Let’s Answer Some Common Financial Questions

As we close in on the end of the year, we want to finish up by answering questions that people have asked us recently. We’ll cover key financial planning topics like retirement withdrawal rates, saving in CDs, Social Security and more.

The scenarios and questions that we’ll cover in this episode will hopefully touch on something that you’ve been thinking about or will in the future. Ryan will address each of these and share insight into how Cravitz Financial works through the process to help someone determine an answer.

Here’s some of what we discuss in this episode:

• Is it okay to take a short term loan to get funds for a closing while you wait for your current home to sell?
• Is a 6% withdrawal rate too much in retirement and how do you figure out that number?
• CDs have been a good investment in the current interest rate environment but will that continue?
• What should you expect from a financial advisor before you pay them any fees?
• Can you still take Social Security benefits while your spouse is working?

Full Transcript:

Ben (00:00):

Well, as we close in on the end of the year, we want to finish things up by answering some questions that we've received recently at Cravitz Financial. We're going to cover topics today, like retirement withdrawal rates, Social Security benefits, saving and investing strategies and much more. So this episode's going to take you through a variety of retirement scenarios today, so let's jump in.

Announcer (00:21):

When it comes to financial planning, you need to cut through the jargon so that you can understand how to achieve your own retirement success. This is Candid Conversations Retirement Talk with Ryan Cravitz of Cravitz Financial & Insurance Solutions.

Ben (00:36):

We're glad to have you back on another episode of Candid Conversations Retirement Talk with Ryan Cravitz. I'm Ben George. He's Ryan Cravitz, of course at Cravitz Financial there in Orange, California. Ryan, welcome in. How are you today?

Ryan (00:47):

I'm doing pretty good. How are you Ben?

Ben (00:49):

I'm doing well. We are in the final month of the year. I know you can't go anywhere without seeing something related to the holidays right now, so that's top of mind for everybody. I was just thinking a little bit about it, trying to get our plans together, at least for the holidays. Do you guys have any family traditions, anything special you guys do this time of year?

Ryan (01:05):

Well, we always go out to my sister's house on Christmas Eve and spend some time out there for the day and usually late into the evening and then we might come back and then the next day we have Christmas at our cousin's house as well, so they have a nice big house. So it's a pretty big family get together and some other friends, so it's a pretty fun couple of days there with family and such.

Ben (01:28):

That's great. And I know with only two weeks-ish, left until Christmas, maybe three. You got your shopping done?

Ryan (01:36):

Well, of course not, Ben, come on.

Ben (01:37):

(laughing)

Ryan (01:41):

It's a work in progress. I have some of it done, so I'm happy about that. We've got some things taken care of there, but I still have some plenty more to get. So maybe this weekend I'll get going.

Ben (01:55):

Every time about this time of year, I'm like next year I'm definitely going to go ahead and just be planning ahead a little bit, so then when by Friday rolls around, I get a lot of my shopping done then and kind of have things knocked out and not worry about in December, and then well Thanksgiving rolls around every year and I'm like, well, I guess I'll just end up buying things again in December and figure it out when I figure it out. So don't do proper planning when it comes to getting ready for gifts and buying that around the holidays.

Ryan (02:18):

You and me both, but actually that's a good reminder. I should get online, get on Amazon or something like that and I'm sure I could find some good stuff there too.

Ben (02:27):

Well, I think they made it easy for us. You can just get on and press a couple of buttons and have something delivered within a day or two, so it kind of actually promotes procrastination a little bit. Yeah,

Ryan (02:36):

Some things we get delivered on Amazon, they deliver it the same day. It's crazy. It's like, did I even press the submit and already it's here. I mean, it's incredible. Sometimes.

Ben (02:47):

Yeah, their distribution's pretty insane, but that's I guess the reason why they're as successful and as large as they are, but well, we wish you a happy holiday season and to those listening today to the podcast, we wish you that as well. Hopefully you're able to spend some time with some family and friends, but today we want to jump in and go through a number of different questions here. Ryan, I thought this was a good idea you had is you've gotten a bunch of questions that have come to come into the office over the last couple of months or so, and these are all kind of good scenarios I think today that probably somebody will be able to relate to, right? Because they cover on a bunch of different topics.

Ryan (03:18):

Yeah, definitely. I mean, as we wrap up the year here, we'll just go through all these different things. Some of these are more common questions that I'll tend to get and figure let's just put it all in the same podcast here.

Ben (03:31):

Alright, well let's jump in and start with this one. I'm closing on a new house in a few weeks and I need cash for the closing, but my current home isn't going to sell on time, so I won't have the money from that to use. I don't want to make a big withdrawal from my IRA and pay all those taxes. So should I just find some kind of short-term loan?

Ryan (03:48):

Yeah, it's a good question. I mean, possibly if we're talking just a short-term loan, hopefully the interest isn't that high. That could be a possibility. But the first thing that I would do is take a look and see if you have the cash available. I mean, I'm assuming that you don't, and that's the reason for the question here, but the first place I would look is to any cash that you have on hand checking, savings, that sort of thing. Yeah, definitely. I would lean towards staying away from wanting to withdraw from an IRA. I mean there might be a 10% penalty. I don't know the age here if you're under 59 and a half as an example. I mean over that, you don't have to worry about the penalty, but we've got taxes and especially if you're in a higher tax bracket, maybe right now may not be the wise thing to do. So if we're just talking about a short-term loan, I mean it's really no big deal. I say go for it. Go ahead and do it and enjoy the new home.

Ben (04:46):

It's a good sign though that this person's asking that question though too, right? Because not everybody thinks through it. They just kind of go, okay, I got a bunch of money in my ra, lemme just pull from that.

Ryan (04:54):

Unfortunately, that happens way too often.

Ben (04:58):

All right, good question there. And if you find yourself in that scenario, again, you want to sit down with a financial professional As we go through all these questions too, if anything kind relates to you and maybe your family can always reach out to ryan Cravitz financial.com or just give 'em a, call it seven four four six two nine one five five. Alright, here's another one. Let's talk about properties. Here's one that says, we have homes in two different states and we really like both of them, but we're also both 57 years old and we'd like to retire at 60, so three years out here, is it worth selling one of the homes to make this work?

Ryan (05:30):

Yeah, I mean, this is a great question and this is one of those questions I just can't answer. I mean, nobody can answer other than you in this situation because it ultimately comes down to what do you want your retirement to look like? What is that vision? What's important to you? If you're going to look at a couple of different options here, let's say option A and option B, and option A was, hey, you get to retire at 60, but order to do it, you have to sell one of your homes, or you can retire at let's say 65 or 67 or something like that. And if you do that, you can keep both homes what's most important to you. So it's really a case by case basis and for you to kind of determine what makes most sense. Now, going beyond that though, if you really want to have both homes and you really want to retire sooner rather than later, another thing to consider here is perhaps can you rent out the other home perhaps for part of the year to help make the math work, help make the numbers work? So definitely some things to consider.

Ben (06:39):

Yeah, that's a good opportunity there to run some numbers and kind of see what the different options are and the different decisions you could make to give yourself the most, I guess, favorable outcome and what you, I guess, whatever fits your goals the most.

Ryan (06:54):

For sure. Yeah.

Ben (06:56):

Alright, good question there. All right, here's just another one. This one I retired three years ago, but I just did the math. Speaking of doing the math and discovered that my withdrawal rate for my savings is about 6%. Is that way too much?

Ryan (07:07):

Well, so it depends. The amount that might be safe for you to withdraw from your portfolio is going to depend on several different factors. I mean, one of them is are you planning to adjust that for the overall rate of inflation going forward or are you looking maybe to spend more money early on in your retirement years and then kind of scale that back. A lot of the people that I talk to, they want to spend more money in their early part of their retirement, so we'll account for more living expenses then and then have that slowly start to drop over time as you get older. Now, healthcare expenses, we factor that in separately and healthcare expenses are going up at twice the rate of the overall inflation rate. So big picture is the right withdrawal rates going to depend upon what is your age today and how long do you think you might live? How long do we need to have this money continue for?

(08:13):

Again, are we looking to stay at let's say a 6% withdrawal rate or are we looking to scale this back? If we're talking over let's say a 30 year period, we're going to take a 6% withdrawal rate and increase that for the overall rate of inflation. That's very aggressive and you got to be very careful there and would probably want to have that scaled back. But again, that's where you're going to want to really track what your expenses are. That's the first thing I always advise before you retire. You have to know what your expenses are and then create that plan around that because for some folks you may spend 8% of your portfolio in the early years of your retirement, but then you start to scale that back to maybe 5% and then 4% and then maybe 3% as you get older. So it's really a case by case basis depending upon what's important to you and what you want your retirement to look like.

Ben (09:15):

We're going through some questions that have come in to Cravitz Financial in recent weeks and months to close out the year here on the show. Here's another one, an investing question. I have a few CDs that will be maturing in the next year. I'm worried about what the market will do. So should I just reinvest in more CDs one signature?

Ryan (09:34):

This is one of those, of course depends answer because it's going to depend on what the purpose of that money is for. What we do know about the markets is that they go up and down and over the long term, over the history of the markets, the stock markets and such, they've gone up, but it's not going to go up in a straight line. We have that volatility there from day to day, but that's where it comes back to what is the purpose of this money? Is this something where you're going to need some money, let's say in the next six months, one year or something like that? Then perhaps finding a good CD or a good savings account just to keep that money available for when you need it. Real short term could make a lot of sense, but if this is money that you need to, you're not planning to spend any time soon that you're just going to continue to save, maybe you're going to withdraw little bits from this over time for income in retirement or something like that that might be invested then very differently. So it is just going to depend upon that purpose of the money and then how much of it you're going to need and when.

Ben (10:50):

Alright, great question. I know one probably other people are thinking about when they are concerned about the market, which who knows what it could do over the next year and beyond. Here's one.

Ryan (11:01):

You know ben the other thing that I find here too is I hear that sometimes and I'm worried about the market and sometimes what that makes me wonder, actually a lot of times what that makes me wonder is is somebody investing according to what their risk tolerance is? Perhaps they're seeing their portfolio going up and down maybe more than they're comfortable with, and there's a difference between risk tolerance and risk capacity. So in other words, it's one thing to be comfortable from a psychological perspective, this is our risk tolerance, what we're comfortable with day to day, month to month, that sort of thing. But risk capacity is something that's very different but related because that has to do with how much risk are we able to take or should we be taking more objectively in order to meet those goals? And sometimes those two things don't match, even though maybe it makes sense that you could be more aggressive, let's say in your investments maybe from a risk tolerance perspective, it's just not comfortable and maybe you don't really need to take that additional risk to meet your objectives. So again, that's where it comes down to what is your income plan, what is your need for expenses and making sure it matches. Otherwise you'll just be uncomfortable.

Ben (12:24):

Yeah, that's a good point. Alright, here's one. I guess maybe for you specifically, Ryan, I've interviewed a few different financial advisors and they're all very cryptic about what they're actually going to do with my money. It's like they don't want to tell me anything until I give them everything and then they'll surprise me or something. So is this normal?

Ryan (12:39):

Well, here's the thing. I mean, certainly before you start working with a new advisor, you should absolutely have a good understanding of what you're invested in, how the plan's going to work and all that sort of thing. On the other hand, on the flip side here is if you're just meeting with a new advisor for the first time, they wouldn't have a chance to get to know you enough yet and really have a good understanding as to how you should be invested in order to meet your goals. I would be very cautious about anybody that's making specific investment recommendations to you after as little as just one meeting or right when you're getting together there. It's much more nuanced than that to just make a snap decisions on how a whole portfolio needs to be created. So it's got to be careful on both sides.

Ben (13:33):

Yeah, that's a good question, Ryan. And I think too, it's a good reminder that you're not committed to anything. So if you go in and you don't feel comfortable with what somebody's telling you or something that they're asking you or wanting you to do, you can always go and have other meetings with other advisors and just see what else is out there.

Ryan (13:49):

Absolutely. I mean, you have to make sure that you're comfortable with what your plan is, with what your portfolio is, with your relationship with the new advisor that you're working with. And here's the other thing too is sometimes I find that people feel uncomfortable to ask their advisor questions for various reasons, but if you have that feeling at all, then address that. You have to feel comfortable that any advisor you're working with that you can have that level of comfort where you can just go back and forth and ask questions and not feel either intimidated, maybe these are things you should already know the answers to or something like that. Whatever it is, you just need to make sure that you're comfortable.

Ben (14:36):

Alright, got a couple more questions here, Ryan. Here's one on debt and saving. I like this question. I've been paying off debt aggressively for many months and I almost have it all knocked out and once it's done, I don't have any more payments and I'll have almost $3,000 that I can save each month. I'm 53 and I feel behind with my retirement savings, so I want to be aggressive with this money so I can catch up. What should I do with it? Well,

Ryan (14:56):

First off, congratulations for being debt-free or almost debt-free in this case, and now having $3,000 a month freed up in order to save and invest. That's fantastic. So the first thing I would take a look at is do you have money in savings? I'm guessing maybe not too much if a lot of the money is going to pay off debt, but the first thing I would do is make sure that you have money in a savings account, minimum of three months, but maybe more like six months or so, just kind of depending upon your situation, depending on what kind of job you have, how secure that job might be. Or maybe you're not working right, every case is different, but you have to have an emergency reserve set up in case the roof leaks, car breaks down and all that sort of thing. After you have that emergency reserve set up, then you're going to want to take a look and see if you're still working.

(15:45):

Maybe you have a retirement plan there such as a 401(k) plan. I would consider maxing that out. And also too, they may just have the option where you could fund it on a pre-tax basis, but you may want to consider putting some money in a Roth 401(k) or fund it after tax if they have that available to you. Also, beyond that, if you can max out your 401(k) and you have that additional money here to save and invest, you can also just save in a taxable brokerage account as well. Another thing too, depending upon what your income is and if you're married and if your spouse might be contributing to a plan, so there's some different rules there, but you may be able to contribute to a 401(k), but then also contribute to a Roth or you might be able to make a contribution to a spouse's Traditional IRA or Roth plans. So you're going to have some different options there, just kind of depending upon your situation. But again, congratulations on being debt-free.

Ben (16:53):

Yeah, great position to be in and even if you feel like you're a little behind, you can do a lot of work in your fifties to catch up. So again, sit down with a financial professional. Again, if you want to talk with Ryan, you can go to CravitzFinancial.com or you can call 714-462-9155. Alright, let's close out with one more on Social Security. My wife is 62 and we're thinking it would be a good idea for her to take her Social Security benefits. Now, I'm 64 still working and I don't plan on taking mine until at least my full retirement age. However, we heard that our benefits could be withheld because we are still working. Can you explain how this works?

Ryan (17:28):

Yeah, so good question here, kind of unpack these different things here. So you're 64 right now, and so you haven't yet reached your full retirement age. Now, I don't know. It depends upon the year you were born, what your full retirement age is, but it's somewhere between 66 and 67. Now, what you have to watch out for is that if you are still working and you want to turn on your Social Security benefits and you haven't yet reached your full retirement age, that your benefits could be withheld. So they have an earnings test and above. In 2024, for instance, above $22,320, $1 for every $2 is going to be withheld from your Social Security. Now, it's not a tax, it's not like you would never get it back. Once you get to your full retirement age, they don't give it back to you in a lump sum, but they do credit your benefit with a positive adjustment going forward. Now, once you get to the year of your full retirement age, but before the month of your actual birthday, the rules are more liberal, you can make some more money without having it withheld at all. But here's the deal, for most people, if you're still continuing to work, it doesn't make sense to take your Social Security prior to your full retirement age. So you do want to consider that.

Ben (18:53):

Okay, great question. All these, I think very good scenarios and common scenarios. Hopefully something we touched on today maybe addressed a question that maybe you had or some things you were thinking about, but as always, encourage you to sit down with a professional to work through these situations to really get into your details. So Ryan or whoever it is can truly give you a full answer to whatever your scenario might be. Again, you can log on CravitzFinancial.com or call 714-462-9155.

Ryan (19:21):

Yeah, Ben, I just realized the other part of that question there. That first part was the wife was looking to take her benefit and she's 62, and so she can go ahead and do that. She's not working. I mean, she could take it that earnings test will only apply to you and for your situation, but she'll be fine.

Ben (19:42):

And it's very good. You always want to take into account both spouses, right? When you're making that decision. You don't just want to turn on one without thinking about how it affects the other.

Ryan (19:50):

Absolutely.

Ben (19:51):

Alright, very good. Well, with that, Ryan, we will close out the year and it's been a good one and have enjoyed working with you and hope you and your family have a happy holidays and you listening as well.

Ryan (20:02):

You too, Ben. Take care.

Ben (20:03):

Well, thank you for listening to Candy Conversations Retirement Talk with Ryan Cravitz. Again, log on CravitzFinancial.com for more and we'll talk to you in 2024.