer here. But I think the biggest impact that most people don't consider is in terms of taxation. And you mentioned that, um, that it allows for more tax free income. Well, potentially it does, because we know that Social Security at the very most $0.85 on the dollar can be taxable. But as much as the entire Social Security benefit could be tax free, if that's the only income you have. And we've already discussed that 40% of Americans rely on Social Security only. So the biggest thing that we find is sometimes when somebody retires, maybe they've retired early. Let's say somebody retires at the age of 62, and right away they want to replace the income that they've had.

Yelisey Kuts:
So they file for their Social Security benefit. And that's fine. Right. They took a 25% reduction. They've replaced some of their income, maybe at least partially from Social Security. But the problem is when they have a spouse who might still be working. So now you took a 25% reduction in your Social Security for filing early, and now you're probably taking an even bigger reduction because of your spouse's income due to taxation. So a lot of times when it comes to Social Security, and it's not just simply filing early or late to get a higher or a bigger benefit, but it's it's coordinating your Social Security benefits with the other sources of income you might have, whether it's eventually a pension, eventually your RMDs or something like your spouse's income, who maybe is younger than you, maybe there's an age gap, or maybe they just simply love what they do, and they plan on working for 5 or 10 more years, looking to see what's the best decision for me in my family, and not just to solve an immediate problem like the loss of my income from retirement, but to look out and project a little further, maybe 20 or 30 years potentially in retirement, to see what's the best decision in terms of taxation strategy today on my Social Security benefit.

Speaker6:
Yeah.

Trey Peterson:
Uh, red flag number four, are you or is the investment team you're working with, are they doing a good job of selling off investments? When the market's down, you'll say, I'll let you talk about that being that's kind of your role in our partnership.

Yelisey Kuts:
Yeah. So, uh, in what we do, you know, there's a lot of interesting, interesting behaviors that we kind of pick up on sometimes. Um, and one of those is called anchoring. Anchoring is can sometimes be, um, when you've anchored yourself to information that is no longer relevant or, or maybe you just have a bias towards a way of doing something. Um, and an example that I like to use. You know, the Dow Jones represents the 30 largest companies in our in the economy, right. In the US economy, the 30 largest companies there. Um, and I think a couple of years ago, they had their 125th anniversary. And the reason why I like to use this example is sometimes people, they, they hang on to a certain position or a certain company because, well, maybe they worked at that company. We have a lot of great companies here in Minnesota. So we we see a lot of dreamers or people who work for, um, uh, various companies here, and maybe they have some three M stock, maybe they have some General Mills stock and they just, you know, they really feel strongly about the company, the product that they make. They think that, you know, hey, I'm, you know, if there's anything that I'm, I'm never going to touch, it's my it's my company stock that I have. Um, and one of the things I like to point out is the Dow Jones, which has been around for about 125 years, maybe a little more than that at this point. It started out with 12 companies. Now it represents 30 of the largest. Uh, how many of those companies do you think are still around that are still represented by the Dow Jones or maybe even publicly traded? There's really only one.

Yelisey Kuts:
It's general. It's General Electric. That's the only company that initially started out. They're still around. And by the way, uh, I think they were like kicked out of the index twice. One uh, in 2018. And I think they've re-entered that index. Um, so it's possible to hang on to something too long. It's possible to have an emotional connection or attachment to a specific fund or, or not even a fund, but just a way of doing something. Your investment strategy, you know, there really is no one glove fits all. It's possible to hang on too long. Um, the investment advice that you might give to somebody in their 20s and 30s of hang in there and be long Terme may not be the same advice that you would want when you're getting closer to retirement. Now, one of the mistakes that people do make in light of what I just said is selling things because the market is down. If there is a downturn in the in the market, sometimes people think, hey, well, you know, I better stop the bleeding before I lose everything. And if that that type of thinking can also lead to some catastrophic things that that you wouldn't necessarily want in terms of the amount of retirement savings you end up having, because we've also found that some of the best days in the market are actually during a bear market, some of the best recovery days. So you don't want to miss out on those, and you want to make sure that you're making sound, uh, holistic decisions when it comes to your investments.

Speaker6:
Really good.

Trey Peterson:
Uh, I just want to hammer a couple other red flags, and then we'll kind of wrap things up. Another one, a couple that we see is having an unrealistic budget. We see people all the time. They write out their fixed expenses. They think that those are their living expenses. And they'll go, yeah, our fixed expenses or living expenses are six grand a month. And I'll say, well, a good way to test that is to something called zero net budgeting. And I'll say, Jim and Julie, let's add this up and we'll say between the two of you, you guys bring in about 9000 a month. You said your expenses are 6000 a month. So you guys save $3,000 a month and your savings grew by 36,000 over the last year. They looked at each other, they look at me, they go, no, our savings isn't growing. So we know that their budget is unrealistic. A couple other ones not planning for the unexpected. Most people don't realize that every 2 to 3 years you're going to have unexpected costs, whether that's an insurance claim. My wife and I, we just had our basement flood. Uh, our deductible was $4,300, you know, so that's something that a lot of people don't plan for. Thankfully, we have an emergency fund, and we didn't have to think twice about it.

Trey Peterson:
Uh, not having a plan. We run into people all the time that they've done a great job of saving, but they've never created a plan, and they're going to give money away to the government. They're going to pull from the wrong places at the wrong time, and they might still be okay. But instead of maximizing what they've worked so hard for for their beneficiaries, they're going to give a lot of that to Uncle Sam and they don't need to. And then waiting too long to adjust the plan. How often do we meet with people? And the only thing they talk with their advisor about is returns. They never talk about a spend down plan. They never talk about RMDs. They never talk about taxes. They never talk about managing the tax bracket. All of these things are so significant. And I think the biggest thing that we see all say, and you can jump in on this, but we see so many people not know the difference between a journalist who's a financial advisor, who's just designed to grow assets, and a retirement planning specialist. What would you say are some of the key differences in having those two different types of advisors, based on the season of life you're in?

Yelisey Kuts:
Yeah. I think what it comes down to is understanding the season of life you're in, just like you said. You know, there's different stages to retirement, to planning. And one of the stages is accumulation. And there's a lot of financial advisors that do a really stellar job when it comes to the accumulation stage in life. But I had a professor that had he he would say this all the time, and it kind of drove me nuts when I used to hear it. But he used to always say, hey, what got you here isn't necessarily what's going to get you there or where you want to go in life. And obviously that's something that we we hear all the time. Uh, it's but it's actually good advice because a lot of times, the person who helped you during the accumulation stage in life isn't exactly working with retirees and having to to answer the question on Social Security and help you decide which pension payout options that you should select and how your investments should change as you approach or get closer to retirement, and helping you plan for your RMD. How to integrate that into your overall income plan? Uh, that might not be the same person. You might need somebody who actually specializes in those areas, even though the person during the accumulation stage in life, maybe they did a really, really good job. But when it comes to your distribution stage, when you actually have to create an income stream for yourself and, uh, really you only have a limited amount of sources and places from which to draw from, and you have to make some critical decisions that that are much more than just simply a transaction, like when you turn on your Social Security benefit.

Yelisey Kuts:
Like it might feel like you're just, you know, you're doing what everybody does, right? You're replacing your income, turning on your benefit. Uh, but what you're doing is you're making a decision that's going to be at 15, 20 or 30 year decision, and you need to treat it that way just like you would, you know, when it comes to your your retirement savings, like, think about the amount of due diligence that it takes to find a financial advisor, somebody who has your best interest in mind, making sure that they're making good decisions, making sure they're not charging you too much in fees. They're selecting the right investments, like the amount of due diligence that that takes. Just like you would apply that to your pension, you should apply that to your Social Security benefits and really find somebody who that's what they do. They specialize with those that are in or nearing retirement. Uh, and that's an important thing. And it really just comes down to understanding the different stages of life.

Speaker6:
Yeah, well.

Trey Peterson:
I think as we wrap up, you know, one of the big questions I get is, you know, I've been with my guy for 20 years. 30 years. I feel like it's cheating on him to get a second opinion. And I tell everybody, if you trust in your guy, if you believe he's doing the right thing, then it shouldn't be challenging to prove that he's doing the best thing for you and that he's still the right person for you. If you've never had a second opinion or it's been more than three years, I'd encourage you to get a second opinion from us. You're going to find that the model that we're in is different. We don't just have great financial advisors, but we have a team of specialists that you're going to need as you walk into retirement. There's a good chance that we can point out some things that you're not aware of and some other items that we don't want you to miss, because there are things that you're not thinking about, likely that you only have a three, four, five, six, seven year window to actually accomplish some of the things that you need to be doing for good tax planning, for planning for your health insurance, your Medicare. Maybe you have to have the conversation of reviewing your risk in a long time.

Trey Peterson:
So one of the things that we're offering is if you're on this podcast, we'd love to do a complimentary analysis to show you where things are strong and show you the things that can be improved. And the commitment that we make is if everything looks great, man, I'm happy to tell you your life is doing a great job. Your investments are strong, your tax professionals are doing a great job doing tax strategy. Your insurance expert is doing a great job coaching you on what to do when it comes to your Medicare plan, your health insurance plan, your estate planner as the right things in place to make sure that if something happens, that your kids are the ones or the people that you love, your beneficiaries are the ones that are going to get all of the money and all of the things you've worked so hard for. So if you'd like to take advantage of that, I'd love to walk through those findings with you, and you can reach us on our phone number on the screen, or reach out to my email at Trag wealth and in the subject line, just put Second Opinion and we'd love to help you out with that yellow. Say anything else as we wrap up.

Yelisey Kuts:
Well, I think that's everything. I think, you know, in the next, uh, couple of weeks, we're probably going to do a deeper dive on Long Tum care and some of those unexpected costs in retirement. Um, but, yeah, just to piggyback off what you said, um, you know, one of the things that actually, I love that this happened last week, what you told one of our clients, they came in and they had a report, uh, they actually opened an account at a local bank that had some financial services that they also offered, and they offered to do just a retirement planning report for this couple. And I, like the clients came in and they were just like, so nervous to share that with you, to let you know that they went out and they did this. And I love your response. You're like, hey, this is fantastic. I wish more of our clients would come in and actually look at what we do for them and test it. Test it to see, hey, how does it stack up? How does it compare to what maybe somebody else is offering? Uh, so we don't shy away from that. We're not afraid of having somebody else examine what we're doing and and give you their opinion, and then we can have a better conversation. And I think overall, it's what leads to more improvements and better overall results in your financial plan.

Speaker6:
Absolutely.

Trey Peterson:
Hey, if you're on, thanks for taking 50 minutes to spend time with us. We love what we do. We're passionate about it, and we'd love to help you maximize your assets. We hope that you have a great day and good things ahead.

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 AllThingsFinancial.com and set an appointment today.

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