Episode Transcript
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Speaker 1 (00:00):
Welcome to the hidden world of wealth, where secrets of
the affluent become accessible to you. You are listening to
Your Money Matters, the most provocative financial radio show on
the airwaves. You are about to start your educational journey
here on Your Money Matters with your host, Drew Prescott,
(00:22):
President of Prescott Private Wealth and Chartered Retirement Planning Counselor.
Drew will unlock the complexities of the financial landscape with straightforward,
powerful insights. Whether you're planning for retirement, managing in a state,
or looking to grow your wealth. Consider this your exclusive invitation.
Turn up the volume, lean in closer. Let's navigate the
(00:45):
hidden paths of prosperity together. Your financial enlightenment begins now.
Securities of produce a Terror Financial Specialists LLC Member FENRA
SIBC reservices offered through Starr Investment Advisors LLC so TERRA
firms are under separate ownership from any other named entity.
(01:06):
Four five to one WHO Sixth Street, Troy, New York,
one two one eight zero.
Speaker 2 (01:26):
Welcome back, everybody. You are listening to Your Money Matters
and I am your host, Drew Prescott, Chartered Retirement Planning
Counselor accredited wealth management advisor and President at Prescott Private
Wealth located at four fifty one Who's Ex Street in Troy,
New York. And we're getting started off here today on
another cold day. Boy, I'll tell you this, this cold
(01:50):
weather's getting to me this year pretty good. And uh,
it's one of those ones that you just you don't
even want to pump the gas. You don't want to
leave the house once you get settled in. It's been
awfully cold and hoping for it to warm up here.
We'll see. But any of you feel the same way
and just kind of itching to get away, I know
(02:13):
we are, so hopefully here we'll be getting away soon.
I think we're looking at a couple couple of different trips.
Hopefully we'll be able to get away in February and
April here to get a little warm weather in us,
get a little vitamin D. So with that, let's get
(02:34):
started here with the show and talking about the markets. So,
if you're new here this is your first time listening, welcome,
Thank you for listening in and I think you're gonna
find a lot of value in the show. For those
of you that are regular listeners, again, thank you so much.
For committing the time to this, and I think that
(02:56):
you're going to be pleased as well, particularly if you're
a federal employee or you are a New York State employee,
because we're going to dive into some of the retirement
planning elements here that you have available to you, not
so much the pension today, but on your TSP and
(03:19):
your New York State deferred comp. So a lot of
people don't really understand those plans. I'd like to shed
a little light on that for you today and see
if we could bring you a little value there. And also,
if you are a financial advisor and you're listening in,
I think that you're going to learn a lot. So
(03:41):
this should be able to help you help your clients
a little bit more. All right, So again thanks for listening,
excited about this show, and let's get started with talking
about this week's markets, and we're going to start with
the headline numbers here. So the S and P five
hundred climbed about point nine percent this week, so not
(04:02):
exactly fireworks, but definitely a solid and respectable gain. And
with the Dow Jones Industrial average that outpaced the SMP,
it rose by one point two percent. And this index
had a little extra pep in its step thanks to
some strong performances in the industrial consumer good stocks. And last,
(04:23):
but not least, let's look at the Nasdaq Composite, which
is home to all of your favorite tech giants. It
ticked up about point six percent. It's a bit slower
than usual, but hey, progress is progress, right, so we'll
take it. Now, Let's unpack those numbers a little bit
because there's more going on here than meets the eye.
(04:44):
And let's start off by addressing the treasury yields. They
took a little bit of a tumble. You know, the
treasury yields eased up a little bit this week, which
is really a big deal. Now. Lower yields make it
cheaper for businesses to borrow. So picture this. You're running
a company and suddenly you're financing cost drop. So what
(05:06):
do you do. You invest more money in your business,
maybe you hire some more workers or roll out that
new product that you've been dreaming about. And the result, well,
that's economic growth and it gets a little boost and
the stock market breathes a sigh of relief when that happens.
So it's like when your favorite team gets a key
(05:28):
player back from injury. Right, things just start clicking again.
And one of the hot topics this week is Procter
and Gamble really just to teach a lesson of resilience. So,
speaking of things clicking with Procter and Gamble, this week,
(05:49):
they reported a three percent bump in sales. And here's
what makes it so interesting. This wasn't about raising prices. No,
this was about good old fashioned consumer demand because people
are buying more of their products such as tied detergent, pampers, diapers,
(06:10):
gillett raisers, you name it. And why does this matter?
Because it tells us that something is going on in
the economy and even with inflation nibbling at our walle
it's people are still spending on the essentials. And it
reminds me of a story that my father used to
tell me during tough times. The companies that sell necessities
(06:36):
like soap, toothpaste, laundry detergent, they tend to do fine.
And you know what he wasn't he's not wrong still today.
So that was always a good lesson that he taught me.
And the Magnificent seven here we saw them take a
little bit of a breather. So you know, when we're
talking about tech, remember the Magnificent seven talking about the Apple, Microsoft, Google, Amazon, Tesla, Meta,
(07:05):
and Nvidia. Now, these guys have really been kind of
superheroes of the stock market, carrying it on their shoulders
for most of twenty twenty four. But since the holidays,
they've been taking a little bit of a breather. And
you know what, that's okay, because even superheroes need a break, right,
And what we're seeing now is a rotation in other sectors,
(07:26):
which is a good thing. Talking about energy, industrials and financials,
they're starting to step up, So it's kind of like
a relay race. Tech has handed off the baton and
now these other sectors are sprinting ahead. So when we're
speaking about the global picture here and we talk about energy,
(07:49):
let's take a little bit of a closer look here.
I'll play a SoundBite later on of President Trump talking
at Davos. But the oil prices that we've seen have
been and that's good news for energy companies. But what's
really exciting is the big picture. Now, China, who is
the world's second largest economy, is reopening after years of
(08:12):
strict COVID lockdowns. Now this is huge. Now, picture a
giant engine that's been idling for three years and now
it's starting to roar back to life. That's exactly what's
happening in China. So energy companies are cheering because economic
activity means more demand for oil and gas. And it's
(08:33):
not just energy. Industrial and material sectors are also getting
a great boost as global trade starts to ramp up here.
So now, why let's talk about Trump at Davos. Shift
gears here to the world news, and we saw that
(08:53):
President Trump made headlines this week for his speech at
the World Economic Forum. So say what you will about
the man, but he definitely knows how to grab attention.
Let me play a little SoundBite for you from his speech.
Speaker 3 (09:08):
I declared a national energy emergency, and that's so important.
National energy emergency towardlock to liquid gold under our feet
and pave the way for rapid approvals of new energy infrastructure.
The United States has the largest amount of oil and
gas of any country on Earth, and we're going to
(09:29):
use it. Not only will this reduce the cost of
virtually all goods and services, it'll make the United States
say manufacturing superpower and the world capital of artificial intelligence
and crypts.
Speaker 2 (09:43):
So love mere hateum right. Trump's comments always get people talking,
and this week he really touched on everything from tariffs
to energy independence. And while some of his points were controversial,
that's okay, there's no denying eyeing his impact on the
global stage. So markets haven't reacted much yet, but you're
(10:07):
gonna want to keep an eye on this now. Trade
policies and tariffs always have a way of sneaking up
on us and creating a ripple effect that can move
markets in really a surprising way. So now let me
take a little bit of a detour down memory lane,
because history really has a funny way of putting things
(10:29):
into perspective. Okay, so do you remember back in twenty
and eighteen that was the last time that we saw
a major market rotation like this, And back then tech
was dominating just like it is, or just I should say,
just like it it did in twenty twenty four, but
(10:52):
by the end of the year, industrials and energy stocks
took the lead. Why because the economy was strong and
investors started betting on sectors that could benefit from growth.
Sound familiar, Well, it's like deja vu all over again.
So what does this mean? For you. All right, So
(11:17):
the investor sitting at home, sip in your coffee and
wondering what to do with your portfolio. Diversify, Diversify, diversify.
I can't say it enough. Do not put all of
your eggs in one basket. Spread your investments across sectors, tech, energy, industrials,
(11:39):
you name it, get it in there, okay. Also, pay
attention to global events. So whether it's China reopening or
Trump making waves at Davos, global events do matter and
they shape markets in a way that aren't always obvious
at first. So stick to your plan. This is a
(12:03):
big one here. Markets will always have ups and downs,
and the key is to stay focused on your long
term goals and not to get swept up in the noise.
And if you're feeling overwhelmed by this, this is okay.
And that's why I'm here Drew Prescott at Prescott Private Wealth,
and we're all about helping you navigate this complex financial
(12:26):
landscape so that you can focus on what really matters.
So now I want to pivot into today's main topic,
retirement planning. Specifically, we're going to dive into the world
of federal and New York State employee benefits. So we'll
(12:47):
talk about thrift savings plans TSPs and New York State
deferred comp and some of the most common mistakes that
people make when they're planning for retirement. Trust me, you're
not going to want to miss this. So if you're
just joining us, I want to welcome you to the show.
You're listening to your money matters with me. Drew Prescott,
(13:08):
chartered retirement planning counselor and a credited wealth management advisor
at Prescott Private Wealth locate at four fifty one Who's
Ex Street in Troy, New York. You can call us
at five one eight two zero three one nine eight
three or visit PRESCOTTPW dot com. Now, if you go
on Prescott PW dot com, the first thing that's going
to pop up is a white paper that's available to you.
(13:32):
Just add your your name and your email address. We'll
get that over to you straight away. It'll go to
you as soon as you enter your information. Okay, last
week we had a lot of individuals requesting that white
paper and it's been very beneficial to these individuals. And
(13:54):
last week's show was really a call to action to
put together a financial plan for yourself health, and that's
exactly what we're doing here. So we helped We've got
last week alone, we started on twelve new financial plans
(14:15):
for families, and these families are very enthusiastic about improving
their current position. Now, I will tell you that a
majority of these individuals are already working with a financial advisor.
And the stories that they share are some that are tragic,
(14:40):
some that are very average, and some that are very encouraging.
So I want to share a quick story, really quick story. Okay,
it has nothing to do with today's topic, but it's
just something that's kind of weighing on me here. Which
is a family that came in and shared a sad
story with me. Now, this is a two physicians, okay,
(15:03):
and they worked with a friend colleague, another physician and
a younger man with a little girl and a wife.
And he was previously married and when his advisor never
(15:24):
looked at his beneficiary change or beneficiaries on his insurance policy,
and he had a sizeable insurance policy and he died.
Now this is a young man on a second marriage,
and he never took his first wife off as the
name beneficiary. And when he passed away, he unintentionally left
(15:45):
this money to his first wife, leaving the second wife
out in the cold by accident with their new child.
So take your time, get together all of your policies,
find out who the beneficiaries are on these Specifically, if
you're in a situation like that, gentleman, that is a
(16:07):
terrible story to hear. Also, if you have brokerage accounts
and you do not have named beneficiaries on there, get
your fanny over here. Let me help you get these
things squared away to get you in a good place. Okay,
just something I felt very passionate about wanting to share
with you. What a tragic story. And you know, I
(16:29):
can't say it's all the financial advisor's fault, it's not it.
But I think that with proper encouragement, this could have
been prevented. And it's just really a sad story. So
let's get back to where we started, okay, which was
the employer retirement plans for one of the most valuable
benefits available to employees, and yet these remain shrouded in
(16:54):
kind of misconceptions and underutilized opportunities. So to understand the
true power of these plans, let's break down the seven
most understood elements and provide clarity to empower you as
you plan for your retirement. So let me just share
with you a little bit about these plans. Okay, Now,
(17:20):
these are not these seven bullet points here that I'm
going to give you. They have nothing to do with
TSPs or New York State deferred compensation. These ones here
are really just talking about four oh one case four
h three b's for us that are in the private sector. Okay,
(17:42):
So one, you want to know about your eligibility for contributions,
because one of the first areas of confusion is eligibility. So,
for example, did you know that if you're fifty years
old or older, you can contribute an additional seventy five
hundred dollars annually to your four oh one K or
(18:03):
your four h three B as a catchup contribution. Now,
some people know this, some people don't. If you're listening
to my show, of course you know it, right, That's
what I'm here for to educate you and we talk
about this. But if you're a first time listener, maybe
you don't know this. And this is a game changer
for those that are nearing retirement who want to accelerate
(18:23):
their savings. So understanding these limits and the opportunities can
really make a significant difference over time. Now, the second
piece that you should absolutely understand is your employer's matching contributions.
So imagine your employer offers a one hundred percent match
(18:43):
on the first five percent of your salary. Well, if
you earn eighty thousand dollars and only contribute three percent,
you're essentially leaving sixteen hundred dollars of free money on
the table every year over twenty years. With compounded growth,
that could amount to tens of thousands of dollars. And
(19:07):
employer matching is one of the most powerful tools in
retirement planning, yet many employees fail to take full advantage
of it. The third point is you should absolutely know
your vesting schedules. Now, vesting schedules often cause confusion. Now,
some employees assume that they're entitled to their employer's contributions immediately,
(19:32):
but that's not always the case. Now, varying schedules, or
i should say vesting schedules can vary, right, So, vesting
schedules can vary from immediate to graded or cliff vesting.
So let me give you an example. If your plan
has a graded vesting schedule. You might earn twenty percent
(19:55):
of your employer's contribution each year, becoming fully vested after
five years of service. So knowing your vesting schedule is
absolutely critical, especially if you're considering changing jobs. Now, the
fourth point you would want to know is what the
withdrawal rules and penalties are. So, did you know that
(20:19):
with drawing the funds from your retirement account before fifty
nine and a half can trigger a ten percent early
withdrawal penalty plus taxes? I hope, So you should absolutely
know this. This is something that's very elementary and you
need to understand this. However, there are exceptions for specific
(20:39):
situations like a financial hardship or purchasing your first home,
but understanding the rules around the withdrawals ensures that you
avoid costly mistakes and that you make the most of
your hard earned savings. Now, the fifth bullet point here
is fees and their impact. So this is an area
(21:01):
that often goes unnoticed plan fees because fees associated with administration, investments,
or advisory services. They can significantly impact your long term growth.
For instance, on a on a an investment account where
(21:21):
you're paying one and a half percent in fees on
a five hundred thousand dollars portfolio that to seventy five
hundred dollars annually, So over twenty years, those fees can
add up to hundreds of thousands of dollars in lost growth.
So reviewing your plan's fee structure can help you identify
(21:44):
opportunities to save. Now sixth point would be understanding your
investment options and the risks, because investment choices are another
common source of confusion. Now, many plans offer a range
of options, from conservative fund to aggressive growth funds, and
choosing the right allocation depends upon your risk tolerance, your
(22:07):
time horizon, and your overall financial goals. So, for example,
a younger employee with decades until retirement could benefit from
a higher allocation to stocks, while someone closer to retirement
may prioritize bonds and stable value funds. Now, inside of
these plans, we're always going to see these these timeline
(22:35):
funds where it will say retire twenty thirty, retire twenty
thirty five, retire twenty forty, so on and so forth. Okay,
and what they're doing here is it's kind of like
a glide path. So you pick the fund that has
a target date closest to your retirement, and ultimately what
(22:55):
happens is as time goes on, it becomes less aggressive
and more conservative as you get closer to your retirement years. Now,
the problem with those is that sometimes when people use that,
they're disappointed, and it's really only because there's a lack
(23:19):
of education or a lack of professional guidance for them
to understand that they may, even in their latter years,
they may feel much more comfortable with risk than their coworker,
and they're wondering why they're not getting this return that
they desire, and they may not be taking the risk
(23:43):
that they personally feel comfortable with. So this is important
that you still work with a financial advisor. And we'll
touch on this later on as well. Okay, and you'll
see kind of where that theme starts to come in here. Now,
let me just touch on the lest bullet point that
I put together here for you, which is roll over
(24:03):
in your portability rules. So finally let's talk about portability.
When you change jobs, you have options for your retirement account.
You can leave it with your former employer, roll it
into your new employer's plan, or transfer it to an
IRA so each option has implications for fees different investment
(24:29):
choices in addition to being treated differently for taxes. For instance,
rolling over to an IRA, it may very well provide
more investment options for you, but it could also mean
losing certain protections offered by employer plans. So this is
(24:53):
why it's important for you to work with a financial
advisor to educate you on the value of staying or
going into a new direction. So the key takeaway here
is that knowledge is power, right, So by understanding your
(25:13):
employer retirement plan from eligibility investing to fees and investment options,
you can make an informed decision that maximizes your savings
and it helps you to secure your financial future. And
in the next segment here we're going to dive deeper
into the specific retirement plan options that are available to
(25:35):
federal and New York State employees, including strategies for rollovers
while you're still employed. So don't go any place. You're
not going to want to miss this, and this is
going to be a very comprehensive and detailed overview for you.
So for those of you that like to get into
the weeds, you know, settle in. This is going to be.
(25:58):
You're going to really enjoy this. And for those of
you that are first time listener, thank you again for listening.
You were listening to your money matters. For those of
you that have joined me every week, again thank you.
I appreciate it, and I hope that you're enjoying yourself
so far and you're listening to your money matters. I'm
your host, Drew Prescott, chartered Retirement Planning counselor, a credited
(26:21):
wealth management advisor and president of Prescott Private Wealth. The
phone number here is five one eight two zero three
one nine to eighty three. The website is Prescott PW
dot com. Go right on there and grab yourself a
copy of the white Paper about Retirement. You are going
to really be in for a treat. So if you
have any questions, feel free to call in or shoot
(26:42):
us a message. And so let's get started here. Let's
talk about the New York State Deferred Compensation Plan and
it is a well regarded retirement savings plan that offers
participants the option of a health directed brokerage account. Now,
(27:02):
a lot of state employees are not even aware of this,
and so my goal here is today to pull back
the curtain and shine the light on some of these
options that you have available to you. Okay, So this
account expands the range of investment choices beyond the core
(27:27):
funds that you see for your investment options. So it
is primarily designed to be a fully self directed account
by the investor, meaning you, the participant. You are responsible
for selecting and managing your own investments within the account. So,
(27:51):
unlike some private sector four oh one K plans or
iras that may offer optional fee based professional management for
self directed accounts, the New York State Deferred comp does
not directly provide fee based investment management services. That is
(28:13):
a misconception. So sometimes state employees believe that they could
keep their money inside of the plan when they retire,
move it to a self directed brokerage account, and then
have it managed professionally by New York State Deferred Compensation.
(28:35):
That is not correct. Okay. Now below this we're going
to start to explore the structure of the self directed
brokerage accounts here and its fees, its features, and what
options are available for you, the participant who desire professional
(28:58):
management or guidance. Okay, So, the key features of the
New York State Deferred comp self directed brokerage account is
that you have expanded investment choices, as we talked about,
So the primary appeal of this is the ability to
invest in a much broader range of securities compared to
(29:21):
the core deferred COMP offerings. Now, these options include thousands
of mutual funds and exchange traded funds. You can get
individual stocks, bonds, and other securities depending upon the brokerage
provider's platform. So the flexibility appeals to an experienced investor
(29:44):
who wants access to specialized funds, sector specific investments, and
other non core asset classes that may not be available
in the standard New York State Deferred COMP lineup. So
if you are a PARTICI dissipant using the self directed
(30:05):
brokerage account, you are entirely responsible for making investment decisions.
Now that includes researching securities or funds, executing trades through
the designed I should say, through the designated brokerage platform,
in addition to monitoring and rebalancing your portfolio over time.
(30:30):
Because the New York State Deferred comp does not actively
manage or advise participants on the self directed brokerage account investments,
nor does it offer a built in professional management service.
With inside of that framework. So the New York State
Deferred comp Plan partners with a third party brokerage provider
(30:55):
to facilitate the self directed brokerage account. Now currently designated
provider is Charles Schwab, and Schwab offers a user friendly
platform with access to a wide array of investments tools
and resources for a self directed investor. Now, the self
directed brokerage account is typically intended for participants who have
(31:19):
a very solid understanding of investment principles. Now, just because
you have this option available to you, I would strongly
encourage you. If you do not know how to research,
if you do not know how to test portfolios, stick
(31:44):
with the core investments you could. Really it becomes a
gamble when you do not understand how this industry works,
and I do not want to see you get hurt.
So stick with the core or get yourself a financial advisor. Okay.
(32:08):
Because participants, you must also meet certain eligibility requirements to
open your brokerage account here, okay, such as maintaining a
minimum balance in the core New York State Deferred Comp
So you want to ensure that you're not over concentrating
(32:34):
your retirement savings in higher risk investments. Now, what you
want to also pay attention to here this is sometimes
people get swept up in the undertow of excitement learning
about this. So I can't stress this enough. Just because
it's available to you does not mean that you should
(32:57):
go and do this. I am not telling you to
do that, Okay, be perfectly clear. I'm not recommending that
you do this, but it is an option. Now, Here's
what you need to understand is that there are additional
fees that come along with this. You have account maintenance fees,
so a flat or quarterly administrative fee may be charged
(33:19):
to participants for maintaining a self directed brokerage account. For example,
Schwab may impose a flat fee to cover the costs
of account services. Additionally, participants may incur transaction fees for
trades executed within the self directed brokerage account. Now, these
would include, and wouldn't be limited to, but commissions for
(33:42):
buying and selling stocks or ETFs, in addition to load
fees for mutual funds if applicable. Now, many brokerages, including Schwab,
offer commission free ETFs and mutual funds, but certain investments
may still carry costs. So additionally, mutual funds and ETFs
(34:04):
available in the self directed brokerage account have their own
internal expense ratios. Now, these costs vary depending upon the
specific funds chosen and are separate from the New York
State deferred comp administrative fees. Now here's another fee. And
(34:24):
if you are very interested in getting away from these
core holdings and you want to work with a fiduciary,
someone that can be an external financial advisor on this account,
that would be someone like myself. Okay, you as a participant.
(34:47):
You can have a professional investment manager for your self
directed brokerage account, but you have to have, you know,
in order to get any type of guidance on this,
you have to hire an external financial advisor, which adds
(35:07):
an additional cost. Now, advisory fees can go anywhere from
a quarter of a percent up to two and a
half percent annually, and that is of the assets that
are managed, depending upon the complexity of the services provided. Now,
some financial advisors, inside of their fee that they charge
(35:30):
on your assets, they may offer additional services. They may
offer financial planning, they may help you with other financial
decisions along the way, or they may just simply be
looking to manage the assets, So that's what drives the
fees here. Okay. Additionally, maybe you just say, hey, I
(35:54):
want to use this brokerage account. I've always thought that
it would be better for me to have individual equities
or you know, a strategy that aligns with what you
talk about each week DROW and which is sector rotations
and with having core holdings. Now we can also do
a flat fee, which is you open the account self
(36:17):
directed brokerage account, I would give you a portfolio and
tell you how it will be invested and charge you
a fee for that blueprint. So that's also another option
that you have. But let's not just sit here too long.
(36:39):
Let me talk about some other components. So now some
of you may say, why does the New York State
Deferred comp plan not offer fee based management for these
self directed brokerage accounts. Well, the lack of fee based
management options for the self directed brokerage account is consistent
(37:00):
with the structure of most public sector retirement plans because
the New York State Deferred comp prioritizes simplicity, low costs,
and participant control. So here's why fee based management is
not provided in that self directed brokerage account. Because with
(37:23):
public sector plans retirement plans like the Deferred Comp they
just aim to offer low cost, easy to use options
for the majority of participants. So if we have a
fee based advisory service that's offered within that self directed
(37:43):
brokerage account, that would increase the administrative complexity and it
could conflict with the plan's low fee ethos. So you
want to They basically want to encourage investor responsibility, and
the self directed brokerage account is designed to serve only
(38:06):
experienced and confident investors who prefer to take a hands
on approach, So offering professional management it may reduce the
self directed nature of the account and for participants that
seek professional management. The New York State Deferred Comp already
(38:29):
provides target date funds that we were talking about earlier,
which are low cost index options within its core offerings.
Now these funds are effectively managed, okay, and in the
sense that they automatically rebalance or they provide diversified exposure.
So remember earlier we were talking about that target date
(38:50):
fund where it starts off more aggressive as you're younger,
and as you get closer to retirement, it becomes more conservative.
That's done either by a team or by a computer
to change the rebalancing of this portfolio as time goes on. Now,
there are options for participants that are seeking professional management.
(39:14):
So participants who want professional guidance but they also wish
to use that self directed brokerage account, there are several
strategies to consider. Hire an external advisor. Now, as a participant,
you can hire a financial advisor or an investment manager
who's familiar with public sector retirement plans and can provide
(39:35):
personalized advice on managing the self directed brokerage account. Now,
advisors may help with the portfolio construction, the risk management,
and that could ensure the alignment with your long term goals.
So using managed accounts in the core of the New
(39:56):
York State Deferred comp Plan. So let's say it like this.
So if participants prefer not to take on the complexity
of that self directed brokerage account, they can rely on
the professionally managed target date funds that we talked about
or index options that are available within the core plan.
(40:17):
Because these funds are low cost and they require no
active decision making from the participants. Now, if you are
somebody that is inclined to look for an external advisor,
someone to be the captain on your journey. This is
where I come in as an external advisor. My goal
is to be the steady captain who helps you navigate
(40:39):
the choppy waters of the self directed brokerage account or
ensures that you're maximizing the core New York State deferred options.
If that's a better fit, so let me share with
you a few scenarios where the right guidance made all
of the difference. Share a first, first case study, which
is an overwhelmed engineer. So let's call him Sam. Sam
(41:01):
was a forty five year old civil engineer and he
was very excited about using his self directed brokerage account.
So he dove in headfirst and he just started buying
individual stocks that he read about online. Well within a year,
his portfolio was really just kind of a patchwork of
unrelated investments and it didn't have any clear strategy. Worse yet,
(41:24):
he didn't realize how heavily he was exposed to these
high risk tech stocks. So when Sam hired me, we
sat down to create a cohesive investment plan and I
helped him diversify his holdings, which reduced some unnecessary risk
that he had, and it also aligned his portfolio with
(41:45):
his long term goals. So within two years, his portfolio
was not only performing much better, but it also gave
him a peace of mind. Now let me share another.
I'll give you three. Okay, another one here, So let's
talk about Maria. Maria was a cautious nurse. She was
(42:07):
fifty two year old nurse and she was hesitant about
the self directed brokerage account. But she felt like she
needed to do something more than just sitting the target
date funds that she was used to, So she wanted
to explore ESG investing and for those of you who
don't know what that means, that means environmental, social, and governance.
(42:31):
But she didn't know where to start with that. So
I worked with Maria to identify ESG funds that matched
her values and integrated them into a balanced portfolio. And
by leveraging the self directed brokerage account, Maria was able
to invest in a way that felt meaningful to her
(42:53):
while staying on track for retirement. And the third and
final one that I'll share with you here is John.
John was a six year old teacher and he was
nearing retirement and he wanted to roll over his New
York State deferred comp funds into an IRA so that
he could purchase an annuity, but he wasn't sure if
that was the right move for him. So what we
(43:16):
did was we sat down, we ran a detailed analysis
comparing his options. We looked at it through three lenses, okay,
one staying in the New York State Deferred comp core funds,
two managing his own self directed brokerage account, and three
rolling over to an IRA and purchasing an annuity. Well
(43:39):
after reviewing the data, John decided to stick with the
New York State Deferred comp core funds for a few
more years, but he set aside a portion of his
savings for an annuity purchase later. So by working together
right I prevented him from going headlong in the direction
(44:00):
of putting all of his money into an annuity, and
that helped him avoid some unnecessary fees and it ensured
that he had a clear path for the future because
the amount that he had planned on putting into an
annuity was much more than what he needed to and
he needed more flexibility than that annuity would have allowed
(44:24):
for him. So it's always important that you had a
financial advisor sitting with you and showing you the pros
and cons of doing things, So why would you hire
me as your advisor? Well, I'll give you an objective analysis.
I'm going to provide a no nonsense analysis of your options.
I'll help you decide if a self directed brokerage account,
(44:46):
or rollover or the core New York State Deferred compfunds
are the best fit for your situation. I'll also give
you customized guidance your financial goals, your risk tolerance, and
your timeline. They're all unique to you, and I tailor
my advice to ensure every recommendation aligns with your needs.
And if you'd rather not spend your weekends researching mutual
(45:09):
funds and different holdings, I take the reins there. So,
whether through managing your self directed brokerage account or advising
you on your core New York State Deferred comp portfolio,
I'll ensure that your investments are working as hard as
you are. And I will also look to optimize your retirement,
(45:36):
so for rollovers, to annuities to withdrawal strategies, I'll really
help you make smart decisions that maximize your income and
retirement while maximizing taxes and fees, and that should give
you a peace of mind, because investing shouldn't keep you
up at night, and with me as your advisor, you
(45:57):
should be able to rest easy knowing that you retirement
plan is in good hands. And at the end of
the day, the question isn't just whether you should choose
a self directed brokerage account, the core funds, or an
external rollover. The question is how confident are you in
navigating these decisions alone. So without guidance, it's easy to
(46:22):
float aimlessly in the vast ocean of investment options. But
with the right advisor, someone who understands the intricacies of
the New York State Deferred comp Plan and retirement planning,
you can chart a course that leads to the retirement
that you've always dreamed of. Okay, So for those of
(46:43):
you who are just joining, you're listening to your money matters.
I'm your host, Drew Prescott, and I'm here to guide
you through the complexities of financial planning. So if you're
just joining us, we've been diving into the powerful benefits
of employer sponsored retirement plans like the New York State
Deferred Compensation and I'm my goal here and I'm running
(47:07):
out of sand in the hourglass. Awfully quick. My goal
was to touch on the New York State Deferred comp
and the Thrift Savings Plan. But yeah, I may maybe
I bid off a little bit too much. I was
a little too aggressive this week, I think. So I'll
touch a little bit on the thrift Savings plan here,
(47:30):
and then I think we're going to have to pick
this up next week in order to give you, the
federal employee, the time and consideration that you so deserve,
and I want to make sure that this is incredibly
valuable for you. So imagine your approaching retirement and you
(47:53):
have retirement accounts that are kind of scattered across multiple employers. Well,
consolidating these assets into a single account makes management easier,
and it ensures that your investment strategy aligns with your goals.
And rollovers enable this flexibility, allowing you to take control
(48:15):
of your financial future by diversifying into other investment vehicles
that may better suit your needs. So plans like a
thrift Savings plan and a New York State Deferred Compensation plan,
they follow strict guidelines under ARISA. ARISA stands for Employee
(48:37):
Retirement Income Security Act and the Internal Revenue Code. Now,
these laws mandate that plans offer certain flexibility, including rollovers,
to maintain their tax advantage status. Now, essentially rollovers are
not just a convenience, but they're all requirement to keep
(49:01):
these plans competitive and compliant, and employees are more likely
to engage with plans that offer these options. Now, features
like rollovers or age based in service withdrawals make these
plans attractive, and they ultimately are boosting participation rates and
(49:21):
helping employees save more effectively. So modern workers switch jobs frequently.
It's kind of like if we look at like professional baseball, right,
professional baseball at this time always has free agency, and
(49:43):
that's kind of what we have here now, and it's
people don't necessarily work for a company for forty years anymore.
They're always looking for an upward trajectory and that involves
going from one company to another. So with that be
being the case with switching jobs so frequently, often individuals
(50:04):
leave behind a trail of retirement accounts, and rollover enhancement
pro portability makes it easier to bring all of these
accounts together into one cohesive strategy. And I am sorry
to tell you we are not getting to TSP. But
if you are somebody that is interested in learning more
(50:28):
about this, or you have employer plans all over the
place and you want to consolidate these into one IRA.
Please give me a call. Let's see if I can
help you with that. You're listening to your money matters.
I'm your host, Drew Prescott, Chartered Retirement Planning counselor, accredited
Wealth management Advisor and President of Prescott Private Wealth, located
(50:49):
at four point fifty one Who's Ex Street in Troy,
New York. The phone number here is five one eight
two zero three one nine eight three. Go on our
website and download our free white paper Prescott PW dot com.
As soon as you go there, you will see an
offer that pops up right at the very beginning of
(51:10):
the page here, and I think that you'll find this
to be very valuable. Again, if you're a listener and
you do not have a financial plan, call us. Let's
get you started. Let us help you get your new
year off on the right foot and give you peace
of mind and confidence about where you are heading in
(51:31):
your retirement. Let's get those goals on paper. Let's put
a plan together to make sure that you and your
family can live the life that you've always wanted to
live in retirement. Now, that doesn't just come easy. That's
a lot of hard work by you. The hard work
is done by you, and the hard work is being disciplined,
(51:56):
saying no to yourself and to your wife, if ant
to your children, that you can't spend that money because
your future is what is more valuable. Now. If you
are already established with wealth, then it's all about estate planning,
(52:23):
and that is a lot of fun. I love working
with the states putting together plans to put together a
powerful legacy, and that is something I'm very passionate about.
So if there's anything that I spoke on today that
resonates with you, I'd love to speak with you. You
(52:43):
want to have a cup of coffee, you want to
get lunch together, you let me know I'd love to
do that. Okay. The phone number here's five one eight
two zero three, one nine eight three five one eight
two zero three one nine eight three. Thank you so
much for listening today. Hope you have a wonderful remainder
of your Sunday here. And for you federal employees, I
(53:05):
promise you this. You are on tap for next week
and I will touch and give a thorough education on
the Thrift Savings Plan. So thank you so much for listening,
and God bless we'll see you next week.
Welcome to the hidden world of wealth, where secrets of
the affluent become accessible to you. You are listening to
Your Money Matters, the most provocative financial radio show on
the airwaves. You are about to start your educational journey
here on Your Money Matters with your host, Drew Prescott,
(00:22):
President of Prescott Private Wealth and Chartered Retirement Planning Counselor.
Drew will unlock the complexities of the financial landscape with straightforward,
powerful insights. Whether you're planning for retirement, managing in a state,
or looking to grow your wealth. Consider this your exclusive invitation.
Turn up the volume, lean in closer. Let's navigate the
(00:45):
hidden paths of prosperity together. Your financial enlightenment begins now.
Securities of produce a Terror Financial Specialists LLC Member FENRA
SIBC reservices offered through Starr Investment Advisors LLC so TERRA
firms are under separate ownership from any other named entity.
(01:06):
Four five to one WHO Sixth Street, Troy, New York,
one two one eight zero.
Speaker 2 (01:26):
Welcome back, everybody. You are listening to Your Money Matters
and I am your host, Drew Prescott, Chartered Retirement Planning
Counselor accredited wealth management advisor and President at Prescott Private
Wealth located at four fifty one Who's Ex Street in Troy,
New York. And we're getting started off here today on
another cold day. Boy, I'll tell you this, this cold
(01:50):
weather's getting to me this year pretty good. And uh,
it's one of those ones that you just you don't
even want to pump the gas. You don't want to
leave the house once you get settled in. It's been
awfully cold and hoping for it to warm up here.
We'll see. But any of you feel the same way
and just kind of itching to get away, I know
(02:13):
we are, so hopefully here we'll be getting away soon.
I think we're looking at a couple couple of different trips.
Hopefully we'll be able to get away in February and
April here to get a little warm weather in us,
get a little vitamin D. So with that, let's get
(02:34):
started here with the show and talking about the markets. So,
if you're new here this is your first time listening, welcome,
Thank you for listening in and I think you're gonna
find a lot of value in the show. For those
of you that are regular listeners, again, thank you so much.
For committing the time to this, and I think that
(02:56):
you're going to be pleased as well, particularly if you're
a federal employee or you are a New York State employee,
because we're going to dive into some of the retirement
planning elements here that you have available to you, not
so much the pension today, but on your TSP and
(03:19):
your New York State deferred comp. So a lot of
people don't really understand those plans. I'd like to shed
a little light on that for you today and see
if we could bring you a little value there. And also,
if you are a financial advisor and you're listening in,
I think that you're going to learn a lot. So
(03:41):
this should be able to help you help your clients
a little bit more. All right, So again thanks for listening,
excited about this show, and let's get started with talking
about this week's markets, and we're going to start with
the headline numbers here. So the S and P five
hundred climbed about point nine percent this week, so not
(04:02):
exactly fireworks, but definitely a solid and respectable gain. And
with the Dow Jones Industrial average that outpaced the SMP,
it rose by one point two percent. And this index
had a little extra pep in its step thanks to
some strong performances in the industrial consumer good stocks. And last,
(04:23):
but not least, let's look at the Nasdaq Composite, which
is home to all of your favorite tech giants. It
ticked up about point six percent. It's a bit slower
than usual, but hey, progress is progress, right, so we'll
take it. Now, Let's unpack those numbers a little bit
because there's more going on here than meets the eye.
(04:44):
And let's start off by addressing the treasury yields. They
took a little bit of a tumble. You know, the
treasury yields eased up a little bit this week, which
is really a big deal. Now. Lower yields make it
cheaper for businesses to borrow. So picture this. You're running
a company and suddenly you're financing cost drop. So what
(05:06):
do you do. You invest more money in your business,
maybe you hire some more workers or roll out that
new product that you've been dreaming about. And the result, well,
that's economic growth and it gets a little boost and
the stock market breathes a sigh of relief when that happens.
So it's like when your favorite team gets a key
(05:28):
player back from injury. Right, things just start clicking again.
And one of the hot topics this week is Procter
and Gamble really just to teach a lesson of resilience. So,
speaking of things clicking with Procter and Gamble, this week,
(05:49):
they reported a three percent bump in sales. And here's
what makes it so interesting. This wasn't about raising prices. No,
this was about good old fashioned consumer demand because people
are buying more of their products such as tied detergent, pampers, diapers,
(06:10):
gillett raisers, you name it. And why does this matter?
Because it tells us that something is going on in
the economy and even with inflation nibbling at our walle
it's people are still spending on the essentials. And it
reminds me of a story that my father used to
tell me during tough times. The companies that sell necessities
(06:36):
like soap, toothpaste, laundry detergent, they tend to do fine.
And you know what he wasn't he's not wrong still today.
So that was always a good lesson that he taught me.
And the Magnificent seven here we saw them take a
little bit of a breather. So you know, when we're
talking about tech, remember the Magnificent seven talking about the Apple, Microsoft, Google, Amazon, Tesla, Meta,
(07:05):
and Nvidia. Now, these guys have really been kind of
superheroes of the stock market, carrying it on their shoulders
for most of twenty twenty four. But since the holidays,
they've been taking a little bit of a breather. And
you know what, that's okay, because even superheroes need a break, right,
And what we're seeing now is a rotation in other sectors,
(07:26):
which is a good thing. Talking about energy, industrials and financials,
they're starting to step up, So it's kind of like
a relay race. Tech has handed off the baton and
now these other sectors are sprinting ahead. So when we're
speaking about the global picture here and we talk about energy,
(07:49):
let's take a little bit of a closer look here.
I'll play a SoundBite later on of President Trump talking
at Davos. But the oil prices that we've seen have
been and that's good news for energy companies. But what's
really exciting is the big picture. Now, China, who is
the world's second largest economy, is reopening after years of
(08:12):
strict COVID lockdowns. Now this is huge. Now, picture a
giant engine that's been idling for three years and now
it's starting to roar back to life. That's exactly what's
happening in China. So energy companies are cheering because economic
activity means more demand for oil and gas. And it's
(08:33):
not just energy. Industrial and material sectors are also getting
a great boost as global trade starts to ramp up here.
So now, why let's talk about Trump at Davos. Shift
gears here to the world news, and we saw that
(08:53):
President Trump made headlines this week for his speech at
the World Economic Forum. So say what you will about
the man, but he definitely knows how to grab attention.
Let me play a little SoundBite for you from his speech.
Speaker 3 (09:08):
I declared a national energy emergency, and that's so important.
National energy emergency towardlock to liquid gold under our feet
and pave the way for rapid approvals of new energy infrastructure.
The United States has the largest amount of oil and
gas of any country on Earth, and we're going to
(09:29):
use it. Not only will this reduce the cost of
virtually all goods and services, it'll make the United States
say manufacturing superpower and the world capital of artificial intelligence
and crypts.
Speaker 2 (09:43):
So love mere hateum right. Trump's comments always get people talking,
and this week he really touched on everything from tariffs
to energy independence. And while some of his points were controversial,
that's okay, there's no denying eyeing his impact on the
global stage. So markets haven't reacted much yet, but you're
(10:07):
gonna want to keep an eye on this now. Trade
policies and tariffs always have a way of sneaking up
on us and creating a ripple effect that can move
markets in really a surprising way. So now let me
take a little bit of a detour down memory lane,
because history really has a funny way of putting things
(10:29):
into perspective. Okay, so do you remember back in twenty
and eighteen that was the last time that we saw
a major market rotation like this, And back then tech
was dominating just like it is, or just I should say,
just like it it did in twenty twenty four, but
(10:52):
by the end of the year, industrials and energy stocks
took the lead. Why because the economy was strong and
investors started betting on sectors that could benefit from growth.
Sound familiar, Well, it's like deja vu all over again.
So what does this mean? For you. All right, So
(11:17):
the investor sitting at home, sip in your coffee and
wondering what to do with your portfolio. Diversify, Diversify, diversify.
I can't say it enough. Do not put all of
your eggs in one basket. Spread your investments across sectors, tech, energy, industrials,
(11:39):
you name it, get it in there, okay. Also, pay
attention to global events. So whether it's China reopening or
Trump making waves at Davos, global events do matter and
they shape markets in a way that aren't always obvious
at first. So stick to your plan. This is a
(12:03):
big one here. Markets will always have ups and downs,
and the key is to stay focused on your long
term goals and not to get swept up in the noise.
And if you're feeling overwhelmed by this, this is okay.
And that's why I'm here Drew Prescott at Prescott Private Wealth,
and we're all about helping you navigate this complex financial
(12:26):
landscape so that you can focus on what really matters.
So now I want to pivot into today's main topic,
retirement planning. Specifically, we're going to dive into the world
of federal and New York State employee benefits. So we'll
(12:47):
talk about thrift savings plans TSPs and New York State
deferred comp and some of the most common mistakes that
people make when they're planning for retirement. Trust me, you're
not going to want to miss this. So if you're
just joining us, I want to welcome you to the show.
You're listening to your money matters with me. Drew Prescott,
(13:08):
chartered retirement planning counselor and a credited wealth management advisor
at Prescott Private Wealth locate at four fifty one Who's
Ex Street in Troy, New York. You can call us
at five one eight two zero three one nine eight
three or visit PRESCOTTPW dot com. Now, if you go
on Prescott PW dot com, the first thing that's going
to pop up is a white paper that's available to you.
(13:32):
Just add your your name and your email address. We'll
get that over to you straight away. It'll go to
you as soon as you enter your information. Okay, last
week we had a lot of individuals requesting that white
paper and it's been very beneficial to these individuals. And
(13:54):
last week's show was really a call to action to
put together a financial plan for yourself health, and that's
exactly what we're doing here. So we helped We've got
last week alone, we started on twelve new financial plans
(14:15):
for families, and these families are very enthusiastic about improving
their current position. Now, I will tell you that a
majority of these individuals are already working with a financial advisor.
And the stories that they share are some that are tragic,
(14:40):
some that are very average, and some that are very encouraging.
So I want to share a quick story, really quick story. Okay,
it has nothing to do with today's topic, but it's
just something that's kind of weighing on me here. Which
is a family that came in and shared a sad
story with me. Now, this is a two physicians, okay,
(15:03):
and they worked with a friend colleague, another physician and
a younger man with a little girl and a wife.
And he was previously married and when his advisor never
(15:24):
looked at his beneficiary change or beneficiaries on his insurance policy,
and he had a sizeable insurance policy and he died.
Now this is a young man on a second marriage,
and he never took his first wife off as the
name beneficiary. And when he passed away, he unintentionally left
(15:45):
this money to his first wife, leaving the second wife
out in the cold by accident with their new child.
So take your time, get together all of your policies,
find out who the beneficiaries are on these Specifically, if
you're in a situation like that, gentleman, that is a
(16:07):
terrible story to hear. Also, if you have brokerage accounts
and you do not have named beneficiaries on there, get
your fanny over here. Let me help you get these
things squared away to get you in a good place. Okay,
just something I felt very passionate about wanting to share
with you. What a tragic story. And you know, I
(16:29):
can't say it's all the financial advisor's fault, it's not it.
But I think that with proper encouragement, this could have
been prevented. And it's just really a sad story. So
let's get back to where we started, okay, which was
the employer retirement plans for one of the most valuable
benefits available to employees, and yet these remain shrouded in
(16:54):
kind of misconceptions and underutilized opportunities. So to understand the
true power of these plans, let's break down the seven
most understood elements and provide clarity to empower you as
you plan for your retirement. So let me just share
with you a little bit about these plans. Okay, Now,
(17:20):
these are not these seven bullet points here that I'm
going to give you. They have nothing to do with
TSPs or New York State deferred compensation. These ones here
are really just talking about four oh one case four
h three b's for us that are in the private sector. Okay,
(17:42):
So one, you want to know about your eligibility for contributions,
because one of the first areas of confusion is eligibility. So,
for example, did you know that if you're fifty years
old or older, you can contribute an additional seventy five
hundred dollars annually to your four oh one K or
(18:03):
your four h three B as a catchup contribution. Now,
some people know this, some people don't. If you're listening
to my show, of course you know it, right, That's
what I'm here for to educate you and we talk
about this. But if you're a first time listener, maybe
you don't know this. And this is a game changer
for those that are nearing retirement who want to accelerate
(18:23):
their savings. So understanding these limits and the opportunities can
really make a significant difference over time. Now, the second
piece that you should absolutely understand is your employer's matching contributions.
So imagine your employer offers a one hundred percent match
(18:43):
on the first five percent of your salary. Well, if
you earn eighty thousand dollars and only contribute three percent,
you're essentially leaving sixteen hundred dollars of free money on
the table every year over twenty years. With compounded growth,
that could amount to tens of thousands of dollars. And
(19:07):
employer matching is one of the most powerful tools in
retirement planning, yet many employees fail to take full advantage
of it. The third point is you should absolutely know
your vesting schedules. Now, vesting schedules often cause confusion. Now,
some employees assume that they're entitled to their employer's contributions immediately,
(19:32):
but that's not always the case. Now, varying schedules, or
i should say vesting schedules can vary, right, So, vesting
schedules can vary from immediate to graded or cliff vesting.
So let me give you an example. If your plan
has a graded vesting schedule. You might earn twenty percent
(19:55):
of your employer's contribution each year, becoming fully vested after
five years of service. So knowing your vesting schedule is
absolutely critical, especially if you're considering changing jobs. Now, the
fourth point you would want to know is what the
withdrawal rules and penalties are. So, did you know that
(20:19):
with drawing the funds from your retirement account before fifty
nine and a half can trigger a ten percent early
withdrawal penalty plus taxes? I hope, So you should absolutely
know this. This is something that's very elementary and you
need to understand this. However, there are exceptions for specific
(20:39):
situations like a financial hardship or purchasing your first home,
but understanding the rules around the withdrawals ensures that you
avoid costly mistakes and that you make the most of
your hard earned savings. Now, the fifth bullet point here
is fees and their impact. So this is an area
(21:01):
that often goes unnoticed plan fees because fees associated with administration, investments,
or advisory services. They can significantly impact your long term growth.
For instance, on a on a an investment account where
(21:21):
you're paying one and a half percent in fees on
a five hundred thousand dollars portfolio that to seventy five
hundred dollars annually, So over twenty years, those fees can
add up to hundreds of thousands of dollars in lost growth.
So reviewing your plan's fee structure can help you identify
(21:44):
opportunities to save. Now sixth point would be understanding your
investment options and the risks, because investment choices are another
common source of confusion. Now, many plans offer a range
of options, from conservative fund to aggressive growth funds, and
choosing the right allocation depends upon your risk tolerance, your
(22:07):
time horizon, and your overall financial goals. So, for example,
a younger employee with decades until retirement could benefit from
a higher allocation to stocks, while someone closer to retirement
may prioritize bonds and stable value funds. Now, inside of
these plans, we're always going to see these these timeline
(22:35):
funds where it will say retire twenty thirty, retire twenty
thirty five, retire twenty forty, so on and so forth. Okay,
and what they're doing here is it's kind of like
a glide path. So you pick the fund that has
a target date closest to your retirement, and ultimately what
(22:55):
happens is as time goes on, it becomes less aggressive
and more conservative as you get closer to your retirement years. Now,
the problem with those is that sometimes when people use that,
they're disappointed, and it's really only because there's a lack
(23:19):
of education or a lack of professional guidance for them
to understand that they may, even in their latter years,
they may feel much more comfortable with risk than their coworker,
and they're wondering why they're not getting this return that
they desire, and they may not be taking the risk
(23:43):
that they personally feel comfortable with. So this is important
that you still work with a financial advisor. And we'll
touch on this later on as well. Okay, and you'll
see kind of where that theme starts to come in here. Now,
let me just touch on the lest bullet point that
I put together here for you, which is roll over
(24:03):
in your portability rules. So finally let's talk about portability.
When you change jobs, you have options for your retirement account.
You can leave it with your former employer, roll it
into your new employer's plan, or transfer it to an
IRA so each option has implications for fees different investment
(24:29):
choices in addition to being treated differently for taxes. For instance,
rolling over to an IRA, it may very well provide
more investment options for you, but it could also mean
losing certain protections offered by employer plans. So this is
(24:53):
why it's important for you to work with a financial
advisor to educate you on the value of staying or
going into a new direction. So the key takeaway here
is that knowledge is power, right, So by understanding your
(25:13):
employer retirement plan from eligibility investing to fees and investment options,
you can make an informed decision that maximizes your savings
and it helps you to secure your financial future. And
in the next segment here we're going to dive deeper
into the specific retirement plan options that are available to
(25:35):
federal and New York State employees, including strategies for rollovers
while you're still employed. So don't go any place. You're
not going to want to miss this, and this is
going to be a very comprehensive and detailed overview for you.
So for those of you that like to get into
the weeds, you know, settle in. This is going to be.
(25:58):
You're going to really enjoy this. And for those of
you that are first time listener, thank you again for listening.
You were listening to your money matters. For those of
you that have joined me every week, again thank you.
I appreciate it, and I hope that you're enjoying yourself
so far and you're listening to your money matters. I'm
your host, Drew Prescott, chartered Retirement Planning counselor, a credited
(26:21):
wealth management advisor and president of Prescott Private Wealth. The
phone number here is five one eight two zero three
one nine to eighty three. The website is Prescott PW
dot com. Go right on there and grab yourself a
copy of the white Paper about Retirement. You are going
to really be in for a treat. So if you
have any questions, feel free to call in or shoot
(26:42):
us a message. And so let's get started here. Let's
talk about the New York State Deferred Compensation Plan and
it is a well regarded retirement savings plan that offers
participants the option of a health directed brokerage account. Now,
(27:02):
a lot of state employees are not even aware of this,
and so my goal here is today to pull back
the curtain and shine the light on some of these
options that you have available to you. Okay, So this
account expands the range of investment choices beyond the core
(27:27):
funds that you see for your investment options. So it
is primarily designed to be a fully self directed account
by the investor, meaning you, the participant. You are responsible
for selecting and managing your own investments within the account. So,
(27:51):
unlike some private sector four oh one K plans or
iras that may offer optional fee based professional management for
self directed accounts, the New York State Deferred comp does
not directly provide fee based investment management services. That is
(28:13):
a misconception. So sometimes state employees believe that they could
keep their money inside of the plan when they retire,
move it to a self directed brokerage account, and then
have it managed professionally by New York State Deferred Compensation.
(28:35):
That is not correct. Okay. Now below this we're going
to start to explore the structure of the self directed
brokerage accounts here and its fees, its features, and what
options are available for you, the participant who desire professional
(28:58):
management or guidance. Okay, So, the key features of the
New York State Deferred comp self directed brokerage account is
that you have expanded investment choices, as we talked about,
So the primary appeal of this is the ability to
invest in a much broader range of securities compared to
(29:21):
the core deferred COMP offerings. Now, these options include thousands
of mutual funds and exchange traded funds. You can get
individual stocks, bonds, and other securities depending upon the brokerage
provider's platform. So the flexibility appeals to an experienced investor
(29:44):
who wants access to specialized funds, sector specific investments, and
other non core asset classes that may not be available
in the standard New York State Deferred COMP lineup. So
if you are a PARTICI dissipant using the self directed
(30:05):
brokerage account, you are entirely responsible for making investment decisions.
Now that includes researching securities or funds, executing trades through
the designed I should say, through the designated brokerage platform,
in addition to monitoring and rebalancing your portfolio over time.
(30:30):
Because the New York State Deferred comp does not actively
manage or advise participants on the self directed brokerage account investments,
nor does it offer a built in professional management service.
With inside of that framework. So the New York State
Deferred comp Plan partners with a third party brokerage provider
(30:55):
to facilitate the self directed brokerage account. Now currently designated
provider is Charles Schwab, and Schwab offers a user friendly
platform with access to a wide array of investments tools
and resources for a self directed investor. Now, the self
directed brokerage account is typically intended for participants who have
(31:19):
a very solid understanding of investment principles. Now, just because
you have this option available to you, I would strongly
encourage you. If you do not know how to research,
if you do not know how to test portfolios, stick
(31:44):
with the core investments you could. Really it becomes a
gamble when you do not understand how this industry works,
and I do not want to see you get hurt.
So stick with the core or get yourself a financial advisor. Okay.
(32:08):
Because participants, you must also meet certain eligibility requirements to
open your brokerage account here, okay, such as maintaining a
minimum balance in the core New York State Deferred Comp
So you want to ensure that you're not over concentrating
(32:34):
your retirement savings in higher risk investments. Now, what you
want to also pay attention to here this is sometimes
people get swept up in the undertow of excitement learning
about this. So I can't stress this enough. Just because
it's available to you does not mean that you should
(32:57):
go and do this. I am not telling you to
do that, Okay, be perfectly clear. I'm not recommending that
you do this, but it is an option. Now, Here's
what you need to understand is that there are additional
fees that come along with this. You have account maintenance fees,
so a flat or quarterly administrative fee may be charged
(33:19):
to participants for maintaining a self directed brokerage account. For example,
Schwab may impose a flat fee to cover the costs
of account services. Additionally, participants may incur transaction fees for
trades executed within the self directed brokerage account. Now, these
would include, and wouldn't be limited to, but commissions for
(33:42):
buying and selling stocks or ETFs, in addition to load
fees for mutual funds if applicable. Now, many brokerages, including Schwab,
offer commission free ETFs and mutual funds, but certain investments
may still carry costs. So additionally, mutual funds and ETFs
(34:04):
available in the self directed brokerage account have their own
internal expense ratios. Now, these costs vary depending upon the
specific funds chosen and are separate from the New York
State deferred comp administrative fees. Now here's another fee. And
(34:24):
if you are very interested in getting away from these
core holdings and you want to work with a fiduciary,
someone that can be an external financial advisor on this account,
that would be someone like myself. Okay, you as a participant.
(34:47):
You can have a professional investment manager for your self
directed brokerage account, but you have to have, you know,
in order to get any type of guidance on this,
you have to hire an external financial advisor, which adds
(35:07):
an additional cost. Now, advisory fees can go anywhere from
a quarter of a percent up to two and a
half percent annually, and that is of the assets that
are managed, depending upon the complexity of the services provided. Now,
some financial advisors, inside of their fee that they charge
(35:30):
on your assets, they may offer additional services. They may
offer financial planning, they may help you with other financial
decisions along the way, or they may just simply be
looking to manage the assets, So that's what drives the
fees here. Okay. Additionally, maybe you just say, hey, I
(35:54):
want to use this brokerage account. I've always thought that
it would be better for me to have individual equities
or you know, a strategy that aligns with what you
talk about each week DROW and which is sector rotations
and with having core holdings. Now we can also do
a flat fee, which is you open the account self
(36:17):
directed brokerage account, I would give you a portfolio and
tell you how it will be invested and charge you
a fee for that blueprint. So that's also another option
that you have. But let's not just sit here too long.
(36:39):
Let me talk about some other components. So now some
of you may say, why does the New York State
Deferred comp plan not offer fee based management for these
self directed brokerage accounts. Well, the lack of fee based
management options for the self directed brokerage account is consistent
(37:00):
with the structure of most public sector retirement plans because
the New York State Deferred comp prioritizes simplicity, low costs,
and participant control. So here's why fee based management is
not provided in that self directed brokerage account. Because with
(37:23):
public sector plans retirement plans like the Deferred Comp they
just aim to offer low cost, easy to use options
for the majority of participants. So if we have a
fee based advisory service that's offered within that self directed
(37:43):
brokerage account, that would increase the administrative complexity and it
could conflict with the plan's low fee ethos. So you
want to They basically want to encourage investor responsibility, and
the self directed brokerage account is designed to serve only
(38:06):
experienced and confident investors who prefer to take a hands
on approach, So offering professional management it may reduce the
self directed nature of the account and for participants that
seek professional management. The New York State Deferred Comp already
(38:29):
provides target date funds that we were talking about earlier,
which are low cost index options within its core offerings.
Now these funds are effectively managed, okay, and in the
sense that they automatically rebalance or they provide diversified exposure.
So remember earlier we were talking about that target date
(38:50):
fund where it starts off more aggressive as you're younger,
and as you get closer to retirement, it becomes more conservative.
That's done either by a team or by a computer
to change the rebalancing of this portfolio as time goes on. Now,
there are options for participants that are seeking professional management.
(39:14):
So participants who want professional guidance but they also wish
to use that self directed brokerage account, there are several
strategies to consider. Hire an external advisor. Now, as a participant,
you can hire a financial advisor or an investment manager
who's familiar with public sector retirement plans and can provide
(39:35):
personalized advice on managing the self directed brokerage account. Now,
advisors may help with the portfolio construction, the risk management,
and that could ensure the alignment with your long term goals.
So using managed accounts in the core of the New
(39:56):
York State Deferred comp Plan. So let's say it like this.
So if participants prefer not to take on the complexity
of that self directed brokerage account, they can rely on
the professionally managed target date funds that we talked about
or index options that are available within the core plan.
(40:17):
Because these funds are low cost and they require no
active decision making from the participants. Now, if you are
somebody that is inclined to look for an external advisor,
someone to be the captain on your journey. This is
where I come in as an external advisor. My goal
is to be the steady captain who helps you navigate
(40:39):
the choppy waters of the self directed brokerage account or
ensures that you're maximizing the core New York State deferred options.
If that's a better fit, so let me share with
you a few scenarios where the right guidance made all
of the difference. Share a first, first case study, which
is an overwhelmed engineer. So let's call him Sam. Sam
(41:01):
was a forty five year old civil engineer and he
was very excited about using his self directed brokerage account.
So he dove in headfirst and he just started buying
individual stocks that he read about online. Well within a year,
his portfolio was really just kind of a patchwork of
unrelated investments and it didn't have any clear strategy. Worse yet,
(41:24):
he didn't realize how heavily he was exposed to these
high risk tech stocks. So when Sam hired me, we
sat down to create a cohesive investment plan and I
helped him diversify his holdings, which reduced some unnecessary risk
that he had, and it also aligned his portfolio with
(41:45):
his long term goals. So within two years, his portfolio
was not only performing much better, but it also gave
him a peace of mind. Now let me share another.
I'll give you three. Okay, another one here, So let's
talk about Maria. Maria was a cautious nurse. She was
(42:07):
fifty two year old nurse and she was hesitant about
the self directed brokerage account. But she felt like she
needed to do something more than just sitting the target
date funds that she was used to, So she wanted
to explore ESG investing and for those of you who
don't know what that means, that means environmental, social, and governance.
(42:31):
But she didn't know where to start with that. So
I worked with Maria to identify ESG funds that matched
her values and integrated them into a balanced portfolio. And
by leveraging the self directed brokerage account, Maria was able
to invest in a way that felt meaningful to her
(42:53):
while staying on track for retirement. And the third and
final one that I'll share with you here is John.
John was a six year old teacher and he was
nearing retirement and he wanted to roll over his New
York State deferred comp funds into an IRA so that
he could purchase an annuity, but he wasn't sure if
that was the right move for him. So what we
(43:16):
did was we sat down, we ran a detailed analysis
comparing his options. We looked at it through three lenses, okay,
one staying in the New York State Deferred comp core funds,
two managing his own self directed brokerage account, and three
rolling over to an IRA and purchasing an annuity. Well
(43:39):
after reviewing the data, John decided to stick with the
New York State Deferred comp core funds for a few
more years, but he set aside a portion of his
savings for an annuity purchase later. So by working together
right I prevented him from going headlong in the direction
(44:00):
of putting all of his money into an annuity, and
that helped him avoid some unnecessary fees and it ensured
that he had a clear path for the future because
the amount that he had planned on putting into an
annuity was much more than what he needed to and
he needed more flexibility than that annuity would have allowed
(44:24):
for him. So it's always important that you had a
financial advisor sitting with you and showing you the pros
and cons of doing things, So why would you hire
me as your advisor? Well, I'll give you an objective analysis.
I'm going to provide a no nonsense analysis of your options.
I'll help you decide if a self directed brokerage account,
(44:46):
or rollover or the core New York State Deferred compfunds
are the best fit for your situation. I'll also give
you customized guidance your financial goals, your risk tolerance, and
your timeline. They're all unique to you, and I tailor
my advice to ensure every recommendation aligns with your needs.
And if you'd rather not spend your weekends researching mutual
(45:09):
funds and different holdings, I take the reins there. So,
whether through managing your self directed brokerage account or advising
you on your core New York State Deferred comp portfolio,
I'll ensure that your investments are working as hard as
you are. And I will also look to optimize your retirement,
(45:36):
so for rollovers, to annuities to withdrawal strategies, I'll really
help you make smart decisions that maximize your income and
retirement while maximizing taxes and fees, and that should give
you a peace of mind, because investing shouldn't keep you
up at night, and with me as your advisor, you
(45:57):
should be able to rest easy knowing that you retirement
plan is in good hands. And at the end of
the day, the question isn't just whether you should choose
a self directed brokerage account, the core funds, or an
external rollover. The question is how confident are you in
navigating these decisions alone. So without guidance, it's easy to
(46:22):
float aimlessly in the vast ocean of investment options. But
with the right advisor, someone who understands the intricacies of
the New York State Deferred comp Plan and retirement planning,
you can chart a course that leads to the retirement
that you've always dreamed of. Okay, So for those of
(46:43):
you who are just joining, you're listening to your money matters.
I'm your host, Drew Prescott, and I'm here to guide
you through the complexities of financial planning. So if you're
just joining us, we've been diving into the powerful benefits
of employer sponsored retirement plans like the New York State
Deferred Compensation and I'm my goal here and I'm running
(47:07):
out of sand in the hourglass. Awfully quick. My goal
was to touch on the New York State Deferred comp
and the Thrift Savings Plan. But yeah, I may maybe
I bid off a little bit too much. I was
a little too aggressive this week, I think. So I'll
touch a little bit on the thrift Savings plan here,
(47:30):
and then I think we're going to have to pick
this up next week in order to give you, the
federal employee, the time and consideration that you so deserve,
and I want to make sure that this is incredibly
valuable for you. So imagine your approaching retirement and you
(47:53):
have retirement accounts that are kind of scattered across multiple employers. Well,
consolidating these assets into a single account makes management easier,
and it ensures that your investment strategy aligns with your goals.
And rollovers enable this flexibility, allowing you to take control
(48:15):
of your financial future by diversifying into other investment vehicles
that may better suit your needs. So plans like a
thrift Savings plan and a New York State Deferred Compensation plan,
they follow strict guidelines under ARISA. ARISA stands for Employee
(48:37):
Retirement Income Security Act and the Internal Revenue Code. Now,
these laws mandate that plans offer certain flexibility, including rollovers,
to maintain their tax advantage status. Now, essentially rollovers are
not just a convenience, but they're all requirement to keep
(49:01):
these plans competitive and compliant, and employees are more likely
to engage with plans that offer these options. Now, features
like rollovers or age based in service withdrawals make these
plans attractive, and they ultimately are boosting participation rates and
(49:21):
helping employees save more effectively. So modern workers switch jobs frequently.
It's kind of like if we look at like professional baseball, right,
professional baseball at this time always has free agency, and
(49:43):
that's kind of what we have here now, and it's
people don't necessarily work for a company for forty years anymore.
They're always looking for an upward trajectory and that involves
going from one company to another. So with that be
being the case with switching jobs so frequently, often individuals
(50:04):
leave behind a trail of retirement accounts, and rollover enhancement
pro portability makes it easier to bring all of these
accounts together into one cohesive strategy. And I am sorry
to tell you we are not getting to TSP. But
if you are somebody that is interested in learning more
(50:28):
about this, or you have employer plans all over the
place and you want to consolidate these into one IRA.
Please give me a call. Let's see if I can
help you with that. You're listening to your money matters.
I'm your host, Drew Prescott, Chartered Retirement Planning counselor, accredited
Wealth management Advisor and President of Prescott Private Wealth, located
(50:49):
at four point fifty one Who's Ex Street in Troy,
New York. The phone number here is five one eight
two zero three one nine eight three. Go on our
website and download our free white paper Prescott PW dot com.
As soon as you go there, you will see an
offer that pops up right at the very beginning of
(51:10):
the page here, and I think that you'll find this
to be very valuable. Again, if you're a listener and
you do not have a financial plan, call us. Let's
get you started. Let us help you get your new
year off on the right foot and give you peace
of mind and confidence about where you are heading in
(51:31):
your retirement. Let's get those goals on paper. Let's put
a plan together to make sure that you and your
family can live the life that you've always wanted to
live in retirement. Now, that doesn't just come easy. That's
a lot of hard work by you. The hard work
is done by you, and the hard work is being disciplined,
(51:56):
saying no to yourself and to your wife, if ant
to your children, that you can't spend that money because
your future is what is more valuable. Now. If you
are already established with wealth, then it's all about estate planning,
(52:23):
and that is a lot of fun. I love working
with the states putting together plans to put together a
powerful legacy, and that is something I'm very passionate about.
So if there's anything that I spoke on today that
resonates with you, I'd love to speak with you. You
(52:43):
want to have a cup of coffee, you want to
get lunch together, you let me know I'd love to
do that. Okay. The phone number here's five one eight
two zero three, one nine eight three five one eight
two zero three one nine eight three. Thank you so
much for listening today. Hope you have a wonderful remainder
of your Sunday here. And for you federal employees, I
(53:05):
promise you this. You are on tap for next week
and I will touch and give a thorough education on
the Thrift Savings Plan. So thank you so much for listening,
and God bless we'll see you next week.
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