Click Here To Listen To The Retirement Tax Services Podcast
Are you trying to learn how to deliver massive tax value to your clients? Then look no further. Retirement Tax Services Podcast, Financial Professional’s Edition is a show hosted by Steven Jarvis, CPA. Steven aims to bridge the gap between tax professionals, financial advisors and their mutual clients in their quest for reducing tax expenses in retirement.
Although designations are necessary to have when building a practice, what’s truly important is what you do for your clients. As financial advisors, our number one job is speaking with clients about making financial decisions and helping them create a thriving portfolio. No one knows this better than our guest today, Jeremy Keil. A financial advisor at Keil Financial Partners and the host of the Retirement Revealed podcast, Jeremy joins this episode to share insights from his own practice, as well as the ways he helps clients get value from the process.
Listen in as he explains the importance of creating a framework to help your clients make great financial decisions and offers a useful resource for anyone searching for a way to ask better questions in meetings. You will learn why the details matter, why you should be looking at every individual client’s situation with fresh eyes, and how to ensure you are getting the best deals for your clients.
Steven and his guests share more tax-planning insights in today’s Retirement Tax Services Podcast. Feedback, unusual tax-planning stories, and suggestions for future guests can be sent to email@example.com.
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We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.
Steven Jarvis: Hello everyone, and welcome to the next episode of the Retirement Tax Services Podcast, financial professionals edition. I am your host, Steven Jarvis, CPA. And in this show, I teach financial advisors how to deliver massive value through tax planning.
Really honored to have on the show with me today, Jeremy Keil, who is a financial planner and the host of the Retirement Revealed Podcast. And Jeremy is here to share some insights from his own practice and a couple of ways that he helps clients really get value from the process. So, Jeremy, welcome.
Jeremy Keil: Thank you, Steven. I’ve enjoyed listening to your show. And since you claim to be Steven Jarvis, CPA, I’ll be Jeremy Keil, CFP, CFA. We’ll go with our designations today, how’s that sound?
Steven Jarvis: Perfect, I like it. The CFA is one of the only exams I’m consistently told is harder than the CPA exam. So, congratulations for getting that one done.
Jeremy Keil: Yeah, I haven’t even thought about the CPA exam. So, I think you got me beat there too.
Steven Jarvis: As I’m sure you know having multiple acronyms behind your name, they’re fun to have and they help start conversations, but really what’s important is what we do for our clients.
And as we were getting ready for the show, I really liked how you frame kind of this idea of what your number one job or our number one job as financial professionals is. So, why don’t you talk about that?
Jeremy Keil: Yeah, absolutely. Our number one job is speaking with clients about making financial decisions. Everything else is just details. Like unless they actually make a financial decision, what’s the point of even talking about it?
And so, a lot of people even come to me and say, “Well, how do you make the right financial decision? What’s the best thing to do?” I figure as part of that job, our only job is there’s really two puzzles to solve. One of it is actually, what do you do? And the other part is how do you get the client to actually do it?
Steven Jarvis: Yeah, I really like that framework, particularly talking about those two puzzles, because I would probably argue that the what they should do is usually the easier piece.
There’s software, there’s plenty of really smart people that can tell you mathematically here is the optimal situation. But as you very well know, what should happen and what does happen are not always the same. And I like that you frame that as a puzzle to solve of how do we get clients to take action on these decisions.
Jeremy Keil: Yeah, and you used the word “framework.” I’m imagining you’ve been to a few financial conferences, and I’ve been to a few financial conferences. I’ve been an advisor for almost 20 years now. And it seems like half the people that get on stage say the key to success, the key to work with your clients is to ask good questions.
And then they stop. I’m like, “Well, how do you ask good questions?” Like sometimes they actually go to the next level and they say, “Well, here’s two good questions,” whatever they are. As if these magic six words are just going to triple your business and just get everyone to bring their money over to you.
Like that’s just not how it works. How do you ask questions? Asking questions is a skill. And so, for years upon years, I’ve been wondering, how do you ask good questions?
Somehow, I came across the framework called motivational interviewing. It actually started about 30 or 40 years ago in alcohol and drug therapy, were helping people make these decisions. That’s a big decision, I mean, to change your behavior around there.
And so, these therapists came up with a framework called Motivational Interviewing, and I’ve been studying that the last two or three years. And I’ll just tell you, it’s amazing how many clients are coming in and asking for guidance on making financial decisions. And now, I have a framework to guide them through to help them make financial decisions.
We’re not talking about that so much today, I don’t think, but I just want to make that plug for people to check out Motivational Interviewing, to learn a framework: here’s how you ask good questions, here’s how you help people make good financial decisions.
Steven Jarvis: That’s really interesting. I’ll have to look into that because there definitely is a big gap between, hey, taxes are painful and what am I actually going to put into practice? Because it’s not hard for me to convince advisors or taxpayers that it would be nice if we could be proactive and maybe sand off the rough edges of a tax bill.
But getting from point A to point B is rarely a straight line. And so, having a framework for how do we keep people moving through that, and not just motivated by the pain of taxes, but motivated by the success of being able to do something about it as well.
Jeremy Keil: You got it. Absolutely.
Steven Jarvis: So, Jeremy, I know that you work a lot — well, actually clients from a couple of different companies that have large retirement plans. And so, that’s kind of what we wanted to talk about today with some of the things that you’ve learned in working and really getting in the weeds of some of these really large retirement plans to go beyond simply looking at a statement or taking … even worse, just taking your client’s word for how a plan might work, and making sure that you really are delivering value, that you really are helping your clients make good financial decisions.
Jeremy Keil: You’re right on. And I’m going to make a few assumptions about a lot of the listeners. I’m thinking if you’re a financial advisor, you probably manage your client’s money and I’d be willing to bet the majority of the money that you end up managing came out of a 401(k), or perhaps even came out of a pension. Or even if it didn’t come out of the pension, the pension decision or the way that your clients are taking their pension is going to have a huge impact on their overall retirement plan.
And so, I figure if this is probably your number one source of maybe assets coming into your practice, and maybe even your number one decision for a lot of clients is what do they do with their 401(k)? What do they do with their pension? What do they do with social security perhaps? But these two specifically have to deal with your company.
You ought to have a process for understanding the 401(k) and understanding the pension. And I’m just amazed how many advisors aren’t even aware of what’s out there just to even learn about specifically the 401(k)s and the pensions of the companies that they’re working with.
Steven Jarvis: Yeah, and there might be some advisors listening who think, ah, 401(k)s were put into practice decades ago. Everybody knows what a 401(k) is, everyone knows what their options are. Like let’s just skip past all that, that’s the basics, nobody needs professional help with that.
And Jeremy, I’d love to hear your insight, but I’m constantly just a little bit surprised because it’s easy to think that way, but taxpayers are always asking me this question, even taxpayers who have an advisor. Which means that at times, there are advisors who are not making themselves open to these questions of, “Well, how much should I put into my 401(k)? Or should I put traditional or Roth into my 401(k)? What are my options?”
I mean, so these questions come up. It is not a foregone conclusion your clients know how this work.
Jeremy Keil: Yeah, and I’m going to say focus on kind of the taking the money out of the 401(k), taking the money out of the pension. I focus exclusively on helping people make retirement decisions.
So, that’s as if like I’m retiring next month, next year, next couple of years. So, a lot of the focus is not the money going in, but the money coming out. So, I’m going to talk about that because that’s what I happen to know. And that’s again, a huge decision.
And I’ll hear on your show, I’ll hear from places like Ed Slott, where they’ll say, “Well, these are the federal rules.” And then there’s always somewhat of a disclaimer of as long as the plan allows it.
Well, how do you know what the plan allows unless you actually look at the plan? And so, this is a term I really hope everyone’s already heard, but here it is: summary plan description.
Go out, if you’re looking at a 401(k), looking at a pension, your first thing ought to always be, get the summary plan description and learn what’s available. And it’s just amazing what’ll be listed in there.
Hopefully, people know the idea that if you leave your employment in the year that you turn 55 or later, you can take the 401(k) money out of there without the 10% penalty.
And that’s a huge difference compared to rolling the money into an IRA and being forced into 59 and a half. That ought to be listed in a summary plan description. If you forgot, somehow, and you actually read the summary plan description, you’ll see that in there.
There should be a lot of things related to a rule called net unrealized appreciation. If you’re part of a company that has stock inside of the 401(k), you ought to have the ability to do net unrealized appreciation. Again, probably another tax podcast topic for you, but it’s most likely a big tax benefit. You ought to be looking into that.
And sometimes too, we tell people … forget sometimes, we always tell people it’s almost more important what you could have inside of your 401(k) than what you actually do have.
So, when the client just shows up and says, “Here’s a print-off of my dollar amount of the four funds I have,” you need to go in and find out what could you have? What are the other investment options that are there? What are the fees for the investment options? And what’s in there that you can’t get other places.
So, some things within a 401(k), especially you cannot get other places is a stable value fund. Those are only allowed inside of 401(k) plans. And a lot of people might want some short-term money that’s based on interest rates. Some long-term money that’s based on the market going up and down for growth.
If you can get a stable value plan that’s paying 1%, 1.5, 2, 3%, whatever it is that’s paying inside of that plan, and you can’t get in anywhere else, maybe you got to make some recommendations based on “Here’s what you could have in the 401(k) and this is how it works. Let’s make the best use of what you already have.”
And gathering that summary plan description, gathering the idea of here’s all your investment options and here’s the returns and the fees — that’s just going to put you and your client in a huge advantage compared to if you don’t look.
Steven Jarvis: Oh, definitely. I did have to take a note there. That might have been the first time I got included in the same conversation as Ed Slott, as far as people putting out content around this. So, thank you for that.
Jeremy Keil: Yeah, absolutely.
Steven Jarvis: He definitely puts out a lot of great content, but there’s several things in there I think that are really important for people to take away from this. One is that there are a lot of different resources out there in the industry that will give you high level information and at times, might drill down to specific.
But the content I put out is definitely at times, says, okay, here it is at the high level, and then always kind of caveat it with “it depends.” And the reason I caveat things with “it depends” is, is not a copout. It’s not because I’m not willing to get specific, but without the details, we’ve got to keep it a little bit broad.
Because to your point, where the value really comes in is for an advisor who will get into the weeds, not just take their client’s word for it, that the client understands how the 401(k) works, but really get in there and look at the details, do what you’re being paid to do.
The same reason we recommend/I strongly recommend that everyone gets tax returns every year — you’ve got to see the details to really be making informed recommendations. So, I love that you go to that level of detail.
Jeremy Keil: Well, it’s huge. And you want to figure this out ahead of time. A lot of times, again, I help people make retirement decisions, which is usually a distribution of how do you get your money you’ve been saving forever out of your investments and into your pocket?
And a big one is with a 401(k), you’re going to have 20% federal tax withholding. You might not even be allowed to do state tax withholding. Chances are, you could be over withholding on federal, under withholding on state. You got to plan for that. Or even what are your abilities to take money out?
I’ve seen plans where you’re only allowed to take money out of the 401(k) once in your entire lifetime or perhaps once per year. So, the client calls up the 401(k), takes out a hundred bucks in January and decides in the middle of the summer, they need some more money and they’re stuck, they can’t take any more money out of the 401(k) for the rest of the year.
There’s distribution rules in the 401(k). Oftentimes, you can set things up to pay out monthly, which might be helpful if you’re retired, sometimes you can’t. I’ve seen it where one of the places we work with quite often, they allow you to take a distribution every three months.
So, monthly’s just not an option if you keep the money in the 401(k). You’ve got to see what are those rules. And I encourage people now that’s kind of post-COVID or during COVID right now, we’re doing so many things by Zoom: this has actually helped us out immensely, and that we would ask people for the information. They would not bring it in because they just have no idea what to bring in.
So, now, actually for our data gathering meetings, we require to be by Zoom, we will not do it in person because they will just share their screen and we’ll go through in four or five minutes and find all the things that we need. All they have to do is log into their 401(k), log into their pension site, and we’ll find all the things that they can possibly have, have their summary plan description, find all their pension options on there. Things that would take them weeks upon months to get out of HR or themselves, get frustrated, do it wrong.
And you can add huge value by just kind of taking over and say, “I’ll get you all this information” — more information than they would ever be able to get on their own. And now, they can make some good decisions.
Steven Jarvis: Yeah, I really like that, requiring the information gathering to be over Zoom. And if you’re listening to the show and you’re thinking, “Well, that doesn’t work for me,” maybe it does, maybe it doesn’t. It certainly works for Jeremy. So, maybe consider it.
But what I love more than anything is how intentional that process is, that this isn’t just, “Hey, let’s do a different approach with each client, whatever they think is going to work.” It’s you figured out what works for you and you have an intentional process to make sure it happens. That’s how important this stuff is.
Jeremy Keil: Yeah, and I say too, a lot of times, your investments, you can make a new decision every day. Like you don’t like this stock? You can buy 20 times throughout the day. You can sell it 20 times throughout the day.
With your 401(k) rollover, with your pension decision, you fill out paperwork one time and you’re done for the rest of your life. Like you better figure this out ahead of time and make sure you know all the options and make a good decision.
Steven Jarvis: Yeah, that’s a great way to look at it. With so many things related to taxes, our ability to have an influence on the outcome is exponentially higher if we’re proactively coming into the decision, as opposed to retroactively trying to sort things out afterwards.
Jeremy Keil: Yeah, and we’ve talked and alluded to pensions a little bit. I think with pensions, a lot of us as advisors, just take the client’s word for it like you mentioned. You’ll say, “Hey, what does your pension look like?” And they’ll go, and they’ll run a print-off saying “I’m getting $3,000 a month starting at this age.”
And sometimes I’ll see advisors or sometimes I’ll have the client, they’ll bring in a couple options, but almost always, the option is “I work to a certain age, I take the pension exactly at that age. And then maybe I wait one more year and I take that pension exactly one year later.”
That’s not all the different options that are out there. It’s almost always the case that you can work to a certain age and then take your pension later on, just like you can delay your social security later on.
And it’s oftentimes where the pension will grow year by year, not month by month, but you don’t know that until you run into it. Where if you have a birthday in May and it’s April, and you take your pension, your pension could be drastically lower than if you take it on June 1.
And if you’re somebody that wants to get the best out of their pension, you’ve worked there for 15, 20, 35, 40 years, whatever it is; it’s just amazing how filing paperwork on one day versus another day could make or break 10 of thousands or hundreds of thousands of dollars over your whole lifetime.
That’s just huge. That’s going to make everything work better in your financial decision, in your tax decision. If you’re not throwing away free money or even not free money — the money that is rightfully yours if you know what the rules are.
Steven Jarvis: Yeah, getting the most out of your hard-earned money that you can. I mean that’s what this is all about. It’s such a great way to reinforce that. It really is/those details are so important.
Go going back to how you set this whole thing up as your number one job as financial advisor is to speak to your clients about financial decisions. And then you said the rest is details, but those details are so, so critical.
Jeremy Keil: I suppose, yeah.
Steven Jarvis: And that’s exactly what you’re hitting on here.
Jeremy Keil: Yeah. If you don’t mind, I’m going to just go through a couple … stereotypes isn’t the right word — generalities. A couple generalities I see with pensions and maybe some good examples along those lines, is that right?
Steven Jarvis: Yeah, please do.
Jeremy Keil: Okay. So, generally, a pension, I’m probably going to beyond generally: always a pension has something called a normal retirement age, and finding out that normal retirement age is huge. It’s just like knowing what your full retirement age is for social security. That age is a big number.
So, you got to figure out what’s the normal retirement age. Pretty typically it’s going to be 65 because it seems like even though social security change, a lot the pensions didn’t, but some of them might have, find that out. You’ll realize it.
Typically, age 65 might be your normal retirement age and they’ll drop off like 5% of the benefit every single year down to the age of 55. They’ll say you can take the money early at 55 or any age in between 55 and 65. And you only lose five percentage points per year, which doesn’t sound like a lot.
But five percentage points as an absolute number means from 65 to 55, you dropped in half, which some of us have heard the Rule 72, right? You double your money. If you are getting half at 55, that means the compounded growth of that pension by the time you wait until your normal retirement age of 65 is 7.2% per year.
Except it’s not compounded. It’s an absolute 5% number every time. So, if you’re 55 (and this is how it works and a lot of them are going to work this way), you’re going to get 50% of what you’re promised. But if you wait until you’re 56, you’ll get 55% of what you’re promised.
Well, what’s five percentage points? That’s a 10% growth on your pension by waiting one specific year. And so, you need to go and take a look at what are those options. That should be in the summary plan description.
But even beyond that, you ought to run scenarios. If they want to retire at 55, we’ll just go with 55 because that’s the earliest that you often see with a pension. What if they do retire at 55, but take it at 56, 57, 58? Run it every single year up. Or they tell you what your birth date is and their birth date’s in May, they’re retiring in April, run what if you take the pension in April? What if you take the pension in May? What if you take the pension in June?
You’d be surprised to see how it might jump up drastically just by waiting till after the birthday, as opposed to before the birthday. And I’m thinking most clients are not going to be upset if you tell them, “Hey, why don’t you just wait two months?” And next thing you know, you made 10% or whatever the number happens to be just by waiting on two months.
Even then lumpsums. You got this lumpsum (and I can talk about that in just a second) — but even with lumpsums, that might change, where someone says, “I’m just taking the cash anyways, what does it matter?”
Well, the lumpsum is generally based on whatever your monthly pension’s going to be. And if your monthly pension’s going to go up in about two months, your lumpsum is probably going to go up in two months. It’s just things that are generalities. Those are all big generalities.
Some specific examples, and we’ll talk about this too, where you need to do this fresh for everyone. It doesn’t matter if you have 50 clients from the same company that all worked at the same exact job and started the same exact day. You need to do it fresh for everyone. Because you have no idea what union contract got negotiated, which person left employment and came back after a year, and now they’re part of a different situation. Do it fresh for everyone.
I’ve seen so many things where a pension might maximize at 62 or 65, and the normal retirement age says 62 or 65. And yet, the pension keeps on growing above that. I’ve seen it where pensions grow to 72 now because that’s the required minimum distribution age.
I’ve seen it where just like social security, the pension goes to 70. I’ve gone through and said, okay, 65, let’s calculate that, 66, all the way up to 70. It returns an error, says you can’t do it a at 70. So, naturally, you would think we have to do it at 69. Wait a second, I can do this by month. What if I do it the month before they turn 70? And it still calculates that you could do it.
And it’s just amazing. I have seen … I’ll give you a couple examples. We Energies is a company we work with in the Milwaukee area, and I’ll see where the pension max is at 62 and every month you wait, you lose a couple of dollars.
I’ve seen it where the pension at the same company, max is at 69 and 11 months. And it grows by that like normal 5% I was talking about until the age of 65. And then it grows by 16% a year from 65 to 66 to 67. You’re doubling your pension in more than four years of waiting.
You have no clue about that until you go through and just run those scenarios, run those different multiple numbers of before and after the birthday or wait a year, wait another year, keep on going.
I mean, you’ve already got 90% of it plugged into the calculator, just save the info, go back and add another year. You kind of max it out, back it off a month and see what happens if you change it over an 11 month cycle.
These are things that take you less than 10 minutes. And yet, it’s tens of the thousands, hundreds of thousands of dollars of value that you could be adding to your client. And it’s unfortunate that most advisors aren’t doing this.
I understand why most clients have no idea that exists. But I just think if you are somebody that has ever recommended a 401(k) rollover, has ever recommended how to take a pension, whether it’s even a lumpsum (we can talk about that in a second), or take out a different type of monthly — until you run the numbers, like how can you possibly call yourself a fiduciary?
Steven Jarvis: Well, and as you talk about running all the numbers, just the sheer range of possible outcomes, I mean, this is really important for an overall conversation on tax planning as well because a lot of the power when it comes as tax planning is timing of income, and relative tax rates.
And so, especially if someone has access to a pension, until we get clear on what those possible outcomes for that piece of their income are going to look like, we have no real clear idea on what marginal bracket they might be in or what might make sense for other tax planning opportunities.
So, these things all work in tandem and we’ve got to figure out the individual pieces before we can make recommendations. And I’m right there with you that if we’re going to make recommendations on any of these pieces, let alone all of them together, we’ve got to be looking at the specific details for that specific situation if we want to actually do right by the client.
Jeremy Keil: Absolutely. And I just referenced lumpsum pensions, because that’s a common situation where your client maybe has an old pension from way back and they get this letter saying, “Do you want a hundred grand up front or do you want $200 a month for the rest of your life?” Or whatever the numbers are.
And they come to you and they have this form that says it’s due in 30 days, but they didn’t bring it to you until two days before the deadline. And they say, “What should we do?” And it’s amazing because people ask, “How do I make a decision?”
You’re literally comparing apples and oranges because a lumpsum dollar amount is completely different than a monthly dollar amount. And who wouldn’t take a lumpsum? Do you want a hundred grand today? Or do you want 250 bucks or whatever it is for the rest of your life?
Unless you translate that — like do you want one Canadian dollar or one American dollar? Unless you have no idea what the exchange rate is, you have no idea what’s a better deal. You have to apply the exchange rate. You have to calculate just like the pension company did, but they didn’t tell you what the numbers are. You’ve got to figure that out on your own. And I’ll give you a couple ideas on how you can do that.
Number one, just understand how pensions work. Typically, a pension is a percentage of income times the number of years that you’ve been there and they don’t distinguish between male and female.
Well, who lives longer? Men or women? Women generally live longer, which means in general, the lumpsum pension might look better for a man compared to a woman, and the monthly amounts might look better for a female compared to a male.
Now, still run the numbers, and I’m not saying that all men should take lumpsums and all female should take the monthly amount. But just when you look at it, you’ll see that the value of a lumpsum to a male is typically a little bit better than the value of the lumpsum to a female and vice versa; the monthly amount for a female on a pension is usually better because just you can’t kind of discriminate male versus female, but just naturally, that’s the way it’s going to work out.
Now, how do you actually translate that? I think the best way to translate what a lumpsum amount is compared to a monthly amount, is see what’s out there in the open market and I’ll give a plug for Schwab.
You go to Schwab income calculator, you can say, I’m going to get this payout, I’m 55-years-old, and it’s $300 a month, what a is the lumpsum equivalent? Like what dollar amount do I have to give to an insurance company to give me the same thing?
And if you’re going to get, let’s just say, it’s a 250 a month, three grand a year from the pension company, or you’re going to get a hundred grand from the pension company as a lumpsum, and Schwab tells you that it’s going to take $130,000 to go generate that $250 a month, you’d know right there that the market value of your monthly amount is 30% higher than the lumpsum value that they’re offering you right there.
And so, that’s the first thing you’re going to do. It takes you like 10 seconds, just plug in some dates and some numbers to make a comparison to say, okay, what is the actual value of this monthly amount?
And what’s great about the value of the monthly amount that you get from a place like Schwab, or you can even call some broker general agencies that’ll help you with the immediate annuity payouts and things like that. They can kind of help you out with that too; is that it’s based on today’s interest rates, today’s mortality and longevity rates on there.
So, I’ll calculate this for clients, I’ll say “Great, what interest rate did you use?” My answer is today’s. “Okay. What’d you use for longevity?” I said all of them because that’s what the pension companies do. They figure out all the probability distribution, all the potential longevities that could be there, and that’s what the insurance companies do.
Because you have no idea if you’re living for one week or 40 months or 40 years, you have to kind of account for all that. And there’s no way that I could do that on a spreadsheet. I’m not an actuary, but thank goodness, there are some actuaries out there and they’ve plugged in their numbers through insurance companies, by looking at what’s the immediate annuity payout rates.
That’s the easiest, quickest way, takes you like less than a minute. And you can instantly make a comparison to understand is this monthly amount relatively good value or is a lumpsum amount a relatively good value.
And now, you’re not talking apples and oranges. You actually have two dollar amounts that have been translated to the same currency to make a decision.
Steven Jarvis: Yeah, that’s great advice to have that comparison point. It’s one of the reasons that with all the clients that we work with and as we work with advisors and their clients, always recommend that we do projections on the tax side as well. Even though tax laws are written in pencil, it could all change tomorrow, I don’t know that for sure.
But you’ve got to have this base line. You’ve got to have something to compare it to so that you’re going apples to apples so that it’s easier for a client to understand and appreciate why the recommendation has value.
Jeremy, speaking of value, we always like to make sure that listeners can take the information we share and turn it into value, which only happens through action. So, as you think about the things we’ve been discussing today, which I really appreciate your insight from your years of experience: what are actions that listeners can take to make sure that they get value from this episode?
Jeremy Keil: So, when you’re looking at a 401(k), ask for the summary plan description every single time. Don’t even bother asking, let them go log in so you can find it. You’ll be able to find that a lot more quickly than they would.
Also, find all the different options within their 401(k). It’s not so much what they have already, it’s what they could have. And they could often have things like stable value plans, stock inside of their 401(k) that have kind of better than market interest rates, better than regular income taxes. There’s a lot of options that are inside there that you want to figure out.
Then when it comes to the pensions, run the pension numbers, not whatever they give you as far as what if I work to a certain age and take the pension exactly at that age? It’s what if you worked a certain age, but delay the pension starting until maybe a month or two later, especially hopping over their next birthday. And then keep on going year by year to see how does that pension change.
It’ll often show you, here’s the lumpsum value, here’s the monthly amount, and you can quite easily through Excel, just say, here’s the growth in your payout per year, here’s the growth in your lumpsum per year. You can find patterns and crossover points on when’s a great idea to take a pension a certain way.
And especially when the client comes to you with this thought of, “Do you take the lumpsum or do you take the monthly amount?” You need to translate that into the same currency. And the easiest way to do that is to go online to an income calculator, plug in that monthly amount, and it’ll tell you what dollar does it take to actually generate on the open market, whatever it is: 200 bucks a month, five grand a month.
And now, you have a translator number that you can compare to that lumpsum, and you can make a wise decision on whichever one’s going to give you the best deal.
Steven Jarvis: Yeah, love that. Some great actions in there. I’ll just add to that. It might not seem like we talked about it today, but if we’re going to talk about getting into the details, I’m going to have to throw out my regular call-to-action for getting tax returns for all of your clients every year.
Just as Jeremy talks about 401(k)s and pensions, you’ve got to get the details. It’s not that we don’t trust our clients. This is not their area of expertise. Don’t take their word for it, make sure you get the details. Whether that’s the summary plan description, whether that’s the details on the pension or the tax return each year, make sure you’re looking at the details.
And Jeremy, thanks so much for being here. If people are interested in what you do, anything they can do to follow up on your content?
Jeremy Keil: Check out Retirement Revealed, that’s my podcast. And you can feel free to go to my website: keilfp.com.
Steven Jarvis: Perfect. Thanks so much for being on the show today, Jeremy, it’s been great talking to you.
Jeremy Keil: Thank you, Steven. I had a blast.
Steven Jarvis: And to everyone listening, thanks for being here. Until next time, good luck out there. And remember to tip your server, not the IRS.
We’re not overpaying. No, we’re not overpaying. We’re not overpaying anymore. The tax code’s complicated, boring, and overrated. You don’t want that, you want a pro. One thing that you should know: this is a radio show. It’s not tax advice, don’t take it that way.
The information on this site is for education only and should not be considered tax advice. Retirement Tax Services is not affiliated with Shilanski & Associates, Jarvis Financial Services or any other financial services firms.