How Widespread Fear May Affect Your Investments And Tax Efficient Withdrawals Strategies

Mike Lester

by Mike Lester

Nov 16, 2020

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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. An SEC registered investment advisor. Thanks for joining us today and let’s get started.

Kristen (00:31):

Stay with us today because you will find out what a historic event from this year and 1969 have to do with your money. Plus how a good financial plan gives you the freedom to focus on things that really matter and hidden fees and hidden taxes that we will uncover all coming up in just a few minutes. Mike, in an attempt to spotlight the bright side of what has been a truly rough few weeks and months, honestly, for our country, I want to do something positive here and focus on what has been my favorite positive that’s happened since our lives changed in February and so many events that have happened after. I don’t want to focus on the negative. We need love. We need light. We need good things in this world.

Mike Lester (01:15):

I know I am so tired of the negative.

Kristen (01:17):

Well, you’re going to love this.

Mike Lester (01:18):

So what do you got for me?

Kristen (01:20):

The humane society.

Mike Lester (01:22):

I love that.

Kristen (01:23):

Well, they ran out of dogs and cats to adopt.

Mike Lester (01:25):

Are you hurting cats over there? What are you doing?

Kristen (01:27):

Well, I can. I’m good at that. But they ran out of dogs and cats to adopt as people were looking for love and cleaned out all the adoption centers. That’s beautiful.

Mike Lester (01:37):

It’s hard to argue with that, Kristen. I like it. Ran out seriously?

Kristen (01:41):

Yeah, I plan to continue to focus on good news like that as much as possible. And there’s so much good news related to retiring and we’ll get to a lot of that on today’s show. Mike, we have been hearing all kinds of predictions about the market. Some analysts warn that we’re in for another crash and all that’s not good news, but it’s a possibility. Others believe we’re already beginning to see another bull market. But investment strategists, Jim Paulsen is in the latter camp. And wait until you hear why. He tells CNBC that it’s because people are afraid.

Jim Paulsen (02:14):

In every recession, you have the normal fear of widespread fear of losing your life savings. And you also have the fear of losing your job. We have both of those today no doubt, but we have the added fear of losing your life or the life of a loved one. And so when you look at that fear’s on steroids today. It’s just really elevated and whatever in the past, you had high levels of fear, that’s typically a very good time to buy the stock market.

Kristen (02:41):

Now I pay attention to a lot of these talking heads because we do this radio show and I don’t think I’ve heard that one yet. I mean, why would fear be a good sign for anyone?

Mike Lester (02:49):

Well, fear sounds bad. I don’t like being afraid Kristen. When it comes to fear and markets, I think he’s right there. I mean, this is the first time historically we’ve had a situation where certainly the pandemic’s happening. People are afraid of that on top of fear of losing money and fear of losing jobs and people were forced to lose their jobs. We all know that now, Kristen. It’s been going on for a long time, but how does it affect markets? Well, that fear drove, for example, the Dow as most people know. Drove it down to about 18,500. Now the government’s come in lots and lots of stimulus.

Mike Lester (03:21):

Now, corona or COVID-19 whatever it doesn’t look like it’s going to be as bad, right? As they thought it was going to be. Maybe it’s because of social distancing. Maybe it isn’t. That’s not what we’re talking about. We’re talking about how’s it going to affect your investments moving forward, if you’re retired or very close to being retired? And what I’d say is and we’ve been saying it for weeks now, Kristen, if they’re going to dump this much stimulus on markets and markets are oversold out of fear, it makes sense to participate in markets. Now, is there going to be trouble and problems and issues down the road? Yeah, I think so. I don’t know how we spend this much money with, by the way, unless I haven’t heard of a plan to pay for it. Yeah.

Kristen (04:00):

Oh, I know the plan, it’ll be us.

Mike Lester (04:02):

Okay. So when they come back…

Kristen (04:04):

Comes out of [crosstalk 00:04:04] yes.

Mike Lester (04:05):

Yeah, when they come back at us to pay for it, doing things like raising taxes and inflation and interest rates and all of these things, that won’t be good for our economy and it won’t be good for markets. And eventually that bill has to be paid. So putting all of this together, we’ve been recommending to our clients for a while now to take part in the market. I realized there’s volatility, I realized there’s risk, but I do think we’re going to do better. Not forever, but in the near term. All right? I know there’s a lot of social unrest and all I got to do is turn on the TV and you’ll very sad very quickly.

Kristen (04:38):

Honestly, I can’t watch in anymore.

Mike Lester (04:38):

I can’t watch it either. I mean, I’m aware it’s going on. It makes me sad. But I got to think about markets. Is it going to affect markets? No, it’s really not. And you can see just by watching markets and how they perform, nobody’s really going, “Oh no, there’s riots. Markets are going to crash.” It’s really not the issue. So let’s just take a look at fear, is it a good time to be invested in markets? I believe it is a good time to be invested in markets, but only if you’re active in management of those plans. You have to have a strategy for getting in the market, but you also need a strategy for getting out of the market. Kristen, we don’t make blanket statements like, “Hey, listen, everybody should get out because there’s fear. Hey, the market’s going to go down at some point so get out now.” That doesn’t make sense.

Mike Lester (05:16):

I know market’s going to get out at some point, but these people who get on TV or get on the radio and scare people into selling their portfolios while markets are going up, they’re forcing those individuals to miss out on gains that are there. And it’s not that you can time markets specifically.

Kristen (05:32):

Oh my gosh. If someone could, none of us would work. Yeah.

Mike Lester (05:35):

Right. But at this point telling people to get out and if you’ve been telling people to be out of the market for the past couple months, they’ve been missing out on big gains. I mean the Dow’s already bounced from the 18,500 lows up to over 25,000. That’s a huge percentage that you’ve missed out on. So having a strategy to help you participate in gains, but also having a strategy to protect assets moving forward is really, really important because, Kristen, anybody can go on TV or on the radio and say anything. They can say, “Hey, the sky is falling markets are going to crash. You better take your money out.” And the reality is eventually there’ll be right. And then they’ll pat themselves on the back for being right.

Kristen (06:07):

Right. I could say that and I’m just a DJ.

Mike Lester (06:10):

That’s right. And guess what? Eventually you’ll be right.

Kristen (06:13):


Mike Lester (06:13):

But what about all the time in between? So that’s where people get really, really burned by sitting on the sideline when things are doing well. And then unfortunately, sometimes those are the same people that get in at the wrong time and then lose money. And then when I’m meeting them for the first time, they’ll say something to me like, “Hey, listen, I can tell you when you should get out of the stock market because that’s exactly when I get into it.” I always do poorly. Or I could tell you when you should get out, it’s when I get in.

Mike Lester (06:38):

That feeling that people have is very, very real and it’s their perception, but there are ways to look at indicators and just make smarter decisions about when I want to be invested and when I don’t want to be invested. And it’s all probabilities, Kristen. And if I know the probability of a market crash is high because of certain things that are going on, I want to be more conservative with my investments. And that’s what active management is about.

Kristen (06:59):

And that’s how you react with your clients.

Mike Lester (07:01):

Exactly. And so having those conversations, understanding a little bit more about how to build smarter portfolios and doing it for our clients, that’s ultimately what we’re trying to do is provide value, Kristen. If we can show somebody how to get a higher average rate of return net of any fee that they would pay us to manage their portfolio, then we’re providing value. If we’re not able to show them a higher rate of return net of fees, frankly, there’s no value there. But at the same time, our clients are retired or very close to it.

Mike Lester (07:24):

So if we can get them higher returns net of fees, but also reduce the amount of risk they’re taking to get those returns, that’s very valuable to them as well, Kristen. Nobody wants to retire and ride the stock market rollercoaster. What they’d like to do is retire and have a good financial plan that helps them maintain their standard of living throughout retirement, adjusted for inflation and taxes.

Kristen (07:43):

Too often, folks retire without giving a lot of thought to how much they’re going to withdraw from their accounts that they work so hard to save and invest. But Mike, from what little I know, drawing from the right account at the right time can also make a huge difference in the amount of taxes we owe over the course of our retirement. A lot of people assume taxes are going to be lower when they retire. I know that’s not necessarily the case, but this is just one piece that you consider when creating a retirement income plan for someone is how to draw from the right account at the right time to be tax efficient.

Mike Lester (08:18):

Yeah, you’re exactly right, Kristen. So saving clients’ money through the proper distribution of assets when they start taking it for income, so which account do I pull from? So typically somebody who’s retired or close to it, they’re going to have different types of money for lack of a better word. They’re going to have money that they’ve never paid tax on. So that would be money like 401(k)s, IRAs, TSP accounts, 403(b)s. So, your retirement account at work, something like that. In addition, they’re going to have money that they have paid tax on. So imagine that you’ve been making contributions on your own to an individual account or a joint account or a trust account. You paid the tax when you earned it as income, and then you turned around and reinvested it. So you’ve already paid tax once on that.

Mike Lester (08:58):

And then the other type of investment that a lot of people are going to have, we see this more and more often, and you’ve probably heard of it, a Roth account. So it could be a Roth IRA, a Roth 401(k). So this is money that you’ve paid tax on, but you’re never going to pay tax on it again. And so if we look at those different types of investments and then each year we go back and look at the tax codes because the rules change, tax rates change, rules change. We want to make sure that we’re being responsible with distributions because ultimately we’re sitting down doing financial planning and we’re taking a look at an individual or a couple who has probably all three types of money. Money that they’ll never pay tax on again, money that they’ve already paid tax on, but then we’ll pay capital gains on and then money that they’re going to pay tax on because they never have and that’s taxes ordinary income, the highest tax rate.

Mike Lester (09:41):

So when we go through the financial planning process, we’re identifying the different types of money. We want to get someone to the income that they need. So the question is how much do you need after tax to maintain your standard of living adjusted for inflation moving forward? So we’re going to get that number and then we’re going to come up with, it’s not just financial planning, we also want to do income planning, which bucket, right? Or which type of money do I pull from first or last, or is it a combination of? And so for most people, it’s going to be a combination of, and we just want to be responsible with that. Whereas we’re taking the income, but we also want to update that year after year as the tax laws change.

Mike Lester (10:15):

So there’s a lot that goes into it. And too often, Kristen, I see situations where advisors are just focused on the return, not the after tax return. And your return on your money, net of taxes is the most important number, not your return not taking into consideration taxes. So again, we work with CPAs, we also do the estate planning part, but income planning is a really big component of financial planning. It’s included with every financial plan that we do. So if you’re listening right now and you’re not only looking for financial planning, you want to maximize returns and reduce risk on assets, but also income planning, give us a call. We can do that for your complimentary.

Kristen (10:52):

Find out what a historic event from this year and 1969 have to do with your money and why relying on social security as income is never a good idea. You already know that, but insight about how you can make things a little bit better with Mike Lester coming up next.

Kristen (11:17):

Thanks for joining us this weekend. Back in 1961, President Kennedy vowed that the US would put a man on the moon.

John F. Kennedy (11:26):

I believe that this nation should commit itself to achieving the goal before this decade is out of landing a man on the moon and returning him safely to the earth.

Kristen (11:36):

It’s such a historical moment. And recently Elon Musk SpaceX made history, launching NASA astronauts into space from US soil for the first time, since 2011 out of Cape Canaveral, correct?

Mike Lester (11:50):

Correct. Yes.

Kristen (11:51):

Oh my gosh. I was streaming it on Facebook is where I watched.

Mike Lester (11:53):

Which you forgot where from.

Kristen (11:55):

I was thinking, wait, it wasn’t out of Texas because it was always one of two.

Mike Lester (11:59):

Well, it was mostly Canaveral. They landed in Texas a lot.

Kristen (12:03):

Yeah. See, I’m not a space nerd, but I have a lot of friends who are so they’re very disappointed right now, but I haven’t been to the Kennedy Space Center. Come on, Kristen. better than that. Oh my gosh.

Mike Lester (12:13):

I’m not sure they ever launched. I don’t think there’s a launch pad in Texas [crosstalk 00:12:16]

Kristen (12:16):

I’m an idiot. Either way, it was cool to watch.

Mike Lester (12:18):

That’s always very, very cool to watch. It’s fantastic. Yeah. So as a matter of fact, being from Florida and growing up with the space program, down the street and literally, Kristen, those were our field trips sometimes and they put us on a bus and you’d go down to Cape Canaveral. And I just remember, if it was hot, you’re just in the sun, just baking, hoping that the shuttle goes off because they don’t always go off. The launch we just had.

Kristen (12:48):

Yeah, the weather matters.

Mike Lester (12:48):

The weather matters a million things and you could literally be sitting there waiting, waiting, waiting, and then like, Oh yeah, but at least you got to go over to the space center and do some new stuff. But so first time in almost 10 years, right? 10 years that we’ve launched people from US soil Americans [inaudible 00:13:06].

Kristen (13:06):

I’m so thankful we’re involved in that again, it may be sad to see that go away because it was such an iconic moment in American history for us to do it first.

Mike Lester (13:15):

Well, it’s exciting, a lot of ways. I mean, working in Florida, We work across the country all the way from Florida to California, but we’ve had lots of clients that worked in the space industry for that reason. Literally Kristen, we were in the car. So quick story, my oldest daughter has graduated high school. Not a typical graduation, obviously with all the COVID-19 thing going on, but she’s graduated and I had told her, and just thinking as a father, “Gosh, she’s going to go to college. And I mean, how often am I really going to see her after she has her college friends and all that?”

Mike Lester (13:50):

So we had last year knowing it was coming up, we had planned a big family trip and just try to do something nice. And then coronavirus got in the way. And I asked her what she likes. So we did something drivable. So we were in the car driving for our family get together, but we knew the launch was going to happen. And we basically made it so that we ate a late lunch and caught the launch and made in a very nice way, make isn’t [inaudible 00:14:21].

Kristen (14:21):

Request politely.

Mike Lester (14:22):

We requested to our waitress, “Could you please put the launch on like every TV?”

Kristen (14:28):

Yeah, it’s historic why wouldn’t you?

Mike Lester (14:30):

It’s historic. Yeah. So we basically maintained our social distancing and watched the launch live on television. And it was really, really great.

Kristen (14:39):

I don’t know why I didn’t turn on TV. I watched it on Facebook for some reason. Either way, we were all watching when that happened recently and going back to…

Mike Lester (14:47):

Modern kids watching it on Facebook.

Kristen (14:48):

Going back to 1961, when president said this.

John F. Kennedy (14:52):

I believe that this nation should commit itself to achieving the goal before this decade is out of landing a man on the moon and returning him safely to the earth.

Kristen (15:03):

It was the ’60s and a lot of people thought the idea of putting a man on the moon was a pointless and also out of reach. But guess what? It happened in 1969. And you know, Mike to a lot of folks listening today to the radio, whether they’ve saved millions of dollars or not, retirement feels out of reach very often. What are some small steps that folks can take to get there, to take their step on the moon of retirement if you will?

Mike Lester (15:31):

Well, getting there is relative. So Kristen, we don’t work with individuals in their 20s and 30s and 40s. It’s not that we don’t like them. It’s not our business model.

Kristen (15:40):

Yeah. They can just save and save a lot. Advice done there.

Mike Lester (15:40):

That’s right. So its the Guarding Your Nest Egg radio program, because we help people who have already built their nest egg and now they’re either retired or contemplating retirement and they want to find out how to make that nest egg last throughout retirement and have their money work for them. Because literally when they make that transition from employment to retirement, the paycheck stop, the health insurance stops. It’s not a comfortable situation to be in if you don’t have a plan for it. And so week after week, we’re meeting with individuals who have questions like, “Hey, listen, I think I’m close to retirement. Can you let me know? Am I able to retire? Do I have enough money, have a set enough aside.” So we’ll put together a financial plan to let them know. If they’re going to come up a little short, we’ll tell you. “You’re going to come up a little short, work a little bit longer.”

Mike Lester (16:26):

But a lot of times, Kristen people are already there and they didn’t even realize it. And that’s good to know, “Hey, I could retire anytime. I want to.” Also, we’re talking to individuals that have already retired and they just don’t feel like, maybe they don’t have a financial plan. Somebody hasn’t done that for them because either they haven’t worked with a financial advisor before, or they don’t feel like their financial advisor is really a planning advisor. Maybe they’re not that active in the management of their portfolio. So there’s a lot of ways to look at this. But as far as small steps, I’d say, start with understanding your plan, your investments. I got a call yesterday from somebody that I’ve been talking to for awhile. And he said, “Hey, listen, I’ve been listening to your show for a long time. I just need you to take a look at the investments that I currently have, because I’m not entirely confident that the advisor I have now has set up the best plan for me, right?”

Mike Lester (17:17):

As a fiduciary, it’s my job. We’re going to review the statements. We’re going to go through everything. Guess what? If that plan works and it’s going to work for a long-term, my answer’s going to be, “Hey, listen, you’re in the best place you could possibly be. As a fiduciary, it’s my job to point you in the right direction.” It’s actually not. Legally, I can’t say, “Hey, no, no that stinks. You should come work with us.” I need a legitimate reason for them to come work with us. We have to be able to provide value. So we’re going to take a look at it. We’re going to do an analysis.

Mike Lester (17:43):

We’re going to write a financial plan, but it starts with understanding the portfolio and then getting a plan. Understand how much money you can pull out of your portfolio with running out, understand taxes, understand inflation, understand being more efficient in the portfolio. Kristen, this is what we’re doing on a daily basis for clients across the US. If you’re not a client and you just want some information, sit down for that complimentary planning and analysis.

Kristen (18:05):

So exactly how important will social security be to your retirement? According to a new simply wise retirement confidence survey, most Americans no longer believe that their monthly benefits will be enough to cover their monthly bills. Well, Mike, your clients don’t really have that mindset, but this is a national survey of people of all different ages. But it also goes to show that duh, we need more income streams besides social security. It is an important part of everything, but we need to use our nest egg to support our lifestyle when we stop working.

Mike Lester (18:36):

Absolutely. So it’s about income, right? Kristen. When I retire the paycheck stop. I got to depend on what I’ve set aside for retirement. And, I just got to hope that I don’t live beyond how much my money can work for me, right? If we knew exactly when we’re going to pass away, we could spend an exact amount and run out on the exact day and we don’t have that number. And frankly, Kristen, it’d be scary to know.

Kristen (18:58):

We’ve all heard the statistic that each day, 10,000 baby boomers reach retirement age. And yet a study recently found that only about 5,900 of them actually retire. Inside about that and more affecting your wallet.

Kristen (19:22):

Ron Wood of the Rolling Stones recently turned 73. Ron and his wife, Sally Humphreys have four-year-old twin daughters bringing his total kid count to six. And he’s 73. Okay, so interesting fact-

Mike Lester (19:36):

Is it weird that I would’ve thought it was more than six. Golly, I have four and I’m not even a rockstar.

Kristen (19:41):

Yeah, that’s not weird. In so many ways you’re not a rockstar. Mike Love you so much, but you’re too addicted to a calculator.

Mike Lester (19:46):

Not even close.

Kristen (19:47):

Now here’s something that’s interesting though. His wife, Sally, who is 41 is actually younger than Ron’s oldest child from a previous marriage. That is where things get interesting I’m sure at Sunday dinner, but again, rockstar problems that we do not have. Problems we do have involve our financial lives. Sometimes they’re are good problems. Sometimes there are hiccups that we need a little help with in AIG’s Todd Solash says, “Taking the time to design a good financial plan will allow you to focus on things that truly matter.”

Todd Solash (20:20):

It comes down really to two things. People want to spend time with their family and they want to do meaningful work, which isn’t necessarily what they did pre-retirement. But those two things really matter a lot to folks and having a financial plan will help you avoid worrying about that and instead you can worry about, “How much sugar did my dad feed to my kids and when do they need to come home to me?” And doing the kinds of things that they love.

Kristen (20:41):

Sugar did my dad feed to my kids? That’s already happening in your house, by the way, I know that. But moving on, how do you help folks in all the years you’ve been doing this, Mike, make sure that they’re able to relax, enjoy their retirement because I get nervous about money. I think most of us do.

Mike Lester (20:59):

Well, I mean the big word there was confidence, Kristen. So how can I be confident so that I don’t have to worry about it? It makes me sad when I hear studies that retirees are pacing, wondering where the money is going to come from and they’re afraid that they may run out of money. And again, I think that’s one of these more national polls and it might be individuals that didn’t get the opportunity to save for retirement. But regardless of whether or not you saved a little bit for retirement or a lot for retirement, you’re still going to worry about your assets, right? It’s just hard not to. “Am I in a situation where my money is going to last me the rest of my life, realizing that concerns like healthcare. What if I get a big healthcare expense, things can get problematic in the future. What about being able to travel I want to do, what about market volatility?”

Mike Lester (21:48):

I mean, there’s just all of these factors and components. And so what I’ve learned over the years, just life, just talking to people and putting together financial planning, and then seeing where people have run into trouble and seeing where people have succeeded. And just when it gets into the real life down to earth planning perspective, I tend to err on the side of caution a little bit. I don’t like to over promise because you run the risk of underdelivering, right? I’d much rather underpromise and overdeliver when it comes to financial planning process because that’s always a good conversation. And so, I tend to be pretty conservative when it comes to investing. I don’t want to set expectations too high because if you set them too high, then somebody’s going to get disappointed along the way.

Mike Lester (22:32):

We have long-term relationships with clients and just by virtue of doing a radio program, if people, Kristen, are listening to our radio program and they’ve gotten something out of what we’re saying, and they might say to themselves, “Hey, I kind of like what Mike and Kristen were talking about on the radio. I think I’ll give them a call.” The virtue of that, I mean, we tend to be pretty like-minded. So a lot of times the conversations that we’re having with individuals, we’re very similar on how we feel about things and that also helps the financial planning process.

Mike Lester (23:03):

So just getting back to being confident in your investments and getting confident in the financial planning process, it starts by, and I always have the fear of sounding like a broken record, but, Kristen it’s not that complicated. It starts with understanding your investments and that might be a complicated process, but understanding what your portfolio is likely to do for you moving forward is really, really important.

Mike Lester (23:24):

I’ll give you an example. Here recently, we’ve been doing a lot of, not all virtual you’re welcome to come to one of our offices if you want to. For most states things are open now. But we’ve been doing a lot of virtual meetings and appointments and I’ve been talking to a couple. And so the financial planning process there has been questions like, “Well, what if I was to go ahead and retire and take social security at the age of 66?” Because for them full retirement age is 66. And then, “But what if I was to wait until 70 to take social security? What does that look like from a financial planning process?” And I said, “Well, first thing we need to do. And again, if one of our listeners calls us up right now, this is the same process they’re going to go through. Let’s take a look at your current investments, right? And then let’s take a look at your objectives and let’s see if your current investments will meet those objectives for you.”

Mike Lester (24:15):

So we took a look at the current investments and they were about 60% stocks, about 40% fixed investments. And back to 2007 through current day, basically the average rate of return would have been 4.3% per year on a moderate portfolio. I think they felt like that average rate of return was a little bit low over that period of time. They would have liked to have seen a higher average rate of return, but Kristen, what they were more concerned about is over that same period of time, the biggest loss that portfolio would have experienced was I think it was 46%. I’m remembering back. It was about a 46% loss. So if I went to somebody and I said, “Hey, listen, I’ve built this great portfolio for you. It’s likely to average 4.3% per year moving forward, but you would need to be willing to lose 46% if we experienced another loss like 2008.”

Mike Lester (25:04):

What do you think they would say in retirement? I mean, they’ll look at you like, “No way, man. I’m not… That at 4.3, okay but I’m not willing to lose essentially half of my portfolio if we get another 2008, because I’m pretty sure the probability of getting one in the next 30 years probably happens. And frankly, I just can’t afford to lose that much money.” So then we do that and then we restructure the portfolio and we show them other examples. And we came up with some ways where, historically the average rate of return net of fees was higher, but also the risk was less than half the risk. And so that’s really, really important in the financial planning process, not just to be active in the management of the portfolio, which by the way is why the risk is lower.

Mike Lester (25:47):

It’s not hanging in there, but just helping people understand more about their portfolio. Because Kristen, then they get that confidence. “All right, listen, I’m working with somebody who’s a fiduciary that has a vested interest in me doing well.” Meaning, when our clients do well, we do well when our clients do poorly, we do poorly, but they’re also engaged in a financial planning process and they’re keeping me informed and we’re sitting down for reviews as often as I’d like. And by the way, I recommend at least once a year with your financial advisor. So that’s what it boils down to.

Kristen (26:14):

Mike, I think we’ve all heard the statistic that says each day, another 10,000 baby boomers reach retirement age. A peer research study found that only about 5,900 of them actually retire. That’s kind of interesting, but let’s talk about this whole retirement and saving for the future. It used to be pensions were the way to do that. Well, no, a lot of those people reaching retirement age have 401(k)s. So for you listening, how long has it been since you increased your 401(k) deduction at work? Money Magazine says despite the downturn, now would be a good time to do that. Is that something you agree with, Mike?

Mike Lester (26:48):

Well, I do. I mean, so downturns are opportunities if you take advantage of them. I mean, it’s generic, but go look at a stock market chart over the past 100 years. Which direction does it go? I mean, it’s up and it’s up for… Yes, there’s volatility. Yes, we have crashes, but when markets are down or going down and we have volatility, those contributions to 401(k)s are likely to turn into more money in the future. And essentially what happens as you’re making those contributions, you’re doing something called dollar cost averaging. If you’re making a contribution to your 401(k) on a monthly basis, you’re going to get the average price for that year over a 12 month period. It just makes sense. Kristen, I mean, for people listening that are in their 20s, 30s, 40s, yes. I would want to take advantage of it.

Mike Lester (27:30):

I realize might not be awesome for everybody. I’m saying that realizing a lot of people have lost their job, Kristen. So that’s, a different scenario here currently, but does it make sense if you have the ability? Yes. Now, Kristen, we talk to individuals that are typically retired or very close to it. That’s why it’s the Guarding Your Nest Egg radio program. And I want to point out something that’s really, really important, which is 401(k)s or 403(b)s, retirement accounts at work essentially and a very specific age, which is age 59 and a half. Not everyone that Kristen, most everybody, because very, very rarely do we find a situation where somebody cannot do what’s called an in-service distribution on their 401(k) account. Most people that are 59 and a half or older and choose to continue to work for their employer, I don’t care if you’re going to work until you’re 62 or 70 or 85.

Mike Lester (28:20):

You have the ability to not be restricted by the limited investment options in your 401(k) plan. 401(k)s are a great way to save but one of the issues with 401(k)s are limited investment options, not for everyone, but fees can be very high up to 3% per year, even though you’re not seeing them in your statement. And then also really no active management there in those plans. If you’re 59 and a half or older, most employers will allow you to roll the money out of your 401(k) into a privately managed account. It’s not going to be a taxable event. You’re not going to pay taxes to roll it to an IRA, but once you get it into a privately managed account, you have virtually unlimited investment options. You can get active management on the portfolio and frankly, Kristen, for a lot of people, they’re able to reduce the fees that they’re paying.

Mike Lester (29:08):

So if I can go from my current nest egg in a 401(k), 403(b) and move over into an actively managed plan, if I can reduce my fees, if I can increase my returns and if I can reduce my risks, regardless of how much longer I want to work, I’m going to be better off in the future. I mean, who doesn’t want higher returns, fewer fees and less risk? I mean, it just makes sense, particularly the closer you’re getting to retirement. So what I’d say is, yes, if you’re younger making more contributions, just if you’re still working, there’s an opportunity. But in particular, if you’re 59 and a half or older, and you want to what that inservice distribution looks like, if you want to know what the benefits might be to rolling that retirement plan over, just give us a call. We’ll walk you through the steps. We’ll do some analysis for you and then you can look at the numbers and decide for yourself whether it makes sense to do that in service distribution and take advantage of potentially higher gains and less risk.

Kristen (30:03):

Stay with us as we reveal some hidden taxes and fees for you to watch out for and find out how we should be reacting to what appears to be a market that’s on the rise again with Mike Lester.

Kristen (30:19):

We originally heard the song in 1965. It was the first hit for an up and coming 24 year old named Tom Jones. Time flies, Mr. Las Vegas, himself-

Mike Lester (30:28):

Does he sound older.

Kristen (30:30):

He’s 80.

Mike Lester (30:30):

That’s probably he didn’t… That’s probably not a 24 year old recording. He sounds older in voice there.

Kristen (30:33):

He does sound a little bit older. I mean, you go back to Danke Schoen and things like that. He sounded like a child because he was so young.

Mike Lester (30:41):

Got you.

Kristen (30:41):

But he’s still Mr. Las Vegas. I mean, you can’t take that away from that guy.

Mike Lester (30:44):

No you can not.

Kristen (30:46):

At 80 years old, I don’t know how active he is still. We’ll have to look that up during our next free moment here on the show, but really we don’t have any free time because there’s important information that people need to understand about their money. I mean, for instance, you listening, if you’ve checked your retirement accounts lately, yeah, they’re probably looking better these days than they did when this whole virus thing first hit. But Morningstar’s Christine Benz says that that doesn’t necessarily mean that the worst is over.

Christine Benz (31:13):

They have had such a tremendous recovery in stocks since March, that I think it might be tempting to assume that it will be off to the races from here. And I think the big risk in that is that there’s just still so much uncertainty out there. And so I think investors would want to be careful at this juncture about really backing up the truck for equities.

Kristen (31:35):

So Mike, in all of your years of helping people with their wealth, how do you think we should be reacting to what appears to be a market that’s on the rise again?

Mike Lester (31:43):

There was some kind of fear in there, obviously to use words like tremendous returns, which yeah, I mean, they’ve been great, but they weren’t great for people whose advisors told them to hang in there and they rode it all the way down. They haven’t even gotten back to even yet. So they’re not feeling great about the portfolios just yet and the whole off to the races are backing up the truck for. Kristen, yes there’s uncertainty. Absolutely. But again, when building smart portfolios and being active and management of those portfolios, it’s a different conversation than people who get on the media and just make blanket statements like, “Oh, gee whiz, this has come really far really fast. Maybe you should not get too excited about equities right now.” In my opinion, that’s assuming somebody who’s just going to go out, buy stocks with the assumption that they’re only going to go up from now and things should just be better, better, better.

Mike Lester (32:36):

We know there’s going to be volatility moving forward. We know things aren’t always going to be good, but if you can be… it’s referred to as tactical management. I like the word active. It just makes more sense, but if you’re active in the management of your portfolio, in essence, you’re being just more careful, you’re building a smarter plan. You could just look at the fundamentals and say, “Hey, listen, we had a very, very strong economy before this happened. It was a forced shutdown. Yes, unemployment is super high.” But post COVID the majority of those people I believe, and I agree with what we see from the president and the numbers, the majority of those people are going to go back to work. And the majority of those people are younger people who really, frankly, aren’t that worried about catching coronavirus.

Kristen (33:22):


Mike Lester (33:22):

So getting them back to work, I don’t think is that big of a deal. I think politics aside, the money is still going to eventually get there, although not as fast as it should. Dumping that much money on our economy pushes everything up. And so right now, and people ask me my opinion every week at the office, “Mike, what do you think?” Well, listen, I don’t want to look a gift horse in the mouth. If they’re going to dump all this money in our economy, and we know Trump is very pro-business and they’re going to push this thing, push this. I mean, yeah, it’s a political year and he’s got opposition that’s trying to screw it up for him. But eventually, this moves forward. “Where do I want to be?” I would bet on the market’s getting better because of all the money that’s funneling into the economy. Now, is that necessarily a good thing?

Mike Lester (34:09):

I don’t know that it’s a great thing that they’re funneling all this money into the economy. I think it’s a good thing short-term, Kristen, but what that says is short-term let’s take advantage. Will Christine Benz eventually be you’re right? Yes, she will. Things will eventually get bad. They don’t have a plan to pay for this yet. That’s what I’m afraid of. But when we’re working with our clients, what we’re focused on is average rates of return over a period of time. So if there’s an opportunity to make money and we want to take the opportunity to make money. And then if it looks like things are going to get bad and we got to move our clients into ultra conservative investments where they’re probably not going to make a lot of money, it’s better than losing money. And then we’re just looking at that average over a period of time. But if you sit on the sideline and make nothing, and then when markets crash make nothing, zero plus zero is still zero. T

Kristen (34:58):

That’s right? Good point. That’s math I understand.

Mike Lester (34:58):

I mean, they’re just math. That’s not going to help somebody in retirement. So I think there is an opportunity here. Again, you can’t afford to just be like, “Oh, I’m just going to invest and not worry.” It’s not invest and forget unless you’re 30 and our clients aren’t 30. A very tactical, actively managed approach to this situation I think makes sense. We are and we have been for the past couple of months, encouraging our clients and the people who visit us, and all you got to do is look at our shows a couple months ago, Kristen, we talk about this, participate. We think it’s likely to do well, but also we want to be active and help clients get out when it’s likely to do poorly.

Mike Lester (35:38):

And if you want more information, just understand your portfolio, what it’s likely to do moving forward, and the other thing, Kristen is the portfolio you had when this thing crashed, or it wasn’t a crash. We had a recession. It’s probably not the same portfolio you want moving forward. Things are different. Take advantage of… I mean, oil, for example, I don’t know why people wouldn’t want oil in their portfolio. It was a perfect disaster, right? And we talked about fear before. Perfect disaster for oil. Do you really think oil can be negative per barrel? Can it be really [inaudible 00:36:12]

Kristen (36:13):

Not long, yeah.

Mike Lester (36:13):

Not long-term. It can’t. So again, it’s speculative, it’s volatile, but if your advisor isn’t having a conversation with you about including it, I mean, even if it’s a small portion of your portfolio, to me it just doesn’t make sense, Kristen.

Kristen (36:26):

Obviously, many of us have been trying to support some of our favorite local restaurants by ordering food deliveries, picking it up sometimes as well. But there’s a bit of controversy with part of this, with the restaurant owners complaining that some of the delivery services Grubhub, for instance, has been adding hidden fees to the bill. Now it may not seem like much money on the bill, but what a lot of customers are getting really tired of is how it adds up. And they were not told in advance that those fees would be there. This has happened to me with grocery delivery services. So I can’t speak to Grubhub, but I need to know what the fees are because I get it times are tough. We might need to throw in a little bit more, but at least ask me or tell me.

Mike Lester (37:14):

To be honest, Kristen, I’ve never done Grubhub.

Kristen (37:16):

Uber Eats?

Mike Lester (37:18):

No I’ve never done any of it. I mean, they lost me when I learned that only about half of my French fry order would make it to my house because the delivery person would eat them on the way there.

Kristen (37:30):

That is not going to happen. But [crosstalk 00:37:33].

Mike Lester (37:34):

I’m pretty sure. This is going on all over… I mean, they won’t take a bite out of the hamburger because that’s obvious, but they will eat half your fries.

Kristen (37:41):

Oh, my God.

Mike Lester (37:41):

I was talking to a friend about this. I think that if you’re going to do that, they should staple it. You know how you go to a store and they’ll staple your order shut with your receipt right to it.

Kristen (37:49):

See, mine has always been delivered that way.

Mike Lester (37:51):


Kristen (37:52):


Mike Lester (37:52):

I don’t know. I haven’t done it, anyway. Maybe it’s okay, but let’s get back to fees. Yeah, I mean, nobody wants to be surprised by fees. I don’t mind paying for it, but I want to know what it’s going to cost me. I’d attribute to this, like when I get an estimate. I got to get some work done at the house, they sent me an estimate and I expect it to cost that much. I mean, I expect them to know what it’s supposed to cost to fix whatever I want it to be fixed. And then if they hand me a bill for way, way more than they told me the estimate was, we’re going to have a problem. It’s going to be an issue. And I guess we’ll just dial this back to financial planning.

Mike Lester (38:24):

I mean, you have to understand what you’re paying in fees on your financial planning. Things like 401(k)s probably costs you more than you understand, but there are a lot of advisors out there charging fees for services that frankly, Kristen, they just aren’t providing. They’re charging for active management, they’re not doing it. They’re charging for planning, they’re not doing it. We’re getting to the end of the program here today, but I just want to help people understand their money, how their money is likely to work for them moving forward and understand fees. Make sure those fees are as low as possible. So as we wrap up, I hope everybody’s out there staying safe and healthy, a lot of stuff going on nationally. It’s very sad, but hopefully that’ll come to an end here very soon.

Speaker 1 (39:03):

If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at 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 for more free retirement planning and investment resources. Thanks for tuning into today’s show and we’ll see you next time on the Retirement Wealth Podcast.

Speaker 1 (39:36):

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 make fluctuate and when redeemed, maybe worth more or less than originally invested.


Mike Lester

Mike Lester

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