Listener Financial Questions Answered

We answer our listeners' top financial questions in this blog. Listeners want to know what steps to take if you have a financial windfall, whether or not you can pursuit your retirement dreams, how and when you can retire, and understanding how Social Security will impact your finances in retirement.
Happy Couple In Retirement

Kevin Zywna, Wealthway Financial Advisors: Out of the gate, we have our first caller on the line. So we’re going to go out to Chesapeake and speak with Ashley. Good evening, Ashley. You’re on Dollars & Common Sense.

What To Do With A Financial Windfall?

Caller: Hello, how are you tonight?

Kevin Zywna, Wealthway Financial Advisors:  I’m fantastic. How are you doing, Ashley?

Caller: I’m doing good. I’m doing good. My husband and I, he’s close to retirement age -not quite, and he inherited some money from his father. And we’re not quite sure the best way to use it. You know, we were thinking of investing in real estate. He’s never been a real, risky investor. He’s been more on the conservative side. So we’re just not sure. We have talked to a few financial planners and it seemed they wanted to sell us annuities and things that I don’t know, things that we just aren’t I guess educated enough on so just really not sure really how to proceed, you know, especially with him being close to retirement age.

Kevin Zywna, Wealthway Financial Advisors: Okay, and how old is your husband?

Caller: He’s 62.

Step 1: Take Care Of Your Financial House

Kevin Zywna, Wealthway Financial Advisors: Okay. All right. Well, let me give you some sort of parameters here and some thoughts and, and ideas. So first off, whenever you get an unexpected windfall of cash like that, make sure to take care of the financial fundamentals of your own financial house first. So what that means is, clean up any bad debt, credit card debt, high interest, personal loans. Maybe you have a home equity line of credit out there, which those rates have crept up with lending rates going up in response to inflation. So you might want to try to pare that down.

Step 2: Establish An Emergency Fund

And then also make sure that you have a solid emergency fund, emergency fund divided defined as three to six months of household expenses set aside in a very liquid, very accessible bank account- which in this current timeframe doesn’t earn too much. But that’s not the primary point of that money. It’s to make sure that you stay out of any bad debt, and that you can sleep well at night, knowing that you have in a good foundation taken care of there.

Step 3: Make Long-term Growth Investments Using A Fiduciary Certified Financial Planner

So once you’ve got that established, then you can start looking out at maybe investing the money for longer term growth.

Finding A Qualified Certified Financial Planner

And I heard you say there that you spoke to a couple of financial advisors and they wanted to sell you annuities. So actually, those are not financial advisors, they are financial salespeople. They might call themselves financial advisors, but they’re trying to sell you products. So that’s unfortunate that you had that experience. What you should try to do if you want to work with a financial professional, is get yourself aligned with a Certified Financial Planner. And I’m going to give you a couple of websites that you can go to, to search for Certified Financial Planners in your particular area. So the first one is called http://letsmakeaplan.org/. And that is the consumer facing website for the Certified Financial Planner board of standards. So anyone who is a properly licensed Certified Financial Planner, typically has a listing on this website. And so you could search within a radius of Chesapeake, you know, 20 miles, and you’re going to go get a whole list of certified financial planners. And then so that’s like kind of step number one to get aligned with a competent, ethical financial advisor.

Finding A Fiduciary Financial Planner

The other thing you’d want to look to do is see how many of them work for an independent registered investment advisor. That’s a legal designation, a technical term, that means that the firm the advisor works for is regulated by the Securities and Exchange Commission. And as such, the employees of that firm, the client-facing employees, are required to act as fiduciaries on behalf of their clients. A fiduciary is somebody who has to work in the best interests of someone else, not themselves. So these are typically not financial salespeople, these are true financial advisors. And you can tend to decipher that by looking at the firm’s that the clients work at. And then usually looking at it will be somewhere on their website, I would say. And then the second website that I can point you to, to try to find somebody to help you out in in the area here is the financial planning Association’s national website. And their consumer facing website is called https://www.plannersearch.org/. And you can do the same thing there. And so then you know it getting yourself aligned with a good competent financial advisor, then you can talk through all the intricacies and nuances of how much money is this? What are your other priorities? What are some of your medium term and long term goals with money? I assume retirement is on the horizon. And then and that’s where a financial advisor can come in and provide you with good, solid, objective advice geared for your best interests. All right, that I said a lot there. Was that helpful?

Caller: Yes, yes. You know, we’ve actually talked to a few and like my mother, she has a wonderful financial planner. He is a fiduciary, but he wanted $10,000 to work with us. And is that normal? Do you charge a fee? I mean, you have to have a certain amount, which you know, we did, or we do, but we just don’t like $10,000 just to start and then use the percentage after that. That just seemed really excessive. Yes, I didn’t know if that was normal.

Kevin Zywna, Wealthway Financial Advisors: Well, not knowing the details. It would be hard for me to comment accurately. But I will say it’s very common in our industry to charge a percentage of the assets that get managed in conjunction with the financial advising. And typically, the percentage starts out around 1% per year on the assets that are managed. And then usually there might be price breaks, the more assets that the advisor manages, so like, say above a million dollars, it might go down 2.85% And above $3 million that goes down 2.65% like that. Sort of like bulk buying, you get the more assets to manage the cheaper it becomes. So that’s a pretty common fee structure, or a flat fee is becoming more common, but taken together. I don’t see that too often.

Caller: Okay. All right. Well, good. Well, I’ll check those websites and try to narrow it down then so that we can get some good advice and do the best thing with our money. I appreciate it, sir. Thanks so much.,

Should I Invest My Retirement Or Build My Dream Vacation Home?

Kevin Zywna, Wealthway Financial Advisors: Thanks for the call. I appreciate it. Tonight we have Frank in Newport News. Are you still there? Thanks for holding patiently.

Caller: I am still here. Hi, Kevin. I’ve got a situation not too different from the previous caller. And with a bit of a small windfall. And now what I have is some return on investment in myself with a small business that is now going to be returning some significant income. I have for some time been looking at building on a lot that we’ve owned for years up in the mountains as sort of a retirement place. And other people looked at me and said, Oh, well, you don’t want to do that as a retirement thing. And I’m thinking what? Yes, I do. And so I guess I’m asking your comments on the relative value of the real estate, which is really going to be so it’s not investment real estate. It’s, I’m looking at retirement.

Kevin Zywna, Wealthway Financial Advisors: Yes. Alright. So Frank, why are people telling you that? You don’t want to do that?

Caller: I, I am not sure many of the people who said that are frowning at the building costs. And yes, of course, the building costs up there are pretty high. It’s a fancy, fancy place, high dollars per square foot to build. And so they’re thinking other things. But I’m thinking I’ve got some retirement income, and I got some retirement established, that’ll provide income. And so these additional dollars, which I’m going to pay dearly, the taxes because they are high income. But, you know, I think putting the money into the construction of a nice place up in the mountains is a good one. And so the people I’m talking to are not experts at all, they are the typical relatives.

Kevin Zywna, Wealthway Financial Advisors: Yes, right. Okay. Well, first of all, Frank, it’s your money. And you could do what your money what you want to do with it. And if you have a retirement goal, to have a vacation house up in the mountains, and you have the means to do it, you have the money, the income, by all means you should do it. That’s a big part of what we work with our clients on, it’s not just about accumulating the most amount of money, right? Like most people don’t really have the goal of save, save, save, save, and then die with a whole pile of money. We have not figured out a way to take it with us to the great beyond. So yes, once you get to a place of comfort, financial comfort and financial stability, and if you have the additional means and you want to have a vacation home in the mountains, then I say go for it. That’s exactly what we try to work with our clients on is find out what their passion is, what excites them, what makes them happy, and then use the money responsibly, of course, but use the money to enhance their quality of life. So for what it’s worth, I think you should keep moving in that direction.

Caller: Okay, excellent. Glad to hear and I will. I will smile gladly at those who have their doubts.

Kevin Zywna, Wealthway Financial Advisors: Right? Yes, you specifically said is not for investment purposes. It’s for your personal enjoyment. Then do you do with your money what you want to do that makes you happiest, Frank.

Caller: Yes, yes. Okay. So I think you’ve confirmed what I suspected all along for years, but relatives push hard.

Kevin Zywna, Wealthway Financial Advisors: Yes, I know, everyone’s got their own opinion. And some have different agendas. But it’s your money. You do what makes you happy. And yes, are building costs inflated these days? Yes. But so is kind of a lot of other things. But, you know, if you’ve worked hard, and you’ve saved up money, or you come into a little bit of a windfall, and this is something you want to do, I would encourage it.

All right, Frank, thanks for the call. I appreciate it.

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Wealthway Financial Advisors

Unpacking Retirement & Social Security

Kevin Zywna, Wealthway Financial Advisors: All right, then we’re going to jump out to Chesapeake and speak with Sheila. Good evening, Sheila, you’re on Dollars & Common Sense.

Caller: Good evening. Thanks so much. I had two quick questions. One is we are doing well as far as our retirement savings and such. But my husband, Will, is retired from naval reserves. And so he doesn’t get that until 59 or 60. We’ve looked on the website before in years past and he would ask us questions about our previous car payments. I can’t remember our previous car payments, we usually end up paying them off and such and, and so I didn’t know, I guess we should just keep trying that too. And we need to do it soon. Right? Because what I was doing was assuming you would know about that. But also another question. Totally unrelated to that is I’ve known since 1985, when I graduated high school that I was probably not going to get Social Security. Does that not make that the question moot about when you should take it if they’re going to send me something at 65 or so? Should I not take that because they might not send me anything else at 67 or 69? Okay.

Kevin Zywna, Wealthway Financial Advisors: All right. We got a lot going on there. Sheila, let me see if I can get this kind of straightened out. Let start with the maybe the second part of your question about Social Security. You’re asking when you’re eligible for Social Security?

Caller: No, I know, it’s somewhere in the 60s there. I’ve just always assumed I wasn’t going to get any. And as I’m about to be 57, I’m getting closer and saying, Gosh, I might get a little bit before they go bankrupt. But you know, and then people will talk about when you should take it. And I thought, gosh, if they’re going to send me anything, they might be bankrupt the next year. And so I should just take it as soon as they’re giving.

Kevin Zywna, Wealthway Financial Advisors: Well, did you work outside the home?

Caller: Yes. Not anymore, but yes.

Kevin Zywna, Wealthway Financial Advisors: Okay, so first off, so security will not be bankrupt. So security, especially for people who are approaching the age of, of receiving a benefit from Social Security, they probably have nothing to worry about that. You’re going to receive the benefits that you are promised throughout the rest of your life. What I do think is going to happen is, subsequent generation, our grandkids and great grandkids are going to pay more into the Social Security system and get less of a benefit than their predecessors. But you can rest easy knowing that there’s a Social Security benefit that will be paid out for you. Now, what would that specifically be? Well, it’s either going to be based on your own work record, depending on how long you worked in the workforce, and how much you made, or half of your spouse’s work record. So those are kind of the two options that that you would have. You can claim as early as 62, depending on the type of claim that you make, and you can delay as late as 70. I guess you could delay later but it wouldn’t help you out. And each year that you sort of delay, the benefit increases by about 8%. So was that a little bit helpful?

Caller: Yes, so I was just skeptical. And that’s more because of my political views. I just have always felt like I wasn’t going to receive Social Security.

Understanding Wealthway Financial Advisor’s Services

And I’m sure it’s helpful for people to hear that they would say my last thing, and I’ll leave you with it. And you can answer because there are probably other people wondering about your services, if somebody feels like they might fit in to receiving your services. I wasn’t sure if you might offer planning for estate planning and things like that, and retirement planning and all that but still allow me to do my investment planning because I enjoy that part. And so I wasn’t sure if that was the case. So I’ll let you go on and answer that because I bet there are others out there. Who would wonder is the same thing.

Kevin Zywna, Wealthway Financial Advisors: Right? Okay. Yes. All right, Sheila, thanks for the call. And yes, I’ll give that answer. Unfortunately, we do not. We do both together. We integrate our investment management process with ongoing analytical financial planning advice. And we have found through the years that this is where we can bring the greatest value to our clients because we have a very well defined investment management system and process. And it’s actually what I was going to come and talk about tonight. But since we have so many callers on the line, I think that’s most important. So I’ll save it for another show. But we integrate the investment management with ongoing analytical financial planning advice and taken together. It’s very powerful. Combination investment management is important. It is the engine of your financial plan, but all you get out of Investment Management is just rate of return. And the rate of return doesn’t tell you, are you saving enough? Do you have enough? How much can you spend in retirement without fear of running out of money? What about the potential costs of long term care? All those and more are financial planning questions. So, investment management without financial planning is of limited value we like to say, and financial planning is the next service that everyone needs that they don’t know they need. Kind of everyone knows they should save and invest. But they don’t know how much or how long it’s going to take, or how much they’re going to have when they get there or how much they can spend. That’s where financial planning comes into play. So anyway, Sheila, thanks for the question. We do both investment management with financial planning.

What Is The Best Financial Vehicle To Use Short Term As You Transition Into Retirement

All right. Simona. In Virginia Beach. You’re on Dollars & Common Sense. Good evening.

Caller: Hi, good evening. So I’ll just make it really simple. I’m 49 years old, just trying to find or figure out what’s the best way to invest at my age so that it grows compound interest in the next 20 to 30 years. I do have a 403B with my current employer. But I want to kind of build something outside of that. So I do have a little bit of savings. And I’d like to use that in the most, I guess lucrative way for the next 20 years.

Kevin Zywna, Wealthway Financial Advisors: Okay. Why do you want to build some out of the 403B, Simona?

Caller: Well, because one, I don’t know, how much longer I’m going to stay with my current employer, and then two, I still want extra form of cushion.

Kevin Zywna, Wealthway Financial Advisors: Okay. And then you said You’re 49, right? Yes. Yes. How long do you intend to stay in the workforce?

Caller: I’m honestly considering to leave my current employer. And once I’ve reached that, so I think we can retire without full 403B and 22 years, so I have another four years to go with them.

Kevin Zywna, Wealthway Financial Advisors: Okay. And then do you think you just switched jobs or that you would semi retire?

Caller: I’m going to be more self-employed, I’m going to be self-employment and I’m going to be generating my income from.

Kevin Zywna, Wealthway Financial Advisors: All right. I think I got it. Okay. Thank you. All right. So, while there are great tax advantages to employer sponsored retirement plans, the 401K’s, the 403B’s, the TSPs, the 457’s, and so forth. There are great tax advantage advantages of contributing to those, there are also restrictions. And you can’t get the money out without penalty. Out of those plans, typically until you’re age 59 and a half or older. And there could be other restrictions as well. So if you’re thinking about making either a career shift or trying something different, and you need access to liquid cash, capital money, then you want to have some outside of the retirement plans, because taking it out early would incur a penalty. And that’s not very efficient, just because you can doesn’t mean you should.

So what you can do than that, I mean, the options are, are pretty varied, you can open up what we call a brokerage account and standard brokerage account at an online broker like Charles Schwab or Fidelity or Vanguard, or you can open up an account directly with say a mutual fund company, again, like a Vanguard or T Rowe Price or a Magellan are some of the other big name insurance, mutual fund companies.

Now, the fact that you are doing something in four years, where you might need to access the funds gives me a little bit of pause. long term investing, you know, is you we say usually at least five years, probably closer to 10. Things can happen within a four year window, that if you if you need that money, a certain amount of money, and it has the value of it has declined due to market short term market performance, then, you know, that could curtail your plan. So you have to be kind of judicious about how you look to build up this pot of money. It wouldn’t hurt to just go ahead and pile it into a bank account right now, if the money is going to be used in the short to medium term, which I would define as two to four years. So, you could put it in the bank account. And nowadays, get some short term CDs that we’re seeing yield at least 4%. We were seeing 5% there for a little bit, but six and 12 months CDs at four or 5%. Or maybe it’s a high yield savings account, or a money market savings account or some other higher earning bank product than just your basic savings and checking. Now those other accounts usually come with a little bit of restriction themselves, but no penalties or excessive taxes for withdrawal. So, was that helpful? Or can you tell me a little bit more?

Caller: Yes, that was actually helpful. I started looking into a couple, the CD or high yield savings accounts. It was still a little complex for me, though, because they just look foreign, and I don’t really understand it. But yes, you’re kind of pointing me in the same direction that I had already indicated prior to calling you so I guess I’m on the right track. I was going that way in the CD or the high yield savings account?

Kevin Zywna, Wealthway Financial Advisors: If you, if you did not have a need for this money for, like I said, at least five years and probably closer to 10, then then I would say probably investments would be a better course of action. But once we start getting nearer term to the use of significant funds, that’s when we like to move it to the bank accounts.

Caller: Okay. All right. That sounds good. Thank you so much. Yes, that was very helpful. All right. Simona

How Do You Determine You Have Enough To Retire?

Kevin Zywna, Wealthway Financial Advisors: Thanks for the call. I appreciate it. How about James and Gloucester? Do we still have you, James?

Caller: Yes, sir. You did.

Kevin Zywna, Wealthway Financial Advisors: Alright. You’re on Dollars & Common Sense. How can I help you?

Caller: I was wondering, I’m 52, single, never married, no kids, debt-free, been saving and working hard my entire life, invested early. When is enough enough? When do I know when I can stop or want to stop? I’m ready to stop. How do you know? What do you plan on in a figure to call it quits?

Kevin Zywna, Wealthway Financial Advisors: Yes. Right? How much is enough? The eternal age old question, right? So, here’s some thoughts for you. There is a way you can sort of measure if you have enough. Now, what does enough mean? Well, that is a very personal question that can differ for every single person on the planet. You know, some people are satisfied with a very modest simple lifestyle. Other people can have mansions and yachts and fancy cars, and they’re still never satisfied. It’s never enough. So from my book, those are psychological issues, which are real and important. And we try to balance those.

But there’s also professional judgment that we can apply to your individual situation. So for example, one of the baselines we usually start at is what is your current lifestyle? How are you living today? And are you happy with your current lifestyle? And by lifestyle, I mean, how much are you spending on a monthly slash annual basis? That is your lifestyle? So let’s just say it was $10,000 a month, on average, throughout the course of the year, then if that’s how much you are spending today, are you happy with it? Or are there other things out there that you want to try buy or purchase? Or do you have what you feel is the lifestyle that makes you happy? So let me ask you that James, where are you on that spectrum?

Caller: I work seven days a week, and the only money I spend on myself is what I have to spend on food and groceries. That’s pretty much it. I have zero social life. It’s pretty much just me. So like I said, just a bare minimum, you know, I don’t go out and do anything. Spend no money on anything?

Kevin Zywna, Wealthway Financial Advisors: Yes. So and but are you satisfied with that? Or are there more things that you’d like to do? If you had more?

Caller: Oh, yes. Well, it’s not the money. It’s the time. Like if I was retired, then I can, you know, do whatever I want from there on out. And I’m just worried that I’ve always worked and saved. I don’t know how I would act if I retired, and no money was coming in and out and I just spent it.

WNIS: Okay. Can I ask a question? James, what are you going to do in retirement? What does that picture look like for you? What are you going to wake up and do every day that keeps you busy? Because you’re obviously a busy guy who has a busy mind. What are you going to do?

Caller: I love old cars, and I want to restore my old cars. And that’s about it.

Kevin Zywna, Wealthway Financial Advisors: For fun, or is that a hobby? Or is that a side business?

Caller: Just for fun, as a hobby.

Kevin Zywna, Wealthway Financial Advisors: Yes. Okay. Well, Damien brought up a really good point that we counsel all our clients on, and that is, you can’t just have something to retire from, you have to have something to retire to. You have to stay active, mentally, physically, and socially. Otherwise, the brain, the body begins to atrophy, and slowly sort of whittles itself away. So you can’t just have something to retire from, you’ve got to have something to retire to. Now, let’s say you’re covered there, then how much do you need to do that? Where you are currently, will you receive a pension?

Caller: I’m self-employed.

Kevin Zywna, Wealthway Financial Advisors: Okay. So no pension for yourself, I take it.

Caller: IRAs, and that sort of stuff and investments.

Kevin Zywna, Wealthway Financial Advisors: Right. Okay. So no pension, no guaranteed income stream, but you have investments through either IRAs or brokerage accounts. So, what we’re looking to do, then, to determine if you have enough, does the nucleus of your savings, the investment, is it large enough to be able to duplicate your existing spending pattern for the rest of your life?

Caller: So when you say rest of your life, I want to die broke. When I’m 80 years old, you know, I’m not going to be working on cars or doing anything. You know, money’s not going to be that big of a deal. I just, I can be wrong, but I don’t want to end up in no old folks homes, and be treated like some people are, and then pay the rest of the money I have for that each month. I would rather, I hate to say it, but when that time comes, either go there broke, or hopefully not ended up having to go there.

Kevin Zywna, Wealthway Financial Advisors: Yes. So we’ve heard that comment before. I want my last check to bounce, you know, spend my last dollar on my last day. Right? Well, you know, it’s one thing to say, it’s another thing to do. Now, there are ways that we can mathematically determine a spending pattern, a spend down plan, essentially, from your investments that would gradually whittle away at the principal. But well, we don’t know, and then I don’t think you know either, is when our final day on this planet is going to be. And that’s a big factor in the calculation and determining how much you can spend to spend down that money. And I hear what you’re saying about long term care. But James, we work with a fair number of people in that demographic. And usually, and it is not untypical where we hear people 50s and the 60s, say, I’m never going to an old age home or assisted living or anything like that. I’m never going to go to those types of places. Well, then you get to be 80 and 85, and 90. And guess what, then you kind of do want to do that. And sometimes that really is helpful. For people, especially like yourself who are alone. You have a built in community, you have a built in network, you have typically professionals looking after you to make sure you’re eating properly, that you’re taking medications, if you’re doing that at that stage of life. So the options are becoming better and better in the aging communities, I guess I would say than they were one or two generations ago.

Caller: I could disagree with you on that, but I hear what you’re saying. Like it’s not going to matter a whole lot once you get to that age, or I guess, you know, if you’re in bad shape and don’t know what’s going on. And it really, to me, it doesn’t matter.

Kevin Zywna, Wealthway Financial Advisors: But not everyone who goes to assisted living facilities is in that state. Sure, that can happen to all of us as we naturally age, we start to lose our faculties somewhat, but not everyone in assisted living is in that condition. There’s plenty of people in there, we have clients that are in their 80s, and some in their 90s living very vibrant, healthy, active lifestyles through an assisted living facility. So, I guess I just throw that out there to give you some food for thought.

Caller: Oh, no, I totally understand. Yes, I mean, you’re right. I just prepare for the worst, that’s all. And I guess they say, how do you judge, at what age is that money going to be important to you if you’re not worried about that so much? I know, that’s a deep question.

Kevin Zywna, Wealthway Financial Advisors: Say that again, James, what are you asking?

Caller: Like, when you retire, then you have plans and things that you want to do. At some point in time, you know, some of us aren’t as lucky as others. And, you know, say if I make it to 75 years old, and after that, I can’t work on my cars and do all that sort of stuff. You know? What good is having a whole bunch of extra money going to do for you right now other than possibly paying people to take care of you?

Kevin Zywna, Wealthway Financial Advisors: Well, that’s right. And I kind of agree with you. Right, the point of money, like I said to one of the callers earlier in the show, is to enhance your quality of life. It’s not just to die with a big pile of money that you didn’t get to enjoy. So it’s very much a balancing act. But the reality is, there is one potential bit last big expense that we all may face and while you’re kind of looking at it, it sounds like, as kind of like wasted money if you pay it towards assisted living. I can tell you by working with people in their 80s and 90s, that they don’t feel that it’s wasted. They’re maximizing their quality of life. It’s just a different style of life, than they enjoyed the 20 years previously.

Caller: No, oh, yes, I understand. Yes. God bless him. I hope that happens to me, right. All

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