If you’re a Gen Xer, born between 1965 and 1980, you might be starting to think about your transition into retirement. Moving into this new phase not only means imagining how your daily life will change but also having a clear understanding of your finances. Join us as we share some important things to consider as you approach this major milestone.
Here’s some of what we discuss in this episode:
- Understanding and managing retirement accounts, such as IRAs and 401(k)s + the potential risks associated with neglecting them as retirement approaches
- Some options for optimizing retirement account holdings when nearing retirement
- The importance of assessing your risk tolerance to ensure you’re aligned with your retirement goals
- The financial considerations and challenges faced by Generation X
WAYS TO CONNECT:
Book a 15-minute discovery call with the team here: https://calendly.com/rachel-bwg
Visit https://bulmanwealth.com/marcos-lemus to learn more about Marcos Lemus and the other members of the team.
If you have any questions about what we discussed or anything else in your financial plan, email us at ask@bulmanwealth.com. You can also reach the team by phone at (916) 458-8199.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Welcome.
You are listening to theBuhlman Wealth Group's Financial
Compass podcast, a showdedicated to helping you
successfully navigate to andthrough your retirement.
Our financial compass processgoes beyond traditional holistic
financial planning.
We care as much about you andyour lifestyle as we do about
your plan.
Your hosts are Buhlman WealthGroup financial advisors who,
(00:27):
for more than two decades, haveprovided financial leadership
for those they serve.
Speaker 2 (00:32):
Hello, this is Marcos Lemus and I'm a financial
advisor at Buhlman Wealth Groupin Roseville, california, and
you're listening to the yourFinancial Compass podcast.
If this is your first timelistening, thank you for tuning
in, and if you've listened toour podcast before, welcome back
.
We appreciate your support.
(00:53):
Thank you, guys, for tuning in.
If there's anything that sticksout and resonates with you
today, anything you havequestions about or comments,
feedback, you know we welcomeall of that.
Please reach out to us at ouremail address.
The best way to get in contactwith us that is ask at
BuhlmanWealthcom.
That's A-S-K atBuhlmanWealthcom.
(01:15):
So every episode we focus on adifferent topic or some commonly
asked questions or commonconcerns, and today we have a
special focus on what some wouldcall the forgotten generation,
the group of people sandwichedbetween the baby boomers and
millennials.
Well, we certainly did notforget about you, but today
(01:37):
we're going to focus onGeneration X, or anyone born in
the years 1965 to 1980.
You know, these are individualsthat are nearing retirement or
they've maybe got another 10, 15, 20 years left of working
working years ahead of them.
So again, these are somehelpful tips to keep in mind.
(01:58):
They're not just for GenerationX, although it's kind of
applicable a little bit closerin terms of their time horizon.
But these are really key thingsfor everyone to be aware of,
regardless of where you are inyour accumulation years.
So if you're a Gen Xer, ifyou're in Generation X, you
might be starting to think abouthow you are going to transition
into retirement.
(02:19):
You know and what that lookslike.
It's such a big move in a lotof different ways, and not only
does it require you tocompletely reimagine and rethink
.
You know how your daily lifelooks in retirement.
You get to.
You know, spend more time onthe hobbies, the things that you
love, your loved ones.
You know you're not going towork every day, so your schedule
is going to look a little bitdifferent.
(02:39):
But it also requires you totake a critical look at you know
your finances and reallyunderstand how to execute and
maintain a retirement lifestylewith all these assets that
you've accumulated for all theseworking years.
So chances are you've beencontributing to a retirement
account of some kind, aqualified account, something
(03:01):
like a 401k, 403b, 457, an HSAor some other similar retirement
account through your employer.
You know, assuming and knowingthat someday it's going to pay
off.
You know when you retire andyou stop working.
But how exactly will it do that?
What does it look like whenyou're in your working years and
you're contributing?
(03:22):
It's pretty straightforward,right?
You make sure that you saveyour investing well by
contributing, and just comes outof your paycheck, kind of out
of sight, out of mind, in mostcases.
However, having a fundedretirement account is one thing,
right, but making sure thoseaccounts are set up for success
and ensuring they can beutilized the right way,
(03:42):
efficiently in retirement is acompletely different thing on
its own.
So we're going to dive into acouple of key areas today with
respected generation Xers, butagain, this is good and helpful
tips for everyone.
You know, as these generation Xindividuals are gearing up for
retirement, a couple of thingsthat we want to focus on today.
(04:03):
One we're going to go overretirement accounts and the risk
of ignoring them, and we'll getinto what that means, what that
is referring to and how do youknow if your investments are
aligned properly with your goals.
What does that mean?
So let's jump right into it.
Let's take a look at retirementaccounts and the risk of
(04:24):
ignoring them.
If you've contributed tosomething like an IRA,
individual retirement account ora 401K or any other defined
contribution plan or account, tosay, for your retirement.
You've likely invested inassets that are invested or have
exposure to the stock marketand, firstly, this is not a bad
(04:46):
thing.
The stock market has itsbenefits, especially in terms of
long term appreciation, longterm growth for retirement,
especially if you have manyyears still, or even decades,
until you decide to retire.
But that obviously doesn't comewithout its drawbacks.
There's a pro and con toeverything.
So if you are in Generation Xand you're thinking about
(05:09):
retirement today, starting toplan for that, it's important to
understand what all thosedrawbacks are.
So let's quickly refresh andjust kind of cover the basics of
retirement accounts and howthey work before kind of getting
into the risks of not tweakingor adjusting our accounts over
time.
Okay, so, as far as IRAs go,they have an annual contribution
(05:30):
limit.
These are limits that tend tochange every year.
The IRS, every year, willadjust these, and just recently
we're in January of 2024.
Now we're into the new year andthey increased limits.
So anybody under the age of 50can contribute up to $7,000
annually.
(05:51):
If you are over 50, you get anextra 1,000 that you can
contribute as almost a catch-up.
So you can contribute 8,000 ifyou are over 50 years old.
Okay, kind of shifting to 401Ks.
401ks also have an annualcontribution limit.
That does change and tends togo up over time, but this limit
(06:12):
is much higher.
So remember, 401ks or any 400series defined contribution plan
is tied to your employer and sothe benefit here is you can
contribute generally much morethan an IRA or something that's
outside of your employer.
So with a 401K or somethingsimilar, it is a maximum
(06:35):
contribution of $23,000.
Okay, that's the new amount in2024.
It just went up and that alsohas a catch-up when you get over
50, that increases to $30,500.
So you notice, these thresholds, these contribution limits, are
much higher than they would bewith an IRA.
So IRAs and 401Ks come in twodifferent types and it has to do
(07:00):
with the way that it's taxed,the taxation.
So IRAs and 401Ks each have atraditional option, right
Traditional IRA or traditional401K, or a Roth IRA or a Roth
401K.
So we'll kind of go over thatreal quick.
Traditional IRAs again, theyallow you to deduct your
(07:23):
contributions from your currentyear's income.
So essentially, you're payingincome tax later in retirement
All of it's kind of tax deferredand you get to deduct that from
your annual income that yearyou get taxed at the tax rate in
retirement.
So defer tax now, pay it laterat a later income tax rate which
(07:46):
is hopefully lower.
Okay, that's the goal.
Roth IRAs allow you tocontribute your I'm sorry allow
you to withdraw tax-free.
All of the growth and all thewithdrawals with a Roth IRA in
retirement are free of tax.
But the contributions whileyou're putting it in aren't
(08:09):
deducted, are not deducted fromyour income.
So essentially in this scenarioyou pay the tax now, you pay it
ahead of time, as opposed topaying it later with the
traditional.
So income limitations Roth IRAsthey do.
While they're powerful and canbe very helpful in retirement,
they do have some limits with interms of income.
(08:32):
It's possible to make too muchmoney and kind of be phased out
of Roth IRA contributions.
Those income limits get againrefreshed each year.
You're kind of seeing a themehere.
The IRS will give us newnumbers, new limitations, new
maximums.
So if your income limit's toohigh and you're contributing to
a Roth IRA, you could bepenalized if you don't kind of
(08:53):
fix that issue and there's waysto kind of correct it prior to
before you get penalized.
But it's one thing to kind ofkeep in mind.
Okay, for all qualified accounts.
One thing to be aware of ifyou're on the younger end of
Generation X, all retirementaccount withdrawals before age
(09:13):
59 and a half are subject to a10% fee.
So we wanna make sure that ifwe're drawing on these accounts,
especially if it's traditional,you're gonna pay taxes on it
anyway.
We wanna make sure that we'renot adding on an extra 10%
penalty if we're pulling it tooearly, if we're not 59 and a
half yet.
Okay, so something to keep inmind.
So what do retirement accountsactually hold in them?
(09:36):
Okay, just as a review, theygenerally have stocks, bonds,
money market accounts, mutualfunds or ETFs, exchange traded
funds.
Okay, these are all commonholdings that you're gonna find
in these retirement accounts.
Now, in an IRA or aself-directed account, you have
(09:57):
much more control over theinvestments within your account.
Right, in a 401k, on the flipside, it's an employer-sponsored
account, right?
Remember, these are tied to anemployer.
As you're accumulating theseaccounts, you're working with an
employer.
It's kind of deducted from apaycheck.
Right, you're contributing eachpaycheck.
These investments are usuallymanaged by an outside company,
(10:21):
so you have less control andeven though it's professionally
managed, it's often very, verygeneralized in terms of the
portfolio composition.
So, with these 401kemployer-sponsored funds or
plans, they often use targetdate funds.
So what that means is it's notnecessarily individualized for
(10:42):
your goals, your needs, okay.
The way a target date fundgenerally works is, let's say,
I'm looking at two differenttarget date funds.
One target date fund is 2048,okay, got a long time from now.
It's 2024 currently.
That's years down the road.
That 2048 target date fundmight be set up in a way that's
(11:07):
much more aggressive, meaningmore stocks and equities and
less bonds.
If I'm, conversely, looking ata target date fund for, let's
say, a few years out, let's say2028, it's much closer, shorter
time horizon it's gonna be a lotmore conservative, okay,
probably comprised of more bondsand much less stocks and
(11:28):
equities.
So what happens if you neveradjust your holdings as you get
closer to retirement?
You know a lot of peoplethey'll make contributions and
they're really good aboutcontributing to these retirement
accounts without question,especially if there's an
employer match right.
A lot of companies will offer amatch of up to 3% or 4%, and
(11:49):
that's great.
People are very excited.
Okay, I'll do the match, I'llmake sure that you know my
employer is matching me andthat's great and they don't even
think about it.
But when it comes time to adjust, as you get closer to
retirement, your investmentstrategy should change too.
So when you're just startingout again, as I mentioned, your
strategy is likely aggressive,right?
(12:10):
If my target date fund's 2046,I got a lot of time to make up
any potential losses that themarket might have.
The stock market mightexperience some dips or some
drops or some catastrophicevents that we've all heard of
2008 and kind of what happenedthere.
If I have a longer time horizon, I've got time to make some of
that up.
Well, it doesn't feel good whenit happens.
(12:31):
You know it's not the end ofthe world.
So if you've never touched, youknow your investment strategy
since you started and yournearing retirement, it's
possible you could be taken ontoo much risk as a result, and
you know you could stand to losea significant portion of your
portfolio if the market doeshave a downturn like that, with
(12:54):
little to no time to recoverfrom that downturn.
So that's kind of the thing wewant to be cognizant of.
So what options do people haveto optimize their retirement
account holdings when they'regetting ready to transition to
retirement?
Okay, first of all, if you havecontrol over your investments,
you know, consider rebalancingthem Maybe, make them more
(13:14):
stable, or look to get some moreincome focused assets, maybe
some dividend stocks, some bluechip dividend payers and these
are stocks that you know, foryears have consistently kicked
out dividends to theirshareholders or even something
like bonds I kind of mentionedthis before as a.
I'm going to use a target datefund example again.
(13:36):
As we're getting closer toretirement, if my target date is
, you know, a few years out,it's going to be comprised of a
lot more bonds that aregenerally seen as as safer and
less aggressive, less riskyinvestment.
Okay.
Or even the optional annuityOkay.
Sometimes it's worth lookinginto certain types of annuities.
(13:58):
Okay, not all annuities arecreated equal, but it may fit in
someone's portfolio and it maymeet someone's specific needs,
and there's definitely pros andcons to that as well as there is
with any investment, but thatmay be a way to kind of take
some of the risk off the tablein terms of your whole portfolio
composition.
(14:19):
So, if you have a 401k or anemployer sponsored account,
check to see if your holdingsare in a target date fund and
make sure it's in a target datefund that accurately reflects
your got your timeline right,your goals.
Make sure it's aligned withwhen you plan to retire.
If you're looking for a largerchange, you do have some options
(14:39):
as well.
Okay, you can consider maybe anaccount rollover to a different
type of account, one that youcan maybe manage a little bit
better and have more hands on,more control, whether that's on
your own in an IRA, anindividual IRA, or you can work
or partner with a financialadvisor who can assist you but
(15:00):
still has some, some morecontrol over those accounts, as
opposed to leaving it with a401k employer sponsored, you
know, management companieslooking over those investments
for you.
It's also worth looking into,as I said, these rollovers If
you're still working and you'reover that age of 59 and a half,
that magic age, but you do wantsome more control.
(15:22):
You can look and see.
You know, not all plans offer arollover, but it's worth asking
if you want to kind of takesome of that 401k accumulation
and have some some more controlover it, okay.
So it's worth looking into toseeing if your plan even allows
for that, okay.
(15:42):
So how do you know that yourinvestments are properly aligned
with your goals?
Well, the first thing is risktolerance.
Everybody says the term risktolerance One of the things that
we like to do, and dofrequently too, both with new
clients or prospects, but alsoour current clients.
You know it's important to do arisk tolerance assessment, and
(16:05):
there's a couple ways to do that.
One simple way is, you know, gothrough a series of questions
and, depending on the answerthat you give to each of these
questions, you can kind offigure out, you know, what your
risk is.
So some of the things you mightask yourself are you know how
many years until I plan to startretire or using these
(16:26):
retirement accounts as income?
How many years until I startwithdrawing?
Is it less than a year, a fewyears?
Is it 10 or more?
So the timeframe really matters.
When will I need to starttaking this money out?
And that's going to be key tounderstanding what your risk
tolerance actually is.
Okay, something else to ask isyou know what's more important
(16:47):
the protecting my portfolio or,you know, swinging for higher
returns?
Everybody loves to get highreturns, but with that
inherently comes more risk.
So you got to ask yourself areyou willing to take the
consequences of a loss in orderto maximize some of those
returns that we're seeking?
Are you concerned about lossesor, you know, while trying to
(17:09):
maximize returns, or is it justall about avoiding all losses?
Maybe you don't want to lose adime?
The answer to these questionsis paramount, really, to
understanding you know not onlywhat your risk tolerance is, but
also how you should be investedin terms of your portfolio.
Another question what are yourannual income expectations prior
to retirement?
Right before you retire, isyour income, you know, expected
(17:33):
to stay the same, increase orgrow a little bit, decrease,
decrease a lot?
So understanding your incomelevel two is another big piece
of finding out.
You know how much you canafford to risk while aiming to
achieve some of those returnsthat you're hoping for.
It also helps you betterunderstand you know how much
income you might expect or mightneed to replace.
(17:56):
So retirement for Generation Xdefinitely looks a little bit
different than it did forprevious generations.
You know baby boomers.
When you think about it, theyhad relatively more access to
pensions than your generationdoes.
If you find yourself in thisgroup of pre-retirees in
Generation X, you know pensionsare like gold these days and you
(18:17):
know less and less companiesare offering them.
So it's going to look a littlebit different.
But these are all questions andthings that a financial advisor
can assist you with.
Okay, and things like this, itcan be so powerful to have the
help of an advisor to kind ofnavigate some of these unique
financial environments.
I feel that every few years isa new unique financial
(18:40):
environment we've never seenbefore and it's always changing
and there's so many differenthoops that come with kind of
stepping away from the workforce.
But just know that you knowthere's a lot of fiduciaries out
there that you know lovehelping clients with this and
it's what they do every day.
So you know we're excited towork with our current clients
and new clients as well, kind ofnavigate these environments as
(19:03):
they get ready to retire.
So, whether you're thinkingabout how to reduce your costs
or how to support your newretirement lifestyle, you'd be
surprised you probably have moreoptions than you think in terms
of how to plan, how to prep,how to adjust my current
retirement accounts.
So again, we're just barelyscratching the surface with
today's podcast, but I hope thatit at least gives our
(19:24):
Generation X listeners some foodfor thought and some things to
certainly be aware of as you'regetting ready.
You're heading towards thatgoal of retirement, and really
the goal of any fiduciary is tohelp you take advantage of this
opportunity to achieve whatyou've worked your entire
working life for and to give youthe peace of mind that you
don't have to do it by yourself,you don't have to make all
(19:47):
these huge decisions on your own.
So if anything you heardresonated with you today, if you
have comments, questions or youwant to dive deeper into your
particular situation, alwaysfeel free to shoot us an email.
Again, you can reach us ataskatbolmanwealthcom.
Askatbolmanwealthcom.
(20:10):
I want to thank you all againfor listening, whether you're
coming from Apple Podcast,spotify or any other podcast
platform.
We do appreciate you taking thetime to join us.
We really appreciate yourreviews, your feedback and your
time.
So again, thank you so much.
Please join us next time onyour Financial Compass.
This has been your host, marcosLemus, with the Wollman Wealth
(20:33):
Group.
See you next time, take care.
Speaker 1 (20:42):
The following content is for information purposes
only.
It is not intended to provideany tax or legal advice or
provide the basis for anyfinancial decisions, nor is it
intended to be a projection ofcurrent or future performance or
an indication of future results.
Purchases are subject tosuitability.
This requires a review of aninvestor's objective, risk
tolerance and time horizons.
Investing always involves riskand possible loss of capital.
Opinions expressed are solelythose of Bollman Wealth Group
(21:03):
and our editorial staff.
The information contained inthis material has been derived
from sources believed to bereliable, but is not guaranteed
accuracy and completeness anddoes not report to be a complete
analysis of materials discussed.
Any statements or opinionsexpressed should in no way be
construed or interpreted assolicitation to sell or offer to
sell advisory services to anyresidents of any state other
than the states were otherwiselegally permitted.
Advisory services are offeredthrough Chris Bollman Inc.
Dba Bollman Wealth Group.
(21:23):
Registration as an investmentadvisor does not imply a certain
level of skill or training.
Insurance products and servicesare offered and sold through
Chris Bollman Inc.
Dba BWG Insurance Agency.
Welcome.
You are listening to theBuhlman Wealth Group's Financial
Compass podcast, a showdedicated to helping you
successfully navigate to andthrough your retirement.
Our financial compass processgoes beyond traditional holistic
financial planning.
We care as much about you andyour lifestyle as we do about
your plan.
Your hosts are Buhlman WealthGroup financial advisors who,
(00:27):
for more than two decades, haveprovided financial leadership
for those they serve.
Speaker 2 (00:32):
Hello, this is Marcos Lemus and I'm a financial
advisor at Buhlman Wealth Groupin Roseville, california, and
you're listening to the yourFinancial Compass podcast.
If this is your first timelistening, thank you for tuning
in, and if you've listened toour podcast before, welcome back
.
We appreciate your support.
(00:53):
Thank you, guys, for tuning in.
If there's anything that sticksout and resonates with you
today, anything you havequestions about or comments,
feedback, you know we welcomeall of that.
Please reach out to us at ouremail address.
The best way to get in contactwith us that is ask at
BuhlmanWealthcom.
That's A-S-K atBuhlmanWealthcom.
(01:15):
So every episode we focus on adifferent topic or some commonly
asked questions or commonconcerns, and today we have a
special focus on what some wouldcall the forgotten generation,
the group of people sandwichedbetween the baby boomers and
millennials.
Well, we certainly did notforget about you, but today
(01:37):
we're going to focus onGeneration X, or anyone born in
the years 1965 to 1980.
You know, these are individualsthat are nearing retirement or
they've maybe got another 10, 15, 20 years left of working
working years ahead of them.
So again, these are somehelpful tips to keep in mind.
(01:58):
They're not just for GenerationX, although it's kind of
applicable a little bit closerin terms of their time horizon.
But these are really key thingsfor everyone to be aware of,
regardless of where you are inyour accumulation years.
So if you're a Gen Xer, ifyou're in Generation X, you
might be starting to think abouthow you are going to transition
into retirement.
(02:19):
You know and what that lookslike.
It's such a big move in a lotof different ways, and not only
does it require you tocompletely reimagine and rethink
.
You know how your daily lifelooks in retirement.
You get to.
You know, spend more time onthe hobbies, the things that you
love, your loved ones.
You know you're not going towork every day, so your schedule
is going to look a little bitdifferent.
(02:39):
But it also requires you totake a critical look at you know
your finances and reallyunderstand how to execute and
maintain a retirement lifestylewith all these assets that
you've accumulated for all theseworking years.
So chances are you've beencontributing to a retirement
account of some kind, aqualified account, something
(03:01):
like a 401k, 403b, 457, an HSAor some other similar retirement
account through your employer.
You know, assuming and knowingthat someday it's going to pay
off.
You know when you retire andyou stop working.
But how exactly will it do that?
What does it look like whenyou're in your working years and
you're contributing?
(03:22):
It's pretty straightforward,right?
You make sure that you saveyour investing well by
contributing, and just comes outof your paycheck, kind of out
of sight, out of mind, in mostcases.
However, having a fundedretirement account is one thing,
right, but making sure thoseaccounts are set up for success
and ensuring they can beutilized the right way,
(03:42):
efficiently in retirement is acompletely different thing on
its own.
So we're going to dive into acouple of key areas today with
respected generation Xers, butagain, this is good and helpful
tips for everyone.
You know, as these generation Xindividuals are gearing up for
retirement, a couple of thingsthat we want to focus on today.
(04:03):
One we're going to go overretirement accounts and the risk
of ignoring them, and we'll getinto what that means, what that
is referring to and how do youknow if your investments are
aligned properly with your goals.
What does that mean?
So let's jump right into it.
Let's take a look at retirementaccounts and the risk of
(04:24):
ignoring them.
If you've contributed tosomething like an IRA,
individual retirement account ora 401K or any other defined
contribution plan or account, tosay, for your retirement.
You've likely invested inassets that are invested or have
exposure to the stock marketand, firstly, this is not a bad
(04:46):
thing.
The stock market has itsbenefits, especially in terms of
long term appreciation, longterm growth for retirement,
especially if you have manyyears still, or even decades,
until you decide to retire.
But that obviously doesn't comewithout its drawbacks.
There's a pro and con toeverything.
So if you are in Generation Xand you're thinking about
(05:09):
retirement today, starting toplan for that, it's important to
understand what all thosedrawbacks are.
So let's quickly refresh andjust kind of cover the basics of
retirement accounts and howthey work before kind of getting
into the risks of not tweakingor adjusting our accounts over
time.
Okay, so, as far as IRAs go,they have an annual contribution
(05:30):
limit.
These are limits that tend tochange every year.
The IRS, every year, willadjust these, and just recently
we're in January of 2024.
Now we're into the new year andthey increased limits.
So anybody under the age of 50can contribute up to $7,000
annually.
(05:51):
If you are over 50, you get anextra 1,000 that you can
contribute as almost a catch-up.
So you can contribute 8,000 ifyou are over 50 years old.
Okay, kind of shifting to 401Ks.
401ks also have an annualcontribution limit.
That does change and tends togo up over time, but this limit
(06:12):
is much higher.
So remember, 401ks or any 400series defined contribution plan
is tied to your employer and sothe benefit here is you can
contribute generally much morethan an IRA or something that's
outside of your employer.
So with a 401K or somethingsimilar, it is a maximum
(06:35):
contribution of $23,000.
Okay, that's the new amount in2024.
It just went up and that alsohas a catch-up when you get over
50, that increases to $30,500.
So you notice, these thresholds, these contribution limits, are
much higher than they would bewith an IRA.
So IRAs and 401Ks come in twodifferent types and it has to do
(07:00):
with the way that it's taxed,the taxation.
So IRAs and 401Ks each have atraditional option, right
Traditional IRA or traditional401K, or a Roth IRA or a Roth
401K.
So we'll kind of go over thatreal quick.
Traditional IRAs again, theyallow you to deduct your
(07:23):
contributions from your currentyear's income.
So essentially, you're payingincome tax later in retirement
All of it's kind of tax deferredand you get to deduct that from
your annual income that yearyou get taxed at the tax rate in
retirement.
So defer tax now, pay it laterat a later income tax rate which
(07:46):
is hopefully lower.
Okay, that's the goal.
Roth IRAs allow you tocontribute your I'm sorry allow
you to withdraw tax-free.
All of the growth and all thewithdrawals with a Roth IRA in
retirement are free of tax.
But the contributions whileyou're putting it in aren't
(08:09):
deducted, are not deducted fromyour income.
So essentially in this scenarioyou pay the tax now, you pay it
ahead of time, as opposed topaying it later with the
traditional.
So income limitations Roth IRAsthey do.
While they're powerful and canbe very helpful in retirement,
they do have some limits with interms of income.
(08:32):
It's possible to make too muchmoney and kind of be phased out
of Roth IRA contributions.
Those income limits get againrefreshed each year.
You're kind of seeing a themehere.
The IRS will give us newnumbers, new limitations, new
maximums.
So if your income limit's toohigh and you're contributing to
a Roth IRA, you could bepenalized if you don't kind of
(08:53):
fix that issue and there's waysto kind of correct it prior to
before you get penalized.
But it's one thing to kind ofkeep in mind.
Okay, for all qualified accounts.
One thing to be aware of ifyou're on the younger end of
Generation X, all retirementaccount withdrawals before age
(09:13):
59 and a half are subject to a10% fee.
So we wanna make sure that ifwe're drawing on these accounts,
especially if it's traditional,you're gonna pay taxes on it
anyway.
We wanna make sure that we'renot adding on an extra 10%
penalty if we're pulling it tooearly, if we're not 59 and a
half yet.
Okay, so something to keep inmind.
So what do retirement accountsactually hold in them?
(09:36):
Okay, just as a review, theygenerally have stocks, bonds,
money market accounts, mutualfunds or ETFs, exchange traded
funds.
Okay, these are all commonholdings that you're gonna find
in these retirement accounts.
Now, in an IRA or aself-directed account, you have
(09:57):
much more control over theinvestments within your account.
Right, in a 401k, on the flipside, it's an employer-sponsored
account, right?
Remember, these are tied to anemployer.
As you're accumulating theseaccounts, you're working with an
employer.
It's kind of deducted from apaycheck.
Right, you're contributing eachpaycheck.
These investments are usuallymanaged by an outside company,
(10:21):
so you have less control andeven though it's professionally
managed, it's often very, verygeneralized in terms of the
portfolio composition.
So, with these 401kemployer-sponsored funds or
plans, they often use targetdate funds.
So what that means is it's notnecessarily individualized for
(10:42):
your goals, your needs, okay.
The way a target date fundgenerally works is, let's say,
I'm looking at two differenttarget date funds.
One target date fund is 2048,okay, got a long time from now.
It's 2024 currently.
That's years down the road.
That 2048 target date fundmight be set up in a way that's
(11:07):
much more aggressive, meaningmore stocks and equities and
less bonds.
If I'm, conversely, looking ata target date fund for, let's
say, a few years out, let's say2028, it's much closer, shorter
time horizon it's gonna be a lotmore conservative, okay,
probably comprised of more bondsand much less stocks and
(11:28):
equities.
So what happens if you neveradjust your holdings as you get
closer to retirement?
You know a lot of peoplethey'll make contributions and
they're really good aboutcontributing to these retirement
accounts without question,especially if there's an
employer match right.
A lot of companies will offer amatch of up to 3% or 4%, and
(11:49):
that's great.
People are very excited.
Okay, I'll do the match, I'llmake sure that you know my
employer is matching me andthat's great and they don't even
think about it.
But when it comes time to adjust, as you get closer to
retirement, your investmentstrategy should change too.
So when you're just startingout again, as I mentioned, your
strategy is likely aggressive,right?
(12:10):
If my target date fund's 2046,I got a lot of time to make up
any potential losses that themarket might have.
The stock market mightexperience some dips or some
drops or some catastrophicevents that we've all heard of
2008 and kind of what happenedthere.
If I have a longer time horizon, I've got time to make some of
that up.
Well, it doesn't feel good whenit happens.
(12:31):
You know it's not the end ofthe world.
So if you've never touched, youknow your investment strategy
since you started and yournearing retirement, it's
possible you could be taken ontoo much risk as a result, and
you know you could stand to losea significant portion of your
portfolio if the market doeshave a downturn like that, with
(12:54):
little to no time to recoverfrom that downturn.
So that's kind of the thing wewant to be cognizant of.
So what options do people haveto optimize their retirement
account holdings when they'regetting ready to transition to
retirement?
Okay, first of all, if you havecontrol over your investments,
you know, consider rebalancingthem Maybe, make them more
(13:14):
stable, or look to get some moreincome focused assets, maybe
some dividend stocks, some bluechip dividend payers and these
are stocks that you know, foryears have consistently kicked
out dividends to theirshareholders or even something
like bonds I kind of mentionedthis before as a.
I'm going to use a target datefund example again.
(13:36):
As we're getting closer toretirement, if my target date is
, you know, a few years out,it's going to be comprised of a
lot more bonds that aregenerally seen as as safer and
less aggressive, less riskyinvestment.
Okay.
Or even the optional annuityOkay.
Sometimes it's worth lookinginto certain types of annuities.
(13:58):
Okay, not all annuities arecreated equal, but it may fit in
someone's portfolio and it maymeet someone's specific needs,
and there's definitely pros andcons to that as well as there is
with any investment, but thatmay be a way to kind of take
some of the risk off the tablein terms of your whole portfolio
composition.
(14:19):
So, if you have a 401k or anemployer sponsored account,
check to see if your holdingsare in a target date fund and
make sure it's in a target datefund that accurately reflects
your got your timeline right,your goals.
Make sure it's aligned withwhen you plan to retire.
If you're looking for a largerchange, you do have some options
(14:39):
as well.
Okay, you can consider maybe anaccount rollover to a different
type of account, one that youcan maybe manage a little bit
better and have more hands on,more control, whether that's on
your own in an IRA, anindividual IRA, or you can work
or partner with a financialadvisor who can assist you but
(15:00):
still has some, some morecontrol over those accounts, as
opposed to leaving it with a401k employer sponsored, you
know, management companieslooking over those investments
for you.
It's also worth looking into,as I said, these rollovers If
you're still working and you'reover that age of 59 and a half,
that magic age, but you do wantsome more control.
(15:22):
You can look and see.
You know, not all plans offer arollover, but it's worth asking
if you want to kind of takesome of that 401k accumulation
and have some some more controlover it, okay.
So it's worth looking into toseeing if your plan even allows
for that, okay.
(15:42):
So how do you know that yourinvestments are properly aligned
with your goals?
Well, the first thing is risktolerance.
Everybody says the term risktolerance One of the things that
we like to do, and dofrequently too, both with new
clients or prospects, but alsoour current clients.
You know it's important to do arisk tolerance assessment, and
(16:05):
there's a couple ways to do that.
One simple way is, you know, gothrough a series of questions
and, depending on the answerthat you give to each of these
questions, you can kind offigure out, you know, what your
risk is.
So some of the things you mightask yourself are you know how
many years until I plan to startretire or using these
(16:26):
retirement accounts as income?
How many years until I startwithdrawing?
Is it less than a year, a fewyears?
Is it 10 or more?
So the timeframe really matters.
When will I need to starttaking this money out?
And that's going to be key tounderstanding what your risk
tolerance actually is.
Okay, something else to ask isyou know what's more important
(16:47):
the protecting my portfolio or,you know, swinging for higher
returns?
Everybody loves to get highreturns, but with that
inherently comes more risk.
So you got to ask yourself areyou willing to take the
consequences of a loss in orderto maximize some of those
returns that we're seeking?
Are you concerned about lossesor, you know, while trying to
(17:09):
maximize returns, or is it justall about avoiding all losses?
Maybe you don't want to lose adime?
The answer to these questionsis paramount, really, to
understanding you know not onlywhat your risk tolerance is, but
also how you should be investedin terms of your portfolio.
Another question what are yourannual income expectations prior
to retirement?
Right before you retire, isyour income, you know, expected
(17:33):
to stay the same, increase orgrow a little bit, decrease,
decrease a lot?
So understanding your incomelevel two is another big piece
of finding out.
You know how much you canafford to risk while aiming to
achieve some of those returnsthat you're hoping for.
It also helps you betterunderstand you know how much
income you might expect or mightneed to replace.
(17:56):
So retirement for Generation Xdefinitely looks a little bit
different than it did forprevious generations.
You know baby boomers.
When you think about it, theyhad relatively more access to
pensions than your generationdoes.
If you find yourself in thisgroup of pre-retirees in
Generation X, you know pensionsare like gold these days and you
(18:17):
know less and less companiesare offering them.
So it's going to look a littlebit different.
But these are all questions andthings that a financial advisor
can assist you with.
Okay, and things like this, itcan be so powerful to have the
help of an advisor to kind ofnavigate some of these unique
financial environments.
I feel that every few years isa new unique financial
(18:40):
environment we've never seenbefore and it's always changing
and there's so many differenthoops that come with kind of
stepping away from the workforce.
But just know that you knowthere's a lot of fiduciaries out
there that you know lovehelping clients with this and
it's what they do every day.
So you know we're excited towork with our current clients
and new clients as well, kind ofnavigate these environments as
(19:03):
they get ready to retire.
So, whether you're thinkingabout how to reduce your costs
or how to support your newretirement lifestyle, you'd be
surprised you probably have moreoptions than you think in terms
of how to plan, how to prep,how to adjust my current
retirement accounts.
So again, we're just barelyscratching the surface with
today's podcast, but I hope thatit at least gives our
(19:24):
Generation X listeners some foodfor thought and some things to
certainly be aware of as you'regetting ready.
You're heading towards thatgoal of retirement, and really
the goal of any fiduciary is tohelp you take advantage of this
opportunity to achieve whatyou've worked your entire
working life for and to give youthe peace of mind that you
don't have to do it by yourself,you don't have to make all
(19:47):
these huge decisions on your own.
So if anything you heardresonated with you today, if you
have comments, questions or youwant to dive deeper into your
particular situation, alwaysfeel free to shoot us an email.
Again, you can reach us ataskatbolmanwealthcom.
Askatbolmanwealthcom.
(20:10):
I want to thank you all againfor listening, whether you're
coming from Apple Podcast,spotify or any other podcast
platform.
We do appreciate you taking thetime to join us.
We really appreciate yourreviews, your feedback and your
time.
So again, thank you so much.
Please join us next time onyour Financial Compass.
This has been your host, marcosLemus, with the Wollman Wealth
(20:33):
Group.
See you next time, take care.
Speaker 1 (20:42):
The following content is for information purposes
only.
It is not intended to provideany tax or legal advice or
provide the basis for anyfinancial decisions, nor is it
intended to be a projection ofcurrent or future performance or
an indication of future results.
Purchases are subject tosuitability.
This requires a review of aninvestor's objective, risk
tolerance and time horizons.
Investing always involves riskand possible loss of capital.
Opinions expressed are solelythose of Bollman Wealth Group
(21:03):
and our editorial staff.
The information contained inthis material has been derived
from sources believed to bereliable, but is not guaranteed
accuracy and completeness anddoes not report to be a complete
analysis of materials discussed.
Any statements or opinionsexpressed should in no way be
construed or interpreted assolicitation to sell or offer to
sell advisory services to anyresidents of any state other
than the states were otherwiselegally permitted.
Advisory services are offeredthrough Chris Bollman Inc.
Dba Bollman Wealth Group.
(21:23):
Registration as an investmentadvisor does not imply a certain
level of skill or training.
Insurance products and servicesare offered and sold through
Chris Bollman Inc.
Dba BWG Insurance Agency.
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