In this episode of our video series entitled From the Orange Couch, Robert W. Tull, Jr., CFP, President & CEO of Tull Financial Group, provides some practical ways to get the greatest value from your employee benefits, including the following:
Please subscribe and join us monthly as we share impactful stories and helpful answers to commonly asked questions related to personal finance. If you have questions or topics of interest you’d like us to cover in an upcoming segment, please Contact Us through our website or connect with us on social media today.
Thanks for watching, and stay tuned for the next segment on Charitable Giving!
Hi! Phil Tull here from Tull Financial Group. We are going to be unpacking employee benefits for this segment of From the Orange Couch. This has been a great segment where we really dive into personal finance common questions as well as some stories from over the years. Today, we’re going to be doing that with employee benefits with Robin Tull, our Founder and CEO.
So Robin, to get us started, let’s unpack employee benefits. What does that mean when you’re looking at retirement planning?
Phil, first, I think it’s important to understand the history of how retirement planning came about because it’s so important that we do that. At the beginning of the 1980s, the defined pension plans, which most corporations had, began being phased out. The reason they were being phased out is because they were expensive and companies didn’t want that responsibility. So now that the employee has that responsibility, it’s so important that we plan and contribute to these plans.
As I’ve said for years, retirement planning is based on a three-legged stool. There’s three legs to it. One is Social Security. The second one is personal savings, and the third is the employer retirement plan — the 401(k) / 403(b). It’s so important to participate and understand them at this time.
So, you said that the responsibility is now on the employee, and the employer having those matches. What contribution should we be looking at?
There’s an article in the Wall Street Journal this week that surprised me. It said that the Millennials today are doing a better job of saving for retirement than the previous generation. Why is that? Well, if you go work for a new employer now, you’re automatically opted into the retirement plan. You have to actually opt out. And so, I think that is helping a lot of people from that standpoint.
Let’s get specific: $22,500 is the max that you can contribute to a 401(k). If you’re 50 and older, it’s another $7,500 that you can contribute, so it’s a total of $30,000. Now, that seems like a lot of money; start where you’re at. Look at what the match is. Most companies provide a match: 3%, 5%. You want to at least do that match because if you don’t, you’re leaving money on the table.
That’s a great point. Considering current market environments, I know inflation’s a hot topic right now. How does that impact our retirement planning and those retirement plans?
Inflation — it’s got to be a concern today, especially for retirees. You look at the expenses going up. You have to have corresponding income to offset that – or what we call the retirement gap. There’s two things to do: first, you’ve got to include equity stocks into your portfolio because historically they’ve kept up with inflation. They’re a little more risky, a little more volatility, but how you offset that is by having fixed income. Bonds offset that.
Then the second area would be, we usually say, have one to two years of what your expenses are going to be, and that’s what you’re going to draw from so that you don’t have to sell stocks during a period of downtime, which is going to happen.
I think that’s a great point. There’s a few different aspects to look at, and so that’s why it’s so important to get with your financial advisor, if you have one, and make sure you get that input as you’re navigating those.
I saw recently in the Harvard Business Review that 40% of employees when they leave an employer, exit that plan. By exiting that plan, they’re then taking those funds out. Can you break down the impact that has on the overall retirement outlook for people?
We have a real-life story. We had someone come in last month, and they were telling their neighbor that they were going to retire. The neighbor suggested that they come see us. And so they came in. They had already filled out the paperwork to receive it as a lump sum. This was like $500,000. That’s an incredible amount of taxes to pay. So we were able to quickly call up the custodian, put the paperwork on hold, and explain to them the idea of drawing that down over time rather than taking it in a lump sum.
It can be a dramatic change there, and that’s really what you want to do when it comes to retirement planning, especially with inflation. You want to draw that out down over time, and you want to include a very diversified portfolio.
It’s a great point. Now, we talked about retirement plans in terms of employee benefits, right? What other employee benefits should we be considering?
I see the health savings account not being used as often as it should. It’s definitely a tax deduction. It’s tax deferred, and they don’t even really have to take it out in your 70s until you really need it, and that could be long-term care. So, I like that.
I also think that there’s a lot of educational benefits that are provided. Go talk to your employer. Talk to your HR department. Find out what benefits are there. But those are two that stick out to me.
That’s great. Always ask questions, right? I think you just get educated as best you can in all the different departments. Any final insights to close this out?
As I always say, if you don’t know where you’re going, any road will get you there, and it comes with retirement planning. You’ve got to have a plan. You want to have a glide path so that it’s smooth. You’re going to have storms along the way, but if you have an action plan, you’re going to have a successful and peaceful retirement.
Well, thank you for joining today from the Orange Couch, and we’re looking forward to many more segments with you all. Reach out to your financial advisor if you have any questions: employee benefits, retirement planning, and how all those can get applied to you. Each person is a little bit different so reach out – happy to talk to you.
Robin, thanks for joining today. Enjoyed it, thanks.
DISCLOSURE: The commentary in this video reflects the current views of Tull Financial Group (“TFG”). Reproduction or distribution of this material is prohibited, and all rights are reserved. Past performance does not guarantee future results. As with any investment strategy, there is potential for profit as well as the possibility of loss. TFG does not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk, and investment recommendations will not always be profitable.
This material does not constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. All investments involve risk, including foreign currency exchange rates, political risks, market risks, different accounting and financial reporting methods, and foreign taxes. Your use of these materials, including the www.TullFinancial.com website, is your acknowledgment that you have read and understood the full disclaimer.
The discussion of investment strategy, philosophy, and portfolios found in this advertisement is not intended as any form of substitute for individualized tax advice or investment advice. The discussion is general in nature and, therefore, not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.
Any references to changes in positions or to model portfolios have been provided for representative purposes only, and changes noted may not apply to every client account as clients may place reasonable restrictions on the management of their assets, including those managed within model portfolios. Before participating in any investment program or making any investment, clients and all other readers are encouraged to consult with their professional advisers, including investment advisers and tax advisors. TFG can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.