In this episode of Retire with Balance, Rob Auclair and Kristen Oakley unravel the concept of pension maximization, a strategy that can significantly enhance your retirement income. Discover how to make the most of your pension benefits, explore creative options, and ensure you’re securing your financial future to the fullest. Whether you’re nearing retirement or already enjoying your golden years, this video provides valuable insights and actionable tips to help you optimize your pension plan. Watch now to learn the secrets to financial well-being in retirement through the art of pension maximization.
Topics Discussed:
- Pension Maximization Strategies
- 403(b) Investment Choices
- Company Pension Buyouts
- Early Retirement Strategies
- Impact of Windfall Provision
- Retirement Planning and Market Volatility
Transcript:
Kristen Oakley:
Hello, Rhode Island, and welcome to this week’s edition of Retire with Balance, the show that helps take the complexity out of your retirement planning. I’m your host, Kristen Oakley, and joining me in the studio is Rob Auclair. He is a financial planner with Balanced Wealth Management, right here in Rhode Island. Rob, my friend, great to be back with you. How are you this week?
Rob Auclair:
Nice to be back. Very good.
Kristen Oakley:
Well, good. Well, I am excited to get into another show with you today. And I know that one of the things that really sets you apart is your passion for serving the community of Rhode Island. For those of you that may not know, Rob was born and bred here in Rhode Island, spent many years here and I’m just excited to hear how has that shaped your ability to really serve this community? So well.
Rob Auclair:
So I think in Rhode Island, we all have a certain way, we’re all connected. So in other parts of the country, it’s extremely, little pods of people. But a lot of people that grow up here, as we all know, they stay here. And we all seem to remember him from high school, remember him from college. And there’s some very unique connections, which are great. And I think what that has helped is that, number one, it helps us to understand the landscape of how people grew up here, and also how they have gotten their jobs or the type of jobs that they have, and the type of plans in which they have. So I think there’s a lot of commonalities in Rhode Island. And I mean, it’s been a great place to grow up. I went for a little while, came back like everybody else.
Kristen Oakley:
You know, you’ve been back now for how many years? Forever? I can’t remember. Time flies when you’re having fun, right? And of course, your office is located in East Greenwich. So talk a little bit more about the location.
Rob Auclair:
Yeah, so we’re right in East Greenwich, Rhode Island, spent many years in Providence. And then I was scared because Rhode Island’s such a unique place, that’s 15 minutes south. And for a lot of people that may go down 95 or 295, my mom said, when I moved 10 minutes away, she’s like, “Oh, I’m never going to see you.” So that’s kind of what we see in Rhode Island, an extra 10 minutes, we’re in any other state, it’s still very close. So East Greenwich has just been a great place, it’s the center of the state still, and it’s a very nice place for us to go to. And community outreach has been good. We’ve recently started working at the University of Rhode Island. And we’ve started educating a lot of student athletes, and also students who are trying to form their own businesses in college. So we believe that giving back is a great thing. And what we can do is try to help kids start at a young age, we really feel that it should be started when they’re in middle school, or even Grammar School. And it should continue where a lot of these college kids, they’re like, “This is the most I’ve ever learned.” And so what we try to do is at least spend three hours with them over a semester, and try to get them to understand, try to get them to motivate to say what are all those great things that you can do today, if you start rather than wait, when you’re 40, 50, 60, 70 years old, and then be able to have them actually open accounts and make it real?
Kristen Oakley:
That’s amazing, because time is the greatest asset that any of us ever have. And so I know we all, those of us who are older, wish we could have learned some of the stuff when we were younger, right? Well, I know you’ve put together another fabulous show for our viewers at home, and one that’s very important for the community of Rhode Island. We’re going to be talking today about pension maximization. And really, pensions are something that are so unique in today’s culture as a whole. A lot of people don’t have pensions anymore, but a lot of folks in Rhode Island do.
Rob Auclair:
They do. And one of the things, we are a great small state. But what ends up happening in that small state is our biggest employer is the state of Rhode Island. And so CVS is obviously a large company here. But many other states have a lot of companies like that, and we don’t, we have very few. So a lot of people are teachers or they work for governments. And so we still have the pension plan. And so we’ll get into it later in the show. And I know a lot of people, the pension plan changed 10 years ago, but the pension is still there. And it’s still a great asset in your retirement. But there are a lot of options that go into that. And as I’ve always said, You need to understand what you have, but you also need to understand your choices as they come due.
And so very generically speaking I’d like to show a slide of what a pension actually does. So if we look here, this is an individual who has a pension with a few different choices. And choice number one, they call it a single life annuity, and basically, that’s the highest you can get. This person gets $3,000 a month once they retire, right? So they retire, and however, if they were to pass away in month two, their beneficiaries get nothing, right? And so then we look at choice number two, and I’m not going to go through all my choice number two is 50%. The joint survivor annuity and what that means is for $300 a month less, if they were to pass away, their beneficiary would still get something, $1,350. Right. So there’s a lot of other, there’s the 75% choice. But basically, as you look at this, what you want to make sure that you do and we can come off this slide now is that, you want to be able to understand what you have, I’ve seen it where people have taken the top one and said, I’ve got enough money on the side, or I’ve got enough insurance on the side, then someone else may say I’ve got this 50% option, that’s fine when they could have taken the 75% option. So you need to sit down and you can sit down with the state to do this or a financial planner. And it is something that is very helpful to understand your options. Some reality. And we talked about this a little bit before the show. And before I was ever a financial planner, this story sticks with me, I was in ALLMAX, which for many of you would remember. And I used to work there and I met my one of my sisters boyfriends and rely on everybody else. Sisters boyfriends, mom, right. And I was walking down the frozen food aisle, I remember. And I said, Hey, how’s everything and she’s like my husband passed away. And I said, I’m so sorry. And we talked more and more. And she goes, the worst thing is, is I hardly have any money. And I didn’t know why she was even sharing that with me, because I was like, probably 20 at the time. And she said we chose he worked for the state and chose the pension maximization collected for actually three months. And then he passed away, and he didn’t have a lot of extra. Wow. And so that is so impactful. That I mean, I just I always remember, I know exactly who she is, I probably haven’t seen her in 20 years. But I remember how impactful that was. And if she would have actually sat down with someone and looked at those choices, I’m sure they would not have taken that.
Kristen Oakley:
How devastating. Yeah, cuz I think there’s a lot of fine print that a lot of folks can be confused about, or when you set those elections, or maybe you make that decision, you’re not aware of all the implications, and it really does matter. It matters if you’re single if you’re married. I mean, there’s just so many factors that go into this decision. Yeah,
Rob Auclair:
No, absolutely. So a few other choices that you can do, and we look at that is some people call it self insuring. And what they’ll do is they’ll take that pension maximization at $3,000, in our example, right? And they’ll say, how much insurance would I need today, if I passed away to provide my spouse with the $3,000? Right. And so what they do is they go out, and they buy a life insurance policy that would in present value produce that $3,000 of income over time. And theoretically, if it works, it would mean, in this person’s case, you’re paying less than $300 a month, and you’re actually saving money.
Kristen Oakley:
Wow, because you’re buying insurance as we’ve done correctly, right?
Rob Auclair:
Yes. So, these are things that come up. For us, as we’ve said before, we offer to our viewers the opportunity to come in, go over a balance sheet, go through their portfolios, ensure they have the right asset allocation, and have that written plan to make sure they have enough money. But we get to that last page of having enough money, what’s coming in, what’s going out, and will it last long enough. In situations like this, it may not be as straightforward. This is when we’re ready to make those quick decisions. When do I take Social Security? What are my pension options? You need to have someone else to do that unless you are extremely educated on it. At the very least, you should be calling the state pension system and asking them for a sit-down meeting to understand your options, not just put them on paper. And with our clients, if that is a question, we are happy to go over that with you initially before you even become a client. That can be very valuable.
Kristen Oakley:
What a valuable service you’re providing. And I know you’re excited to meet with more folks who will call in today after hearing this and wanting to know how you can maximize your pension. So we encourage you, if you would like to come in and have a conversation again, this is at no cost, no charge, no obligation. Rob and the team at Balanced Wealth Management would love to meet with you so that you can receive a complimentary written financial plan. And if you have a pension, as Rob mentioned, they will be happy to go through those specifics and what they mean for you. Just call the number on the bottom of your screen, 888-398-2001. You’re also welcome to take out your smartphone, open up the camera app, point, click, and scan the QR code in the bottom right-hand corner of your screen. That will take you to a landing page where a member of the team will reach out and connect with you to schedule your complimentary visit.
Rob Auclair
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Kristen Oakley:
Welcome back to Retire with Balance. I’m your host, Kristen Oakley, here with Rob Auclair, financial planner from Balanced Wealth Management. Today we are talking about pension maximization, a crucial topic for many Rhode Islanders. You mentioned earlier in the show, Rob, that about 10 years ago, a controversial change was made to the state pension plan. So talk about that, what happened with this change, and what folks need to know.
Rob Auclair:
There were a lot of angry people, including many teachers in my family, like my wife, my mother-in-law, and my mom. They were all affected by this. In summary, the state of Rhode Island pension system had about 10% of the active participant’s salary going into a pension plan. It grew and then paid out a certain amount as an annuity. But the state said, ‘We can’t sustain this model.’ When markets go down, our balances go down too drastically. They decided to put 5% into the pension and another 5% into TIAA-CREF as your 403B. The 5% in the pension is controlled by the state, obviously, giving a smaller payout when you retire. But the second piece is on you from an investment standpoint. If you did really well with investments, you could actually benefit from this change. But it gives you a lot more responsibility. So, what especially the teachers or any government worker in Rhode Island lost was the certainty of what they were going to get at retirement. The older people in the plan for more than 10-15 years felt they had the rug pulled out from under them. They were under the assumption it was going to work a certain way, and it no longer worked that way. It was unfortunate. What people need to understand is, it’s still there. They didn’t strip any money away from you consistently, but what they did strip away is that certainty of what you were going to get for a monthly income for the rest of your life when you retired. So, we have a graphic that highlights a little bit about what your contributions to your pension and DC, which is the defined contribution plan, look like. If we look at, for example, the employee put in 3.75% to the pension and approximately 5% into that defined contribution plan, which is TIAA-CREF. For people that had more than 20 years of service, that pension plan got 11% instead of 3.75%, and nothing went into the defined contribution plan. So those who were stuck with 20 years and under were affected the most. You can see, people when they changed this, that were over 20 years, they still are making those contributions for them. So it didn’t affect them as much. There’s a little bit of other information there on the bottom, but I think it is what it is, and we hope that people can realize they still need to look at it. A lot of people come in angry, and trust me, right in my own household. I have an angry worker, and she has the right to be because the plan wasn’t the plan. But let’s lay it out now in front of us, make sure of two things. One, we understand what’s going to come in at retirement. But two, I sit down with so many teachers, they’ve never even looked at the TIAA-CREF portion of it. They’ve just left it because they’ve either been mad about it or said it is what it is, don’t even know their login. And it’s very, very important for us to look at that. And so I think when we look at those things, it’s just understanding it but you need to participate now in just hey, it is what it is. Now how do we make it the best, right?
Kristen Oakley:
Well, with the addition of this 403B comes an added complexity because it’s now up to you how that money should be invested. No one’s telling you what funds to select or what investments to choose within that 403B plan. But this is where you can really step in and walk someone through that process, helping them know what they should be investing in within that important piece of their retirement.
Rob Auclair:
I think that brings us to the point of what we do for our clients, or our prospective clients. If this is something that interests you, whether you’re a school teacher or someone who works for the state of Rhode Island, we would do the same thing and even add that piece to it. First, we put in your balance sheet, knowing what you have, what your assets are, what your account values are, what you owe, and take a look at all your investments, including your TIAA-CREF, to make sure they’re allocated correctly. We also coach you on how you could personally go in there yourself, change it and make it accurate. Then, thirdly, we put together your financial plan for you to see the resources that are going to come in. This may include Social Security, this pension, what that’s going to amount to, what you need, and how you can use your 403B and other investments to offset it. Putting that written plan together is something we have found that clients find very resourceful. We are also happy to help state workers come in, show us your different options, and we’ll be able to help walk you through that.
Kristen Oakley:
I’m so grateful that you’re able to do that. How you make a decision in one area of your financial life does and will affect all the others. The reality is, you may not know what you don’t know, but you are an expert. While it might be new to you, it’s not new to you and the team at Balanced Wealth Management, and you’re able to navigate this wealth for folks.
Rob Auclair:
What I’ve started to realize is, if you’re a school teacher, you understand that. Like sitting down with 20 kids today-
Kristen Oakley:
I could never do that. I tell my husband all the time, I don’t know how he does what he does as a high school history teacher.
Rob Auclair:
For them, it’s just second nature. Then they look at our work and think it’s daunting. I always say, if you make yourself familiar with something and try it a little bit, having that comfort level makes you do it. I would never just visit a school and jump in to teach a class. I’d be so scared. They find it easy because they do it every day. I realize that, and that’s why I try to take a much softer approach. When you come in, I don’t want anyone to feel uncomfortable, like, ‘What’s he trying to do? Is he trying to get us to do this, this, and this?’ No, I’m trying to get to know you, give you good information and let you leave that meeting with, ‘Okay, I got some good information. If Rob and his team are the right team, I’ll call them back to do it.’ It has worked out very well. We’ve got very happy people that do come back, some do, some don’t.
Kristen Oakley:
But at the end of the day, it’s about education and empowering so that you can make better decisions with your hard-earned money or know the best course of action to take with something as serious as a pension. Those decisions can impact not just you but your spouse and the rest of your family for the rest of their lives. So important. Well, we’re going to take a quick break. But again, this is a great opportunity for you to pick up the phone and call to get your complimentary written financial plan at 888-398-2001. Or you’re also welcome to take out your smartphone, scan that QR code in the bottom right-hand corner, and that will get you connected to Rob and the team at Balanced Wealth Management as well. More on today’s show right after this.
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Kristen Oakley:
Welcome back, Rhode Island. You’re watching Retire with Balance. I’m Kristen Oakley here with Rob Auclair, financial planner from Balanced Wealth Management. We’re having an important discussion today about pension maximization, which affects so many folks in Rhode Island. I want to touch on something we haven’t covered yet: the windfall provision when it comes to pensions. So, share what people need to understand about that.
Rob Auclair:
For me, it’s a personal story, and I’ll explain it through that. My dad passed away when he was 59, having always contributed to Social Security with probably a benefit of around $2,000 a month when he would have retired. My mom, who would be a widow at the time, wasn’t paying into Social Security because in Rhode Island, and in some other states, there are towns that don’t pay into Social Security. When that happens, this windfall provision triggers. My mom’s pension was $1,800 a month. My dad’s Social Security was $2,000 a month. But the windfall provision said he would have got $2,000, she had $1,800 coming in. So she got her pension for $1,800, but only got the $200 from his Social Security. They call it the windfall for whatever reason, it’s something that makes people angry. My dad paid into two different systems, the state pension system and Social Security. He paid into Social Security, but who got the benefit of that? We only got like 10% of it. So that is one of those things that can sneak up on you. Even if you’ve worked a bit and had some Social Security, before working at a place like the Scituate school department which did not pay into Social Security, this can happen. It’s something you need to be very aware of. This windfall provision has been discussed for 25 years, always sounding like it might get on the agenda and get rid of it, but it doesn’t. The plan would be that you just plan that it is going to be there.
Kristen Oakley:
Right. Well, we spent a lot of time today talking specifically about the Rhode Island pension. But obviously, folks work for other companies that might still offer a pension. What are some other options available to those folks?
Rob Auclair:
Many clients come to us from companies with bigger pension plans like Verizon or National Grid, now Rhode Island Energy. They often have buyouts, so someone might say, “I’ve got this offer of $500,000, or they can give me $3,000 a month, what do I do?” We’ve done this repeatedly, helping people play it out. There are ways to take the lump sum and invest it conservatively, so the principle is protected and it spins off interest, helping pay a monthly benefit. Or, you could invest it in the stock market. We take a running look and compare: how does investing that $500,000 over time compare to just taking $2,500 a month? If you’re ultra-conservative and want zero market volatility, you might not always choose the lump sum, because there are instruments out there that can give you solid income for your lifespan. We often see this with Verizon, Rhode Island Energy, and it’s extremely helpful.
Kristen Oakley:
That’s interesting. You’re providing a lot of insight into the pros and cons of these decisions, and it really depends on the individual’s situation. You can’t just copy what your friend is doing.
Rob Auclair:
Exactly. Each situation is unique. For example, the Rule of 72 T allows for equal distributions without a 10% penalty for a certain period, depending on your age. It’s an IRS code that allows you to split an IRA and draw from it without incurring the penalty, though federal and state taxes still apply. This is not widely known outside investment professionals, but it’s crucial for those considering early retirement and relying on IRA, 401k, or 403b assets.
Kristen Oakley:
That’s good news for people considering retirement sooner than they thought. Rob, as we conclude, what parting words would you give to our audience?
Rob Auclair:
Give us a call. We’re here to help and ensure you have a balanced approach to your finances. Take your time and just give us a quick phone call.
Kristen Oakley:
Rob, thank you so much. To our viewers at home, thank you for watching. This might be new to you, but it’s not new to Rob and the team at Balanced Wealth Management. They’re here to help and serve you. Call 888-398-2001. We love Rhode Island, and we’ll see you next time.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. While our best intentions are to provide accurate and timely information, you should always consult with retirement, tax, and legal professionals prior to taking any action.