Ep 53: Getting It Right: Irreversible Financial Decisions

There are plenty of decisions that you’ll make in the retirement planning process that can’t be undone, so you want to make sure that you make the right call. On this episode, we’ll explain why these decisions are so important and can’t be undone.

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PFG Private Wealth Management, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investment involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.

Transcript of Today's Show:

For a full transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/

Speaker 1: Back here for another edition of Retirement Planning Redefined with John and Nick once again, joining me to talk about getting things right the first time. There are some irreversible financial decisions or close to it in retirement and there's plenty of things we've got to deal with. So we want to make sure we get it right as often as possible, right out of the gate, because some of these things just cannot be undone. So you guys being in Florida, mulligans, everybody plays golf. Mulligans are a thing, for sure. You didn't see that? Some mulligan, its a give me. Let me do it again, kind of thing. But there's things in retirements that you just got to get right the first time. So that's going to be the topic this week. Nick, what's going on, buddy? How you doing?

 

Nick: Good. Good. Staying busy.

 

Speaker 1: Yeah. Keeping rocking and a rolling. John, how you feeling my friend?

 

John : I'm feeling good. I'm feeling good. I'm looking forward to this topic. I'm actually a couple of weeks out from finish some construction in my house and I wish that the original builds and plumbers got it right and knew how to glue some pipes that wouldn't have caused a leak down the road. But anyhow,

 

Speaker 1: Yes.

 

John : Looking forward to getting that construction done, so.

 

Speaker 1: Yeah, I tell you what, that's a great point. Right. So we all want people to do their job right the first time. Certainly when you hire someone, that's what you expect. But these are some decisions that many people do to themselves because so many people DIY retirement. Right. One of the benefits to turning to financial professionals like yourselves is to get these things right so that you don't have to worry about having these issues that can't be undone. So let's walk through a few of these. We're going to start with a biggie. Again, there's a little caveat here, but for the most part, once you turn on social security, it is what it is. So you have to be sure that you're, especially if you're activating it early, that this is what you want to do. There technically is a do over, but most people don't really go through it. So kind of explain if you will guys.

 

John : Yeah. So this is a big one because social security equates to roughly 30 to 40% of kind of average households retirement income going into retirement. So it's important. And Nick and I, everything we kind of say goes back to the planning and this can't be stressed enough because once you start taking it, let's do over for the first year out of it, that is what it is. And I'll kind of use an example of a client that we had where she was a survivor and she wasn't fully aware of her options and the strategies she could use. And just luckily she was referred to us right before she started taking social security. And I don't want to go too much into details, but basically the strategy that she was just going to take initially, I mean would've cost her a lot of money down the road. So we simply had to basically call social security, stop the payment and redo the strategy. But again, by not really having a game plan, she could have cost herself a lot of money down the road. And this doesn't happen just for survivors. It's anybody, whether it's your taking your own benefit or divorced, things like that. So there's a lot of things to evaluate when you're taking social security and when's the best time to take it.

 

Speaker 1: Okay. So and again I mentioned the fact that you can pull it back. Right. You have what one year. Nick is that right, correct? You have one year.

 

Nick: Yeah. So essentially the rule is that if you begin your social security benefits, you have 12 months to essentially reverse your decision that you started receiving benefits. You have to pay the benefits that you received back and then you can defer it again as if you never took it. So years ago, you used to be able to do that over a much longer period of time. And then the Social Security Administration caught onto that and they restricted it to a 12 month period.

 

Speaker 1: And let's be honest. Most people, the reason doesn't get really used very often is who wants to do it. Most people don't want to, as soon as they hear, well, you got to pay the money back. They're kind of like, eh, so I don't want to do that. Right. So,

 

Nick: Yeah.

 

Speaker 1: [inaudible 00:03:57].

 

Nick: Yeah, it's a tricky thing.

 

Speaker 1: Yeah.

 

Nick: It's like we've had some clients inquire about this recently and their sub full retirement age, so sub 66 or 67 or somewhere in between there and in instances where, because where the confusion lies for a lot of people is they want to continue to work maybe, but shift to part-time.

 

Speaker 1: Yeah.

 

Nick: And they don't realize that the part-time income is still in excess of the amount that they can earn without any sort of penalty, which for most people is around $20,000 for the year.

 

Speaker 1: Yeah.

 

Nick: And when you start to factor in the fact that you're permanently locking in a lower benefit plus running the risk of having a penalty on top of it for the rest of your life, it's not ideal. So,

 

Speaker 1: Right.

 

Nick: That's definitely a major decision and something that we like to model out and test out for people.

 

Speaker 1: And again, so technically there's a caveat to undo in a very limited window, but it's just best to get this right the first time, because for all intents and purposes, it's irreversible. You just don't want to go down that path. Same with the spousal benefit situation here on a pension, should you be lucky enough to have one. Once you select this, I don't believe there is any do-overs on this. It is what it is.

 

Nick: Yeah, that's correct. This is definitely a topic that we go through in the classes pretty in detail. Years ago, it was a lot easier for people to mess this decision up. It still happens sometimes, but it's less common because oftentimes the spouse has to sign off on it. But the reality is that having a really good understanding of what sort of survivor benefit you're going to choose, if you are eligible for a pension through your employer is a major, major decision and something to take into consideration. And one thing to throw in here too, for those that live in the state of Florida, oftentimes the projections that they send you or that you can access easily online, I should say are options like one and two or A and B. And there are two other options that are oftentimes better options and you usually have to request those. So we've seen that be a mistake that people have made only thinking that they had two options when there's actually four.

 

Speaker 1: Gotcha.

 

Nick: So that's something and it's important to know.

 

Speaker 1: Okay.

 

John : And what Nick's referencing there is the Florida pension plan, the state pension plan.

 

Speaker 1: The state. Okay. Got it. Thank you. So John, what about life insurance? What is the kind of the impact here? Irreversible financial decision, somebody might say, well, can I just cancel it or whatever, right, kind of deal, but what are some important points to know when it comes to this?

 

John : Yeah. So when you're doing planning, one of the things we look at is we start with the need for life insurance. And that really depends on dependence and some other factors, but it's easier to get when your younger. So that's one thing we take a look at and there's different types of policies that allow you to convert. And not to get too much into the weeds, but the older you get, some health issues might come up where you can no longer get it. So that's where it becomes very important to understand, Hey, is this something I really want to have down the road and does it work in my financial plan? And if it does, the sooner you can get it the better because things come up as we all know. As you get older, health issues come up. So you want to get it right the first time.

 

Speaker 1: And that's where you could run into a problem, right, especially if you wait too long and then a diagnosis happens, then it could either make it impossible or certainly incredibly costly.

 

Nick: Yeah. Especially, we joked a little bit in the last podcast about John and I hitting 40 this year. And the reality is, is that I know, I know. Everybody I'm sure is shedding a lot of tears.

 

Speaker 1: A lot of our listeners are like 40. I would trade with you in a minute.

 

John : Let's see, 40 back surgery this year. It's a good year.

 

Nick: Yeah. All of a sudden I got tendonitis in my arm and my shoulders all messed up.

 

Speaker 1: And right now you have listeners going, I'm going to go in and slap him.

 

Nick: I know, I know. But the key, the point with this whole thing is that some of these things, maybe not some of the things that John and I talked about, but maybe a type two diabetes or some sort of health issue that pops up where it doesn't in reality, necessarily in most people's mind affect what your life is going to be like. It could have an impact on what life insurance is going to cost for you.

 

Speaker 1: Yeah, exactly.

 

Nick: And so you pay for it out of your bank account, but you qualify with your health. And so usually the sooner you can lock in any sort of coverage, the less expensive it is and that'll pay off over time.

 

Speaker 1: No, you're exactly right. I mean, we're coming up, we were joking about this, but to really drive home your point, we're coming up on the 10th anniversary for me of my open heart surgery. I was 41 years old. I didn't think anything of it. And so it made it really difficult to get life insurance or get some different kinds of insurance once I had that happen. So I monkeyed around and waited too long. Right. And then I was like, well, I didn't know this was coming. Now luckily it was more lifestyle and things. So after enough of a time period, I started to eventually get some offers, but it is more expensive. So it is important to definitely have this stuff in place if you can, sooner than later, because again, it makes the financial impacts pretty great. So definitely keep that in mind as well. And then finally, choosing a retirement date. We debated on this one, about throwing this on the list because people would definitely can argue and say, well, sure you could change your decision on this. If you pencil in a date to actually retire, you can just move it around as you need to. But if you want to take it that a step further, depending on how you want to go, if you've given notice at a position, maybe not, right, it may be something you can't undo that. So just talk to me about the impacts of just either penciling in, choosing a retirement date to actually walk away just from different pros and cons.

 

Nick: Yeah. I can jump in on this a little bit. This is something where in reality, I think what we found is maybe a specific date is necessarily the key or the thought process, but understanding the range that you're looking at and understanding what sort of cost you might be incurring if you do retire early. So for example, if your somebody that has saved and done a good job of that and is looking to retire early, call it maybe 62, understanding the impact of how much lower your social security benefit is, understanding what sort of costs you're going to have when it comes to premiums for your health insurance. So as an example, we've got clients that are paying, some clients that are paying between eight and $10,000 a year for health insurance premiums per person, when they were used to while they were working, paying closer to three to $4,000 for the household. So that's something that can have an impact on that retirement date, where maybe you've been thinking in the back of your mind, Hey, I've got a good nest egg. I'm just going to plan to go a little bit early, but didn't quite realize the expenses associated with it. On top of that, from a planning perspective, we do have other clients that they knew that they were going to retire early. And so we put strategies together for leading up to retiring early. They were able to save some extra money into non-qualified or non-retirement accounts. And by taking their income in the first few years of retirement, out of those accounts, it allows them to qualify for certain subsidies for health insurance, which brings their costs down. So again, when we have clarity on what the goals and the objectives are in the financial world, there's usually ways that we can plan around it and try to optimize it. And so having a good idea of what that looks like and the impact of the fallout from that goal and then planning around that, it allows us to be more strategic.

 

Speaker 1: All right. So obviously there's lots of little things in there where again, you could make the argument that you could move some of these things around, but ideally we want to get it right the first time. And often, as I mentioned earlier, excuse me, when we're doing it ourselves, we don't know a lot of these little things, a lot of a little caveats and whatnot. So we want to get it right the first time. And that's where working with a professional really comes into play. So if you got questions, you need some help as always make sure you're checking with a qualified pro before you take any action on something here on this podcast or any other, you want to make sure that you're seeing how it reflects and affects your specific situation. So stop by the website, pfgprivatewealth.com. That's the home for the team, pfgprivatewealth.com. You can subscribe to us on Apple, Google, Spotify, iHeart, Stitcher, all that good stuff. Retirement Planning Redefined is the name of the show. You can look it up on those apps if you'd like, or just stop by the website again, pfgprivatewealth.com. We appreciate your time here on this week's podcast. We'll see you soon for another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth.