Jason and Bob answer the top 5 questions from a recent speaking engagement.

Below is the full transcript:


Announcer: Welcome back America to Sound Retirement Radio where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. Now, here is your host Jason Parker.

Jason: America, welcome back to another round of Sound Retirement Radio. I’m your host Jason Parker. I’ve got the good … If I could talk this morning I’d be dangerous. The good fortune to have Bob Harkson, Certified Financial Planner in the studio with me this morning. The latest member of our team helping people create a sound retirement plan. Bob, welcome.

Bob: Thank you. It’s great to be here.

Jason: Oh man, this is going to be one of those mornings. You’re listening to episode 094, and we had a title for this which is, “What do you think?”

 We had the good fortune recently Bob to give a live presentation. We had a room full of retirees, people getting ready to retire, some people have already retired, and they had some really good questions. We kind of picked out the top five, and we’re going to go through those with our listeners today. I know if one person’s asking a question, there’s a lot of other people thinking about it as well. We’ll do some more questions and answers based on the real feedback that we’re getting from real people.

 Before we get going too much, I want to start the morning by renewing our minds. I think one of the best ways we can do that is with a verse. This verse comes from Proverbs 15:1, “A gentle answer turns away wrath, but a harsh word stirs up anger.” That’s a good one. Then, of course we always like to put a smile on people’s face if possible, when possible. If you would be so kind to share a joke with us this morning.

Bob: Absolutely, a horse walks into a bar and sits on the stool, and the bartender walks up and says, “Hey. What’s with the long face?”

Jason: Bob, I thought my jokes were bad, but you really set the bar pretty low here. I think-

Bob: I’m hoping to go lower.

Jason: All right. Let’s get going. Questions and answers. What was the first one from that recent speaking event?

Bob: Well Jason, these are great questions. The first one was, “Now that I am single, my taxes are very high. Can you help?”

Jason: Can I help? That’s a great question. Taxes are one of those issues Bob that I’ve learned most of the people we serve, they love America, they love living in this country, and they don’t mind paying their fair share of taxes, they just don’t want to pay more than their fair share. I think it’s fair to look at the landscape that we’re in. We’ve got a national debt that’s over $19 trillion. We’re spending $500 billion more than we bring in in revenue right now, in our country. We’re still going in the red more and more and more. We’ve got 10,000 baby boomers retiring every day, that means more people drawing on social security, more people wanting access to Medicare, which happened to be the two top items on our country’s budget. You look at those issues and you say, “Geez.” You also have to take into consideration we have some of the lowest tax rates, marginal income tax rates in the history of our country right now.

 The question everybody has is is that sustainable, and it’s unfortunate, but a lot of people don’t get very much tax advice. What most people get is really good tax preparation. I want to remind people that one of the big differences, in many instances, now there are some really good CPAs out there that do taxes for folks, but a lot of times they’re so busy at tax time that they’re really focused on making sure that they record history well, that they’re taking what happened last year and putting the right numbers in the right boxes for people. Sometimes, just because I think they’re so strapped for time, there’s not a lot of actual tax planning going on where they’re looking at somebody’s tax return for the next year and saying, “Here are some things I want you to be thinking about to try to reduce future tax rates.” That’s really where financial advisors come into play because we tend to be more forward looking. CPAs oftentimes are making sure the right numbers get in the right boxes, we want to be forward looking.

 Saying that you should put more money into a retirement account or fund your HSA to … Those are real basic, simplistic ways of thinking about taxes, but we take it a step further and we say, “Okay, well what are going to be the future tax implications? Which way do we think tax rates are going to go?” Nobody really knows for sure, but we can make some educated guesses, and then look at ways to reduce taxes.

 For the gal in the audience … When it comes to a topic like taxes, and somebody’s asking, “Hey, can you help me reduce my tax liability?” It’s really hard to do that in a group setting until we’ve actually sat down with somebody one on one, and we look at their tax return, and we look at what they’re investments are and how those investments are generating revenue for them. There’s a lot of different things that go into that question.

 For people out there that are getting ready to retire, it’s a really important question because there are things that you can do, and that you should be thinking about that can have an impact on the taxation of your retirement. Especially, one of the little nuances has to do with social security and the taxation of social security based on the provisional income rules.

 That brings me to a point Bob, we recently, just last week we did a webinar, we had people from all over the country register for that event. For a limited time, we’re going to make that webinar replay available to people. We do talk about tax planning on that event. I want to encourage people, they can go to Sound Retirement Planning, on the right-hand side of the screen they’ll see a box that says, “Webinar Replay,” we’re not going to leave that up forever. One of the things I’ve learned about people, myself included, is we all like to procrastinate.

 We all like to say, “Well tomorrow is a better time to do that.” What ends up happening is we send out an email to people saying, “Hey, we’ve got to webinar replay up. It’s here at this link.” What they do is they leave that email in their inbox for six months, and because they keep pushing it out, pushing it out, pushing it out saying, “Eventually I’m going to have time to get to this,” then they finally just say, “I just need to clean out my inbox.” Everything gets deleted, and they never take the time to do it.

 What we’re going to do is we’re going to put a timeline on that webinar replay. If this is important to people, if they’re actually thinking about retirement, and they want more information, then we’re going to make that webinar replay available to them, but we’re going to do it in a way that helps them overcome procrastination because I think we all procrastinate.

Bob: I think you mentioned the word about strategy. It’s just not about the next, but it’s about the next 10 or 15 years. Particularly when you become widowed, things change dramatically. I think planning … The way I would phrase it would be simply you may want to try to save as much tax for next year, and that might come back to bite you in years down the road. I think a good plan over a period of time is probably the most useful tool.

Jason: I met with a woman who was widowed recently and the only income that they had coming in was social security. As most people know, when one person dies and they have social security income, they basically lose the smaller of the two benefits, it’s the easiest way to think about that. She was having 15% withheld for taxes, and we looked at that, and we said, “You know, you’re not going to have to pay any taxes based on income that you have coming in.” To have 15% withheld, she’s going to get a refund at the end of the year, but she may not even have to file taxes, her income’s going to be low. There’s things like that where people are giving free money to the government, a free loan to the government with no interest on it when they could use the income to live every month. That’s just-

Bob: Absolutely.

Jason: Little things like that that we want to be watching out for.

Bob: Very common.

Jason: What was our next question Bob?

Bob: This is another great question that came up.

Jason: I like having the name Bob on the show.

Bob: It’s easy, you know?

Jason: Bob the financial planner.

Bob: Bob the financial planner. It’s a much malign name if you watch commercials a lot, but, “My husband has passed away, and I’m collecting on his social security. Is there any way I can increase my benefit by moving to my own benefit based on my own work history?”

Jason: There’s another opportunity that’s oftentimes missed. Again, these are great questions, and they’re real questions from real people, but the challenge with social security is everybody’s situation, we got to look at it one on one to help give some real good advice there. This is a planning opportunity that most people miss. What they don’t understand is that when you walk into the social security office, in most instances what social security is designed to do, the way they teach their people is to help them qualify for the highest benefit they’re eligible for the moment they walk into the office.

 A lot of people don’t understand the restricted application feature where a widow, if she had understood that she could delay taking her own benefit and start the widow benefit, there are some little nuances there. I would say widows are probably ones that miss out on those planning opportunities the most. The idea would be you start one benefit, you delay taking your own benefit, your own benefits earning 8% delayed retirement credits, then you switch over to the higher of the two. Maybe something like that that could help widows earn more.

 Unfortunately for that gals situation though, because she’s already started taking social security, the chances are very high that when she went into the social security office, they just helped her qualify for the highest benefit that she was eligible for without taking into consideration some of these other nuances.

 You know Bob, I had the opportunity when we were giving that presentation, we asked for people to share a story about a time that they … one of their first experiences with money. I’ll never forget this one gentleman in the back of the room raised his hand, and he talked about how he had a stamp that was worth one cent, but when he was a kid growing up in a family of eight right after the Great Depression, one cent was actually significant enough that he had given away one of these stamps to a friend, and that ended up being something that his dad came unglued over that he would give away this money. As I thought about that, and I think about that in context of social security, if you make a mistake with social security, especially for married couples, it could be a $50,000 cost.

 Could you imagine that gentleman’s dad, if he came unraveled over a penny, could you imagine what the response would be from him if he knew his son was making a mistake on a $50,000 lifetime benefit? I think most people would really feel kind of foolish if they did that, and unfortunately, this is one area where a lot of people aren’t getting a lot of education before they make a decision. They are making an emotional decision. If you want to make a mistake with your finances, let your emotions guide that process. Nine times out of ten, it’s probably going to be the wrong choice.

Bob: I think the key is to get expert advice. Don’t listen to rumors or necessarily what your friends say, but get some objective advise. It makes sense.

Jason: There are some really smooth talkers out there too. Some of these guys we meet with, they’re smart, they retired young, and they’re really excellent talkers. They could just about get you to sell ice cubes to the Eskimos is basically what they do. They will convince you that there way is the right way. I would be cautious, everybody should look at some of these decisions based on their own facts. Like you said, social security should not be something you’re doing based … A decision you’re making based on a dinner party you attend.

Bob: Absolutely.

Jason: It should be based on a comprehensive retirement cash flow plan, and if you’re not doing that, you may be making a mistake.

Bob: Absolutely. What do you think about … This is a great question actually, what do you think about abolishing the federal reserve? They seem to have more influence over the stock market than company earnings or solid economic data.

Jason: That’s a really good comment. I think a lot of people may be a little bit frustrated with the federal reserve today because we have this body of people that are not elected, they’re appointed, and they have a lot of influence and control. If you look at the stock market today, the direction of the stock market is more influenced by what central bankers are doing around the world than by the fundamentals of the markets. That is not a very healthy environment Bob. We’ve seen the stock market, now, eight year long bowl market. Most of that has been fueled by this wealth effect of the federal reserve pumping a bunch of money into the system. Our government spending a ton of money.

 12 years ago our national debt was about $7 trillion. Today, it’s about $19 trillion. That’s an amazing huge increase in the amount of government spending. Our governments around the world, this isn’t just the United States, but everybody is trying to do as much as they can to stimulate growth at any cost. You look at Japan, they’re into a negative interest rate environment now. Europe is into a negative interest rate environment now. Unfortunately, if our expectations are for central bankers to continue to stimulate the economy, that’s not a good sign for the stock market or the bond market going forward, frankly. I don’t know about abolishing the federal reserve, I think they definitely play their part, but there’s been a call with elected officials to audit the Fed and have more accountability there. They like their autonomy. They want to be able to go do what they think is right.

 It’s amazing to me too that … It seems like at one point they wanted inflation, then we get inflation. Then they want unemployment, then we get unemployment numbers down. Then all of a sudden they’re concerned about growth in China or these global events happening around the world. They use that as their excuse for keeping interest rates low. It does make me a little bit angry because the people who are really paying the highest price in terms of this quantitative easing and low interest rates are the savers. It’s the people that have done a good job, they’ve saved money. They just want to be able to retire, and have a little bit of interest income coming in off their portfolio, and they can’t do it.

 The Federal Reserve, you read some of the comments, and they say, “Well, it’s either that or we go into economic crisis. Retirees should be grateful that we’re not going into economic crisis.” The bottom line there, I think the real concern when people ask that question, it comes down to fixed income. We’ve been a period of 30 year declining interest rates on bond, and it used to be that people would buy 60% bonds and 40% stocks in their portfolio or vice versa, some mix like that, and live off of dividends and interest, but as you look at the interest environment that we’re in that’s going to be really tough going forward.

 I think the biggest concern that most people have if they’re getting ready to retire is, “I’ve got this chunk of money. This money has to support me for the rest of my life. I want to be able to,” what most people want to be able to do is live off of the interest and never touch the principal. While that may have worked in the past, I think a lot of people are concerned about it. I’m concerned about. It brings up a real point of contention for a lot of Americans right now, the federal reserve does.

Bob: As we look at the early of the year, the Fed announced their going to raise their rates to .25%, huge drop in the market just because of that. That’s people’s retirement accounts.

Jason: As we look at the market today, the last time I looked, this morning was down another 100, almost 200 points. 190 points. All the talk on the town right now is the Fed … There’s talk that they may be looking at raising interest rates come June, and of course a stock market that is dependent on what the central bankers are doing, what the federal reserve is doing is not a very healthy stock market.

 When you look at the price to earnings of the market on a cyclically adjusted basis … Janet Yellen came out a year or so ago, and said that she was concerned that the market looked like it was overvalued. When the head of the federal reserve is coming out, and saying that they think the market may be overvalued, that’s probably a good warning sign for most people to be concerned about then.

Bob: Here’s another great question, “How hard is it to roll retirement accounts to your company? Are there a lot of fees, and do I have to pay taxes when I roll my retirement account over?”

Jason: That’s a great question. In that particular instance the gentleman … We see this a lot with people. They’ve spent a lifetime of accumulating assets, they’ve worked at different employers, sometimes they have 401K plans all over the place, they have retirement accounts, they have all these different custodians. They just want to simplify, they want to consolidate, they want to get things under one roof. His question to us was, “Jason, we’re thinking about hiring you to help us with all of this. How much work is it?”

 The good news is for people, it is a lot of work, but we’re the ones doing the work. We’re the ones doing the heavy lifting there. I kind of sigh and breath deep when I see somebody come in with 20 different accounts all over the place and know that we have to go through this process of consolidating. From a fee standpoint, I don’t want to say that it’s not going to cost anything. There’s usually … The fees are usually very low. Sometimes custodians will have a fee for closing an account out. Sometimes we have to worry about C-Class mutual funds where there’s backend loads or B-Shares, sometimes we have to be worried about those types of things. Of course, we also want to take into consideration taxes.

 When consolidating, what I usually recommend most people do is move everything over to one place. Get it all under one umbrella in kind. Don’t make any changes right away. That gives people the time to go and evaluate the tax implications for their non-qualified accounts, for their taxable individual accounts. That’s one that can surprise people if they’re not ready for the tax implications for selling positions, but the other side to that is even if there are tax implications, capital gains rates are still at a relatively low rate historically. This is not a bad time to have to pay capital gain. If you do have to sell some possessions that are appreciated in order to get to portfolio to match up with your risk tolerance at this point to make sure that it’s diversified the way you it, then it might make sense to pay taxes. We want to make sure people are aware of that.

 To give you a more plain answer, the answer is the fees are usually relatively low to consolidate things. There may be some minor fees that you pay like closing of custodian accounts and tax implications. That’s another one. Sometimes people think if they move money from one retirement account to another retirement account that that’s going to create a big tax liability for them. In most instances it does not, especially if you’re just doing a direct transfer. People can mess that up, and cause themselves big tax problems because they don’t understand the IRA rollover rules, but if you understand what you’re doing and you’re just transferring assets from custodian to custodian, generally we’re not looking at any tax implications as a result of those transactions. Pretty low tax situation. Pretty low fee situation.

Bob: I found this in my experience as a Certified Financial Planner is that oftentimes we have a lot of these accounts, so we’re overwhelmed by how complex it is, and we don’t do anything. We do a huge disservice to ourselves because we’re not monitoring what’s investing. Nobody’s monitoring it for us. We may have invested things based on information 15 years ago and not made any changes. It’s really critical to reevaluate that.

Jason: Then, all the pieces aren’t working together either. You’ve got this hodge podge of stuff, and getting back to the one the questions I love to ask people, “What’s the purpose of the money?” Let’s get … My dad, when I was a kid used to say, “Every dollar bill was like a Soldier. The more Soldiers you’ve got to work, the bigger the battle you could fight.” You get as many of these Soldiers, but if you’ve got Soldiers running in every different direction, you don’t have a unified strategy. That’s not going to be a good thing. Let’s get all of those little warriors that you’ve collected. They’re out there to fight this retirement battle for you all point in the right direction.

Bob: Real quick, one last quick question which I thought was interesting is, “Do you think every five years the government should have no taxes?”

Jason: I think they-

Bob: I thought that was a great question.

Jason: I thought that was interesting one too. Bob, what are your thoughts? Let me just throw that back in your lap.

Bob: It’s a great idea. I think we can look at some things in the scripture that would call the year jubilee, which would say, yeah give people a break. I don’t think it’s going to happen. I don’t think it’s practical. We saw a little bit of that in the Great Recession where you didn’t have to take requirement distributions, or they lowered the social security, Medicare tax. The social security tax on individuals for a couple of years, but … Great idea, but probably not going to happen.

Jason: No, but you did bring up an important piece there when you just talked about required minimum distributions. For people over 70.5, people that are required to begin taking money out of their accounts … By the way folks, if you didn’t know this if you’re 70.5, you have to begin taking money out of your retirement accounts. The government wants you to start paying taxes on those things, but last year the government made a permanent change to the tax code that said that retirees can now gift directly from their IRA to a charitable organization. It satisfies the RMD, it doesn’t count against you from a tax standpoint, and it’s tax-free money to the charity. If you’re inclined to tithe or give anyway, I’ve got an article on this that I wrote where I compare tax returns, and you can visit that online at Sound Retirement Planning.

 Bob, I also want to remind our listeners we have the webinar replay, “How to create a sound retirement plan,” it’s going to be up for a limited time. Visit soundretirementplanning.com. It’s on the right-hand side of the screen. If that is a topic, if you’re thinking about retirement, if you’re getting ready to retire, if you’re thinking about social security, if you’re concerned about taxes, if you want to make sure you have a good diversification strategy, we talk about these things. We talk about bonds. We talk about annuities. We talk about the stock market in intelligent ways that we believe you could be diversifying there.

 One of the core concepts that we’re always talking about is time. It’s the one asset that most retirees have less of as they’re transitioning through retirement. You want to put together a plan that puts time on your side. The last thing you want to be doing is taking money out of an account that’s falling in value. Like you said, the idea of the government coming along and giving everybody a tax break every five years, boy I think maybe we should be voting for that guy that brought that question up. I know a lot of people would like the idea.

 You know what? That might really stimulate the economy too. I know a lot of us, we put a lot of money into that tax code every year. If we really want to get people out spending money, just put a little bit more money in their pockets. Let them go actually spend it. That might not be a bad strategy.

 With that being said Bob, we are out of time. I want to thank our listeners for being here. You’re listening to episode 94. What’s the title of this show again?

Bob: “Common questions.”

Jason: Common question, okay. This is Jason Parker, and-

Bob: Bob Harkson.

Jason: Signing out.

Announcer: Information and opinions expressed here are believed to be accurate and complete for general information only, and should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed on this program. Parker Financial its representatives or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussion are subject to the claims paying ability of the company. Investing involves risk. Jason Parker is the president of Parker Financial, an independent fee-based wealth management firm located at 957 Washington Avenue NW, Silverdale, Washington. For additional information call 1-800-514-5046 or visit us online at soundretirementplanning.com.