Roth Conversions and What to Consider When Looking for a Financial Advisor

Mike Lester

by Mike Lester

Aug 24, 2020


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 (00:36):

Thank you so much for joining us this weekend. Today what you need to know about TDS, is it important that you like your advisor? Yes. But what other factors do you need to consider when finding the right financial advisor for you and what to consider with your 401(k) during this crazy economic time? That, and more coming up in just a few minutes. We’ve been talking a lot about how life is a little bit different right now, and Mike, for me personally, the biggest problem I’m having is comfort food. People are seeking things for comfort, we’re spending more time at home sometimes it’s…

Mike Lester (01:12):

Potato chips.

Kristen (01:14):

That, sometimes it’s more alcohol, for me it’s macaroni and cheese, ice cream, and my favorite thing that I never even realized, I ordered some online groceries. They didn’t have the bread I wanted. There was a substitution. I haven’t had wonder bread since I was 12 years old. It is the [crosstalk 00:01:30] best for… It’s so bad for me.

Mike Lester (01:32):

Grilled cheese sandwich, right?

Kristen (01:33):

Oh my gosh, it’s so good.

Mike Lester (01:34):

Is that what you were going to say?

Kristen (01:35):

Any kind of sandwich with wonder bread. Amazing.

Mike Lester (01:38):

Oh, it sticks to the roof of your mouth when you bite it.

Kristen (01:42):

I know.

Mike Lester (01:42):

You know what I mean? I don’t like that.

Kristen (01:42):

I feel like a kid and I dig it. I do.

Mike Lester (01:46):

Well, there you go for all the wonder bread fans out there.

Kristen (01:55):

What about you? Comfort food? What are you seeking? Or you’re not really as much of a comfort food person. [crosstalk 00:01:56]

Mike Lester (01:58):

Well, I hope I’m not the only one in this situation. I don’t think I am because I’ve talked to a few people, but I’ve been able to use a COVID as because I can’t go to the gym. It hasn’t been great. I’m not…

Kristen (02:09):


Mike Lester (02:10):

Yeah, I’m not working out. I’m 46 years old. I mean, let’s face it.

Kristen (02:15):

You got to keep moving.

Mike Lester (02:15):

Even though we do radio and I sit down with people, it’s kind of a desk job, Kristen. I’m not out there getting a lot of activity on a daily basis, so I hate working out, but it’s necessary. And now that I can’t do it, I’ve got this excuse to sort of not.

Kristen (02:29):

The quarantine 15.

Mike Lester (02:30):

Yeah, quarantine 15.

Kristen (02:31):

No matter how active you are, no matter if you’re an essential worker or not, it seems to be happening.

Mike Lester (02:36):

I’ve controlled the food intake, but I’m not happy with my flabby so. Not right now.

Kristen (02:43):

I feel you, I’m in the same boat. And you’re listening probably in a similar situation, you’re getting over it. You’re ready to get out and do some things and it will all happen in due time. There are some of us that are able to do a little more than others and grateful for that, but know that Mike and the team at Talon Wealth Management are here to help you, no matter what is going on around the world, around the country and in your life. They can help you however, you’re most comfortable. Reach out to them if you would like to find out details about a complete financial plan and find the office closest to you even schedule your complete financial plan at So Mike, a big question right now is whether this economic downturn might be a good time to consider a Roth conversion. Financial planner, Jeff Levin tells Morningstar that, that’s especially true for small business owners.

Jeff Levin (03:35):

When you’re looking at deciding how much to convert or when to convert, et cetera, the heart of good tax planning is pay tax, when your rate is the lowest. And unfortunately that is a lot simpler said than done. Income can fluctuate, deductions can fluctuate. If you’re a business owner and you’re going through this situation, your income may be dramatically different than other years. Similarly, we talk about tax rates and some people say, “Well, what if Congress changes the rates?” That’s another possibility too. So when you say pay tax at your lowest rate, there’s a lot that goes in there.

Kristen (04:08):

He’s saying it’s not always clear who should and shouldn’t consider a Roth conversion, but Mike that’s part of your process when you help your clients determine and put together a financial plan is you’re looking at issues like this.

Mike Lester (04:20):

Yes, Kristen, it’s a big part of the process. I mean, think about it, who wouldn’t want tax free income in the future? Obviously that makes a lot of sense and he just pointed out that if you are going to pay tax on your money and you don’t know what the rates are going to be in the future, because the government will change it over time. They’re pretty low right now. How do you know that they’re not going to be higher in the future because if you could do a Roth conversion today at very low rates and protect yourself from higher tax rates in the future, that might make sense for your situation. It gets pretty complicated, Kristen, in doing the math, which is why when we sit down for individuals and do the math for them, I do think it’s appreciated. There are a lot of questions out there about, “Well, should I do a Roth conversion? Shouldn’t I do a Roth conversion?”

Mike Lester (05:03):

I think with this downturn, well, it was a downturn now markets have been doing pretty well here recently, and I do think that we’re crawling our way back up, but for most people, their portfolio is still lower than it was back in February at this point in time. So maybe a Roth conversion is good for your situation. You have to take a look at how much you’re going to pay in tax to do the conversion, and then how much of a conversion should I do? So for those of you who aren’t real sure about what a Roth conversion is, basically you’re taking a look at your 401(k) or your IRA or 403(b), TSP accounts, the money you haven’t paid tax on yet. There’s no limit on the amount of that money that you can convert to a Roth IRA.

Mike Lester (05:45):

The stipulation is you got to pay tax on it to do that. So there’s a lot that goes into the math on certainly tax rates and how much should I convert? And is it really a longterm benefit to move from taxable to free? Kristen, no matter what? You got to pay the tax. The question is, is it going to be a benefit to you longterm? And that is a conversation that we’re having with individuals week after week, but it is part of the overall financial plan that we’re putting together. So when people come in and we do the analysis and planning for them, part of it is analysis of their current portfolio. We want to help them get as efficient as they possibly can. We don’t like the hang in there approach. I do think that people that are retired or close to it benefit more from active management of their portfolios, but the investment side of it isn’t the only component.

Mike Lester (06:28):

There’s also the income side. There’s also the tax side. There’s also inflation. So having that conversation about Roth conversions and whether or not it’s going to benefit you longterm is a big part of that equation. Again, for anybody who’s listening, if you’d like to have that conversation with us, it just takes a phone call, Kristen. Give us a call, we’ll find the time. We’ll do that analysis for you. We’ll do that financial planning for you. But I do think now’s a really good time to address this issue of Roth conversions because again, the tax that you’re going to pay, I know it stings a little bit that your portfolio is probably down from where it was, but if it’s down you’re paying less tax on the conversion. And then when the market actually rallies or goes back up, your portfolio or your account values are increasing inside a tax free account as opposed to a taxable account, and that’s really what we’re talking about this right now.

Kristen (07:21):

Mike, I’ve always heard that one way of dealing with market risk is to invest your money in a target-date fund. Obviously the idea being that the fund automatically reduces the amount of risk as we get closer and closer to retirement. Focusing in on that target. But Bloomberg says recent retirees are finding that those funds were a lot riskier than they realized. What are your thoughts overall on target-date funds?

Mike Lester (07:47):

Kristen, I’m not a huge fan. I don’t like the way that target-date funds address market volatility. They’re basically on one thing which is age, and so there’s this old rule called rule of 100 where you subtract your age from 100 and that’s supposed to dictate how aggressive or conservative you are in the portfolio. Now, the way that they’re doing this is when you go to invest in a target-date fund, they’re not asking how old you are before you do it, but they’re essentially implying that if your target-date to retirement is 2025, then maybe you want the 2025 fund. Or if your target date to retirement is 2030, maybe you want the 2030 fund. And so the closer you get to that target date, the more conservative these portfolios get. Sometimes people are making the assumption that the investments inside are going to be pretty safe if they’re getting close to retirement, but they didn’t get the opportunity through their 401(k)s or 403(b)s or wherever these accounts are offered.

Mike Lester (08:43):

They again, somebody told them or they just thought, “I’m getting closer to retirement, I should go to the account that’s based on that.” So it’s important to realize it’s not actively managed. The closer you get, the more they’re going to put money in bonds. Well, it’s probably pretty terrible place to be currently moving into bonds. Bonds haven’t done well in this market. Bonds don’t do well when interest rates go up. The interest rates right now are essentially very close to zero. We’re at all time lows. So if you think about it, if I’m going to target-date fund, that’s supposed to be helping me as I get closer to retirement and they’re pulling money out of equities right now, which probably isn’t a great time to pull out of equities. I realize there’s a lot of volatility, but if you’ve written this thing down, I don’t want somebody taking my money out right now and putting it into bonds because it’s almost like you’re out of the pot and into the fire kind of thing.

Mike Lester (09:35):

I had a bad situation, my equities and now because I’m closer to retirement, they’re going to move me into more bonds. And then when they move me into more bonds, if interest rates go up, my bonds get clobbered and it’s just a bad situation. And then people are taking more risks all the times than they realize. Bonds can be safer investment options, but not typically through these target-date funds because they aren’t using individual bonds that you can just hold to maturity to get your money back. They’re using bond funds and bond ETFs, that sort of a thing. So it’s not the same type of relationship and, Kristen, before I go too far down this wormhole in just funds and a target date and all of this, I think the bottom line is that it’s confusing and they are very, very common in retirement plans.

Mike Lester (10:23):

There’s a lot of people looking at the retirement plans right now, focused on retiring but wondering what’s their best situation moving forward. I would say a couple things, if you’re 59 and a half or older, definitely want to take a look at your retirement plan because you probably have a lot of options you’re not aware of. You don’t have to stick with only the options for most people inside that retirement plan, because at 59 and a half, most companies allow other options. The other thing would be Kristen, we know in this economy and with everything that’s going on, a lot of people have been laid off and hopefully that’s temporary. I think for most people it’s going to be.

Mike Lester (10:57):

But again, let’s say maybe you’re over the age of 50 and you’ve got a significant amount of money set aside in your 401(k) or other retirement plan, but you’ve been laid off, well, that’s also opened an opportunity because you don’t have to wait the age of 59 a half to make some changes in that portfolio. That’s called separation from service. So before I get too long winded here, what I would say is take a look at these retirement plans, make sure they’re efficient and we’re here to help you. It just takes a phone call.

Kristen (11:26):

Stay with us as we address a very important topic, what to look for in a financial advisor with Mike Lester of Talon Wealth Management. We’ve been rocking to school’s out for over 48 years now thanks to Alice Cooper. That last line right there, school’s out forever. That’s kind of what it feels like. I mean little did we realize Mike, but in 2020, all kids would be out sooner than we thought. Speaking of that with you having so many children at home, the brode of the Lesters, how…

Mike Lester (12:10):

So many.

Kristen (12:10):

Well, as an only child, more than two is a lot.

Mike Lester (12:14):

Okay, gotcha.

Kristen (12:15):

So four is a lot.

Mike Lester (12:16):

Yes. I mean, it depends on who you talk to.

Kristen (12:19):

Well, for me it is and I have no children of my own, but how is the homeschool been going?

Mike Lester (12:26):

For anybody who’s having to deal with it, it’s stressful. Obviously it was forced on all of us, we weren’t expecting it. Schools weren’t prepared for it and I think everybody’s trying to adapt, but it hasn’t been easy. I can speak as a father who sits down and goes through this, I don’t know. Well, let’s call it sort of a new curriculum with my kids. For starters, you certainly appreciate what teachers do-

Kristen (12:51):

Yes, that’s what I’ve heard from my friends.

Mike Lester (12:52):

… and their job and stuff like that. But at the same time, you also feel like the teachers were unprepared for this. I wouldn’t have expected them to be, you know what I mean? Nobody knew this was going to happen.

Kristen (13:02):

Heck, nobody was prepared for that.

Mike Lester (13:05):

Nobody was prepared. It’s not a knock on them, but it was kind of a wild moment. Like gee whiz. Nobody was prepared for it. I think that’s okay, but it’s messy, Kristen. I mean, there’s, I don’t know, weird stuff comes in. Here’s the strangest thing and I’ll end it with this, the way that you and I were taught in school, right? The way they taught math-

Kristen (13:25):

Oh, my gosh you knew math?

Mike Lester (13:25):

… and the way they taught something, it’s completely different.

Kristen (13:28):

I’ve heard about this.

Mike Lester (13:29):

Yes. So my kids will ask me to help them with their homework. You know, I’m a math guy. I mean, it’s fun. I look at the numbers and I can see the answer before I write it out, but then I’m trying to explain to them how to calculate the answer and I don’t know. We did long division, right? Pretty simple. I mean, most people know what that is. They don’t do that anymore. So I write it out on a piece of paper. Here’s the answer and my kids look at me like, “I’m crazy.” They’re like, “I can’t do that. That’s not how the teacher did.” “Well, how did the teacher…” I had a Google, not Google, but YouTube, what things are. Honestly, I don’t like it. I don’t understand why… I could get…

Kristen (14:08):

So a friend of mine that is a college professor [crosstalk 00:14:12] is now homeschooling her own kids, I should say and she said that truthfully, the new math, if we had started with that as kids, it is easier. And I’m like, “There’s no way this is easier. I’m so confused.” But you don’t know any different if that’s what you’ve always started with.

Mike Lester (14:26):

Well, is making it easier really better? I mean, sometimes maybe not.

Kristen (14:30):

Maybe not.

Mike Lester (14:31):

I don’t know.

Kristen (14:33):

So the struggle is real in the Lester household, along with everyone else who’s having to do that.

Mike Lester (14:37):

There’s a lot of frustration and there’s been some crying and…

Kristen (14:48):

From the kids or you?

Mike Lester (14:48):

Not from me, but some arguments. There’s been some yelling and some crying.

Kristen (14:51):

And I know we’ve got a lot of grandparents listening that have really been helping out with that too, because some mom and dads are still working and not able to fully focus on helping out with the homeschool. So won’t last much longer in one way or another, because school will be out for the summer. So we look forward to that. It seems like a lot of people are looking for financial help right now. It’s a crazy economic time. We all are. What should they be looking for in a financial advisor though? Well, it’s human nature to want to work with someone you like, but Michael Kitsis who publishes an educational blog for planners tells Morningstar that, that’s not enough.

Michael Kitsis (15:27):

I would caution people about framing it too much so I just want to make sure I like my advisor. Because frankly, if they’re going to give you hard advice, I actually hope you don’t like them sometimes. Sometimes that’s part of giving people hard advice they need to hear.

Kristen (15:40):

Now, Mike, I know you’re friends with a lot of your clients. Does it make it more difficult to have those hard conversations that are sometimes necessary?

Mike Lester (15:49):

I think it’s necessary Kristen? I mean, hard advice is one way, I refer to it as tough love. As soon as [inaudible 00:15:54] I love you guys. But part of being there to protect and help people throughout retirement and protect their portfolios is sometimes saying, “Hey, listen, I can appreciate you wanting to do that. If you do that, you’re going to run out of money and you’re probably going to run out of money right around here.” If somebody says, “I don’t care, I’m going to do it anyway.” Then that’s fine. It’s our client’s money.

Kristen (16:19):

It’s their choice.

Mike Lester (16:20):

But it’s their choice. They could totally do that, but it’s our job to be practical, to answer hard questions. I mean, this comes up. I had a client call me the other day. He came across a real estate thing, he wants to take advantage of and we did the numbers and it makes sense. Got some other clients looking to build another home. We looked at the numbers and it was going to be a little tough, right? Sort of longterm. It was going to put some pressure longterm on the portfolio. And we’ve had some tough conversations about that because it’s something that they would really, really like to do. But bottom line, you have to be willing to have those types of conversations with your clients. And you got to know as a financial advisor.

Mike Lester (17:00):

There’s going to be a certain amount of people, Kristen, who… Yeah, there’s people out there who, if they don’t like what you’re telling them, they’re going to go find somebody that tells them something that they like and that’s okay. But Kristen, that’s not responsible. You can always find a financial advisor that’s willing to get paid to tell you what you want to hear.

Kristen (17:16):

But that doesn’t really help you

Mike Lester (17:18):

It doesn’t really help you.

Kristen (17:18):

It’s like you went to the doctor and you know something isn’t right, but you just want them to tell you’re okay instead of running the test and trying to make you healthy.

Mike Lester (17:26):

Yeah. Well in a perfect world, it would be illegal to tell somebody what they want to hear to make a commission. But the reality is we wouldn’t run Talon Wealth Management that way, or even do our Reader Program that way, because eventually people start getting hurt and that’s not good for anyone.

Kristen (17:41):

Mike, for many years we’ve heard that we should have enough guaranteed income to cover all of our expenses when we stop working and then any other money would be available for discretionary spending. But the only form of guaranteed income most people have, I think is social security. And the Bureau of Labor Statistics says that, that really only covers about a third of our expenses. So what other income streams really should we have?

Mike Lester (18:08):

Well, I like the idea of it’s a feel good thing to have guaranteed income-

Kristen (18:12):

Yes, it’s going to be there. I love that word guarantee.

Mike Lester (18:16):

… it’s going to be there, but we have to be really, really careful with this because, Kristen, what we see in advertising and what a lot of advisors are… we call them the annuity slingers that are out there. The solution for everything is an annuity and sometimes they’re using… I mean, there’s variable annuities, fixed annuities, fixed index annuities. The whole annuity thing gets very, very confusing, but a word that’s used a lot is guaranteed. Guaranteed income, guaranteed, guaranteed, guaranteed. And particularly what we’re seeing right now with some advertising with this volatility in markets, there are some advisors trying to, for lack of a better word, take advantage and sell more annuities. Well, can an annuity provide you with guaranteed income for the rest of your life? Well, the answer is yes.

Mike Lester (18:59):

That’s one of the things that they can do. The issue is what about things like inflation? What about taxes? What about actual growth in the account? There’s just so much more that goes into it. So we want to be really, really careful when it comes to anybody using a word guaranteed, because one of the things about guarantees with regards to annuities while it’s guaranteed by the claims paying ability of the insurance company. Well, if you have a 20, 25, 30, even more your life expectancy, it’s hard for me to use the word like guaranteed. I don’t know that insurance company’s going to be around for 30 years.

Kristen (19:33):


Mike Lester (19:33):

I mean maybe, but maybe not. But again, we want to do responsible financial planning. We want to take a look at certainly the investment part, the income part, but we have to take into consideration inflation and taxes and everything. I just think it’s important for anyone who’s looking to put together a financial plan and be able to survive retirement, maintain their current standard of living is to look at all of the options. Because if the annuity is trying to push an annuity on you and they’re talking about guarantees, red flags I think are going to go up for most people because it’s going to sound probably too good to be true, and that’s what you need to get that second opinion, which is why we do our new stress test.

Kristen (20:11):

And stay with us as we discuss how this whole virus could actually hurt our 401(k)s in a big way and financial regrets to avoid. Back in 1976, Paul McCartney and Wings performed in the US for the first time opening a concert tour in Fort Worth, Texas. And that was one of their hits Band on the Run. Mike, my first concert ever, I’m part of Gen X was Paul McCartney and Wings actually in Berkeley, California. Big, first concert. Hard to follow up with anything else after that. So I have huge concert expectations in my life.

Mike Lester (21:05):

Your parents flew all the way from South Carolina to California to hit a… well.

Kristen (21:09):

Yeah, okay. Number one, we were there to vacation all over California, see family and things like that. And Tahoe, the whole deal went all over and then Paul McCartney happened to be sort of nearby and my parents kind of free spirited fun traveling folks. So that was my first concert, probably age 10-ish.

Mike Lester (21:31):

I didn’t even know. I’m not going to…

Kristen (21:33):

Really cool parents in my opinion.

Mike Lester (21:35):

That’s pretty great. I mean, took advantage of a good opportunity for sure.

Kristen (21:41):

Yes they did.

Mike Lester (21:42):

Why are you in California to start with not to get off topic, and this was a long time ago [crosstalk 00:21:46].

Kristen (21:46):

Just vacation. My mom was a travel agent and we would travel all the time. And at this time I lived in South Carolina, like you said, and decided to do Tahoe and some other places and have some family outside of Sacramento and visiting them and just traveling and why not taking a concert at the same time?

Mike Lester (22:05):

Okay. Sounds good. All right. Right now I’m trying to, Finn’s, the three-year-old has a new favorite song. Not by a Paul McCartney or Wings, but it’s a Elton John one and if I play it, he’ll just scream the lyrics. It’s kind of cool to see.

Kristen (22:21):

But you’re raising him right with some good music. I like that.

Mike Lester (22:23):

There you go. Yep.

Kristen (22:25):

Well, I’ve had a little time on my hands lately and I checked in with a few families I know across the country and asked them a sort of loaded question, Mike. If they had known that this financial crisis was coming, what would they have done different if anything, with their money. And here’s what they had to say.

Speaker 6 (22:43):

I would have started saving and investing at a much younger age, which is exactly what we’ve been telling our 20 something sons to do by the way. And just maybe knowing what I know now, I would have invested in companies that make toilet paper.

Speaker 7 (22:58):

So if I couldn’t do it over, I would have tried to liquidate any investments before the 21st of February, wonderful 2020 hindsight. And then I’d be in a position now to be buying stocks at incredibly low prices.

Speaker 8 (23:14):

We definitely dodged a bullet. We actually had contractors out to give us some estimates on pretty significant addition. So we were going to refinance the house and put money towards that. I’m actually quite glad we didn’t do that for financial aspect and I think I probably would have dragged the project out for a good bit of time.

Speaker 9 (23:33):

When the downturn first began, I did check my funds and kind of freaked out a little because it was such a sharp decline. So I have not looked since, and I don’t plan on looking anytime soon.

Speaker 10 (23:44):

If I had known then what we all know now, I would have tried to remember the words of Warren Buffett, the last time the market crashed. When he was told that he lost a billion dollars that day, his response was, “I wasn’t going to spend it today.” It’s easy to be flippant when you have a few more billions to spare, but the advice behind the comment is sound. The economy is basically strong and this too shall pass.

Kristen (24:09):

So Mike, that last friend, obviously a former radio colleague, you could hear it in his voice. Couple of different perspectives. But overall, I’m not going to look at my statement anymore. That’s kind of scary and she’s near retirement. The last guy who I used to work with saying, “It’ll bounce back. It always does.”

Mike Lester (24:28):

Sure. Referencing Warren Buffett there. Here’s the thing, depending on your situation currently and nobody feels great about certainly COVID, but if you’re retired last year or five years ago or 10 years ago, and you’re taking a look at your portfolio, you’re invested in markets because you believe certainly longterm. The average rates of return are higher than just going to fixed interest rate investments. That’s not hard to believe when we take a look at, what’s the most you could get at the bank? Maybe one and a half percent. Kristen, that’s not going to take care of anybody adjusted for inflation and taxes moving forward through retirement. So people have been looking to markets and we’ve seen it in our business, we’ve seen it in the radio show and when things are going good, people tend to be pretty laid back. It wasn’t hard to make money in the market over the past 10, 11 years because markets kept going up.

Kristen (25:16):

No, I mean, my cat could have done well. It’s not…

Mike Lester (25:19):

If you were participating, you’re doing well. And then a hindsight, because of there are a lot of people sort of saying, “Hey, hindsight being 2020, if I had known this, if I had known that…” well, of course we say that every single time, Kristen, but nobody’s ever going to have 2020 hindsight, that’s not going to happen. So we need to be smart in my opinion. So we want to build smart portfolios. We want to be active in management of the portfolios. We don’t want to get lackadaisical about, “Well, hey listen everything’s good. Everything’s going up.” Kristen, my message would be the same if markets were still going up, which would be, do an analysis of your portfolio, make sure it’s as efficient as a composite really be. Because just because you’re doing well in the market, doesn’t mean you have an efficient portfolio. You might be doing well, but taking way more risk than you have to take. You might not be doing as well as you should be for amount of risk that you’re willing to take.

Mike Lester (26:09):

So it goes into that. Okay, now we’re looking at things a little bit differently in the past couple of months. We all wish we had had a crystal ball and we knew this was going to happen. Kristen, there weren’t models that were built that said, “Hey listen, when we get an international pandemic, when basically every single country shuts down, this is what happens.” It’s never happened before. That’s the way the math works with algorithms and manage money. But we can build portfolios that are responsibly safe, meaning, well hey listen, we know who our clients are, which is people that are retired or very close to it. We know what they’re looking to accomplish, which is a portfolio that helps maintain their standard of living for the rest of their lives no matter what happens in markets, and then we know how to build responsible portfolios. And no matter whether or not we get a pandemic or we don’t get a pandemic.

Mike Lester (26:52):

I mean, this is pretty unique, but what I would say is I just want to encourage individuals, whether it’s your 401(k), your IRA. If you’re wondering what that experience would look like to work with an investment advisor, well, there’s plenty of them out there. But I would encourage you to work with somebody who has a vested interest in you doing well. We are fee based advisors. We’re fiduciaries, it’s our job to build portfolios that are as efficient as they can be for our clients. We’re actually legally bound to do that. There could be 10 investment options, all of them that might accomplish your goals. We need to help our clients find the most efficient option on those investment options otherwise we’re not meeting that fiduciary standard.

Mike Lester (27:28):

So going back to these examples, I realize there’s people out there that wished that maybe they could have done things differently, but I would say, listen, take a very close look at your portfolio, understand what it’s likely to do moving forward. That’s a conversation we can have with you. We want to help people get more efficient. If you want us to help you, give us a call.

Kristen (27:47):

Many companies that offer 401(k)s will often match a certain percentage of their employee contributions. But the Motley Fool points out that some companies are now being forced to eliminate those matches due to the economic downturn. So if that happens to someone listening, Mike, should they cut back on the amount that they’re contributing?

Mike Lester (28:07):

Kristen, I think that first of all, it’s legitimate and I mean, if companies are struggling, they are probably going to cut back. That would be one of the ways that they could save money moving forward, and it would be legitimate to not want to have a concern. I mean, that’s one of the big advantages to working for companies is if they’re willing to match your 401(k) contributions. There’s limits to their contributions, but like we’ve said on the program over the years, that that’s free money. So if your company is willing to match your contribution, even if the 401(k) or 403(b) or that retirement plan, even if it’s not technically the most efficient option, and by that, I mean, they don’t offer many investment options, fees, employers can be expensive. You don’t see it on your portfolio, but if you start doing the math, there’s an administrator.

Mike Lester (28:50):

There’s a lot of people getting paid to manage and administrate these retirement plans for corporations. So it’s not necessarily the most efficient investment out there, but if they’re going to hand you free money, you might as well take it. Now that changes quite a bit. If you’re working for a corporation that says, “Hey listen, we’re going to suspend our match on your contribution, then I take a pretty close look at it, Kristen, because why would I put money into something that’s going to be taxed at my maximum tax bracket later?

Kristen (29:20):

Right. It’s true.

Mike Lester (29:21):

Why would I put money in something that might have fees higher than other investment options that I have? Why would I put money in something that has fewer investment options that are available outside of it? So Kristen, there can be reasons why you would make contributions to 401(k)s, even if they aren’t offering a match, but you do want to understand you’re doing it. It’s so easy to get caught up in this process where the contributions are automatic. When you sit down with a human resources officer and they ask, or you go online but they ask you, “How much do you want to contribute to the retirement plan every single year?” And maybe a while ago, you said, “Well, I want to contribute this much because then I get a match and that’s free money. Well, if that’s changed for you, take a close look at it. But Kristen, I don’t care. We’ve talked about 401(k)s a couple of times on today’s program.

Kristen (30:08):

Well, they’re one of the most common ways that people save for the future.

Mike Lester (30:11):

That’s right. One of the most common and so 401(k) if it’s corporation, but other people have 403(b)s or TSP account, state retirement, that kind of a thing, there’s a lot to look at and we want to make sure we’re as efficient as we possibly can be. So a couple of reminders that we want to remind people of, if it’s an employer plan, typically the investment options are limited. That’s not necessarily a terrible thing, but you want to know what your options are, because if you can have less limited investment options, that’s likely to help you moving forward. Employer plans typically aren’t actively managed. So they typically don’t issue you a financial advisor that’s going to give you advice along the way and make recommendations like, “Hey listen, I think you should be in the market or out of the market. Or I think you should have this allocation or that allocation.”

Mike Lester (30:52):

Usually you’re on your own, and that’s just a part of it. A lot of times the fees, even though you don’t see them or higher on those plans. If we put all of that together, Kristen, all we’re looking to do is help people be as efficient as possible. So if you’re over the age of 59 and a half, I want everybody to know you probably have a lot more options than you realize, and you probably don’t have to stick with that employer plan. All right? That also means you’re probably close to retirement. So it would be a good thing to look at your options. If you’ve been laid off, listen, you’re probably, in these times, you’re going to have a lot of options available to you that you didn’t have before. It’s still your nest egg. I really should probably going to want to add to it later, but take a close look, do some analysis there.

Kristen (31:32):

And don’t go anywhere as we pay tribute to a guy who was a major member of the one-hit wonder club and discuss how you can prepare for another major market downturn during your retirement, besides the one we’re going through right now. Are we fortune tellers and guaranteeing that, that will happen? No, but you have to be prepared for that what if next with Mike Lester.

Kristen (32:02):

A novelty song, Gimme Dat Ding released 50 years ago, back at 1970. Those of you listening that are baby boomers, you remember this one-hit wonder. It’s credited to a group called The Pipkins. The song was actually the work of singer Tony Burrows, who was a one-hit wonder five different times throughout his career. He’s saying…

Mike Lester (32:23):

That sounds like a five-hit wonder.

Kristen (32:25):

A fife, a one… Yeah, you’re good at math, I’m not. So we should have gone with you there on that one. He’s saying, “Love grows where my Rosemary goes. My Baby Loves Lovin, United We Stand and Beach Baby.” All of which were hit songs for different groups. Fun fact, as we’re trying to distract ourselves from all the craziness that’s going on in the world and keep things as normal and fun and positive, as interesting as possible. For the third time in the past 20 years, the market has thrown retirees and potential retirees, a crazy curve ball. Now, Mike, for someone listening today, who’s in retirement for 25 years or more, that’s pretty common. How can you help them survive a repeat of what we’re experiencing right now? I’m not trying to be negative, but these things happen. We can’t predict them. It could happen again while they’re retired.

Mike Lester (33:17):

Well, it certainly could. Kristen, I think it will. Not that it’ll be corona again, not that the entire world will shut down at the same time. This is a very unique situation. I also think that governments around the world are coming up with unique solutions. We’ve never seen a scenario where governments around the world are going to throw this much money at a problem. So, that’ll be interesting moving forward. But yeah, last time that we had anything close to this would have been the financial meltdown back in 2008, that lasted all the way until early 2009. That was very, very difficult for individuals watching their portfolios drop 20, 30, 40 some people 50 or 60%. And now we’re looking at this again and it’s for completely different reasons. We came at this with a very, very strong economy and then suddenly, that’s where this curve ball came from.

Mike Lester (34:08):

Like, wow. Okay. So Kristen, I think it’s too late to say, “I wish I would have done something differently.” At this point in time, we want to take a look at our portfolios and come up with plans for things like, well, what if this happens again? So at this point, I think we want to look at markets. I believe they’re going to do well, but make sure your portfolio is positioned in a way to help you do well in these conditions. It’s a new normal. There are certain companies right now. I don’t know, pick one just to contrast for people Kristen, like Johnson & Johnson, everybody knows who Johnson & Johnson is. They’re trading as high as they’ve ever traded. And if you didn’t own Johnson & Johnson or track Johnson & Johnson, you might not know that. But they haven’t done poorly at all. They’ve done very, very well and there’s some medical care-

Kristen (34:55):

There’s medical care, I guess I get that.

Mike Lester (34:55):

… and there’s some speculation that they’re in line to maybe have the vaccine for corona. Well, I’ve got nothing against Johnson & Johnson, but at this point in time, if I’m looking at all of my investments and I’m going well, “Which ones do I think potentially have the highest growth rate?” I might want to try to find companies that have been really beaten up by this, right? Not necessarily companies that have benefited from it over this period of time. And so no matter what’s in your portfolio, and again, don’t take the Johnson & Johnson and the wrong way. I’m not saying get rid of Johnson & Johnson, I’m just using the analogy here.

Mike Lester (35:27):

Understand what you own, understand where it’s been, how it got to where it is today and what it’s likely to do moving forward based on this new normal. If you’re not taking a look at your portfolio, whether it’s that 401(k) the IRA, or if you’re not working with an advisor, that’s saying, “Hey, listen, let’s have a conversation about this. Let’s let’s update what you’re doing. Let’s adapt to what’s going on.” I think you’re going to get left behind. It doesn’t mean that things are going to be awful moving forward, but we have to take these things into consideration. So back to your original question, which is, well, how do we keep this from happening again? Well, Kristen, it will happen again. It’ll probably happen several times, not corona, but market crashes happen on average, I think about every seven years and you just have to plan for it. Have a plan.

Kristen (36:13):

So how do we do that? That’s my question because you’re right. How do we keep this from happening again? Can’t control that, but how do we make sure that we are ready for when this happens again, if we’re already retired?

Mike Lester (36:24):

I think it starts with active management of your portfolio. So we were talking before, even the show today about some people… Actually I think we did it on the Man On The Street segment there. Nothing it’s women on the street.

Kristen (36:35):

I love that you pointed out [inaudible 00:36:37], why isn’t a women on the street? That’s trying to win points with me. I know that. I’m even the one that put it together with my friends. It’s still Man On The Street. Anyway, continue.

Mike Lester (36:45):

Why can’t it be women on the street, Kristen? I just don’t know. But a point is individuals talking about these issues and wishing they had more information and not wanting this kind of hang in their approach. So being more active in management of the portfolio is a start to answer your question. Hang in there is, okay. I think it works better for people in their 20s or 30s or 40s. Kristen, I don’t typically talk to people because our clients are individuals that are retired or close to it. They certainly want market’s gains. They’re not willing to take a lot of risk to get it. So we’ve got to be careful there. And so moving forward, what do we do? Well, find a financial advisor that’s willing to work with you and it doesn’t just tell you to hang in there when things get bad. But also ask them to answer some tough questions.

Mike Lester (37:29):

What is it that you do for your clients? How is it that you do it? You say you have active managed portfolios, are you going to help me actively manage my account? How is it you’re going to do that? Because it’s one thing to say, you’re going to do it for people. You need to be able to back that up and Kristen, I certainly feel that we do. Markets don’t always go up. So our client portfolios don’t go up every single day. But we are partners with them in their retirement. And we do take active management of the portfolios very, very seriously. Again, it just starts with an understanding, it starts with a financial plan, and basically what we’re doing every week is just inviting people to give us a call and we can start that process for you.

Kristen (38:06):

Ever since the market started going crazy months ago, I’ve noticed a lot more news stories and conversations about annuities. One article in the streets says that stocks, yes, they give you bigger returns, but at a greater risk. And annuities give you smaller returns without the risk. Does that sum it up accurately, Mike?

Mike Lester (38:25):

Well, I think we’re summing up returns accurately. And for anybody who’s retired or close to it, the return is going to be a really, really important component of their overall financial plan. So again, if somebody’s talking about annuity and they just over simplify it by saying, and I’m talking about a fixed indexed annuity here. I’ve heard people explain that as well. “Hey listen, if you invest in this you get stock market participation. In other words, stock market gains with no risk of loss.” And if they just leave it at that, it would seem like, gee whiz why wouldn’t I do that? If I’m I’m getting the gains, I’m not getting the loss. It’s the fine print, Kristen, in that really, really big contract that you get, if you agree to an annuity contract and it would say things like, “Well sure, you’re not going to lose money but the amount of participation that you’re getting in those gains is limited, right?

Mike Lester (39:11):

It’s capped, or there’s a fee through margins or spreads. It’s all legal lees and it’s extremely difficult for individuals who aren’t familiar with annuities to read. And what it boils down to is, a fidelity had done a study a while back and they’d looked at average rates of return on these fixed index annuities and the lowest over, they did 10 year rolling periods and the lowest over that period of time was a 1% average rate of return and the highest I think was about 2.8. Something like that. So here’s the deal. If somebody’s telling you to start market participation, no risk of loss and it sounds good, great. What about just telling you best case scenario, you’re going to average 2.8% of your money.

Mike Lester (39:53):

Would you still be interested to lock your money up for 10 years at that rate? I think the answer for a lot of people’s no, right? If I said best case scenario 2.8, worst case scenario 1%, but you got to lock your money up for 10 years. You only get 10% access to it. Do you want to do that? And again, no. So Kristen, it’s the language that’s used. Is an annuity appropriate for a portion of somebody’s portfolio? Maybe I look at it more and I’m talking about fixed indexed annuities here, or just fixed annuities, maybe more of a bond alternative because they’re not real attractive right now.

Mike Lester (40:25):

But please be leery of anybody who’s pushing annuities. This is what you need, this is what it’s going to do. It guarantees you this, that, or the other. A lot of times the guarantees that they’re talking about, maybe aren’t what you think they are. And we just encourage people as we wrap up today’s program to, whether it’s financial planning, whether it’s an analysis of your current portfolio, or if you currently have an annuity or somebody is pushing one on you, just get the facts. We’re helping to do that. We do financial planning complimentary, we do analysis complimentary, and we’ll even do what we call our [inaudible 00:40:53] test complementary.

Speaker 8 (40:56):

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 in to today’s show and we’ll see you next time on the Retirement Wealth Podcast.

Speaker 8 (41:29):

Exposure to ideas and financial vehicles discussed should not 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.

Mike Lester

Mike Lester

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