The Truth About Tax Brackets and Your Future

Think you’ll pay less in taxes when you retire? Think again. Discover why tax diversification might be the secret to keeping more of your money in retirement—and why most people get it wrong.

In this episode, April Schoen unravels the surprisingly complex world of taxes in retirement and reveals actionable strategies for tax-efficient retirement planning.

You’ll discover…

• A common retirement tax mistake that could cost you thousands

• Why your retirement income might be higher—and more taxable—than you expect

• Three critical types of investment accounts and how they each impact your future tax bill

• The power of Roth IRAs and cash value life insurance as overlooked tax planning tools

• What one simple analogy can teach you about planning for a tax-smart retirement

Mentioned in this episode:

• https://curryschoenfinancial.com/

• Contact the office: 850-562-3000

Transcript:

April Schoen: Hi and welcome. My name is April Schoen, and I'm glad you're here today, as we're going to talk about a super fun topic, taxes. Now, before we get started, I wanted to turn my camera on for a minute, just so you could see that I'm a real person. In today's day and age, when we have AI everything, I wanted you to know that I'm not some robot stuck behind a camera just reading off tax codes to you. 

And in a little bit, I'm gonna go off camera so that you can focus on the material and don't have to worry about, you know, what's my facial expression saying as I'm going through, talking about tax planning and trying to explain taxes in plain English, because that's what I'm going to do today. And today, we're going to be diving into tax diversification in retirement. What is that? Why does it matter? And how do you achieve that in your own financial plan? 

There's a lot of noise out there right now about taxes, about retirement planning, and I want to make this simple for you. I want to make it actionable, so you're going to know exactly what applies to you and how to start using that in your own plan. And I want to talk for a minute about why is this so important? Why is tax planning so important? And I want to use an analogy. 

So let's say that you wanted to buy a house in three years, but in the next three years, you don't think about it, you don't look into it, you don't care what your credit looks like. You don't see how much you need for a down payment or figure out how to finance it. You don't look at any of it. Well, guess what? In three years from now, you're not buying that house. Because you're not going to be ready to do that. There are things that you needed to do along the way to make it easier for you. 

So, imagine the other side of that is if you are proactive about it, and what a difference it would make. What if, in the next three years, you started meeting with realtors and mortgage brokers and you started just gathering information, and so you started looking into, hey, what sort of neighborhood do I want to live in? What sort of house do I want to live in? What's the price range for those houses? 

What's gonna be the best way for me to finance it? If you did that, if we were proactive about that in our own financial situations, think about all the difference that that would make for you. Unfortunately, when it comes to taxes, we see people making decisions in a vacuum, without thinking about everything, without taking everything into account. We're so guilty, I am too, we're so guilty of letting the tax tail wag the economic dog. I'm gonna say that again. 

We are so guilty of letting the tax tail wag the economic dog. Meaning we're so focused on reducing taxes today that we don't take into account how much we're going to have to pay in taxes later. And we actually end up doing some reverse tax planning, which is not what you want. Reverse tax planning says, I defer taxes today at a lower rate to only pay higher taxes later. Nobody wants to do that. 

That's not what they say come January 1 of 2025, you would like to do this year is I'd like to pay taxes today at a lower rate, just so in a few years I got to pay more. That's not what we want when we think about tax planning. But we can be guilty of that, of being so focused on the here and now and not thinking about how the taxes are going to impact us when we get to retirement. I work with a lot of people who are retiring from the state of Florida, and taxes can be a big issue. 

Because think about it for a second. If you retire from the state of Florida and you have your pension. Your pension is fully taxable. Social Security, most of it's going to be taxable. If you've got income coming in from deferred comp or from DROP, all of that's going to be taxable. So you're already going to have a lot of pre-tax retirement income coming in that can push you into those higher brackets. Not to mention when you hit 73 and you have to start taking your required minimum distributions. 

So you have to start taking money out of those retirement accounts, whether you want to or not. And so that is why this is so important that we start talking about this today. So I just want to say I'm glad you're here. I commend you for taking some time out of your day to learn about taxes. I know it's not the most fun thing ever. I'll tell you, I had a lot of coffee getting ready for this, so I'm going to try to make it as exciting as possible as we can today. 

So I'm gonna go ahead and share my screen and then, yeah, let's, let's roll up our sleeves and get to work. Perfect, perfect. So, yeah, as I mentioned earlier, what we're really going to focus in on today is tax diversification in retirement. I really think about that as you know, how do we make your retirement income better? How do we learn how to pay less in taxes so that our income feels like more? Even if we have the same income or we're paying less in taxes, that's going to be more money in our pocket to spend. 

And that's really what we want to go through today. And I got a couple of questions for you as we get into that. The first thing is, will your income in retirement be higher or lower than it is today? I'm gonna say that again. Will your income in retirement be higher or lower than it is today? So a lot of people that I meet in my practice will say, oh, I'm gonna be in a lower tax bracket when I'm in retirement, because that's what we're told. That's what we've been taught. 

But I will tell you that I don't find that to be true. That for a lot of people, that's not the case. For most of my clients, their taxes, their income and their taxes is the same or higher in retirement. Again, think about what I said a few minutes ago. If you've got a pension, you've got Social Security, you're taking income out of deferred comp, out of DROP, out of that 401k, this all starts adding up to your taxable income and can push you into higher brackets. 

So, the first thing when we think about having some tax diversification in retirement, the first question we have to answer is, will your income in retirement be higher or lower than it is today? That is actually going to help you when it comes to tax planning. That's going to help you know what type of accounts should you be putting your money into today? And if you're not sure, if I ask that question, like, if I don't know, then I will tell you that's an area that we can help you in. 

We can help you look at your own financial situation to see, hey, what if the tax landscape looks like today, and what is it going to look like for me in retirement? Another question, will tax rates be higher or lower than they are today? Will tax rates be higher or lower than they are today? I don't know. You know, this is when I wish I had my crystal ball, and I could tell you exactly what was going to happen. That would make my job a lot easier if I had that crystal ball. 

What I can tell you is that we are in historically low tax rates today. If we go back and look at tax history, we are in historically low tax rates today. And if you've been following what's happening with the national debt, it's hard to imagine that tax rates would be lower. It's hard to imagine that they're going to be lower than what they are today. I would venture to say that they're going to be where they are for, you know, we assume they're going to be kind of where they are for the foreseeable future, and then definitely can see those increasing. 

But that's the thing that we don't know. And that's where this diversification comes in, because we have to be able to adapt. If tax rates zoom back up to 50%, how will you handle that? Are you prepared to handle tax rates zooming back up to 50%? Most people aren't. What if tax rates do go down? So we gotta be flexible. We've gotta be able to adapt as those tax rates change. Here's what we're gonna go through and talk about today. 

Different types of investments and how they're taxed. I'm going to spend a good bit of time on this, because there's a lot of confusion on this part, different types of investment accounts that you have available to you, and how they're taxed. Both while you're saving into them and when you go to take money out in retirement. We're going to talk about the impact of taxes. Now, we all know the impact of taxes. 

I met with a client yesterday, and she's retired, and she's 73, so she's having to pull money out of her IRAs. And she's like, oof, how is this going to impact my taxes? I said, yeah, this is all going to be taxable income to you at your highest marginal rate. And if you don't know about something called IRMA. This is when your income can impact your Medicare premiums. And she's going to be in that situation. 

She was pretty borderline before she had to start taking money out for RMDs, and now those RMDs are pushing her over that limit, and so she's going to have to start paying more for Medicare. So you might want to jot that down, if that's something that you're not familiar with, is IRMA. Income Related Adjusted Monthly Amount, something along those lines. And you can look at, there are some charts, so you can see what your income bracket falls into, and if you'll be impacted by those IRMA brackets. 

And then we're going to talk about how do we actually get this tax diversification? A lot of people we meet with have all of their savings in retirement accounts. It's not that that's a bad thing. There's nothing wrong with the 401k. There's nothing wrong with an IRA or deferred comp or a 403b, but we just have to understand how that's going to impact us tax-wise. Okay? And we're also gonna look at a short case study. 

So we're going to look at how do we have the same income, but it spends, like more, because we're going to have higher after-tax income. And we're going to talk about how this is going to give you flexibility, so you can have more control over when and how to take income in retirement. Also having tax diversification, it's not just about income for you, although that's very important. That's really going to be the basis of what we're talking about today. But having this tax diversification actually allows you to have more tax-efficient options for your beneficiaries. I talk about this a lot with clients. 

When we look at all the different financial aspects they have in their world. And let's say they've got savings, and they've got non-retirement investments and life insurance, and they've got retirement accounts, and we talk through this. Which one is going to be the best for you to spend over your lifetime? And then what's the best assets to leave behind? And if we do it properly, if we plan it properly, we can achieve both things. We can achieve better outcomes for us, and we can also achieve better outcomes for our beneficiaries. 

So let's get into this today. And as I said, I'm going to start with talking about the different types of investment accounts that we have and how they're taxed. So as we kind of get into this, I'm going to go ahead, I'm going to turn my camera off, like I said. I just wanted to make sure you knew I'm a real person, and not just some AI robot behind the screen. And let's get into this today.

So I've got a couple of disclosures for you first, before we get started. And the main thing to note here is, I am not a CPA, and I'm not a tax attorney. I'm a financial advisor. I've been doing this for, I've been in the financial services industry for about 15 years now. I work with a lot of clients in helping them through this. But one thing I'm not is a CPA, and I'm not a tax attorney. So make sure that, as you are making notes and going through this, you really want to make sure that you get some good tax advice and some legal advice so that you don't have a big tax mistake. 

So as I mentioned earlier, about what are tax rates going to be in the future? So, when we think about using different types of investment accounts, this is how we can have tax diversification. Easy for me to say, right? So, using different types of investment accounts can help you achieve tax diversification. It can give you more spendable income in retirement. Isn't that what we want? And there are really three types of accounts that we think of. 

Tax deferred, tax favored, and taxable. And while we know there will always be taxes, again, we may not know and be able to foresee those changes in tax rates. So that's why tax diversification is so important, because when we use a wide range of investment options in retirement planning, you might be able to pay less in taxes. As you start to take money from these different accounts, and if they're taxed differently, this can lead to you having more disposable retirement income for you and your family. 

So let's start, we're going to go through first and we're going to want this first category, which is tax-deferred accounts. These are the most common approach we see to retirement planning. It doesn't mean it gives you the best outcome. It just means that we see this to be the most common approach. So the first thing we think of is tax-deferred accounts with pre-tax contributions. And I know that's a mouthful, so I'm going to give you some examples. This would be like a traditional IRA, a 401k, a 403b, deferred comp, and defined benefit plans. 

These are accounts that we put money into today that we don't pay taxes on. So I contribute to my 401k, you know, I put in 3% my company puts in 3% and you know, if I'm doing that all in a pre tax, not a Roth, then that money goes in today that I haven't paid taxes on, so I get a tax deduction for that, not taxed on that income. It's going to grow tax-deferred. So I don't pay taxes while it's growing. 

But when I go to take money out in the future, when I go to take money out in retirement, I am taxed on every dollar, every single dollar that comes out, and I am taxed at my highest marginal bracket. So I mentioned the client yesterday, who's got Social Security and a pension. She actually has two pensions. Her husband passed away. She's got her pension, her husband's pension, and then her Social Security. 

So she already has a good baseline for retirement income, and then when she goes to take out these required minimum distributions that gets added on top of her income, and then she has to pay taxes on that at her highest marginal rate. You also have to follow IRS guidelines, and there are a lot of them. There's a lot of IRS red tape. Let me just tell you a few. Okay, so you put money in these accounts, you can't touch them until you're 59 and a half. 

Some plans allow you to touch them at 55, but you know, a lot of plans, you can't touch them until you're 59 and a half, or you have penalties. Not only do you have taxes, but you have penalties. And then you can only put a certain amount of money per year into these accounts. They may have income limits. If you make over a certain amount, you can't put any money in at all. And then you're also going to have what's called required minimum distributions. 

So that means at some point in the future, you're going to have to start pulling money out, whether you need it or want it, and you have to follow the IRS's guidelines, or they tax, or they penalize you for it. And you go outside of any of those rules, and there's penalties. If you take it out early, if you don't take it out when you're supposed to, if you put in too much, if you make too much. These are all things that you can then have penalties. 

So again, nothing wrong with these accounts. We just have to understand how they work, and we have to understand how they're going to work when we get into retirement and we start taking money out of them. They're the most common approach that we see to retirement, but it doesn't mean it's the best. And it's the most common because it's systematic and automatic. Most of these are employer-sponsored plans. So it's your 401k, 403b, 457. These are plans that we checked a box on, and they started taking money out of our paycheck and putting it into the account, and they started doing it systematically and automatically. We didn't even look at it. 

It didn't even hit our bank accounts. We didn't have to make a decision. It just did it for us, and this is why they're so successful, not because they're the best, because it made it easy, because it made it systematic, because it made it automatic. The other type of account that we talk about are tax tax-favored. So those are tax-deferred. We have tax-favored accounts. So let's walk through how these work. These are funded with after-tax dollars. 

That's why they're not called really tax-free, because you have to pay the tax sometime, and we pay the tax today. So remember how I said we are historically in low tax brackets today, low tax brackets today. So this is why tax-favored accounts can be a good option, because let me go ahead and pay taxes today at a lower rate, so that then as it grows, it grows tax-free. So I have to pay tax today, and then as long as everything is structured properly, I don't pay taxes again. It grows tax-free. I can take money out of them tax-free. 

So this is why we call them tax-favored. Examples of these accounts, municipal bonds. Now we're in Florida. I'm in Florida. Florida doesn't have a state income tax, so I'll tell you, we don't use a lot of muni bonds, but that is an option for you. Roth IRAs, 529 plans are mostly for college savings. One thing I have on here is HSAs. Those are health savings accounts more for medical expenses, and you're only eligible for those if you have a high deductible plan, so I didn't include that here. And then you've also got cash value life insurance. 

And all of these are tax-free when it's structured properly. So we're going to get into more detail on those, how they work, how you put money in, how you take money out. And so we're going to talk a little bit more about those in a little bit. But those are tax-favored. Then you have taxable accounts. I call these tax as you go. Examples would be money market funds, CDs, mutual funds, stocks, bonds, real estate rentals. These are things that we don't put in, like a pre-tax vehicle. 

You could think of these as like brokerage accounts or a non-retirement investment account. But we call these tax as you go. They're funded with after-tax dollars, just like the tax-favored are, but what's going to happen with these is you generally will get a 1099 every year, and where you have to pay taxes on any sort of income that comes in. So that interest you earn on those CDs, it's taxable. So CDs have been very popular in the last few years because interest rates are so high. 

They're just not super popular come tax time, because you realize, okay, great, I got four or 5% but now I have to pay taxes on all of that. You know, if you've got stocks, bonds, mutual funds, ETFs, you may find that you've got a tax impact on those too, because even if you're not taking money out of them, because as interest comes into the account, dividends come into the account, any sort of like realized capital gains, these are things that we have to pay taxes on along the way. 

But you do have a lot of flexibility, some flexibility and choice here. One thing I like about taxable accounts is you don't have as much IRS red tape. There's no income limits, there's no contribution limits, there's no required minimum distributions, there's no early withdrawal penalties. So you actually have a lot more flexibility and control with these accounts. And the other benefit is when you go to take money out in retirement, it's not all going to be taxable, because you've been paying a little bit of taxes along the way. 

So when you go to take money out, you're going to have part that's going to be taxable and part that's going to be tax-free. So it can help you when looking at your tax planning and saying income planning, so hey, here's the income that I'm going to have coming in retirement, these different accounts it's coming from. If we think about those three accounts we just talked about, maybe I've got some coming from tax-deferred, so I know all of that's taxable. Maybe I have some coming from tax-favored because there's no taxes. 

And then maybe there's some from the taxable account, because that's partially taxable. And this is an area in which we help clients. First, figuring out where are you today, and looking at how much do you have in these three areas. Taxable, tax-favored, tax-deferred. How much do you currently have in these three different buckets? And then we can also kind of play what if and like, fast forward you to retirement and say, what is it going to look like when you get in retirement? And this is going to help you think through, what should I be doing today. 

If I'm saving into these different accounts, or maybe, you know, I'm only saving into one and not the others, do I need to continue the path that I'm down, or do I need to make some changes? And so that's something we help clients with. We actually put this information together in a super easy pie chart for you to see, so you can see how much is in tax-deferred, tax-favored and then partially taxable, so you can make decisions around that.

Now let's get into some tax planning strategies. And this is going to go back to some of those questions that I asked in the beginning. So when I asked, is your income going to be higher or lower and are tax rates going to be higher or lower, this is going to help you do tax planning. So let's talk about some tax planning strategies if you think you're going to have higher taxes in retirement. So, what are some options? Let's just talk about what that means. 

So if your income is going to be higher than it is today, if we think tax rates are going to be higher than they are today, then these are some strategies that you want to pay attention to. You want to contribute more to tax-favored. That's where you get the income comes out tax-free as long as it's structured properly. So some examples of that would be Roth IRAs, cash value life insurance. You pay taxes today, and this is so you can enjoy that tax-free income in retirement. 

So the accounts you choose for your retirement income that's going to depend on where you think your tax rate is going to be when you're retired. So if you think your tax rate in retirement is going to be higher today, either because tax rates go up or because your income will be higher, then you should put more into these tax-favored accounts. This way you're again, you're paying taxes today, and then you get to enjoy that tax-free income in retirement. 

The other thing I'm going to say about tax-free income is I can tell you when I'm talking with clients in retirement, and we're talking about, hey, like the client I talked to yesterday is putting in a new porch, front porch. And so she's like, hey, where should I pull this from to pay for it? And so we looked at all her options she had available to her. And one thing I find is that when people have money in those tax-deferred accounts, even though the money's there, even though it's available to them, even though that money is designed to provide them an income in retirement, the taxes cause people to think twice about taking the money out. 

So even though they have it there, they're like, oh, gosh, I don't want to take it out because I don't want to pay the taxes. So it almost locks it up in jail. Locks it up in prison, because you just don't want to have to pay the taxes, or because you know, you have to take out so much more because of the taxes to even do what you want to do. So that's where those tax-favored accounts come in. 

And people say, hey, I need some money to go take a trip, or I'm gonna go take some money out to, I need a new car. We're gonna remodel the house, like, whatever it is. If they're like, oh, this isn't gonna impact me from a tax standpoint, they're much more likely to actually do that. You're much more likely to actually take that money out to do those things. Now, what if, on the other hand, you think that your tax rates are going to be lower in retirement, so tax planning strategies for lower taxes in retirement. 

So, how do I have lower taxes in retirement than I do today? Well, my income could be lower or tax rates go down. So I would not plan on tax rates going down. I think we could plan more for them either staying where they are going up. But then you really need to look at your retirement income to see will your income be lower in retirement? That is not true for most of my clients. But yes, we obviously have clients where that's the case. 

I have a client who has been in higher education her whole life, but she doesn't have a pension plan, so everything is in a, 403b equivalent. She is going to have less income in retirement than she does today. So these are the strategies that apply to her. And what we want to do is we actually want to contribute more to those tax-deferred accounts. So if my income is going to be lower, my tax rates are going to be lower, then today, I want to contribute more of those tax-deferred accounts. 

That's traditional IRAs, employer-sponsored retirement accounts, 401ks, 403bs, 457s. All those workplace plans, because I want to take advantage of the tax deduction today. If my taxes are going to be less in the future, then how do I lower my taxes today? So I can defer. This is when it's good to defer. And so I take advantage of the tax deduction today, and then I'm going to pay taxes on taking that money out in the future. Now this is not again one size fits all. You can see how this has to be individualized. 

And I can't just blanketly say everybody should do this, because everyone's situation is different. So this is when we want to do some tax planning so we can understand where we are today, and what is this going to start to look like for us in retirement. And then we want to be able to adapt and make changes as we go. All right, so let's kind of get into this a little bit more in detail, and go through and talk about these different types of retirement plans and retirement accounts. 

And I want to talk about some alternatives. So, most people think of retirement plans. They think of that employer-sponsored plan. Some people think of a 401k, you know, if you're with like the state, county, education, some sort of nonprofit, like a hospital, then you might have a 403b or 457 plan. And that's again, this is why it's the most common, because what we think of when it comes to retirement plans, but there are a lot of alternatives. CDs, mutual funds, muni bonds, IRAs, Roth IRAs, and cash value life insurance. 

There are a lot of choices that we have. And there are two strategies that I find that are overlooked, which we're going to talk more about today, which are Roth IRAs, and then permanent life insurance, like whole life insurance. And so we're going to go into how both of those work and the tax implications and how they might apply to your situation. But before we get there, I want to look at the impact of taxes and why this can be so impactful. 

So again, tax diversification means that your money is in different types of accounts. So this strategy gives you flexibility and choice in determining how you're going to be taxed in retirement. So let me give you an example of how this might play out. So let's say that one client is going to take out $100,000 from their 401k, and they're after age 59 and a half. So don't worry about any penalties. 

What would the tax impact be? Now we're assuming that this person is in a 32% tax bracket. It doesn't really matter what the tax bracket is. It works on all brackets, but let's just say 32. This means they've already got a good income coming in, probably from let's say, two Social Securities, two pensions, what have you. And if they take out 100,000 from the 401k, then, and they're in the 32% bracket, they're gonna pay 32,000 in taxes, and that's gonna leave them with 68,000 left as net income, cash flow for them to spend. 

And then let's compare that with another option of saying, what if they took half out of the 401k, so 50,000 on the 401k, and then 50,000 out of a tax-favored asset. That could be a Roth IRA, that could be cash value life insurance. So now half, which is going to be 50,000 is taxed at 32% and the other 50,000 there's no taxes. So we get the same cash flow 100,000 out, but we only pay 16,000 in taxes, not 32,000. That's a huge difference. Huge difference. 

And again, like I said, you might be thinking, Well, April, you know, I'm not in the 32% tax bracket, and I get that, but it works no matter what bracket you're in. If you're in a 22% bracket, then think about that. So you would pay your 22% on half, and then the other half would not be taxable, and it would still reduce your taxes by half. It still cuts the taxes down in half. This is why it makes such a big difference. It's the same cash flow. 

This is what we want. We don't have the same income, if not more, but we want to pay less in taxes. How can we have the best of both worlds? So now we're going to do a deep dive into these tax-favored accounts, Roth IRAs, and then cash value life insurance. So the first thing I want to talk about is a Roth IRA, like, what is it? Again, we call it that tax-favored account. So you contribute with after-tax dollars. So I put money in today I have to pay taxes on. 

As it's growing, I'm not taxed while it's growing. It grows tax-deferred. There are no taxes while it's growing. I don't get a 1099, or anything like that. And then when I go to take money out in the future, I can get that money back tax-free when it's structured properly. April, what does that mean? Well, I'm going to show you in a minute what it means to be structured properly. They call it a qualified withdrawal from a Roth IRA, if you want to know the technical term. 

But yes, withdrawals are income tax-free when structured properly. Sometimes I get questions from clients, well, what is it? What is it in? And you can have a Roth IRA in any kind of investment vehicle. Wide range of investment vehicles. Sometimes I see people have Roth IRAs and the money's just sitting in cash. Now I don't normally recommend that for a Roth IRA, because if we get tax-free growth and tax-free income, we want it growing. 

But yeah, you've got all the options available to you, like you would in a normal retirement account. There are no required minimum distributions. This is when I say, under current tax law, could that change, absolutely but right now, Roth IRAs, you can let that grow for as long as you want. There's no required minimum distributions. And we usually in retirement income planning with Roth will position that to actually be a growth bucket, unless we're trying to meet some income and tax-specific guidelines or goals, we'll look at the Roth IRAs being in that growth bucket. 

Because sometimes we call this the tax-free inflation hedge. I'm gonna say that again, tax-free inflation hedge, because if it can grow tax-free, I could take it out tax-free, that's really going to help me when I need more income later. So that's really where we like to position that Roth IRA to be a growth bucket. And then also it goes income tax-free to beneficiaries. So this is also a good asset to leave behind, much better than the tax-deferred accounts. 

I know I'm not going to have time to go into it, but they have a lot of restrictions for what happens when that money goes to beneficiaries. So those aren't always the best to leave behind where like a Roth IRA would be. So how do you fund a Roth account? I keep saying Roth IRA, but there's also Roth accounts. But so how do you fund one? How do I get one? Right? You can contribute to a Roth IRA. 

Now you have to have earned income to contribute. So if you're already retired and you're not working in any capacity, you cannot contribute to a Roth. You could do a Roth conversion, but you can't contribute. So just know that you have to have earned income. There are also income limits and contribution limits. So they only let you put in a certain amount, and if you make over a certain amount of money, you can't put money in. Now, there are some workarounds to the income limits. We call it a back-door Roth. 

Again, I'm not going to have time to go into that today, but if you think that is your situation, that you make too much to put money into a Roth then reach out, and we'll walk through how the backdoor Roth works. You can contribute to a Roth retirement account through your employer, if they have one available. Not everybody does. I do have a Roth option in my 401k, my husband has a Roth option in his. 

So for us, when we're saving for retirement, all of that's going into Roths, but not everybody has that. So just make sure you want to check and see if that's something that would be available to you. And then you can also do a conversion. So you could take a pre-tax retirement account, like a 401k or IRA, and then you can convert that to a Roth, which we're going to talk about next. So Roth IRA conversions. 

This is when you convert pre-tax retirement accounts to the Roth. So in the year that you do the conversion, whatever amount that you convert is considered taxable income. So if you converted 50,000 this year, that 50,000 is considered taxable income. So there are a couple of things you want to ask. How are you going to pay the tax? Are you going to have the account pay the tax? Are you going to pay it out of pocket? When do you need to take income from this account? That's a very important question. 

When do you need to take income from this account? And then how much if you were going to take income, how much you take out? And then how is this account going to be invested? But the when do you need to take income and how much this is going to help you decide if you should even do a Roth conversion. Because if I'm paying all the tax today, then I really want to make sure that I've got time to grow. 

That I've got time to make up the taxes that I'm paying today. Now Roth IRAs have what's called a five-year rule. This is going to impact how distributions are taxed. So short answer is, is, if you've had the Roth for five years and you're over 59 and a half, then every dollar that comes out comes out tax-free. Let me say that again. If you've had the Roth IRA for more than five years and you're over 59 and a half, then every dollar that comes out is a qualified distribution and you don't pay any taxes on that. 

If you do not fit into those two rules, so you haven't had it for five years, or you're under 59 and a half, know there may be some taxes or penalties to pay. Okay, so that's the big thing on the five-year rule. Contributions are always income tax-free. So if I put money in my Roth, let's say I put 7000 into my Roth today, I'm 41. If I go to take it out, I took out my contributions. I don't pay taxes because I've already paid taxes on it, right? 

So comes back to me tax-free. And then converted funds are tax-free as well, but on the converted funds, if you haven't had it for five years and you're under 59 and a half, you can have penalties to pay on the converted amount. So again, you may not pay federal income taxes, but they may charge you the 10% penalty. So you want to pay attention to that part. 

If you're taking money out of the Roth and you haven't had it for five years and you're under 59 and a half, because that's when you can trigger taxes and penalties. So again, if you're over 59 and a half, and you had the account for five years, and it comes out tax and penalty free. If not, you really want to make sure that you work with a professional to understand how that is going to impact you from a tax standpoint.

Now let's switch gears. I've gone through the Roths. I want to talk about the cash value life insurance, and then we're going to keep going from there. So earlier, I mentioned a couple things we see overlooked. Roth IRAs, and then the cash value life insurance as a savings vehicle. And you may be like, I didn't realize it was a savings vehicle. How does that work? So you're probably familiar with the primary purpose of life insurance, and that is to financially protect families and businesses in the event of the death of the insured. 

That's what we call is the policy's death benefit. But permanent life insurance also has what's called, we call them living benefits. These are things that I can benefit from while I'm living so I can access the cash values for a range of financial purposes. That could be to supplement retirement income. That could be just to take more income out of my retirement accounts, because I have the life insurance to come into the family tax-free. 

So it can be this versatile financial tool that can help you create and increase your retirement income. So again, you might be familiar with some of the benefits, which is the tax-free portion, the income tax-free death benefit. So again, the death benefit comes in tax-free to the family or whoever is named as a beneficiary. You have tax deferred build up of the cash value inside the policy. So as you're paying in, as dividends are credited to the policy, you've got cash value that's building, and you're not paying taxes while it's growing. 

And then you have access to the cash values on a tax-favored basis. You can do a loan, you can do a withdrawal. There are different ways for you to access the cash, and again, as long as you structure that properly, you can do so on a tax-favored basis. So a couple of the benefits here. You've got the death benefit, which, again, allows for that lifetime insurance protection. We think of it, you can think of the cash value as a portfolio asset. 

So the cash value can be part of a comprehensive portfolio asset in your in your plan. We think of it as a non-correlated asset. Meaning the cash value inside the policy is not in the stock market. It never has a bad day. So like all this market volatility that we've been feeling this year, I know you're feeling it because I am, my clients are right. All this market volatility that we're feeling, guess what? My cash values and my life insurance are not down. They're actually up. 

So that's why we call it that non-correlated asset, because it's not in the stock market. You can have guarantees. This can be contractually guaranteed growth on the cash value. You can also have dividends. Now, dividends, of course, are not guaranteed. You really want to pay attention to what company you use, so that you use a company that's got a good history of dividends. But you've got dividends that can go back into the policy to help grow the cash, help grow the death benefit. 

You can take the dividends as income, so it's a way that you can supplement your retirement income is using the dividends. You've got other living benefits, some of this we talked about, where you can access the cash anytime without a penalty. There's no required minimum distributions. There's no time where the IRS is going to force you start taking money out of this. If you've got loans, you don't have to repay them. You can leave them outstanding, and then what happens when you pass away is the loan gets paid first, and then they pay the remaining death benefit to your family. There can be creditor protection. 

Now this is going to depend on states, which state you're in, so in Florida, we have great creditor protection and lawsuit protection. And so in Florida, your cash values are fully protected from creditors and from lawsuits. So it can give you definitely some more of that control where that other accounts, even like the Roth IRA, can't provide you. It gives you more benefits and can give you more control about when you take money out and how to use it as well. 

So we kind of go through, and again, talked about using these different types of accounts so that you can have tax diversification, so that you can have more income in retirement because you're paying less in taxes. We want to have the same cash flow, same income, pay less in taxes. And so no matter where you are, if you think you can wait longer or not, if you have to be proactive with your money. 

You have to be proactive with the decisions you're making, so that you can know your choices. We find a lot of people make decisions based on feelings, and we want you to make decisions based on facts. Based on knowing all your options, and so that you can make an educated decision. So if you've got your money going to these different accounts, you can know if that's the right decision and choice for you. 

And so as we're going through this, if you've got questions about some of this, you're thinking, April, I'm not sure how this applies to my situation, I would recommend that you schedule time for us to do a 30-minute focus session. And what we're going to go through is we can talk through these strategies that we went through today, and we can see if are they a good fit for you, right, or for your situation, which one is better? And it's incredibly important that you don't make these decisions without seeking professional advice. 

So that you don't make a big mistake and have a tax issue. These are great strategies for people to implement, but you've got to make sure it's right for you, because, as I said earlier, it's not one size fits all. We have to know which way you should go. So what I'd recommend with this focus session, 30 30-minute call, and what we do is we're going to get clarity on your goals and concerns. We're going to talk about what opportunities are available to you. 

Is it one of the strategies we talked about already? We're going to talk about, what are some action steps, what are some specific things that you should be thinking about between now and retirement. And I don't know if we're the right fit for you, because we're not the right fit for everyone, but I can tell you, after a 30-minute call, we can both determine if it makes sense for us to continue to work together in some capacity. And I'll be happy to share with you, like how we work with clients, how we help them, and how we work with them as well. 

So there's a couple ways that you can schedule this call. You can go to our website, curryschoenfinancial.com/call. Or you just go to our website, you're going to see a button that says, schedule a call, and it'll take you to my calendar so you can pick a time that works for you for a 30 minute call. You can also call our office, 850-562-3000. You can talk with Luke or Leslie, tell them that you heard my talk on taxes in retirement, and you'd like to schedule a time for a focus session, and they'll pull up the calendar and be able to help you pick a time that's going to work for both of us. And again, that phone number is 850-562-3000. 

Well, thank you again for joining us today. I'm glad that you took time out of your busy schedule to focus on the super fun topic like taxes. Hope you enjoyed it, hope you got some good kind of tidbits to take away from it. And then let us know if you've got questions specifically on some of those items, you can always shoot me an email, and I'll try to get back to you as soon as possible. And then I look forward to seeing you on the next call. Bye now.

Voiceover:  The primary purpose of life insurance is the death benefit. Life insurance is intended to provide death benefit protection for an individual's entire life. With whole life insurance the payment of the required guaranteed premiums, you'll receive a guaranteed death benefit and guaranteed cash values inside the policy. Guarantees are based on the claims paying ability of the issuing insurance company. Dividends are not guaranteed and are declared annually by the issuing insurance company's board of Directors. Any loans or withdrawals reduce the death benefits and cash values and affect the policy's dividends and guarantees. Whole life insurance should be considered for its long term value. Early cash value accumulation and early payment of dividends depends on the policy type and or policy design and the cash value accumulation is offset by insurance and company expenses. 

This promotional. Information is not approved or endorsed by the Florida Retirement System or the Division of Retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the Division of Retirement. This material is intended for general public use. By providing this content, Park Avenue Securities, LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, visit our website at curryschoenfinancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address, 1700 Summit Lake Drive, Suite 200, Tallahassee, Florida, 32317. Phone number, 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.

7898089.1 Expires, May 2027.

Future-Proof Your Retirement with These Key Tips

Navigating the intricacies of Social Security can feel like deciphering a complex puzzle...

But what if you had expert guides to help secure your financial future?

In this episode, John Curry and April Schoen explore the vital aspects of Social Security retirement benefits, offering insights on how to maximize them for a secure retirement amidst the backdrop of economic uncertainties.

In this episode, you’ll discover…

• The impact of demographic shifts on the sustainability of Social Security

• Strategies to maximize your Social Security benefits based on timing and work history

• How to navigate spousal and survivor benefits effectively

• The realistic concerns around the future of Social Security funding

• Essential factors to consider when planning your retirement income strategy

Mentioned in this episode:

• https://curryschoenfinancial.com/

Transcript:

April Schoen: Hello, welcome. My name is April Schoen, and I'm sitting here today with John Curry. 

John Curry: Hello, folks. Hey, April.

April: And glad you're joining us today. And the first thing is that what we're gonna be talking about today is about Social Security retirement benefits. We are gonna go through, like how to maximize them, what you need to know about the program so that you can make sure that you can secure your own retirement. Very important there. 

Secure your own retirement. But before we get into this today, I want to talk about why is this important. Why is it important that we're talking about this today? And I just want to commend you for being here because you're taking time out of your schedule, out of your day, to learn about this important topic. If you are paying attention, you're in the news. You're Googling. There are lots of concerns about the future of Social Security. What's going to happen to it? Is it going to be there? Are our benefits going to be reduced? 

So there's a lot of concerns around Social Security, even if you just go to try Google what's happening with it today. So it's important for us to understand that and know what's happening and understand some of those changes that might be coming down the line. And then what are things that you can do to protect yourself if we do see some of those changes.

John: But for those who've been doing this for 50 years, this is nothing new. It’s just getting recycled again, same topics, same issues, and we'll talk about some of that as we go through. Stuff I've heard in the past, stuff we're talking about today, and there are only a few things that can be done to fix Social Security, and we'll touch on those.

April: Absolutely. If you received our email about this talk today, one of the things I mentioned is that when John and I are talking to clients in our practice, new clients, specifically, they have concerns about Social Security. You know, we kind of hear the jokes. Oh, well, if it's going to be there, you know, these are not people who are retiring 10 or 15 years away. These are people who are retiring in the near term. 

And someone even replied to the email and had concerns about the future of Social Security. And I had a great conversation with her and and she's actually retiring soon, in the next few years. And I said, look, I really don't think that you're gonna have a problem with Social Security because you're so close to retirement. It's those 10, 15 at my age, I'm 41, that's going to see these sweeping changes to Social Security. 

John: I agree. 

April: So, let's kind of get into this today.

John: But I've been saying that ever since the ‘80s, when Ronald Reagan pushed Congress to make the first major change in Social Security in many, many years since it was founded, actually. And they didn't go far enough at the time to be honest about it. If they had, we would not have the problems we have today. And if there's time, we'll talk about that some. 

April: Sounds great. 

John: That's one advantage of being 72 years old and in business 50 years. You got a lot of experience in helping people do this stuff.

April: That's right. Lots of experience for us. So, these are my two boys. They are now, they're actually going to be nine and 12 this year, which is crazy. And pictures from a few years ago when they went on their first flight to Phoenix. They had a great time, but they couldn't help but feeling they were super excited, but they were also nervous about it, because they never phoned before. They didn't know what to expect. 

And we took some time to talk about it. We even watched YouTube videos so that they could see what does it look like in the plane. You may find this funny. We even talked about the bathroom situation. We're going to be on a long flight to Phoenix. We're going to have the bathroom. How does all that work on a plane? Because it was all this, this new experience for them. 

And overall, we had a pretty good experience on the flight. Except our first flight out of Tallahassee, we got delayed. Delayed by about 30 to 45 minutes. I couldn't believe it. It was because of a paperwork issue, which just makes me laugh. It wasn't a mechanical issue. It wasn't that we didn't have a crew member. It had to do with paperwork. 

And so we're sitting there waiting to take off, and then I'm starting to get nervous because I knew that our layover in Atlanta wasn't very long. And so the longer that we were sitting on that jet way in Tallahassee, I knew the shorter amount of time we had in Atlanta to get to our next flight. And so when we landed in Atlanta, we had five minutes to reach our next gate. 

So I was just obviously cutting it close, as you can imagine. So I told the boys, I was like, hey, give me your backpacks, and we're just gonna run through the airport together. I was determined we were gonna make it on time. And I told my oldest, I was like, you just hold Connor's hand, I'm gonna hold your hand, and we're gonna run as fast as we can. 

John: Like a train. 

April: That's right. Zoom, zoom, zoom. And we made it in time. We were one of the last few people to get on that next flight. But I was thinking back about it. It's interesting. They weren't nervous at all. They actually found it to be very fun. It added a thrill and excitement to it. And part of the reason that they weren't worried is because they had me with them, who had, you know, obviously, I've been flying a lot. 

I even knew, you know what, even if we miss our next flight, no big deal. We're gonna find another flight out to Phoenix. And so they had need to help guide them, and that really took a lot of stress off of them, and they could just enjoy it. And you know, I tell you all of this to say because I think that experience of that flight can be similar, like we've all had experiences like that, and it can be similar to getting ready to retire. 

Maybe we're stressed about it, maybe we're worried about it. Maybe we have unexpected delays, like paperwork issues. It's something we've never experienced before. But also being prepared, being able to adapt, seeking guidance, those are all the things that can really make a difference for someone, whether it's retirement or making it to Phoenix on a plane.

John: True. That's true about everything in life. That's why you hire personal trainers for fitness, things like that. You hire a nutritionist. Same thing. You hire somebody that knows more than you and that is willing to help keep you accountable.

April: That's right. So, today we're going to talk about how does Social Security work. Some of this you may know, but I think it'll be a good refresher so we can kind of understand the mechanics of it. We want to understand the key components of your own benefits and then what are some different payment scenarios on the program? 

So how does Social Security work? Now, Social Security has been around since 1935. That's 90 years ago, and it's definitely had some changes throughout the years, but really the basis of how it works, has remained the same. And that's that the Social Security Trust Fund is primarily funded from the taxation of wages by the current workforce. 

So current workers are paying current beneficiaries. And later, when we talk about one of the issues in the program, this is one of the issues that we face. Because in 1945, there were about 40 workers to one beneficiary. 40 to one. And Social Security estimates that by 2035, there will be, there'll be a two-to-one ratio, two workers for every one beneficiary. 

John: In 10 years.

April: In 10 years. So you can see how that, in and of itself, is putting stress and pressure on the program. We're going to talk about that a little bit later too, about some of those issues, and what are some things that you can do around that. Now, how you qualify for Social Security is you earn what's called credits. You need 40 credits to qualify you and your spouse for Social Security and Medicare. 

And with the credits, essentially, if you've been working for 10 years or longer, you and your spouse qualify for both Social Security and for Medicare. Social Security is going to take an average of your highest 35 years of work history, highest 35 years. And if you don't have 35 years of work history, then they're going to fill in zeros. 

So you can see how that would really pull down your average over time. And sometimes I get questions, well, April, my income, you know, 35 years ago was so low compared to what it is today. And they do do a future value calculation of like, what your income was 30 years ago, and they bring it to today's current dollars, looking at looking at inflation, and they adjust it for that. 

And if you go on to your benefits, which we're going to talk about in a second. You go onto the website, and you download your statement, you're actually going to see your earnings history listed on your statement. If you've never been on Social Security's website, we recommend you go and create a login. They don't mail paper statements anymore, but you can download them right on the website. 

We recommend that you don't just use their retirement estimator. It's just a calculator where you can put in your current salary, and it'll give you some estimates. But actually go and get your statement, your own record, so you can see everything. That's going to be a better estimate for you. And it's going to break down for you, this is actually an old picture of a statement because today, what it does is it shows you every age, starting at age 62, that's the first year that you could start Social Security. 

It shows you at every age, from 62 to 70, what your benefit would be. Now, when we think about Social Security, let's talk about what we should know about this program. And the first thing you need to figure out is what is your full retirement age, and the year you were born determines your full retirement age. So if you were born between 1943 and 1954, then your full retirement age is 66. 

And then if you were born in 1960 or later, it is age 67, and if you're born somewhere in between, they, uh, they extended it from 66 to 67. So you might be 66 and four months, six months, eight months, etc. And this is going to determine how you receive your full benefit. But you can claim it early, like we talked about a minute ago. 

You can start your Social Security benefit as early as age 62, but your benefit will be reduced, and it's a permanent reduction. Sometimes people think I started at 62, and it's a lower amount, and then when I get to full retirement age, they increase it. But that's not accurate. It is a reduced benefit, a permanent reduction. And then you can also delay taking Social Security until age 70. 

That is the latest that you can delay taking your benefit. And we're going to look at an example of what that looks like. So, let's say you were born between 1943 and 1954. If you took your Social Security benefit at your full retirement age, which would be age 66, then your benefit, these are current numbers for 2025. Then, the maximum monthly benefit available would be $4,018. 

If you took it early, you can take it as early as 62, you can see here your benefit would be reduced at 75% of what you would have received at your full retirement age. And if you take it at 63 or 64 or 65, they have calculations that are going to show what that reduction would be. And then you can delay taking Social Security every year that you wait past your full retirement age, which increases it by 8% per year. 

So if your full retirement age was 66, you can delay for four full years, which would give you 132% of your benefit. That would make your Social Security monthly amount at age 70, $5,108. So let's look at these options that we've got for delaying our benefit. If my full retirement age is 66 and I delay to 70, it's going to be worth 132% of my original amount. If my full retirement age is 67, I've only got three years to wait to age 70, and so my benefit would be increased by 124%. 

Now, some people think that you have to wait until you reach these specific ages, like it has to be on your birthday, and that's not accurate either. You can really start Social Security at any time, and these 8% increases, they'll increase it every single month. So if you waited to 67 and 10 months, you would have 10 months of an increase off that 8%. 

When looking at your statement, this is, again, when we recommend that you look at your own numbers, because you'll be able to see what your amount is going to be at age 62, full retirement, age age 70. And there's really, there's no perfect age for retirement that covers everyone. This decision to delay your benefit, to take it early, is going to be up to you, and you need to review your own life and your own circumstances to help determine when is going to be the best time. 

Now, this is an area in which we can help you. This is one of the big conversations that we have with clients is, hey, when should I take my Social Security? But there are some things you want to consider about, especially if you're considering taking your benefit early. Are you going to have any other earned income in retirement? Because, again, we're going to talk about this in a few minutes. If you take your benefits early, but you're still working, you have earned income. You may have a reduction in your benefits. 

That's one of the questions. Am I going to have any earned income while in retirement? How's my health? What are my other income sources? If I don't take Social Security, do I have other things I can tap into to let my benefit continue to grow? Thinking about longevity, your family's longevity history. Is that something, hey, are we planning on living a very long time? I hope all of our clients live a very long time in retirement.

John: Absolutely. 

April: And so planning on this longevity piece and taxes. So sometimes we are, oh, I'm gonna go ahead and start my benefit. I want to go ahead and start my get my benefits now and get my money now and then. Sometimes we'll ask the question, well, what are you going to do with it? 

Well, I don't need the income. Well then, okay, now you're going to stop getting your accrued benefits. Or your delayed credits. Now you're going to start getting a benefit and have to pay taxes on it. So we don't have a problem with people taking Social Security. Let's just make sure that we're doing it in the right order.

John: Another issue that most people don't think about is, I've heard people say, well, I don't really need Social Security. I understand, so delay it as long as you can because of the survivor benefit if the other spouse has a lower income. And we see people who should have waited, they didn't, then we see people that, like, in my case, I didn't wait to 70. I took my full retirement age 66 because of the time value of money. I wanted it now. But there are reasons why people should delay it, and one of those is making sure that upon their passing, that there's a higher benefit for the spouse. 

April: Absolutely.

John: And most people we talk to, they don't need thinking about that. Doesn't cross their mind.

April: And we're dealing with clients that not are only getting ready to retire, John and I really focus in on this retirement space and helping people who are getting ready to retire. Many of them are retiring from the state of Florida. We're located here in Tallahassee. So this question of what to do about Social Security comes up a lot. But then we also have clients who are already retired. 

You know, we had a client this year, he was 80, and he passed away. And so his wife, she lost one of their social security benefits, which we're going to talk about in a little bit about the widow and widowers benefits and how that works. And so sometimes we forget that's going to happen too. That, hey, we're both getting Social Security today, but one day, one of us passes away, there's going to be less Social Security for the surviving spouse.

John: Well, we take it for granted. It's coming in, it's steady. We don't think about it. It's on autopilot. It just pops up every month, and then all of a sudden, it's gone.

April: And between that and then having higher taxes, you've got to have a plan on how to handle those things, especially for the surviving spouse.

John: You just said something. Take just a moment to talk about the higher taxes.

April: This is something we don't think about, too. But when we have, when our spouse passes away, or we pass away, and now it's left to our spouse, what happens is we've now gone from filing a joint return to filing a single return. But we may not have a big change in our income. So yes, you're going to lose Social Security, but if you've got two pensions, you've got money coming in from retirement accounts. 

There are a lot of things that are just going to continue to be the same. And if you look at the tax rates on similar incomes versus a married filing jointly and a single income. That single income you hit higher tax brackets much faster on the same income that's been coming in.

John: And many people say that is unfair, especially to a widow or widower. All of a sudden, you've already lost the income anyway. So I have less income, but I'm in a same bracket or higher.

April: That's right. So definitely something you got a plan for on that. Now, what are some reasons why people would take Social Security at an early age? Or, you know, why are some reasons that they may want to delay it? When I think about taking it at 62, actually, I think about my dad. My dad took his benefit at 62, but that's because he had retired a few months, about 10 months earlier, and he was having some, he had hurt his back and couldn't work anymore. 

He was like, I remember us having a conversation about it, and him saying, I don't know what my life expectancy is. I don't know how long I'm going to be here. Now, knock on wood. He's 74, and he's still with us today, which is wonderful. So he's been getting those Social Security benefits for the last 12 years. I still think he made the right decision. Like you said, time value of money earlier. He wasn't working. Go ahead and get that income coming in for him, then. 

And then a lot of times, when we're talking with clients about this, I like to say, if you're saying, hey, April, here's my two choices. I'm either going to start Social Security, or I'm going to tap into my retirement accounts or my investment accounts. I say, tap into Social Security. Go ahead and start your Social Security benefits. That way, you're leaving your investment accounts, your retirement accounts, on your balance sheet.

John: I would argue one point there. It depends on what you think the tax bracket is going to be in the future on your retirement account because that's the most heavily taxed thing we have. That's the only thing I would challenge.

April: Yeah, but most people already have everything in retirement accounts. They don't have a lot of non-taxables, so. 

John: We see that a lot. 

April: We see that a lot. So it's kind of a moot point.

John: How to balance everything in retirement.

April: And then you may want to look at taking it at full retirement age if you've got two spouses and like when they're going to retire and being able to take those spousal benefits, which we're going to talk about in a little bit. And then, deferring to age 70, as John mentioned, if someone is a higher income earner. We want to have a higher benefit that goes to the surviving spouse. 

Maybe they don't have as much life insurance, and this is going to provide that benefit for them as well, or if they're continuing to work. What I'd recommend here is, if you're questioning when should I start Social Security, I'd recommend that we schedule a time for us to have a call. This is something that we help clients with. 

Throughout the week, whenever we're meeting with clients and working on having them develop a plan for retirement. And we'll talk about this at the end of the call too, how to do this, but scheduling a time for a discovery call so that we can take a look and answer your questions that you've got about Social Security. What kind of concerns that you may have and talking through this and when is going to be the best time for you to take Social Security. 

Now, Social Security does have a cost of living adjustment, a COLA. It's not guaranteed to have a COLA every single year, but they base it on the CPIW. So the COLA, the cost of living adjustment for this year, was two and a half percent. But we've definitely had years where we've had zero increase in benefits. 2011, 2016 are some examples of when we've had no increase in Social Security. So, yes, there is a cost of living adjustment, but it's not guaranteed. It is going to be tied to that CPIW. Your benefits are taxable, and how they do this taxable portion is complicated. 

They didn't make it the easiest to figure out how your benefit is going to be taxed. But we're going to walk through a few key things for you to know on how much your benefit would be considered taxable income. It's going to depend first on how you file your taxes. Do you file an individual or a joint return? And then, you have to figure out what your combined income is. 

And Social Security defines your combined income as your adjusted gross income plus any non-taxable interest plus half of your Social Security benefit. They didn't make it easy. And that is your combined income, and depending on the level of your combined income, is going to tell you if you have to pay taxes on your Social Security benefit, and then how much of that is considered taxable income. 

So if you file a single return, and your combined income is less than 25,000, no taxes. If it is not taxable, excuse me, it's not taxable income. If the combined income is between 25,000 and 34,000, then 50% of your benefit is considered taxable, and if your combined income is over 34,000, then 85% of your benefit is considered taxable income. 

Now, if you have a joint return, you file a joint return, and your combined income is less than 32,000, then your Social Security would not be considered taxable income. If it's between 32 and 44,000, then 50% would be considered taxable income, and combined income over 44,000, 85% of the benefit would be considered taxable income. 

You can have Social Security withhold taxes from your benefit. We had a client a few years ago who she didn't realize she could have Social Security withhold taxes. She actually got some penalties from the IRS because she wasn't having enough withheld for taxes.

John: Piece of trivia, real quick. Before the ‘80s, before Social Security was overhauled, there was no income tax on your Social Security. It was all tax-free. And there's discussion now about going back to that.

April: Going back to that. Now, if you are continuing to work and you're taking your Social Security, know that depending on when you start your Social Security, if you are working, you've got earned income, then they may reduce your benefits. So if you claim Social Security before your full retirement age and you earn over a certain limit, then they reduce your benefits. 

So if you took Social Security at 62 but you had wages over $22,230 in 2025, then Social Security is going to reduce your benefit $1 for every $2 over that limit. They also have another calculation if you take your benefit in the year you turn your full retirement age, but you haven't hit your birthday yet. So, I'll give an example. My birthday is in December. 

So if I started my benefit earlier in the year that I turned 67 in my case, but it wasn't December yet, then I may have a reduction if I'm over the limit. And then if I start my benefit in the month I turn my full retirement age. So for me, December of when I'm 67, then there's no earnings limit. I receive 100% of my benefit. They don't care if I make a million dollars a year, I'm gonna get my full benefit from there on. Sometimes, we have clients here that will retire early. 

They take their Social Security benefit, and they are going to work in some capacity, and they just choose to, hey, I'm going to work enough and keep my earnings under that limit. Maybe they work part-time. Maybe they're doing consulting, and they're saying, yep, I'll do enough work to hit that limit and not go over it.

John: I'm thinking about our friend right now, he'll say, nope, I can't take that job this year. See me next year. See me next year. Can't take it because I've already hit my limit. That's right.

April: That's right. Now, let's go through some different payment scenarios. The first is that there is a spousal benefit. So as we said earlier, if you qualify for Social Security once you've got 40 credits, you and your spouse both qualify for Social Security. And what the administration does is they're first going to look at your spouse's benefit record, which is based on his or her salary history. 

And if the benefit amount equals less than 50% of your benefit, the administration is going to increase their benefit to an amount that equals half of yours. So let me give you an example. Let's say I'm spouse A, and my Social Security is $1,000 a month. And let's say spouse B, my husband's name is Brian. Spouse B works perfectly. So spouse B, let's say that his social security benefit was only $250. 

Well, as a spousal benefit, he is entitled to receive half of mine, the amount equal to half of mine. So if mine's 1000 that he's gonna get 500 under the spousal benefit, not just his own record. And Social Security today has what's called deeming rules, and they're deemed to pay you the highest amount. So they're going to take a look at that when you go to file for Social Security and look to see, hey, should you take your own record, or should you take a spousal benefit. 

A few things to note is that to activate the spousal benefit, the higher earning spouse has to also be taking Social Security at the time. So if Brian's retired, but I haven't retired yet, I'm not taking my benefit. He can't activate the spousal benefit yet. He can take his own personal benefit on his own record, and then when I start Social Security, then he can start the spousal benefit. But the higher income-earning spouse does have to be collecting at the time to make that work. 

There is a widow or widower's benefit where you are entitled to receive 100% of the highest earning spouse's benefit. So again, my example earlier, let's say I'm getting $1,000 a month, and then Brian's getting 500 a month because he's getting the spousal benefit. If I passed away first, Brian doesn't get both. He's gonna get an amount equal to the higher of the two. So he'd get $1,000 a month in that case. 

So you can take widow or widower benefits early, even as early as age 60, but there is a reduction for that. And then also, if you have earned income, you may not qualify. That is the one thing with the widow and widower's benefit is they do have not income limits where they just reduce your benefit, but they have income limits where they'll say, no, you can't take it yet. You have to wait until the full retirement age. 

There are also payments for divorced spouses. So as long as you are married for at least 10 years or longer, the lower records and the lower record spouse remains unmarried, then that spouse is entitled to the same spousal benefit as if they had continued to be married. So, again, let's use my example with Brian. We've been married this year will be 13 years actually. 

So let's say we got divorced, we get to retirement, he would still be entitled to a spousal benefit off of my record, as long as he's not married at the time. He didn't get remarried. If I am remarried myself, then my spouse, my current spouse, is also entitled to a benefit, and it does not impact one another. You can have divorced spouses, current spouses, and there's no impact there. 

I've heard where in divorce and say someone tries to say in a divorce decree, if you don't do this, I'm gonna make it where you can't get my Social Security benefit. It was a client of mine who called me to ask me some questions about this is what her soon to be ex husband was telling her. And I was like, well, that's not accurate. He doesn't have control to say that you're not entitled to that. 

John: Correct. 

April: Now, let's talk about some issues around the program. One that we talked about earlier is the ratio of workers to beneficiaries and how it's shrinking over time. If you go to Social Security's website and you read their trust fund report, they're very honest about the situation. They're very honest about they expect that the trust fund will be exhausted by 2034. That date does change. 

Sometimes it's 2033, 2034, 2035, depending on kind of the current status, they update that every year. But like we talked about before, in 1945, there were about 40 workers for every beneficiary. And now, by 2035, they estimate there's only going to be two workers per each beneficiary. 

And what they're estimating will happen if nothing changes in the Social Security program at all between now and, say, 2034, that they estimate that they'll be collecting enough payroll taxes to pay about 76 cents for each dollar of scheduled benefits. 

So, I want you to think about that for a second. If your or someone's Social Security benefit was $1,000 a month, and this were to happen, and we start seeing a reduction. Now, instead of getting $1,000, they're going to get 70, excuse me, they're going to get $760. That's a 25% reduction.

John: Big drop.

April: So, let's talk about some changes that we could see coming to the program to solve that problem.

John: Some of the things that they talked about every time this comes up, going way back to the Great Commission, back in the 80s, you could increase the age at which you're entitled to a benefit. I personally think that nobody should ever have been allowed to take it at 62 unless they were of disability, which there's a provision for that. I think the system made a big mistake by allowing 62. 

At one time, you couldn't do it. It was 65. I think also, another thing you can see is much greater increase in the earnings cap on Social Security. Currently, there's a cap. I forget the exact number this year. I want to say it's like 150. 

April: I think it's at 180.

John: 180. That could become unlimited, just like Medicare. You could find that some of the spousal benefits you talked about earlier could be attacked. There's been discussion of that before about why should two people be collecting as a spousal benefit? And that's one of the reasons that the system met with 10 years. Said okay if you've been married 10 years, surely you should get something. 

And you know, just this morning, I heard an economist that we follow, Brian Westbury is his name, talking about these very issues. Some people are back on the track of pushing forward to be privatized. I don't think that will ever happen. I could be wrong, but every time it's been brought up, it's been shot down. Everybody agrees, Democrat, Republican, independents, that something has to happen. 

The problem is, are you willing to risk what is involved politically to take a stand? And that's why nothing has happened all these years. Talk, talk, talk, no action. And this is something I've been following for, well, since 1982. Paying attention to it and learning and studying, read everything I can get on it.

April: I do feel like they're gonna make changes before 2034. I don't think they'll just let it go the way it is and then see a reduction. I really don't see that as an option. The reason I don't see that as an option, and then, even when people say Social Security is going away, the reason I don't see that as an option either is there are too many people. It's their only source of income. 

John: It will never go away. 

April: It will never go away. No.

John: Tax rates might be much higher, and the amount you pay tax on could be higher. You might even see a change in the cost of living adjust. So there's a lot of tweaks that could be done that would make it last much longer, or maybe make it permanent without having a lot of pain, if the people in charge, i.e Congress, would get off their butts and do something about it. And I'm talking about all of them. I'm not taking sides here. Every damn one of them needs to be locked in a room and say you can't leave until six.

April: So you talked about the taxes earlier. So the limit for this year your tax for Social Security on your first $176,000.  So that has been proposed several times about increasing that to $400,000. That's been thrown around, of just increasing that limit to just a flat $400,000 of income. Or making it unlimited as well. I could see them doing that before they change ages. 

John: I agree.

April: Because that's like an easier change. Instead of saying, okay, we're going to get rid of 62 or now we're going to change the full retirement age from 67 to 68 or 69 or something along those lines.

John: And would be the easiest to do, and it would be the least political pushback doing it that way. That's been a big discussion many times over the years.

April: Yep, absolutely. And, you know, you just kind of brought up something about it being like the subject to these political agendas. I know you've called it before: political football. We hear about it, one every election cycle, and then it's also been a very hot button this year as well.

John: Well, let's talk about some of those political footballs. The talk right now, current administration is saying no tax on Social Security. That would be wonderful if there's a way to pay for it. But everything that's being discussed, and again, I don't care if you're Democrat, Republican, you know, independent, or whatever, you can talk a good game, but you have to show how to pay for it. 

And if you can find a way to pay for it, go for it. But unfortunately, we're spending money as a country and as individuals. I just saw this morning, again, the same economist talking about how the household debt today is the highest it's ever been, which is crazy. And it's getting worse, but yet we keep spending as a nation as if it were not a problem. 

So I don't say that to be doom and gloom, because I'm the kind of person I believe that once people get the facts and they see what's really happening, they'll make changes. How many times we've seen that when dealing with clients? Once they get the facts, they go, I got to make a change. Coach me, guide me, help me make a change.

April: We want people to make decisions based off facts, not feelings. 

John: Correct 

April: A lot of times, we make decisions based off feelings.

John: I think the majority of people do. You have to train yourself to be analytical enough to say, wait a minute. I'm reading a good book now about how Warren Buffett and Charlie Munger always invested. They removed the emotion from it, and either one of them had the right to kill the deal. They said, no, we're not doing it. We're going to rethink this. 

And you have to have that ability to look at it from almost like cold hearted, take the emotion from it, and you'll make a better decision when it comes to your finances, investing, retirement, things like that. That's difficult. That's why we should have someone else look at it. That's why I have you look at my stuff because I want to make sure I remove the emotion out of it. So I think this is what I want to do. What do you think? Give me your feedback.

April: Unbiased. I was working on something yesterday about just off topic, but something came through that that I thought was so applicable, either to thinking about, like, retirement planning, our own financial planning, and this had to do with the, it actually to do with scheduling your time and time blocking and things like that in your work week. And the quote essentially was something like, every time you deviate from your blocked schedule, you're stealing from your future self.

John: I like that. It's true.

April: I really resonated with that, not just thinking about okay time scheduling, whether that's like for business or personal, because what happens is I have a tendency then to set some boundaries, and then I let things kind of creep into it. And so it was every time that I do that I'm stealing from my future self. 

I really thought about it, in financial planning or retirement planning, we do the same thing. Because everything is fighting for us today. It's the mortgage, it's the groceries, it's the kids need help. Everything feels so important today, and it is. Feels urgent right now. And then we get to retirement, now retirement feels urgent.

John: Well, during my career, the two biggest issues were always saving for college for my kids, and planning for my retirement. But these two were at odds because if I put money aside for the kids to go to college, I'll have less money for retirement, which is true if you look at it that way. 

So then we have to be analytic. And I said, wait a minute. How can we have both? Maybe you have to put some in each account now and then, once college is taken care of, kids are gone, then you redouble your efforts for retirement.

April: One of the things that we talk about with Social Security, and along this financial planning or retirement planning, is an issue of how much Social Security is going to replace your income. And this isn't necessarily an issue with the program itself because Social Security was never meant to be your sole source of income in retirement. It was just meant to be a baseline or to add support. 

And this actually, this chart here actually comes from Social Security based off information in 2019, and this shows different pre retirement levels of income, and then how much of that income from Social Security is going to be replaced from Social Security, and how much is going to need to come from other sources. 

So I just want to look at this like middle option here, this middle income that those that have pre retirement income of $86,000. Yeah, that's pre-retirement income. Social Security would replace 32% of that pre-retirement income. So that's about $28,000 a year, $2300 a month. And then that remaining 67%, that remaining $58,000 per year is gonna have to come from other sources. 

And this is why it's so important that we do focus in on our own retirement plan to make sure that we are setting things up correctly. So, let's talk about what are some of those other sources of income? Where could it come from? First, it could be a pension. Maybe you have a pension. If you're retiring from the state of Florida, for example, you could be in the pension plan. 

You could be in the investment plan. You could have retirement accounts. You could have a 401k, 403b, 457, things that you've been saving along the way. You could have a non-retirement account that you've been saving. You could have real estate. You could have just savings accounts. 

There are other sources of income, but it's important for us to start looking at this, and the earlier we look at this, the better. So that we can have an understanding of what is our retirement income going to be in retirement. That's a lot of retirements. Retirement income in retirement.

John: Retirement income in retirement.

April: So if you're questioning that. If you're saying, hey, I don't know what my other income sources are going to be. I don't know even what my retirement income is going to be, this is where we can help you. Because one of the things that we do for our clients is something called a retirement rehearsal. 

Where we fast forward you to retirement, the day you're stepping off into retirement. And we're going to play what if. We're going to throw all your financial pieces on the table. I like to think of it like a puzzle. All the pieces are on the on the table. How do we put it together in the best way possible?

John: We throw you into the retirement swimming pool and say swim.

April: I was talking with a client yesterday, and she's planning to retire in about four years, and she has the same questions. I don't know, you know, what's my income gonna be? Is it gonna be enough? She's like, you know, I wanna continue living my same lifestyle. It's not like I want to go travel all around the world all the time. I just want to continue living my same lifestyle. 

And she's just trying to make sure, like, hey, that I'm going to be able to do that. And I think her words were, I don't want to have to move in with my daughter. I don't want to have to be, so we hear that a lot. I don't want to be a burden on someone. I don't want to have to go back to work at 80 if I don't want to. It's one thing if you want to go back to work, but not having to for financial reasons. 

So we talked through about, hey, let's look at it. Let's fast forward you and put all these things on the table. She's retiring from the state. She's going to have her pension, her Social Security, she's going to have her DROP. She doesn't know what to do with it, so we want to talk about what she's going to do with her DROP. She's going to have deferred comp. 

So like, hey, yeah, you've got a lot of pieces here. Let's figure out how to put it together. I think about the order of operations. If I am going to take money from somewhere, where am I going to take it from first? What are the best places for me to take it from, and how? So that's something that we help clients, coach them through as part of our planning process and as part of our retirement rehearsal. Anything else you want to add here?

John: The only thing that I think about when I see that graph is how many people believe that Social Security is going to be their primary source of income. The higher the income you're getting less and less replaced. But yet, the higher your income, you're paying more and more in tax. And that's just a fact. And if we do see the cap increased or totally removed, then you're going to see that number be really different. 

So just understand that you're paying for Social Security. You pay your taxes, employers are paying the tax on it, and you need to monitor it. I mean, you don't see it like a 401k or an IRA, but you're paying into a system, and most people look at it, they fuss about how much income tax they're paying. The Social Security withholdings, but they don't give it any more thought than that.

April: It's important to pay attention to what it is and what's happening with Social Security. What's that amount going to be? How is that going to impact your retirement? We think of Social Security as a retirement foundation because it's guaranteed streams of income. Pension, Social Security, this is really going to be someone's baseline, because it's going to be that foundation for them.

John Curry: I like to ask this question occasionally. What would happen if it went totally away? I ask myself that question. I'm 72 years old. I say, okay, if I could not rely on Social Security, what would I do? I would have to start tapping into the other retirement assets sooner. There'd be pressure on those assets about how long that would last. Going back to what you said earlier about what the trustees report is. If benefits were reduced down to 76%, I think we should go through that exercise as individuals. 

What if it did happen? I don't think it will. But what if it did? Plan for it. Because then, if you plan for it, you acknowledge it, you hit it head on. It's less fearful, and you say, well, you know that did happen. I can adjust. I looked at my numbers. I can. So if they make that change, then I'd have to take money out of other assets. Do I want to? No. Could I? Yes. So it's a matter of planning for that.

April: Hope for the best and plan for the worst.

John: Absolutely. How many times have we said that?

April: And if we can be okay in that worst-case scenario, which is not likely to happen, then it's going to be even better.

John: All of my working career, every time I had to make a choice about something, even buying a house, I would ask this question: what's the worst that could happen? Okay, I remember the first time I had a mortgage. I was like, boy that's big. What's the worst that could happen? Well, I lose my job and I don't have the money, and I can't pay it. Or I would come disabled. 

Well, I've got disability income insurance at the time. Or I die. Family loses it. Well, I've got life insurance, so that's not going to be an issue. So if I lose my job, I can't work, I've got savings that would take me through six months, nine months. So it's not likely to be an issue, okay, I'm good with it.

 But I've always had that mentality of thinking it through. And maybe it's because of being an aircraft mechanic when I was in the Air Force, I don't know. But it's questioning everything and asking myself, what is the worst thing that can happen? And then I'm good with it. Okay, if that's the worst that can happen, and I can live with that, let's do it.

April: Great advice.

John: And I think our retirement rehearsal helps people with that. Because you could see that if you continue on the track you're on, you will see the numbers. And now the numbers come to life. It's not just well, in the future you'll have X amount. You can actually see it coordinating with Social Security, pension, IRA, 401k, 403b, whatever you've got. You actually see your own numbers, and they're your numbers, and they're based on what you want, not what we want.

April: Yeah, I think it's helpful seeing black and white.

John: We can talk about tax rates, talk about inflation. We haven't talked much about inflation today. Accept the COLA. The COLA helps, but it's not enough.

April: Inflation cost for health care, lots of moving pieces to put in there, for sure. So what I would recommend is that those of you listening to this, if you've got questions about Social Security, you've got questions about, hey, what is my income going to look like in retirement. Questions, concerns, then I would suggest scheduling a time for a discovery call. 

This is a 30 to 45 minute call where we just go through and talk about, what are your goals, what are your concerns. We can talk about, hey, what what opportunities are available to you, what's holding you back? What are some things and steps that you can take to save you time? To save you money? To help you get to where you want to be even faster. 

And usually in these calls, we're able to give a few tweaks or ideas for you. And it also really helps us figure out, hey, should we continue working together in some capacity. Right now, I don't know if we're the right fit for you, but I can tell you that after a 30 to 45-minute call, we can figure out together if it makes sense for us to move forward in some capacity. And then we'll be sure to share with you, too. How do we work with clients? What are your options?

For a lot of our clients, we put together a financial plan, and we charge a fee for that, but we have different schedules and different plans available depending on the complexity of your financial situation. And so we're usually able to find something that works for everybody. 

There are a couple of ways you can schedule this call. You can call our main office number, 850-562-3000. You'll talk to Luke or Leslie, just let them know that you heard our talk on Social Security and you would like to schedule a time for a discovery call. You can also go to our website, which is curryschoenfinancial.com, and there's a big button that says, schedule a call. 

And you click on that, it's gonna take you to a link to my calendar, and you can pick a time for us to do a phone call. You can pick a time for a Zoom meeting as well. And again, that's curryschoenfinancial.com. So, thanks again for joining us today to hear us share our thoughts on Social Security, and we look forward to talking to you soon.

John: And I want to end with this. Just a reminder. Watch the news, be informed. But don't let either side of the political aisle scare you and make you do things that you shouldn't be doing. If you find that you're getting anxious, give us a call. Come see us. Let us help you do your planning.

April: Bye, now.

John: Bye.

Voiceover: The Social Security Administration has not approved, endorsed or authorized this material. Contact the Social Security Administration for complete details regarding eligibility for benefits. This promotional information is not approved or endorsed by the Florida Retirement System or the division of retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the division of retirement. This material is intended for general public use. By providing this content, Park Avenue Securities, LLC, and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, you can visit our website at curryschoeninancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address: 1700 Summit Lake Drive, Suite 200, Tallahassee, Florida, 32317. Phone number 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.

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Unlock the Hidden Benefits of Life Insurance Today

Life insurance might not be the most exciting topic, but what if it was the secret ingredient to securing your financial future and living your best life?

In this episode, John Curry and April Schoen dive deep into the transformative power of whole life insurance and reveal how it can be an essential financial tool for building and safeguarding wealth.

You’ll discover…

• Why most people, including sellers, misunderstand life insurance.

• The surprising ways whole life insurance can benefit you while you're living.

• How life insurance can provide a “permission slip” to spend your savings.

• Insights on leveraging whole life insurance for asset protection and financial planning.

• Real-life examples of life insurance transforming retirement strategies.

Mentioned in this episode:

• https://curryschoenfinancial.com/

Transcript:

April Schoen: Hello, good afternoon. Welcome. My name is April Schoen, and I'm sitting here with John Curry. 

John Curry: Hello, April. Hello everyone.

April: And we're excited to just talk to you guys today about the role of whole life insurance and how it can be a powerful financial tool. 

John: Easy for you to say!

April: Easy for me to say, that's right. And we're gonna talk about today how, obviously the life insurance has a death benefit, so it's gonna offer protection for your family or beneficiaries. Charities,  we're gonna talk through that, of course. But we're also gonna talk about how you can use it to build and safeguard wealth, which is something that not everybody knows that that's something that it can do for them.

John: I would say most people don't know. In fact, I would even argue that most people who are in the business of selling life insurance do not understand how to use the products partly.

April: I think a lot of people just think about it as being something that's left behind for the family. And, of course, there's a purpose and a role for that, which I know we're going to get into. But there are also benefits that you can use while you're alive. Those living benefits, we like to call them.

John: And I can't wait to talk about that. Because being in business 50 years and being 72 years old, I have utilized my life insurance in ways I've never, ever, April would have thought possible.

April: Well, I think it'll be interesting as we go through because I'm 41 you're 72. We could talk about how we both use life insurance in different ways at these different stages of our lives. And I think it'd be great for people to hear about too. Listen, I know that life insurance isn't exactly a fun topic. Most people don't want to talk about it. Most people don't wake up and say, you know what sounds fun today? Learning all about how life insurance works. But we're gonna make it fun along the way.

John: The title of my book on life insurance is Life Insurance, The Essential Financial Tool That Everyone Loves to Hate. 

April: That's right, that's right. 

John: You know why that is? Because none of us really want to face up to our mortality. And if we talk about life insurance or thinking about it, we're thinking about our death. Same thing we do getting a will done. So that's why people, they don't hate it, once they understand it, they love it, as you know, they want more. But it's that stigma of, yeah, but I don't think about when we talk about dying.

April: We tend to procrastinate sometimes with those hard conversations to have or things that are uncomfortable. So we don't want to talk it. We don't want to think about it.

John: It's not on my agenda to die today. 

April: Don't do that. It could really ruin my day, John. 

John: Mine too. 

April: So here's what we're going to talk about today. We're going to talk about, if you wanted to know, ways that you can build and protect your wealth in predictable ways. If you're looking for tax-efficient strategies to increase your retirement income, if you want security that's not tied to the ups and downs of the market, then you're in the right place, because those are all the things that we're going to talk about today. So, let's get into it.

John: Can I make another comment real quick? 

April: Of course.

John: I promise everyone who is listening that if you stick with us, you're going to learn things about insurance that you've never heard anywhere else and probably never will. And ways that you can benefit. I promise you that.

April: So here's what we're talking about. Why you may want life insurance. You'll notice it doesn't say need. It's not necessarily why you may need it but why you may want it. We're gonna go through the different types of life insurance. Key benefits of whole life insurance. We're going to talk a little bit about term insurance and when it makes sense. And then we're also going to talk about some case studies or some real-life examples. 

So before we get into the specifics, let's just quickly cover the difference between two types of life insurance that’re available and how they fit into financial planning. Because they're really two different types of products. You can think of them as apples and oranges. And they really do fit in for financial planning in different ways. 

So we're going to talk about the key differences between whole life insurance and term life insurance, and then we'll share with you too of how we've used them in our own planning and for clients as well. So, whole life insurance is, it's permanent coverage that doesn't have an expiration date. Sometimes you may hear someone say, it's whole life insurance. It's designed to be in place for your whole life. So it's permanent coverage. 

So, the death benefit does not go away. Obviously, it has the death benefit that comes in tax-free to your family, and then it's also going to build cash value. So this cash value is going to grow tax-deferred over time. So you're not paying any taxes while the cash is growing. And on that cash value growth, you can have guaranteed growth, and you could also have potential dividends. 

Now, that's going to depend on the insurance company that the policies are with, but we're going to talk a little bit more about that later. But that is something that helps both the cash value and the death benefit growth. But one of the things that we like also about the cash value is, you know, that it can act as an asset on your balance sheet. It's going to provide liquidity and stability in your financial plan. 

So we think of it more of like that, along with the savings components on our balance sheets. Along with retirement accounts, investments. You know, it's not that one is better than the other, it's that they work well together in tandem. And then term life insurance is temporary coverage. 

So let's say you had a policy that was going to be enforced for 10 years, 20 years, 30 years, you're going to pay a premium for that amount of time. And if you pass away in that time frame, let's say you had a 20-year term policy, then that death benefit would come into the family, tax-free. And at the end of the term, the life insurance goes away. If this is more of a protection-only vehicle, it's not really what we think about for the long term. 

It is going to have, initially, a lower cost. So this is really designed to have high coverage, high death benefit amounts with an affordable price. And it's good for younger families that are looking to protect their income against premature death. We joke, whenever I die, it’ll be premature, right? But, we really think about younger families. I give myself as an example. I'm married. 

I have two boys who are eight and 11, so I have a lot of financial responsibility. You know, if something happened to me tomorrow, not only would my family have an emotional loss, but they'd have a financial one as well. And I've taken care of that risk. I've taken that risk off the table with the life insurance that I have. So I have term life insurance to come in to help replace my income for the family.

John: And you've locked in your future insurability by doing that. I have a quick question for you and everyone who's listening. Would you rather own a house or rent a house?

April: Own. 

John: Tell me why. 

April: I'm going to build equity.

John: That's what whole life does. Whole Life is like owning the house. The term insurance is like renting the house. And there's a lot of benefits of ownership that none of us would ever dispute, and that's the difference between the two types of coverages. If you break it down to the most simple, simple explanation. You own it, you have control of it. You've got equity, tax-deferred growth on it, just like home equity. 

Term, you have coverage, but then once it's up, you lose it. And I would argue that it's not the lowest cost, it might be the most, it may have a lower premium, but if we're truly measured economically, like you and I have been trained to do and we educate our clients. It's usually more expensive to have term and do something else than to have the whole life.

April: Sure. Yeah. So I have, I both. I have term insurance, and I have whole life. So I have the term to have a larger death benefit today for the family, like I said, if something happened to me tomorrow, because it's important to me that financially for them, life is the same. If something happened to me, I want my husband, like you mentioned the house. 

I want him to be able to stay in the house. I don't want him to have to sell the house because they can't afford it now. And we've seen that happen with people. I want vacations to be the same and college funds to be the same. I want future weddings paid for. There are all these things that I want to still happen for my boys.

John: Think about what you're saying. What you want is the path you're on, you don't want your family to have to abandon that because of lack of financial resources. So you're insuring those financial resources. Which is huge. The most important financial asset you have is yourself because the economic value you create by working.

April: Absolutely. So make sure those protections are going to be there. Now, I'm not planning on dying tomorrow, and so that's why I also have the whole life insurance that I do. That's part of my wealth-building strategy. I know, as we're getting into that today, I'm going to share some more about my viewpoints on that too. So, before we get into more about these different types of insurance, I just want to pose a question. 

If we were, let's say we had a blank sheet of paper and we're designing like the perfect financial tool, one that's going to provide you security, flexibility, long-term success. What would some of those characteristics be? What would you want this tool to do? Or maybe to even not do? And I'm going to give you a list here of some things that we've put together when we start thinking about what would be an ideal financial strategy. 

Well, one, we want to minimize risk and loss of money. We don't want to put our hard-earned money, savings at unnecessary risk. So we'd want a financial tool that's going to offer stability. That's going to offer protection. 

We want to minimize taxes both while it's growing and when we go to take it out in the future. Taxes are something that can eat away at our wealth over time. So we want a tool that's going to allow for some more tax-efficient growth and also tax-advantage distribution. I want to have my cake and eat it, too. On both sides of that. 

John: Absolutely.

April: We want to earn a competitive rate of return. We don't want to just sit stagnant. We want our money to grow at a reasonable rate. We wanted to outpace inflation. We want to have long-term financial success. We want to be able to access our money throughout our lives. Flexibility is key. We should be able to access the funds when we need them, whether that's in our working years, retirement, or some sort of unexpected expenses that may come up. 

We want to be able to prepare for contingencies like death, disability, emergencies, unforeseen factors. Because we all know life happens. The ideal financial tools should be able to provide some built-in safety net for all of those things. And so what if we told you then that this financial tool does exist today, there is something that can do all of that, and this is where that life insurance fits in. 

The whole life insurance can check off those boxes, and that's what we're going to talk about next. So let's get into some of the key benefits here, of when we think about the whole life insurance and how that fits into your overall strategy, and why it's going to check off some of those boxes that we talked about. 

So first, it's going to have this income tax-free death benefit to your beneficiaries. So if you pass away, or when you pass away, that death benefit is going to come in tax-free. Could be to the family. It could be to an organization, a charity that you care about. But it's going to come in income tax free, which is unlike other assets that could be subject to estate taxes, income taxes. You think about if you're leaving retirement accounts behind. 

We were just talking with a client yesterday about wanting to leave some property to their daughter and how was the best way, from a tax perspective, to do that. So it's going to allow you to have more effective, easy legacy creation. It can include that guaranteed growth on the cash value and potential dividends. So whole life insurance offers guaranteed cash value growth, meaning that your policy value is going to increase every year, regardless of market conditions. 

We like to say it never has a bad day like when the market does. And not only does it have guaranteed growth, but many policies also pay dividends, which can be used to increase cash value, buy additional coverage, and can even be used to take as cash. We were just talking with a client who's retired and has her life insurance policy, and we were just talking about the options for her to use the dividends to supplement her income.

John: Take them in cash. Spend it if you want to.

April: That's right. So dividends are not guaranteed. Many financially strong insurance companies have a long history, though, of consistently paying them. So when we get to talking about, we start thinking about the insurance company and who you should be using, that's one of the things that you want to look at. What is their dividend history? The cash is going to grow tax-deferred. 

So, unlike taxable investment accounts, the cash value grows tax-deferred. You're not paying taxes on the gains every year. That means you get to keep more money in your pocket. This means your money is allowed to compound faster, which can help have longer term growth, and it's going to give you more flexibility in retirement because you can access those funds on a more tax-advantaged basis. The cash value is also liquid and available to you at any time. 

So unlike retirement accounts, where you might have to wait till you're 59 and a half, or you have to wait, let's say you can have an account for five years or more with some stipulations, you can have access to this along the way. So what are some things that you can use the cash value for? You can use it to cover unexpected expenses, pay college tuition, start a business, supplement retirement income. There's lots of flexibility.

John: Buy a house. 

April: Buy a house. 

John: I literally bought a house on the Florida River by using the cash values instead of using the bank money. I used the cash value loan, bought the property, and then I went and got a permanent financing letter. I was able to close on it, there were four couples wanting to buy it, and I told the seller. I said, I can have the money in 24 hours. He said, no way. I said, yep. He said, how do I know that? I said, hang on. 

I called the insurance company, got the lady on the phone, said we could overnight a check. He says, okay, it's yours. I went straight to the end of the back. Same thing with the house right down the road that I bought in May of '94. I was going to use money and my mutual funds for the down payment and closing costs. Market was down bad in May of '94. 

So instead of doing that, I borrowed on my life insurance policy. I used that money to get into the house. When the market came back up, I cashed in the mutual fund when it grew again. I could give you a dozen examples of how I've used it. Cars, business equipment, health insurance costs, not health insurance costs, but health costs when my mother got sick. I can easily give you a dozen, probably 20, that I've used, personally.

April: Lots of flexibility. That's what I a lot of people can get. Don't realize the flexibility.

John: I feel so strongly about it that the only other asset that I might consider more important might be my house. And I'm not even sure about that. House could blow away because of the cash value I can get a new house. If my cash value to blew away I'd be in trouble.

April: That's right. Well, speaking of some protection there, too. This is going to depend on your state, but you can have asset protection where the cash value is shielded from lawsuits and creditors. But again, this is going to depend on state law, so you really want to pay attention to that. We're in Florida. So here Florida, cash value is fully protected from lawsuits and creditors. You can have flexibility to adjust premiums. 

So you might could, again, we talked about the dividends, so you could use the dividends to reduce premiums, cover them for a period of time. You can modify the payment schedules as well. So it can be more flexible and fit into that long-term plan. You're not stuck with it a certain way. And it's also a non-correlated asset. 

So what does that mean? That means the cash value growth is not tied to the stock market. It gives you that more stability. So where we're going to see our investments, our retirement accounts, rise and fall with the market, this is going to be providing more like that, steady growth, no matter what's happening in the economy. 

So you can use this for more than just protection. It's a very versatile financial tool. And so next, we're going to get into how this can go into financial planning and then talk about some other key benefits as well. So how can it help you in retirement? Because sometimes people say, well, I'm going to retire, so I don't need my life insurance anymore. And the key word there is need. You may not need it, but you may want what it can do for you. 

So let's talk about where this fits in with overall retirement planning. John and I work with a lot of clients who are getting ready to retire and are into retirement, and so I can tell you, from us sitting with hundreds and hundreds of clients that one of the biggest concerns that they face is how much can they take from their money, their investments, their retirement accounts, without running out of money? 

And this is true for someone who's getting close to retirement and also into it. So we see this all the time about how much can I take out or maybe I need something, I don't want to spend it, because it's my just in case money. Just in case I need it, just in case this happens, just in case that happens.

John: And they don't use it so they end up leaving it behind, and someone else does all the things that they never got around to doing. I want to make a quick comment about something. You talked about you may not need a life insurance in retirement. People are guilty of canceling policies when they retire. I don't need it. But yet, you can't turn the television on now without seeing an ad for somebody willing to buy existing life insurance policies. 

So think that through for a minute. You got a third-party company who's willing to buy your life insurance policy or buy mine. They'd rather have mine because my age and health. So why would they want to do that? Because ultimately, there is going to be what's called the inevitable gain of a life insurance policy. Someday, you're going to die. 

That money will come in tax-free to someone. If I even bought it as an investment, maybe I pay tax on it, but it's still money I get that's guaranteed. So people are being told you don't need the insurance anymore. It's actually a sales pitch. You don't need this. 

You know, you're now retired. Let us buy the policy, and they'll give you money for the policy. Now, when you die, they get the death benefit. And all the cash value build up that's inside that policy is now theirs. So think through. A third party is willing to buy your policy. Why in the hell would you give it up? There i no way you're getting my policy. Period.

April: It's more economically beneficial for them. 

John: Absolutely. 

April: Than it is for you. Absolutely. So let's talk about this with this retirement planning. You know, a lot of people will underspend in their retirement. They don't spend what they could, because it's out of fear that how long am I going to live? Am I going to run out of my money? Is my spouse going to run out of money? 

So that's where we see they can underspend. So this is where some of the insurance can help, because if it's structured properly, this can actually give you a permission slip to spend other assets. So you know, you might hesitate to say, oh, I don't want to take too much out of my retirement accounts or my investments because I don't know how long I'm going to need them. 

But this is going to allow you to have more certainty because the life insurance is going to provide that guaranteed death benefit. So this is going to be more a safety net. It's going to allow you to spend down your other asset because you know the death benefit is going to come in tax-free. So let me give you an example. 

Let's say there's a couple, husband and wife, they're stepping into retirement. And let's say the husband has most of his retirement savings in a 401k. And again, he might worry about not wanting to take too much out, because how long am I going to need it for? Is it 20 years, 30 years, 40 years? How long is this bucket of money going to have to last me? So, instead of just taking out what they truly need, they might take out less. 

They might take out the bare minimum, which is going to just limit how much they can enjoy in retirement. So now think about the opposite, though. And let's just use some, we'll use some numbers too. But let's say that they had an equal amount in life insurance death benefit that he has in his 401k. How does that change his planning? What does that now allow him to do it?

John: He could spend every dollar, they could spend every dollar, and then we get into the best ways of using the money. Because if it's done properly, they increase their income and still not run out of money. But I'm in that mode now. At 72, I'm drawing down on assets that I want to use for things, and knowing that upon my death, all of my inheritance wishes are taken care of with life insurance. 

Everything else goes into the trust, so retirement accounts, investment accounts, real estate holdings, all that it's free and clear. That can go into the trust to provide additional benefits to the people that I love and care about. But I have the ability to take care of me first, without hurting them. So sounds kind of strange. If I didn't have a life insurance, somebody's gonna get short-changed, right? Either I will because I didn't enjoy the money, or they will because I did enjoy the money to improve my quality of life, and I spent it all.

April: Yeah, if you don't have insurance, your assets become your insurance.

John: Absolutely. Assets are not good insurance. And insurance is not good assets, as far as the death benefit goes. In order for it to become an asset, the death benefit itself, you got to be dead. But you can benefit from it without actually dying is the key point

April: So in this example, for this couple, if he knows that the life insurance is going to come in tax-free to fill that bucket back up, then he can spend every dollar. And then I agree with you, there's always some planning and strategies they can use to where they make sure they don't run out of money in that 401k. But even if they did, let's just say worst-case scenario happened. They still have their cash value. 

John: Correct.

April: That they could rely on if they needed to.

John: Let me amplify that, because I'm in a position now where I took a chunk of my retirement lump sum money and created a stream of income that will last me the rest of my me the rest of my life. Again, now I have more income. I don't have to worry about it. On the first day of each month, that check is direct deposited in my checking account. 

In addition, the life insurance is more than enough to replace that income upon my death. The cash values of the various policies I own I can tap into if I want more money for anything. I'll take a vacation. If I want more income, I don't need it, still working. The peace of mind is just unbelievable knowing.

April: It gives you that flexibility and that control. So it allows you then to confidently spend on other assets, knowing that you have this death benefit that's going to pass to the family tax-free. So again, it's getting more of that confidence and really letting you then have more control over what you do and don't do in retirement. So let's talk about some of the other benefits, but beyond just some of the security and stability that can enhance your overall plan. 

So we talked about this a little bit earlier, but may provide asset protection from lawsuits and creditors. Again, this is going to depend on state laws, but again, in Florida, cash value is protected from lawsuits and creditors. So this can be a very attractive option for business owners, professionals, high net worth individuals who want to make sure that they're protecting their wealth to have those protections in place for those unforeseen situations. 

April: So this can also give you more control. So I'm going to talk through a few things here on the control and flexibility side. One is having no tax penalties. So if you access the cash value before age 59 and a half, so unlike other retirement accounts, you're not going to have tax penalties. There's also no required minimum distribution. So you aren't forced to withdraw funds from this at a certain time like you are with those tax-deferred vehicles. 

This is going to give you more control over your taxes because you can strategically decide how to use the cash value to supplement income if you want, which can help you reduce your taxes. And again, there's no market risk, so your cash value is not affected when the market is down, which is going to allow you to time your withdrawals better. We're going to talk about that a little bit more later, what that actually means. 

But you can use the cash value for income when the market's down so that your investments have more time to recover instead of selling at a loss. Like John was talking about earlier with buying the house. Very strategic thing to do. Some people say, oh, well, the market is down. I'm just gonna do it anyway. But you can have other options and help you have another outcome.

John: Think about it. If I had taken that, I don't know what it was, just called $20,000. Let's say I had taken that out of a mutual fund. Well, I would never get that back because of sound. If it's not in the account, it can't grow, it can't recover. But I was able to weather the storm, and then 12, 13 months, whatever it was, the market was back, and I was able to use the money.

April: It's a great strategy. So not all life insurance companies are the same. So when you're thinking about a policy, you really want to take a look at the company and make sure that you're using a company that has a strong financial foundation, and it's going to have some favorable features and benefits as well. 

So here are a couple things you want to look for. You want to look for strong financial ratings, and also a company that's been around for a long time, so it has a long-standing history. We would say, look for company that's got 100 plus years of history. This is going to show stability, reliability. Think about all those economic things that they would have gone through in the last 100-plus years. 

That's also going to help make sure that company can deliver on guarantees and pay dividends. You want to look at dividend performance in history to understand how that's been changed over time. So you want to look for a good, strong dividend history, and also look for fixed loan terms instead of variable loans rates. 

That's something we were just walking through with a client the other day. And then looking at also just the different options they give, they have for you that you have availability of some policies that can build cash earlier in the policy, early cash value growth. Also allowing for convert a term insurance policy like I was talking about earlier. 

This can allow you to seamlessly convert that to a whole life policy with no medical underwriting. That's what John meant about for me having the term that I've locked in my insurability. So yes, I have the protection now, but what I'm doing is I'm strategically converting part of the term to whole life. And so doing that, I don't have to worry about the medical underwriting again.

That's what I've done over the years. I have no term insurance now, over the years, I've actually got it all upgraded. We call it converting in the business, but it's upgrading it to permanent, good quality of whole life insurance. And also we need to talk about the different types of companies. 

You have mutual companies, we have stock companies. 

And the best way to describe it think about a bank. A vehicle like a stock company. Okay, what's the bank's role? Board of directors is what? They got to make as much profit for the shareholders as possible, versus a credit union that works for the benefit of their members. So a mutual life insurance company is the preferred company if you can get your coverage there, because you're going to participate in the surplus, meaning, if there's a surplus at the end of the year, that's what determines that dividend. 

And I started off with a stock company 50 years ago, and I wish I had been with the company we're with now, with Guardian all that time because of their performance. And there's a big difference. I would say that most people have never had that explained to them in a way that they can see what that policy might look like, performance-wise, 10, 20, 30, 40, 50 years down the road.

April: Yeah. I, you know, I also worked for a stock company at first and saw firsthand new decisions that were made, like you said, to benefit more the board of directors or the stock shareholders, not necessarily the policy owners.

John: And I'm not picking on the stock companies because, frankly, I own some stock in some of those companies, via the ETFs and mutual funds. And if you have mutual funds, you do too out there. But if I'm going to want to protect my family and give me the best bang for the buck, then I want mine with a good quality mutual company. I did that many years ago.

April: Absolutely. So, let's get into some examples. Talk about some real-life examples where we've seen this come into play.

John: Before you go there, would you go back to that previous slide when you're talking about the cash value and designing policies. Let's talk about that for a moment. I think it's very important that everyone listening that whether it be us or someone else, find someone that doesn't just dabble at the insurance side. They're an insurance specialist. When I started 50 years ago, that's all I did was life insurance. 

Term insurance, whole life insurance, that was it. And then later, I wanted to do more of the financial planning. So two years later, 1977, I proceeded to become licensed to be able to do any type of investment account. But too many people don't do life insurance full-time. That's kind of like their dabble. They're called a broker. Find someone, whether it's us or someone like us, that can sit down with you and help you design the plan. 

Because there are different policies. It's like a toolkit, a toolbox. We've got all these policies, like different tools in that box that we can use. I own seven different policies, different types, all life category, but they are a different type of whole life for various reasons. But I just thought about needing to share that.

April: Absolutely. Okay, so real-life examples. So let's get into a few things here. One is obviously creating a legacy through the death benefit. So we'll talk about some options here. But this is really going to ensure, again, that your loved ones are protected. That they receive that tax-free inheritance when you pass away. So what can that be used for? It can be used for a spouse. It can be used to cover taxes, expenses. 

It can be used to leave a financial gift for children, charities like organizations that you care about. And you know, unlike market investments that are more market-based, this is going to have that guaranteed death benefit that's going to have more of that financial security than you can think of again, spouse, future generations. 

So, sadly, last year, we had one of our clients pass away, and going through and doing some income planning for his wife, she was going to lose a big chunk of their retirement income because she was losing one of their social security benefits. And he had life insurance. And so she was able to take part of the life insurance to replace the income that she lost from Social Security. 

She was also able to do some gifting. And this was very important to her, that she wanted to give money to her son, that she wanted to give money to her grandson, who's in high school, to make sure that he could pay for college. And so she was able to do all of those things. Have the income that she needs now, and also be able to gift things now, while she's still alive, to be able to see them enjoy it. 

You can use that cash value as liquidity, and so you can use it at any time for any reason. We gave some examples earlier. But we've had clients use it to buy a car, buy a house, an investment property, pay for medical expenses, pay to renovate the home, pay for kids’ college. There's a lot of options, float payroll. 

So there's a lot of different options out there why you can use the cash value if you need to along the way. And then you can also use it to supplement retirement income. So again, this is that cash value piece of the client, which was talking about, who used his life insurance to replace income she was losing. Well, she has her life insurance policy as well. Now she's doing great and fine and wonderful financially. 

She's not going to need to tap into that. That was likely just the death benefit will go to the family when she's passed away. But she does have it, just in case. It's going to be kind of that backstop for her, where, if she does need more income, let's say she needed it for care. That's an option, too, that she could use the cash value of her own policy.

John: I have a thought that I'm going to share. I own policies on several family members. So if you're sitting there thinking, well, maybe I'm to the point of where I'm uninsurable, I can't get life insurance, or I think the cost will be too high. The benefits of life insurance would help a lot of people. So in my situation, I own the policies, therefore, the cash value is under my control. 

I reserve the right to use that for me first, if I need to. But along the way, I've allowed different people and family, to use some of the cash to go buy a car, whatever, by doing a policy loan or as collateral for a loan. Then make sure to pay back. But as long as I'm living I own the policy. I die my trust owns the policy.  The structure is this benefit is in place to take care of their families later in life. And by making those premium payments. I'm saving money that I can use for them. 

I just paid two premiums last week on two policies I didn't have to. You mentioned the dividends earlier, April. I could have used the dividends, and had planned to, to offset the premiums to pay it for me, and it would have paid it in full on two people. But instead, I made the premium payment. On one of them, it's $8,009. The cash value increased when I made that payment of $8,009. Guess what the increase was for this year? 

April: What was it?

John: $15,000. 

April: Wow.

John: Almost double. Because it's been a force for a long time. So when I look at what I'm earning on savings accounts, I said, that's crazy. I took the money out of my savings account, paid the premium. And I can look at it each year and make that choice. But don't rule out insuring other people that you care about, because you, especially with children and grandchildren, imagine this. Long after I'm dead and gone, they have insurance in place that will help them. For everything you've covered here today, it would help them later, because of me doing it today.

April: Yeah, that's why I have insurance on the boys.

John: And it protects their insurability. My son was in a terrible accident, car accident in June of 2012. Unisurable for a long time, probably still is. But fortunately, I had term insurance on him. A lot. As much as the company would let me get. Also had insurability options on him. So, every time one comes up, there are two more. And when they come up, I'll exercise them. That way I'll get him covered because he couldn't get the same coverage. He could get the same coverage today, but it wouldn't be at the same premiums. Let's put it that way. It'd be much higher.

April: Yeah, so I think we've covered a lot here thinking about, yes, there is a protection from the death benefit, but it also is that powerful financial tool that's going to provide more of that security, liquidity, financial control.

John: I just thought of something else. I have two charities that I support, and so one of my life insurance policies, those two charities are the beneficiary. So money that I'm giving them while here today, when I die, they would lose that, wouldn't they? If I'm not here, they get no gifts. So the life insurance, by going to the foundations for these two organizations, will help continue the things that I've been doing while living. 

April: It's very powerful. 

John: It's very powerful. Long after I'm dead and gone, they're still getting the benefit of that. They'll take the proceeds, they'll invest it to help with the foundation's needs.

April: That's awesome. So today, you know, we've covered a lot of these strategies. Thinking about how to build, protect, grow wealth. And so the question that is going to be is, is this strategy right for you? And it's really important that you don't try to implement these strategies on your own without some professional guidance, because the last thing you want to do is make a mistake that's going to cost you taxes, lost opportunities, financial security. 

So make sure you don't make a mistake. So make sure you're working with someone on these strategies. And if you're curious about them, then I encourage us to schedule a time for a consultation. So at this call, at this session, what we would do is, we're going to help you get clarity. Clarity on your financial goals and concerns. We're going to help you identify opportunities. Is it one of the strategies we talked about here? 

Would one of those be a good fit for you? We're going to talk about are there any roadblocks in your way. And then also map out some next steps that’re going to help save you time, money, and effort, getting you closer to those goals than you have. And I don't know if we're the right fit for you, because we're not the right fit for everyone, but I can tell you that after having this session, we can determine if it makes sense for us to continue working together. 

So again, this call is complimentary. There's no charge for it. And so this call would really be for you if you're motivated, you're committed to reaching your goals, you're coachable, open open-minded, you're willing to listen to some new ideas, and that you're an action taker. But this calls not for you if you're not coachable, you're not open to any professional guidance, and if you're just really expecting a lot of free consulting along the way. 

So the best way to schedule a call is you can go to our website, which is curryschoenfinancial.com, and there's gonna be a button that says, book a call. It's very easy. It's gonna take you a link to my calendar. You can select a 30-minute call, and you'll see the times that are available. 

You can also call our office. So you could call 850-562-3000. Again, the number is 850-562-3000, and you can tell Luke or Leslie that you were on the webinar, that you heard our podcast or our YouTube video, and that you'd like to schedule a time for your complimentary consultation. I hope you guys enjoyed today. We look forward to helping you take the next best step to having a more confident and secure financial future, and we look forward to talking to you next time.

John: This was fun. I enjoyed doing this. Have a good day, folks. 

April: Bye, now.

Voiceover: Whole life insurance is intended to provide death benefit protection for an individual's entire life with payment of the required guaranteed premiums. You will receive a guaranteed death benefit and guaranteed cash. Cash values inside the policy. Guarantees are based on the claims paying ability of the issuing insurance company. Dividends are not guaranteed and are declared annually by the issuing insurance company's Board of Directors. Any loans or withdrawals reduce the policy's death benefits and cash values and affect the policy's dividends and guarantees. Whole life insurance should be considered for its long term interest value. Each cash value accumulation and early payment of dividends depend on policy type and or policy design and cash value accumulation is offset by insurance and company expenses.

Consult with your guardian representative and refer to your whole life insurance illustration for more information about your particular whole life insurance policy. Although noted as clients, the examples given in this podcast guests are all hypothetical and fictional and have been created solely for educational purposes. Any resemblance to existing situations, persons or financial characters is coincidental. The information presented should not be used as the basis for any specific advice. This promotional information is not approved or endorsed by the Florida Retirement System or the division of retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the division of retirement. This material is intended for general public use. By providing this content, Park Avenue Securities, LLC, and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation or to otherwise act in a fiduciary capacity. 

If you'd like additional information about our services, visit our website at curryschoenfinancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address: 1700 Summit Lake Drive, Suite 200, Tallahassee, Florida, 32317. Phone number 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian. 

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5 Risks in Retirement

Retirement is not without its challenges...

What are the key financial risks and how can you safeguard your future?

In this episode, hosts April Schoen and John Curry unravel the top five financial risks in retirement, and share insights on how to effectively manage and reduce them for a secure future.

You’ll discover:

• The surprising impact longevity can have on your financial security.

• Why traditional financial planning may not be enough for your retirement.

• How market volatility could be a hidden danger in your golden years.

• The role of taxes in your retirement income and how to plan wisely.

• Essential questions to ask yourself as you prepare for retirement.

Mentioned in this episode:

• https://curryschoenfinancial.com/

Transcript:

April Schoen: Hello, good afternoon and welcome. My name is April Schoen, and I'm sitting here with John Curry. 

John Curry: Hello everyone. Hello, April. 

April: And glad to be here today. And what we're going to be talking about are five financial risks in retirement, and how do you avoid them? How do you reduce these risks? Now, these five financial risks, we face them all the time, not just in retirement. 

We face them when we're in our early years, mid-career, even as we're getting close to retirement, you'll see how these five financial risks really are always present. But they impact us differently when we're in our working years, and then also when we step off into retirement. So I'm excited to get into that today.

John: I would say that when you get into retirement, post retirement years, especially, you're going to have more of a multiplier effect.

April: Yeah, yeah. And we'll talk about how even those are compounding, right? That compounding Absolutely. So let's take a look at, as we're going to be going through this today, what we're going to really talk about is one, why doesn't traditional planning work for retirement? And it's because of those risks. It's because those risks impact us so differently when we're in our retirement years than they do when we're in our working years. 

So we're going to go through that today and talk about what is, first of all, you might be asking, well, April, what is traditional financial planning? What does that even mean? So we're going to talk through what do we see that you know, from a traditional standpoint for retirement. 

Again, it's one of the things that we can find that is a very common approach to retirement planning, but is not the one that always gives the best result. So we're gonna talk through first, what is that, and why it doesn't work for retirement. That's because of these risks that we're gonna talk through, and how they impact us differently in retirement versus when we're working. 

And of course, then we're going to get through and talk about those risks and some key tactical things that you can do to reduce those risks. You may not be able to get rid of them totally, but how do we reduce them? And sometimes it's even just acknowledging that they're there, that they exist. 

And if they come up for us, how are we going to handle them? And then lastly, we're going to get into some questions to ask yourself as you're getting ready for retirement. So questions to ask yourself so you can be prepared for retirement. So we'll walk through that as well. So what are those five risks? I just said five financial risks several times, and you may also be wondering, well, what are they? 

So what we're going to talk about today, these risks, are living too long, becoming sick or hurt, market volatility, and boy, aren't we seeing that in the last few weeks, taxation, and inflation. So those are the five financial risks. There are more, obviously, these are just the big ones and the ones that we really want to talk about as concerning retirement and the impact they have.

John: I think it's interesting. You got three out of the five that are front and center every time you turn the TV on right now or read a newspaper, if you see people look at newspapers anymore, or check your social media, whatever, but you see it every day.

April: Mm, hmm, mm, hmm. The market.

John: A lot of uncertainty because of not knowing what's gonna happen with the tax laws.

April: What's happening with taxes? Inflation, we've been hearing about that for the last several years, and we're still hearing about it. Those top two, the living too long and becoming sick or hurt, these are things that impact us on an individual basis, right? So how you, John, may be impacted is going to be different how I would be impacted by those two things. This is all going to be about our personal economic, financial situation.

John: I used to say, all the time living too long or and possibly dying too soon. But no matter when I die, it's too soon.

April: Too soon! I know you might be living too long. How is that a financial risk? But we're gonna get into that. But yeah, those really impact us all on more of an individual basis. And then the other three, market, taxation, inflation, these are all broader economic risks that impact all of us. 

So let's get into a little bit about what is traditional financial planning when it comes to retirement. How does it work and how may it impact you in retirement? So again, we find this to be a very common approach, but it doesn't always give the best results. And you may have heard of it by many names. It could be called the 4% rule, the safe withdrawal rate. You may know it as an interest only strategy. 

So we kind of walk you through how it works. The idea with this traditional approach is that you save as much money as you can. The whole goal is to amass as much money as you can inside your retirement account, or your investment account. And then when you get into retirement, you're now going to start taking, like, a fixed percentage out every single year. 

And that's where it got its name, being the 4% rule was, that's how it first started. Was to say, I'm going to take 4% out of my portfolio. So the first thing I just like to know, here we are. We have this investment, this retirement account, that one is in the market and is volatile and is up and down, is not fixed. It's not linear. 

And we're going to start taking out these consistent withdrawals. So you can see how there's already some tension, there's already some conflict between these ideas. And honestly, the 4% doesn't always give you a lot of income, because if you think about 4% on a million dollars, that's 40,000 a year. So does it feel like I'm getting a lot of income from that bucket?

John: Not at 4% it doesn't.

April: No. So then it can lead us to feel like we're getting less income because we're restricted to how much is it that we're taking out of this account. We have to pay more taxes, because, no matter if it's in a retirement account or if it's in a non retirement account, if we are doing this interest only strategy, it's always taxable all the time. 

We have no reprieve from taxes. We have to take more risk, because it has to be invested all the time. We can't take it out of the market, because it's got to keep up with that 4% if not more, over time. And we have less liquidity, because if I now have this bucket earmarked for income, I can't use it for anything else. 

John: It's locked up. 

April: It's locked up. Or if I do, that means I'm gonna have less income the next year. So we have to have a way to plan for liquidity, because we know that you're going to have times in retirement that you're going to need access to money, whether you want it or need it. So we've got some clients we met with a few weeks ago, and they want to take a big trip to Africa. 

They want to take the kids, all the grandkids, the whole family, go over for like, two to three weeks. It is a big trip, but you could just see how excited, their whole face lit up talking about going on this trip. They've been playing for a long time. So that's not going to come out of their regular income. 

This is going to be this liquidity need that they're going to have of something that they want to do. You know, I was telling the client earlier in the week who's retiring next year, and she's like, you want, I got to get a new car. I want a new car before I step off into retirement, which is a very common thing for us to talk through with clients. And again, how do we have that liquidity? So we're going to talk through some of those things,

John: And some of them want to buy a motor home. 

April: Yes, yes.

John: $150-200,000 investment in a motor home.

April: So again, while we find this to be very traditional, it doesn't always give us the best outcome, and that's because we have to realize that when we get to retirement, we start taking money out of our investments, out of our retirement accounts, that it's different. It's different than when we were saving money all those years. So I want to use an analogy of if we were climbing up and down a mountain. 

So imagine, you know, when you're in your working years, your in your saving years, this is when you're climbing up the mountain, and so you're taking income and you're saving that back on your balance sheet, or your earning, maybe even, like pension credits, all of these things that we're doing in our working years with the eye towards retirement. 

And the goal is we get to the top of that mountain, hooray. And this is when we step off into retirement and we start going down the mountain. And when we're doing this, we're climbing up and down the mountain, there are certain forces, like gravity, that are always present. 

It's present when we're going up the mountain, it's present when we're going down the mountain. But they impact us differently. So if you're like me, and if you've ever like, tripped and fallen, like going up the mountain, you're going up a hill is very different from when you're going down.

John: Let me jump in first on here. In June of 2000 I went with the Boy Scouts to Philmont Boy Scout Ranch. And in getting prepared for that 12 day hike, 85 mile adventure, I hired a trainer to work with me, and he taught me something that I had never thought about. He had done mountain climbing. 

He said we got to work on muscles you never use because you're thinking, you're just going to go up the hill. That's easy. Coming down is where most people get hurt. Broken ankles, broken knees, hips. So we got to work on reverse engineering what you think you need. And it was amazing, because he had me work on muscles I'd never even thought about. And at the time, I was 50 something years old. 

At the time of doing that, I was doing better than some of the young kids, because they, while they were more flexible and younger, they didn't have the right muscles developed. And I think about that every time we discuss this, about going up and down the mountain of financial issues. It's no different in the real world. It's just gravity, it's also rocks on the ground, or a stump or a root rather.

April: That's right, yeah. And so, like, just like gravity is always there. It's the same thing when we think about these financial risks of they're there when we're, you know, in our working years and when we're in retirement, but they impact us so differently.

John: Looking forward to, I want to add something when we get into the distribution phase. More about what I'm experiencing now, and how this planning has helped me deal with that.

April: Absolutely. I mean, what's great is I love when John and I go through this, because we have, you know both, you know, both perspectives here. I'm 41 and John is 72 and so while he's still working, he's not, you know, fully retired, we still have two different perspectives of being more on that kind of early, mid career versus in retirement.

John: Correct.

April: So we can share with you both of our viewpoints here. So let's talk about some of these risks that we face. So the first risk we're talking about is mortality. That's the one we said earlier, is living too long. So when we're in our working years, the risk isn't living too long, right? It's what if I die too soon. 

So for example, in my case, I'm married, I have two boys. They're ages eight and 11, and so the risk that I have to my family is, if something happens to me tomorrow, I pass away, that the family has lost, you know, my income. Now they have this financial change to their world, and I've taken that risk off the table because of the life insurance that I have. 

But when we get into retirement, it's not dying too soon. It's the opposite. It's living too long. It means that I'm outliving my resources. And as we go through these other risks, in fact, mortality, or sometimes we like to call it longevity, that actually compounds all the other risks that we face. John, I've heard you say a million times, if we saw tax rates go up to 50 or 60% but you only live two years in retirement, does it? 

John: No big deal.

April: No big deal. It doesn't really impact you. But imagine living 20, 30, 40, years in retirement. 

John: Now you're in trouble. 

April: Now you're in trouble. So it's this idea, and I hear this all the time from clients of I don't want to be a burden on someone. I don't want to have to go back to work at 80 if I don't want to. And that's what they're talking about here. It's this idea that I'm outliving my money, outliving my resources. There's also the risk or threat of what if I get hurt or sick. So again, in my working years, if I got hurt or sick, it's what happens to my income. 

So I'm still here. I didn't die, but I can't work. I can't bring in an income for our family. So like in my case, it would all be on Brian, my husband, to support the family. But when we're in retirement, it's not a loss of income, because you're not really going to have a loss of income from that case, because your income is more, not from an earned basis, like in your job. It's more about the cost, the expenses, the cost of care.

John: But may I challenge you on that? What about the people we see, though, that have not done a good job of proper insurance? So now their investment accounts, their retirement accounts, have to become double duty. 

April: Sure.

John: They're having to take money out, sometimes at the worst possible time and the worst place tax planning, out of the retirement account. Because they have 30, 40, $50,000 that they got to spend because they were not properly insured. 

And that's true of all types of insurance. The car insurance, your health insurance, life insurance, whatever you have a choice to make. Do you insure it yourself by taking that risk with your assets? Or do you have professional insurance to cover that?

April: You know, I think, what I think of when we talk about this is when you had your amputation in 2021, and had to have all the remodeling done at your house. You know that you didn't have that on the agenda for that year. You didn't plan for that.

John: Came out of my assets. Out of savings account. Of course, I had the money to do it, so it didn't cause me any inconvenience, but I'd rather have that money in my pocket than give it to the other people.

April: Sure, sure. But those are things that can happen that we do have to dip into our assets for that, or have, you know, needing care for a longer period of time.

John: We don't sell Medicare Supplement policies, but it's the same thing with dealing with my cancer now, and also the amputation, but also the cancer bills. Between Medicare and my supplemental policy, I've not had the dip into my personal savings or investments to pay that whopping $15,000 every three weeks that they charge to do this chemo therapy infusions. And the $5,200 every three weeks of those chemo pills. That's a lot of money. 

April: That's a lot of money. 

John: And I've had 21 of those damn things so far. So they just do the math, that'd be a huge amount of assets gone.

April: Absolutely. Yeah. So that's why it's like, it's very important that we make sure that we have a proper plan for that, for how you know, if I know, we say a lot of times too, if, if we live long enough, right, we're going to need care, right? Knock on wood. I hope that's true for all of us, that we live a very long time in retirement. And so you may be faced with this, you know, how do I, who's going to provide that care, and then, and how do we pay for it? 

There's also market volatility. And I'm sure most of you know we've seen a lot of that in the last few weeks. It's been pretty bumpy. And when we're in our working years, volatility, while we may not like it, it may not be fun to see your retirement account or your investment account down on paper. It can actually help us have a better rate of return.

John: Let's talk about that. You're the investor guru among the two of us. You've taken over that role more and more. Explain to people why that's the case. Why is it good?

April: Yeah, so while I don't love seeing the market down, I do know that as I am putting money into the market every single month, I am buying stocks at a lower price. I am buying them when they're on sale, when the market is down. And so now I have more money in the market to participate in that recovery when it comes back, because it's going to come back. 

John: Well said. 

April: And so that's going to help me actually have that return than if it was just up all the time.

John: It's like going to publish all of a sudden, they've got a 20 or 30% sale on the groceries you like to buy. 

April: You stock up. 

John: Stock up. I talk about tuna. I love tuna, so I always buy tuna when it's on sale. So if you go in the store and it's 50% off,I'm going to buy everything they got.

April: So yeah. So it can help us, from that standpoint in our working years. It helps us, you know, in that case, too. Many of our clients are still saving money in retirement. So it can help anyone who's like saving, especially on a regular basis.

John: So let's pick on the old guy here. So tell me what my risk is with the volatility at age 72 and most people listening are probably not 72 but if they're getting close to retirement, they'll feel that down the road.

April: Sure, sure. So the risk here with the market is that the market volatility may be the thing that makes you run out of money. So go back to that living too long, and that's what we fear, right, that we're going to run out of money. So when we're in retirement, we start taking money out of our investment accounts, out of our retirement accounts. Well, we hope that they're going to kind of keep pace with that. 

If we're taking money out, ideally, in an ideal world, our investments would keep pace. But when we take money out of the market, when it's down, we've locked in our losses. Now that money has to work even harder. It's not even just recovering how much I took out for a withdrawal, it's how much the market is down, and it's got to work that much harder trying to get back to where it was.

John: Most people listening to this can think back and remember to 2008. September 2008 the market was down like 43%. It's not uncommon to see someone's 401k down, 35, 40 even 50% depending upon how they were invested. So imagine you're taking income out of that, and your account drops by 40%. You can't recover from that. If you're taking income out. A lot of people panicked and put all their money into money market funds. How many times will we see those,somebody is earning 1.7% because they were scared?

April: I mean, in that case, if someone was invested like 100% in stocks, right? And they saw the market go down 40% so like, they got a million January 1 back, and they took out 100,000 over the course of the year, and it's down. You know, now you're talking about having less than 600,000. So how is that going to impact? One is gonna be a lot of stress. I don't even wanna think about it. First of all, we'll talk about the financial side, but just the stress that you would go through feeling that. And then the financial side. Now, what's my income gonna look like?

John: Well, I didn't need the income because I was still working, but I sure didn't like seeing mine go down. 

April: Me either. I was really young, too. Nobody likes to see it, but it does feel very different. Now there's also taxes. So let's talk about taxes for a few minutes. As you mentioned, we've been hearing a lot about that lately. So when we think about saving money, and we hear this a lot. So again, if I'm in my working years, what are we told to do? We're told to put as much away as we can, in what? In a 401k. 

In some sort of tax deferred vehicle. You know that might be a 403b or 457 plan, but we're told, oh, put away as much as you can so that you can, I'm going to use air quotes, save on taxes. But you're not really saving them. You're just deferring them to the future. And so while we're in our working years, it can feel like the best place to save $1 because we're going to get that tax deduction today. 

In retirement, it can feel like the worst place to pull $1 because of the taxes. John, how many times do we have clients where they do want to go do something, or maybe they need money for something, and we talk about, okay, great, you know, take it from your IRA, and they're like, oh, but what about the taxes? I don't want to do that because of the taxes.

John: That's because they're guilty of allowing the tax tail to wag the economic dog. And we have to understand that if we're going to choose those accounts, it's going to be the most expensive place for most of us to take money for vacations, things like that, or educating grandchildren. And that's why, in our process we tell people, you gotta have both. Gotta have some money that's in the retirement accounts, and some money that's not in retirement accounts, so you can enjoy your life when you retire.

April: You know, I know we had a client last year who they were, like, dead set on taking a bunch of money out of their retirement account to pay off a mortgage on the house. And we said, you know, can we show you a different way? Or you would be interested in seeing a better way to do that because of the amount of taxes they were going to have to pay? So there's definitely some things you can do to structure that, but we got to kind of keep an eye on that, and we're all guilty of it. 

And most of the clients that we see, too, are in that situation. So if they're, let's say, retiring from the state of Florida, for example, you can find you've got a pension and you've got Social Security, and those are both taxable incomes to start off with. And then you start adding on what you're taking out from the retirement accounts gets added on top of that. And so now you can find it. It pushes you up into a higher bracket.

John: Let's talk about some of the tactics that are being used to convince us to maximize that. We're told we're saving taxes, and we're told of the lower tax bracket in retirement. Hardly any of our clients are in the lower tax bracket that we see. Most of them are the same or higher because of what you just described. They've got all this money they saved and when they're forced to start taking it out, either the RMDs or they just needed more money every dollar gets taxed. 

So they're not going to be in a lower tax blanket in most cases, and that's not even considering the fact tax rates can go up and will. Just a matter of when, which, by the way, that whole discussion about taxes is why we have so much volatility right now, or a lot of it because there's so much uncertainty. Will the tax laws stay the same, or will they, you know, change and go back to higher brackets? It's all tied together.

April: Absolutely. And this last one here is on inflation, and we've heard a lot about inflation over the last few years, and usually, when I think about inflation, most of the time, we don't really feel it, you know, we know it's there. We know it's happening, but it's more subtle. If inflation is at that two or 3% it just kind of gets absorbed into our everyday spending and we don't notice it as much. 

I think we've all noticed it the last few years. And I remember even them kind of saying, yes, inflation is, you know, nine or 10%. Oh no, some things at the grocery store were up 50%. So it's not just across the board. So we definitely felt inflation the last few years. Also, I feel like the more we hear about in the news, the more we pay attention to it as well. So when we're in our working years, how we combat inflation is we earn more money. 

And how do you do that? You do that by getting a promotion, I get a pay raise, I changed jobs. It's having these cost of living adjustments, raises, allows you to kind of keep up with inflation. In our retirement years, what ends up happening if we don't have a way to combat inflation, I love how it says here to spend less. Who wants to spend less in retirement? Who wants to have less of a life in retirement?

John: So in a time you have more time and to enjoy the relationships with the people you love and care about now you're forced to spend less because you're worried about running out of money, especially if you're healthy, and might live to be 90 or 95 or 100 years old?

April: And so we don't want that for you. We don't want that for our clients. We want to have a plan in place that we can combat inflation, because we know what's going to happen. We know you're going to need more income tomorrow than you need today. So you have to have a plan for that. So let's talk about how do you start to minimize and reduce these risks. And this is, you know, part of our planning process that we take clients through. 

And when we're thinking about this, the first thing that we want to do is, how do we manage those risks? How do we take as much of that off the table as possible? So we look at these risks to say what plans do we have? How is our financial plan situated today to handle living a really long time in retirement? What about if we get sick or hurt along the way? 

Now we know we're going to have market volatility. It's never going away. It's just a question of how much and how long and what that looks like, but we know it's going to be there. So how do we manage that? Keeping an eye on taxes, because while we may not have full transparency in what taxes are going to look like 10, 15, 20 years from now, we can strategically plan to reduce those over time. 

And then, how do we also combat inflation, to have more income later? And we do that a few ways, and this may actually sound counterintuitive to you, but we actually start with what we call cash flow allocation. That's just really what is your retirement income gonna look like? What is your, how is your income structured in retirement? So before we started looking at your investment accounts and your retirement accounts, and how are you allocated? 

It's not asset allocation, it's cash flow allocation. I think this is one of the most important conversations that we have with clients. It's one of the main reasons I feel like clients come to us and our team for help is to get clarity about what is my income going to look like in retirement? Not just on day one. I can't do that math, whatever it is going to be, 30 years from now. So we want to know both of those things and plan for that.

John: I was thinking early on, you made a comment about most common methods of planning. We don't want to do the most common. You want to do what's uncommon so you get uncommon results. Better results, better security, peace of mind.All that is important.

April: Absolutely. And when we're looking at assets, we want to talk about what is going to what bucket on our balance sheet is going to provide liquidity for us? Like I mentioned earlier, there are going to be things that are going to come up. Life happens, both good and bad. There are going to be opportunities that come your way. There are going to be threats that happen, that you're going to need and want to get your hands on money. 

You've got to have a place to go get that. You know I was telling a client yesterday, what if you and your wife want to go take a big cruise or a big trip? We have to have a place earmarked already that we know exactly where you're going to go and how that's going to be structured. What if we have a tornado come through, like we did last year, and now we need a new roof, and we need an air conditioner. 

We need a new car. All these things that come up that are going to happen. We got to have a place to go get those things. So we need to have liquidity. And then we talked about taxes earlier. We want to be able to have some plans in place to minimize taxes, if possible. Especially if we can do that year over year on a more strategic or tactical basis. 

And when we think about retirement income planning, we look at several different buckets. I'm gonna walk you through this, and we come back to this balance structure. I have to call it like an ideal structure for retirement planning, over and over and over again with clients. So I was just talking with someone yesterday morning. 

He's retiring in July, and we had gone through and done a full financial plan for him, including doing what we call his retirement rehearsal, where we're showing, hey, exactly what the retirement income is going to look like. I think sometimes the order of operations. Which accounts am I going to tap into, when? Which assets bucket am I going to take income from? Which ones are going to be positioned more for growth? 

And so we came back to this page, and I said, you know, remember, I was talking about that, let's, let's line these up again about what assets that you have are going to fit into these buckets. So, for example, we first look at guaranteed sources of income. Guaranteed income sources. 

That might be Social Security, if you have a pension, what your guaranteed income is going to be in retirement. And this is going to be your baseline for your retirement income. And the question that we want to ask is, is this going to be enough to cover your basic living expenses? 

If it's not, we may need to create more guaranteed income so that you do have enough to cover those basic living expenses. And you may be thinking, how do I do that? You may be thinking, I don't know what my basic living expenses are. That's very common. You know, when we kind of get to that stage in our life, we probably haven't budgeted in a very, very long time. 

And I don't like the word budget. John doesn't like the word budget. We don't necessarily want our clients on a budget. We like having a spending plan. So I don't necessarily want a budget, but I want a spending plan for retirement. How do I want to spend my money?

John: See, that sounds so much better. I have a spending plan. When you spend what I want, what I planned on, guilt free. I don't have to worry about it. I could just go enjoy it. If I got $1,000 in my pocket, I can go spend it, and not worry about it. No guilt, no shame. 

April: I was talking with a client this week, and she's in her early 40s, and she gets hung up on this feeling like she's got to always, I'm not saving enough. I'm not saving enough, I'm not saving enough. And I said I want to challenge our thinking here. What if we just put in a savings plan and you say, okay, I'm going to save this amount to match your goals. And then while you spend the rest of it.

John: Just go enjoy it. 

April: Go enjoy it. 

John: My experience has been when you do that, people go do that for two or three months, and they go, I'm not going to spend all that money. They increase their savings again anyway.

April: Absolutely. So part of that looking at guarantees is two sides, right. Here's the income I have coming in, and then we also want to have a spending plan so we can see, do we have enough guaranteed income to cover our basic living expenses. Once that's taken care of, we actually we need two other distinct buckets on our balance sheet. 

We need one that says variable income. I like to think of it as discretionary income. So as I mentioned earlier, if you want to take a trip, you want to remodel the house, there's some sort of repair that's come up. You want to help the kids and the grandkids, right? We know that you're going to need to tap into money for things. 

We've got to have a place to go get it. Hopefully it's also easy to get, to make it easy for you. So you have to have discretionary income. So these are things that are going to be over and above the basic living expenses. And then we also want to have assets on our balance sheet that are continuing to grow. Think back to that inflation, where we know you're going to need more income tomorrow than you need today. 

So ideally, we're not taking income from everything on day one. We want to have assets that are continuing to grow for our future. And then this middle bucket is this liquidity piece. Of course, that can be used for all the sides here. We can tap into that liquid bucket for income, discretionary income. You can have that continue to grow, but we've got to have a place for that liquidity along the way too.

John: So let's spend a moment talking about why that's so of worth. How many times have we seen people who have the guaranteed place. They got their pension, they get Social Security, they're good there. And then the variable side, maybe they don't pay as much attention to that, or it's too aggressive or tied up in retirement accounts. 

That money, while it, quote, looks good on the balance sheet, it's not really liquid. It's liquid, but there's a price to pay for it, called taxation. If the market's down and you take it out and get hit with taxes, it's even worse than we talked about earlier. So spend a moment talking about why that middle bucket is so important.

April: Yeah, you know, if we kind of think back to some of those risks we were talking about even earlier too. You know, one of them I think about this liquidity bucket is we think about market volatility. And you know, this is where this liquidity bucket can come in. 

Because if we are having a year, let's think back to 2022 when stocks were down 20% bonds were down 10% and if you're taking money out to support your lifestyle during that time frame, that's where, again, you get hurt, because you're locking in those losses. 

So one thing that this true look, this liquid, liquid bucket, if I could say, it easy for me to say, if this this liquid bucket we can use. I think about a few things. But one is, yeah, on the years when the market's down, we have another place that we can tap into that's not a market based asset, ideally, that we can tap into and not disrupt our investments so that they can recover. 

So that's one place for sure, where we see that liquidity coming in. Also, if we needed a big expense for something, you know, we would just want to go buy a new car. You know, you may not want to disrupt your other income plans that you have going on. 

So if I've got this retirement account, let's say, and that's my discretionary income bucket, I left my discretionary income that's coming in. And I may want to have that continuing, coming in on a regular basis, so I may not want to disrupt my income plan just because I also need a car. So again, we know these things are going to come up. We just got to have a place to tap into them.

John: I think one of the most common places we see that is somebody wanting to buy the house. They've been guilty of maximizing their retirement accounts. They've ignored the true liquidity part of the equation, and they don't have the money, and they have to take money out of the retirement account or go borrow money in order to get into their house. And either way, it's going to be expensive because you pay taxes or you pay more interest, either way.

April: So having this structure here, really, kind of comes together, and we think about back to those risks and how it helps us. You know, if we think about, okay, the risk of I'm living too long, well, that's where your guaranteed income comes in. That's going to help you offset this risk of longevity is having more income that's guaranteed that lasts as long as you do. 

Guaranteed lifetime income. So it helps take that risk off the table. If we have, if we get sick or hurt, John mentioned this earlier, there's a lot of things you can do to mitigate that risk. It might even just be looking at what sort of Medicare plan you're on. Again, we don't sell Medicare plans, but it's making sure you have the right insurance for that. 

It's also having a plan for how to pay for care. So again, if that happens, what are we going to do? What's the contingency plan for that? For the market volatility, one, we're going to have our guaranteed streams of income. That helps, because not our income is coming from market based assets. 

So maybe we have to pull less from market based assets and our income is an impact as much well. We've got that liquid bucket, even, we can tap into it and let our investments, our retirement accounts, continue to grow. On the tax side of things, this is when we really want to know how do we structure these different buckets to minimize taxes over time. And sometimes there's not a lot we can do there. Sometimes it's more about just maximizing the income to pay for the taxes. 

And then also, if we think about inflation, this is when we're going to have those growth assets. We want to have assets that are continuing to grow, and that's going to help us offset that inflation. So even just like, having this structure for retirement is really going to help offset the different risks that we were talking about earlier. John, any other thoughts here on this structure? We'll shift gears in a minute and talk about.

John: I've got some personal comments. Some people are going to know this, some won't. A year and a half ago I was diagnosed with cancer, and I'm talking with the oncologist about my future. She said, life expectancy? I said, yes. And she said, Are you worried about, you know, anything financial? I said, No, because I have guaranteed streams of income that will never go away. It's like you said, as long as I live, that comes in. 

And a lot of that came from taking a chunk of money in retirement accounts, and designing it to where I had a guaranteed income, like a pension plan. I also have accounts, and I told her I could die today. So in my 50 years in business, I've sold life insurance. Still do, I own life insurance because I could die today. My clients could die today. At the same time, I use annuities for some of my income because I want guaranteed income and I can live to be 100 years old. And I want to know I have that certainty. 

So those two ends, if you will, two bookends are taken care of. In the middle, I have checking accounts, I have savings accounts, and I have my investments, my variable accounts. So I can tap into that if I need it. I said, but I'm totally at peace with that, totally at peace. And I'm still working, so I'm still adding to that. 

But it's so nice to know that in my case, all my expenses and less of my expenses are covered by my guaranteed income, so I don't have to tap either of the others. I can and will if I need money or otherwise. I got a trip coming up with my brother in August, we're going out west, and I'll tap into some of the savings to commit with that. No credit card, or if I did have a credit card, it would be to get the miles and pay it off when I get back home. 

But that's tremendous peace of mind knowing that I don't have to go charge 10 or $15,000 on the credit card to have a vacation, and then come back and worry, how am I going to pay that back? And that's where the liquidity comes in. And to have the peace of mind of knowing, as I told her, worst case scenario, if I blow all the money, I still have other assets I can tap into.

April: Absolutely and that's where that structure comes full circle, right? Is to see how all of that plays together.

John: And the good news is, I put most of the stuff in place when I was your age and younger because if I had waited until I was in my 60s, it wouldn't be as strong. So the younger you are, the sooner you start, the better off you are. And good coaching.

April: Let's switch gears here and think about, if you're getting ready to retire, you're starting to think about retirement. What are some questions that you should be asking yourself? What are some things that you should be thinking of? And what we want to talk about today is, what is your vision for retirement? What is it that you want your retirement to look like? Not my retirement, not John's retirement, co workers retirement, but what do you want your retirement to look like? 

And when we're working with clients, one of the first things that we talk about and that we help our clients with is getting clarity on this, because sometimes we're guilty of just being and I get it we're so busy with work and our families and we're thinking about that day that we get to retire, but we may not know what is this actually going to look like for us? 

And our clients that have thought this through and they think about what their life's going to look like in retirement, and they think about, what are they gonna do with their time in retirement? What's their purpose going to be? 

Those are the clients that are happier in retirement. So there's really, there's more, of course, but we're looking at five different aspects. Relationships, housing, lifestyle, health, and financial. Like I said, of course, there's more aspects to retirement than that, but we're going to kind of start with these big five ones.

John: But those are the most important of the five in my opinion of all of them.

April: So let's start with relationships. So as you're going to be stepping off in retirement, who are the important people in your life? Who do you want to spend your time with? I love thinking about, okay, if every day now is Saturday and Sunday, if you're not working anymore, like most of us work Monday through Friday now, every day is the weekend. What are you going to do with your time? Who are you going to spend your time with? Is it kids? Is it grandkids? Is it aging parents to take care of? Will you be supporting them in any way? 

So, like, who are the people that you're going to spend your time with? I can think of clients that have retired and moved to be near children and grandchildren, other clients who are just for them to spend time with friends. 

So we were talking with someone earlier this week, and her kids want her to move to be closer to them. And she's like, you know what, but I have my life here. I've built 34 years of friendships, and I have my church community and those are the relationships that are important to her.

John: I think about some that's making me chuckle. They just insisted on moving to be near the kids and the grandkids. After a while they go, this is not working because I did not sign on to be a full time nanny or grandma. I'm not going to babysit every day and every night. And I think about some people like that too, where they go, man, that was a mistake.

April: Good to have boundaries. What are the expectations that are there? For sure. So, like, who are the people that you're going to spend time with? And maybe it's even you're thinking of, oh, I haven't been spending time with that person, but I want to. Friendships. My son asked me this the other day. He's eight, he's in third grade, and he goes, Mommy, do you think that I spend more time with my teacher than I do with you? 

And I said, yes, yeah, you do. You spend more time with her. And then, you know, you get makes you start and think, you know, we spend more time, usually, with our co-workers than we do with our own family. So now, if you're stepping off into retirement, and you're not around those people anymore, who was going to be like in your social network?

John: And that's a big issue. I hear a lot of people psychologically and emotionally, they retire and they're frustrated. They're lonely because their entire social world was built around work. They had no other outside interests.

April: Yep, and that factors in to you. It's like coffees right? Of being able to have that but yes, for sure, thinking about on the relationships. Housing. Will you stay in your current home? Will you downsize? Will you move to another city and state? These are things we want to think about before we retire. If you plan to stay in your current home. Are there any renovations that are needed? We talk about aging in place. 

So there are things that we need to do to be able to stay in our home long term, and having a plan for that. We hear a lot of you know, oh, the house is just too big anymore. You know, the kids aren't here and it's too big, or the yard is too big. We hear that a lot as well. The yard is too big we want to move to something that's going to be more manageable. 

John: Or I don't want to clean the pool.

April: Or I don't want to clean the pool. Yep, hear that too. So just thinking about housing, you know, will you stay in your current home, or are you planning to move somewhere? Or what's going to be the financial plan for that? Lifestyle. I said this question earlier. You know, how do you see your future when every day is Saturday or every day is Sunday? How about the things you've always wanted to do but life got away? 

So what are the hobbies that you want to pick up? What are you going to do with your time? Is it golf? Is it pickleball? Will you volunteer? Will you start a part time job? I say a job, but will you start, you know, a business? Will you have, like, a part time job? You know, what are you going to do with your lifestyle in retirement? 

I'm thinking of some clients that volunteer so much with their church that they said to me, April I don't know how we ever had time to work. We're so busy with all of these outreach programs through our church that it keeps us busy all the time. And they were, they were so happy, and you could just tell, because they just had such a sense of purpose in what they were doing.

John: They were making the contribution. Time and money.

April: Yeah, thinking about what to do from a lifestyle perspective, and then health. Healthcare costs can be a big unknown. So how much do you currently spend on healthcare? Are there any known health concerns that might impact you along the way? So we're going to build a plan for all of that. But at least, just like, having an idea here about what the health side may be. 

And I think about John here too, is just not even just the financial side. Most of these are financially related, but like, what are the things that we're doing for our health? I know that's something that you've really worked a lot on in the last several years and before that. And I know we had a podcast we did too where we talked more about that kind of health side of retirement, and how important it is.

John: It's a big deal. The things that I did 15, 20 years ago, this is true for all of us, will pay huge dividends in your 70s, 80s and 90s. And one simple, I shared this with a friend this morning at breakfast. One of the simple things is your grip, in your hands and your wrists. Dr Peter Attia talks about this a lot in his podcast and in this book, that people who have a good, strong grip, because their hands are strong, the forearm is strong. Legs are strong. 

They are less likely to break bones if they have a fall, they're less likely to even fall. And I'm doing things now with the prosthesis that people in the gym come over to me. You saw me the other day, carried a thing over my head with water in it. Stepping over hurdles. Sometimes I'll carry kettle bells upside down. Do that work on the grip as a strength. 

But all those things that when I got serious about my health and dropping from 284 pounds down to hovering around 215, 216 now, are paying huge dividends for me. Can you imagine how difficult my life would be with the prosthesis if I still weighed 284? Hell, it's bad enough as it is. You know that being 284 and not having the strength I have now? 

And my oncologist, she'll say every time she comes in, the reason we think that you're doing so well is because of your mindset. But also you're not sitting around woe is me. You're in the gym two or three times a week, working, doing stuff, walking a lot. 

All those things are paying huge dividends. And I think about the folks we saw Tuesday that were up from The Villages. He's 81 years old, walking three miles a day. And three days a week in the gym for an hour and a half to two hours with a trainer at 81. He's tough, mentally and physically.

April: Health is wealth, as they say? Yes. So definitely looking at the health side.

John: Let me flip on that for a second, because you're about to get the financial. So what if you have all the money in the world but you have poor health? What good is the money? You can't really enjoy it. You can't go do things. That's what I keep asking people. And they say, well, I want to take this trip, but I'm not going to do it because I have to pay all taxes to  take the money out. Okay, so you're going to leave all the money behind. Someone else is going to do all the things that you said you wanted to do, but never got around to. How many times have we had that conversation with people? Dozens and dozens.

April: Dozens. All the time. So on the financial side, a few things here for you to think through, as we were talking about some of those risks earlier. How do you earn your money today? Where does your money come from? Do you have any debt today? Do you want to have a plan to have that paid off before you retire, or will it already be gone by the time you retire? 

How much are you putting into savings today? How much are you saving for your future? And then also having that spending plan for retirement. Again, I know a lot of us don't have a true budget, and that's okay, but just starting to think about what does that spending plan gonna look like for retirement?

John: I just thought of this. You may have heard of the ladies who said, I got in trouble with the bank and my husband because we got overcharged because she ran out of money. She's but I said, honey, I still have checks. She had never balanced a checkbook in her life. She just kept writing. As long as I have checks, I can write it.

April: As long as I have checks, I can write them right.

John: Sweetheart. That's not the way that works.

April: That's not the way that works. Okay, yes, so definitely putting some time and effort into understanding what is that financial side going to look like. So today, as we kind of went through and talked about, what is traditional planning for retirement, why isn't it, even though it's very common, why isn't it the best approach? What are those, some of those five financial risks that we can face, and how do you try to take those off the table? 

And then, as you're starting to think about your vision for retirement. What do you want retirement to look like so that you can be prepared. So you can start thinking, what are some things that maybe I need to do now before I retire, so I can get ready for that next phase. So one is, I would encourage you to do a focus session. This would be a 30 minute call with us to talk about any questions or concerns that you have about retirement. 

We're going to help you get clarity, like we talked about earlier, about what do you want retirement to look like? We will talk about any opportunities that we see for you. Usually on these calls, even in like a 30 minute call, we can have a tweak. We can have a few tweaks or ideas to help you. And we don't charge for the call. It's complimentary. 

And then what will happen during this call again, will help you get clarity, and then it can help us decide if it makes sense for us to work together in some capacity. We're not a right fit for everybody, but I can tell you that at the end of the call, we'll know if it makes sense for us to move forward in some way. So there's a couple ways that you can do this, a book, a call. 

You can go to our website, which is curryschoenfinancial.com and there's a button right there that says, schedule a call. It's in the upper right hand corner, and that'll take you to my calendar. You can select a 30 minute call and book that yourself. So again, that's curryschoenfinancial.com and click on the schedule a call link in the upper right hand corner. 

Or you can call our office at 850-562-3000. Again, that's 850-562-3000. You can talk to Luke or Leslie on our team, let them know that you listened to one of our calls, our videos, and want to book a time for a focus session. And it's important for us to do this because there's really a cost to waiting. If we don't have clarity, if we don't have direction, we may not know what we need to do between now and retirement. 

That might mean that we don't hit our goals on time. We have clients that come in and say hey, I want to retire in 10 months from now, but we gotta see like, can we actually do that? We don't want to wait until the last minute and then find out, oh, this isn't gonna work. I need to make some other arrangements. 

And time, as we all know, is valuable when we start thinking about, you know, time is a very precious asset when we think about wealth building. Whether that is like saving now, in the future. So there's definitely a cost of waiting. We all have good intentions of saying, oh, I need to do that. I need to book that call, but I encourage you to kind of do it while you're thinking about it. 

And sometimes we have some obstacles where we say, oh, this sounds really good, but I want to do this, but I already have an advisor that I'm working with. That's great. That's wonderful. If that's you, we work with a lot of clients that already have someone that we're working with, and it's really for us is about, how do we provide value and add value to what you already have going on? 

We may have emotional barriers. We may be worried about, what are they going to think about me? What are they going to say about me? Do I really want to face all of this? We can kind of have those emotional barriers too. And actually, I have a sign in my office that says this is a judgment free zone.

John: I was just gonna say, we don't pass judgment. Our philosophy is really simple. You come in, we talk, we see where we can help you. If we can help you, we'll tell you. If we can't, we're gonna tell you that.

April: And we've seen so much. There's nothing that someone can bring up that we haven't seen before that's going to shock us. No. And then there's also this perceived cost. What is this going to cost me? So as I said, with the call, it's complimentary. There's no charge for the cost. There's no charge for the call. And then we do have different ways that we work with clients. 

And we'll be sure to go through that with you and talk about how we build financial plans, and we do charge our planning fee and what the cost is for that. So you'll know exactly how much that is and what's included, so you can decide if that's right for you. So again, as we're going to wrap this up today, I guess I encourage you to schedule time for your focus session. Again you can go to our website, or you can call our office as well. 850-562-3000.

John: And I have a comment to make. Most of the time we get so busy and we procrastinate, we get distracted. I'm just gonna make a firm statement. Save time and money, invest in yourself, hire us and let us help guide you through this. We can save you a lot of time, a lot of aggravation. And time is money. Time is money. 

And I think back to all the times that I was willing to let go of some money and time and hire a good coach, whether it be with my fitness, business, and it made a huge difference. And I see us as being in that position where we can coach and guide people and save them a lot of time and a lot of money.

April: Thank you guys for joining us today, and we look forward to seeing you on the next one. Bye now. 

John Curry: Goodbye.

Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the division of retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the division of retirement. This material is intended for general public use. By providing this content Park Avenue Securities, LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, you can visit our website at curryschoenfinancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address, 1700 Summit Lake Drive, Suite 200, Tallahassee, Florida, 32317. Phone number, 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian. 

7713567.1. Expires April 2027.

Plan for Life Surprises: Retirement Strategies Unveiled

Retirement is a time for relaxation and enjoyment, but what happens when life's unexpected events disrupt your plans?

In this episode, April Schoen guides you through crucial strategies to financially prepare for unexpected retirement events.

In this episode, you’ll discover:

• The real-life impact of health-related surprises and how to plan for them.

• Why diversifying income sources is essential for retirement stability.

• How to leverage whole life insurance for financial flexibility.

• Strategies to handle family and life changes without derailing your financial plans.

• The importance of estate planning in securing your financial future.

Mentioned in this episode:

• https://curryschoenfinancial.com/

Transcript:

April Schoen: Hi everyone, and welcome to another episode of The Secure Retirement Method. My name is April Schoen, and I'm a financial advisor with over a decade of experience of helping clients not just get to retirement, but through retirement. And over the years, I've helped hundreds and hundreds of clients ensure that they reach their goals so that they can enjoy their retirement with confidence. 

And I'm excited to walk you through an important topic today on how do we plan for those unexpected events in retirement? Retirement is supposed to be a time of financial security, of enjoyment, but these unexpected surprises that we know are going to come at us, right? Because life always loves to throw us some curveballs, can really impact our plans. 

So today we're going to talk about some strategies about how you can be financially prepared for those. And why does this matter? Well, retirement is full of unknowns, and you may not realize how much an unexpected event can really impact your finances. Let me share with you a real life example. 

My business partner lost his right leg a few years ago due to a blood clot, and this completely changed his financial situation. For one he was out of work that year for over four months. He immediately had to renovate his home because it now needed to be wheelchair accessible. He needed to buy a new vehicle that could accommodate his wheelchair. And now he has the reality that he's likely going to face these increased costs for care later in life. 

And it happened like that. And this really highlights the importance of planning for the unexpected. So my question for you is, what would happen if a major life event occurred tomorrow. Would your retirement plan hold up? As we go through today, I want to talk about some of these common, unexpected retirement events and how we can prepare for them. 

So the most common ones that we see, health related issues, financial market fluctuations, family and life changes, housing adjustments, unexpected expenses. And while we can't predict the future, we can prepare for it. So let's break down these common unexpected retirement life events and talk about some solutions about how you can prepare for them. 

One of the biggest concerns, I feel like we all have, is having some sort of health related event. But especially when we get into retirement. Now, many people assume that Medicare is going to cover everything, but that's not accurate. There's a lot that Medicare does not cover, so let's talk about that for a second. 

Medicare does not cover for extended care or custodial care. So extended care would be like covering for chronic conditions where you may need more assistance. I want you to think like stroke, memory care, mobility issues. Medicare doesn't pay for that. Or what about custodial care? This is when we need help with those daily living activities like bathing, dressing, eating. Medicare doesn't pay for that either. This could be care that we receive at home. This could be care that we receive in a facility. So we've got to make sure that we have a plan for those. 

So the first thing you want to do is you want to make sure that you do have the right Medicare coverage. Because there are things that Medicare pays for, so you want to make sure you have the right Medicare plan so that you're not paying more out of pocket than you need to. So that's the first thing that we want to make sure that you do have the right Medicare plan. Another option of how you prepare to pay for these expenses is to use an HSA. 

So an HSA is a health savings account. You may or may not be eligible for one. This is going to depend on what sort of health insurance plan you have while you're working. But essentially, you're able to plan for and save for future medical expenses on a tax advantage basis. So you can put money in the HSA today that's tax deferred. You don't pay any taxes on the money you put in today, it grows tax free. 

And then if you use it for qualified medical expenses, it comes out tax free. It's really one of the only truly tax free assets that we have. So building money in an HSA while you're working is one solution for helping cover these health related or extended care costs. And then we also want to make sure that we're like reserving for this. That we're reserving assets for future care. 

So when we think about that, it could be investment accounts, retirement accounts, cash reserves. Making sure that we've got multiple buckets we can tap into if we need it or if we want it. And one thing that is often overlooked is the idea of using whole life insurance in your plan. So I want you to consider how this could help you. Because it's going to help you provide this additional financial flexibility. 

So first of all, the death benefit acts as a safety net. This is going to allow you to spend down your other assets. Think about those investment accounts, those retirement accounts. You can spend those down for care without worrying about one, you running out of money, or two, leaving a spouse without resources. And then also, in these types of policies, there's going to be cash value that's going to be accessible, that has tax advantaged resources available to you that you can use for anything. 

You could use it to supplement your income in retirement, but you could also use it for medical expenses, care needs, or emergencies. And then, depending on availability, there are certain riders that you can have that can provide additional coverage to help offset the cost of care that's going to reduce the strain on your other assets. 

So one of my clients several years ago was retired, and he needed some major dental work done. It's going to be about $10,000 in dental work. That's also something that Medicare doesn't cover, is dental, hearing and vision. And so we looked at all the different options for him, and he actually took money out of his life insurance policy to pay for the dental work. So that's one example of how you can use these other assets to pay for care. 

One of the other risks that we face is having these financial market fluctuations. The stock market downturns can really impact our retirement income, if not planned for properly. There's something called sequence of return risk, and this risk occurs when the stock market is down and we're pulling money out of our portfolio. This can significantly reduce the longevity of our portfolio. How long is our money going to last? 

Because if you withdraw money from your investments when the market is down, you've now locked in your losses, and this can cause you to deplete your assets faster than you expected. So one of the things that you want to do to offset these market fluctuations is to diversify your income sources. We don't want all of our income coming from market driven assets, right? We don't want all of our income coming from just investments and retirement accounts. 

We want to have guaranteed streams of income. Think Social Security, pensions, annuities. These are income streams that are guaranteed for the rest of your life, and they're not dependent on the market. So important for your financial plan. You're also then going to have discretionary income. So can we diversify our discretionary income? Investments, retirement accounts, part time work, real estate. 

How can we also diversify even our discretionary income? So outside of diversifying our income, we also want to maintain some reserves in stable assets. So the idea here is that we want to have a two, maybe three years of expenses set aside that is in something that's going to not be as volatile and be, you know, susceptible, susceptible, if I could say it right, easier, easy for me to say, and it's not going to be impacted by the market. 

So what are some examples for that? Well, obviously you could use cash, you could use whole life insurance that has the cash value components. You could use bonds, other conservative investments. But you really just want to make sure that you've got some assets you can tap into if and when the market is down. So I had a client in 2022 and you may remember the S&P was down 20% in 2022. 

And so a client needed a new roof. And you know, before 2022 when the market started to go down, he had planned to take money from his investment account to cover the roof. But here we are, the market's down, and so he really didn't want to tap into his investments at that time. So instead, he used some of his cash reserves to pay for the roof, and then when the market recovered, he then took the money out of his investment account to pay himself back. 

So this is why we want to have those liquid buckets and assets on our balance sheet to tap into.

What about if we have, like, family and life changes? Think about those, like unexpected curve balls. Honestly, this is something that no one really wants to think about, but it's a reality. Most couples are going to face a time when they lose a spouse during retirement. And losing a spouse is not just an emotional challenge, but it's also a financial one.

So we have to plan for this. This is the reality that many of us are going to face. So a couple questions you want to ask. How will your income change if one of you passes away? You're going to see changes to your Social Security. Will you have changes to a pension payout? If you do have an annuity, is it a joint annuity or a single income annuity?

So really understanding how your income is going to change when one of you passes away, and then this way you could have a clear plan for how you're going to handle that. So you want to discuss these plans together. When we're doing our work for clients, we look at both situations. What if the husband passes away first, what's that income going to look like for the wife? And then what if the wife passes away first? What's that income gonna look like for the husband? 

So you want to look at both options. The other thing that's happening more and more is this caregiving responsibilities. Many people find themselves caring for a spouse, an aging parent, a child. An adult child. And this can impact your retirement plans. This can mean that you've got to spend more money. That could be to help those people, help your parents, help a child. 

It could be traveling, could be living arrangements. It could also mean that you've had to retire early. So I'm thinking about a client of mine a few years ago, she retired early to take care of her mother. She retired probably about two, two and a half years earlier than she was originally planning to, and that had some significant financial impacts on her. 

So we really want to, and that may not be something we can totally forecast and foresee for the future, but we really want to make sure that we are thinking about those things and have some essential plans for it. And my next point here on having some estate planning. This may not necessarily always be like we think of it as, directly financial, but it will help in these situations when you may lose a spouse or a parent or something along those lines. 

And this is a big thing that we're focused on this year with our clients, is making sure that they've got those estate planning documents executed. Beneficiaries are in place like everything is, is where it needs to be, because this is really going to help your family so that they don't have these unnecessary legal fees or having these other financial difficulties. And there's definitely more I can go into that. 

But for the sake of time, I'm not going to go into too much detail there today. But just know, as part of this, you also want to make sure that you've got your estate planning documents taken care of, this is really going to help that financial stability, and it makes an already hard situation at least a little bit manageable. What about housing needs? 

So, where will you live in retirement? Housing is often overlooked in retirement planning, but it plays a major role in your financial security and in your quality of life. Your home today may not be the best fit for you, best fit for your needs as you age. So think about accessibility, maintenance costs, proximity to family or medical care. 

So there are a few things you want to think about. Do you plan to stay in your current home? Or will you need to move? If you're staying in your home suitable for aging in place? Or will it require modifications? If you're moving are you going to downsize? Are you going to relocate to be closer to family? Or are you going to move into a community that's designed for aging adults? So there's things that we want to think about on the housing front. 

So let's walk through this on some different options here. The first one is, if you want to age in place, and this is, I hear a lot from clients. I want to stay in my home as long as I'm able to. So for us to do that, think about some renovations that might need to happen for you to age in place. You know, consider installing ramps, widening doorways, upgrading bathrooms for accessibility. 

I've had clients in retirement that when they get to their required minimum distribution age, which today is age 73 when they have to start pulling money out of their retirement accounts, whether they need it or want it. That's the IRS regulations for your required minimum distributions. I've had clients use those to renovate their home. They didn't need it for their every day, monthly income. 

So they said, okay, we're getting this lump sum from our retirement accounts, and so we're going to use it to renovate the house so we can age in place. You know, other clients will look to do some of these things, like before they retire. So they look to handle a lot of these major home expenses before retirement, while they're still working and they have more discretionary income. 

So they think about replacing roofs, upgrading HVAC systems, and not necessarily with the house, but they also may think about buying a new vehicle. These are all these big expenses that we have in our lives. Some choose to relocate so they can be closer to children and grandchildren. You know, one of my clients a few years ago, as soon as they retire, they moved to Orlando to be near their grandson, so that was something that was really important to them. 

And we have lots of conversations throughout the year with clients that are looking to move to these continuing care retirement communities. These are communities that provide different levels of care as your needs change. So it might be, hey, I'm in independent living today, and then I need assisted living, and then I need either nursing care or memory care. And I can stay in this one place, and they can take care of all my needs. 

So thinking ahead about this, you know, long term stability is going to help you have a much smoother transition and prevent these like last minute stressful decisions. And even making better financial decisions. If you're not going to stay in your home, maybe you then don't need to do all of these renovations and updates, because you're not going to be there. So really thinking about where are you going to live in retirement? 

Now, these next unexpected expenses, I think of them like the wild cards, right? There's always going to be these unexpected expenses that pop up, because that's life, and they can happen out of nowhere, they can derail even the best financial plans. So what are some common ones? Well, first of all, think about major home repairs. Roof replacements, HVACs, system failures, floods, hurricanes. Some sort of like major home repair. Medical expenses, which we talked about earlier, right? Could be unplanned surgeries, hospital stays, expensive treatments. 

You might have to travel for treatment, and that's an additional cost. Family support. Are we having to support our parents, our siblings, our adult children, grandchildren? What are these like, financial supports for our family? Any sort of legal costs that may come up in retirement. So how are we going to handle these unexpected expenses? 

Because we know they're going to happen. Well, one is like first, and we always hear this, right is having an emergency fund. So think about that, like your bank savings. Having an emergency fund for these expenses. You know, think about using cash value life insurance, like I talked about earlier, where it's more of a tax efficient way to access funds when needed. You can use a HELOC or a home equity line of credit as a backup, right for these large expenses. 

Now that one you just want to be very strategic about. You really want to pay attention to interest rates. HELOCs were much more accessible and made more sense a few years ago, we had really low interest rates. But as those interest rates have gone up over the last few years, they haven't been as sustainable. So thinking about some of my clients, you know, a few years ago, they actually took a loan from their life insurance policy to renovate their kitchen. 

We talked through all the different options. Do we want to withdraw money? We have the option to do a loan? And they said, you know what, we want to pay ourselves back. We want to pay for the renovation. We don't necessarily want to just take it out of our assets, but we'd rather do a loan against the cash value. 

We know we're going to pay some interest, but we're gonna pay ourselves back for this, and then we don't have to go through the bank and get some type of personal loan. You know, another client had a HELOC, and at one point the interest rate was really great, and over the last few years, when interest rates have spiked, the HELOC interest rate got up to 9% and they really wanted to then pay that off because of the high interest. 

So we looked at some different options, and they actually had an investment account that was paying a fixed three and a half percent. At one point, that was really good. So what made sense for them to do is take money out of that investment that was paying a lower interest to pay off the HELOC at the higher interest. 

And then another one of my clients recently retired, and they wanted to go ahead and buy a new car. That way, hey, I'm going into retirement. I've had my last car for over 10 years. I plan to have this one for over 10 years. I want to go ahead and buy a car. And they use, you know, a combination of things like put a big down payment on the car. 

They use some final payouts that they received at work in the form of cash to put money down and then they also did take some money out of their investment account that's done really well to put a large down payment on the car, and then they're working to pay that off as quickly as possible. 

So you know, preparing for these unexpected expenses in retirement allows you to have financial security and really make sure that these surprises don't disrupt your long term plans. So it's important for us to be flexible and adaptable. These surprises are inevitable, but really that financial flexibility is going to allow us to adapt without stress. If our financial plan is too rigid, it's going to leave us vulnerable when these unexpected events occur. 

So having financial flexibility matters. You know, the ability to adjust spending withdrawals based on market conditions, the ability to access multiple income streams to not have so much reliance on the market. To have liquidity to cover these unexpected expenses without disrupting our long term investments. So again, what are some of these key strategies for us to have this flexibility? Well, you know, it's diversifying your income. 

Ensuring you've got a mix of guaranteed income and discretionary income. It's maintaining liquid savings for that emergency fund. Keeping assets liquid accessible is going to help cover those short term surprises. Think about using a bucket strategy, where we've got short term, mid term, long term assets that provide structure for funds that we can access based on when we need them. Work on having tax efficient withdrawals. 

So if we're withdrawing money from different buckets, we can then start to try to control and minimize how much we're paying on taxes, which means more money that we get to keep in our pocket, more money we get to keep on our balance sheets. So flexibility is not just about having money, it's about having options when life throws surprises your way. 

And the more adaptable your financial plan is, then the more confidence that you're going to fill. So you know, today, we've really kind of talked about how planning for these unexpected events in retirement is essential, and having the right strategies in place can give you a feeling of security. So one of the best things that you can do, too, to kind of stay ahead of some of these things, is like what you're doing here today is listening to podcasts and webinars and continuing to learn and plan. 

So we have a series of webinars coming up over the next few months. We really plan on doing like one webinar per month on a wide range of topics, mostly centered around retirement planning. And so if you'd like to know more about our webinars, and if you'd like to be on our mailing list, our email list, to receive these exclusive notifications when our webinars are going to be, then you can go to our website to sign up. So you can go to curryschoenfinancial.com/events again, that is curryschoenfinancial.com/events. 

You can just put in your name and email, and we'll make sure that you're on our email list so you know about all the future events that we have coming up, as well as you'll get notified when we have new podcasts and new webinars. So thanks again for joining us today. You know planning really ensures that smooth transition into retirement, it's really going to smooth even your experience in retirement. So I encourage you, as you're thinking about these today, let's get financially prepared for the unexpected. Bye now. See you next time.

Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the Division of Retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the Division of Retirement. This material is intended for general public use. By providing this content, Park Avenue Securities, LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, visit our website at curryschoenfinancial.com or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address, 1700 Summit Lake Drive Suite 200, Tallahassee, Florida, 32317. Phone number 850-562-9075. Securities products and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.

7588186.1. Expires, February 2027.

Key Tax Tips Every FRS Member Should Know

Taxes might be daunting, but mastering them can mean thousands more for your golden years!

In this essential episode, April Schoen dives deep into tax strategies specifically designed for Florida Retirement System (FRS) members. Discover how expert tax planning could unlock more wealth and flexibility than you ever imagined for your retirement.

You’ll discover:

• Why tax planning is the key to more after-tax income in your retirement.

• How different types of accounts—tax-deferred, taxable, and tax-free—impact your taxes.

• Real-life case studies showing the transformative power of Roth conversions.

• The surprising impact of Medicare premiums and how your income influences them.

• Secrets to leveraging cash value life insurance for tax-free withdrawals and loans.

Mentioned in this episode:

• https://curryschoenfinancial.com/

Transcript:

April Schoen: Welcome back to The Secure Retirement Method. My name is April Schoen, and I am a financial advisor that has helped hundreds of clients over the last 10 years get not only just to retirement but through retirement. And I've really been helping individuals and families achieve their financial goals by making sure that they can enjoy their retirement the way they want to, with confidence. 

And today, we're going to be tackling an important topic for FRS members, and that's going to be about tax planning. Now listen, I know taxes do not sound very fun, do not sound very exciting, but this is super important. And the reason that it's important is because if you get tax planning done right, it can mean more income in retirement. 

What I mean by that is having your income come from different types of accounts, like tax-deferred, taxable, tax-free, you can actually have more control over your taxes, pay less, which is going to mean that you're going to have more money in your pocket for you to spend and enjoy in retirement. Who doesn't want that? And as an FRS member, you face very unique challenges because you have a lot of taxable income coming in from your pension, Social Security, DROP payouts, deferred comp. 

So the key is really to build tax-free and partially taxable buckets along the way, to give yourself more flexibility. And that's what we're going to talk about today. So let's dive in. So here's what we're going to cover today. We're going to talk about why tax planning matters for FRS members. We're going to discuss why this is so important for you and why this is going to make a big impact. Understanding the tax landscape. 

I'm going to walk you through the different types of accounts and how they're taxed. Common tax challenges for FRS members, we're going to explore the unique challenges that you face. Tax diversification strategies. I'm going to share some actual strategies to help you manage your taxes effectively. Case studies. We're going to look at some real examples and how tax planning has made a big difference for others. 

And then finally, I'm going to summarize what I've learned, what you've learned, and share how you could take action. So why tax planning matters. Tax planning is a critical part of your overall financial planning strategy. It really impacts your financial future, and here's why. First, effective tax planning leads to more after-tax income in retirement, which means more money you get to enjoy. It's going to give you more control over your taxes. 

So instead of letting the tax tail wag the economic dog, you're going to have a proactive plan. You're going to know exactly when you're going to take income from which accounts. You're going to know how that's going to impact you, not just in the short term, but also in the long term. It's going to help you have less taxes. Means more income in your pocket for you to spend in retirement. 

And as a reminder, I said earlier, as an FRS member, you face a lot of challenges, you're going to have high taxable income from pensions DROP payouts, and deferred comp. And so the goal, really, the goal of tax planning, is to build tax-free and partially taxable income sources so you can minimize taxes and maximize retirement income. 

So let's start by understanding the tax landscape. Let's talk about the three different types of accounts and how they impact your taxes. So the first account we're going to talk about is tax deferred. These are by far the most common accounts we see used for retirement planning. Again, it's the most common. Doesn't mean it's the most effective, it doesn't mean it's the best. It's just the one that we see used as often. And these types of accounts are like your traditional retirement accounts. IRAs, 401Ks, 457 plans, 403Bs. 

And these types of accounts, how they work is you put money in today that you have not paid taxes on, so you get, like a tax break today, if you will. But then these and these accounts grow tax-deferred, so you're not you don't pay taxes while they're growing. But when you do go to take money out in the future, in retirement, that money comes back to you. Every dollar that comes out is taxable at your highest marginal income rate. 

So think about this for a second. I've got my Social Security, I've got my pension, so I've already got, like, a baseline for retirement income, and all of that is taxable income. And then I start taking money out of deferred comp, or I start taking money out of my DROP, and now that gets added on top of Social Security, that gets added on top of my pension, and that's going to start to push me into higher tax brackets, and that means I'm going to be paying more in taxes. 

So those are those tax-deferred vehicles. Now you also have taxable or partially taxable. A lot of times we think of these as brokerage accounts, but I want you to think like a non-retirement account. These are probably ones they're going to like, hold up stocks and bonds, cash, CDs, that kind of thing. And you're going to make taxes on dividends, interest, capital gains. But capital gains are taxed at a more favorable rate. 

So I was just talking with a client of mine the other day, and we were talking about this very same thing, about where she should be saving money. Should she be saving money in her IRA, her retirement account, and then versus a taxable account, or partially taxable account, and looking at the tax brackets, and then difference in income. Now she already has this, again, this baseline of retirement income because of she's getting her pension. 

Her husband has passed away, but she's getting her husband's pension and she has Social Security coming in. So when we were looking at the differences between taxable and non-taxable accounts, the difference was pretty drastic. It actually like, took her from like a 24% bracket to a 15% bracket when we looked at accounts that were more that tax-deferred and are taxed as ordinary income versus assets that are going to have that long-term capital gains rate. 

So again, big difference for our 24% tax rate to 15% tax rate. And that's really why we're talking about how important this is today. That's a great example why it's so important for us to look at this. The other types of accounts that you have are tax-free accounts. This could be like Roth IRAs, cash-value life insurance, municipal bonds. And what happens with these accounts is we pay tax today. 

We put money in these accounts, they grow tax-deferred, so you don't pay taxes while they're growing. And then when you go to take out taxes, income in the future, rather, it all comes back to you tax-free. And again, if we have high income already coming in from other sources in retirement, it's important that we have some diversification and so that we're building these taxable tax-free buckets so that we've got more control over our taxes in retirement.

Now, some of the common challenges that we see from a tax perspective for FRS members is having that high taxable income from pensions, DROP, and deferred comp. Again, this already can push you into higher tax brackets, and then when we've got higher taxes, guess what also happens? Our Medicare premiums go up. A lot of people don't know that, but there's something called an IRMA income charge. It's called the income related monthly adjusted amount. 

And basically what that means is, the more income that you make, the higher your Medicare premiums are. So it's not just the tax that I paid today, but it's how is it going to have this impact, also on Medicare? Social Security taxation. Depending how much taxable income you have, is going to determine how much of your Social Security benefit is considered taxable income. 

Again, this is why it's so important. And also lack of flexibility. When most of your income comes in from taxable accounts, it's hard to control your tax bracket in retirement. Especially when we start thinking about required minimum distributions. Those are where those tax-deferred accounts, I think IRAs deferred comp, 403B something along those lines. And those accounts, you have to start pulling money out of them when you're 73 according to today's tax law, whether you want to or not. 

So I can't tell you how many clients I have that get into retirement. They've got Social Security, they've got their pensions, and that's enough to satisfy their income in retirement. They get to 73 now they have to start pulling money out of their retirement accounts, even if they don't need it. Pay all that tax. Pushes them up into a higher tax bracket. It increases their Medicare premiums. 

And so because they don't have the flexibility, because all of their money has been in those pre-tax, tax-deferred retirement vehicles. Where, if we've got some more flexibility, maybe you don't even have required minimum distributions at all. Maybe you've got more control over when you tap into your retirement accounts and when you don't. 

So let's go through and talk about some tax diversification strategies, and how can you start to diversify your income sources to manage those taxes. Well, the first thing that you can do is you can look at a Roth conversion. So a Roth conversion is when you take pre-tax retirement accounts and you convert that to a Roth IRA. So you convert funds from tax-deferred accounts to Roth, and this is going to reduce those future RMDs. 

This is going to provide tax-free income later as well. I'm going to talk more about Roth conversions in a few minutes. Having a taxable account bucket. Again, using these taxable accounts allows you to take advantage of lower capital gains rates. Again, back to my client that I talked about earlier, looking at where she currently was and thinking about ok, in a 24% bracket, do I want money coming out at a 24% tax bracket or 15? That's a big jump. 

So looking at another reason that she can do that is because she has taxable accounts. Because she has a non-retirement account that she's built and saved over the years. You could also have cash value life insurance, where you can, if done properly, take tax-free loans and withdrawals. So diversifying your income across all these sources gives you more control over your taxable income in retirement. 

So I love when I'm working with a client and we actually have all three of these buckets, tax-deferred, taxable, and tax-free, because we have different levers that we can pull. And we can say, hey, we really want to stay and, you know, in this tax bracket. And we only want to fill the bucket up so far, to take money, maybe out of our taxable accounts, and then we want to start really diversifying, to take out as tax-free or partially taxable, so that we have that diversity there. 

So that we're proactively, we're intentionally working on our taxable income. I want to have the most income in retirement. I just want to make sure that I'm doing it in the most tax-efficient way possible. So let's go through, I want to talk about too, I want to give you some ideas, some case studies, and I want to look at some real-life examples. So the first thing I want to look at is a Roth conversion. So client retires at 62 and they've got retirement income coming in from their pension and their Social Security and their pension and Social Security is enough income to support their lifestyle in retirement. 

And we'll go through how we work with clients. We do what's called a retirement rehearsal. This is where we take a look at all your retirement income sources. We fast forward you to retirement, say, hey, what is this income really going to look like in retirement? And we look at income, we look at taxes, we look at expenses and lifestyle to see, do we have a surplus? Do we have a deficit? Do we need to bridge the gap for income? What's going to be the best choices and options for each individual client? 

So in this case, taking their pension, taking their Social Security, and they went through and did a spending plan for retirement, not a budget. I'm not a believer in a budget, but I do like having a spending plan so that we're being intentional and know we want to spend our money. And so they're in a great position because that pension and Social Security is going to be enough for their lifestyle. 

So this means what they've got in their DROP and in their deferred comp, they can let grow for the future. And they've got about $250,000 between DROP and deferred comp. And remember, they're 62 so based on current tax law, they can let that grow until 73, but we know at 73 they have to start taking money out of that for RMDs, required minimum distributions. So what we did is we helped them convert these accounts to a Roth but we didn't just do it all at once. 

We did a phased Roth conversion, where we did about $50,000 per year, obviously, that last year was a little bit more, but about $50,000 per year, so that we could spread it out and not have too big of a tax hit all at one time. And what happened with this as a result is one, we were able to convert all of their pre-tax to a Roth. Again, doing it over five years, so that we reduced the taxable income, but then the impact for them is no required minimum distributions. So now it gets to grow tax-free. 

They're not paying any taxes while it's growing. They're not going to be forced to start taking money out of it at 73. So they can pick and choose when they start to take income from this account. When they do take income, it's all going to come back to them tax-free, because it's now in the Roth, and guess what? What if they don't need it? What if with their pension and their social securities and their COLAs, what if they're just fine and they don't actually tap into it? Well, now what happens is this account goes to their kids tax-free. 

So it's part of their legacy plan. Not only does it help them, but it also contributes to their legacy plan. What's also going to happen is they're now going to have reduced taxable income over their lifetime. Now, honestly, they've got higher taxes in these years when we're converting it, but we have a plan for how to pay for the taxes, but they're going to have reduced taxable income over their lifetime. 

So that's going to save on taxes, and it's going to save on Medicare premiums. So it's going to have significant savings on taxes, Medicare premiums. It gives them more control and more flexibility with their retirement plan.

Now another example I want to give is for cash value life insurance because this can also provide tax-free income and retirement for income or unexpected expenses. So I want to give you just a couple of examples. So one of my clients, they did a kitchen remodel a few years ago, and what they decided to do was to do a loan from their cash value life insurance. They said, April, we want to have a way to pay for the renovations, but we want to pay ourselves back. 

We plan to pay ourselves back. So we just want to do a loan, and then we're going to do a payment plan to get that paid off. And again, that's a loan. So it comes to them, tax-free. Another client of mine had some major dental work done. It wasn't quite $10,000 but it was pretty substantial, close to $10,000 and we looked at several different options for where to take the money from, from the dental work. 

We looked at the cash value, and said, hey, do we want to do a loan? Do we want to do a withdrawal? And he wanted to do a withdrawal. He said, you know, April, I spent my whole life paying off debt and getting out of debt. I don't want to have a loan. I don't want to go back in debt at this stage of my life. 

So we just did a withdrawal from his life insurance policy, and it reduced his death benefit slightly, but it wasn't a huge reduction. But that money came back to him tax-free, and he was able to pay for that dental work. So great examples of using that cash value for things that they needed or they wanted when they were in retirement. I also have clients who have used the cash value to just increase their income in retirement. 

They get to retirement or at some point and say, I don't really need the death benefit as much anymore, or it's not as important to me as it once was. Instead, what's important to me now is living the life that I want to live. And so we look at structuring the cash value where it comes back to them as tax-free as possible, not all tax-free, but as tax efficient as we can structure it. 

But have that income start coming back to them out of this policy to increase their income, but also do it in a tax efficient way. And so what happens with that is we can then have, like very little to no tax impact. We get to keep our retirement funds, we get to keep our investments, our retirement accounts, without having to disrupt our plans. 

And then we also get to continue to have that financial flexibility, because we have these different buckets that we can tap into when and if we need it. And again, that's why it's just again, so important, of why we don't want to have everything in those tax-deferred vehicles, because even if we're in retirement it can still feel like they're locked up in prison because of the taxes. 

Can't tell you how many people tell me that they don't want to pull money out because of the tax that they have to pay when they need money for something. Maybe they need to buy a new car, put a new roof on the house. They want to take a trip and pay for it for their family. Or there are all these things that we need to do and want to do in our lives. 

And I mean, tell you, from my experience, having all that money in the retirement accounts, it it makes you not want to tap into it because of the taxes. So being able to have a plan for these other things in a more tax-efficient way is only going to help you in retirement. So as we've gone through today, we've talked about a couple of different things. We talked about tax diversification, how that helps you have more after-tax income in retirement, which means more money in your pocket. 

And we've also talked about the importance of balancing income sources from taxable, tax-deferred, and tax-free sources. So if you're ready to take this next step in your retirement planning, you're curious, like, hey, I'm not sure where I stand or what should I be focused on next, especially as it relates to looking at these different types of accounts, I would recommend that you schedule a time for a complimentary consultation with me. 

This is where we're gonna review your current situation. We'll talk about some of the strategies that we've talked about today to see where you are and see what's gonna make the most sense for you. And the best way to do that is you can schedule a consultation. You can go to our website, which is curryschoenfinancial.com. Again, that's curryschoenfinancial.com to book an appointment.

I also encourage you to join our upcoming webinar on tax diversification for more insights. We're going to be going into all of this in more detail, so if you don't have that on the calendar, just send us an email and we'll make sure that you're all signed up for the webinar. Thanks for joining me today. Tax planning is really a powerful tool to help you maximize your income and enjoy retirement. So let's work together to make it happen so you can enjoy the retirement you deserve. Bye now. See you next time.

Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the Division of Retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the Division of Retirement. This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, visit our website at curryschoenfinancial.com or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address, 1700 Summit Lake Drive Suite 200. Tallahassee, Florida, 32317. Phone number, 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian. 

7492364.1, expires January 2027.

Set Smart Financial Goals for 2025 Success

In this episode, April Schoen dives deep into the secrets of setting meaningful financial goals for the new year to guide you towards a secure and prosperous 2025.

In this episode, you’ll discover…

• The pivotal role of the SMART framework in financial planning

• Unique strategies for building a robust emergency fund

• Methods to maximize your retirement contributions effectively

• Insights into tackling high-interest debt with precision

• Practical tips for creating a balanced investment portfolio

Mentioned in this episode:

• https://curryschoenfinancial.com/

Transcript:

April Schoen: Hello and welcome to The Secure Retirement Method. I'm one of your hosts April Schoen and I'm so excited that you're here with me today because this is truly one of my favorite times of the year. I'm sitting here recording this today on January 2. So Happy New Year to you all. And, you know, there's just something so refreshing about a clean slate. This chance for us to look back on the last year and think about like, what went really well last year. What are some things that we want to change? And then also plan for the future. 

And I love this time of year because it's really a chance for us to dream a little bit, for my fellow dreamers out there. Think about the person that I want to become and then the life that I want to create. Now, my husband loves to make fun of me this time of year, because, listen, I am a planner and journal junkie, so usually, starting in December is when I really start thinking about the new year, and I might get a new planner, some new journals, and so it's quite a little joke for us at home. 

But it is truly because I really feel like this is a great time for us to start again, or continue on. Maybe it's not all about starting over. Maybe it's last year went so well, and we want to build on that coming into the new year. Now for me, I've already set some goals for this year, so I'm going to share those with you today. One goal is I want to read one professional development book a month. 

Now you may not know this about me, but I love to read but I love to read fiction books. I totally can geek out, nerd out on some fiction books, especially in the fantasy, sci-fi realm. And because I love to read fiction books, I actually find it hard to read those personal development books. So it's something that I have to be intentional about I have to set time aside daily or weekly to make sure that I'm getting that done. 

So that's definitely one of my goals is to read one personal development book each month. I used to do this and got away from it last year, so it's something I'm going to bring back in 2025. One of the other things I'm going to work on is having some intentional time with my two boys. Now, my boys are eight and 11, and my goal for this year is to spend some one on one time with them each month. 

And that might sound like something really simple, but for me, what I find is that if I don't again, schedule that out or set time aside for that, guess what? It's not going to happen. I'm going to get to April or May and say, you know what? I wanted to do this. I wanted to set time aside every single month for that, and it just hasn't happened. So I love having this as one of my goals, and then also the same time going to my calendar to think through when am I going to do that. 

Another goal that we have financially for this year is to save 20% of our income. So I'm going to talk more later about financial goals. Obviously, that's going to be the big part of what we're talking about today is going to be on more like financial goals, and one of mine is to make sure that we're saving 20% of our income. So I'm gonna talk more about that and how to get to that place, and where are you at and how to look at those things. 

And then we also want to replace the floors in our house. So those are just some of the goals that we've had this year. And I want to talk about how you can create these meaningful financial goals for the new year. We're going to talk about how to, how do you reflect on last year? I want to make sure you're celebrating your progress because that's one thing I find people don't do enough of. And let's look at for some areas that we can improve. 

And then I'm going to share some tips, like, how do you set some goals? And then, like, sticking to a plan, creating a plan to achieve those. So before we dive into setting new goals, I want you to take a minute and look back at 2024. So first of all, did you set any goals for 2024? And how did they go? Personally, I like to keep a list of my goals each year. And actually, I keep them on the Notes app on my phone. This way I can review them throughout the year. It's not something I want to set in January, and then not think about again until December, right? 

So I want to make sure these are front and center of my mind, and then I'm looking at these throughout the year. And it's a great way to see your progress. I love being able to check them off. Putting a little X or a checkmark next to them when they're done. And then I can also see what other areas that I need to work on. So if you haven't done that, make sure you've got them written down somewhere visible that's going to be easy for you to refer to. 

I also encourage you to celebrate your wins. Even if they're small, they're worth celebrating. So let's think about some wins you had last year. Did you pay off a credit card? Did you save for a major purchase? Did you invest in your future? Give yourself some credit for these things that you've done. It's important to acknowledge that process, no matter how small it feels in that moment. 

And then also think about, what were the challenges? What did not go as planned? Were there goals that you struggled with, that you didn't quite achieve? And think about why didn't you hit those goals. Maybe they were unrealistic? Maybe we just set these really big goals in January last year that just weren't achievable, or maybe we had some unexpected obstacles or did something pop up happen that was not on your radar that prevented you from hitting that goal? Or does our plan need to be tweaked one way or the other? 

So taking that time to reflect both on what went well and what struggles you had, this is going to help you set more achievable, smarter, better goals for 2025. So after you've reflected on last year, let's focus then on setting some goals for the year ahead. And a great way to do that is by making sure that you're using I love the SMART framework, if you're familiar with that, that's S, M, A, R T. 

The SMART framework, this is where you make goals that are specific, measurable, achievable, relevant, and time-bound. So I want to break that down, and I'm going to do that in just a minute, what that SMART framework looks like. But let me give you some ideas for some financial goals that you may want to consider. One you may want to work on building an emergency fund. 

So, like, if you don't have one already, an emergency fund where you have three to six months worth of expenses saved, then make that a priority. Set a specific goal. So first you got to figure out what your expenses are on a monthly basis, to know what you need for your emergency fund. But figure that out. How much do you need for your emergency fund? And then break that into monthly contributions that you can fit into your spending plan, which we're going to talk about in a little bit. 

So one goal might be building an emergency fund. You may want to maximize your retirement contributions. So increase how much you're putting into a 401k or an IRA so that you can take advantage of some tax benefits or employer matches. Aim for, I like to say, aim for saving a certain percentage of your income. We recommend clients save between 15 and 20% of their income. 

So another thing to look at is, hey, how much did I save last year? And not only how much did I save, but how much is that as a percentage of my income to know where I am in this, you know, 15 to 20% range. And then thinking about for the next year, how do I increase that? So I remember years ago, my husband and I, we were saving 10% of our income, and then we wanted to get to 20. And let me just tell you, that seems like a very big, daunting goal if you're saving 10 to get to 20, doubling your savings. 

And it just feels, you know, too big, right? It feels like you can't get there. So we did it in small increments. We started every year in January, increasing our savings by 1%, and then also when we got raises, we increased our savings then too. So we kind of got to 12, and then bumps it up to 15. Anyway, it took a few years for us to get to that 20% number, but now that's like a non-negotiable for us. 

And of course, things happen and life happens, and I can talk more about that if you guys want, but I think it's important for us to look at how much did we save, and then thinking about the next year, how much do we want to save? Do we want to increase our contributions? And like, where are we going to do that at? You might already be maxing out your retirement account, so we have to go look at some non-retirement account options. So increasing those retirement investment contributions. 

Eliminating debt. So think about if you've got credit cards, loan balances. Really focus on paying off those high-interest debts first. Interest rates are high right now, which is good for savings accounts, money markets, CDs, but it's not so great for debt. So you might have some credit cards or a home equity line of credit, or a personal something that maybe even had a low interest rate years ago, where now if you look at it, there's got some pretty high interest rates on them. So definitely look at your debt and work on eliminating that high-interest debt.

Another goal would be to diversify your investments. So look at your portfolio. And when I say your portfolio, I mean your overall portfolio, right? Your savings, your investments, your retirement accounts. Really think of everything all as like one big bucket, and look to see, is your portfolio heavily concentrated? And if it is, you're going to want to work on creating a balanced portfolio that aligns with your risk tolerance, that aligns with your goals. You may want to consider reallocating into some different asset classes. 

For example, my husband gets company stock, and so we are always just too heavily concentrated on this one company stock, his company stock. And so it's something that we have to work on to diversify, to make sure that we're not so heavily concentrated in that one company. So you want to look at, do I have any company-specific risk? Do I have any industry-specific risk? That might be tech companies right now. 

So we want to take a look at this through that lens of, how does everything work together in our retirement accounts and in our investments. Another goal you may have is to plan for a major purchase, right? So that might be a home renovation. Like I mentioned, we want to replace the floors in our home. That's obviously a big purchase, something that we have to work on, that we've been working on. It might be a family vacation, a new car. 

So we want to start thinking about then planning for these major purchases, setting a savings goal, and then a timeline to reach that. So now I want to go through and talk about, I'm going to break down these SMART goals. And again, that's Specific, Measurable, Achievable, Relevant, and Time-bound. And I want to use the example of, let's say that you wanted to save $15,000 by December. 

So the first thing we're gonna do is we're making that specific. Ao a specific goal, clearly defines what you want to achieve. So instead of just saying, hey, I wanna save more money next year, you say, I wanna save 15,000 by December for like, what's it for? Is it for your emergency fund? Is it for a big trip? Is it for a home renovation? Make sure it's clear and it's focused. The M is for measurable so break down your goal into smaller, trackable steps. So for $15,000, that's $1,250 per month. That's $1,250 per month, and so you could track that progress every month and see if you're on target. 

And then the A is for achievable. So this is like, is that achievable? Is saving $1250 a month realistic? You're going to want to look at your spending plan, which I'm going to talk about in a few minutes. But we have to figure out, is that achievable? If it's too tight, then we might have to adjust the amount or extend the timeline to make that goal more achievable and attainable. Relevant. The R is for relevant. Your goal should align with your values and priorities. 

So saving that $15,000 for an emergency fund. That might give you the peace of mind to have a fully funded emergency fund. Or it might be for that big trip, so it's going to help you create those lasting memories with your family. So I always think about, why? Why do we want to do that? What's our goal, and why is that important to us? So that's how you make it relevant. 

And then time-bound. That's the T is time-bound, so you want to set a deadline. This is going to create some urgency, some accountability. In this case, it's December. So having a specific timeline helps you stay focused and on track. So when we think about setting these goals, one, make sure that you're aligning them with your values. So whether it's financial security, family, travel, make your goals reflect what's important to you. 

Two, write them down. I know it sounds silly, right? We hear that all the time, but write them down. Studies show that writing down your goals makes you more likely to achieve them. And then keep them somewhere visible, where you can see them like in a journal or planner like I do. You could also keep them on your phone. Like I said, I have the Notes app on my phone, and I actually can go back and see goals for the last several years on my phone. 

And then number three is you're going to want to review these regularly. So schedule monthly or quarterly check-ins to track your progress and adjust as needed. Sometimes, depending on our financial situation, we've got to have regular reviews. Maybe it's even weekly check-ins or monthly check-ins, right? If there's something that we have to really stay on top of. That might be if you are struggling to stick with your spending plan, or you're struggling to pay off debt, that might be something that we need to review on a more regular basis. 

So we really just kind of figure out what's going to work for you. And like, when do you want to check your progress and make any sort of adjustments that you might need? But I'd recommend at least quarterly. Like, don't set a goal in January, and then don't look at it again to December. The likelihood of you hitting that is slim to none. So I would suggest doing like a quarterly check-in. 

So now that you've set some goals for the new year, the next step is to create a plan to achieve them. And this involves three key steps. Reviewing your current financial situation, creating a monthly spending plan, and then scheduling those regular check-ins to track your progress and make adjustments. So let's dive into each one. So before you can make a plan, you've got to know where are you today. 

So think of this as like creating a baseline. It's like a starting point on your financial roadmap. And when you do this, you're going to want to take a stock of your income. How much money is coming in each month? Think about your salary, side hustles, rental income, other sources. Expenses. What are you spending each month? So many of my clients, when we first meet, they don't know. 

I hear things like money just comes in the front door and goes out the back door. Or, hey, at this stage of our life, the kids are grown and the house is paid off, and we just, we don't have to pay attention to that. And that's okay, you don't need a budget. I'm gonna talk again about a spending plan in a few minutes, but you wanna at least have a rough idea. It doesn't have to be exact, down to the penny, but, like, we just need to have a rough idea about what we're spending each month. 

And we really want to break that down, if we can, into essentials, like, what are the bills, so to speak, savings and then discretionary spending. We want to know how much have we currently saved? What? How much have we? Do we have that emergency fund saved and set aside? How much are we putting towards retirement? How much are we putting towards other goals? You know, what are our investments? Are they aligned with our long-term goals? Do you have a diversified portfolio? 

Sometimes, or I should say, a lot of times, I meet with new clients who have an account that they haven't looked at in years, and it's just kind of been sitting there doing its thing. And that might be really good, that might be really bad. A lot of times, because the stock market has done so well in the last few years, these accounts, they're not in line with where we want to be. 

They're gonna be way more growth-focused and too concentrated on stocks than where we really want those accounts to be. And it's just because we haven't taken the time to look at them and rebalance. So definitely look at your investments and see are they aligned with your long-term goals. And so by reviewing these areas, you can identify gaps or opportunities. For example, maybe you're spending too much on discretionary items. Maybe you can increase your retirement contributions. 

So understanding where you are today is going to help you make those informed decisions for the future. Now, step two is to create a monthly spending plan. I like to think of this, you know, as a I like to think of the spending plan rather than a budget. Because a spending plan isn't meant to be restrictive like a budget is. It's about being intentional. It allows you to be intentional about how and where you want to spend your money. 

So it actually empowers you. And so here's how you build your spending plan. You're first going to start with your essentials. Cover your basic needs first. Housing, utilities, groceries, insurance. Then we also want to allocate for savings. You've always heard that that line of pay yourself first? Well, it's the same thing here. You want that to be a line item on your spending plan. So set aside each month. Whether that's that emergency fund, retirement, another financial goal like we mentioned earlier. 

Again, if the example is you want to save $15,000 this year, then your spending plan should allocate that $1,250 each month to savings. And then once essentials and savings are covered, then allocate funds for discretionary spending items. Dining out, entertainment, hobbies. Your spending plan can help you stay on track, but it's also again, while enjoying life, it's not about being restrictive. 

I always encourage you to include the fun things in your spending plan. And if you realize your plan is too tight, then you just need to adjust your goals or your spending to create balance. And again, always make sure that you include the fun things, whatever that is for you. Eating out, hobbies, entertainment. It's just not realistic to make it so restrictive that you can't stick to it.

And the third step that you want to do is you want to schedule some regular check-ins. So goals, they're not a set-it-and-forget-it kind of thing. Life happens. Things change is why these check-ins are so important. So I'd recommend at least setting a time every three months for you to revisit your goals and review your progress. So I would say put time on the calendar or a reminder. You need some way to know, like, hey, I need to check on my progress and ask yourself, am I on track to meet my goals? Do I need to adjust my spending plan or savings targets? Are there new priorities or challenges that I need to account for? 

And flexibility is key here. Don't be afraid to tweak your plan. Maybe you had an unexpected expense or an income change. Adjusting your plan isn't failure, it's just part of the process. And these regular check-ins are going to help you keep aligned with your objectives and help you make adjustments. It's really going to help you stay on course. So creating a plan to achieve your financial goals is all about intentionality. 

By reviewing your current financial picture, building a spending plan, scheduling regular check-ins, you're setting yourself up for success. And remember, progress is empowering. It puts you in control of your financial future. So before we wrap up, I want to recap what we've covered today. Reflect back on last year's wins and challenges. Take time to acknowledge your progress, identify areas where you can improve, celebrate even the small wins. It's super important. Understand your challenges so that you can set better goals for this next year. 

Set SMART goals for 2025. Use that SMART framework to create goals that are specific, measurable, achievable, relevant, and time-bound. Having clear and actionable goals makes it easier to stay focused and track your progress and then review your financial picture and create a plan for the year ahead. Start by assessing your income, your expenses, savings, investments, and then build a spending plan and regular check-ins to keep yourself on track. 

This is going to help you stay intentional about your financial decisions throughout the year, not just thinking about them here in January when we're all gung ho for the new year. So the start of this new year is really a great time for you to take control of your financial future. Remember, small, consistent steps today can lead to big results by the end of the year. Whether that's paying off debt, saving for a dream vacation, investing for retirement, the key is to start now and to stay committed. 

I know it can seem big and daunting sometimes, but remember, no matter where you're starting from, progress is what matters most. So if you're ready to make 2025 your best financial year yet, I'd love to help you get there. So whether that's creating a retirement plan, building wealth, tackling financial challenges. We are here to help and guide you. I'd recommend, if you're interested, to schedule a consultation with me or join one of our upcoming webinars for more tips and strategies. 

You can go to our website, which is curryschoenfinancial.com to get started, and don't wait. Here we are the new year still, so take that first step towards securing your financial future today. Thanks for tuning in to today's episode. I hope this episode inspired you to reflect, plan, and take action for your financial goals for the year ahead. If you found this helpful, please subscribe, share it with someone who can use a little motivation as we get started here in 2025. Here's to all your financial success. Take care, and I'll see you next time. Bye now

Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the Division of Retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the Division of Retirement. This material is intended for general public use. By providing this content, Park Avenue Securities, LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific, individual, or situation, or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, visit our website at curryschoenfinancial.com or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address, 1700 Summit Lake Drive Suite 200, Tallahassee, Florida, 32317. Phone number 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America New York, New York. Park Avenue Securities is a wholly-owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.

7492353.1, expires January 2027.

Navigating The DROP Program: Retirement Strategies and Financial Planning Explained

How can a simple program supercharge your retirement income strategy?

In this episode, April Schoen breaks down the intricacies of DROP, The Deferred Retirement Option Program, and its latest updates impacting your financial future.

In this episode, you’ll discover…

• The enticing benefits that make the DROP program a game-changer.

• Key eligibility changes in 2023 that could affect your retirement timeline.

• Various pension options within DROP and how they cater to different retirement goals.

• The significant pros and cons that you'll need to weigh before opting for DROP.

• Strategic ways to manage your DROP payout to maximize retirement benefits and minimize taxes.

Mentioned in this episode:

• https://curryschoenfinancial.com/

Transcript:

April Schoen: Hello and welcome to another episode of The Secure Retirement podcast. I am one of your hosts, April Schoen, and today's episode is dedicated to understanding the DROP program, which is part of the Florida Retirement System. Now DROP stands for deferred retirement option program, and it's really a unique planning tool that's designed exclusively for FRS pension plan members who qualify for normal retirement. 

How the DROP program works is it offers a way for you to retire on paper while continuing to work in your position and continuing to earn your salary. And then what happens while you're in DROP is the state actually starts paying out your pension benefits, and they pay those into a dedicated retirement account that's just for you. 

And those pension payments, they go in every single month while you're in DROP, and it earns interest so that when you exit DROP, when you officially fully retire, now you start receiving the pension payments as income, and you also have a lump sum. Sometimes you'll call this like my DROP amount, or my DROP account. 

So we're going to talk about today is, what are some of those common questions we get about DROP. What is it? How does it work? I'm going to tell you about a client that I worked with recently who is deciding if he should go into DROP or not. And just really want to dive deep into this topic, because we get a lot of questions about this. 

So first, let me talk about some of the highlights of the decisions that you might be facing when it comes to DROP. So recently, I worked with a client, and he's at a crossroads. He's 55 and he's eligible to go into DROP, but he's considering his options. He could go into DROP now work five more years and then fully retire at 60. 

By going into DROP when he fully did retire, and he came out of DROP, his pension, monthly pension payments would be about $4200 a month. That's what he would get. And he'd also walk away with a significant DROP payout of almost $275000. Now, the other option choice that he has is to not enter DROP at all, just continue working those five more years. So he gets five more years of service credited, and this would increase his pension to about $5300 a month. 

So it's definitely higher than if he had gone into DROP, but he wouldn't have the lump sum. So why might he choose one option over the other? Well, let's, let's break down some of his choices. By going into DROP, he's gonna have this guaranteed lump sum when he fully retires, and he can use this to help him with other goals, and investments. It could provide immediate flexibility, and financial security in a way that just getting that higher pension payment might not. 

The pension is not liquid. It's not flexible. You can't go to the state and say, hey, could you send me an extra $10,000 this month because I need a new air conditioner, or I got to get my roof repaired. So the DROP account gives him flexibility by having access to this lump sum. 

And then it's going to give him more control over his choices because he's going to have lots of options about what to do with his DROP account, which is what we're going to talk about in a little bit. But he could roll it over into an IRA or another tax-deferred account, which is going to let him control how and when he uses those funds. He might choose to invest those for growth, create additional income streams, or even have it be part of the legacy that he leaves for his family. 

Also going into DROP gives him a structured retirement timeline. He knows, hey, for him, it was five years. I know that I'm going to be retiring at the end of five years. And hey, I'm going to have this pension, I'm going to have this lump sum. But for some, it's having this defined exit date that makes financial planning and future lifestyle choices so much easier. 

You've got that date circled on the calendar that you know is coming, and it gives you time for about five years or eight years, you can be in DROP to make changes. Sometimes I have clients who say, well, you know what, April, I want to make sure I have all my short-term debt paid off by the time I exit DROP. Or I want to build up my savings, or we want to go ahead and buy a car and have it paid off. 

We want to do some remodeling at the house before I step off into retirement, because we know there's this date in the future, and we've got time. We've got five to eight years for us to get some of these things done before we actually retire. And obviously, his pension is going to be lower with DROP, but he's going to have both this steady income and he's going have access to this lump sum, which is going to be helpful for large expenses or unexpected costs in retirement. 

And it can also help him do some other planning with some of his other assets. So let's talk about now, though, why would maybe he choose not to go into DROP? Well, first, by skipping DROP he's gonna significantly increase his pension. I mean, going from $4200 to $5300 a month, that's a big difference in guaranteed lifetime income. And for some who are focused on that stability, this could be something that's really important to them, especially if you're concerned about longevity or inflation. 

The higher pension is going to give him more discretionary spending ability without having to rely on the market or other income sources. And this could definitely be beneficial if he thinks that expenses are going to be higher in the future, or if he just wants to have more financial independence each month. Now, again, he's not going to have that lump sum, but maybe he's okay with that. Maybe he has other assets to offset that. 

He may not need a large, immediate payout. It could be that having those higher pension payments allows him to maximize his lifetime income, especially if he plans to say, hey, I'm going to live a really long time in retirement, and he wants to reduce how much he has to rely on other savings and investments. 

And then by not taking DROP, he doesn't have to worry about some of the tax impacts of DROP, which we're going to talk about in a little bit, about what you do with your DROP payout. And you really got to pay attention to the tax side. Obviously, with the DROP, you can roll it over into an IRA, but at some point, you have to start taking money out of that. 

So there's also some tax planning to consider. So you can see as going through this scenario, that it's a big decision. I mean, you're talking about changes in your monthly income. You're talking about, for him, specifically, you know, a DROP payout of over $250,000.

That's a lot of money for you to decide what you're going to do with it and are you going to go down that route, that path. So you can see how it's really important that you investigate and research both sides to see how it's going to impact your retirement. So now let's take a few steps back here and go through and talk about what is DROP and how does it work. 

Well, DROP is a voluntary program that lets you effectively retire again, the state considers you retired on paper when you go into DROP, but you defer your actual termination for up to eight years. So when you go into DROP, it used to be five, but they changed it. You can now be in DROP for eight years. So this means you continue to work in your same position. You're earning a salary, but at the same time, the state is starting to pay out your pension payments, but it's accumulating into a dedicated retirement account that's for you. 

So when you enter DROP you're considered retired for the purpose of the pension payments. So that means you stop earning those additional retirement service credits, and then your monthly pension benefits, they begin accumulating in a retirement account, rather than being paid out to you. 

So they're going to go in tax deferred. You don't pay any taxes while your money's accruing in the DROP. And this balance is going to grow both by how much is being paid in by your pension and then also the interest that it's earning. And since all of this is going to go in tax-deferred, you're only going to pay taxes when you start to take your DROP out. Either you could do a lump sum or as you're taking money out as income. 

And the beauty of the DROP program is that it kind of lets you have the best of both worlds. You get this financial security of I'm still going to have my pension, but I'm also now going to have this lump sum that I otherwise wouldn't have. Or I'm going to have it in addition to what I've saved in deferred comp, what I've saved maybe in other savings and investments. 

So it gives you some more flexibility and control and helps you maximize your retirement savings. That's going to help you transition into full retirement. So you may be wondering, okay, April, this all sounds pretty good so far. So how, how do I participate in DROP? How do I know if I'm eligible? 

Well, to participate in DROP, you need to be vested in the pension, and you have to be eligible for normal retirement age, which is going to be based on your years of service and your age. It also depends on when you started with the state because in 2011 they had made some big changes about what is a normal retirement age. So you gotta be of normal retirement age or have a certain number of years of service to go into DROP. 

Now, I mentioned a few minutes ago that in 2023 they made some big changes to DROP, and one of the things they did was they extended it from five years to eight years. Now it doesn't mean that you have to be in DROP for the full eight years. It just means that the longest that you could be in DROP would be up to eight years. They also increased the interest rate that you earn. 

It used to be 1.3% but now that's increased to 4%. Which is a huge increase in how much interest you're earning. So let's talk about what are some of those key decisions that you need to make about entering into DROP. So should you go into DROP? Here are some things you want to consider. You want to think about your personal financial goals. 

Is having that DROP payout, is that going to help you in retirement? Is that going to accommodate and compliment your retirement income goals that you have? How happy are you in your job? Are you comfortable with working in your same position for another eight years? Now, like I said, you don't have to work the full eight years. 

You could do two years or five years. It's really up to you, but that is one things that you want to consider is are you going to be okay continuing to work in that position for the duration of DROP? But there are a lot of people will look at those numbers, and it's a big jump as your account continues to accumulate that they want to hold out for the full five years, or they want to hold out for the full eight years. So take that into consideration. 

Also, your pension amount is going to be set, because once you go into DROP, they consider you retired, so you're not going to get any more service credits. So if we think about how the pension is calculated, and it's a formula of taking your highest five years of salary, and then also a formula of years of service. So when you go into DROP that stops. So think of it like your pension being frozen. 

I mean, you're still going to get a cost of living adjustment, though, that still happens even when you're in DROP, but you are locking in those years of service. Again, one of the benefits is that you're going to get this lump sum at the end in addition to your regular pension. I mean, I can't tell you how many clients that I've worked with that when they get to that part, they're exiting DROP, that their DROP account is the same amount of money that they have in their deferred comp. 

So think about that for a second. Here's this retirement account that they may be having saving in for most of their career, and it's the same amount of money that's in their DROP account. And at those times that was over that five-year time frame. So it's not a small amount of money we're talking about here. Now, again, we did talk about some of the negatives of limited pension growth. 

So again, your pension benefit is frozen, but you do get that cost of living adjustment every year. And then what if things change, and if you exit early, this might impact your lump sum. It's not might. It will impact your lump sum. So I'm thinking about a client of mine a few years ago who was in DROP, and she was three years in, and her mom had some major health issues, and she had to step away from work. 

She basically had to end her DROP at three years and instead of five. So her pension was much, excuse me, her DROP account was much lower, and then her pension is lower too because she didn't get all the cost of living adjustments. So that's definitely something that you want to consider. And then also remember that when you go into DROP is when you again retired on paper. 

So this is when you have to choose your pension option. So which pension option are you going to choose? Because that's when you make the decision, is when you go into DROP. And it's an irrevocable decision. So once you enter DROP, your pension option is locked in permanently. So this is so crucial for you to review your options and understand the impact of on your long-term income, for your spouse, and for your heirs. 

So let me just give you one. I'll kind of run through those four pension options so you can understand how they work. But option one is going to be what we call lifetime benefit only. That means the pension is going to be paid to you, the employee, for your lifetime, for as long as you're living, but the day you die, the pension dies with you. 

So option two is life to you, the employee. You get it for life, but it gives you a 10-year guaranteed period where if you pass away in those 10 years, a benefit is going to continue to your beneficiaries. Whoever that is. Could be a spouse, a child, but just know when you go into DROP is when that clock starts on that 10 years. So if you're in drop for eight years, and then you exit DROP, well, you only have two years left on this guarantee. 

Option three is joint with 100% to the survivor. So usually this is for spouses. So this says I get this pension for as long as I'm living, and the day I die, my husband gets it for the rest of his life, and he's gonna get the same amount of income. There are no changes for either one of us.

Now, option four, though, is where there's a lot of confusion. So I want to make sure I go through this one. Option four says that it is joint with two-thirds to the survivor. But what happens with the survivor benefit is it's when either spouse passes away. So let's say that I worked for the state, and it's my pension benefit, and I'm just gonna make the math easy here. And let's just say that my pension is $2000 a month. 

So what happens is, my husband and I get this pension the $2000 a month for as long as both of us are living. But when one of us passes away, that could be me, the employee who worked for the state, or it could be my husband, who didn't work for the state. Either one of us passes away, the pension gets reduced down to two-thirds. 

So now what happens is my $2,000 a month is now $1,320 a month. So it's a big drop, especially in those situations where it happens to be that the non-pension plan spouse passes away first. So make sure, when you're making these decisions that you're looking into all options, and really taking into consideration with everything else in your financial world, not just this one piece. So let's talk about here the pros and cons. 

I want to summarize some of these pros and cons we talked about going into DROP. So some of the benefits. This lump sum accumulation, you've got the potential for a significant payout upon retirement. You're going to have that steady income already from your pension, of course, but you're also going to have that lump sum in that tax-deferred account. So this is going to give you the opportunity to have flexibility, and control. 

Maybe it lets you plan for major expenses, and investment opportunities. Lots of more choices and liquidity, because you've got access to that lump sum. The negatives are that fixed pension benefit, because, again, you're going to lose those additional pension credits, those years of service while you're in DROP. 

But you do get your COLA, but it is going to impact your pension payout. And this may also help from some tax standpoints because you don't have the lump sum to worry about. Because then we don't have to worry about, what do we do with this drop amount and the retirement account, and how all that's going to impact you from a tax standpoint. Now let's say you're already in DROP. 

What happens when you exit? What happens when you leave DROP? Well, when you transition from DROP to full retirement, now you're going to start getting your pension payments as income, and this is when your DROP account is going to be accessible. This marks the transition from accumulating benefits in DROP to now you're receiving that pension payment directly, and you're going to have to decide, what do you do with your DROP payout? 

And there are only a few options. One, you can do a lump sum payment. So this allows you to take the total DROP balance at once. But remember that all of this has been in a tax-deferred account, so every dollar that you take out is going to be taxed at your highest marginal rate. That's why, for most people, that lump sum payout is not a good option. 

You can also roll it over into another tax-deferred account. That could be an IRA, that could be deferred comp. This is going to help you avoid those tax liabilities, and it's going to give you more control. Like we talked about earlier, where you can invest it for growth, you could invest it for income, you could have it be set up to go as a legacy. 

It's gonna give you flexibility, choices, and control about what you do with it. Some may choose to actually take that DROP payout and turn it into an annuity, so they've got additional guaranteed income. Now that is attractive for people who say, hey, I want more income, but I also want to have the liquidity that's available in some annuities. But taking that as a reminder, we've got to think about those tax implications, because taking that payout as a lump sum, it's going to be taxable, could push you into a higher tax bracket. 

And then rolling it over, defers those taxes until you withdraw, allowing you again to have more tax-deferred growth. And as of today, as I'm recording this in November of 2024 you can let those retirement account funds grow until you're 73. But at 73 you have to start taking money out of any pre-tax vehicles like IRAs, deferred comp, 403b's 401k's as for your required minimum distribution. 

So keep that in mind. So how do you decide what to do with your DROP payout? Well, first you want to think about your retirement timeline. When are you going to need to access those funds? Do I need income right away when I retire? Or am I going to let it grow for the future? What are my goals? Do I have any big financial needs coming up? Do I need to help pay for health care or travel or support family? Do I have savings or investments elsewhere? 

So rolling over that DROP might help you have greater control. Maybe it's something where you look at doing Roth conversions, for example. Lots of different options available to you. One of my clients recently retired and she's got her DROP account, and we're doing a couple things. One, she's gonna do some renovations to her house, but we looked at her options and decided it was gonna be best for her to wait until the next calendar year, because of taxes, to start taking money out of DROP. 

So what we did is we had the whole DROP balance go into an IRA, and then that way, she can control when she takes the money out and for what purpose. So for part of it, she's going to be using for renovations next year, and then the rest of it, we're going to let it continue to grow because she doesn't need income from the rest of it yet. 

She's got her pension, she has social security, she's got money accumulated in deferred comp, and so she's got other assets to tap into for income, so we're gonna let this account continue to grow. And she's 67 so she's got six years before she has to start taking money from it. This was a great opportunity for her to have that grow. 

So again, you want to think about what are those financial needs that you're going to have and consider those investment choices. Are you going to do a lump sum? Are you going to do a rollover? Are you going to look at an annuity? What investment options are you going to look at? And this is when you really want to work with an advisor. Because each option has very unique tax implications. It's going to impact your overall financial plan. 

So this is really when consulting that financial advisor, consulting that tax advisor is crucial to make the most informed decision. An advisor can really help you look at your income needs, look at tax planning, and legacy goals, not just one piece of the puzzle, but the whole thing. And they can help you look at both options. 

Like I was talking about with the client earlier, of hey, does it even make sense for him to go into DROP or not? And for him with these other financial assets, yes, going into DROP is going to be a very good decision for him. But it's not one size fits all. It's not a hey, everyone should always go into DROP or no, you should never go into DROP. 

It really does come down to your individual situation, and this is why it's so important that you work with an advisor, someone who can walk you through that and show you both sides. Now, some other kind of common questions that we get are, what happens if I leave early? So yeah, you can leave early from DROP but it's going to reduce how much accumulates in that DROP balance, and it's obviously going to impact how much you're getting in that pension payment, too. 

One thing is, you want to make sure that you coordinate this with your other retirement accounts. So again, think if you have old 401k's, or you have a 403b or 457 plan, how is this all going to work together? What about also social security, and where does that fit in? Sometimes we might find where someone uses DROP to actually bridge the gap for income so they can let their Social Security grow longer. 

We defer taking Social Security, and maybe we're using some of that DROP to bridge the gap for income. Or the opposite. You might look at it and say, hey, for a couple, we need to turn Social Security on for one and let the other one grow. So there's definitely some planning that you can do there. 

And then DROP does have some flexibility. Because, like I said, if your situation changes, like, maybe your health changes, or you've got a family member that has changes. Maybe there are changes in your position and job in your department. I had a client come in who said, you know what, I thought I was going to be in DROP for the full five years, but they're going to be implementing a new software system, and I don't want to do it again. 

I've already been through two major software changes, and I don't want to do this a third time. So she chose to leave DROP early and didn't hit her full five years. So we just want to understand how all that's going to work, and so that you can see what your options are. And of course, you want to take into consideration future healthcare needs. If that's going to just be part of your overall retirement plan. 

Healthcare costs can really impact your overall retirement income and expenses. And so you can see here that deciding to go into DROP or not is really an individualized choice. It's not a one size fits all. You think back to that client I mentioned earlier, and how important it is to really weigh those immediate financial gains against long-term benefits. And that's why it's so important to work with someone who can guide you through a personalized analysis and show you the impact of both choices. 

So don't just assume that going into DROP or delaying retirement is always the best. You really want a tailored approach that's going to help you make the most informed decision for your unique situation and goals. So if you're considering going into DROP, if you've got questions about how it fits into your retirement strategy, I'd recommend you reach out to our team, and let's explore these options together. 

So the best way to do that, I would say, would be to go check out our website, and we'll link it in the show notes. But it's curryschoenfinancial.com. You're gonna see access to all of our podcast episodes. There's a link to book a call. You can request our information package, and so just definitely some resources on the website. 

And like I said, links to to the podcast as well. But I just want to say thanks for joining me today as we're exploring this. I think it says a lot about you that you're taking the time to understand this important benefit. And we look forward to seeing you either on one of our webinars or a future podcast. Bye now.

Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the Division of Retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the Division of Retirement. This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, visit our website at curryschoenfinancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address, 1700 Summit Lake Drive Suite 200, Tallahassee, Florida, 32317. Phone number, 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly-owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.

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