Retirement planning should feel empowering—not overwhelming.
But what happens when you’re faced with a maze of options, perplexing pension choices, and high-stakes decisions that keep you up at night?
In this episode, John and April unravel the complexities of retirement planning for Florida Retirement System (FRS) members—making it clearer, simpler, and surprisingly fun.
You’ll discover…
The story of two retirement decisions in one family—and how one choice changed everything for decades.
Why DROP and pension options aren’t as “set and forget” as most people think.
The shockingly common mistake that could cost retirees thousands in unnecessary taxes.
How timing your Social Security and coordinating benefits could radically increase your income for life.
The overlooked risk of forced withdrawals and how to keep your retirement savings working for you.
Mentioned in this episode:
Contact the office: 850-562-3000
Transcript:
April Schoen: Hello and welcome. My name is April Schoen, and I'm sitting here with John Curry.
John Curry: Hello, April. Hello, everyone.
April: And we're so glad you're here. Today, we're going to be talking about retirement planning made easy for FRS members. And now we all know, I kind of chuckle a little bit because John, you know, we know retirement planning isn't actually easy, especially when you're thinking about FRS pension choices, DROP, tax rules. There are a lot of things that you have to consider, and our job is really to make that easier for you by bringing clarity, by bringing structure.
And we primarily work with people who are retiring from the state of Florida. Many of them are already in DROP. And what we find is many of our clients they spend their entire career working for the state, maybe in the education system, university system, and now it's time for you to turn your attention to your future. And if you're like a lot of the people that we meet, you may be feeling overwhelmed.
After years of focusing on your work, your family, you may feel like retirement is coming up really quickly. Maybe coming up fast, and you've got a lot of decisions you have to make, and the stakes are so high, it's complicated. You might be asking questions like, what pension option did I choose, and was it the right one? What should I do with my DROP account payout? When should I take Social Security?
And of course, am I really ready to retire? You're not alone if you feel this way. And the truth is as well, you're not behind. It's just that the system is confusing, and that's not your fault. We believe that after decades of working, you shouldn't feel anxious about what's next. You deserve clarity. You deserve a retirement that works for you, and that's why we do what we do. Our job is to guide you through this maze of options, simplify the process.
Our job is really to try to make it as simple as possible for you, give you clarity and confidence so that you can move forward. And we specialize in helping FRS members understand what they have, first and foremost, what it means, and how to make the most of it. Actually, recently, we met with a couple who had always handled the finances on their own, but now that they're getting ready to retire, they wanted a second pair of eyes.
They wanted a second opinion. And in our first meeting, we were able to help them understand where they stood, what their options were, and how they can move forward. And they walked out with a structure, a plan in place, knowing that they were on the path to making the right decisions. And that's what we want for you, too.
So today, we're going to walk through some of the biggest decisions that you face in retirement, and we're going to show you how you can build a plan that fits for your life, your values, and your goals.
John: April, I think it's also important for people to know why we have chosen to work with members of the Florida Retirement System. On page 10 of my book, I tell the story, so I'll keep it brief here. I grew up in a state employee family. My father and my grandfather both worked with DOT, Department of Transportation, out of the Defuniak Springs office, halfway between here and Pensacola.
So I saw firsthand some of the things that they had to deal with. And when my grandfather retired, he chose option one. He chose option one because he wanted to get the maximum income. Unfortunately, he died a few years after retirement, before age 72. So my grandmother went 27 years without his pension, because when he died, the pension died. She died at 95, and all that money disappeared. My dad said, I'm not going to make the same mistake.
So he chose option three. He got an income stream for the rest of his life. He died at age 85. When he died four years later, my mother died, but both of them continued to get the same income, because option three pays to both. And you'll get into that later. But it's very important to sit and think and say, okay, which option should I choose?
Some people say, you're always better taking option one like my grandfather did, because I'll probably live longer. Well, he didn't. He thought he would, he didn't. So which man made the best decision? Back then, there was no deferred comp, there was no DROP program back in those days. So they got, actually pretty poor advice to be candid, but they were both hard headed, too, and didn't seek a lot of advice.
And they thought had it all figured out, but that is why, in 1983, I made the decision to spend most of my time working with members of the Florida retirement system. We have clients in other fields, but it's important that people who are under the Florida Retirement System get good information and not just a sales pitch.
April: That's why I'm happy that we're doing this today. We've been getting so many questions around options, and there's a lot of confusion out there. Not just about the pension, but what are your choices and options about what to do with DROP, deferred comp? When do I take Social Security? What does Medicare and health care look like in retirement? There are a lot of pieces to it, really.
John: And if you don't do it properly, you could find yourself paying a lot of taxes unnecessarily. So there are a lot of moving parts. And some people just don't like dealing with it. It's too complicated for them.
April: Yeah, that's why I love what we do is really helping them kind of be able to put all of those pieces together and help them make those decisions.
John: For us, since we're geeks about this stuff, it's fun for us.
April: It's fun for us!
John: It's like, it's like throwing the puzzle on the table and saying okay, where are the pieces, and where's the picture?
April: I said this to someone the other day. I was like, oh, this is the fun part. You know, it's like putting together, which we'll talk about later is a retirement rehearsal. And she goes, oh, I'm glad you think it's fun. I'm glad you find enjoyment out of it. She was making a joke, but she's like, no, seriously, I'm glad that we have people like you that like this is what they love to do. This is not my thing. So here's what we're going to talk about today.
We're going to walk you through the most important parts of building your retirement plan, and most importantly, you're going to know how it's going to apply to you. So we're going to talk about, when is the best time for you to retire. How do you get the most out of your FRS and Social Security benefits? And then also, what are some common pitfalls to look for so that you can avoid costly mistakes.
Now we're going to cover a lot today, but don't worry, the goal isn't for you to become your own financial planner. The goal is to help you realize how valuable it is to have a clear system and a guide on your side. So you don't need to memorize everything. You just need to understand what's possible, and then who can help you get it right.
So as we're going through this today, if there are certain sections you've got questions on, I encourage you to jot it down and say, oh, maybe I'm going to put a star by it and say, hey, this is something I want to talk to John, I want to talk to April so I can learn more about this. So let's dive in. The first thing that we're going to talk about is the four pension options under the state of Florida pension, and which option is going to be best for you.
So before we get into the technical stuff, let's talk about the real reason you're probably here. You know you've spent your entire life working, you're in DROP, retirement is probably coming faster than it seems, and you're wondering, am I doing this right? Am I making the right decisions? And we hear that all the time. Most of the people we work with, when we first meet them, they might feel unsure. They might feel overwhelmed.
You know, we had a client yesterday, she said she used the word foggy. She's like, oh, my plan is a little foggy. And that's what she was here for, was to get clarity on that. And almost all of our clients, when we first meet them, they're worried about making the wrong decision, especially when it comes to their pension, and that's not okay.
You know you've worked your entire life, most of you, decades for either the state or education system, teacher and you deserve to be able to retire with clarity and not confusion. So if all you get out of today is really understanding how the pension works and how DROP works, it'll be worth your time.
John: Absolutely. And it will also help them understand that it's not as complicated as some people like to make it. I don't want to say it's easy, but we can make it easier.
April: That's right. So let's walk through these four pension options, what they are, and what they mean to you. So option one, this pays the highest income. Pays you the highest income for your life. It's guaranteed for your life, but it dies when you die. It ends when you pass away, and there's no survivor benefit.
John: I call that my grandfather plan.
April: Option two includes a 10-year guarantee. So once your pension starts, if you pass away within the first 10 years, your beneficiary sees the income for the remainder of that period. There's one thing I want you to note here, is that if you're in DROP, when you went in to DROP that starts the clock on the 10 years. So you can be in DROP now for up to eight years.
So think about that. You go into DROP, you're in drop for eight years. When you come out, there's only a two-year guarantee left, not 10. So make sure you understand when that 10 years starts. Option three is joint with 100% to the survivor. Meaning your spouse continues to get the same pension that you are getting after you pass away.
There's no reduction for either one of you. You both get the same income for as long as either one of you are living. Now, option four is where there's a lot of confusion. This is a joint but, it's two-thirds to the survivor. So here's where people get tripped up. The reduction kicks in as soon as either of you, either spouse passes away.
Not just the employee, not just the person who accrued the pension benefit, either spouse. And a lot of people don't realize that. And choosing the wrong pension can't be undone. We've seen people lose 10, sometimes hundreds of thousands of dollars over time because they made a decision without fully understanding the consequences. Think about what John just talked about with his dad and his grandfather. Recently, we met with a client who thought that she understood her pension choice until we sat down and we reviewed it together.
She had selected option four, thinking that her spouse's benefit would only reduce if she passed away first. But that's not how it works. And so once she saw the full picture, she said, why didn't anyone explain this to me before? And so that's the power of having a second set of eyes, having a second opinion to make sure you're making the right choice.
John: Sometimes it was explained to people, but they didn't want to hear it. Okay. We see that also where they're so focused on, okay, I'll get the full benefit. I die, my husband or my wife gets X amount, even though it's pretty clear in the paperwork you sign, if you read it.
So, to be fair to the Division of Retirement, it's usually explained, it's just that we are in such a rush to make these decisions that we don't really process it. And they cannot. The advisors there cannot advise. All they can do is help you pick the options based on what you tell them, whereas we can look at everything as a process.
April: Yeah. And so for her, we did some things differently because of the pension option she chose. So I don't want to make it seem like it's a lost cause.
John: No, and I'm glad you said it that way, because what we're able to do is look at the other assets they have, and then take some of those assets to help offset that loss for either party. That's the part that's fun. How do we move these chess pieces and get this done?
April: That's the planning piece of understanding first, what do you have? Actually, I'm gonna take that back. Really, the first goal is to understand what do you want? What do you want life to look like in retirement? What are your goals?
John: Your vision.
April: Your vision. What do you want it to look like? Do you plan to travel? Are you gonna stay where you currently live? Are you going to move like, what are your plans? What are you going to do when you're retired? So, first, we want to have an understanding of what your goals are for retirement.
Then we want to see, okay, here's where we currently are, here's the financial pieces that we have, so we can see, are they working? You know, if what you currently have, is that going to help you achieve your goal?
John: And if it's not, when would you like to know? Not, not until the last minute. The sooner the better.
April: Sooner the better.
John: On the way here, there was an accident, big car pile-up, at least four cars. Well, it changed my direction. I couldn't go that far, so I'd go all the way back, backtrack the way I had come and take a different route. So if somebody could have told me, you know, 10 minutes earlier, 20 minutes later, well, hey, there's an accident down the road. Let's save you some time. Don't go that way. I'd have been happier.
April: For sure. So now let's talk about DROP. And if you're already in DROP, here are a couple things you need to know. One, just because you're in DROP, that doesn't mean that your planning is done, far from it. There are lots of decisions that you need to make. One, what are you going to do with your lump sum from DROP? When are you going to take Social Security?
How are you going to structure your retirement income? Are you doing things to avoid unnecessary taxes? These are the questions we help people answer, and so if you're in the DROP program, we know exactly what issues you're going to be facing and how you should be thinking about that now.
So let's walk through the program itself for a minute so you can make sure you understand exactly how it works. When you enter DROP, the state considers you retired. This means that you stop earning service credits towards your pension, and the state starts paying your monthly pension into a separate account in your name, and that account earns 4% interest annually while you're still working.
And then when you officially retire, when you exit DROP, you're going to receive that accumulated lump sum. And here's the important part, you can't leave the money in DROP. You have to make a decision on what to do with it. You can't leave it with the state. So here are your choices. You can take a lump sum. You can take it all out. You can have them just mail you a check.
But be prepared that entire amount is taxable in the year you take it. So that DROP payout gets added to all your other income, and you're going to pay taxes on it, which we're going to talk about in a few minutes. You can roll it over. You can roll it over to deferred comp. You can roll it over to an IRA, and this is going to be a tax-deferred decision. So you don't pay any taxes when you roll it over into an IRA or deferred comp.
You can also do a combination of the two. You could say, I want some now and I want to defer some. And this is really where planning comes in, and this is where we have to understand, what are your goals? What do you want this money doing for you? What do you need this money doing for you? Do you need income when you retire? Can you let it grow for the future? What is going to be the goal and the purpose of that account?
So one client came to us she wasn't quite sure what she needed to do with it. Now she had some debt that she wanted to pay off, so we walked through her options, and we were able to help her save 1000s of dollars in taxes, because she was going to take a really big lump sum out of DROP right away to pay off debt.
And we talked through the timing of that, when's gonna be the best time for her to do that? And we encouraged her to actually wait until the next calendar year to take the money out of her IRA to pay off the debt, and it saved her 1000s of dollars in taxes. And so we were able to help her.
She rolled it over to an IRA. The next year, she used some of to pay off debt, and then the rest, we structured to give her guaranteed monthly income. So that convo not only gave her the lifestyle she wanted, it helped her pay off the debt, and then also saved her on taxes.
John: And everything you just said applies to a deferred comp account, too, because you may want to send some of it today. You may want to leave some behind as an inheritance, which has another taxifying issue. Some people say, I'm going to designate this money to go to my kids and my grandkids, and I'm sure you'll get into it in a few minutes, some of the tax issues regarding that.
April: So you might be asking, how do I avoid mistakes? How do I make sure that I'm not missing out on something? So here's how we help clients do that along every step of the way. So step one would be that you would book a retirement focus session with our team, which we're going to share with you at the end of the webinar how to do that. You can also reach out to our team and book a retirement focus session.
So this is a no-cost one-on-one conversation where we review your pension, your DROP payout, your retirement timeline, and we help you build a personalized roadmap. So this is not a generic plan, but one that's designed around your situation, because everybody's situation is different, and what happens in this conversation is you're going to walk away with clarity.
You're going to know what to do next. You're going to feel more confident and in control. So this session is not a sales pitch, it is a professional strategy session. It helps you understand your numbers, see your options, and helps us decide if working together in some format makes sense. And yes, we do normally charge fees for planning, because this is real work and it delivers real results.
But this first session, this first call, where it all begins, it's at no cost, right? Because I don't know you. You don't really know me, and it's a time for us to get to know each other and see if we're a right fit to work together. So if you're ready for some of that clarity and confidence, a great next step would be to book that retirement focus session, which we'll talk about towards the end of the webinar. So now let's talk about taxes in retirement.
John: Do we have to talk about taxes?
April: We do, we do.
John: Nobody likes taxes.
April: No, no. We do a whole webinar just on taxes. I promise we try to make it fun. No death by PowerPoint. So let's talk about taxes so that you know how they work and you can make some decisions around it. I wish taxes did stop when we retire that would make things easier, but in fact, it doesn't, and it actually makes things more complicated on the tax side.
So taxes are different for everyone, right? This is going to depend on your situation, your pension, your social security, your retirement accounts, how you structure your DROP payout. This is why we are big believers in tax diversification. So what is tax diversification? It simply means spreading your money across different types of accounts that are taxed in different ways. And there are three primary types that you're going to want to be aware of.
First is tax-deferred accounts. This is probably the most common one that you're familiar with. Traditional IRAs, 403bs, 457s, DROP accounts. You haven't paid tax on that money yet, so every dollar you take out is taxable. Then there are taxable accounts, like brokerage accounts or savings.
I call these tax as you go, because you pay tax along the way on interest, dividends, capital gains, but when you go to take money out, you can actually receive some tax benefits, because some of that comes back to you with no tax.
Then you have tax-favored or tax-free accounts like Roth IRAs and cash value life insurance. You've already paid the tax, so now it grows tax-free, and as long as it's all structured properly, the money you take out is tax-free. Now it's not just about what accounts you have. So let's say, if you you have these three tax-deferred, taxable, tax-favored, it's more about how and when you use them.
We call this the order of operations. Which accounts do you pull from first and which ones are better to let grow for the future. This is where we see people get caught off guard, where they can make mistakes, especially with things like DROP distributions, deferred comp withdrawals, big IRA rollovers. One of the biggest mistakes we see is that retirees accidentally trigger big tax bills just because no one helped them think through the timing.
But with the right strategy. This is something you can plan for. And it's not just about reducing taxes today, but it's about being strategic, being taxable, reducing them over the next 10, 20, 30 years. For example, one of our clients came in and she had a mix of accounts, just like I said before, tax-deferred, taxable, and tax-free, but she didn't really have a good, clear, withdrawal plan.
So we were actually able to help her by just adjusting the sequence of when she was pulling income from each year. And by making some tweaks there, we were actually able to increase her after-tax income. Just by being strategic, just by being tactical about where she was pulling the money from.
John: But the key to that is, is knowing how to do it. It's one thing to say it. It's another thing to have the experience that we've had over the years, my 50 years, and your 15, to be able to take those pieces and say, okay, if we move this here, move this here, and people will look at it and say, you made that look so easy. Now it's not that it's so easy. It's just we've done it so many times. You're looking at your plan, we've looked at 1000s of plans.
April: Absolutely. That's where experience comes in. And being able to look at that financial MRI, as we like to call it, and say, hey, this looks really good, but we need to make some changes here. So let's talk about what retirement really gives you.
And this is what we call the four freedoms. Time freedom, money freedom, relationship freedom and location freedom. And most people think about retirement in terms of age, like I want to retire at 62 or 65 or 70, but that's not the real question. The real question is, what do you want your life to look like in retirement?
John: That goes back to the word vision. When you made a comment earlier, I said, you mean the word vision. And if you think about these four freedoms, I hear people all the time, say I can't wait until I retire. You ask this question, well, you're going to have more time. What will you do with the time? I have no idea.
Well, will you have the money to allow you to have the freedom to enjoy that time? They go together. And what are the relationships that are important to you? And will you be able to spend time with those people that are important? And location, where we spend that time? In my case, I spend a lot of time at my lake house.
When we're done today, I'm going to the lake house after our last appointment this afternoon. And I enjoy being there. It allows me to relax, but also so my time is there. I'm with other people there. Sometimes my lady, sometimes it's with my kids, grandkids. Sometimes it's just a matter of just me by myself, relaxing. So I could also spend that time somewhere else.
I can take a cruise, and as long as I have the time and the money, I can do these things. So it's not just how much money you have. If you can't tell me what you're going to do with that money, I would say you don't have a good picture, good vision of your retirement. And some people just say, well, I'm going to fly by the seat of my pants, and I'll take $10,000 out to take this cruise. That's one way of doing it.
Or another would be sit down and say okay, based on these four freedoms, what do I really want? How much time am I going to have? How much money do I have? How do I finance it? And who does spend that time with? And by the way, where do we go? Location. So we could tie it all together. I could spend an entire webinar just on those four things. As you know, I work on that all the time, and I'm guessing that's probably why you had me cover this one.
April: Yeah, you know, because it's not just about the numbers. It's about having the life that you want. You know, John, we had a podcast that we did, called just that. Retirement isn't just about the money, it's not just the numbers. And we got a lot of good feedback from that. People really enjoyed what we went through on that podcast, talking about this, about making sure that we're thinking through, what do we want it to look like?
John: Maybe we should dust that off and revise it and do a webinar for everyone.
April: Yeah, for sure. So we definitely want to think through what is it you're going to look at. What do you want your life to look like? Because it's going to help you answer these other questions that you may be thinking about, when to take income? How much? It gives you that clarity.
John: Let me cover one more thing. You'll see the bullet point that says retiring for the wrong reasons. Why are you retiring? Are you running away from something or running to something? Some people say, I hate my job.
I can't stand working with the people I'm working with, and it's is sad to hear that, especially when we love our work so much. But there are people who are so miserable at work, they're running away from work, and they're not really embracing retirement. They're just running away from a negative situation.
So I would encourage you, if you're in that environment, rethink that and restart reprogramming your brain. Say okay, what is good and positive that I'm retiring to not what am I retiring from? Sometimes difficult, but you can make that transition, and if you do, these four freedoms, will be truly freedoms.
April: I went back to look. The title of our podcast was finding balance in life and finances. So that's the one that we really did get a good, some good feedback from when we went through that.
John: You want to tell them how to find it?
April: So you can go to our website and find that at curryschoenfinancial.com. You'll see a link for our podcast and see all the most recent episodes. This one was from last November, but, yeah, it's called Finding balance in life and finances, but you'll be able to see our podcast. We're also in the Apple podcast app and on Spotify.
The name of our podcast is The Secure Retirement Method. So if you look at that, look up that you'll be able to find us. We're also on YouTube as well. So, The Secure Retirement Method podcast, you can find us on YouTube. And on YouTube, we don't just have our regular, like full-length podcast episodes, but we have other, like, shorter videos as well.
We go into a lot on FRS. I've got a whole playlist on YouTube for FRS, if that's something you're interested in. So let's talk about Social Security. Because I would say outside of pensions and DROP, Social Security is probably the other topic that we get the most questions about. And really, timing here makes a huge difference.
So you can start benefits from Social Security as early as 62 or delay up to age 70. Now your full retirement age is going to be dependent upon the year you were born, and that's going to be sometime between 66 and 67 if you go pull your Social Security statement from the Social Security website, it's going to tell you right there what your full retirement age is, and that's when you can receive 100% of your benefit.
And if you take it early, at 62 or between 62 and your full retirement age, then your benefit is going to be reduced. You'll have a reduction. That's a permanent reduction. On the other hand, if you delay taking Social Security past your full retirement age, your benefits are going to increase, and they increase it by 8% per year.
Okay, so lots of different options. Do you take it at 62, at your full retirement age, at age 70, or somewhere in between? And this is what we help clients figure out. When is going to be the best time for them to start taking Social Security, because everyone's situation is different.
So, a couple of things that we talk about with Social Security. One, know that the benefit is taxable. It's going to depend on your other income sources, but most likely, part of your Social Security benefit is going to be considered taxable income.
And now this is a question we get a lot is, is Social Security going to go away? There's a lot of fear around Social Security. It's been in the news a lot this year. Is it going to be privatized? So let's kind of kick that around for a few minutes, John, about will Social Security ever go away?
John: My opinion is it will never go away. We will see changes made in it. Changes that should have been made many years ago. When President Reagan was in office, there was the first major revision of Social Security since it was started in 1935. It was big, sweeping changes, big. That most people didn't think about or know about because the press didn't cover it.
Had they covered it properly, there probably would have been a revolution in some ways. But there were a lot of changes that were good, too. They also started increasing the taxes we paid on it. Because for a while there were no taxes on Social Security, and there's talk now about doing away with taxes on Social Security.
But both political parties use it as a political football, and I'm of the opinion, I've been following this for at least 45 years now, my career and I decided to work on retirement planning. I don't think it would ever go away. I think what we're going to see is more and more tax burden to finance it.
People your age are going to be paying more in Social Security taxes down the road. I think ultimately you're going to see a higher retirement age, like maybe 70. Age 62 should have never been allowed. It was not the case for years, not until the 80s. Never should have been allowed. Should have always been a higher age, 65, 70. So you're going to see a lot of discussion about that. And here's what I like to tell people.
I had this conversation this morning with a friend. I don't know what will happen with Social Security, nor do you. So we have to do your planning in such a manner that it doesn't matter what they do. If the benefits are dropped by 25%, one projection says the trustees say that Social Security trustees.
So if that happens, what do you do to offset that? That is under your control. How do we control that? Spend less, save and invest more, and do it in a manner that we can tap into those resources. But I don't think it will ever go away. I'm 72 years old. I've been collecting Social Security since 66. I chose not to wait until 70. I'm glad I didn't, because I've had the time value of money. It's done a lot of good things for me and my family along the way.
I could have used other money, like my investments, but in this case, it goes back to what you said earlier, April, about planning. Instead of tapping into retirement accounts then, I let those grow and I can use those now in retirement, and I've already benefited from the Social Security along the way.
April: Yeah, I agree. I don't see Social Security going away. Good, bad, or indifferent, there are too many people that rely on it as their only source of income, so I don't see it ever going away. Now I'm 41, so I do think that, I think I'll see sweeping changes to Social Security, whether that's changing of when people can take it. I agree about higher taxes for those working, but I don't see it going away.
John: I think it also back to your point about social good. It is a social insurance program anyway you cut it. The reason it was started was because of the Great Depression, because people were hurting, and it's no longer being used the way it was intended. And all of us want to get our money. I do. I don't want mine cut.
Yeah, I like seeing it pop in my account the second Wednesday of each month. But there should have been changes made, and there will be. Some political party will ultimately have the backbone to say, look, if we don't fix this and get both parties together and fix it, it's going to fall apart.
April: I agree. So here are a couple takeaways I want you to think about when you think about Social Security. One, the timing is not one size fits all. It depends on your overall plan. Your pension, your spouse's age, their benefits, your health. What do you think your longevity is going to look like? Your tax picture?
And we've helped clients go through and look at their options and increase their income that they're getting from Social Security just by making better decisions about when to start it. It's also about understanding all of your options. So I'm going to give you some examples. One client, her husband, had passed away, and she was getting ready to start taking Social Security, and so we encouraged her to actually start her survivor benefit on his record at her full retirement age, then let her benefit continue to grow.
She's getting that 8% growth, and then that way, at 70, she could switch to her own benefit. That alone increased her income for life by 10s of 1000s of dollars. It made a very drastic impact on her income plans by doing that. And she didn't know she could do that. She wasn't aware that she could take his and let hers grow.
John: Think about how many times we've dealt with a widow or widower, and they did not realize that they could start collecting that benefit. We had to tell them, you are entitled this. Get your fanny over to Social Security now and get this money.
April: Same thing for divorce spouses not realizing that, hey, if that marriage lasted 10 years or longer, that they're eligible for a spousal benefit under their ex-spouse’s record.
John: Correct.
April: That's another area in which we're able to help people. We have one couple that he assumed when he took if he took his benefits early, it was gonna hurt his wife's future benefit. So we helped them actually make a change in what they were thinking and was to actually take her benefit first at 66, that was her full retirement age, and then he could let his continue to grow, and then take his at his full retirement age.
So this strategy helped do two things. One, it gave them the income now, more income now that they wanted to have when they first retired. And it also maximized their overall survivor benefits, because now his benefit grew, so that was going to help either him have a higher social security benefit later, or her have a higher social security benefit later, because of the survivor benefits.
So this is the type of planning we do, helping you coordinate all of these moving parts to have the best possible outcome. Now, if this feels like a lot to navigate because we've already gone through a lot so far today, that's normal. These aren't decisions that you need to make alone. And again, we're going to share at the end how you can schedule a retirement focus session so we can talk through your options one-on-one to get a plan that's going to work for you.
I want to briefly touch on Medicare, because this is one area that catches people off guard. I actually had someone email me this week in reference to the webinar, and said, hey, have you thought about including information about Medicare? Because I'm starting to learn about it. I get lots of questions about it from my colleagues. And I said, yeah, actually, we do cover Medicare in our webinar, but we just do a brief overview here, and then we have another presentation that we give that's more in detail.
So let's kind of cover just the main parts of Medicare. First of all, there are two ways to get Medicare. You've got Original Medicare, that's where you get parts A and B through Medicare. And if you do that, you're going to want to add on a supplement plan and a drug plan. And the reason that you're going to want to add on a supplement plan is because there are too many gaps in Medicare's coverage.
Parts A and B won't be enough. It's not going to cover everything that you need it to. So you're going to need to get a supplement plan. And then, of course, you do have to add on a drug plan, even if you don't take prescription drugs, you still have to have that plan when you first go into Medicare, or you're going to have penalties.
Okay, we're going to talk about that in a second as well. But that's Original Medicare. You can also get a Medicare Advantage plan. We call this Part C, and this is where it rolls all your coverage into one plan. So we're here in Tallahassee, and one option for an advantage plan locally is Capital Health Plan. If you're familiar with how their insurance works, it's very similar. Kind of rolls everything into one.
So here are some things that you want to pay attention to when it comes to Medicare. You want to make sure that you enroll on time so you avoid late penalties. Because if you have late penalties with Medicare, you have them for the rest of your life. It's not a one-time late fee. It is for the rest of your life, and they have some weird timing about making sure you've got Part D on time and Part B.
Okay, so make sure you enroll on time. And of course, these Medicare decisions which way you go with Medicare. If you go with original meridicare, you go with an advantage plan. This is going to affect your coverage, your costs, so make sure you don't wait till the last minute to really sit down and understand your choices here.
John and I do not sell Medicare supplement plans. That's not part of what we do, but we do help our clients plan early so they can avoid penalties, and they make sure that Medicare fits into the rest of their retirement strategy.
John: Let me spend a moment on that. I chose to go with Original Medicare, Parts A and B, and then I bought a supplemental policy. And most people, maybe no one on this call knows my story, but my right leg was amputated above the knee in March of 2021. I knew that all of the stuff I went through between the amputation and rehab and then physical therapy, that over a million dollars was paid out between Medicare and my supplemental policy.
If I had not purchased that Medicare Supplement policy, I would have paid out hundreds of 1000s of dollars out of pocket. So I cannot emphasize enough that if you go the original route, make sure that you coordinate that and get yourself a good medicare supplement policy. I'll also tell you that I've been to three of the presentations with CHP. Their plan is good.
Also, if you want the Medicare Advantage plan, they're good. I'm not going to say anything beyond that, because we're not licensed to go sell that. But for me, I chose the Original Medicare path. That's a personal choice, but I can tell you, if you go that route, make sure you have a supplemental policy.
April: Perfect. Yes, that's great. I love that you can share some of that firsthand experience.
John: Yeah, I'd rather not be able to share that, but the truth is, that's the case. It happened to me and I deal with it. I was in physical therapy this morning.
April: Well, one thing I'm gonna say about Medicare is it is very confusing. They did not make it easy. There's, we call it alphabet soup. There are a bunch of different choices. And if you haven't already hit 65 when you get close to 65 you're gonna be inundated with information about Medicare, which also makes it worse.
John: You're gonna get inundated anyway, because of the TV commercials you see when it gets close.
April: But I will say that once you kind of get through that and you're on Medicare, I never hear anybody complain about it. Everybody is very happy with their Medicare coverage. So just take that to heart.
John: Some people are not happy with what it costs them for Part B because their income levels, because they're paying Medicare Part B premium, plus a little extra thing. Little teaser there.
April: Yes. Okay, next we're going to talk about required minimum distributions. There's often a lot of confusion and questions about this. We call them RMDs for short, and required minimum distributions, it's not just a technical IRS rule. This is a major factor in your retirement plan. And if you don't plan ahead, you could end up paying more in taxes or paying penalties.
So, how do RMDs work? Right now, you can let your pre-tax retirement accounts, this is your IRAs, 403Bs, 457s, 401Ks, any of those pre-tax, tax-deferred vehicles, you can let them grow until you're 73. And then at 73, you're going to have to start pulling money out of them for your required minimum distributions. And the IRS has a schedule you have to follow.
So that's why we call them required minimum distributions, because they have a minimum amount that you have to pull out each year, and that amount has to get recalculated. So as we get older, they're making us take more out of the account. They're making us take a bigger piece of the pie.
John: I object to that word older. As you become more vintage.
April: That's right, more vintage. So the real issue when we think about the RMDs is how are you going to take the money out? When are you going to take the money out? If you've got more than one account, that also complicates it. So if you've got more than one, a few things here. If you have more than one IRA, the IRS doesn't care which IRA you take it from as long as you take the total amount out that you needed to for that year.
But if I had different plan types, let's say I had an IRA, I had a 403B, I had a 401K, I have to take an RMD from each of those. So this is where people get tripped up, because they think I'm already taking money from one account, and that's going to count for everything. And it may not.
John: Throw the 457 deferred comp in there, because we see people have all four of those.
April: In that case, you'd have to take four.
John: Correct.
April: In that case, you're not really doing RMD planning. We really work with our clients on getting an RMD plan to help you. You're just kind of just ad hoc, taking it from each of those.
John: Well actually, what you're doing is you're allowing the government to tell you how to take your money, instead of being proactive in coordinating it and doing it your way.
April: And being more strategic about it.
John: Correct.
April: So here's a couple things to look out for RMDs. One, you have to pull that money out. It's going to be considered taxable income. So this could put you into a higher tax bracket. It can mean that you've got more taxes now on your Social Security benefit. It can even cause IRMA, which is what John was talking about a few minutes ago, which is if you're over certain income limits, this is going to increase your Medicare premiums.
Your Medicare premiums, Part B, there's a flat premium, and then it goes up depending on your income levels, and if you file single or joint. The other thing about RMDs that some people don't think about is what happens when we're in a down market, like we were earlier this year in March and April.
Well, RMDs can now force you to sell investments at the worst possible time. So now RMDs really are forced liquidation, and this is what can cause your retirement accounts to have to work even harder.
John: Say that again. It's what?
April: Forced liquidation.
John: Make sure that sinks in, because that's exactly what it is. It's not the fact that the IRS or the Department of Treasury is looking out for your lifetime income. They're saying, excuse me, ladies and gentlemen, you did not pay taxes on this money all these years, and now we want our portion.
April: Yeah, right, whether you want to or not, and if you don't do it, guess what? They charge you a penalty. So we actually saw in, um, this is why, again, the timing of all that really matters, because, like I said, what if the market's down and now you've got to take your RMD. So now you've locked in your losses, and now your account has to work even harder to get back to where it was.
So you can see how it starts to have this compounding issue and compounding effect throughout your whole plan. So that's why it's important to think about which accounts are you going to take income from first? Just like we talked about earlier, with that order of operations, right? How do we balance growth versus income needs?
Now required minimum distributions, they aren't just some tax rule to check off. They can seriously impact your retirement if it's not handled correctly. We've had clients who thought they were doing the right thing, and a client who we recently met with and she was like, oh yeah, I'm taking my RMDs. And when we dug into it, what we found out is she actually was just moving money from one IRA to another.
So she thought she was taking it out correctly, but she just had it transferring from one IRA to another, so it didn't count. Now, we were able to help her that could have triggered a big penalty, but we caught in time. We were able to help her get it fixed. And that's the thing, right? With some of this, you don't get second chances.
RMDs can trigger, like I said, the IRMA, which is the Medicare premiums, it can push you into a higher tax bracket, force you to sell investments in a down market. So without a plan, you're exposed to these risks that can be avoided. But I want you to imagine for a second that you're sitting down six months from now with a clear plan in place. You know how much income you're going to have in retirement. You're going to know when you can retire.
You've got a strategy for what to do with your DROP payout. You're managing your taxes, and you're not reacting. You're actually leading your plan. All of that, that's what we want for you, and that's why it's so important that you're here and learning about all these things today. So no matter where you are in your retirement journey.
Whether you're years away, maybe you're retiring soon, you can't afford to guess. You have to be proactive with your decisions, with your income, with your future. And look, I know we walked through a lot today. There are a lot of these puzzle pieces of retirement. Pension, Social Security, DROP, Medicare, RMDs, taxes, you name it.
And the real question is, do you have a clear picture of how all this fits together for you? If you're not 100% sure, then the next best step is to schedule that retirement focus session, and here's what we're going to do during that session. We're going to walk through your financial goals and concerns. We're going to talk about what strategies could work for you.
We're going to talk about, are there any roadblocks, are there any risks, any pitfalls that could trip you up? And we're going to lay out some next steps that are going to help you save time, reduce taxes and then feel more confident about moving forward. And as I said earlier, we're not the right fit for everyone, but this session will help us decide together if we're the right team to help guide you through this next phase to retirement.
John: I submit to you that some people who think they have everything 100% correct are the very people who need to go through this session, because it's what we don't know that gets us in trouble. At least you'll have someone who will challenge you in your thinking and be able to help you make sure that you're on the right track.
April: Absolutely. So here are a couple things you could do to schedule this focus session. You can go to our website, which is curryschoenfinancial.com. I'll say that again, curryschoenfinancial.com and you're going to see a button that says, schedule a call. You can click right there, and it's going to take you to my calendar, and you can schedule a 30-minute call. You can also just call our office, 850-562-3000.
We actually had a few people call in this week regarding the email they got about the webinar to go ahead and schedule a conversation to talk through some things. So you can call our office, 850-562-3000, and let Leslie or Shannon know that you heard our webinar and you'd like to schedule a time for your focus session. But either way, that first step is yours.
John: And the people who called yesterday, I know at least two called yesterday, they are already on the calendar. They're ahead of the pack.
April: They're proactive. Love it. Love it. Well, I just want to say thanks for being here today. I know that we talked through a lot, and I also just want to commend you for being here, because it shows a lot that you were here, that you took time out of your day to learn about these things.
I hope that we get to connect sometime in the future. We'd love to be able to help you build a retirement plan that works for you, not just now, but also in the decades ahead. Bye now. Have a great day.
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, 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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