“How much should I save for retirement?” “When should I go into DROP?” “What about inflation?”
If you’re preparing for retirement, chances are these questions have been swirling around your head…
In this episode, guest host Steve Gordon asks us the most common questions about the Florida Retirement System.
With decades of combined expertise, we have helped countless people answer these questions and plan for secure retirements.
We cover:
Is there a “magic number” to save for retirement?
Recent changes to DROP
Choosing a pension option
The “retirement rehearsal”
Inflation
And more
Mentioned in this episode:
Transcript
Steve Gordon: Welcome to The Secure Retirement Method podcast. I am your stand-in host today, Steve Gordon, and I am here with April Schoen and John Curry, both good friends of mine, and they have invited me in today to grill them on the topic of the Florida Retirement System and DROP and all things related. So I'm excited to be here. I'm grateful that you've invited me in to do this important topic. John, it's been quite a while since we've talked about this topic and I think it's time for an update.
John Curry: Well, first, it's good to see you. I'm glad you're joining us.
Steve: Yeah, this is gonna be fantastic.
April Schoen: You're not gonna be too tough on us, though, are you? You said you're gonna grill us.
Steve: I think the listeners would probably love for me to be a little bit tough on you. And as you can tell, folks, we’re great friends and colleagues, and excited to be talking about this and bringing you some very valuable information. So for those of you who've been listening to the podcast for a long time, I know, you know, both April and John. April, if you could just give us a quick background on you, and how you got to this stage of your career.
April: Great. So I think my story, my journey, how I kind of got into this, is I started working with a firm back in 2010. And that firm is here in Tallahassee, and they worked with just employees of state universities throughout Florida. So I was very fortunate because I got to really learn what benefits, what do state of Florida employees have available to them.
Both while they're working and as they step into retirement. And I loved it, I got to really understand, you know, the differences between we're gonna get into a little bit today, the pension plan, and the investment plan and all the different investment options that they have available too. And that's really kind of how I got started.
And then what happened is I started having clients ask me other questions. They wanted to know, what do they do about Social Security? Like, when should they take Social Security? They had questions about Medicare and health care in retirement. They wanted to know about legal documents, and car insurance, and all these things that was kind of outside the scope of what we did there.
So I joined John here with our firm almost 10 years ago. Almost exactly 10 years. And that's what I really loved about being here, too, is it wasn't just about just the benefits, but how do you put all of that together to really help someone.
Steve: That's fantastic. And you and I happen to be talking yesterday, and you shared with me a little bit of your motivation for working with folks in the state university system and in the, you know, in state government. I would love for you to share that today. I think that's really important.
April: So I think you know, what's interesting is I remember one of my clients, we'll call her Pam. And I remember when I first met with her, she was with the state of Florida, she was in DROP, she was planning to retire about two, two and a half years. But she was very nervous. She was very scared and worried. She was afraid that she wouldn't actually be able to retire. She thought she would leave state government and have to go get another job somewhere.
She might have to move in with someone. She just had a lot of concerns and fear. So going through the planning and work with her, our planning process. And we do what's called a retirement rehearsal, which is so fun, where we get to really show them what does it look like from a financial standpoint for them, when they step off into retirement? What's that actually gonna look like for them? And I'll never forget, we had this meeting and she was so happy.
I mean, she was just like, walking out here, walking out of the office on cloud nine. She said to me, April, this is way better than I ever thought it could look. I had no idea it was gonna be this great. And she was super excited. And I remember we get out to the lobby, and she turns to me and says, you know April, I just never thought that I could have a financial advisor.
And that just really hit me. This woman should definitely have the ability to sit down and talk with someone, ask them these questions and have these concerns and have a space where she can talk through all that and have someone help her. So that was for sure a moment for me. I was like, ooh, this is why this is so important, and why I love what I do.
Steve: That's amazing. Great story. And thank you for sharing it. Mr. Curry.
John: Yes, sir.
Steve: I would ask you to get us up to speed on how you got to this point of your career, but we don't have that long.
John: The almost 50 years discussion. I'll give you the Cliff Notes. I started in business September 13, 1975. So I just had an anniversary last week. So officially in year 49 now. And the way I got started was really by doing homework as a veteran. I went to TCC and the vocational counselor there gave me this battery of tests. And she said, I think you should go into sales. Either go sell life insurance or sell real estate. And I said I don't want to do either one of those. Thank you.
But I bumped into a friend. And next thing I know, I entered the financial services world. Back then it was just life insurance, and then later investments. But what motivated me to focus on dealing with people who were members of the Florida Retirement System, because we have clients across the spectrum. We have clients that are business owners, physicians, all across the board.
But if I had to choose one group, and only allowed to work in one group, it would be members of the Florida Retirement System, because my grandfather and my father. My grandfather took option one with a pension when he retired. He was healthy, extremely healthy. Thought he'd live a long time. He lived a little bit more than four years, and he died. When he died, that pension died with him.
My grandmother lived for 27 more years to age 95. And my dad and his brother, my uncle, had to help her financially. And that did not have to happen. But there were no people doing what we do at that time, where I grew up over in the DeFuniak Springs area. So then you fast forward, my dad works at the same place, Department of Transportation, same office. And he saw what his dad did. He said I'm not doing that now.
I'm not going to die and the pension dies. So he chose option three. And he lived to age 85. When he died, my mother was concerned, what do I do? I'm gonna lose his pension. I said no, you're not. Because option three guarantees that didn't come to you the rest of your life. And in both cases, both men could have done a better job if they had worked with someone like us.
So I made a commitment back in 1983, that I was going to focus almost all of my effort helping members of the Florida Retirement System. Even started working on a process at that point. And I see no reason to change it. We just make it better and better and teaming up and have a partner like April to where we can do more, help more people. It's just fantastic. And it's gonna come up somewhere in the middle here right now.
Somewhere along the way my smart aleck friend across the table is going to say, well when are you going to retire? People say that all the time. You do retirement planning, but you haven't retired. I have retired. On paper I am retired. Since January of 2019. But I get to work, I don't have to work. And I love that. I love that.
Steve: That's funny. You retired in 2019. Since then, you've published two books you've given countless speeches, and I don't know how many people. That's a retirement. So you know, for folks who are thinking about, you know, retirement and getting ready for that. I think the common thought is, I got to build up this big pile of cash. There's some magic number I gotta hit. April, is that really the most important thing? Or is there something else we should be paying attention to?
April: Great question. No, it's not some magical number that you need to have to say, oh, I've got to wait till I have this amount of money in my retirement accounts for you to be able to retire. I do not believe that is true. I think in our work and our planning, what we focus in more on is not just having some magical number in your 401k. Because that's really not why we get up and do what we do anyway. Right?
And when I say get up and do what we do, everyone listening to this, who gets up and goes to work, they're not doing it just to have money in their 401k, right. So part of what we do in helping with clients is trying to really understand too just what is it that they want retirement to look like? What's that vision that they have for retirement? What do they want to do in retirement? Now that they've got that time? What are we going to do with it?
So we've got to understand what their vision is for retirement. And then on the financial side, it's not some magic number to have in their retirement accounts. But it's more about having the income to support that vision. Having the income to support that lifestyle that they want to have in retirement.
John: And what's interesting on that April is how many times have we had someone say to us, I have no idea. All I know is I'm gonna retire at some point. I say great. So you're gonna have this time. You're gonna have the money coming in with your pension and Social Security and anything else you've done personally. So what are you going to do? You've got the time, you've got the money. What are you gonna do with it?
And it's so funny, Steve, we can get people to focus on wow I hadn't thought about that. I know. That's why we're asking the question. Let's help you get clarity on what it is you think you want in retirement. And you know what, we can delete anything you don't like. You can always change it. I would say use an eraser. But nobody knows what an eraser is anymore. But how many times have we seen that? All the time.
Steve: You know, I always say it's easier to know what you don't want than it is to know what you want.
John: It's funny over the years, you and I both have said that a lot. I say I know that, I know what you don't want. I heard that about 10 times. How about telling me what you would like to have? So we can focus on that. And people look at me and they go, you're right. I don't want this. I don't want this. We got it. What do you want?
April: If you could wave a magic wand and have it any way you want it to be.
John: You know, I have one.
April: You do.
Steve: So, you know, for folks who are participating in the Florida Retirement System, they've got some unique advantages and some unique challenges compared to, you know, folks who might be in a private sector with, you know, sort of a 401k type plan. For those, you know, some of the folks in the Florida Retirement System have got pensions and other options. John, you alluded to it, in the beginning with the challenges that your father, your grandfather had. I would imagine, making these decisions can really weigh on people, and it can probably be very confusing.
John: Confusing, and some of them, you can't change. Once you do it, you're stuck. But it can be complicated, because it's not just which pension option to take if you're going to do the pension. Some people aren't. Some people in the FRS investment plan. We'll get into that later when April kind of walks through what is available. But what about Social Security? Okay, when do I take Social Security? How does Medicare work?
We spend a lot of time talking about Social Security and Medicare. We do a lot of stuff that's outside of the financial services arena, that doesn't involve products. And because our philosophy is you better do the planning first. It's like a big puzzle. You take all these pieces of the puzzle. And you put them together and now you have the clarity.
Steve: April, as you're working with people to kind of sort this out, what are some of the big questions that come up for folks who are looking at the options within FRS?
April: So when they're thinking about FRS and their options, I think the first thing is, are they in the pension or are they in the investment plan? So if they're in the pension plan, depending on how long they've been with FRS, they may be asking if they should go into DROP or not. We get that question a lot. DROP program is something available to those in the pension. There were some changes recently to DROP as well.
So I know we'll kind of get into that. But one of the questions we often get is, should I even go into DROP? Is that something I should consider? Okay. And we always say we should look at it. It's very important that you don't just make these decisions without looking at both options. There is, unfortunately, people are gonna hate this. But there is no one size fits all. There is no one size fits all answer, that's just a blanket answer for everybody.
John: You're a party pooper. What's wrong with you?
April: I wish there were. It would have make things a lot easier. But you have to look at it. Which is going to be better for them to go into DROP or not. And then the other question is going to be for them is which pension option do they take? And there's four options in the state of Florida pension. And so they need to look at all four of those to decide which one's going to be best for them as well.
Steve: And I would imagine it's something that can't be viewed in a vacuum by itself. You've got to sort of take into account the totality of their situation. What is Social Security gonna look like? If they're, you know, married, have a spouse, what is their retirement situation? All of that sort of comes into play. You mentioned a puzzle, John. It sounds incredibly complex, when you start to put all of the pieces in place and not just isolated to this one decision.
John: Well, some people get paralysis by analysis. They simply say, there's too much stuff here. I'm gonna do nothing. They get paralyzed. They do nothing. Not just in the Florida Retirement System, but every person out there who is trying to do investment planning, retirement planning, it is very confusing.
And the government doesn't help. State or federal. They keep changing the rules. Tax rates, I hope we get into taxes a little bit because I want to talk about that some. But it's just crazy the amount of time it takes to do planning properly. But I'm gonna correct one thing you said, Steve. No one has to do anything. You don't have to do anything. You can do nothing.
That's one of the options available to you. Do nothing and just hodgepodge it and then hope it all works out. But our experience has been, and we've got almost 60, how long have you been doing this? 12, 13 years. So we got over 60 years combined experience. And rarely does ignoring a problem help because problems don't get better with age they get bigger. Right?
Steve: You mentioned the term earlier retirement rehearsal. And I'm sitting here thinking about all of the various options. And it seems to me like the retirement rehearsal is a chance to sort of come in and sit down and put the puzzle pieces together, in four or five or 10 different ways to see which one is going to work best. Is that about right?
John: It is. I want to make a comment, and then I'm gonna have April walk you through how we do that, because she loves doing that. And she's very good with numbers, she's very analytical. But here's the first step. Before we ever, ever start trying to do anything with a computer or doing any type of analysis, the first thing has to be let's have a conversation.
And let's make the assumption that we've had that conversation and we've agreed to move forward and work together. Now we've got to get that word again, clarity. What is it you want to accomplish? And we start by saying, what do you have? What is it you've got today? Where do you want to go? And then we work from there. And I'm going to April to kind of fill in the blanks of what we do there.
April: So the retirement rehearsal is so fun, Steve. First of all, it's really fun for us, because it is like a puzzle. We get to throw everyone's financial pieces on the table and say, how do we put these together in the best way possible for them? So again, assuming that we've had this conversation around what is retirement going to look like for them? Our retirement rehearsal is we actually fast forward them.
So let's talk about the client I mentioned earlier, when I was talking about Pam. She's retiring in two and a half years. So let's look at what is her income going to look like when she steps off into retirement two and a half years from now? And let's take all of those pieces into consideration. Which pension option should she take? And how is that going to impact her? When should she take Social Security? Is she going to do any additional work in retirement?
Some people want to retire and never look back. Others want to be able to work part time or do consulting. So we've got to put that puzzle piece in there somewhere, too. We got to talk about healthcare, and what's that going to look like for them in retirement? What about their other retirement accounts?
Most people will have something in a 403b or a 457 or they've got their DROP account? They're going to have to do something with that. And we have to talk about when are they going to take income from it? Are they going to take income from those accounts right when they retire? Are they going to let them continue to grow for the future?
They have to start taking money out of those accounts by 73 for the required minimum distributions. But we have to take all of that in consideration. So you mentioned yeah, we can't just say, take this pension, because it's the best one. All of these other pieces help us determine how those things look for them.
John: And they're all important. Every piece of it is important. Something as simple and mundane as someone's car insurance. Why do you care about that? You don't sell car insurance? No, we don't. But so we do all this work and have a great plan. And you have an accident and you hurt or kill someone and all your stuff is taken away from you. What good is the planning if you don't protect it?
April: You know, on the retirement rehearsal part, Steve, I know how John and I's brain works. We'll look at someone's information and we can see this play out in five, six different ways. But that's very overwhelming. So we may not show someone five or six different ways that income can look for them.
We really want to try to narrow that down to like, let's say two options. And then I think about when you go to the eye doctor, like which one is better, A or B? A or B? And we actually just show them what it looks like. So we can see it in black and white, and that can help them make decisions.
Steve: Absolutely. So talk a little bit about once, so you've been through the planning process. Now you're into implementing the planning process. And that's sort of where the rubber meets the road because people have to begin living life inside the plan, right? You've created the plan, but if you don't live to the plan, it doesn't really do much good. How do you interact with the folks that you help during that planning process?
John: First I want to make a comment that just popped in my head that you've heard me use before and I think you've used too with people. Here's a bottle of water. If I'm in the bottle, I can't read the label. Correct? Can't read it. But if somebody else outside looks at that with you, they have a different perspective, especially if you've seen as many 1000s of plans as April and I've seen.
So the implementation part is easy for us. Very easy. It's a piece of cake. Because the planning that we do and what you see, come on that screen in that rehearsal, you, the client will look at and go, ooh, I got a problem right there.
So we don't have to do any pressure type selling. We don't have to do any of that nonsense. We simply say, here's what you have. Here's what you could have. And it's like April said about the eye exam. Which would you prefer? This plan, or this plan? It's your plan. It's your plan. It's not ours. It's yours.
April: Yeah, and I think back, John, this is something I've heard you say countless times about if we're doing work and helping a client, there's really only four things they can do with that. That plan, right? They could do nothing, right? They could do it all themselves. They could take it to another advisor, or they could choose to work with us and our team.
John: Correct.
April: There's really, there's only four choices. When they have this plan, they see exactly what it's gonna look like, and know what to do.
John: And I can't tell you how many times over the years, I've had someone say to me, I'm gonna do it myself. And then they get into it. And I'm looking at a picture right now on that bookcase over there of a gentleman who's now I think he's 96 years old. When this happened, he said, I need help. I thought I could do this. I was wrong. A professor. Will you help me with this? And I said, absolutely. And that was one of the things that got me even more entrenched, and dedicated to working with members of the Florida Retirement System.
Because this was the guy that I still have a lot of respect for, especially then. And he was putting his financial stuff in my hands, trusting me. And I didn't have the answers. And I told him, I don't know all this stuff. He said then go learn it. And I did. And every time we help somebody with a problem, it gives us such a wealth of information that we can get out there and serve other people.
Steve: So, April, you mentioned earlier, there's been some changes to DROP specifically. Can you talk a little bit about the changes and how they're impacting people?
April: Absolutely. I'm gonna cover kind of the big changes, there's some other changes happen too when it comes to FRS and retirement. But the two big changes with DROP is it used to be when you went into DROP, you had to retire in the next five years. It put an end date on it. You had five years from today, between now in the next five years. So one of the things that they've done is they've actually extended that from five to eight years. So now if I go in, I have 96 months that I can wait to retire and be in the DROP program.
John: So it gives you more time to agonize.
April: Yes. And so the big question with this one change, Steve, is that if you're already in DROP, they have the option to elect to defer. So if I'm already in DROP and let's say, I'm going to retire in two years, I can now say I want another three after that. So for people who are already in DROP, they've got a question. That's a question they have to answer. Should they stay with their original plan? Or should they extend into the future?
The other change that happened too which is actually a really good change is the interest rate that people are going to be earning on their DROP account while it's accruing. So before that was 1.3%. That's how much their drop account was earning interest. And they've increased it to 4%. It's a big increase. So I'm glad to see that that happened. So that's going to make a big impact too for people in a positive way.
Steve: Absolutely. Now, I know we're dealing with some inflation in the current environment. And last I checked, the inflation rate was more than 4%, I think.
John: That's right. Well, it depends on who you listen to, but supposedly it's 3.7%.
Steve: So they're just above water. But inflation is a huge concern for people right now, as they're thinking about going into retirement. It's really changed the equation a lot. How are you dealing with that and how are you counseling people around inflation today?
John: Well, I think inflation, I've said this 1000 times, seminars, books, podcasts, webinars. Inflation is a silent thief. Two things. Inflation and taxation that take your money. But taxes are loud. You feel it, you see it. Inflation sneaks up on you. You go to the grocery store and say, wait a minute. I don't think I paid that much for that last month, and you start thinking and then all of a sudden what we've experienced the last couple of years, you realize, whoo, some of the stuff has doubled in price.
So I go back to what happened in the 70s and 80s. And It was a long time. I remember when mortgage rates were 13%. Interest rates on money market funds were 21%, believe it or not, at one point. And so what we're experiencing today, I look at it and I go, okay, it's not that bad. I lived through worse.
But if you haven't experienced it because we were spoiled rotten, with 10 years of a boom market, and low inflation and high interest rates on our savings and low interest rates on mortgages. And now we have mortgage rates at about 7.5 now for a fixed 30 year. But that's my perspective on it. And I think it's something that people have become a little bit lackadaisical, and not plan for that, because you're going to experience inflation.
And everyone's inflation rate is different. Yours is different than mine, mine is different than April's, because it depends on how we spend our money. But I think we should talk about how we look at that with the retirement rehearsal. How we sometimes will start showing no inflation, and then we start showing inflation. You want to talk about that?
April: Yeah, you know, I do like the analogy of inflation is a silent thief, because it just kind of creeps up on you. And I think about usually, we have a pretty good idea maybe like what the price of gas is right now, right? Because we see it at the pump. And people talk about how have you seen the price of gas today. And we kind of notice that, but we don't always notice the cost of milk, or bread or eggs creeping up. Although I shouldn't say that. And I mean, in the last few years, we definitely noticed the price of eggs, right?
John: They didn't creep up. They ran up. Those chickens were flying.
April: But generally speaking, when someone, we're thinking, especially someone retiring, inflation is no surprise to us, like, we know it's going to be there. So we have to plan for it. And if you think about someone, let's say they're retiring, they're 65. And life expectancy is 85. Let's say someone's got 20 or 30 years in retirement. Well, we know that they're going to need more money tomorrow than they need today. The price of milk is going to be more tomorrow than it is today. So we have to plan for that. We have to take that into consideration.
John: And if you don't, it's going to hurt. And typically, from what I've seen, over the years, people will say, you know what, my money is not going as far as it used to. And it's usually about seven years after they retire. No magic number. But that's what I've seen in the past. All of a sudden, my money's not going as far.
April: Many clients, in the last year or two when we're meeting, and we always have that conversation of hey, how are we feeling about income and is this a time when we need to look at having additional income? And so many people say no, no, I'm good, I'm good, everything's great. And in the last couple of years, we've had to say, you know what, I think it is time. Perfect. We planned for this, we allocated for that. We knew this was coming, we just didn't know exactly when we would need to kind of flip that switch. But we could plan for it.
John: I'm not gonna say the name, but I know you know who I'm talking about. Remember the individual who came in and said I can't afford to retire. I can't retire, I can't retire. And we were able to show him that he could retire right then if he wanted to. And he actually went back and talked with his supervisor.
And they solved a little problem they had, and he worked two or three more years. And he loved his work because the supervisor got off his butt and left him alone and let him work, once he realized he could retire. And with so many times, it's like your friend you're talking about earlier.
It's just absolutely, I can't even describe the feeling when you show someone that they can retire earlier than they thought or in retirement, they have more income than they thought possible. It's just, it's fun. Because we know how to use strategies to increase some people's income as much as 20 or 30%. And that's exciting.
Steve: That's significant.
John: Big time. And it's not some magical product. It's knowing again, and I'm probably going to wear out the word puzzle, but it's true. It's taking all the pieces of the puzzle and playing with it. And I love doing that.
Steve: Well, let's talk about two things that I know folks, as they get to that in that retirement window they start to get concerned about and that's Social Security and Medicare. And I know every now and then in the news, seems like more and more frequently lately. The talk of both programs going bankrupt is out there. I'm sure that's worrying people. But I think beyond that, just the complexity of when to take it and how to approach Social Security is a big deal. How do you guys think about Social Security and Medicare right now?
John: I'm gonna defer to April first on that and then I got a couple things I want to say to kind of clear the record for what people need to hear.
April: Steve, I hate the fear tactics. It drives me crazy when there's so much fear out there and these fear tactics about Social Security's gonna go bankrupt, you know, you're losing all your benefits and all those things. And I do not believe that is true. There is no way in my opinion, in today's world that Social Security is going to go bankrupt, is going to go away.
Do I think that they'll make changes to Social Security? Absolutely. Now, so I'm going to be 40 in December. I think that I will see sweeping changes to Social Security. But I think as someone who is 55 and older, maybe even 50 and older, they're probably not going to see as many changes as someone like I will or think about my two boys, you know, that are seven and 10, they'll see big changes too.
John: How about this? People like me that are 70, soon to be 71.
April: This is my opinion, I do not think that you'll see any changes to Social Security, I think they'll make changes to the program. I think they might increase taxes, I could see them increasing the age when new people can claim benefits. But I think if you're already on Social Security, you don't have anything to worry about.
John: Good.
April: Good news for you.
John: Is that a guarantee?
April: That's a guarantee.
John: I'm gonna make the comment that April did. I don't like the fact that people are being told, take Social Security Security at 62, because you hear it all the time. And then you have others who say, well meaning friends, don't take it until you're 70. I took mine at full retirement age, 66. I'm glad I did. So it's a personal choice, but you got the range of 62 is the earliest and at age 70, you gotta do it. You don't have to, I guess you can just donate it to the government.
But you got to range in there. And I think sometimes people do try to make those decisions in a vacuum. And we call that micro planning instead of macro. So you, we don't think you should do that. We should say wait on it. Yes, maybe at 62 you should do it, but there's a lot of factors. Are you going to be working? If so how much money will you make?
And I think the changes that are coming to Social Security and I've been talking about this since the 80s. Ever since President Reagan pounded Congress and got the most sweeping changes to Social Security since it was started in the 30s. And the press hardly said a word about it. We had all of a sudden, the benefits used to be tax free, then they became taxable.
And then we also had no cost of living adjustment, we got that. We had a lot of things happen. The tax rate changed, the income base kept going up and up and up. So I think April is right. We're going to see more taxes, but they're not gonna call it that. It's not going to call taxes, it's just going to be instead of 7.65 coming out of your paycheck is gonna be 10 or 15%.
Or they'll keep it the same, then raise the income level. And they never should have allowed people to retire 62 in my opinion. I think that was the biggest mistake they made. Never should have done that. They should have left it at 65 or even 70, based on how people were living.
Steve: What I'm getting out of all of this is there's a lot to coordinate. And the other thing I'm getting out of this is that there's a process and a way to approach this that will get it all organized, and coordinated.
John: Correct. Let's talk about Medicare for a moment. You said both of them but we didn't talk about it.
Steve: That's true.
John: Medicare. I had a friend just last week, he said, can we please sit down and talk about Medicare. I'm still confused. And he is still working. So he does not have to take Medicare Part B now because where he works is more than 20 people. And he can stay on his plan. And he had forgotten that and didn't know. He was in a panic about I'm going to be in trouble. What do I do because my wife won't be covered. I said that's not accurate.
You can stay right where you are. Get on the computer or either go down to the Social Security office, pick one, and choose the option that allows you to defer Part B because you're still under a group plan. And we find a lot of confusion about that. Most people don't know. And they get in trouble. If we can get them to sit down again and talk about okay, what's going to happen when you're 70 years old, what's going to happen back up at full retirement age. A lot of moving parts
April: Medicare is very confusing. You know I think I joke sometimes that I know more about Medicare today than I want to know about it. But I think once people get it and they understand what their options are and they walk through all those and they make those choices, it's actually not as complicated as long as they have all that information.
Steve: Right. So I have two more topics that I know are on people's minds that I want to make sure we cover and they're very interrelated. And the first is RMDs, and the related topic is taxes. Because one usually triggers the other, right. So, I know people are often concerned about RMDs, and how it's going to impact them. Talk a little bit about what the big concerns are, and maybe roughly what some of the rules are. I know they change from time to time.
April: They keep changing, Steve, to be quite honest with you. So required minimum distributions, we call them RMDs for short. And what RMDs are is a time when the IRS says you have to start pulling money out of your retirement accounts. These are from your pre tax retirement accounts. So think 401k, 403b, 457, traditional IRAs, any type of pre tax retirement account.
And so right now that age is 73, although it's slated to increase to 75 in the future. So that is something they keep changing is when do you have to start taking money out for your required minimum distributions. For right now, it's age 73. The IRS also has a formula that we have to follow.
They have a certain percentage that you have to take out of your accounts every year. So it's not just oh, can I just take $1 and be done? Nope, that's why they call it required minimum distributions, because they tell you the minimum that you have to take out from those accounts.
John: It's definitely not a suggested minimum.
April: It's not suggested.
John: Tell them what happens if they don't take out the RMD amount.
April: If you don't take it out, they're gonna penalize you. They actually charge you a penalty. It's 25% of whatever you had to take out of it. That's your penalty. Plus, you still take the money out, plus, you still have to pay taxes on whatever came out. So it's pretty big.
John: And that penalty was 50%. So what they did is they said, okay, we're gonna lower this and make it easier because people are raiding the piggy bank again. If you take a look at what's happened in our economy, it reminds me so much of 2008 and 2009. We got people that are overextended on credit cards in our world today. And they're taking money out of their retirement accounts, and paying penalties because they need money.
We're not seeing a lot of that personally with our clients. But we know for a fact that's happening. And sometimes it's with our clients' adult children, because they don't have a plan. We're trying to help everyone we can see from the standpoint of if you're a client, you're 70 years old, and you've got children that are April's age, they need to be sitting down with April, because she can have a better understanding of what they're going through.
And with her experience, she's got the best of both worlds because she has learned stuff at a faster pace than most people, because she's worked with people that already are in their 60s, 70s, 80s, 90s. Most people April's age think back 10 years ago, April. They don't get that. But sitting in meetings all the time working and running the meetings. I'm sitting there going okay. Can I talk now?
April: Maybe.
John: She won't let me retire yet.
Steve: Yes, I know.
John: She's told me that.
Steve: So, you know, I mentioned taxes. Just quickly, what's the link between RMDs and taxes? Why is it giving people so much heartburn?
John: I'll go first on that. We've had people say I don't need the money. I'm not gonna take it. I said okay. You don't have to take it. Well, I thought I had to. The government be perfectly happy to charge you the 25% penalty on top of the tax. So don't do it. They go, oh, that doesn't sound good. No. And what happens is, April likes to talk about taxes, also. When you take the money out of that retirement account that is on top of everything else you've already got.
Your Social Security, pension, IRAs. So just visualize, we have people who have all those accounts. They have an IRA, they have a Roth IRA, they have a 403b in some cases. They have 457 deferred comp, which we have not talked about, but most people in the Florida Retirement System, have some money in deferred comp, same rules apply. You gotta take it out.
So if you've done a good job of saving money, guess what? They're gonna make you take it out. And in all likelihood, the tax rate is going to be up, higher when you do that. Just on the basic tax rate today. But what if we have tax rates go back to 50%. There are people in Congress right now proposing as much as going back to 70% tax. Your take, April?
April: Yeah, that's a question or concern that we get, is okay, I have to take this money out. So now what? So now they know that they have to take this out, they don't want to take it out, they don't have to because they don't want to have to pay the taxes. But we always talk about how, when we're taking it out, it's taxed at your highest marginal rate, right.
So now you've got to pull it out. But now what do you do with it? Well, that's kind of where the fun part comes in for us a little bit, too. It just kind of goes full circle back to planning. We've got clients who do all kinds of things with it. Clients who take it out and take a big trip every year, you know, it funds their vacations. We've got clients who use it to remodel their house, you know, they've planned to stay in their house for as long as possible.
So they're doing these things now to get prepared for that. We have clients where we turn around and reinvest that. They say, okay, alright, April, alright John, I take it out, I'm going to pay the tax. But then let me go ahead and reinvest what's left of my required minimum distribution. So I can put that somewhere back on my balance sheet, so we can grow for the future.
John: And some people who take the money and help with their grandchildren's education costs. Pay tuition, it's pretty cool.
Steve: Well, we've covered a lot. And we've gone on for probably longer than we originally intended. But I know we can go on for probably days on these topics, because this is what you guys are fully engrossed in all the time. And I hope for everybody listening, this has helped answer some questions for you. If you have more questions, one thing that I will tell you about April and John is they are prolific in helping get information out.
And so they do webinars on a regular basis, you can look at the website for the upcoming schedule, curryschoenfinancial.com. And they put together the Secure Retirement Method for Members of the Florida Retirement System, which is a great short book that really covers all of the key issues. Goes into more depth on some of the things that we talked about here today. You can get that at curryschoenfinancial.com/frsbook.
And I would encourage you to come in and meet with April, meet with John. Have a focus session where you really go through where things are for you today and where you'd like them to be in the future and throw the puzzle pieces on the table and let them let them put them together. And again, you can do that at curryschoenfinancial.com. And anything else you guys would like to add?
April: I think it's been great, Steve. I know we kind of covered a wide range of topics. And really kind of talking through some of those concerns that people have. I think it's been great.
John: I would end it this way. We want to help as many people as we can. You've helped us with that. You challenged me one day, made me mad if you recall at breakfast about getting another book done. You've got all this knowledge in your head, John, get it out there. Remember that?
Steve: I do. You weren't happy with me.
John: You called me selfish that day.
Steve: I did.
John: Because I was not sharing enough with people. And you're right, getting the books done, the podcasts, the webinars, because some people will hear this, that we'll never see. We'll never meet them, but somebody will benefit from in some way from this. So that means we did a good job. We helped someone, and it will come back. It always comes back. Good, bad or ugly. You're gonna get back what you send down.
Steve: Absolutely. Well, thank you both so much. I appreciate you investing a little bit of time with me and with everyone listening today. And folks, I hope this has been really helpful for you.
John: It was fun.
April: Thanks, Steve.
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