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Speaker 1 (00:02):
Welcome to the Retirement Wealth Podcast. Our goal is to help those retired or soon to be retired investors make more informed financial decisions and live an enjoyable retirement. Our host Mike Lester is the founder and CEO of Talon Wealth Management. Mike is an investment advisor representative of Retirement Wealth Advisors Inc, and SEC registered investment advisor. Thanks for joining us today and let’s get started.
Speaker 2 (00:31):
I think Mike’s blood pressure is about to go up, possibly yours listening too. As of July 15th, millions of families across the country began receiving monthly checks from the federal government when child tax credit payments began hitting bank accounts, who better to explain what’s really going on here then president Biden from the White House YouTube channel himself.
President Biden (00:52):
You probably got a stimulus check a few months ago. That’s from the American Rescue Plan. There’s more to the plan than that. It’s also expanded the Child Tax Credit. That means if you have a child you’re entitled to $3,000 per year per child, between the ages of 6 and 17 and $3,600 per child under the age of 6. Every working family’s eligible. If they make up to $150,000 for a couple or $112,000 for single parent, and thanks to the Rescue Plan, if you file taxes, the payments will come automatically back to you and they’ll start coming monthly from July until the end of the year.
Mike (01:33):
Hold on a second. Let me wake up for starters and then the whole time I was thinking, you know those little sound machines that you’re supposed to sleep with?
Kristen (01:41):
White noise yes.
Mike (01:42):
White noise machines? If we could just take all these clips that he’s put together and just kind of loop them and just play them this white noise.
Kristen (01:49):
Especially with the music behind him.
Mike (01:50):
Yes. Oh my goodness. Wow. Not only confusing, but just, wow. Okay.
Kristen (01:56):
So let’s dive into this.
Mike (01:58):
First of all, what I took from that was I’m about to get a check or I should have gotten one by now and I haven’t gotten any, so he made it sound like everybody’s going to get one. I don’t like that.
Kristen (02:07):
No, that’s not true because you have to be within a certain household income.
Mike (02:13):
I know but he goes if you have a kid you’re entitled, right?
Kristen (02:15):
Yeah. Love being entitled.
Mike (02:16):
So that was a little misleading. But anyway,
Kristen (02:19):
Let tell you what’s even more misleading Mike, the administration also believes that this credit should be extended through 2025 and is trying to get that through Congress. Now, all politics aside, I’m about helping people who need it, but I also envision this being a poorly run government program, like most programs are and taxes just growing higher and higher for the rest of us.
Mike (02:41):
Listen, you know me, I’m not cold hearted, when it gets to money, love to help out as many children and families that need help. But the first thing that comes to my mind is, so it’s direct deposit into their account then where does it go?
Kristen (02:50):
Right?
Mike (02:51):
Who tracks that down and make sure that it’s actually going in the right place to help children? Who knows, but like you say, it’s one of these things. I’m going to fast forward past that and I realize not sustainable and I’m sure they don’t have a way to pay for it yet and I’m sure it adds more to the, our $30 trillion deficit and all of these things. We have to look at how that’s going to apply long-term to markets, long-term to our clients who arguably have been at least historically the largest generation ever, COVID may change that they’re saying, but at least up to this point, the largest generation ever, the baby boomers. Who’ve done a great job of setting money aside, who made sacrifices along the way, who weren’t on a ton of government programs to get there. Now the government’s talking about like, “Hey, congratulations, you saved. We’re going to tax you or we’re going to take away benefits, or we’re going to do this, we’re going to do that.”
Kristen (03:34):
Because they figured out that boomers are also one of the wealthiest generations ever.
Mike (03:38):
Exactly. When they’re looking at, where’s the money at, “Oh, it’s in all these retirement accounts.” As boomers, as retirees, you need to be very, very focused on how to protect your money and so we’re looking at options, realizing that, okay, well, if this plan stays or if it sticks, and if you add that to all the other plans, how do you sort of isolate yourself on this island where you can live your life, but you don’t have to worry as much about news on spending, news about taxes. Now, one of the things that we talk about a lot on the program and it’s advertised a lot out there, is Roth Conversions.
Mike (04:10):
So most people, if your largest investment is your 401(k), and you realize that when you retire, you’re going to lean on that for income and you realize that that income is going to be taxed as ordinary income. It becomes a problem down the road. Things like requirement of distributions can force you into higher and higher tax brackets. We can look at Roth Conversions to take money in a 401(k) or take money in an IRA, pay taxes at today’s rates. Maybe not all this year, you can space it out over time, but start to do those conversions so that it can sit there and grow and then you’re not required to take required minimum distributions and the money comes back to you tax-free. That’s going to be very, very beneficial if you’re worried about this type of thing and that’s the type of conversation we would need to have at the office. Because again, I don’t know your specific situation until we take a look at it.
Mike (04:55):
The other thing to do is before you retire, and this goes into planning as well. I get this question all the time, “Mike, should I pay off my house? Mike, should I do this? Mike, should I do that?” Well, if we can get your actual expenses down in retirement and your income is things like social security, maybe a pension, and then you don’t have to take a lot of money out of your retirement accounts. You could have millions of dollars in retirement accounts, but if the distributions you have to take out of those accounts, aren’t very high. You’re going to fly under the radar of some of these potential taxes moving forward. That’s really our goal, right? I’m afraid of it. Our clients are afraid of it. We got to find out how to fly under the radar and not become a victim of it.
Kristen (05:30):
And also pay our, when we say fair share, we mean genuine fair share, not being overcharged because-
Mike (05:36):
Well not being targeted. We’re being targeted.
Kristen (05:38):
Yeah. That’s a good way to put it. It’s just, what’s fair and what’s not. The wealthiest generation to ever retire, definitely being targeted. You listening, are you part of the Baby boomer generation? If so, it’s time to get a team on your side that is focused on you and your goals, what you’ve done so far and how to be efficient and live the life you worked so hard for. Moving forward when it comes to your retirement connect anytime at guardingyournestegg.com. Four out of ten Americans are considering a job change in the next year. This is according to a recent poll from CBS news. But if you’re one of those, make sure you don’t leave your 401(k)behind because a separate study says that about $1.35 trillion have been left behind in forgotten 401(k) plans. Mike, how should we go about making sure that money continues to work for us? Because I know you lovingly call this orphaned 401(k)s when this occurs.
Mike (06:39):
You left your company and if you left your poor little hopefully or large, I guess, I shouldn’t say little, I was thinking of orphans, little orphans, but if you left your 401(k) behind you’ve basically orphaned it and there’s nobody to look after it. There’s nobody to manage the investment options. There’s no one to have you get in or out of markets. Frankly, Kristen, I guess a lot of people, their 401(k)’s are almost orphaned anyway, because they just sort of invest and forget, even if they’re still with the employer now. I mean we encourage-
Kristen (07:06):
Because HR doesn’t focus on that right?
Mike (07:08):
HR doesn’t help you. Yeah. This is arguably, depending on what your investments looks like, but for most Americans who’ve been working hard for a company, this opportunity to put money into a 401(k) and have it grow over time is arguably probably going to be your largest investment in retirement. Now some people have other investments and so focusing on it and protecting it and growing it and paying attention to things like fees becomes very, very important over time. We help individuals with that. When I hear that there’s $1.35 trillion in orphaned 401(k)s out there. I realize why. People get busy, people get distracted. They’re excited about the new job. They’re more worried about things like mortgages, Healthcare-
Kristen (07:51):
Something that impacts their day-to-day life right now.
Mike (07:53):
Yeah. Impacts them right away, not what impacts them 20, 30 years down the road. But what I could tell you is, if you’re sitting on a 401(k), that’s with an old employer, you’re not working there anymore, then you need to take a close look at it because almost all 401(k)s have very limited investment options, almost all 401(k)s aren’t actively managed so it’s just sitting there, doing whatever the market does. You’re likely paying higher fees on that 401(k) than you need to. If we can create a situation where all right, the money gets invested, you have more investment options, you have active management of the portfolio, you have a reduction in fees, hopefully higher average rates of return. All of those are going to be good things for you moving forward.
Mike (08:35):
When we talk about this, it’s just because we want people to focus and go, you know what? I’ve been meaning to do something with that. Now Mike’s talking about it again on the radio. I should just go ahead and give them a call. That way we can help you out with your orphaned 401(k). Or another big number Kristen, we talked about age 59 and a half. A lot of people have been making contributions to these 401(k)s or your job might not be a 401(k), could be 403(b) or something like that. But this retirement plan at work, most companies allow you to have your 401(k) actively managed after age 59 and a half, which means more investment options, active management, potentially lower fees to have it actively managed. Which again, if it equates to higher average rates of return, less risk to get those returns. In particular, as you’re closer and closer to retirement, it’s going to be really, really helpful to individuals in the longterm.
Kristen (09:23):
You know, Mike, I’ve been thinking about this 59 and a half threshold. This new level of opportunity and possibilities are about. It reminds me, and I think our listeners you’ll understand what I’m saying. Once you turn the age of being able to vote, I’m an adult, I’ve got so many options, the world is my oyster. That’s what 59 and a half is. You are old enough to make some true decisions in your life and take control of your future.
Mike (09:49):
Or even driving a car, 16 I can drive. Or 21, I can drink. It’s just one of those numbers.
Kristen (09:55):
It’s another freedom.
Mike (09:55):
Another freedom. You’ve got to take a look at it. I equate it to this, Kristen. So you’ve got your 401(k) and let’s say you’re 59 and a half or older, or it’s an orphaned 401(k). The very first thing I would do, even if I wasn’t working with an investment advisor or a fiduciary, I’d call up a company like Vanguard. I say, “Hey, listen, I know you guys have a great track record. I know your specialty is keeping fees really, really low and diversification. Would that be better than my existing 401(k) to move to something that was lower cost, more investment options, more diversification?” I can’t imagine a situation where it wouldn’t be better, right? You should at least make that call, but then you should compare that to what a fiduciary could do for you, right?
Mike (10:35):
If it’s still additional investment options. If it’s still lowering your fees, but if through active management, you’re able to get a higher average rate of return net of those fees, then even what Vanguard could do, or if through active management, you can not only get a higher average rate of return, but also take less risk than a, frankly, non-managed account somewhere else with more investment options. It just starts to make sense and not everybody’s good at doing the math. Not everybody’s good at running the numbers. Again, they get distracted. Sometimes it’s hard to just say, well, listen, I’m going to take the time. Find that old 401(k) statement, go have a conversation with somebody about it.
Mike (11:09):
Or I’m going to take time from my work to go find out if just because I’m age 59 and a half or older, does it make sense to have active management in the 401(k)? Particularly since markets have just been going up and up and up and you’re probably feeling pretty good about the 401(k) right now. The problem is things change. Markets don’t always go up. We’re really, really nervous about some things we’re seeing in government. We’re worried about taxes moving forward. We’re worried about inflation. All of these things are going to come into play. If you’re close to retirement, I don’t know when Kristen, but I suspect within the next couple of years, don’t sit back, take action.
Speaker 1 (11:45):
If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at retirement.tips/plan and we can do that for you complimentary. Thanks so much for joining us on today’s show. Be sure to subscribe to our podcast, visit our website at retirement.tips for more free retirement planning and investment resources. Thanks for tuning into today’s show. We’ll see you next time on the Retirement Wealth Podcast. Exposure to ideas and financial vehicles discussed should not be considered investment advice or recommendation to buy or sell any financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals specializing in the fields of tax, legal, accounting or investments regarding the applicability of this information to their situation. Past performance is not a guarantee of future results. Investments may fluctuate and when redeemed may be worth more or less than originally invested.
