Getting To Your Retirement Exit

Ep 24 -3 Retirement Moves You Should Make Headed to Your Next Post Covid-19 Job

January 13, 2021 Jenny Jones Season 3 Episode 24
Getting To Your Retirement Exit
Ep 24 -3 Retirement Moves You Should Make Headed to Your Next Post Covid-19 Job
Getting To Your Retirement Exit
Ep 24 -3 Retirement Moves You Should Make Headed to Your Next Post Covid-19 Job
Jan 13, 2021 Season 3 Episode 24
Jenny Jones

Jenny Jones aka The Financial Evangelist (TM) thinks just before you finish signing your new offer letter that you should take these 3 Retirement moves to heart.   He even throws in a bonus point. 

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Show Notes Transcript

Jenny Jones aka The Financial Evangelist (TM) thinks just before you finish signing your new offer letter that you should take these 3 Retirement moves to heart.   He even throws in a bonus point. 

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Hey, this is getting to your retirement exit with Jenny Jones, wanted to talk to you about a couple of things. Now that the vaccines are starting to roll out and some people are getting a little lax, some are not, and that's OK. But there are going to start hiring again soon. And you may be able to start a new position or a new job somewhere. And you may just have to come in and and sign for your laptop or something like that and then be able to work from home.


I can probably see that scenario working more than just coming into what it traditionally used to be. Or you may have to come in and be, you know, put into a small room where you do onboarding and training or maybe less staff may have to come in and get your temperature checked. Any one of those things can happen. But I know we as we move into a new presidential campaign, there are going to be a lot of changes in the economy.


And what I wanted to do was kind of give you a few money moves you should be making when you're starting a new job and don't have a lot of money moves. But I do have at least three that I that I deem is very important when you do look at starting a new position. So I'm going to get right into it. One of the first things you should do is most every company out there has some type of four one K plan, whether it be a a Roth for one K or a traditional four one K.


Most companies, I would think the majority of your newer companies will give you some type of option when you when you do get your for one because of the four one K is is defined contribution. So you defined a contribution that goes into the plan. So if they say, hey, we're not telling you what to put into it, but we'll match it X percent, then I always think you need to take advantage of whatever whatever it is they maxed out to you.


I learned that some 20 years ago. Always take the free money if they're going to Max. If they're going to give you two percent, three percent, you always want to try to do that. But that's not one of the points I wanted to talk about. But that's just something I threw in as a bonus. Any time a company matches, you always take the free money by any means necessary, because that's that's just free money. You're not going to get that anywhere else.


So if I have the opportunity to compound someone else's money, I want to take advantage of that. So that's a bonus as I kind of kind of get out and tell you what's going to take place and some of the other things you should do. One of the things that I would do so this is, number one, I gave you the bonus of taking the free money, right, for four one K they're going to Max or they're going to do a percentage.


You always shake to the free money. I thought most people would know that, but some don't know that. So you always take the money.


But let me give you the first point I wanted to make to you is the first point I want to make to you is whether you should do a rollover or a transfer of your own four one K into your retirement plan at the new company. Now, first of all, there's a distinct difference in the two and B and it's really beyond the scope of this. This the short series I wanted to share with you on my retirement exit is a transfer is a like account.


So one going into another, it's a like account. So I can transfer this to that and to like account. They're all they match, they look the same. A rollover is where you take your overall one K and you roll it over into an IRA. Right. So. So what's the difference. Well the four one K it's the IRS code for one paragraph K and that particular company decides to move it out. I mean when you decide to leave that company, you can elect to roll it over into a traditional IRA.


Now on that topic, I recommend most of my clients to not roll it into the new company. And let me tell you the reason why there's there's two thoughts in this. Right. And I don't want to say that I'm that my way is the best. I always try to look and see what works best for the client. In that circumstance, but what I have found and most often did not do this for 20 years or so, I like for my clients to roll their four one KS into a self directed IRA, so away from the company if they have the discipline, some people disciplined, some have discipline.


But I would like for you to move into a self directed IRA. So self directed means now you're in charge. It's your baby, you it's not under the company custodianship and subject to the rules of their four one K custodian. Hey, you can't withdraw here. You can't do that. What a self directed IRA is going to allow you to opportunity to do a self directed IRAs you directed itself directed. And you can normally set those up at Waterhouse's bank houses, brokerage houses and most credit union.


You really can set your own IRA up and we call that a self directed IRA. The reason why I like a self directed IRA instead of rolling over transferring to a new employer is simple. You have control, right? If something does happen right when you get to your new job and you know, as soon as you start working now, you've got to commute. It's a lot further. And then your car breaks down and you've already exhausted all the money you had in your savings just by waiting to get another job.


Well, your car breaks down this man. I really need to get a job. If you've rolled it over in to the new company plan, you can't get that money out. I mean, I think there's we call those qualifying, I don't know, off the top of my head, all of them. But I know it has to be a qualifying event for you to get the money out. I think a first time home, the adoption of a child or something like that.


First time homebuyer, I can't remember. I think there's at least three, but I can't remember right off the top of my head. But I know it has to be a qualifying event for you to take the money out. And in that case, you can only borrow against it. Right. And then when you first get there, you may not even qualify for it just yet. Right. And so there are some rules and parameters around. That's why I like my clients to do as self directed IRA.


So now I can direct my own IRA and I can account for my own self. The only thing I still have to do is, is I still have to pay Uncle Sam.


I still have to pay taxes on it. OK, so one rule of thought, and I think I covered this in some of my early on podcast is you're going to always be in partnership with Uncle Sam any time you do an IRA for one K, you're always in partnership with Uncle Sam. They want to change the tax laws tomorrow and your distribution. You're kind of stuck. And I and I talk about that in a couple of my other early on podcast.


But but still, you have if you have a self directed IRA, you could you don't have to check with the company. You can just call up your brokerage house or your your credit union or wherever you have it and say, hey, I'd like to make a distribution, got to check in with anybody, because what they're going to have to do is they're going to say, OK, how would you like that? Right. How would you like the distribution?


You want to pretax, you want to just pay the taxes on your own? Right. And I think they have to, by law, hold back at least 10 percent. I'm almost certain of that. Most states do not. We're going to hold back at least 10 percent. Right. But you're going to have to pay some taxes on it. And a rule of thumb was when I tell my clients, what should I do that it's as well you want to estimate about 50 percent, especially if you're if you're not fifty nine and a half, you want to go as far as forty five to forty seven percent of your overall total.


So if you're taking out one hundred, if you're taking out a hundred dollars, 47 percent of that is going to go to the IRS right off the bat. And so you want to take out one hundred and forty seven. Right. To be able to cover the taxes if you actually need one hundred just to give you some simple math on that. Right. And so that's kind of how that would work. But here's the thing. You would have access to the cash right away.


All the things that have to do is sell out of the positions and allow your opportunity to get it. But you need to have a new car, right? So you need to have a new car. And that's what you need to do. So once you get if you needed had a car, you need to have it by a certain time frame, then that's what you need to do. And you don't have to wait. You don't have to check in with anybody.


You don't have to do any of those types of things. So that's one of the advantages and that's what I recommend. So this is these are some of the moves, you know, even going to a new job. That was one of the. Another thing is never leave your old for one K at an employer, never. That's the rule. You never leave your old phone card employer. Some of them won't allow you. They'll say, hey, they'll keep calling you and saying, hey, you need to get out of our plan.


Right. Because they don't want anything to happen to your money and you're no longer in that plan because that leaves them a liability. Right. And some of them, if you go to some companies and they have company stock in the plan, then a lot and you're not allowed to participate in that anymore. So you can't your company can't maybe use to get special pricing on the shares of the company and have them in your fall when you're no longer allowed to do that.


Right. So some of your larger Fortune 500 companies, your FedEx UPS and things of that nature, they may offer you company stock. They want you to have skin in the game. And so they may say, hey, and I don't know this for fact. I'm just give you an example, a good example to you to understand. They may say, hey, you have to cash out. Right. You have to get out of the the individual equity positions.


You have to get out of those positions because you no longer work for a company.


You know, you now work for the competitor. No, I'm just kidding. But that can happen. Right. And so some of them will soon as you separate from service or separate from their organization, they may say, hey, they may send you a nice little letter. Hey, you got 30 days to move your money, right? That happens, right? Sometimes you get it. Sometimes you can just leave and it just stays there. Right.


And then one of the things happen is when you move it to a self directed IRA or you transfer it to your new company, they liquidate you. Right. Because maybe you only have some proprietary funds that was specially put together by the company custodian and put those together and you no longer can have those funds. So they turn it into cash. Now, it's not that they turn it into cash so that you can get it. They just turn it into cash and that money is still qualified, meaning that has not been taxed as of yet.


So they're still tracking that money, but it can't come to you. So that's another bonus. I'll throw it in there with you as never take a check to yourself from from any four one K distribution or anything like that. Kind of threw that in there for free, but never take a check written out to your name. It should be for the benefit of the new custodian, for the benefit of, I don't know, Bank of America or X, Y, Z, credit, credit, x, y, z, bank or bank and trust or what have you.


And you never need to see it. Don't ever do that is the number one rule. And I always tell people, if you don't know anything else about an IRA or for one K or distribution, never take a check to yourself. Always transfer. Make it go directly, hey, here's the address and all that, send it to those guys. Don't send it to me, right, because they sent it to you. It can't be made out to your name because now the IRS is tracking it.


Right. And the IRS is going to look everywhere it goes, are going to look for that money and they're just going to track that money wherever it goes. Because why? Because you're in partnership with the government and they want to make sure that they get their piece. OK, so that's kind of the rules on that. So we already talked about it. So I gave you guys a couple of things already, right? I gave you guys say, hey, you know, it's it's I don't recommend it.


You can do it.


I just don't recommend it because I think you lose your flexibility when you move to a new company. I recommend you put that money into a self directed IRA, gives you more flexibility. And to top that off, you may not like the funds that you're going into. Right. And you may have an opportunity to pick whatever you want to pick of the litter. Hey, whatever out there, what's good? What's the best fun out there? I want to be able to get that.


You'll be able to do that in your self directed IRA, because what's going to happen is when you get into the new company, they may their company may be smaller, maybe larger, but the company may say, hey, listen, we only have ten funds you could choose from. And we we try to make it. We try to make it, you know, add some diversification so you can have aggressive fund and then you'll get one international fund and then maybe four or five domestic funds.


Right. Or maybe two international funds. Maybe they'll throw a real estate fund in their real estate investment trust fund in there or something like that.


But say they only give you 10, whereas if you had a self directed IRA, you may get the pick of about you might get to pick a litter of two hundred different funds. Right.


And so I like that flexibility. That's why I don't recommend it. You can. But if someone were to ask me and I was pulled on record, I'd be like, hey, it depends on what fits that client. But I'm telling you what I like. I like my clients to have flexibility. They run into a bond, they run into a crunch. If they if your car breaks down, they can no longer earn money to be able to in it.


This is if they didn't have a savings. And I'm only this is extreme measures and I'm only putting that out there. But if they had no way to get to a job, to earn their money, to have their money come out of their check after four one K, then yeah, you need to buy a car and then put it back or something like that, then that's fine. That's where I would make that recommendation. And then the second thing I talked about was don't leave your money at your own for one K.


I mean you don't leave your whole phone K at your old job. And I gave you some reasons for that. Right, is because the one they may force you to move your money. Right. They may force you to move it. They may give you 30 days to move it. I've seen instances where they give you time to move it. And if you don't move it, then they'll send a check. Right. So I've seen that those extremes, they don't do those anymore, but they will they will get on you about trying to move the money, trying to put it somewhere.


And that's old school companies say, hey, we no longer want you in our four one K plan. The custodian has rules against that. Another thing that could possibly happen and I'll throw this in there and I just thought of this when I was putting this together and I meant to tell you guys this is they may just move all your funds to cash. They may move all your funds to cash because, you know, and they have a clause with their custodian, the four one custodian, they may say, hey, if no one's had someone separates from the company, we give them thirty days.


They don't move thirty days.


We move all their assets to cash. Right. That's a little extreme, but it could be possible. Right. So if they moved you all to cash and you did not know that then now and I've seen this happen and say you didn't move the money for, I don't know, three months, six months. Your money has been sitting in cash for three to six months. You have lost a ton of money because you're not your money's not really in the market.


And some of them won't even allow it to be in a money market. Right. A money market is going to give me a little bit. It's going to give me a little jolt. Right. But cash gives me nothing. Right?


Especially in this day and age. Interest rates are super low. You can't get anything with the interest rates around here. So what if they moved you? And what I've seen with some of my clients, when I finally get my hands on our paperwork, I said, what happened here? I was like, oh, I neglected the paperwork. It came in. I read it once and I put it on the coffee table. Right. Or I put it on the kitchen table or I put it in the stack with the rest of my bills.


And I had bigger fish to fry. I was out of work. I didn't think about it. I was depressed all the while. They've lost money at the same time. I mean, they had an opportunity to go maybe to their regular credit union or maybe where they're already currently banking and saying, hey, can I just move my forward? Can I move my old forward, get here in a self directed IRA so my money just doesn't sit that I'm able to continue to make money?


Those are some of the things that I would do. I would do some of those things. I would not let my money sit. I think I might do a series on that. I may do that on my my financial evangelist podcast where I have a lot more flexibility. I talk beyond retirement. This when I talk retirement. The other one I talk all different types of things, debt management, budgeting, I talk real estate. I talk a lot of different areas on the Financial Ventures podcast.


But this one is really geared towards retirement because I want people to get to their retirement exit and I don't want them to make mistakes on their journey and on their way. And so one of the last things I want to share with you is.


Looking at taking a look at the funds that they have available for you, because I'm going to throw this in here and I've reason why I'm bringing it up is because I've seen it happen more often than not. So you take a look to move to a new company. You look in their eyes. Let me see what kind of mutual funds they have or I have my clients bringing over. Let me see it and let me take a look and see what they have.


Right. Because your company is going to match. That's fine. Those are the things you want to do. What I found very challenging for people who don't hire professional. Right. These are mistakes that they make and everybody says that they can do it on their own.


It's funny, if I meet a husband and wife, the husband says I do all the finances right. And I'm like, yeah, OK. Right. So do you know what this is? Well, not really. But I looked it up on the Internet. I'm like, fine. And I'm not just I'm not disrespecting you. I'm not saying I'm not saying that no one should be able to look at their. I'm not saying that no one should be able to have the opportunity to look at their own funds.


That's not what I'm saying.


What I'm saying is I've seen mistakes made where people don't actually know what types of funds are available. And so what they'll do is if they actually get on the phone with the company that's doing that, you've got to think most of the people on the phone. A lot of them are not licensed, so they're not going to give them they're not going to give you any advice that you're going to get yourself in trouble with with the company. They don't extend that.


Now, you probably can depends on what company is. They may have a professional on the other line, but what I've seen more people do more often than not, and I'm going to drop this real serious nugget on you right now, is they going what we call these target funds. Right. And the target and I'll call it a target funds, because most of our call target funds and this is by no means a bash against target funds. I'm just letting you know me personally how I feel about you going into Target Fund.


So our target fund is designed for you to say, hey, I'm going to retire in 20 years.


Right. And so the target fund is already prepackaged. Right. And so they have a target fund is to hey, this is a 10 year this is a five year target fund. If you're going to retire in five years, this is the fund you need to be in and you're going to retire in 10 years is the fund you need to be in. And if you're going to retire in 20 years, this is the fund you need to be in.


So when you put the years on it, that's your target. Say I'm going to retire in five years. That's your target. That's a five year target fund. That's a 10 year target fund, and that's a 20 year target fund. Let me tell you, my personal challenges with the target funds is when you lift up the hood of the engine. And I always do this with all of my mutual funds for my clients. I look at what's in there, right.


Those funds, majority of them. And I'm not going to call any funds out by name. I'm not going to bash any funds. I'm telling you, they're designed to make sure that your money is there when you need it. In the 10 year target or the five year target or the 15 year target, your money is going to be there. So it may be constructed as such that it is to be conservative in nature and not allow you an opportunity to participate in a robust market.


Right. If the market's going up and the market let's say the market's up, I don't know, 15 percent. Let's just say I'm just give you a hypothetical at how could work. Well, the funds and what they have in here, the underlying funds, they may only allow you to get, I don't know, maybe nine percent of that that run up. Right. Because they're so conservative in nature. Right. And it's beyond the scope of this podcast.


But I need you to know that I'm not a big fan of target funds for this particular reason. They don't know each individual client. I have to tell you, for my fiduciary responsibilities, I'm going to check. Some clients may say, hey, I want to talk a fund. That's all I want and then I'm OK with that. I have to bet I have to serve them in their best interest. I'm just telling you, I don't think you're going to benefit from that particular move because there's funds out here that you could do just as well and will serve you just as well and will give you an opportunity to participate in a market.


Then a robust market market's up fifteen percent.


Hey, they'd give you least twelve, thirteen.


You don't want to be where the market's up. Fifteen percent in the most. You're getting a seven. Right. And target funds are designed to make sure your money is there. That's what they pride themselves on. Hey, this person's going to retire in ten years.


We'll make this adjustment. But we want to make sure that they have their money. Is their at least their principal. Right? At least the initial what they put in their cost basis is going to be their right. If you put in fifty thousand, you put in one hundred thousand, you put in two hundred fifty thousand. They want to make sure that when you go to ring the bell, to get your watch, to get your golden pin, they want to make sure if you put in a quarter million or one, at least make sure you got a quarter million there.


Well, and that's kind of how target funds are put together. They're not designed for you to get to take advantage. A little bit of a robust market. Will markets change in ten years? Twenty years, yeah. Will they become robust? Will a lot of things happen? Yeah. You get an opportunity to participate in that. So I wanted to give that to you. So those are the three things we had to be careful of the rollover or transfer.


You want to possibly have your own self directed IRA, don't leave money at your old job because you don't know what it's doing right. And they may not allow you to participate in the funds you used to be in. I think I just did someone I just got someone's statement the other day and sure enough, it was sitting in cash. Why? Because they didn't want you to participate in their funds anymore. Because it costs them to have. If they have, I don't know.


Let's say they have two hundred fifty employees. Well, each employee on there may cost him a certain amount to be on the plan maybe. And because you're no longer on the plan, they may remove you from their their overall custodial platform and may just move you into cash. I don't know. I've seen a lot of weird things. Right, but that could happen. Right. And so you don't want to leave it there because you don't know what they're doing to your money.


You want to keep your eye on it. And like I said, at the minimum at the minimum, I would go to my at the minimum, I would go to my local bank or credit union. I don't even recommend that. But because a lot of those organizations are in business, because they sell their own proprietary funds. Right. You really think a bank and our credit union is is is going to give you the pick of the litter?


No, it's highly unlikely they're going to push their stuff. Right, because if they're pushing their own mutual funds, then that's a premium for them and they're going to get a little kickback for that. Right. And so that's a whole other podcasts don't want to get into that. Definitely don't want to get into bashing is just that. The things that I see and things end up costing you more. You may make 10 percent, but you got three or four percent in fees and you really only make, you know, six percent.


Right. You know, you get hit with a four percent fee. Now, you only made six percent. Then when you going to take your money out, you're going to get taxed again. So, yeah, you didn't do that well.


Right. All right. So I just wanted to give you that. So we got the recap rollover and then we talk about transferring, not leaving your old job. And then we talked about reviewing your new funds. What do they have? Try to get with a professional, try to look into them a little bit more, try to get a perspective, try to look at them a little bit more. I do have a course. I don't even know if I still have that available, but I do have a course, a for one course in five days.


Learn how to maximize your course in five days. I may have that. I may even put that up at my website. Retirement chat, dotcom, retirement chat, dotcom. I may offer that course again. I had it for real inexpensive price. I may put that back up again. But it it's I think it's the five easy steps to maximizing your full one can very easy. I made it very generic. You, you'll, you'll do so well in that you'll be doing everybody else's and the everybody else will come to you because they'll think you're you're pretty good at that.


But the course that I put together is real easy. So I may offer that on my retirement chat dotcom. I may put that up there. Or if you just need help, regular help, you can always sign up for one of my affordable plans at retirement chat dotcom. You can come there, sign up for a simple plan. We can discuss the questions you may have. Right. Do you want this month or months? You might come to say, hey, I just got a question for two months.


What have you done? That's fine as well. So anyway, this has been Jenny Jones, my retirement exit. It is good to speak to you again. I hope all is going well. Be safe out there. Take care. Bye for now.