Stephen R. Kirkendall: (360) 256-5106

Important Questions Regarding Your Retirement

Steve Kirkendall has answered listeners’ calls on KPDQ radio for over 15 years. Here are Steve’s answers to important questions regarding your retirement.

Why are estate planning strategies so important?

Proper estate planning strategies help insure that you minimize how much of your estate goes to the government while maximizing how much goes to your family and charities. We never know when we might die and since we have paid our taxes each year, why let our government tax us again after we die? If I’m married and don’t intentionally make part of my estate taxable up to the unified credit offset amount and I give everything outright to my spouse, which I could do without estate tax, we would only be using to credit once instead of twice a cost just because I didn’t take a few hours to address this issue. Also by setting up a trust I can avoid probate costs on my estate and sometimes years of delays.

A will is probate instruction telling the courts and attorneys what you want done, similar to a trust, however, it becomes public record where trusts can do the same but can do much more than a will and not become public record. There are many types of trusts (revocable and irrevocable) even Dynasty trusts that could keep assets in your family up to 360 years.

With so many different ways to address your estate strategies, it is extremely important you have an experienced estate planning strategy team including a financial professional and attorney. I ran into a family who thought their regular attorney knew what he was doing for their parents estate and after I reviewed their strategy, I encouraged them to see an estate planning attorney which cost them extra but saved a significant amount in costs on their parents’ estate when they died a few years later. Also, I have seen too many families broken up because things were not put in writing and the heirs ended up fighting the rest of their lives.

What should I look for in an investment advisor representative?

I believe being licensed in both the areas of insurance and securities is very important. Also if only licensed in one area, the advisor could be swayed to just that limited area. In addition to licensing there are credentials that mean that person has taken many hours of extra training. Just a couple of good ones in my opinion are Certified Financial Planner ® (CFP), Chartered Financial Consultant (ChFC) and Chartered Life Underwriter (CLU).

I also believe experience is almost more important than anything. My service to my clients has spanned six presidents.

I’ve changed jobs. What I do with my old retirement plan (401(k), TSA, 457, 403(b), i.e. Pre-tax Plan)?

When you change jobs, you don’t have to leave your 401(k) or other retirement plan at your old company.

It may be best to transfer it to a rollover IRA to have a much larger choice of how to invest those funds. On a qualified transfer it still stays tax deferred and its not reportable on your tax return. On transferring to IRA, there is no maximum dollar amount like the regular annual IRA contribution limit and if you wanted to you could still add your regular IRA each year to it if you qualify.

Remember an IRA is just an IRS umbrella that could be funded with almost any kind of investment.


Should I just cash out my 401(k)?

Typically, No. Unless you are over 59-1/2, taxes and penalties can take half your account, and if you’re over 59-1/2 it will be added to your current income which may put you into a higher tax bracket.

Which retirement choice should I take?

There are different payout choices with retirement plans. Some will only pay a monthly amount which you must take a reduction to protect your spouse and if you both died the balance is kept by the company.

If you have an choice to transfer to an IRA, that may be your best choice, especially if you are married because when you die your spouse could be the beneficiary with children as contingent beneficiaries. The IRA could be funded with many different types of investments.

If your plan will only allow monthly payments and you are married you should consider the payout that protects your spouse. In the event you die first, this can be very important because there will be a loss of social security when one of you dies.

Be very careful when buying life insurance to protect your spouse’s income. You will need it guaranteedby the life insurance company to not lapse the rest of your life and you will only be using the after-tax difference to pay for the policy. Example: You get a graeter monthly payout if you don’t protect your spouse. You must pay tax on that additional monthly payout before you buy a policy to protect your spouse’s income.

If you’re single, you may also want to transfer to IRA to give you more investment choices and not lose control of your assets. With most company monthly payout plans once you start their plan, you lose control of your money. An IRA can give you many more options.

Are there ways I could make my old insurance contracts or cash value life insurance work better for me?

In many cases, Yes! The IRS allows tax deferred 1035 exchanges (which is just a way to move from one insurance product to another without current taxation) that when done properly is not reportable on your tax return. Be sure to check what expenses and costs your existing insurance company might charge before moving. Also review the costs, expenses and commissions the new insurance company may charge.

Additionally, review the features, benefits and riders on the new insurance company to determine they are suitable for you and that your existing insurance company cannot add these features, benefits and riders at a lower cost prior to a transfer.

With some older insurance products you might want to review the next generation of newer types. On your old cash value life insurance policies, since many of the insurance companies have adjusted and updated their mortality tables, you might want to review those policies. We’re living longer and/or that old health problem is not as bad as they thought in the past.

It usually doesn’t cost for a review to see if you may benefit.


Are Roth IRA’s important?

First, let me explain how Roth IRAs differ from traditional IRAs.

With a traditional IRA, you defer income taxes on your contributions until you take withdrawals. Your earnings are also taxable when you take out the money and a potential 10% IRS penalty if under age 59-1/2. So you dont pay taxes going in and pay taxes when you take out money which most people today believe taxes are going up for everyone.

With Roth IRAs, contributions are made with after-tax dollars so withdrawals are tax-free when you are over 59-1/2 years old and held at least 5 years.

Even though ROTH IRA’s are funded with after-tax dollars if the profit is held at least five years and comes out after age 59-1/2, it’s tax free even to my beneficiaries. So why not let it be taxed now so it can come out tax-free later.

Should I take my Social Security as soon as possible even if I don’t need it?

And when should I start taking Social Security? 62, 65, 66, 67, ???

In many cases, Yes! Especially if you are at full retirement age (100%). Let’s say you’re turning 66 and it’s your full social security retirement age why not start taking now instead of waiting until age 70 to get 132%.

If you retire early on social security and don’t need it you probably make too much income to have it make sense since they take one dollar for every two you earn on the job of the amount over a certain monthly amount until you reach your full social security age. It’s only earned income that counts, not IRA’s, pensions, investment, etc. in figuring how much they will take.


How do I know if I’m getting good financial information?

I believe the most important thing is that a financial professional is telling you is the potential risks of investing. There is NO investment that doesn’t have some level of risk about it.

Investment risks can include potential drop in income, principal risk, purchasing power risk from a falling US dollar, inflation risk, etc.

By knowing what the potential risks are you can decide if it’s suitable for you and your finacial goals and objectives. Will the financial professional talk with your attorney, your accountant or a trusted friend? Also stay away from making any investment decision the first time you meet someone unless you are already very knowledgeable about the investment.

Why is it important to start retirement planning strategies as soon as possible?

Most of us will be working 40-50 years knowing we want to retire comfortably and sail off into the sunset or just do what we want. Since we are living longer as the years go by we should plan for those 30-50 years of hopefully not working. How do you know you’re there unless you have a strategy?

I’ve seen people get to the age they thought they could retire and find out they’ll run out of funds sooner than they thought. I admire those grey-haired folks working at very low paying wages in their later years for not giving up but if they had planned before and known that working one to three years longer could have added years on the end, I believe they would have.

Financial analysts estimate that 80-85% of Americans will not retire at their same standard of living as in their working years.


In these questions I addressed above there are probably many, many more ideas that should be covered. I have just given brief general answers since every individual and situation is unique and that I hope you will seek professional services from someone like myself before making any financial decisions.