Dwight and Mitchell answer questions from listeners on this week’s show. Will social security keep up with inflation? How do you generate income during retirement? Also, what is the best way to make withdrawals from your retirement accounts?
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6.16.23: Audio automatically transcribed by Sonix
6.16.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Producer:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Producer:
Welcome to Retire 360 with your host, Dwight Mejan. Dwight is a licensed fiduciary and financial advisor who always places your needs first. Dwight works hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for. And he can help you, too. So now let's start the show. Here's Dwight.
Dwight Mejan:
All right. I want to welcome everybody back. My name is Dwight Mejan. I am your host of the Retire 360 show. Right alongside me here is Mitchell Keiser. I have the privilege of working with my son in law. It's a great relationship. Glad and honor to work with him as well as our good friend. As we've come to appreciate Sam Davis here in the background, our executive producer. But glad to be with you here for another spot during your week. We always love the time that you take to spend with us. And I'm really excited, Mitchell, about our program today because it's an opportunity that we have to address questions from our listeners, and that's the opportunity that we have today, is one of the key segments that we're going to go through. We've had a lot of contact recently. We had another event this past week that we were able to do on a popular topic we talk about on this program a lot. Taxes and retirement had a full room, didn't we, Mitchell And how are you doing?
Mitchell Keiser:
Oh, yeah. Hey, Dwight, and hello to all of our listeners. I'm doing well. Like Dwight said, we're coming off the heels of a pretty busy event here at Sandhills Community College for our High country listeners. That is in Moore County. It's the biggest community college. So yeah, we had an event there this past week, so just meeting with people, answering questions. We've had a lot of really great questions come over the radio and we're going to get to address some of those today. So I'm looking forward to that. And just a reminder, as we go through information, if you guys have questions, please feel free to reach out to us. We'd be happy to go over that. If it's not by radio, we could go over it with you by phone. That's how we answer most of our questions. But I think we've got between like four and six today that we're going to go over. We just kind of picked the ones that, you know, we've been getting the most. So if we had like five of the same question, we're just going to go over that in case you guys are thinking the same thing. But I'm looking forward to it. And we've got a lot of other great stuff to unfold today.
Dwight Mejan:
You know, Mitchell, we talk about this at our events. I asked the question is, what's something that we can't get back? And right away it comes to most people's mind is time. And that's correct. You can't get time back, certainly in the business world always ask what's time and time equates to money and then ask people what is money? A little more of a nebulous question there because people have different answers. A lot of people say freedom. We always say your money represents choices. The more of it you have, the more choices you have. And at the end of the day, it's not just about how much you make or how much you save, it's how much you keep. And we have this little lurking enemy called the IRS. And that's one of the fun things that we get to do is talk about strategies for our clients that they could implement even while they're still working and even when they retire. So they're not giving all of that hard earned money away in retirement to the IRS. What we want to help you do, it's a goal on this show is we want to help you win with your money. So just want to welcome all of our first time listeners. Perhaps you're in the car today driving or maybe you're just doing some chores and lounging at the house.
Dwight Mejan:
But we're going to hop in here, get into some great topics, but if you are new to the show, just want to direct you to where you download podcasts. If you like what you hear today, you can catch up on some previous topics and things that we've addressed. You can go to anywhere you download podcast, podcasts and go to Retire 360 in the search menu and you'll be directed right to our our channel there. We also have a YouTube channel. You can go there and just type in, Retire 360 and find us there as well. Don't hesitate to call us. We'd love to hear from our listeners. You can reach out to us during this show, during this time, anytime during this segment. Not saying we'll be there to get the call, but we will return the call. You can call us if you're in the Pinehurst area. Our company here is 360 Capital Management. And our phone number here, if you're in the Moore County area, is (910) 235-0812. If you're up in high country in the mountains, in the Boone Banner Banner Elk Blowing Rock it's (828) 278-7814. So we're going to jump in but for our listeners don't want to forget to tell you if you want to get in touch with us. We have a new free report that we'd like to get into your hands on tax free investments for a better retirement.
Dwight Mejan:
So we've got some ideas there. We've put together a little report. So if you like the idea of tax free investments, just reach out to us at one of those numbers I mentioned. We'll give them to you along the way during the show or you can go to Retire360Show.com and you can just go to the little tab and click on that and just mention to us that you'd like that and we'll put that in your hands. So just a little overview of today's show. We're going to get to the quote of week here in just a minute from Mitchell. We're going to take the questions from our listeners. Many of you have reached out to us through that website or you've called in and we thought the questions were so relevant, we wanted to get them out to everybody. So we're going to talk about that. We're also going to address misconceptions about Social Security. We're going to bust some myths and educate our listeners about that. And then we're going to also finish up with options for funding retirement outside of your employer's retirement plan and how you can get started with that. So, Mitchell, you got some wisdom for us. We'll share that with our listeners.
Producer:
And now for some financial wisdom, it's time for the Quote of the Week.
Mitchell Keiser:
We got some wisdom brought to us by James W Frick and that is, Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are. I got to tell you, Dwight, when I was reading that and reading a little bit about James Frick, it made me think of this pastor that I used to have, and he used to say, If you're wondering about where your priorities are, where your motives are, take a look at your bank statement that'll tell you everything you know, see how much you're. See what you're spending. See what you're spending it on. How much are you tithing? I know we've got a lot of listeners coming out of church today. If that's not your style, it's still applicable. It's still transferable to how you spend your money. But that is a very true statement. If you just take a look at how you where your money goes, it kind of shows you where your life is going.
Dwight Mejan:
So absolutely.
Mitchell Keiser:
And I also want to just touch on real quick before we start to hop into some material for our listeners up in High Country, we are going to be doing our next class on taxes in retirement at the Watauga County Library, and that is going to be on July 20th, which is a Thursday. And on July 21st, which is a Friday, again, that's going to be at the Watauga County Library there in downtown Boone. And on Thursday, it's going to be at 6:00. And on Friday it is going to be at 11:00. If that is of interest to you, give us a call. We can save you a seat. And our phone number, if you want to save for that is (828) 278-7814.
Dwight Mejan:
And it's free. Better yet, right?
Mitchell Keiser:
Best things in life are free.
Dwight Mejan:
Yeah, pretty much so. Hey, we're going to jump right in here and came across an article this past week. I just wanted to share a little excerpt from it. The title of it was The Anatomy of a Recession, and it was an update from Franklin Templeton Investments. It was basically an interview between their head of economic and market research at Clearbridge Investments. His name was Jeff Schultz, and he was being interviewed and thought he brought out a point that was just jumped off the page to me. We talk a lot about whether or not are we going to see a soft landing, you know, with this economy. You know, the Fed's did a lot of tightening over the last year plus with interest rates. They claim they're done, but they still want to see some of the data coming out as to whether or not they raise rates more. But right now, there's this this market is pretty exuberant, to say the least. Right now we have the S&P up a little over 14% as of this recording of this show. But interestingly, the the Dow Jones, which is measuring 30 companies, large cap companies, the Dow is up about 2.7, 7% compared to the S&P. And, you know, I've kind of watched those two indexes, obviously, on a daily basis, like many of you. And the question that was posed to this, Jeff Schultz, is, you know, what do you think about this US equity performance as of late? You know, what's your take on the economy? And he brought up an interesting dynamic that was going on here.
Dwight Mejan:
And one of the things he talked about was, you know, typically when the Fed goes through the first, you know, rate hikes that they had about a year ago and they just ended what they hoped to be the last of those, there's this period of cheers that's going on right now because the Fed's done with that tightening cycle and there's really no clear indication that there's a recession yet. So there's a lot of positive momentum right now. And a lot of times there's a there's a lag in the outcome of this type of cycle that we're in. And what he said, Jeff Schultz, was he said there's a really he said this rally could continue for about another month or so. But he said there's a very different experience between what we've seen in the overall S&P 500 index, which is what's called market cap weighted and the equally weighted version of that same index. And what he said was the difference in performance is the starkest that we've seen since the late 1990s. And when you look at it, he said of that 14 plus percent that the S&P is up this year, five of those 500 companies, Are you listening to this? Five of those 500 companies? I'll just ask Mitchell and I'll bring Sam into the picture. Didn't even mention this to Sam prior to the show. What percentage of the total return of that 14 plus percent do you think those five top companies, market cap weighted, have made up of that? Yeah. Any idea? Mitchell I'm going.
Mitchell Keiser:
To say 50%.
Dwight Mejan:
Okay. I want to ask Sam, our executive producer. Sam, how much do you think of the total 14% plus that we've seen year to date? Have those top five companies delivered? Okay.
Producer:
I'm going to go a little bit less than Mitchell. I'm going to go 40%.
Dwight Mejan:
Okay. Surprisingly, 85% of the indexes. Holy cow. Total return this year has come from those five companies, which means the other 495 companies have only delivered right at 2% or so. It's a little less than that. So less than what the Dow has done at 2.7, 7%. Those four those other 495 companies have delivered less of that gain. So just something to be cautious about. Hey, we you know, we hope as well, we see a soft landing and we can escape this from, you know, without being scathed any worse than what we saw last year. And we can kind of make that soft landing. But he went on to say in this article, I don't want to go spend too much more time on this. But he went on to just say that this could be the last leg that this market is standing on. And what's propping a lot of that up right now is some of the movement we're seeing in the artificial intelligence sector that's propping up a lot of the market right now because there's a lot of investment going into that, a lot of bets being made that that's where money is, is to be made right now. I think I just saw another article saying Nvidia, another company that's profiting from the AI side is another trillion dollar market cap weighted company. Now that was half of that at the beginning of the year. If that tells you something. So about a $500 million company is now only is now 1 billion.
Dwight Mejan:
So anyway, with that, we want to just jump in here and Mitchell, you've got some actually we want to go to the inflation demonstration. So want to just talk real briefly here about staycations or near caissons as inflation continues to batter budgets, according to one survey, 88% of the people said that inflation has cooled their summer plans. 41% of Americans say they won't travel at all this summer. I find that to be interesting. I know I have some friends in the real estate, some in the rental business up in the mountains. I've been talking to them about the real estate market right now and I know some people who own rental units there. And a year ago they were booked months into the summer season. Many of them right now have wide open calendars. So it's interesting. I don't know if that certainly seems like it plays into these statistics a little bit, and that is obviously a highly visited area in the summer. Just the temperatures are cooler, but we also have 1 in 5 Americans say they are limiting trips to those within driving distance this year. Just a tip for our listeners, flexibility could be a cost cutter. When you're budgeting for a vacation, popular tourist destinations tend to be more expensive. So look for, you know, off the beaten path destinations or where the US dollar is strong relative to the local currency. If you're traveling abroad and ultimately you want to say something.
Mitchell Keiser:
Mitchell Yeah, no, I had some statistics for you about inflation with summer. So we had read some polls, read some articles on the on inflation and how that's impacted the average American, especially people that are retired. So according to a Harris poll from this week, about 75% of Americans believe that the worst inflation is still ahead of us. So they think that there's still a big sting yet to come, that 75% of people of those responders, the people that are feeling the most in these areas so far, they think 78% of people think that inflation has hit them the worst. With gas, about 66% say groceries, 49% say eating out, 49% also say their utilities and 33% say health care. I just want to throw this in here to respondents to the survey, also report these lifestyle changes. 48% of people have sought out new sources of additional income. 46% of people have cut back on their savings or have stopped altogether. 38% have accumulated more debt than usual. 35% have started providing financial support to a family member and 30% have missed or will soon miss a bill payment. I want to get your thoughts on all those stats, Dwight, but I'll just tell you, my first impression is people are scared because 75% of people think the biggest sting is still yet to come. And people are hurting because they're not saving. They're paying for family members. And those areas where they say that inflation has already hit them the most, I mean, those are you need those to survive. I think we're I think we're in trouble.
Dwight Mejan:
Well, you speak to an interesting point, Mitchell. Credit card usage has been up year to date. I don't want to butcher the statistics, but it was very, very high compared to, you know, a year or two ago. So people are feeling the pinch and many of them haven't curbed the expenses. They've just loaded up the credit card, which, you know, we're very much against here on this show and encourage people to get, you know, to get their credit cards paid off. But credit debt is increasing. So, yeah, the indicators are not good. And, you know, there's a lot of concern right now in the labor markets, too. That was something else in that article I started the show with where they were talking about some underlying cracks in the labor market. There's still a lot of labor demand out there, but it is starting to shrink and we are starting to see that. You know, it was you know, there was just something popping up on my screen here about the credit debt that was even being spoken about this past week. Consumers can't see. The 900 billion, I think is yeah, 986 billion is what they owe right now on credit card on charge cards, according to the Federal Reserve Bank of New York. So getting to an all time high, don't know where that ranks in the grand scheme of things. But yeah, very precarious times that we're in for sure. So just be wise with your money, make those, you know, important decisions and travel is one of those things. Hey, we love to travel. Well, we our family loves to travel, but we have to be careful sometimes just based on, you know, where we spend that discretionary income. Don't load up the credit cards. So yeah, with that. Mitchell, don't you have anything else you want to add there?
Mitchell Keiser:
No, I would just say with all the all the statistics, just based around fear and people's doubts, I'm sure that we have listeners that are kind of feeling the same way. And again, not just trying to sell you on us, but it probably is a good time just to look at your financial situation and evaluate it, make sure that you've got a good plan in place, that your money's not going to run out on you if you guys have been invested the same way your whole life and it's done great for you. That's awesome and we're happy for you. Probably is a good time to maybe think about reducing some risk in your portfolio. You know, we've had it happen before where clients so this was right before we had that big dip with Covid. We had people coming in. They were about ready to retire, about ready to start looking at changing their portfolio structure once they retired from their current employer and once things dipped, they couldn't retire anymore. You know, they had to go back to work. They had to keep working for a couple more years. And that's not something we want to happen to you guys. If you're getting ready to retire or if you already are retired, We want to make sure that you're not running out of money because that does happen, too. So if you're not going to give us a call and you don't want us to help you look at it, make sure that you have a trusted friend or child relative financial advisor, somebody that's going to help you evaluate that.
Dwight Mejan:
Yeah. And Mitchell, one other thing you had mentioned in those statistics, respondents who were surveyed said that 48% of them were seeking new sources of additional income and can speak to having done this for three decades now that the people who we help and who we manage assets for, the ones that have guaranteed sources of income. We're going to talk more about that on today's show here shortly. But the guaranteed sources of income, the different investments that we use for those guarantees, those people tend to go through the rough times with less stress. And it makes sense because they know each month where that income is coming from. It's just like if you have a stable job right now and it's you know, some people have more recession proof insulated jobs where if the economy takes a big hit, you know, people in the medical community are still going to have patience. Right? They're pretty recession proof in the medical field, very defensive sector. But some people don't have that luxury. You know, their job is dependent on certain factors in the economy remaining the way they are. And when they lose that income, now they're into borrowing from the 401. K, taking loans out against it, taking opening a home equity line of credit, racking up credit cards. So we're going to get into that a little bit in today's show about talking about guaranteed income. But I just found that to be an interesting stat, almost half those people were looking for new sources of additional income. So let's take a quick break because I know the segment we want to jump into here next from questions from our listeners that we're going to tackle. We'll jump right back into that. Let's take a quick break. We'll be right back.
Producer:
Helping bring you one step closer to financial freedom. You're listening. To Retire 360.
Producer:
Two years of high inflation could warrant cutting back on entertainment costs. I'm Jim Tarabukin with the Retirement.Radio Network. Powered by Amerilife, life inflation in times like these have triggered Americans to be more cognizant about their spending habits. A recent survey done by CNBC found Americans from all income brackets have begun to cut back on spending. Washington bureau chief Bankrate Mark Hamrick explains.
Dwight Mejan:
People need to have a sense of.
Mark Hamrick:
Hope when the economy is working for them. There's a greater likelihood that people will have hope that they can accomplish their basic personal financial objectives.
Producer:
And despite past recessions and examples of inflation, Americans have never been timid about spending money within the entertainment sphere. Sporting events and concert tickets have always been a hot item, but lingering inflation and impacts from the Covid 19 pandemic have shifted consumer priorities. According to Morning Consult Economic intelligence data. Entertainment was among the categories that posted the sharpest year over year spending decline as of March 2023. The purchases of books and movie theater tickets underwent the steepest spending drops at a combined 58%, and about 1 in 4 US adults said they're either spending less on or have stopped paying for media and entertainment expenses altogether. So what are some ways you can cut back on entertainment costs, start sharing or cancel unused streaming subscriptions? Or you can research cheaper alternatives to sporting events and concerts in your area. Cutting back on entertainment costs. Part of our 23 cost cutters for 2023 for the retirement dot radio network Powered by AmeriLife. I'm Jim Tiribocchi.
Dwight Mejan:
All right, well, we're back. My name is Dwight Mejan, and alongside me, Mitchell Keiser. We're going to jump right into this segment here. We love taking questions that come in. Mitchell You've got several questions here that have come through and they come through. People call the show. You can reach out to us here. By all means. If you have a question, we'll get you those phone numbers here maybe at the end of this segment. But reach out to us. We'd love to hear from you. We going to cover this and this is what we're doing right now in this segment. So we took some questions from retirees pre-retirees here who listen to our show. And they just had some questions about smart financial planning. So who do we have first here?
Mitchell Keiser:
Mitchell All righty. So first up, we have Rita from Pinehurst. And her question is, where will my retirement income come from? I have been saving for decades for retirement, but now that I'm close, I'm wondering what the best way is to turn our savings into the income that we need during our retirement.
Dwight Mejan:
Well, that is $1 million question right there. But thank you for asking that. You know, most retirees receive income from four main sources in retirement personal savings and investments, which would be traditional IRAs, Roth IRAs, et cetera. And these are through withdrawals and required minimum distributions. The another place where they get it from is company pension benefits or personal income from annuities. That would be another source. The third one would be Social Security would be one of those sources and any additional earned income during retirement. So what's key to that as far as you know, how you're going to take that income? In our opinion, it's going to depend on what which of those buckets of money you've saved heavier in. Now we still see the primary bucket of money for people that come to our office, although this is starting to change a little bit, is that that pre-tax money, the money that you've contributed for decades, maybe if you've been with the same employer into a 401. K plan, you invested in it pre-tax. So you've never paid any taxes on that depending on on your age. Again, we don't have all that information, which is why it's great to set up a complimentary consultation with us and we'll run an income idea for you. We'll run several of them and show you the differences of those plans.
Dwight Mejan:
But if you're heavy, tilted, heavy, let's say 75%, I'm just throwing a percentage out there in pre-retirement income or, you know, pre-tax money, that might be the best place to start taking income from. And depending on the size of those accounts, you may have the opportunity to delay Social Security. Again, that may not be the right fit for everybody listening to this to delay because there's factors that go into that. Your health, you know, your income needs. You know, hopefully you have a budget that's put in place right now and you know what that number is. But one of the things that we'll do for you if you reach out to us and you're listening to the show is we'll run a tax map for you as well, because it's not just, you know, where you're going to get that in. Come from. It's wherever you are going to pull it from. What is the taxation rate going to be on that? So we're going to look at all the different available sources that you have available to you. And then we're going to run scenarios on the tax return to see what's the best way to blend those incomes and when's the best timing of when to take those. So all of that's going to, you know, be a factor based on, you know, your your objectives and what your budget is.
Dwight Mejan:
So I would encourage you, if you don't have a budget, definitely get that together. But I can tell you the tax map is eye opening for people when we run that, because we begin to see different ways that, you know, you could maybe have Social Security taxed at a lower rate if you wait until 70 and we can run those different scenarios for you. But there's different ways to put that savings that you do have into guaranteed income. And I would just tell you, I would I would say this to all of the listeners, but specifically to this question, don't rely on just Social Security for the guaranteed portion of your income. Don't think Social Security is going anywhere contrary to the trust fund being, you know, estimated to run not bone dry, but to have to make some cuts in 2033. I think they're going to they're going to fix a lot of it. But there may be some reductions coming to everybody's benefit or certain individuals benefit. And that's why planning other sources of guaranteed income are important. So don't just rely on Social Security to be the only guaranteed piece. So yeah, good question.
Mitchell Keiser:
Good question, Rita. Yep. Next, we have Charles in Sanford. He wants to know how much will my income need to increase to keep up with inflation.
Dwight Mejan:
All right. Well, Charles, thank you for that question. We know Sanford very well. We love the folks up there in Sanford and love those of you who are tuning in today for the show. You know, the cost of living as measured by the consumer price index. It has fluctuated, but average between 4 and 5% a year over the past 20 years. And we strongly recommend that retirees consider inflation when they're preparing for retirement. You know, runaway inflation over the last three years has made this even more important. So, you know, your income is going to have to keep up with inflation, which is why it's very important that you have a portfolio that has what we call smart, safe money that's generating part of that guaranteed income that we talk about. And then we have smart risk money, which is money that you're you're taking some level of risk, some degree of risk. And I would say this about that degree of risk. The more of your income that can be generated to your budget, the amount that you need in retirement, the more that we can get generated that would be guaranteed through different guaranteed instruments that we would recommend to you. The more calculated risk you can take and be a little bit more aggressive when the time warrants that you kind of put the pedal down a little bit more and can take some more growth, you know, driven strategies in your portfolio, you can begin to take a little more risk. And the reason that's important to do, to have to take some risk is you want to outpace inflation on the returns so you don't lose purchasing power with your money. So and obviously right now, with inflation still being relatively high, you know, most people to some degree are losing purchasing power because you have to make at least the rate of inflation and then some just to keep pace with that.
Dwight Mejan:
So, yeah, you got to factor in inflation and that's one of the things that we will, you know, we'll lay out for you if you want an income plan done when you reach out to us, that's part of what we'll we'll show you is how much of your portfolio could go smart safe to generate that that needed income requirement and then how much could be in the growth side. And on that on that same topic, you know, if you're getting to the age where you have to take a required minimum distribution, which is in your 70s, you know, right now it's 73. If you were born, you know, prior to 1960 and you haven't yet started taking an RMD at age 73, you have to do that. But if you're having to take income out of the portfolio and you rely on that, that way, you know when that market is down and you're getting hammered on some of the stocks and the things that you own that are market based, you know, you're forced to just continue to to sell off assets to get that income a lot of times. And what we want to try to help you do is get more and more of the stability that you need, you know, for your income to get it through guaranteed side so that when the market is down, you're not forced to have to sell, you know, shares of what you own to get that needed income requirement that you have. So but good question Charles. Thank you for asking that.
Mitchell Keiser:
Yeah, that's good. And Dean over here. Boone has a they're kind of piggybacking off that question Will Social Security keep up with the cost of living?
Dwight Mejan:
All right. Well, Dean, great. Another great follow up question to that. Is Social Security going to keep up with the cost of living? Social Security has cost of living adjustments most years. But many retirees know that this doesn't make up for the true inflation that's affecting products and services that they use most, such as food and gas. Those were in the statistics Mitchell read earlier. We don't recommend relying on cost of living adjustments to keep up with inflation that you get from Social Security. There's a lot of, you know, think some of the bogus formula that goes into that it's not real accurate. You know, even though it was a big jump, the biggest we've seen in a decade plus this past year for people on Social Security, I think many would agree that that 8.7% still leaves them lagging behind. So you got to consider guaranteed income strategies that can experience market like gains that, you know, rise with the market with principal protection. And there's a lot of financial instruments out there that provide guaranteed streams of income. And those guaranteed streams of income can be indexed as well to index the consumer price index. So every year you're guaranteed income payment could get a boost as well so that you're not losing purchasing power. So we look at those instruments and those specific investment products when we're looking at income plans for clients and we'll compare them to their competitive alternatives, which are accounts that have flat rate fixed amounts, but they might start a lot higher. And we just show both of those to people when they look at it. So but there are other income strategies that they grow, kind of like I said, they're like stair steps. The worst you can do is is zero and you get to enjoy the point to point protection of capturing the gains. But none of the losses that go with that. So hopefully that answers Dean's question up in. Boone Yeah. Thanks for that question, Dean.
Mitchell Keiser:
Yeah, that was good. All righty. So last year we have Emma who is in Valley Crucis, Banner Elk. She wants to know when is the best time to make withdrawals from my retirement account when the market goes down. I'm afraid of making matters worse by pulling money out. But when the market goes up, I feel like I'm getting in the way of potential gains.
Dwight Mejan:
Wow. That's a great, great, great question. You know, attempting to time the market and make systematic investments, which I'm presuming that might be what's behind the question. Um, you know, making those systematic investments or withdrawals is something we get questions about all the time. And I like to say it's not timing the market, it's time in the market. And that's why it's very critical to be in a in a risk managed portfolio where you're not trying to chase a benchmark, you know, where you're trying to chase, for example, the S&P 500 or you're trying to beat the benchmark. That's not a strategy that we subscribe to. It's not something we recommend to our clients. It's finding your tolerance for risk and investing in a portfolio that matches that. Because if you don't do that, when we experience the big downturns like we saw last year in 2022, that's where a lot of people began to see, Hey, I am not comfortable with the amount of losses that I'm seeing. And that could be that could be the reason why you might have been set in a portfolio that was trying to, you know, beat certain benchmarks. And that's not something we would recommend. So this is why we spend so much time talking about the importance of a strong income plan. So I just want to encourage it was Emma Wright Mitchell that asked the question. Yep. So so I would encourage Emma and anyone else like her that had was thinking along those same lines. When you read that question, you know, take advantage of guaranteed income solutions when you don't have to wake up and worry about where the paychecks are going to come from in retirement and you know that all of your expenses are paid.
Dwight Mejan:
But even on top of that, your discretionary income that you can spend for things like travel, you know, vacations and just some of the things that you like to do with your hobbies, if that's all covered. And then some those market fluctuations, when the market is down, you're not going to be worried, Emma, or anyone else that had that same concern with that question about being afraid to make matters worse by pulling money out of the market. Because guess what? You're not going to have to do that when you have guaranteed sources of income that you can turn on. So do you really want to spend your retirement years watching the stock ticker and stressing out about managing your money? Okay. I don't think anybody envisioned their retirement in that situation. And, you know, a true situation of a story that happened this this past week. You're in the offices. Had a couple come in that recently in the last couple months, had just retired and they were kind of trying to consolidate some of their assets. They still had old 401. Plans that they left behind from the recent retirement. And we sat down and we just started talking about their income and their budget. And they mentioned the number that they wanted to hopefully get to. They just didn't know where they were going to pull it from. You know, they had they did a good job. They had some money in Roth accounts, tax free money. They had some tax deferred and they had some taxable investments.
Dwight Mejan:
But interestingly, what we looked at for this couple was they were able to take 30% of the retirement net retirement savings that they had. This was money in traditional IRAs, 401. Ks. There was a 403 B plan there as well. We took all of that money and showed them a plan where they could put all that money in the stock market and do what Emma's talking about and just take some dividends. And again, dividends aren't guaranteed, but they could live off dividends and if they needed more money, they could sell off some of the growth in the portfolio over time. But we talked to them about that same risk is the only source of income this couple was going to have if they used the strategy in the portfolio that we recommended, that we actually compared it to the holdings that they had. The risk they ran is when the market went down, they were going to be selling at a at a bad time the very thing that Emma was concerned about. So the alternative portfolio, we showed them some guaranteed sources of income using 30% of the total amount. That means they kept 70% where they could they could invest it in the same market instruments we showed them in the first option. And with their Social Security, they were able to get more than 100% to be exact. That was right at 130% of the number they were hoping to get to with income. They just didn't know how it was going to all fit together. But we got them 130% of the budgeted amount they wanted to get with net income per month.
Dwight Mejan:
We were able to provide that to them, guaranteed. So they had 30% more than they needed. And if the market went down, they never had to touch the money that was invested. That 70% that was invested according to their risk comfort, they would never have to touch that money. They could just live off of that guaranteed source of income. So hopefully that makes a little bit of sense. And if you have questions about that question, or maybe you heard this segment and you're like, Hey, that's exactly where I'm at right now. I've got this money, I've saved it, now where do I pull it from and how much of income could I get guaranteed similar to that same situation? Reach out to us. If you're in the mountain area, the phone number you want to call us at is (828) 278-7814. If you're down in the more more county area, you can reach out to us at 360 Capital Management. Our number here is (910) 235-0812. Or you can go to our website, Retire 360. Show.com there's a little link on there. You can book a complimentary consultation with us. We can do it in the office, we can have a zoom call however you'd like. There's no cost to you as a listener for us to run that analysis, but we will run a tax map for you. Explain how that works and give you some recommendations for that. But we're going to be right back. We'll jump back in. We're going to talk about some misconceptions regarding Social Security. We'll be right back after this break.
Producer:
You're listening to Retire 360. To schedule your free no obligation consultation with Dwight visit Retire360Show.com
Producer:
At 360 Capital Management. We know you've worked hard to earn your money and you've worked even harder to save it. When it comes to wealth management and planning for retirement, Dwight Mejan is passionate about helping people protect and grow their wealth. Visit Retire360Show.com to schedule your free consultation today it's a $1,500 value provided at no cost to you. Book yours now at Retire360Show.com .
Dwight Mejan:
All right. Welcome back. I'm your host, Dwight Mejan. We're going to jump right in here to common misconceptions regarding Social Security. You know, Social Security is a huge part of your retirement plan. And that's why it's really important that we spend a little bit of time here again talking about really Social Security, some of the misconceptions out there regarding Social Security. But the timing of Social Security is critical in our taxes and retirement workshop that we do actually dedicate a couple of slides to Social Security and show a household to different households with the same amount of income. But one of them is delaying Social Security. The other one took it, you know, not necessarily early from full retirement age, but they just took their Social Security earlier than age 70. And but both households are taking $60,000 a year of income. One of those households is paying taxes on several thousand dollars of their income, which includes some of Social Security getting taxed. The other household ends up paying $0 on the on the taxes. And it's just because of the mix of income and the sources of where their income is coming from. So misconceptions. Almost everyone we meet has questions about Social Security, and we understand those questions. You know, choosing when to take the timing of those Social Security benefits. It's probably one of the most important decisions regarding income that you're going to make, 40% typically of the income that you need in retirement. For the if you're an average wage earner, your lifetime, about 40% of your retirement income is going to come from Social Security.
Dwight Mejan:
And our estimates are for for our clients and the people that we work with is typically you want to try to target somewhere between 70 and 90% of your pre-retirement income. So if Social Security is accounting for, let's say, 40% of your income, you know, where's the other 60% of that income going to come from? Right. And we just want to clear up some misconceptions, common misconceptions about Social Security benefits. One here is that everyone's Social Security benefit is the same amount. Well, hopefully you heard that and said, yeah, that's not true because it's not true. Your Social Security is based on an earnings record and it's based on the amount of quarters that you contribute. You've got to have 40 quarters or ten years to qualify for full benefits. Your benefit amount is fixed forever. Is that a true statement or is that a false statement? Well, hopefully you said that was false cost of living or we say COLAs, the Social Security Administration can reduce your benefits and they expect they may need to reduce everyone's benefits as early as 2033. Now, we don't know exactly what they're going to be doing yet because they haven't told us. But that is the point in time where the trust fund is not set to run out of money. That's oftentimes something that's mentioned. And really what is going to happen is and you can go to Social Security if you go if you've been to the website, you've logged in.
Dwight Mejan:
I encourage all of our listeners to do that. You go to SSA, that's Sam-sam Apple ssa.gov, and you can log in and create a profile and you can see your earnings estimates and you can see every age. If you take Social Security 62, the earliest you can, you can get it from in most situations and 70 is the latest age and you'll see estimates, pretty accurate estimates of what your estimated monthly benefit would be. So I'd encourage you to to go there, but more, more what I see happening here and it could be wrong on this, but I see some level of means testing coming. But in that on that website you'll see kind of if you scroll through towards the end, there's some frequently asked questions that are kind of a sheet on that website and one of them addresses the point of Social Security and the trust fund having a rough period here in the mid 20, 30, 2033. And what will probably likely happen is they're going to start to look at other sources of income that hit your tax return. So if you have a pension or you're taking RMDs out, you may be hit to a higher percentage of a cut than somebody else. That's one theory that could happen. So we're not exactly sure what that's going to look like yet. But just know that you're also not stuck with the benefit that's offered to you.
Dwight Mejan:
That's not true. You do have options every year you delay past your full retirement age. So let's say your full retirement age is 67. That's mine. Every year I delay taking that payment. On an annual basis. That's an 8% raise. So 68, 69, I have to take it at age 70. You know, I can get an additional 24% more just by delaying those three years. The question becomes, if I do that, where is my income going to come from? Well, that's where we look at your other buckets of money. And if you have a lot of money in that tax deferred bucket, let's say you contribute a lot of money into that 401. K pre-tax, that might be a better place to take the needed income that you require and just continue to let that Social Security, you know, build up and start living more off of the qualified money. Now, that's not going to work for everybody listening to this because a lot of it's going to depend here again, on the amount that you saved in those other buckets. But that's something that we'll look at for you. Another point here is, you know, you should draw from Social Security as soon as possible. We don't advise this. That might be the right thing for some of you listening to this. It's not a one size fits all unless it's just absolutely essential that you need the money as soon as possible.
Dwight Mejan:
Otherwise, maybe you have some bad health, you know, unfortunate health situations. You know, we recommend you wait until at least your full retirement age to start drawing that Social Security because the cuts prior to age, you know, your full retirement age could be pretty significant. Last thing here is your benefit will increase every year. And unfortunately, you know, no cost of living adjustments do not necessarily happen each and every year. That's going to be based on consumer price indexes. There's a formula that they use to that. So don't guarantee, don't count on cost of living adjustments every year with Social Security. So schedule a complimentary meeting with us. If you have questions regarding Social Security, if you have questions regarding timing of it, the review is complimentary. You can schedule a consultation with us, receive a Social Security maximization report. We'll give that to you free of charge when you schedule with us today. So just dial one of those numbers and we'll be happy to fill you in a little more with that. So want to jump into maybe our last segment here. We'll see if we can get to anything else here today. But you have options if you're funding an employer's retirement plan. We would tell you that you have options outside of that employer's retirement plan. We want you to contribute. But if you've looked at the investment options in your workplace 401. Retirement plan, chances are you're going to see mutual funds. And in those mutual funds, your money's being put into stocks, bonds or cash.
Dwight Mejan:
And those have options have been available in 401 K plans since 1978 since they were introduced. So now a new study has come out from the Center for Retirement Initiatives at Georgetown University. And this study finds that adding alternative investments to the mix would boost 401. K returns by 8% in the long run. Did you hear that adding alternative investments to the mix would boost 401. K returns by 8% in the long run. So some of you hear that and you're like, well, what are alternative investments? What are we talking about there? Well, if we look at, you know, cash stocks, bonds, equities, those would be traditional assets. So when we talk about alternative investments, alternative investments include a range of options from ETFs, which are exchange traded funds to hedge funds and structured financial products such as structured notes. I've talked about structured notes before on this program. Structured notes are securities instrument. They're not principal protected, but they've got buffers in them to where you can protect your money. On the downside, the market would have to drop in our structured notes 30% before any of your principal is impacted. So we like structured notes. We actually moved a lot of money last year from bond portfolio to structured notes. They're similar. They're kind of in the same camp because they're debt obligations. But again, we don't have the time today in today's show to go into that. But there's also buffered ETFs, buffered exchange traded funds.
Dwight Mejan:
And really what the buffer is, is it's downside protection from loss. So, for example, if you have a you could buy an exchange traded fund that has a 10% buffer on it. If the market goes down in a year, 15%, that buffer has insulated you from 10% of that loss. So you only had a 5% hit to your money. Okay. And these instruments literally last year for people who had, you know, a higher percentage, we're not talking about, you know, 50%. But even people that put 20 to. 25% of their portfolio in alternative investments saved a considerable amount of money from from losses that they otherwise would have experienced had they put that money in traditional asset classes. So great opportunity to consider options there with alternative investments. So this study from the Center for Retirement Initiatives at Georgetown University, it said that the improved diversification offered by including these alternative assets in the portfolio of 401 seconds and similar defined contribution retirement plans could deliver greater returns and improved retirement income for millions of US workers. So just something to be aware of. Alternative asset classes. If you want to learn a little bit more about those or just say, Hey, what? Would there be any more risk to my portfolio? Believe it or not, a lot of times using these alternative asset classes do just the opposite of what many of you might think. It actually could provide more stability to your portfolio. And we can run a historical, you know, reference of your assets and compare your portfolio with some of these alternative assets in there and do a comparison for you so you can see what would have happened in the last 12 months or what would have happened in 2022 if I put 20% of my portfolio in here, Maybe you lost, you know, 17% due to the market fall.
Dwight Mejan:
Perhaps with this in there, you might have lost half of that amount. We'll run that specifically for for each of you if you have an interest in learning about that. So just a listener call out here at this point. Many pre-retirees and retirees are overly concerned about potential rates of return, and it's easy to become enthralled with the Wall Street casino. But what's more important is having the right plan that balances both safety and risk. So it's important, as you've heard me say it on today's show, it's important to stay in risk managed portfolios and not try to chase those benchmarks. Okay. So we provide comprehensive consultations to our listeners. We would love to do that with you. So if you want to reach out to us, anything we've talked about here so far on today's show, if you're in the Moore County area, reach out to us by phone. Our number here is (910) 235-0812. Or if you're in the Boone Banner Elk Blowing Rock area (828) 278-7814 is our number. We'll be right back. We're going to take another quick break and we'll finish up.
Producer:
Thanks for listening. To Retire 360 with Dwight Mejan. If you like what you're hearing, subscribe to the podcast and leave us a review wherever you listen to podcasts.
Producer:
In some cases, cutting costs can be as easy as adjusting the thermostat in your home. I'm Matt McClure with the Retirement.Radio Network. Powered by AmeriLife. Hot summers and cold winters can really put a dent in your bottom line by jacking up the cost of your energy bills. But there are some things you can do to reduce those expenses that won't cost you very much, if anything at all.
Sarah Baldwin:
Paying attention to when you're turning on appliances, when you're turning on the AC, if you have a thermostat that you can program. Setting that thermostat to a modest temperature instead of going straight to really, really cold. Looking at, you know, what kind of window coverings you have.
Producer:
That's Sarah Baldwin with the think tank Energy Innovation. Some other low cost ideas to reduce utility expenses, take shorter showers, wash your clothes in cold water, and regularly replace your Hvac air filter. And Baldwin says there are some other changes you can make that would take more money up front.
Sarah Baldwin:
Update your air conditioner to the most efficient unit. A heat pump. Air conditioner is going to be your best bet. You can also look at replacing windows and doors. Those can be a bit more costly, but can have huge benefits in the long term.
Producer:
Along those same lines, appliance manufacturers have put more emphasis in recent years on creating products that use less water and energy than older appliances. Those energy efficient appliances can save you a pretty penny. So are you being energy efficient and budget conscious? That's a key question to consider. And it's one of the 23 retirement cost cutters for 2023 with the Retirement.Radio Network Powered by AmeriLife. I'm Matt McClure.
Dwight Mejan:
All right, Well, hey, we're back. Dwight Jan here alongside me, Mitchell Keiser. We want to finish up with our last segment here today on another interesting article that came out. We've talked a lot on today's show about not just income generating products, but we've talked about, you know, guaranteed income. And one of those instruments, we certainly use them strategically within portfolios that we manage is annuities. And no annuities carry a certain stigma sometimes with some people. Some of it a lot of times we find when we start to flush out the concerns that people have of those, a lot of times there's misconceptions wrapped up with annuities. We certainly don't advocate, you know, huge large percentages of the portfolio going in there, but the annuity does provide a source of guaranteed lifetime income. And this article really addresses an interesting topic here with Americans that own annuities. They want more annuities. And this was put out in an article last week. And here's what it said. Americans who already own annuities or other products that provide guaranteed source of lifetime income love the idea of purchasing more and think there's a no secret there that one of the things these people have discovered is that when markets get unstable, they continue to persevere and seek stability with their income versus people who don't have as a greater degree of guaranteed income in their household because it's coming through, you know, varying accounts that that move up and down with the market there.
Dwight Mejan:
They don't have the safety and the peace of mind. So the American Council of Life Insurers sponsored a recent survey of more than a thousand retirement savers aged 45 to 65. And about 26% of the survey participants said they already owned annuities and 86% of the survey participants who owned annuities said they were somewhat or very interested in investing in additional ones found that to be a very, very high percentage. So that ought to tell those of you who have not ever explored that source for some of that guaranteed income. That says a lot when 86% of the people who own them would consider another one for a piece of their portfolio. In addition to that, 76% of the participants with pension plans and 67% of the participants without annuities said they wanted to invest in annuities. So very interesting, you know, survey done there really on the topic of guaranteed income.
Mitchell Keiser:
I'm just going to add, you know, probably a part of the encouragement there for people to either buy annuities or people that have annuities to get more is probably when they watch these volatile markets the way they've been the past three years. And either people they know or they could just. Imagine for themselves have had to do major lifestyle adjustments because all of their income was in the market. So these people that are retired, you know, they're like, well, you know, I'm getting a steady X amount per month. I don't have to worry about that running out. But, you know, my friend Sally, she just had, you know, cancel her tennis membership. She can't go to the pool anymore. She can't go out to eat with us anymore. I mean, you know, people just and it happens to, you know, we have people that come in here and they lost all their money. So, I mean, it is it is a real thing. And, you know, we're not just out here selling annuities. They're not for everybody. But I mean, if you're relying on a steady income, it very well might be for you.
Dwight Mejan:
Well, and think, you know, Mitchell and wrapping this up that's the one thing that's key to our listeners to understand is there is a plethora and there's a wide range of different products out there. There's probably two thirds of the annuity market that we're not big fans of. Okay. And that probably is some of the stigma that people have who have bad opinions or ideas about them. They're probably in that same camp of the majority of them out there. We're not big fans of. But there is a slice of that market that serves a good purpose because it has principal protection. They have low or no fees and they provide that guaranteed income. So anyway, you know.
Mitchell Keiser:
I think a good way to think of that, too, is, you know, there are bad annuities, but there's also bad stocks, you know, or stocks bad. I mean, some are, but there's some really good stocks. You know, we wouldn't just tell you to go invest in any stock. So.
Dwight Mejan:
Exactly. So, Mitchell, I'll let you close it off here with the listeners. I just want to thank people for tuning in with us. And you had some one more time, some information you want to share with listeners for an upcoming event that we have.
Mitchell Keiser:
Yeah, just wanted to let you guys know if you're tuning in late here. We do have an event coming up in Boone, downtown Boone at the Watauga County Library, and that is going to be on July 20th and 21st, which is a Thursday and Friday we are going to be teaching on taxes and retirement. So if you're interested in that, it is July 20th, which is a Thursday at 6 p.m. and July 21st, which is a Friday at 11 a.m. And if you're interested in that, give us a call. We'll save you a seat. Our office number is (828) 278-7814. Again, our office number is (828) 278-7814. Thank you, guys. We'll see you next week.
Producer:
Thanks for listening to Retire 360. You deserve to work with an experienced and licensed expert who will strategically work to protect and grow your hard earned assets. To schedule your free no obligation consultation with Dwight, visit Retire360Show.com or pick up the phone and call (910) 235-0812. That's (910) 235-0812.
Producer:
Investment Advisory Services offered through Brookstone Capital Management, LLC, BCM A registered investment Advisor. Bcm and 360 Capital Management are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results.
Producer:
Fixed annuities, including multi year guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity. Contract guarantees are backed by the financial strength and claims paying ability of the issuer.
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