Transcription
[Music] Whole questions that we are going to present to you, and they are true-false questions. But we're going to address these questions throughout the webinar today. But before I get into the answers of the questions, I wanted to poll the audience to see what you feel the answer is to these questions, or how you would answer them. So we're going to start off with the first question here. If Vanessa can put that up, uh, the first question again: true or false, "I will never retire." And what we'll do is we'll just give about 10 seconds here to allow you to respond to that, and then we'll move on to the next question. So true or false, "I will never retire." Okay. The second question, question again, true or false: "The average annual return for the stock market is 12%." All right. And then the third question, the last question: true or false, "My expenses will decrease in retirement." All right. Well, great. Now these three questions again are relevant to the discussion points that we'll be talking about today. Um, but even more importantly, these are three questions that we frequently get here at the offices that I think uh need to be addressed and and get some education around. We're start off by looking at Luke 14:28, and this is a fantastic verse when we consider looking at long-term financial planning. The verse reads: "Suppose one of you wants to build a tower, will he not first sit down and estimate the cost to see if he has enough money to complete it?" So what I find interesting about that verse, as we're talking about saving for retirement, the the word that really sticks out to me is the word "estimate," because when we're talking about planning and preparing for retirement, you really are looking at a moving target, and it's very difficult to know exactly what you're going to need for those years in retirement. So really we're trying to make an educated guess; we're trying to come up with an estimate. The key isn't that you get the number right; the key is is that you're asking the question and continually changing and tweaking your strategy so that you have a better chance to end up with the right result.
So initially, the problem that we look at when we talk about retirement planning, or what I like to call long-term financial planning, is the simple fact that people aren't ready to retire; people aren't thinking about retirement; people are thinking about today, not 10 years from now, not 20 years from now. You know, it's interesting, we we did some analysis here at AG Financial within our own retirement plan that we administer, uh, that includes ministers and employees, and we wanted to kind of look at, of our 23,000 participants, what does retirement balance health look like? And you'll see, just to highlight a little bit of this because I think again I think it's relevant to the three best and worst strategies, this is a a synopsis of average balances inside of a retirement plan within AG Financial by age group. Now, rather than go through this whole chart, what I want to point out to you is look at this, look at the age 61 to 70 category. So the this is an age group that is not necessarily retired, but it's an age group that's preparing for retirement sometime in the near future; they will be transitioning or making a change. Their average balance is about just a little over $887,000. The median balance, right next to that—median meaning half of the the people in that age category are under $38,000—so 38 and below, 38 and above, with an average of 87. So if you really think about it, that is those statistics are not pleasant to look at; those are a situation that we do not want to be in as we're in that approaching that age of 61 to 70. We want to be in a totally different circumstance, and there are ways which we're going to discuss, discuss today, to get there.
So if we go on and look at the—oh, I'm sorry, I did want to share something with you to kind of put that in perspective, um, regarding that $887,000. The largest expense that you'll have in retirement is typically health care, and the difficult thing about health care is it's also your most unpredictable expense. So according to a uh a 2012 report by Fidelity, and some of you have probably heard this, but I think it's important to put the $887,000 in context, uh, the report from Fidelity shared that a 65-year-old couple retiring this year, 2012, is estimated to need $240,000 to cover medical expenses throughout their retirement. And the assumptions that were used in this—they used a life expectancy for the man of 17 years, a life expectancy for the woman of 20 years—and that it also assumed that neither were covered by an employer health plan. And the cost was uh calculating Medicare deductibles and co-insurance on Part A, Part B, and Part D, the drug prescription program. But as you can see, if you're estimated to need $200,000 plus thousand dollars during your retirement years and you're on track to have about 87 to 90, or let's even say $100,000, there's a deficiency that exists, and that's really a big issue that needs to be addressed. So we're going to move on here to our first topic: the three worst strategies. Now, again, we had to limit this for time's sake; there are far more worse strategies than just three, uh, but these are three ones that we deal with on a regular basis. So um would like to look at the poll if we could, uh, regarding your expenses decreasing in retirement, the true-false question, and I don't know if we can look at um the results of that. Okay, you should all be able to see the results of that on your screen. Um, it looks like 29% uh answered yes, and 71% answered no. Interesting. You know, it's in—if you go out and do any research on your own on this this particular issue, you'll find that most uh financial websites or financial advising websites have a general rule of thumb that in retirement you'll need anywhere from 70 to 80% of your pre-retirement income. So basically the concept is, in retirement you will need less money to live on than during your working years. Again, going back to the statistics I just shared with you, namely the Fidelity statistic, we're actually finding that to be vastly different moving forward. Uh, many people today that are in retirement are finding that their expenses are at least the same as before they retired. So when we're looking at this, and I think most of you were in agreement with that—71% said no—most of you are going to want to build a plan based on the idea that you're going to need at least the same amount during your pre-retirement years in retirement. And so as we craft and look at the strategies, we want to keep that as part of our target.
But one of the uh worst strategies that we see all the time is cashing out between jobs. Um, we live in a society today—I'm not even exactly sure on the statistic, I think the last time I saw was that the average person changes jobs every seven years. Uh, fortunately, in the ministry world, the statistics aren't quite that often, but we still work with ministers or employees, teachers, educators frequently that are going from one church to another, from one ministry to the other, and often times during that transition we'll get phone calls where people had said, "You know, I cashed out my 401k plan, or I cashed out my 403b plan, because we had some unexpected expenses, or um we needed something to get us through the transition before we had another job." Well, as you can see, cashing out between jobs is not always the best situation, namely: early withdrawals can hurt you in the long run because they are depleting your long-term savings, and catching back up can be very difficult to do. Um, and the early draws typically come with fees and penalties, taxes. So I I know that the general rule of thumb is that if you're younger than 59 and a half and you cash out your retirement plan, you're looking at anywhere from 20 to 30% of that cash out going to the government in the form of taxes and/or penalties. So it can be very, very hefty. How do you prevent this from happening? Is basically be sure that as you're focusing on your long-term, as you're focusing on building your retirement, you're also building up your cash, because we don't want to have everything tied up into accounts that are restrictive or have penalties on withdrawal. You need to be sure that you have short-term emergency funds or cash assets parked someplace that in those meantime you can dip into those funds rather than your retirement funds. I know that it's becoming increasingly difficult, and in the tough economic times we're in, to build, build up cash. I also know that uh it's not uh it's not exciting to save into cash right now because interest rates are so low; oftentimes your banks are giving you zero interest and probably even charging you money to keep your assets there. Um, but nonetheless, irregardless of interest rates, you need to have cash to prevent these things from happening.
The second strategy, worst strategy, is uh chasing returns, and this is one again with the uh environment that we're in. Uh, we we see this quite frequently. So let's talk a little bit about what chasing returns means. Retirement is a marathon, not a sprint. It's interesting and absolutely where I stand—fascinating to watch investor behavior—um, when things are really moving in the stock market, everybody gets very excited about being in the stock market, and when things are in absolute disarray, like we just experienced in 2008, everybody's running for the hills. You know, one of the greatest investors that has ever lived, uh, Warren Buffett, has a saying that I love, and his saying is simple: "When people are greedy, be fearful, and when people are fearful, be greedy." And basically it's just a fancy way of saying the old adage: buy low and sell high. You know, I've been fortunate enough in my tenure here at AG Financial to first go through the dot-com bubble, the tech bubble, then of course the unfortunate events of September 11th and the impact that that had on the economy, and then just recently the 2008—whether or not you want to refer to it as a real estate bubble or a financial bust—um, it it was a lot in a 10-year time period, and you can watch how people responded to that by watching the investment decisions that were made as a result of what was going on. You know, there's an another great principle: if it's too good to be true, it's probably not true. And it's it's becoming more and more difficult to have conversations with people, uh, namely because a lot of decisions that I'm seeing that are occurring today are actually rooted out of fear, and that's a dangerous position when you're making investment decisions based on what you what has happened in the past or out of fear. It often leads to irrational investing decisions. A great example is this: in 2008, when the market was tanking, and you—in that 12-month time period—we lost over 40% in the equity market, which was the second worst uh market uh decline since the Great Depression. But in that time, what did most investors do with their portfolios? They sold out. First quarter came, they saw a decrease; they said, "Oh, okay, that should be okay; we'll get through this." Second quarter came, they saw another decrease; they started getting uneasy. Third quarter came, they saw even more decrease; they said, "I'm out; I want to get out of equities; I want to go into something safe." And and you know, no problem, we, you know, process their change, help them to feel more comfortable. And what's interesting though, in 2009, 2010, 2011, and 2012, the market has actually returned back over 90%. So those that got out actually missed the bulk, if not all, of the rebound of the stock market. And you know, essentially, I just had a conversation yesterday with an individual that called up and said, "Look, you know, I'm thinking about getting back in the stock market; I got out in 2008, but I'm really thinking that now might be a good time to get back in," which it may be. I don't know what the next six months, 12 months, five years holds, but what I do find is is that if you got out in 2008, that says to me something about your personality; your personality isn't geared toward risk, and you have to invest with your personality, especially if you're looking at long-term investing. Right now, we are being bombarded, or you are being bombarded, with um great investment options. Late-night commercials are telling you to invest in gold, uh, precious metals, um, you know, my general thumb is, if if it's hitting late-night infomercials, it's probably—you're probably a little late to the game on the investment; maybe you should have been invested in gold, you know, six, seven, eight years ago. Um, not to say that gold still won't go up, it's just that we're getting more and more calls now after it's gone up significantly, and now people aren't wanting to just invest in gold; they're wanting to put all of their money in gold, and that really worries me. Real estate is another great example. In 2002, 2003, 2004, I would frequently have conversations with clients on the east and west coast, namely that um, you know, when it came to retirement planning, their retirement plan was the equity in their home; their their homes had appreciated so much that they felt that it wasn't necessary to be saving into a retirement plan. Well, as we all learned in 2007, 2008, even real estate can go through a correction period, and many of those people have found that their homes have gone down significantly in value, and they have no other assets to help them as they get closer to retirement age. So I say to say this: is real estate a good or bad investment? Is gold a good or bad investment? There's no right or wrong, but the key is you don't want to put all your eggs into one investment; you want to be sure that you're properly diversified, because everything runs in cycles. Real estate has its great period of time and has its poor period of time; gold has its great period of time, has its poor period of time; stocks the same, bonds the same. So you want to be sure that you're properly diversified, and more importantly, you want to be sure that you understand the relationship that exists between risk and reward. The more risk you're willing to take, the more the potential reward you can earn—not guaranteed, but potential. And it's funny because I'll get calls from people saying, "Hey, look, uh, I just got a a an annuity salesman; I went to a a a dinner, and they were pitching us um a bonus index annuity, and it's going to pay me 10% just to put money in it; it's it's the greatest thing." Well, here's the thing: you need to assess, how are they able to pay you 10%? Well, and that particular product, it's typically because once you put your money in it, you're locked into that anywhere from 10 to 15 years; if you ever change your mind, you have very high surrender fees because the insurance company's going to get that 10% back. So be sure you understand what you're investing in; be sure that it's something that gives you the appropriate amount of flexibility, especially as you're getting closer to retirement age. Most of you will want flexibility in your portfolios, and more importantly, be sure that you're properly diversified.
So that takes us back—let's look at that poll question that we asked at the beginning: the true or false, "The average annual return of the stock market is 12%." And Vanessa, do we have the results on that? Yes, we do. You should all be able to see your results. Um, the um we had 100% that said that that was true. Oh, no, that's fascinating. Well, here's the thing: it's kind of a trick question, because really, and I'm sure some of you caught this when you were answering it, is it depends on the start date that you choose and the end date when you're measuring the performance. So, for example, if we look at just 2000 to 2010, the stock market was basically flat for that entire decade. But if we expand that and look at more of a 30- or 40-year time period, then you're going to see numbers more like a average of—actually, I would say probably closer to 8 to 10%—if you factor in the last two recessions. If we exclude the last two recessions, then you're going to probably get closer to the 12%. All that to say is, we can advertise investments with whatever fancy percentage, but be sure, again, you understand the investment; it's properly diversified; it gives you the flexibility; and if anything else, be sure you seek out advice and look at the fine print; be sure you understand all the charges and fees, uh, everything that's in there. Now that can be—if you want to talk to us at AG Financial, we're happy to do that, but I also would be an advocate of um looking at a third-party uh fee-based financial advisor, a fee-based, an independent financial advisor—not one that's working for a specific company selling a specific company's gold uh products—but a fee-based where you're paying usually by the hour to have them give you a an one- or two-hour annual review, um, that would give you some kind of unbiased uh look at those and to see if they're appropriate for you as well.
So going on to the third strategy, and this is one that—we believe it or not—do come across frequently, uh, we strategy depending on a spouse's retirement plan. So we have a lot of situations that occur where um husband or wife have a pension plan or a very significant 401k plan, and so the other spouse, because of that, doesn't feel it's important to save or set aside anything into their plan. Well, the pensions is what's the most fascinating, as we've seen over the last 10, 15 years; pension plans have have kind of gone by the wayside. But even when we look at government and state pensions, um, corporate pensions, not only you're finding that they usually no longer exist, but you're finding that the benefits to retirees are actually been cut or reduced depending on the health of the institution or the state that's providing that. So any more um an extra layer of diversification that you can add is to have your spouse participate in a retirement plan. If you have a spouse, for example, that works uh part-time, full-time, um, and they're not—have not already asked this question—you need to be sure that their employer is not offering them a 401k or 403b retirement plan, and even better, are they providing them a match that you're not using? Um, let's say you have a spouse that does not work; maybe um opening up an IRA for them and and making a contribution to it every year. The the nice thing about an IRA is that an IRA could expand the amount of investment options that you have available to you. If you have a 401k or 403b plan and you have an IRA through your spouse, you may have access to other investment options that you didn't have in the primary plan. So there is some benefit to looking at this um diversity of options, and then of course the balancing of your portfolio. You know, usually as a couple, you want to look at your asset allocation holistically, and often times I'm working with a husband and wife will find that one of them has a higher risk tolerance than the other one, and so one will have a more aggressive portfolio and the other one will be much more conservative, and overall that helps to balance them out. So there's a lot of different ways you can look at it; this isn't saying that you have to get a retirement plan for your spouse, but it is saying, if you're in a situation where maybe your spouse works part-time, full-time, or even is is not working, but you wanted to get some extra diversity, you could open up another employer plan or for an IRA, just depending on the situation.
Now we're going to segue into uh moving out of the worst strategies into the best strategies, which is where I'd rather focus my time, um, but before we do that, let's—I think we've got all three of the poll questions answered, right? I want to be sure that we got all those. I don't know if we talked about "I will never retire." Oh yeah, that's a great one. Yeah, let's look at how they—I would love to see how they responded on that question. So the response to "I will never retire," um, we had 17% that said that that was true, and 83% that said that that was false. Oh, well, that's great; that means that most of the audience is planning to enjoy or have some level of enjoyment in retirement here. So and this is great, because this is when we talk about the best strategies, we're trying to get you to a place that you're able to retire. Now, here's the thing: retirement is different amongst everybody. For many people, um, working in retirement is an aspiration. Um, medical studies show that the longer you work, the healthier you are, the more your mind's engaged, the more purpose you have. So we don't want to make this definition of retirement be that at 65 or 70 you hang up your hat and you do nothing. We want it to be more of a question of, "What does retirement mean for you? What are your priorities? What do you want to accomplish? Spending time with family, missions, ministry, volunteer—whatever it is"—and that helps to shape the question then of, "How much will I need?" which then shapes the question of, "How much should I be contributing?" So looking at the best strategies, uh, try to implement some of these tips into your plan. The first one: consolidate old retirement accounts. I don't know if any of you have ever heard of or seen a television show that's on currently—I don't even know what channel it it's on—but there's a show out called *Hoarders*, and it's all about people that suffer from uh the the uh—I don't know if it's a disease, psychological disorder—that they have to have a bunch of stuff. And it's interesting, I've only seen it once or twice, but I have noticed that even outside of stuff, even with our finances, especially here in America, we are consumers and we are accumulators. And it's not uncommon for me, when I'm working with somebody in their 50s, 60s, or 70s, when we look at their retirement plan or their financial picture, they'll have two, three, four, five different retirement plans that they've accumulated over the years. Friends set them up with something; change of jobs; they just forgot about this one. Um, so I think it's an interesting point to consolidate old retirement accounts. Number one, it helps you to stay organized. Um, number two, it allows you to combine everything together, and it's an easier to manage. And three, avoid maintenance fees. When I'm usually sitting across the table from somebody that has multiple accounts, I'll usually ask them three questions: first, "What are the balances in each of the accounts?" Typical response: "I don't know." Second question: "How is it invested? What types of mutual funds or bonds or what's your allocation?" Typical response: "I don't know." Third question: "How much are you paying in fees?" Typical response: "I have no idea." If you answer those three questions with that typical response, this could be a great strategy for you. If you answer all three of those questions with exact answers, then you're probably built to be able to manage multiple accounts, and you may have a great relationship or track record with those other companies, in which case keep them. But again, just so that you're all aware, the legislation does allow you to combine 401ks, 403bs, IRAs that are not Roth all together if you so choose, and there may be benefits to that, um, and and that's something that again we can help you with, or you can look at an independent financial advisor to see if that's to your advantage. I'd just like to interject with a comment on that. Um, I started working here probably about six months ago, and I had a 401k before I came here, and just went ahead and consolidated them for just ease of managing them, seeing the balance, and um it was—I was a little bit anxious about how that process would work, and I I was really impressed with how really simple it was. Um, so I mean, it just allows us to kind of see, you know, like you said, if you haven't [in] a lot of different places, it's hard to really know what your complete balance is, so it kind of helps my husband and I get a good idea of kind of where we're at, absolutely, financially. So and out of curiosity, do you and your husband each have your own retirement plan? Yes, we do. So your husband works at an institution that offers a retirement plan, so…
You've chosen to each have one. Yep, great. I'm glad that you sh— thank you. Um, the second best strategy: start early, start now. I mean, the title really says it all, but just to kind of go down—you guys have all been bombarded with these compound interests. Time is your most valuable ally when it comes to saving. Uh, whether you're starting in your 20s or you're starting in your 50s, those years are going to make a huge difference.
Secondly, automate your savings. Um, usually, for instance, in 403(b)s and 401(k) plans, your contributions are automatically deducted out of your paycheck—out of sight, out of mind. The easiest way to save is when it's not a choice that's left to you. Because let's face it, if you're in a money—a fiscally tight situation at the end of the month, the last thing you're going to think about is retirement. There's always something else that's more important: kids, expenses, your own needs and wants. So automate it; take it out.
Interestingly enough, the second bullet under there: reminders. Um, you know, studies have been done that show that when you're reminded—people that were reminded—saved on average 6% more than those that weren't reminded. Um, we heard that—I think it was about a year and a half ago—we read that study, and as a result of seeing that, we've actually now implemented here at AG Financial an automatic reminder system that you can sign up for, which basically is just going to send you two or three emails—of which you can delete or respond—but it's saying, "Hey, do you want to increase your retirement contribution? Here's a link to do so." Um, if that is something that you do like the idea of—because we all get busy, we all have other things going on—you can see the—the link here: agf financial.org/myfuture. And if you go to that site, you can just enter in your name and email, and you'll be on our list to get auto reminders, and you can unsubscribe at any time if you so choose.
The third one: the right time to start is now, and build from there. You—the average age that somebody starts saving for retirement—that starts—is 45 years old. The best age to start saving for retirement: 21—20—first job, whatever that is. So there's a big gap between when people start and when they should start, and what we're trying to say is: is wherever you're at—whether your 30s, 40s, 50s, 60s, 20s—whatever age—the key is you got to start. If you're already started, you got to build on it; you got to increase it; you got to keep thinking about that strategy and what tweaks need to be made. You know, I—I get the question all the time: "How much? What is my number?" You know, there's even commercials out there now that says, "Here's my number." Um, there is no exact formula. I've seen them read most of them out there. Um, and again, it is a moving target. So again, we come up with the word "estimate," but the 10-10-80 principle is an old Larry Burkett principle, which I think is the most simplistic: you tithe 10, you save 10, you live on 80. And I like that principle because it at least gives somebody a goal. Maybe you can't afford to save 10, so you start at 5, but you're working from 5%, trying to get to the 10%. That means maybe you can increase it 1% a year. So whatever your means, whatever you can do, that's what we need to focus on and try to get you there.
Then moving on to the third best strategy: utilize housing allowance. And this is the only slide in the presentation that is only for ministers. So if you are a credential holder uh that's listening in, this is something that is significant enough that I do want to be sure you fully understand. As a minister, when you participate in your retirement plan through your denomination—in this case, the Assemblies of God, if you're an AG minister—um, you—you are entitled, when you withdraw in retirement, to allocate all or a portion of your distributions as a housing allowance, which would result in tax-free distributions. That is very significant for our pastors, and it truly does help you to maximize your dollars—to get a longer length of time out of your money because it's less money going to the government and more money staying in your pocket. So I—I always bring this up because it surprises how many of even our ministers—they understand housing allowance as it relates to their current job, at their current ministry, but they were not aware that this can continue on even after they're no longer working, but they still have credentials. Uh, Church of God, Presbyterians, Lutherans, most of the other Southern Baptists, most of the other major established church denominations have this exact same benefit for their ministers. So it is a nice uh rule that the IRS allows for our clergy, and we want to be sure that you are fully aware of how to take advantage of that. So that is uh three best strategies. We covered three of the worst strategies. Again, there are a lot more strategies that we hope to uh address on other webinars.
But in conclusion here, let's just do a recap of your strategy. So from that, we look at some of the bullet points that we kind of covered today on things that hopefully you can take with you and actually implement in your own plan. Number one: choose an investment strategy that fits your tolerance. Don't chase the market; don't try to beat the market. Find something that fits with your personality. Maybe you say the idea of losing 40% in one year is not something I can handle, then you need to decrease your exposure to the stocks; maybe increase it to the fixed or to the bond side. Um, and remember this too: when the market goes down, it's actually the best time to be buying, not selling, because everything's on sale. It's difficult to do psychologically because it's like you're throwing money away, but the reality is you're accumulating more shares at cheaper prices. So choose an investment strategy that fits your tolerance.
Secondly, automate and increase your contributions. Maybe you need a reminder; maybe you don't, but be sure you're always increasing because as cost of living increases, so will the amount that you'll need in those retirement years. Third: consolidate other investments. Again, that may be a strategy that fits for your situation; maybe it doesn't, but it's something that's available to you. Uh, fourth: don't forget about cash. I mentioned that before, and I want to reiterate that as you're saving and setting aside money for your savings, remember that 10-10-80 rule. That doesn't mean that the whole 10% allocated to savings has to go into retirement. You do need to allocate a portion of that 10 into short-term cash. You need to find a place to put it in cash, um, whether it's bank money market CDs. Um, you can even use—here at AG Financial, we have loan fund certificates that are typically paying above-average interest rates. Just depends on what your comfort level is. But be sure you have cash available. And then lastly, and very timely with the time that we're in: stay the course. Don't watch the news. Uh, we are in a very heightened uh election season. I mean, we're literally a week away, but even after the election occurs, you're going to hear news all the time about Europe; you're going to be hearing the news about the fiscal cliff; you're going to be hearing news about tax policy. So we are in a a very heightened sense of fear. So be careful, and as you do watch the news—because I know you still will—be sure that you don't make decisions based out of fear—that are rooted in fear. Make decisions out of—next—what you think is going to happen 10, 15, 20 years from now.
So with that being said, and—and uh—we—we want to be sure we don't take up too much time, but more than me talking, I wanted to be sure that we were addressing any specific questions that the audience had as you're tuning into this. So um, I don't know if there's any questions that have come in, Vanessa, during that talk.
But yeah, we've—we've had a handful of questions. Um, the first question that we have says, "Should you split your retirement into at least three revenue streams, and is there a percentage for each, such as stocks, gold, real estate, etc.?" Um, the way I would answer that is: is yes, and but I would rephrase it a little bit and say "diversification" would be the word that I would use. So um, for example, you know, gold is probably the one that is the most talked about right now, and the general rule of thumb whenever you're looking at gold or precious metals is you—you really want to limit your exposure to that to be no more than about probably 10, maybe 15% max of your overall. Even though gold's had a great run-up, if you look at the history of gold, it is a very volatile investment—very volatile. It's one of those ones that while it has great gains, it can have very steep declines as well. So you want to be sure and—and if you are going to invest in gold, um, you know, using retirement vehicles such as an IRA—an IRA would allow you to invest in gold ETFs or gold company stocks, and that's a great way of doing it and still keeping it tax-deferred. Um, same deal with real estate. Um, we're starting to see some recovery in the housing. I still think it's going to be a long road uh before we really see home values go back to—actually, I'd say I'd probably never say that we'll see them back to where they were at their hyped, but they are beginning a road to recovery. But yes, you can be sure you diversify into those different avenues. Um, the two that I primarily focus on would just be looking at equities versus fixed—fixed meaning uh, like for instance, in the AG plan, the MBA fixed income fund and/or bonds. Those are the two because even within the equities you can get into large-cap, small-cap, mid-cap, international. I mean, there's a whole—there's so many layers that again we could do a whole another webinar just on that one topic, but I think the premise—what you're saying—is should we diversify out and have those? Absolutely. Some people—real estate means that you have rental properties. I come across that still quite a bit. Just be sure that all of your assets aren't tied up in rental properties or real estate or property development. Right. Okay.
Um, we have another one um down here, and just—just for audience members, in case you missed it at the beginning, there's a question section at the bottom of your GoToWebinar panel that you can submit any questions that you want, and we will address as many of them as we can. So let's go on to this next one. Um, "If you are a minister not accredited um through AG but on staff at an AG church and making contributions to a 403(b), uh, do I get the same advantage for tax-free housing withdrawals?" Yeah, that's a great question. Um, there's no easy answer. Um, one component of the answer to that question is: is your—even though you're a non-AG credentialed minister—if I'm—if I'm saying—if you are a minister not credentialed through AG—yes. So the first question is: even though you're may not be an AG minister, but you hold credentials with another organization, do your day-to-day responsibilities at that ministry or at that employer constitute the definition of minister? Are you uh providing the sacraments? Are you doing those types of things? So that's one component to that. Um, the second component is: is even if you are um—there is a legal precedent that more or less says that even though you don't hold it with the AG, that that is still ministry income that you're deferring as a credential holder—that it would be eligible for housing. Currently, the way we're administering the plan—very similar to other church groups, other church denominations—is it's very difficult to get proof of that. So a lot of it—the burden lies on you as you take it out—to prove that you are credentialed and that you were credentialed at the time you deferred the money. So that's one of those things that we can assist you with on a more personal basis, but I guess I would say—depending on how you answer the different layers of that—there could be a way that yes, you could still utilize that housing allowance even as a non-AG minister. Okay.
Um, we have just a couple more questions. Um, one is uh: "Say I'm in my—my 40s or 50s and I have two kids. How do I go about paying for their college? Um, and what about paying extra on my house? How should I prioritize saving for those different areas versus saving for my retir—" Oh wow, that's a—that's a hefty question, and uh would probably need a long response. So let me try to give you a quick response on that. The college planning is a um a very relevant question. We get that one all the time. A lot of parents right now in that age group—one of their first priorities with their finances is saving and setting aside for the kids' college. Um, the problem—if I can say this—the problem with that is: is that your kid will have an easier time qualifying for scholarships and financial aid than you will qualifying for aid when you're 65 or 70 or 75, whenever you decide to retire. So I realize it's—it's probably not the most popular thing to say, but in terms of priorities—first and foremost, I would be setting aside money for my retirement, and maybe if you know—beyond that—if I had extra, setting aside for the kids for their college. Um, a little side note on that, Vanessa, would be—more important than giving your kids a chunk of money to apply to their college is teaching your kids how to manage their money. And a lot—lot of times I'm seeing a lot of parents that are really trying to help them out by giving them money, and I still see a young generation that has no idea of how to manage their finances. So as parents, I—I'd like to see more focus on teaching them how to manage it. And the other thing too is: if you put all your money into the kids, they will become your retirement plan. You know, you will get to a place and—and it's an interesting culture shift now, but you are starting to see a lot of parents—retired parents—are having to go back to their kids uh to get assistance or help financially to help pay for medical expenses or long-term care expenses and those types of things. So again, not a popular answer, but I would just say be sure that you are focused and you're on track. Same for your house—paying your house off early. We're in a very low-interest-rate environment. Um, you put all your money into your home—a lot of the retirees that I see today that have a lot of equity and little cash are being forced to do things like reverse mortgages and home equity lines of credit to finance their retirement—that was not on their radar screen. Just be sure you have cash. It's not a question of should you pay your home off; it's when is the best time to pay your home off. Right. Okay.
And um, looks like we've got one more question, and again, anyone—if you've got any more questions, feel free to add them. Um, but um, you talked about automating contributions and increasing contributions, but one thing that wasn't addressed is: what about Roth versus pre-tax? Can you comment on that? Yeah, that's—that's one that again is being talked about a lot. Um, it does warrant a lengthy answer. Um, just for those of you that aren't familiar—Roth is basically a way that you can put money into a retirement plan, pay taxes on it today, and take it all out tax-free in retirement versus the other option is pre-tax, or otherwise known as traditional, in which you get a tax break today and pay taxes on it when you pull it out in retirement or as you pull it out in retirement. Which is best? Well, that really depends on everybody's individual circumstance. You know, to me, it comes down to two questions: first, when you retire—whatever age that is—what do you anticipate your income level is going to be? Do you really anticipate you're going to be in a higher income or a higher tax liability than you are currently? And secondly, what will the government—at the time that you retire—not today, not next week, not next January, but the government that's in place when you retire—what will they have tax brackets at? Will they be higher than they are today? Would they be lower? Um, and those are two questions that most of us have no idea definitively how to answer that. So if you expect to be in a lower income than you are during your working years, then pre-tax is probably to your advantage—take the tax reduction while you're in a higher bracket and pay taxes when you're in a lower bracket. If you feel like you're going to be in a higher bracket when you retire, then you'd want to pay taxes today and take it all out tax-free when you're in a higher bracket later. So you know, I don't think many people are going to get 75 years old, start getting their distribution from their retirement plan, and say, "Wow, you know, I really regret I didn't save the other way." I think most people are just going to be glad that they have money. Uh, for me personally, I save the bulk of it pre-tax, and I use a Roth IRA on the side because I'm pleading ignorance, and at some point in—whenever I retire—if I ever do—I'll have two streams to pick from—a taxable stream and a tax-free stream. Right. Well, I have a question in regards to that. So with the pre-tax, so you're—say you do the—you're paying pre-tax now, but then you get the minister's housing allowance, then do you end up never paying taxes on that? Yeah, and for ministers, it's even a—even a different situation. It's a good catch, Vanessa. Say for a minister, then there's a good argument that taking advantage of the pre-tax is even going to be more advantageous because you can save and get a tax deduction today, and in retirement, some or all of your distribution—depending on how much you take out and what your home expenses are at the time—would be tax-free under that minister's housing allowance. So you actually get a hybrid of traditional and Roth by doing a traditional plus minister's housing allowance. Again, a lot of it's going to depend on what are your home expenses when you retire? Do you have your home paid off? Even if you have your home paid off, you're still going to have home expenses: homeowner's insurance, upkeep, landscaping, maintenance—those types of things. So you're still going to get a portion of that distribution as a tax-free minister's housing. Okay.
Um, we have—I do have another question here. You said that kids can be your retirement—my in-laws have no retirement funds, but they are in their late 50s. Besides the lottery, what can they possibly do to be in a place of financial independence? Well, first and foremost, the Assemblies of God does not uh condone the lottery. I better start with that. Um, what can they do to start? Again, you know, I'd love to know a little bit more about their exact circumstances: are they working? Are they not working? Does one work? What the income looks like? What their expenses are? But again, I guess I'd go back to the point that we made earlier: even though they're in their 50s, it's still not too late, and—and it—what it will take is it will take some adjustments to their da—daily living. It'll take them some very—probably difficult prioritization, and that's harder when you're in your 50s than when you're in your 20s. But they're going to have to try to figure out a way to cut down on the current expenses to free up additional cash and get as much socked away into—again—401(k)s, 403(b)s, IRAs—whatever method they choose. I—I guess to me, I wouldn't even focus on investment selection as much as I'd be focusing on getting my expenses minimized to free up margin in my monthly cash flow to get socked away as much as I possibly can. And again, unpopular, but the reality is—today, in those circumstances—because they're happening all the time—they're probably going to—not—not going to be retiring at 70; they'll probably be working longer, uh, assuming health allows. They're going to have to delay their retirement. Um, even if it's transitioned into a part-time job—uh—but they have some kind of health care coverage and still some kind of check to come in—they'll have Social Security—I'm assuming that will be part of it—and then they'll need the last component to be their savings. So they need to build that up and maybe ask for the college fund back from their kids—ask their kids to repay if they contributed to their kids' college. Um, I think that that is all that we have for today. So um, you have any other final comments for everyone? Not that wouldn't take a whole another webinar. Well, thank you everyone for joining us. We really appreciate it, and we hope that you'll join us again next time. Have a good afternoon.