Doug Houser:
From Rea & Associates Studio, this is unsuitable, a management financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful, measurable results. I'm Doug Houser. On this weekly podcast thought leaders and business professionals break down complicated and mundane topics, and give you the tips and insight you actually need to grow as a leader while helping your organization to grow and thrive. If you haven't already, hit the subscribe button so you don't miss future episodes. If you want access to even more information, show notes, and exclusive content, visit our website at www.reacpa.com/podcast and sign up for updates. Retirement comes with many ups and downs, but knowing your retirement options and getting the proper assistance can help the ride go smoother. Today, Kim Veal, Supervisor at Rea & Associates, is here to give insight on what to expect with your retirement plan and how you can receive help. Welcome again to unsuitable, Kim.
Kim Veal:
Hey, it's good to be back.
Doug:
Good. Yeah, it's been a while, but our apologies for that. We need to have you on-
Kim:
More often.
Doug:
More frequently, yes. Yes, absolutely. Gosh, so many unknowns in today's world. Obviously politically, economically, all that. All these things we can't control, right? Talk to us a little bit about your retirement plan and maybe what each of us can control.
Kim:
Right. Just a little bit of background, I'm not an investment advisor, I do not control or an HR person at your company, but what I have done with my career is I'm focused on auditing retirement plans. I see it after the years are over and I see generally the results of what happened, but even in doing so, you get a little bit more familiar with what retirement plans have, and the fact that a lot of people, just regular employees at any company aren't necessarily as familiar with their plan or aren't using it as maybe they should or their balance is low. We can see your age and we're like, "Oh my gosh, I don't know."
Kim:
Some of these people are getting up there and they don't necessarily have the balance you would expect. The first thing just from that perspective is, I encourage people to get to know their plan. Do you even have one? Because some people don't even know that they have one available, no matter if HR sends them an email or post it like, "Hey, come join our retirement plan." They don't really get to know what their plan has. So, the first thing I always suggest just goes get a nice little summary plan description. Every plan's got one.
Kim:
You don't have to read like... We have to get in when we're auditing and read this whole big plan document that is all legal. Nobody wants to read that. I'm familiar with what it says, I know where to focus, but if anybody who's not got it and tries to read it, they're like, "I don't even know what's going on." But there's a nice little summary plan description and it is the easiest way to get familiar, to know what option's available to you, and to jumpstart that, hey, I want to get involved.
Doug:
I think that's great advice because so many times, and we're in the finance and accounting world, but even ourselves and our own associates, and like you said, the companies that you see, don't be afraid to ask. These aren't dumb questions. People think, "Oh my gosh, I should know this, and I'm not going to ask anybody." It's no crime to know. It's complicated stuff.
Kim:
What I always think is there might be things in there you're not even aware of that is current. I don't want anybody to leave potential money on the table, and most plans have some sort of match. Your employer is going to, if you put in some money, we'll put in some money. If you don't even know that that exists, you're actually leaving money on the table that your employer's ready and willing to give you if you don't put anything in. So, get familiar, see what's there with that, as well as it's one of the easiest ways to start saving for retirement because it happens as part of your paycheck. You don't even think about it.
Kim:
I set this up, it comes out, it's not part of anything that goes into my bank account, so I don't even feel like I can't use that this month. No, it's already gone. It's already in there, already starting to earn interest and everything, and it's getting that nice little match. I know I'm going to have some people going, "Well, I'm already in my 401k. I know about matches. I'm not one of those that aren't familiar, I'm not something like that." But, I do think there's at least one provision that you might not know about, even if you are the person who is participating. Again, got to get familiar, but you might not know there could be an auto increase program.
Kim:
The auto increase is once a year your percentage will be increased 1%, which is barely even noticeable on a paycheck, and especially most companies tend to schedule that against your pay raises. So, "Hey, I got this raise," but a little bit of it, you don't even notice it at all then, you're still getting a pay raise at that period. Say your plan doesn't have that, you can do that yourself. Introduce your own little auto increase program that I'm going to go in once a year on the 1st of January, I go in and tell my HR, "Hey, bump my percentage up to one," because I don't notice 1%. I'm not trying to go from three to 10, and then going, "Oh my gosh, I got rid of my disposable income."
Doug:
Those are great things to be aware of. Some of the other things I've seen is where if you don't check what funds those investments are going into, oftentimes the match may go into a certain fund and you've got other things designated, maybe they're not age-appropriate for you either because we all have different work horizons. If you're 25, obviously you're going to have a longer timeline than someone like myself, the mid-50s, I should be thinking differently. Continue to evaluate those kinds of things too, right?
Kim:
Right. So, think about that. How many of us are really experts in investing? There are some people who do it for a career, but I'm not one of them.
Doug:
Not me.
Kim:
I've got my base knowledge I need just to see what's going on for those plans that are out there, but I don't know which ones to choose. The second thing that you really should do is get a pro. Find somebody who does know those things that can help you evaluate what options are available in your plan because most plans they give you access to 20 investments. There are thousands out there. There could come a time that although we know your plan at your employer that's where you're going to get potential matches, and that's the easiest one to pull straight from your paycheck, that might not be the best solution for you or the best way to maximize what you get.
Kim:
A pro really can help you to make those choices and pick the stuff, maybe I'm going to set up my own IRA outside, and they're going to help you put money in there, invest it, but many of them will also help you evaluate what's in your employer retirement plan, or your employer may even offer a pro for you to talk to. There's all that, but again, I don't know anything about cars or fixing them up, I'm not a surgeon, I'm not going to do that for myself, so same thing. We work for a public accounting firm, people come to us to help them with their taxes and everything else. Find yourself a pro, someone who can help you understand.
Doug:
Right, exactly. Yeah, for sure. I know we do, we offer that access, and other places that I know of, they offer that free access to a pro. It's worth taking that half hour or an hour and just sit down with somebody and go through where you're at with your own life story, and what your needs are, and those kinds of things. Even if your situation is a tough one, and we all have things with family or health issues or expenses that we don't expect, try to outline a plan. Having some kind of plan that you try to adhere to and be flexible with it every year is better than having no plan at all, and that's one of the biggest mistakes that we often see is people that just don't have a plan at all.
Kim:
We're not even talking about you got to meet with them every two weeks or every month, this could be a one year and then if I start to panic or I want to change some things, something sounded interesting to me, I heard about it on the news, can you tell me about it? Most advisors want to hear from you at those points too. You got to find who works well with you, that you click with. These are people that might be with you for years to come because again, we're playing the long game here for some. Some are closer, but you're still several years potentially out, or into even retirement, they're going to be helping you out. They may even become like family.
Doug:
Oh yeah, absolutely. Some of the other things too, learn not just the investment provisions, but plans that have loan provisions and things like that if you do have those unexpected life events, what are the loan provisions look like? Also, what's your ability to take... Oftentimes people have moved around to several employers, can they take balances that are left in some of those old employers' plans? Can you layer those on to your existing 401k or do you have to move those into a separate IRA? All different kinds of things, different options. The Roth IRA has become much more popular the last few years as an available option. For people that certainly don't know, those are contributions made after-tax rather than the traditional 401k, which are before tax. There are just so many things to try to understand. Kim, in your advice, where does somebody start with that with their employer? Do they go to HR, or where do you go?
Kim:
Right. Every company is different. Some companies, the bigger you get they may have a specific individual who is designated and they just oversee plans. Most often it's your HR director or that HR department is where it's going to fall because it's included in the benefits package. If that's what you're looking for and you want more information, that's the first person that I go to see or the first group. I'm going to go into that department, I'm going to say, "Hey, employee, I'm just looking for information about what retirement plan options we have." They're going to be ready and willing to help you get signed up, figure out who your beneficiaries are going to be, they're going to direct you if they do have additional resources, like the investment advisors that they work with, or many will set you up with the online account so you can go look up the information yourself.
Kim:
[inaudible 00:12:43] encourage anybody to start if they are concerned or have questions, or don't even know, like, "Hey, I know this has been coming out of my paycheck, but I don't remember doing anything," because you could have been auto-enrolled, you weren't even aware. You might find that deduction today like, "Hey, wait a second." It might've happened that way. That's where you're going to go to start. One thing we know about investing, because again, even though we talk about this being a retirement plan, you get into this investing world. It's a rollercoaster, so as we know just from experiencing this year, we talk about disruptions and everything going on, and economy shut down, and you hear this news and you hear that news, it's going to happen. We've seen it. There are trends, there are issues going up and down, you have to be prepared for that long-term plan.
Kim:
Like you were saying, you've got to get something that this is what... I met with my advisor, this is the plan that we have, and don't necessarily get scared. People tend to make interesting decisions when they get scared of something or if something comes up. Those drops in the investing world are scary for anybody who's like, "Oh my gosh, there's my retirement. I'm only 10 years away," or, "I'm only five." That's scary. That's why you need to surround yourself with the team, that investment advisor, and others that make you feel comfortable, that help you ride out those waves, help you make your choices. Before you jump on the bandwagon, I can introduce some new ways to get access to some of these funds loan wise, and certain distributions, before doing that, talk to somebody. Maybe you don't need to take it from your retirement account because you have some cash sitting off to the side, but if you need it, that's what they're there for.
Kim:
They're supposed to help you work through those decisions and figure out how to best address current needs, but again, they're focused on where are you going to be when you retire? That's what these plans are there for. They aren't like your savings account or something like that. Some people use them like that and will take loans every year or whatever, over and over again they're just taking loans out. They use it as a savings account, but that's not what they're for. We want to be careful and know what that will do for our taxes, and know what that will do for our availability of funds when we do get to retirement before making those calls. It's going to happen, we're going to have downs. I know when we do this like, "I don't even want to look at my retirement right now because it's dropped so much." Just be prepared for that, especially if you're new to the retirement plan investing world where you maybe haven't been paying too much attention. I don't know, but a plan will set you on that course.
Doug:
Right. The key is it's that long-term thinking. As people, we all tend to think so short term generally, we're thinking about later today or this week or whatever, and I've got this emergency to take care of or this bill to pay or this unexpected thing happened. We all deal with those but try to use the retirement piece, as you indicated, as a last resort. If you do have to take loans or do need the distribution side of it, sit down with a professional and understand the ramifications and then come up with a plan as to how you can get back on track when things hopefully do change.
Kim:
One of the worst things you can do is just go do it and then call your advisor going, "Oh, by the way, I took a distribution," and they're like, "Oh my gosh, do you know what penalties you're going to have?" You're like, "No. They said I could." They are a resource for sure, that's what you need. That's why we talk about having a pro because some people would be quick to just be like, "Hey, I can get access to it? Okay, let's do that." And it may not be the best choice. We also understand there's going to be stuff that comes up for you that isn't normal. I don't know all the circumstances, that's why you contact somebody.
Doug:
Kim, in your experience, you're obviously auditing a lot of these are retirement plans. You see so many different plans across the spectrum, can you give us on both ends what you've seen? Maybe least favorable plans versus some that are overly generous, and obviously there's a lot in between.
Kim:
Right. Probably the least favorable plan for people is the one that they're just offering it and that's for you to put some money aside, but the employer doesn't really do much for you, there's no additional match or profit-sharing contribution at the end of the year or anything like that. As much as that's offering you a vehicle to do that if I was interested necessarily in doing that I could go out the same thing with my own individual IRA account. Obviously, there are some limits on IRAs, and you might be able to do a little bit more with the employer sponsor one, but I'm not getting any additional incentive other than it's just having a program over here. I have to pay for it, but it's over here and I'm not getting anything extra.
Kim:
I've seen plans that go all the way up to... Actually, I've seen one plan that the employees aren't allowed to put any money in, but the employer puts in a significant percentage of everyone's [crosstalk 00:18:52] get a portion, it's an ESOP profit sharing combination. ESOPs are the Employee Stock Ownership Plans, which obviously means you're investing in employer stock. It's split so they put some over into this employer stock, and then they let you invest in the investment options over here, but that percentage is huge. At the same time, I would prefer it if maybe I could put some of my own in, but that's not how they do it.
Kim:
At the same time, I don't know if my percentage even with a nice little employer match would come close to what that percentage is that they're doing for their employees. There's the gamut. In general, your most standard ones they're going to have a match for you. That's probably the most prevailing that I see is that they don't want to just give you funds, but if you are willing to put up some money, they're willing to put up some money to invest it in your retirement. Most likely if you go and talk to your employer, if they're offering any sort of retirement plan, that's what you're going to find.
Doug:
Yeah. That's a great perspective and great advice, Kim. Certainly, I think the thing that you mentioned, talk to a pro and know your plan, find out what's there.
Kim:
Right. What do we have? Heck, you may not even know you have a pension. Pensions are becoming rarer and rarer, but they're still out there. We still view some of those too, so you could be accruing benefits and not even know.
Doug:
Yeah, absolutely. Great stuff, and thank you, Kim. I appreciate you being on this week, and I look forward to having you on again sometime soon. If you want more business tips and insight or to hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast. While you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show, be sure to subscribe to unsuitable on Apple Podcasts, Google Podcasts, or wherever you're listening to us right now, including YouTube. I'm Doug Houser, join us next week for another unsuitable interview with an industry professional.
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