After the Webinar: Financial Fitness. Q&A with Christopher Gandia

Webinar presenter Christopher Gandia answered a number of your questions after his presentation, Financial Fitness: Live for Today and Prepare for Tomorrow. Here are just a few of his responses.

Audience Question: If I retire and had a 457 plan, should I pull my 457 into an investment account?

Christopher Gandia: Yes. There are a couple of things you can do with the 457 plan. You can actually leave it in that plan. The advantage of leaving it in that plan, depending on when you retire, is that you have access to that right away once you terminate service. If you roll it over into an IRA that you’re rolling it over into it, then you are then bound by the IRA rules and you typically don’t have access to that until you’re age 59.5. So, it depends on this. There are sometimes, there are reasons that you want to keep it in the 457 plan, and then there are sometimes, there are reasons that you’ll want to roll it over into an IRA. A reason that maybe you would want to roll it over into an IRA. Say your 457 plan, say the mutual funds in that plan are not all that good, and you want to get it out of that plan, and you don’t mind kind of putting into an IRA under the guidelines that you can’t touch. That might typically, 59.5. There are sometimes reasons that you want to keep it in the 457 plan, and then there are sometimes reasons you want to roll it over into an IRA. A reason that maybe you would want to roll it over into an IRA is if the mutual funds in the 457 plan are not good, then you may want to get it out of that plan as long as you don’t mind being subject to IRA guidelines that you can’t touch until typically 59.5. If you roll it into an IRA with investment companies such as Fidelity or Vanguard or T. Rowe Price, one of the low-cost ones, you have access to so many different mutual funds and so many different types of investment selections which may be cheaper and better performers for you. So, it’s a great question, but again, that’s a question that would need to have discernment at the individual level. Hopefully, I’ve given you some thoughts allowing you to drill into it a bit more for proper consideration. But great question. And thank you for asking.

Audience Question: Can you address the impact of a pension on the reduction of Social Security Benefits so we’re aware and do not plan on those Social Security benefits?

Christopher Gandia: Yes. So again, this is a very good question. That would, again, require some individual knowledge and particular details. Social Security is a very hot topic. Is it going to be there and how much is going to be, do you have enough credits for it, and if you’re pulling your pension out, depending on age and income levels is that going to reduce or have tax implications on your Social Security income? Considerations need to be given to your age and the timing of when you want to start pulling Social Security income coming out. So again, it’s a very particular question that you need to discern based on your own individual financial circumstances. Going back to the retirement table analogy, social security is one of those legs. I usually will factor it in there, but not with a lot of weight. I’d think of it as a skinny little leg that assists the retirement table in standing up, but certainly wouldn’t rely just on Social Security as the future of it is difficult to predict. And I don’t want to rely on my standard of living for something that could be unknown. So, I hope that kind of gives you some guidance to discern a little bit more on what you need to do in terms of your pension combined with Social Security and does it reduce the benefits, depending on the agent you’re taking out.

Audience Question: We have the option to buy time to leave early. The 457 account is normally used to do this, what do you think about this?

Christopher Gandia: Okay, another popular question that gets asked a lot. A lot depends on how much is needed to purchase the retirement service credits… typically, it’s a significant amount of money that is required. But remember, what’s happening now as we reflect back to that retirement table? The 457 plan is a separate leg from your pension. So, if you’re taking money out of the 457 plan to buy retirement service credits to put into your pension, are you taking those 457 resources that could be compounding at a greater rate than your pension plan? Every state is different, but your pensions sometimes get adjusted by yearly cost of living adjustments. Typically they’re not all that much, they could be 1%, maybe 2%. If you’re lucky, maybe a little bit higher than that. However, your 457 plan, depending on your investment allocation, you could actually be earning a significantly higher rate of return and you have a diversified stream of income coming in. So, looking at the retirement table, the leg to your pension is getting skinnier and skinnier, maybe the 457 plan is bolstering it up by having higher rates of return. This is a major financial move that would require you to get further guidance and individual advice. In my experience, the overwhelming majority of people, in looking at their individual circumstances, do not benefit from taking money from their 457 plan to purchase those retirement service credits. I’ve done a lot of analysis and calculations for people and there is only a very small minority it works out well for, so be very careful with that one, but a fantastic question.

Audience Question: Would it be beneficial for me to invest a little money into different plans, such as a 401(b), Roth IRA, 457(b) plan at the same time? For example, 400 into each plan per month?

Christopher Gandia: So, I do like that, because it gives you a lot of different options in terms of your contributions going into tax-deferred and tax-free accounts. Again, going back to that Roth IRA, you don’t get any tax benefits upfront. But you get the tax benefits at the end when you pull it out, so it does give you a tax strategy. In terms of your 401 K plan make sure you contribute at least up to that company match. Absolutely, If you have access to a 457 plan, that’s your bridge account allowing you to access money prior to 59.5 upon termination of service. So, by using those three investment accounts, it provides for extremely good strategies for how and when you’re going to pull the money out and tax choices when you are entering into your retirement chapter. So, that’s a great idea. Again, just be very mindful of the income restrictions, because if you’re over an income threshold you may not be able to take advantage of the Roth IRA. I’d refer to the IRS website for that information.

Audience Question: Can you go over the certifications for a financial advisor again?

Christopher Gandia: Certainly, the most common one is a Certified Financial Planner, CFP which is one of the gold standards for certifications. A couple of other gold standards would be the Certified Financial Analyst or Chartered Financial Consultant, those are the three most popular ones. I would recommend searching online for top financial advisor certifications and you can see those three that I just mentioned: Certified Financial Planner, Chartered Financial Consultant, and Chartered Financial Analyst. You can also go on CFP.net, to look for a Certified Financial Planner in your area. Again, you’ll get advisors that are certified under the Board of Standards who need to abide by ethics, regulations, and fiduciary standards. The fiduciary standard is extremely important to make sure that they are looking out for your interests and not their own.