Pension Perils and Cash Trap Escapes

Our 2 Cents – Episode #180

Pension Perils and Cash Trap Escapes

After a short break, we return with another great episode of Our 2 Cents with Steve and Gabriel Lewit! On today’s episode, the hosts explore the world of pensions and the various options they offer. Then, they explain the inside scoop with cash traps and answer some thoughtful listener questions. Listen in now using a link below!

1. Navigating Your Pension:
   • As pensions offer a variety of options, many individuals often ponder the advantages and disadvantages of opting for a lump sum.
   • Discover the differences between pension choices and ways to maximize your savings.
2. What is a Cash Trap?:
   • Learn the meaning of a cash trap and how tying up your funds now can affect future growth.
   • Gain insights into the advantages of adopting a broader perspective amidst periods of high inflation rates.
3. Listener Questions:
   • “I’m paying off my house soon and my pension, Social Security, and my husband’s Social Security will add up to my monthly expenses amount. Should I stop putting more money in my 401k?” – Maria
   • “My mother recently passed and left me with an IRA with about $350,000 in it. What do I need to know about this account, and how should I invest it?” – Benny

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847.499.3330

Podcast Transcript

Announcer: You are listening to Our 2 Cents, with the team from SGL Financial. Building Wealth for Life. Steve Lewit is the President of SGL Financial and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.

Gabriel Lewit: Welcome to Our 2 Cents. You’ve got Gabriel Lewit here, and Stephen Lewitt back on the air.

Steve Lewit: And you are back from a nice vacation. You’ve got a tan, and your kids ran you ragged.

Gabriel Lewit: I’ve got one of those sunglasses’ tans, which are my least favorite when you look like, what is it, like a raccoon or something?

Steve Lewit: Like a raccoon.

Gabriel Lewit: The strip around my eyes.

Steve Lewit: Yep. I hate that.

Gabriel Lewit: Well, I was in, in case, I don’t know if I mentioned it, but some of you I talked with. But I was in South Carolina at Folly Beach, and it was a very nice family vacation. First time actually that my kids, most of them, one of them has been to the beach before. But two of them have never been to the-

Steve Lewit: To the ocean.

Gabriel Lewit: With waves, you know. I think they’ve been to Chicago Beach, but that doesn’t. I mean, sometimes it has waves, I should say, but you can’t do boogie boarding on it. And that’s what they were doing at Folly Beach. And they were loving it.

Steve Lewit: Yeah, well I grew up in the East Coast, in New York. So when we were teenagers, we used to go to Rockaway Beach, 34th Street. And when you went out to the beach, it was like wall to wall kids. You would’ve loved it, teenage kids. But the waves at Rockaway Beach were big waves, and we used to dive into those waves and we had so much fun doing that.

Gabriel Lewit: Well, yeah, that definitely is what they enjoyed doing. There were some pretty good-sized waves there. They enjoyed diving into them. They had their little floaty jackets on so they couldn’t float away. And I know it’s not a get to know us session yet, but I will tell you, I do have to admit I have a fear of sharks.

Steve Lewit: Are you serious?

Gabriel Lewit: I do. But I managed to control it, so I’ll still go in the ocean.

Steve Lewit: But those beaches, there are no sharks.

Gabriel Lewit: Well, you shouldn’t do this, because I googled it. Someone got bit by a shark in the shallow ends where we were dabbling in, in like 2020 or something like that. Yeah, four years ago, one person. Okay. But enough to make you think, well, you’re out there, you’re frolicking.

Steve Lewit: You might be next.

Gabriel Lewit: You’re diving in.

Steve Lewit: And there’s a little fin coming your way.

Gabriel Lewit: No. I saw no fins.

Steve Lewit: No fins.

Gabriel Lewit: Which is good.

Steve Lewit: Good.

Gabriel Lewit: So yes, I do like to avoid the sharks.

Steve Lewit: And you came back all relaxed. You look great. You’re a new person. Rejuvenated. And the first thing you said is, “I can’t wait to do a podcast.”

Gabriel Lewit: Of course.

Steve Lewit: First thing you said.

Gabriel Lewit: It was number one.

Steve Lewit: Number one.

Gabriel Lewit: I love speaking for our listeners here.

Steve Lewit: All right.

Gabriel Lewit: Yes. All right. Well, we hope you had a wonderful 4th of July, and had some time to relax with family, friends, barbecue, chill out, grill out, whatever it was, to your heart’s content. We just hope you had a great time. And it was great to celebrate our wonderful country and our wonderful independence.

Steve Lewit: Amen to that.

Gabriel Lewit: All right. All right, so we’ve got some, I think great topics lined up for you today. We’re going to kick things off. It’s a question we’ve been hearing more. For whatever reason, lately, I’ve been hearing more of it. I’m seeing some people with pensions that have a lump sum option, and they are asking the question, “What do I do about this?”

Steve Lewit: Yes. Some pensions do not have a lump sum option where you have no choice. So if you’re in that situation, folks, because we do have people coming in. We’ll say, “Well, is there a lump sum option for that?” And they’re, “Well, I’m not sure” or they say no. And then we get the plan document, and guess what? There’s a lump sum option in there.

Gabriel Lewit: Yes. Yes. And the question of course is, if you have a pension, what’s the best way to maximize the money you’re going to receive from that? So we’re going to talk about that. And if you’re not lucky enough to have a pension, maybe this information will be useful for family members or people, spouses, people that you connect with because-

Steve Lewit: Or friends.

Gabriel Lewit: Friends. And then we’ve got other great topics for you coming shortly thereafter as well. But yeah, a pension of course. Great way to save for retirement. Not all pensions have lump sum. So let’s talk about, first and foremost, let’s say your pension doesn’t have a lump sum option.

Steve Lewit: What does that mean?

Gabriel Lewit: No lump sum option means you are not allowed to take you pension payments and turn them into an equivalent lump sum, i.e., let’s say you have a payment of 2,000 a month for the rest of your life, or they’ll give you $400,000 lump sum.

Steve Lewit: Right.

Gabriel Lewit: Okay. Some people don’t get that lump sum option. That’s correct. They just get the monthly payment choices. But in some cases, there can be a tremendous amount of them. I once remember I had a client come to me with, I think it was four pages worth of payment options. There was single, single with term certain, single with inflation, single without inflation, 25% survivor, 50% survivor, 75. It was like the most-

Steve Lewit: Complicated, right?

Gabriel Lewit: Okay, come on. This is nuts. So yeah. So what do you do, Mr. Lewitt, if you’ve got your pension and you’ve checked it out, you don’t have a lump sum choice, and now you’re looking at all these pages of election options? Which one should you choose?

Steve Lewit: Well, if you are a couple, if you’re married, we would always elect to take a joint payout. Now what are you doing there, Gabriel?

Gabriel Lewit: My chin is itching me.

Steve Lewit: Folks, I’m trying to give a serious answer and my cohort here is scratching his beard.

Gabriel Lewit: Well, you want to know exactly what’s happening. My chin beard hair is hitting the microphone pop filter, and it was itching me, so I was scratching it.

Steve Lewit: For the second time. The first time I let it go. The second time, I’m saying, what on earth is he doing? And he’s still doing it.

Gabriel Lewit: I don’t know. Yeah, what are you going to do?

Steve Lewit: Oh, man.

Gabriel Lewit: Don’t let it bother you. Focus, man.

Steve Lewit: No, I got to. What was I saying?

Gabriel Lewit: I have no idea.

Steve Lewit: All right, so always take the joint option. So the idea being that the man usually dies sooner than the wife or the spouse. And so you want to take the joint option on that. Some people will elect, and this depends on certain circumstances, to just take, if it’s a woman, to just take the single option because that’s a higher payout, and they take the risk that she will not outlive the husband. And she usually does.

Gabriel Lewit: Well, there are well-documented stories in some of the research that we were doing briefly for this, because we know a lot about this in general, but we like to do some additional research. And there are stories of people that thought exactly that. Let’s take the single life, because I’m the younger female and the older spouse will pre-decease me. And so we don’t need to get the lower payment. Because here’s what’s happened. If you select the single life, you’ll get a higher payment monthly from that pension than if you select the joint life.

Steve Lewit: Right.

Gabriel Lewit: Do you want to explain why that is?

Steve Lewit: Well, because the joint life, they have to cover the payments for two lifetimes. And with a single life it’s one lifetime.

Gabriel Lewit: Easier to actuarially determine, less financial risk for one lifetime.

Steve Lewit: And two lifetimes usually will have a longer lifetime than one lifetime. On average. On average.

Gabriel Lewit: But the risk, of course, and some of these examples illustrated this, where the wife had selected the single life payment, and then she did end up pre-deceasing the spouse. And then the spouse received nothing.

Steve Lewit: Nothing.

Gabriel Lewit: And for some people, what you have to assess there is, if that were to happen, would you have enough other money or would you be in deep trouble? And if you’d end up being in deep trouble if that happens, you’re going to be better off selecting the slightly lower but guaranteed for both lifetimes, the joint payment.

Steve Lewit: Right. So folks, when you elect a pension, understand that this is guaranteed income for the lifetime of one or two people. It’s guaranteed. But when you pass away, there’s nothing there for your heirs.

Gabriel Lewit: There is no remaining death benefit or balance you can draw from once the pension’s been elected.

Steve Lewit: Unless, Gabriel, and this makes it a little more complicated. You could elect something called 10 years certain, which means that if both of you died in year five, the payments would continue for five more years, 10 years. So those payments would go to your heirs.

Gabriel Lewit: They will guarantee you the payments over that, they call it period certain. But over that period, 10 years. And that was the one I was telling you about, that was four pages long, had 10 year period certain, 15 year period certain, 20 years. They had so many options, it was pretty crazy.

Steve Lewit: But generally, those options are not available. And you start your pension, and you both pass away. And it’s all gone.

Gabriel Lewit: So, let’s talk about that. That is one of the risks. If you have a lump sum option and you don’t choose it, and you choose the pension payouts, remember, once you elect that, you have no balance. And if you don’t select a period certain timeframe, let’s say you are 65, you elect the pension single life, you pass away in two years unexpectedly, nobody receives the value of that pension that you had saved up for and worked your whole life for.

Steve Lewit: Okay. So think of it this way, Gabriel, if I may. When you have a lump, you’ve got to stop playing with your beard. He’s driving me crazy, folks.

Gabriel Lewit: Just focus. Don’t worry about me. Do I call out when you slurp your coffee?

Steve Lewit: I don’t slurp it out loud.

Gabriel Lewit: Yeah, I was like, come on.

Steve Lewit: All right, so think of it. You have two buckets, if you have this option. One bucket has a lump sum of money in it, and the other bucket has payments for life. If you take the payments for life, you give up control of, let’s say it’s 500 grand. You give up control of that money, and it’s gone. That’s what old-time annuities were like. That’s why they got such a bad knock. You gave your money to the insurance company, and you passed away. You got annuity payments, which is less like a pension. It is a pension in fact. And there was no money left. The insurance company kept all your money. It’s the same with a pension. So that is a big negative of why not to take the pension, and take the lump sum.

Gabriel Lewit: It’s really interesting to me. I had a client once, well, potential client. He didn’t end up taking my advice. But it didn’t make any sense to me because he wanted guaranteed lifetime income. He had a pension with a lump sum option. He was discussing with me, is it better to take the pension or the lump sum option? And we ended up reviewing all the choices, and it was absolute clear-cut winner if he took the lump sum and put that money into an annuity that had a balance, it would have provided higher income payments than the pension would’ve provided, and would’ve had a balance. So if he passed away, his beneficiaries would receive the balance, and/or he could have stopped the payments any point in time and just invested the rest of the money. Total flexibility, total control, better income, death benefit. And he ultimately elected the pension because, “I don’t like annuity.”

Steve Lewit: I don’t like annuities. And what he didn’t understand is, where is that pension coming from? Well, a company bought an annuity.

Gabriel Lewit: They literally sell the pension obligations to an annuity company.

Steve Lewit: To a company to give it to him. Wait a second.

Gabriel Lewit: What? Yeah. So it’s interesting. But yeah, that is the whole point, right? It comes down to a numbers’ calculation, because the very first thing we can compare, if you have a lump sum, let’s switch gears. You have a lump sum option and you are analyzing that versus your pension. Imagine for a second you take the lump sum and immediately buy an annuity. Not one where you lose the principal, because that’s one of the benefits, you maintain your principal. And you immediately start income at the same time and the same schedule, joint or single that you would with the pension, which is higher. And you might find that the private option, the lump sum into a private annuity is, A, going to be higher income. B, might be inflation adjusted, which you may not have in the pension. C, has a death benefit. And D, gives you control, all these things that are missing from the pension.

Steve Lewit: Yeah. I will say, Gabriel, and you probably, I’ve never asked you this question. But there are some pensions, once a year we get a pension from a company that the payout is just so good.

Gabriel Lewit: Yeah.

Steve Lewit: It’s just, where are they getting this money from?

Gabriel Lewit: Well, I told you these have been popping up, these questions, of late, for me. And I just said that to a client, honestly, earlier today. Another one, another call I had who has a pension option. And I said, “Probably, 1 out of 10 or maybe 2 out of 10, the pensions are just so attractive, the payouts, you just can’t replicate. And then you have a hard decision to make. Do you want control, death benefit? Or do you want higher guaranteed lifetime income payments?”

Steve Lewit: More flexibility, and so on and so on. Yep.

Gabriel Lewit: Yeah. So that’s going to be your big choice. Now, let’s talk about, there are some people that have pensions with lump sums, but they don’t need the income because they already have a spouse that has another pension, or they have low enough expenses, they don’t need it. Well, in this case, it’s kind of a no-brainer, right? Take that money out. Don’t buy anything with guaranteed income. Put it into something that’s going to-

Steve Lewit: That’s going to grow.

Gabriel Lewit: Grow, as opposed to, okay, you take the pension, you get taxed every year. You reinvest that money after tax. It’s not going to be a better deal for you going that route, versus a tax neutral rollover to the lump sum into an IRA, invest the IRA, defer the taxes. Come out much further ahead.

Steve Lewit: Yeah. So it’s not a clear-cut decision, but it is something that you really need to run the numbers, as you said, Gabriel, and take a hard look at it. Just don’t jump in and say, “Hey, this pension sounds great. Wow, I’m going to get three grand a month here.” Because you could make your own pension, and that might work better for you.

Gabriel Lewit: And I’ll just say, instead of might, in most cases, it probably will.

Steve Lewit: In most cases it does. I was being generous.

Gabriel Lewit: Yeah, that’s okay.

Steve Lewit: Because I’m a generous person.

Gabriel Lewit: You are a generous soul.

Steve Lewit: Generous.

Gabriel Lewit: What a guy.

Steve Lewit: What a guy.

Gabriel Lewit: Good-looking, smart, generous.

Steve Lewit: It doesn’t get any better.

Gabriel Lewit: Good thing. Oh, somebody emailed us.

Steve Lewit: Yeah, I was just going to say, my ego.

Gabriel Lewit: Somebody emailed us after our last show and said, “Steve, I’d like you to sing for us.” I thought we’d get more emails. We got a couple.

Steve Lewit: Yeah, it was kind of disappointing.

Gabriel Lewit: Well, you kind of sung on the last one.

Steve Lewit: Well, not really.

Gabriel Lewit: Maybe people counted that.

Steve Lewit: There was just nothing to sing about.

Gabriel Lewit: Oh, there we go.

Steve Lewit: Yeah, I sing loud opera.

Gabriel Lewit: Harmony here, this was good.

Steve Lewit: Loud, loud opera.

Gabriel Lewit: Maybe on a feature show.

Steve Lewit: Big voce here.

Gabriel Lewit: I don’t know what that means.

Steve Lewit: Voce is, fills the room with voice.

Gabriel Lewit: Ah, yes.

Steve Lewit: So, my voice-

Gabriel Lewit: That’s what I was going to say.

Steve Lewit: I’m sure everybody’s interested in this, but my voice was trained to fill big auditoriums like the Metropolitan Opera House in New York. It sits 2,200 people, so you need big voices because they don’t-

Gabriel Lewit: Voce.

Steve Lewit: Yeah, because some of these houses don’t use microphones. A good opera singer doesn’t want their voice miced. Yeah. And I was a good opera singer.

Gabriel Lewit: Sorry, as you were talking, I was thinking about pensions.

Steve Lewit: Oh, I thought you were thinking about-

Gabriel Lewit: My mind-

Steve Lewit: I thought you were thinking about your beard or something.

Gabriel Lewit: I meant to mention one other thing about the pensions, which the risk is, the company providing the pension goes belly up.

Steve Lewit: Oh yes.

Gabriel Lewit: That’s another risk. And in general, if you move to a private insurance company or a brokerage company and you buy safer, you may have more safety as well.

Steve Lewit: Yeah, if the company funds their own pension and doesn’t sell it to an insurance company, which most do.

Gabriel Lewit: So just something to be aware of.

Steve Lewit: So back to my singing. No, I’m only teasing.

Gabriel Lewit: Well, any questions on pensions? Of course, all of that should be done in context of your overall retirement income plan. If you’re making that decision in a vacuum, I would argue that’s a risky move. And of course, if we can help you build out your plan, give us a call, 847-499-3330. Or go to sglfinancial.com, and click contact us. Or email us at info@sglfinancial.com, and we can help you map out all the pension options to your heart’s desire.

Steve Lewit: Got those numbers correct, Gabriel. Good job.

Gabriel Lewit: Yes. Yes. Thank you. Thank you. Okay. Well, I just want to take a quick detour into something that we’ve talked about before, but I found another article on it and just reminded me. I think it’s worth repeating throughout this year while interest rates remain high. So as a super quick recap, interest rates are still very high. They are still projected to go down very soon. Initially this year people were expecting in Q2, some in Q3. Well, we’re now in Q3. There’s still the prevailing opinion that interest rates are going to start dropping in Q3 or Q4.

Steve Lewit: Well, the Fed met, I believe, yesterday. And they did not, I didn’t see the notes directly, but my understanding is that they did not. They’re still concerned about inflation.

Gabriel Lewit: Yes. But the point still remains here. While you’re in a high interest rate environment, what’s happening is, people have fallen into what this article, which I thought was a great way of dubbing it, into a cash trap. And what do I mean by a cash trap? People are enamored with the returns on their cash and are looking in the rearview mirror now at the last year and a half and saying, “Wow, this has been great. And why would I do anything different?”

Steve Lewit: Yeah, I had clients in this morning who sold their house. They have another house in Florida. And they’ve got $400,000 in their pocket. And they said, “Well, what should we do with that, Steve?” I gave them their options, they could keep it in cash, and there are other places out of liquid where you can do better than 5%, let’s say, in a money market. And after my whole talk, and we went into this and we went into that. That’s exactly what they said, “Well, why shouldn’t we just take 5%?”

Gabriel Lewit: Well, here’s an interesting quote from the article that I found, that had the name cash trap. I didn’t think of it, so I won’t take credit for it. But it says, “Okay, Bob is a 66-year-old retired banker. It gave his last name, but I didn’t feel like repeating it here. He and his wife have about 60% of their non-retirement assets in T-bills and money market funds that are paying yields around 5%. They plan to buy a second home in a warmer area. They expect to keep it there, they said, until the Fed Reserve cuts short-term interest rates to below 4%.”

Steve Lewit: It’s going to be there a while.

Gabriel Lewit: It says, “Until then, I’m just going to keep it in cash. I like the safety.” Now, on the surface, that doesn’t sound like a bad idea. You’re going to wait out until you are seeing the lower rates, and then you’ll decide what to do with your cash when rates are paying less than 4%. But why is that potentially, Mr. Lewitt, short-sighted thinking?

Steve Lewit: Well, let me see. When the rates go down and I’m looking to buy something else, they’re going to be at a lower rate.

Gabriel Lewit: If you wait, I get the logic a hundred percent. And this is I think what everybody says, “Oh, I’ll just wait until the rates lower and then I’ll find something better.” But that’s the part that is the risk, right, the trap. Because when rates are high, you have opportunities of doing things that will lock in that rate. Products that take advantage of those higher rates, bonds that take advantage of those higher rates, bond funds that if you’re in them before rates decrease will rise in value. But if you wait until rates have decreased to then get into them, you’re not going to see that rise in value from the bond funds as you would if you bought them earlier. And so people are, I get it. It’s easy, it’s simple, it’s autopilot mode.

Steve Lewit: It feels good.

Gabriel Lewit: It feels good, it’s safe. But it also is, don’t mind me saying this, I hope, short-sighted. Because you’re not thinking beyond one year ahead of now and understanding the economics of interest rates. And you’re going to cost yourself tens of thousands of dollars potentially, or more depending on, in this case, $600,000. That’s a lot of money, and can lose a lot of long-term interest potential over the next three, four, or five years.

Steve Lewit: Yeah. It is not only short-term thinking, but most folks are not looking at the opportunity cost. In other words, I put my money in the money market. It’s nice and liquid. But how would I do better than that with virtually as much safety?

Gabriel Lewit: Well, as an example, there’s an annuity. I know some people don’t like that word. I’ll explain it, why it’s not a bad word. One of the options that we have, there’s tons of options in annuity world, okay? Now, if you’re a youngster, unfortunately this one won’t work for you. But if you’re 59 and a half or older, this is a terrific option for your cash. But what happens is, you can buy this annuity, it has no surrender charges.

Steve Lewit: Say that again.

Gabriel Lewit: No surrender charges.

Steve Lewit: It’s not like annuities.

Gabriel Lewit: It’s liquid.

Steve Lewit: Liquid.

Gabriel Lewit: Now, it does have an asterisk on that, it’s called a market value adjustment. I’ll describe what that is in a second. It is 100% principal protected.

Steve Lewit: Can’t lose money.

Gabriel Lewit: It can’t lose money. It’s a top-rated company. And you can get two options. You can get a guaranteed 5.5% rate for the next five years. So in this case of Bob, he’s going to wait until he earns 4% next year to do something about it. Which then, if he tries to do something new, what rates is he going to get next year when rates are already below 4%? He’s not going to get 5.5% is what he is not going to get.

Steve Lewit: 3.5.

Gabriel Lewit: Or you can get into something that’s going to guarantee that rate, and still you have the access to the money.

Steve Lewit: It’s liquid.

Gabriel Lewit: It’s liquid if you need it. And more importantly, if you actually believe rates are going to drop, what happens is, because it’s an annuity, if you want to get your money out, it has what’s called a market value adjustment. Fancy way of saying, behind the scenes, the insurance company, if you want your money back, they’re going to sell a bond that they purchased. But if rates drop, they’re going to be selling that bond for a premium, and you would actually get more money back over and above the 5.5% rate that you’ve been earning. And the question becomes, what’s the downside, truly, over just leaving it in cash in a CD. It’s also tax deferred. All this money that people keep socked in their checking account and savings account, CDs, generating big tax hit every year.

Steve Lewit: And you don’t get the money. You get the taxes, but you don’t get the money.

Gabriel Lewit: So that’s really the question. It’s why we call it the cash trap. Because if you can just try to think a little bit further out than one year, and try to do a little bit more work than autopilot. And this isn’t the right choice for everybody. But that was just one quick example. There’s all sorts of other choices and options. But $600,000 times, in this case for Bob, two percentage points over four more years, let’s call it, a big number.

Steve Lewit: It’s a lot of money.

Gabriel Lewit: Yeah, a lot of money.

Steve Lewit: For sure.

Gabriel Lewit: So that’s the idea. And if you find yourself stuck in this cash trap where you’re saying those things, “Well, cash is great. I’m just going to wait until it’s not so great, then I’ll figure it out.” You are who we are talking to.

Steve Lewit: Yeah, we’re talking to you, folks.

Gabriel Lewit: We’re trying to make you money.

Steve Lewit: We’re pointing our mythical fingers at you.

Gabriel Lewit: We are fiduciaries. We are not doing this just because we’d love to invest more of your money. Obviously that would be a win-win. But this is truly something that would generate, for you, more dollars. That’s what we’re trying to do, is put more dollars in your pocket.

Steve Lewit: Look, at the end of the day, folks, our job is to squeeze as much money out of your money to make you money in the safest way possible. That’s our job. So we’re looking at all these different options. Whereas most people that we meet are looking at one option, “Well, should I buy a three-year?” Here’s what I hear, Gabriel, “Should I buy a six-month CD or a one-year CD?” And that’s the option. “Or should I just throw it in money market?” But there are dozens of other options that should be at least known and considered.

Gabriel Lewit: Yes, indeed. Yes, indeed.

Steve Lewit: Okay.

Gabriel Lewit: All right. So that was just my PSA or public service announcement on that. I’ll probably bring it up again in another month or two. Because as rates do start dropping, you’ll still have opportunities to avoid this cash trap because it should be gradual. But just keep that in mind, okay? You don’t have to do anything today, tomorrow. But sooner is better. Before the rates go down, not after the rates go down, like this fellow Bob in the article. Okay? Anyways. All right, last but not least, we had a couple of quick listener questions that we wanted to cover here today. You’re looking puzzled with listener-

Steve Lewit: Oh, no. I just saw a client come in, and our receptionist is not there. So, I was concerned about our client.

Gabriel Lewit: Ah. Okay.

Steve Lewit: But, I wasn’t concerned about my beard.

Gabriel Lewit: Well, the clients are important. Beards not so much.

Steve Lewit: Right. Gabby is going to go help me out there.

Gabriel Lewit: Oh, perfect. Well, I think our reception is out on her lunch break because we’re recording this on lunch.

Steve Lewit: Yes. Sorry. Sorry, folks.

Gabriel Lewit: Well, let’s talk. We’ve got Maria. Maria is asking, I’m paraphrasing here from her email to us. But her house is going to be paid off right about the time she retires, and her monthly expenses will be about $5,000. I’m glad you know that, Maria. That’s very good.

Steve Lewit: Yes, it is.

Gabriel Lewit: And she says her pension, social security, and her husband’s social security should be, after tax, enough to cover all of that and a little bit to spare. And really, Maria’s question here is, once she feels like she’s got enough to cover her expenses, should she continue to put more in her 401k while she’s working?

Steve Lewit: Yes.

Gabriel Lewit: That’s the question.

Steve Lewit: Yes. If there’s a match, absolutely. So folks, if there’s a match in a 401k, that’s free money. So if you have to put in 5% to get a 5% match, guess what? You got 5% free money. So absolutely take the match.

Gabriel Lewit: 100% return, as they say, on that.

Steve Lewit: 100% return on that money with no risk. Now, whether you should put more in or more into a Roth option in your 401k, or you have other investments that you might put that money in, that’s really a question of your plan. What is happening with your other money? And what’s the purpose of it?

Gabriel Lewit: Yeah. And Maria, I would say it slightly different. If you weren’t saving the money in the 401k, what would you be doing with it? Are you spending it? I mean, that’s a key question, right? If your question is, “I feel like I have enough saved, can I start spending more of my money now instead of saving it?” Well, quite candidly, that is one of the benefits of a good plan, is if once you know you’re on track for retirement, it should give you confidence in your future income security, which should allow you the freedom to feel like you can spend more before retirement instead of over saving.

Steve Lewit: It’s like getting a note from your principal saying, “Yes, you can spend more money. Just don’t do it.”

Gabriel Lewit: But if you’re otherwise were going to save it, but now you’re not going to save it in the 401k just to pay taxes on it and then save it in your checking account and not spend it, that would not make a lot of sense.

Steve Lewit: It doesn’t make sense.

Gabriel Lewit: But hopefully that helps answer. So, yeah, it’s an interesting question. I actually haven’t specifically been asked that in that way before.

Steve Lewit: I would just add one more thing, Gabriel. As far as her income covering her expenses, there’s a cost of living increase. Her expenses will go up, let’s say 3% a year. There’s a cost of living increase in her social security. But most pensions do not have that same. If you’re making 20 grand a year now, 30 years later you’re still getting 20 grand.

Gabriel Lewit: So, it might seem like it’s covering it today, but without a longer term cash flow analysis, it may not be enough to cover in the future.

Steve Lewit: Be very careful. Inflation is a big deal.

Gabriel Lewit: And hence, make sure you have enough other assets saved over and above the pensions to cover that deficit.

Steve Lewit: So, Maria, Gabriel will give you the phone number to call.

Gabriel Lewit: I will when we’re done. I’ll give it one more time. Okay. Our last listener question for today, always good to touch on some of these that come in over the weeks, is Benny. Hello Benny.

Steve Lewit: Hello Benny.

Gabriel Lewit: How are you? Benny received recently an IRA inheritance. We’re sorry to hear about your loss, Benny, worth about $350,000. “A very sizable amount,” he says. And he would like to know how does he decide what to do with that inheritance? It’s sitting in his checking account or at brokerage, sorry, in cash. Basically in cash. How do you figure out what to do with this money?

Steve Lewit: I would be a little mean, and I would say to Benny, well, when you did your financial plan and considered this, what does your financial plan tell you that you should do with this money? Do you need it? Is it for legacy, you’ll never spend it? Do you need it to cover expenses? Do you have debts? What does your financial plan say? And Benny will say, back to me, Gabriel?

Gabriel Lewit: I’m not sure. That’s why I’m asking you. Well, Benny, I would concur with that. Your plan will tell you what to do, right? Let’s say you already had $2 million and you’re more than set for retirement. Take that money, Remodel your house. Do something meaningful for yourself. Put it and give it to charity for whoever you inherited from. Maybe something meaningful.

Steve Lewit: Invest it aggressively.

Gabriel Lewit: The world is your oyster for options. But if on the other hand, you need that money for retirement, to fund your own retirement comfortably and securely, then the quick answer is invest it and save it or put it towards something that’s going to generate you that income.

Steve Lewit: Except the mean part of this is I know Benny doesn’t have a plan. If he’s not, oh, this is a client, Benny?

Gabriel Lewit: Benny is not. He’s a listener.

Steve Lewit: He’s a listener, okay. Because if he’s a client, he has a plan. So Benny would say, “But I don’t have a plan.” Which is why I’m asking you this question.

Gabriel Lewit: Yes.

Steve Lewit: That’s the mean part.

Gabriel Lewit: So yes, let’s get your plan in order. That’ll help answer that question. Otherwise, in a vacuum, it’s hard to know. I mean, you never go wrong with saving and investing. But before you spend it, make sure you don’t need it.

Steve Lewit: Exactly. What’s the purpose of the money?

Gabriel Lewit: Exactly.

Steve Lewit: So, folks, you’re always investing with a purpose. Any dollar that you put anywhere, if you’re putting dollar in cash or a dollar in an annuity, or a dollar in a mutual fund or a dollar in crypto, I would suggest it would be very useful for you to ask yourself, what is the real purpose of this? And it’s not just to make more money. It’s always something deeper than that.

Gabriel Lewit: Yeah. Well, folks, that’s our show for you for today. Thanks for your questions. If you’ve got more questions anytime, please email us. Simple, complicated, easy, don’t worry about it. We love to share them on the show. Send us your questions, info@sglfinancial.com. I know one of the questions was, when is Steve going to sing? We’re still going to hold off on that opera note for the future. But otherwise, have a wonderful rest of your week or weekend. If you need to contact us, call us, 847-499-3330. Or go to Sglfinancial.com, click contact us. Or of course, email us, info@sglfinancial.com.

Steve Lewit: You know what’s interesting, Gabriel?

Gabriel Lewit: Yes.

Steve Lewit: Because we finished right on time, just by the hair of your chinny, chin, chin.

Gabriel Lewit: The hair on my… You were waiting to say that.

Steve Lewit: I was waiting to say that.

Gabriel Lewit: I was still scratching. Still scratchy for some reason. Oh, well, have a great time guys this week, and we’ll talk to you on the next show.

Steve Lewit: Stay well, everybody.

Gabriel Lewit: Bye now.

Steve Lewit: Bye.

Announcer: Thanks for listening to Our 2 Cents, with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at 847-499-3330. Or visit us on the web at sglfinancial.com. And be sure to subscribe to join us on next week’s episode.

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