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Wells Fargo Health Savings Account
[music plays][no dialogue] >>lori casey:if you're one of the many people out there who's concerned about saving for retirement,then stay tuned for this edition of money in your pocket.craig cunningham from wells fargo advisors will be here with advice for getting a retirementplan in place.
Wells Fargo Health Savings Account, he'll be talking about how the retirementlandscape has changed, and what steps you should consider taking to ensure you can retirethe way you want to. we've got an interesting show just ahead,so stay right here. [music plays]>>rameen karbassioon:
this program is made possible in part by:credit union 1, proud to support money in your pocket.credit union 1 offers savings and lending options.additional information on membership available at creditunion1.org.loans subject to approval, accounts are insured up to 250,000 dollars.by members' choice, this institution is not federally insured.>>lori casey: welcome back to money in your pocket.i'm lori casey. and today we're talking with craig cunninghamfrom wells fargo advisors about, is it too late to save for retirement.welcome to the show, craig.
>>craig cunningham:thanks so much for having me, lori. thrilled to be here.>>lori casey: tell us a little bit about your background.>>craig cunningham: well, name's craig cunningham.i'm a financial advisor with wells fargo advisors. i grew up in mattoon and went to mattoon highschool. currently live in charleston with my wiferachel and our son griffin. i've actually caught a lot of flack for movingto, when i moved back home, i moved to charleston, and i'm a mattoonite.but i love all of coles county, so i'm thrilled to be back home.from an educational standpoint, my background
is i went to depaul university, majored ineconomics there. someone in the economics department messedup, and my senior year i was named economic student of the year, which i was thrilledabout. i'd read too many john grisham books, i think,so i decided to go to law school after that. proved to be a great decision because i metmy wife rachel there. after law, went to law school at the universityof illinois. after law school, rachel and i moved to indianapolis.there, i worked at a large law firm and clerked for a federal judge.and in the large law firm setting, i was working in the litigation department.so, it was very adversarial and, at times,
tense.and i'd always been really interested in investments and economics, and my dad's a financial advisorwith wells fargo advisors. and he'd always made it clear to me that ifyou're ever interested in moving back home, i think at this point he was hoping i wouldhave grandkids, so they could go. but, "if you're ever interested in movingback home, you know, i'd welcome you with open arms."and one day, i kind of just had a soul searching heart to heart with rachel, and i said, "youknow, i think i'd really like to do something like that, where i'm not on the other sideof the table against someone. i'm helping someone, and i'm on the same sideof the table, and helping them with their
finances and their investments.and i think i'd really enjoy the nature of that work."so, a few years back we moved back to coles county, and we're thrilled to be here.>>lori casey: so, when people find out about what you dofor a living, what is their most common question for you about retirement?>>craig cunningham: yeah, i think, you know, in today's world,the questions of how much do i need to save, and how do i need to save it, are causes forconsiderable anxiety. and i think people, they come up with thatquestion at different points in their lives. some people are worried about it from their20s, some people in their 30s.
but most commonly, people in their 40s reallyseem to be getting nervous about that. and at that point, they really kind of askthat question a lot, in hopes of kind of, i think you lighting a fire under them andgiving them a game plan of what they should be doing.>>lori casey: how has the retirement scheme changed frommaybe, like my dad's 75, who retired with just a company pension, and is doing fine?it's going to be very different for when you and i retire.>>craig cunningham: yeah, there has been a tectonic shift in theretirement landscape there. so, if you look back in the 1970s, most companiesdid have a defined benefit pension.
so, when a person retired, they effectivelygot their gold watch, and they started getting monthly pension checks.and between that and social security, they're for the most part, in many instances takencare of. they viewed their, maybe investment assetsas sort of icing on the cake, so to speak. well, if you fast forward to today, only,about 75% of companies don't have any defined benefit pension, it's all defined contribution,401(k)-esque type of vehicles. what that means is more and more workers haveto rely on themselves for their retirement savings.and that can be a wonderful thing if you're diligent and proactive.it can be a pretty scary thing if you're lackadaisical
and put it off.so, i'd urge folks really to avoid kicking the can down the road, and start grapplingwith that immediately. >>lori casey:alright, you may have to get your phone calculator out for this.but we had a great discussion about a lot of people change jobs.and so, maybe you've left a job, and you have a small, maybe you were only there a yearor two, and you've got say 5,000 dollars. and they send you a document that says,"here'swhat you have left in retirement." what should you do with that 5,000?roll it over, what would you do? >>craig cunningham:yeah, you have a couple of different options.
potentailly, you could leave it with yourformer employer. potentially, you could roll it to an ira.and there should be no tax consequences, no penalties for doing that, as long as you doit correctly. or potentially, if you get a new job withan employer with a 401(k), and their plan document allows you to move those funds overthere, you can do that. one thing i would caution folks to do, andi think this temptation is difficult to resist for some folks, i'd caution them not to cashit out and just spend the money. if it's a sum like 5,000 dollars, you know,they may be tempted just to say, "oh, the heck with it, i'm going to go do somethingfun with this."
what they don't maybe realize or appreciateis that they're jeopardizing their retirement by doing that.so, i did a quick calculation as we were talking in the hallway, and you know, if someone has5,000 dollars, and they add 1,000 dollars to it every year for 30 years, and they geta 9% rate of return, which may be a little aggressive, it depends on how they're invested,that'd be historically pretty much in line with what the u.s. stock market's done since1926. but in that scenario, they've put, they startedwith 5,000, added 1,000 each year for 30 years. after 30 years, they'd end up with over 200,000dollars. if they take that 5,000 out and spend it,and have to start fresh doing 1,000 a year,
they only end up with between 130 and 140,000dollars. so, it's a stark difference just what that5,000 can grow to for a meaningful period of time.and so, my kind of advice would be, you know, think carefully before you do that.another issue with that is with relatively small balances, some 401(k)'s do require youto take the money out. so, you may not have an option to leave itwith your former employer. you may have to roll it into an ira.>>lori casey: and you usually get some kind of paperworkthat says, "here are your options." >>craig cunningham:exactly.
and what i would urge folks to do is, whenthey're going through a transition time like that, consult with a financial professional.weigh your options and figure out what's best for you from an individualized standpoint.>>lori casey: so, if people are watching, and they're maybein their early to mid-40s, and they feel like they haven't saved enough for retirement,what would you, what should they do? >>craig cunningham:i think the very first thing they should do is stop, take a deep breath, don't panic,meet with someone, and get a game plan in place.study after study shows to the extent you can have a game plan in place that's written,drawn out, a road map for you to follow, you're
more likely to follow it, you're more likelyfor that to come to fruition. and so, maybe work with someone to help youdefine what your goals are, or what do you truly want out of life.what age do you want to retire at? how much do you think you'll need in retirement?what other external sources of income do you have?can you expect a pension? what do you expect from social security?do you have farm income, rental income, etc.? and come up with a game plan that makes sensefor you guys, where you're not sacrificing too much today, hopefully, and you're stillable to enjoy life today. but you're putting a workable plan into placethat will take care of your future self.
>>lori casey:so, don't just sit there and wallow. do something.>>craig cunningham: you know, i always joke that inertia can bea pretty strong force in our business. and it's not very normal for people to wakeup on a random tuesday with just a burning desire to get their financial house in order.but you know, i would say a lot of times these issues are sparked through a conversationwith a friend or some sort of educational moment.and you'll feel so much better. i think you'll feel a sense of calm if yousay, "okay, here's where we're at today, here's where we want to go, and this is how we getthere."
and that provides such a sense of securityand certainty. >>lori casey:so, can you, are there certain things, i mean, can you make it up?i mean, obviously, you're not going to have as much had you started diligently at 20 vs.40. but you can make it up to a certain extent.>>craig cunningham: if you're in your 40s, and you haven't reallystarted yet, i would say don't panic, but maybe let's get hustling together.and what i would encourage you to do is first, probably take a look at the liability sideof your ledger. make sure your household debts are manageable.and also, you know, strongly consider participating
in a 401(k) if your employer has one, especiallyif there's matching dollars because that's essentially free money.also look at doing, you know, on top of your 401(k), maybe an ira, whether it be traditionalor roth. take advantage of all the tax efficient bucketsthat there are out there. >>lori casey:let's, you had said that, i think that's great, you want to fill your tax advantage buckets.what are those? >>craig cunningham:so, your 401(k), you may potentially have both a roth option on your 401(k) and a traditionaloption. and there are also roth ira's and traditionalira's.
the difference is essentially the governmenthas basically set those up saying, "we want to encourage folks to save for retirement."and the way they incentivize folks to behave is through the tax code.so, it's just a matter of roth vs. traditional, of when you get your tax break.on the traditional side, you're lowering your taxable income as you put in, so what youput in is deductible. the money grows tax deferred, so taxes arenot chipping away at it as it grows. but when it comes time to pull money out,the government basically said, "okay, i gave you a tax break at the front end.we want our revenue eventually." so, when you pull the money out, you're lookingat paying ordinary income tax rates on those
traditional dollars.the roth ira is the flip side of that, where you're funding it with after tax dollars,so you're not getting a tax break right away. but the money potentially grows tax free.whether you're eligible for, beyond your 401(k), whether you're eligible to do traditionalira, roth ira depends on a couple factors, like your adjusted gross income, also dependson whether you're covered by a workplace plan. so, that's something to work with your financialprofessional on, your tax professional. make sure that you are able to participatein all those different buckets, as we say. real technical term.>>lori casey: i know, it does get confusing because we justhad a cpa on a few weeks ago, who talked about,
you know, tax advantages.and i think that does get confusing for people. so, really it's a question of, do you wantto pay for the taxes now or later. >>craig cunningham:sure, and just a quick example, i mean, just to give folks a sense of how that would work.when it comes time and you're in retirement, let's say someone wants to go on the tripof a lifetime, and they want to spend 3,000 dollars on this mega-trip that they're veryexcited about. if they pulled out of their traditional ira,and they were in the 20% tax bracket, they may need to pull, to net out 3,000 to themselves,may need to pull out 4,000, send 1,000 to the government, then net them out 3,000.with the roth, provided they’ve met all
the criteria, when they pull the money out,they just need to pull the 3,000 dollars out. so, that's kind of a real world example.>>lori casey: i think the burning question for so many people,and you hear this all the time, is how much do i need for retirement.>>craig cunningham: yeah, and that is an individualized assessment,so it's not easy to paint with a broad brush. because, it depends on your needs, your wants,your lifestyle. as a very general rule of thumb, there's what’scalled the 4% withdrawal rule. and what that basically says is you've builtup this large nest egg. you can comfortably take 4% off that per year.and that was actually, that phrase and that
model was coined by a financial planner whoused to be an aeronautical engineer, mit guy. so, it apparently took an aeronautical engineerto figure that out. but, so a real world example of that wouldbe you have a million dollar built up. 4% of a million dollars is 40,000.off your million dollar estate, maybe you can comfortably peel off 40,000 a year.and that's kind of a general, very broad rule of thumb.it doesn't always work, necessarily. what i would say is that analysis is actuallya little too simplistic, because it's not accounting for taxes.so, you have different types of accounts that are taxed differently.we talked about the difference between traditional
ira, which you're going to pay ordinary incometax rates on, roth ira, potentially tax free, or just individual joint accounts that youhave that are taxable, where you may be subject to dividend taxes, capital gains taxes, interesttaxes. so, what i guess i'm saying is a million dollarsin the roth ira is a lot different than a million dollars in the traditional ira.but really, you have to factor in the taxable status of it, and also a big elephant in theroom is inflation that you need to factor in.you know, if someone's retired for 25 years, which is totally possible in our life expectancy,they can reasonably expect prices to double over the course of the duration of their retirement.they want to be given, kind of have the flexibility
to give themselves raises in retirement toaccount for that inflation. and so, that's another strong consideration.so, it's kind of a lot of variables at play. what i view, the best thing we can do is takethis glob of complicated stuff, as financial advisors, and turn it into something simpleand workable for our clients, so that they feel comfortable.>>lori casey: well, and i suppose you also have to lookat, again, do you want to travel every year? is your house paid for?how much debt do you have when you retire, too?>>craig cunningham: you bet, and the joke i always make to mynewly retired folks is, now does every day
feel like saturday?because, you have a little bit more time, maybe a little bit more time to spend somemoney. what we usually try to do is build in a cushionfor those first maybe 10 or 15 years of retirement of quote, unquote "fun money," where they'remaybe traveling a little bit more, maybe doing some things on their bucket list that theyhaven't had a chance to do yet. and you know, what i've found is oftentimes,and it depends on the individual person, but maybe around age 75, 80, 85, they're morecomfortable throttling back their spending, and reducing some of those discretionary funitems. so, we usually try to build that into ourkind of road map, so to speak.
>>lori casey:so, are you finding more people are delaying retirement, retiring later, or maybe workingpart time? >>craig cunningham:sure, you do see that a lot. and i think, you know, so many folks haveso much institutional knowledge and experience, that they have something to add.and maybe they want to throttle back and want to have more time, but their company is opento the idea of them staying on in a part time capacity to kind of mentor, or use their knowledgeas situations arise. one interesting thing is when it comes toretirement age, folks' reality doesn't necessarily match up with their expectations.most people expect to work to around 65, 66.
of retirees today, the average age of theretiree was 62-years old. and so, they ended up retiring a little bitearlier than they anticipated in many instances. and that can be to a variety of factors, whetherit's maybe a parent got sick, and they had to devote more time there.they decided they just really needed to be closer to their children.maybe their skills had grown outdated, or they got laid off.so, in many instances folks end up retiring before they expect to retire.what that means is if you expect to work until 65, you actually retire at 62, those are threeyears where you're probably not saving as much as you thought you initially would.those are three years where, if you take social
security at 62, you're not delaying takingsocial security, which increases about 7.3% every year you delay.and so, that would counsel, because you know, life throws us curve balls, we don't knowexactly what to expect, that really counsels in favor of getting started early, ratherthan later. because, you don't know life has in storefor you. >>lori casey:i should have asked this question earlier, but i guess there's no time than right now,than to talk about the three ways of investing money that we often hear.and you know, it's confusing, maybe not to you, but to people like me.you hear stocks, bonds, and mutual funds.
i want you to go through those, and explainwhat they are. >>craig cunningham:sure, i'd be happy to. so, a stock is, you essentially have ownershipin a company. so, when you buy a share of xyz company, youactually own part of xyz. and dependent on just how the company odes,that stock will fluctuate in value. a bond is, essentially you're loaning a companymoney, and they're making a contractual obligation to pay you back at a specified interest rate.a mutual fund is where you're essentially going out and hiring a professional moneymanager, to manage your money with a very specific objective.that could be all stock.
some mutual funds specialize in big companyunited states stocks. some specialize in small company united statesstocks. some specialize in companies in europe.some specialize in bonds. there are lots of different mutual funds.i think taking a step back, what's really, really important there is everyone's different.everyone has a different risk tolerance, everyone has a different time horizon.everyone needs to take a hard look at how their portfolio should be structured, thecomposition of it, in terms of what percentage stocks, what percentage bonds.normally, if you look historically, stocks have been a little bit more volatile, butthey've also produced a greater rate of return
over long periods of time.now, that's history, we don't necessarily know what the future holds.but that's something to keep in mind is, okay, if i have 10 years until retirement, and ithink i'm a reasonably growth oriented investor, what's a reasonable portfolio constructionfor me? and the other thing that we do as part ofa financial plan is really try to tell folks, you know, this is an allocation where youhave a really, really good chance of meeting all of your goals, and you're not taking morerisk than you necessarily need to take. now, if you want to be more growth oriented,that you can. but this is kind of a baseline of what wethink is reasonable.
>>lori casey:so, when you'er seeing a financial professional, they really need to sort of talk with youand assess what's your risk level. if you're a high risk taker, or you're moremoderate. >>craig cunningham:i think that is very central to what they do.and it's funny, when the market's going up, a lot of people proclaim to be growth orientedinvestors, and they may not feel the same way when the market's going down.so, truly trying to pinpoint what makes sense for that individual is central to what a financialplanner, financial advisor does. >>lori casey:if you look at the stock market, or maybe
you follow a certain stock and it's going--it's got to be tempting, especially maybe if you're behind the eight-ball in retirement,to throw a bunch of money at that. but that wouldn't, could be a little nerve-wracking.>>craig cunningham: yeah, you know, my very first economics professor,his name was gary lemon, he used to use the phrase that "there's no such thing as a freelunch." and so, i think, you know, helping someoneget in tune with what their true risk tolerance is and protecting them against two emotionscan be really helpful. those two emotions are fear, where peoplefeel paralyzed, and so they just decide not to do anything at all, and that can be detrimentalto them.
the other one is greed, where they’re justchasing returns and doing, maybe taking outsized risk in hopes of getting great returns.but what they really have to appreciate there is that risk is part of the equation.and you really have to have a good sense of what you're getting into.>>lori casey: you had mentioned earlier when we were talkingabout taxes, you talked about dividends and capital gains taxes.when do those come into play? >>craig cunningham:sure, so i mentioned that with ira's and 401(k)'s, they're tax deferred, meaning taxes don'tchip away at them as you're participating in those and contributing, as the money grows.and just individual taxable accounts or joint
taxable accounts, to the extent any of thosesecurities produce dividends, capital gains, interest income.you're going to look at paying taxes immediately, and this can be kind of a confusing area,so i always urge folks to consult with a tax professional.>>lori casey: okay, so it gets back to that pay for it now,or pay for it later. >>craig cunningham:yeah, exactly. >>lori casey:for the different taxes. okay, so what advice do you have for peoplewho are a little bit nervous, or maybe a lot nervous, that they don't have, they haven’tbeen diligent?
maybe they cashed in some retirement savingsthat they wish they hadn't. but here we are right now.what would you say? >>craig cunningham:sure, we can't change the past, we can only move forward.and so, i would say you're human. you're normal.it is incredibly normal to feel anxiety about these things.but i think you'll feel a lot better if you get a game plan in place.so, work with someone. work with your spouse.figure out where exactly you guys are, figure out where you want to go, and figure out howto get there.
and if you want to consult a financial professional,i think they could add a lot of clarity on that front.>>lori casey: and then, i'll ask you, too, what should youlook for when you're seeking financial planner, advisor, wealth manager, there's several titles,but what-- this is, we had another guest on that talkedabout this. this is, we're sort of handing over our nestegg to someone, and with the idea that they're going to do the right thing with it.so, what should you look for to make sure that, you know, you don't end up on a tv showas one of those people who lost all their money?>>craig cunningham:
sure, yeah.first of all, it's a giant responsibility. it's an awesome responsibility.i think a couple things you need to consider are your comfort level with that person, yourtrust level with that person. and you know, to whatever extent you want,i would consider scrutinizing their credentials a little bit, and making sure that you feellike they're a person who has the experience and capacity to handle this big job for you.>>lori casey: so, if you're not comfortable, walk away fromthat person? >>craig cunningham:you know, gut feelings sometimes are telling. so, if you don't feel comfortable, i wouldsay you're potentially not going to work well
with that person.and it may not be, it just may not be a great fit.so, find someone where you do have maybe a, you feel like you can be kind of collaborativeand cohesive, and a good team together, and work with that individual if you feel comfortablewith them. >>lori casey:craig, talk to us a little bit about how financial advisors are compensated.>>craig cunningham: sure, so shockingly, financial advisors don'twork for free. what i would say, from a client standpoint,is when you're sitting down with a perspective financial advisor, ask that they be incrediblytransparent about how they get paid.
and as long as you feel comfortable with that,that shouldn't be a deterrent from moving forward.>>lori casey: okay, so when you get your statements fromyour financial advisor, to me, when i get them i look at did the money go up or down.but there's a lot of other information in there.what, if you're confused, what do you do? >>craig cunningham:so, that can be a confusing maze to kind of navigate through.and so, what i would tell folks is call your financial advisor, schedule an appointment,and have them walk you through a financial statement.>>lori casey:
yeah, because there's all these pie charts.and i'm assuming that's sort of explaining to you what your portfolio is.>>craig cunningham: sure, i think that’s where you, it reallykind of counsels in favor of scheduling an appointment, meeting with them.if there's something you don't understand, ask lots of questions.ask as many as you want. and have your financial advisor take thiscomplex web and kind of distill it down to something that makes sense for you so youcan move forward. on that same point, i think it makes sensewith your financial advisor, it is very crucial that you guys meet with regularity.life changes, and with that, financial plans
can potentially change.they are not static documents. so, because these are such fluid documents,it makes a whole lot of sense to schedule reviews with regularity.ask good questions, and develop that rapport so you guys can move forward in a constructiveway. >>lori casey:so, it is okay, maybe you started 10 years ago with kind of a conservative plan.do you have people that come in and say, "craig, i want to be a little more aggressive maybethis year, and change my plan up?" and then, you can change these things around,right? >>craig cunningham:yeah, absolutely.
these are not static things, and so you canchange based on your risk tolerance, based on your time horizon.maybe some variable has changed in your life, where you think it makes sense to be a littlemore growth oriented. maybe wells fargo's forecast is very positive,and you find that to be very compelling. what i would tell folks is just truly sitdown and talk long and hard about, if you're making a drastic change, why that makes sense,and is it truly necessary. >>lori casey:one last question. you know, probably in the 2007, 2008, wheneverything went like this, how do you, should regular people look at like the stock market?and when you look at those numbers, if they're
going up or down, should you be freaked outif they're constantly going down? or if you get your statement, and the amountis not going up, how should you look at that? >>craig cunningham:i think that gets back to my earlier point of financial advisors can help protect youagainst fear. and it's very natural for things to fluctuatein value. over any long period of time in our nation'shistory, it's been a good thing to invest in the stock market.and i'm talking about 15, 20-year periods of time.that being said, there are risks associated with it.so, going into it, i think you have to have
an appreciation for my account value is potentiallygoing to fluctuate, and could potentially fluctuate to the downside.but as a practical matter, that's a very normal thing.and so, i think that's just something to be mindful of as you're getting into it.>>lori casey: and i think you have to look at over the courseof the long stretch, that eventually, if you look at that line, it is going up.sometimes it goes down, but in general it's going up.>>craig cunningham: you know, the analogy i came up with is it'sa yo-yo. and so, it's going up and down.but it's like a person playing with a yo-yo,
walking up a hill.and so, if you go back to 1926, the stock market has averaged annually, you know, abouta 9 to 10% rate of return. that's with some really terrible years, somereally great years, and everything in between. so, the trajectory has kind of an upward biasto it. that being said, there are certainly yearswhere things can go down. there are certainly two-year, three, four-yearperiods where things can and have gone down. so, that’s something to absolutely be mindfulof. >>lori casey:yeah. alright, well craig, thank you so much forcoming by the show, and giving us some great
advice on that it's never too late for savingfor retirement. we appreciate your time.>>craig cunningham: thanks so much for having me, lori.>>lori casey: thanks.[music plays] here is the bottom line for retirement.the landscape has changed, and most likely you will need more than just a pension andsocial security. so, consider other retirement savings options,such as a roth and/or traditional ira. craig recommends making a retirement planand putting it into action now. the financial world can be confusing to manyof us, so seek out a financial professional
who can help you get the most from your retirementsavings. and finally, craig recommends to just takea deep breath and get started. well, that's our show for this week.thanks for joining us, and we'll see you soon for the next edition of money in your pocket.>>rameen karbassioon: federally insured.[music plays]
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