Join Al Smith as he unravels the complexities of retirement planning in preparation for the new year. This episode provides indispensable advice on managing your 401k and Social Security benefits while taking into account the looming deadlines for RMDs and Roth conversions. We also examine the surprising trends and patterns of the stock market as it responds to the recent elections. Whether you’re nearing retirement or just starting to lay the groundwork for financial stability, this conversation promises valuable insights that could help secure your goals.
Welcome to Retirement Unpacked with Al Smith, owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now, here’s your host, Al Smith.
Al Smith (Host) :
Welcome to another program of Retirement Unpacked. I want to thank you for tuning in. I’m sure there’s other things you could be doing, but here you are, and I hope you’ll enjoy some of the information that I have. First thing, I would like to entreat anyone out there who is listening, if you are moving toward retirement, if you are really getting close to that transition where you’re wondering if If when’s the best time I should file for my Social Security benefits, or you’re possibly thinking about what should I do with that old 401k where I used to work, even if you’re some years from retirement now, give my office a call because these are some questions that we can together find answers to so that your retirement will be all that you hope that it can be. My number is 303-744-1128. This time of year is the time of year when there’s some things that really need to be looked at and things that need to be done. I sit back and think what did happen to this year because based on the date that it is now, we are way less than 60 days from January 1st. We’re a week off of Thanksgiving, which is only three, four weeks off of Christmas and the new year. And there are some financial things that need to be looked at for the year end. And it’s quite important because some of them, if they’re not done by the year end, then either they can’t be done or they may involve penalties. not the least of which is required minimum distributions, RMDs. And RMDs are required by age 73 for most people. For considerably younger people, it’s not till age 75. And the custodians of RMDs and by custodians, I mean the insurance company, the Fidelity or the Charles Schwab or the bank, if your IRA is in a bank, they normally always can tell you what your RMD will be. And if you got in touch with that financial custodian and you just say, well, please send me my RMD, they will compute it. To give you a ballpark idea, at age 73, the required minimum distribution is very near 4%. So if someone has $200,000 in their IRA and they’re turning 73, they need to take out a ballpark $8,000. Now, you can clearly take out more than that if you want to, but the minimum that you must take out is the required minimum distribution. And if you don’t do that, there used to be severe penalties, and the SECURE Act and the SECURE Act 2.0, they made those penalties much more modest. There are still penalties if someone does not take their RMD out in the year they are supposed to, but the penalties have been eased considerably. Also, I believe there are some provisions that if you contact the IRS, if you forgot to take out your RMD, that the penalties are much milder. It used to be years ago that if you failed to take your RMD, the penalty amount was 50%. That’s much more brutal than for people who took money out of their IRA before age 59 1⁄2. The penalty for that is only 10%, and that has not changed. But the point being, by December 31st, you must take out your RMD if you are 73 years old or older. And it doesn’t affect the people at age 75, because those are people who are much younger, and they’re a long way from age 75. But right now, it’s age 73, and again, that’s a ballpark of 4%. And I would encourage anyone listening, if you have not yet done that, don’t wait until the week of Christmas, because… Financial companies, insurance companies, management companies, Fidelity, Charles Schwab, Edward Jones, all of these companies get quite busy at year end for this very reason. Because I think it’s safe to assume there are millions of people who are age 73 or older for whom this provision applies. And so don’t wait to be on hold for that. If you’re thinking about it, if you’ve not yet done it, then consider doing it right now. And if you have any questions about that, even if you’re not a client of mine or anything, call my office, and I’ll certainly assist you in getting your RMD for this calendar year. The other big thing that needs to be done by December 31st each year, the other financial thing is Roth conversions. converting part of a traditional IRA to Roth, or the whole IRA to Roth, if you choose to do that, needs to be done by December 31st of the year that you want to do that. It’s not like IRA or Roth contributions. Those can be postponed until you file your tax returns or until April 15th, but Roth conversions need to be done by December 31st. This is something I often have conversations with my clients, especially if my clients are maybe in their late 50s or 60s or, you know, even up to age in their 70s, because if someone and their spouse possibly have very healthy Social Security benefits, but they also have large IRA balances, then those required minimum distributions that you have to take, those can push your Social Security into a higher tax bracket. If you have Social Security and very little additional income, then none of your Social Security is taxable. On the other hand, if you have Social Security plus a significant amount of income that’s coming from an IRA or a pension or something, then as much as 85% of your Social Security will be taxed. It’ll just be taxed. included with the rest of your income. So the planning that I do with people who choose to work with me about minimizing their taxes in retirement has a great deal to do with the planning of Roth conversions. Now, for most people, we don’t recommend that they convert a large amount, like $300,000, $400,000. We wouldn’t recommend that that kind of an amount be converted all at once. But if someone, for example, is age 60, that can be spread over 13 years so that by the time someone is 73, they may have a very large Roth IRA account and a small traditional IRA account, making their RMDs much smaller. so that in retirement when their taxes are computed, if this individual or couple has only Social Security income and a small amount in a required minimum distribution and a very healthy distribution from a Roth or two Roth IRAs, then they will possibly be in a zero tax bracket. And I have seen numbers where people can be living on $100,000 a year that’s tax-free if most of that income is coming from Social Security and a Roth IRA and these are things that don’t happen by accident they require some planning and if this describes planning that you would like to do but have not yet done call my office at 303-744-1128 because this is the time frame to think about converting your traditional IRA to Roth or at the very least part of it so that if you have a considerable window between now and age 73, you can make more of your income tax-free. And I really like the idea of tax-free income because then you decide when you want to take those distributions. You don’t have to follow any IRS guidelines. And if you leave an IRA to your beneficiaries, if it’s a Roth, then they don’t have to pay any tax on that, which is… A big plus, to say the least. Now, we are 15 days out from the big election, and people have been asking me, there’s been a lot of conversation, well, what’s the market going to do? What’s that going to look like after the election and so forth? And although this was a landmark election, it was one of the greatest political comebacks in a very long time. And this isn’t a Republican or Democrat thing. These are just the facts. It was that kind of an election. But I think what’s more important is that we sort of look at, well, what usually happens after any election? Well… Most of us aren’t really concerned with what happens immediately after an election or something like that. But I did a little checking. What I found was interesting, going all the way back, let’s say, to 1972, Nixon versus McGovern elections. the market was up 4.4%. Reagan versus Carter, the market was up 6.6%. Obama versus McCain, the market took a nosedive, and that was in 2008. The Reagan-Carter was in 1980. 2008, Obama versus McCain, the market went down 8.4%. And I’m not assigning any reasons for this. This is just describing what happened to the market. In 2016, after Trump beat Hillary Clinton, the market was up 5.6%. In 2020, when Biden beat Trump, the market was up 10.9%. And this upward trend is largely driven by investor confidence in the reduced uncertainty that follows an election. And essentially markets tend to respond well when there’s clear guidance on future policies fostering a sense of stability because the things that really disturb the market most are uncertainty. If, for example, the Fed raises interest rates or lower interest rates or something like that, the market has kind of a clear direction. Well, if they’re lowering interest rates, they’re trying to stimulate the economy, and if they’re raising interest rates… They’re trying to stave off inflation so markets can more easily react to these kinds of events than when there’s uncertainty. And before an election, that’s when the uncertainty is there, and that is often the cause of market volatility. And in some of my looking at what the stock market has done prior to elections, often in September and October before elections, I’m talking major four-year elections for president. Often in that time frame, September and October before presidential election, there is a certain amount of market volatility. And there’s more information I have on the markets following an election after the break.
Al Smith (Host) :
Al Smith of Golden Eagle Financial believes that retirement planning must be relational, not transactional. You need a retirement advisor who understands what you want out of retirement, and Al Smith will help you achieve the retirement of your dreams. In order for Al to do that, he has to get to know you. There are no systematic ways to ensure your dreams come true in retirement. That’s why he draws on decades of experience to set you on your path to success. Sure, he’ll give you details and charts with analysis and all of the necessary things. But he also knows that you’re more than a financial spreadsheet. You’re a person with hopes and dreams who has a picture of what you want your retirement to look like. When you’re ready to get started creating a strategy that puts you on the right path towards those hopes and dreams… You need to contact Al Smith of Golden Eagle Financial for a free consultation. Just go to klzradio.com and click on advertisers to get in touch. Investment advisory services offered through Brookstone Capital Management LLC, a registered investment advisor. BCM and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through BCM, but offered and sold through individually licensed and appointed agents.
Al Smith (Host) :
Welcome back to the second half of Retirement Unpacked. We talked earlier about some of the important decisions that need to be made before the end of the following presidential elections but those two big things are Roth conversions need to be done by December 31st and also we can most people can look at their incomes from their pay stubs in December and figure out what kind of tax bracket they will be in because when you do a Roth conversion you do pay tax on that and The other thing to be concerned about is required minimum distributions. Those who are listening who are 73 years or older that have IRAs have required minimum distributions. Now, the one thing I meant to touch on earlier in the show is if you have required minimum distributions, and even if you’re only 70 and a half, You can move money directly from your IRA to a charitable organization, a 501C. That could be the Red Cross. It could be the church you attend regularly. It could be the United Way. any number of nonprofits. But if you move money directly from your IRA to the nonprofit, you do not have to include that in your taxes. And this has nothing to do with your regular tax filing. In other words, you don’t have to itemize deductions in order for you to not have to pay tax on this. Now, what you can’t do, you can’t move that money from your IRA directly to your checking account, and then write a check to St. Mary’s Catholic Church and write that off. It has to go directly from your IRA to the church or the Red Cross or the Dumb Friends League or whatever nonprofit you want to help. And you’re permitted to do that right up to the full amount of your required minimum income. distribution, and there is a form you need to fill out. And again, it has to come directly from your IRA to the charitable institution. Now, we were talking about what happens to the markets after elections, and we also talked about the thing that frightens markets greatly is uncertainty. And prior to elections, markets are uncertain. They’re volatile and so forth. However, once things are smoothed out, so to speak, for example, asking the question, is the stock market typically bullish? And historical data shows us that it is. The stock market tends to rise after elections, particularly when there is political continuity or when investors feel confident in the stability of future policies. And this isn’t a Republican slash Democrat program. These are just statistics about markets after elections, whether there’s a Republican elected or a Democrat. It doesn’t matter. Investors like stability. And, for example, technology, financials, health care, they often perform extremely well after elections. depending on the policy of the new administration, of course. For example, technology stocks saw significant gains following the 2016 election. Now, I’m not a prognosticator, but I do often follow Yogi Berra’s saying about predictions. He said predictions are really hard, especially if they’re about the future. But if President Trump decides to do a lot of drilling and if our cost at the pump for gasoline goes down, I don’t think it’s rocket science to say that maybe investing in oil and gas isn’t the very best because when the cost of oil and gas go down, usually oil the value of stocks in Exxon and companies like that go down also. But on the positive side, it would sure be nice to see gas at $2 a gallon. And if that’s what happens going forward, I think investing in oil and gas may not be the best choice. But what are some of the things that we need to consider? Well, there’s something called a volatility index, and that index is often present during October of the year of elections. Four-year elections, of course. That’s what I’m talking about. And there need to be sort of three trends to happen in order for markets to grow following elections. One of those trends is for there to be a growing economy. Another trend needs to be for the Federal Reserve to ease the money supply, which means lowering interest rates. And following all the interest rate increases, which were done a few years ago in order to fight inflation, the Fed has lowered interest rates most recently. On November 7th, they lowered interest rates a half of a percentage point in order to stimulate the economy. And I think that helped us avoid a recession, which would have certainly been an ugly way to go into inflation. the election season. And the third one is growing corporate earnings. So in other words, looking at the stock market, stock gurus and so forth, always look at, you know, quarterly earnings of various companies. If they are strong, if the Fed eases interest rates, and if there’s a growing economy, then it’s very likely that the stock market will continue to grow. And thinking of that, let’s take a look at where some of the markets are right now and where they have been. The S&P, for example, which, of course, is 500 S&P 500, 500 of the Biggest companies in the United States, some are international, and that represents about 80% of the economy. In the last month, the S&P is up 2%. In the last three months, it’s up 5%. Ten months, it’s up 10.4%. And year to date, the S&P is up 21.8%. So that’s in about 10 months. And over one year, the S&P is up 39, I’m sorry, 35.9%. Over three years, it’s up 38.3%. So I think it’s really significant that 80% of the economy is growing substantially. Another attractive one is the Russell growth. It’s not the Russell 2000, but it’s the Russell growth. And that one has done extremely well over the past one year, up 42%. And year to date, it’s up 24%. Over three years, it’s up 39%. And last, we’ll look at the NASDAQ. The NASDAQ for the last 12 months, one year, is up 37%. Year-to-date, it’s up almost 20%. And over three years, it’s up about 38%. And we can dive into more of these numbers. Interestingly, 30-year fixed mortgages in 2021, 30-year mortgages were 3.18%. In September of 2023, they were up to 7.7%. This is after the Fed raised interest rates. Right now, the end of September, they’re down a little bit from that, but they’re still quite high, making it difficult for young people to… It’s about 6.69 right now. I won’t bore you with more and more statistics, but I think it’s interesting to look at the market, how it’s done well and how the Fed did raise interest rates to help fight inflation. And it brought it under control to the large degree. But the adverse effect, of course, is automobile loans as well as home mortgages became brutal, to say the very least. But I think the most important thing is that you save enough money and you invest enough money so that your retirement can be not based on what you can afford to do, but what you would like to do. And it makes it much easier to find your purpose in retirement if there are no monetary worries. God bless you and thank you for listening. Let’s pray for our leaders of our country and let’s continue to pray for the folks. in Israel. And hopefully you’ll have a great holiday season, which isn’t too early to be talking about that. Hopefully you’ll also be here next week. God bless you. Talk to you next Wednesday.
Announcer (Host) :
But are offered and sold through individually licensed and appointed agents.
