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Interview with Kristina Lynn of Kristina Lynn Photography
Erik Bowman • Apr 13, 2020
Transcript:
ERIK: Hi I’m Erik Bowman your host and owner of Bowman Financial Strategies, where we provide straight answers so you can make confident decisions to live the retirement you have always dreamed of. Today I’m speaking with Kristina Lynn Marshall of Kristina Lynn Photography. Kristina, thank you so much for joining me today.
KRISTINA: Thank you so much for having me.
ERIK: Before we dig into a discussion on photography and how the average person can significantly improve the quality of their pictures, whether they use a camera phone or their own digital camera, I want to give you a chance to tell everyone a little bit about yourself.
KRISTINA: Yes, absolutely. My name is Kristina Lynn Marshall. I am a portrait photographer based in Stillwater, Minnesota. I also have a satellite studio in Clarion, Iowa, which is my home town. And then I also come out to Denver, Colorado a couple of times each year. I have had my business for about ten years now. January will actually be my ten-year anniversary of starting my own business.
ERIK: Nice.
KRISTINA: I mainly specialize in portrait photography which means high school seniors, kids, families, weddings, corporate headshots. But I also do some product photography, some architectural photography such as real estate, and interior design photos.
ERIK: Very good, and just for full disclosure Kristina actually took photographs for Bowman Financial Strategies and if you go to www.bowmanfinancialstrategies.com, you’ll see a selection of photographs that are on that website that Kristina actually took for us and it was a great experience, so I highly recommend utilizing her if you ever do need professional photography services. Let’s move into really addressing some of the concerns that maybe our clients and friends of the podcast might have and specifically we know that many times a professional photographer is necessary. And a photographer is necessary for things like wedding pictures and maybe senior pictures and a professional shoot like you did for Bowman Financial Strategies, but of course people also want to take good pictures when they are on vacation or they’re visiting with their grandchildren. We can think of a lot of different moments in time where somebody just wants to take a picture and they might only have their iPhone with them. So let’s talk a little bit about some of the things that people should be thinking about when it comes to photography. And maybe we can start with what I have heard you refer to as the pre-shoot preparation. What should we do before we even think about taking a picture to give us the best chance of capturing a great picture?
KRISTINA: Everyone has a camera on them almost any point and time of the day with their phone. Right now, you are seeing a lot more photos being taken, and life being documented in photography. And so yes, there’s lots of really great tips I can share with you to take those photos and can make them a little bit better. For example, a couple pre-shooting tips I have. One is clean your camera lens. So you have your camera or your phone in your pocket all the time and you are grabbing it and you are touching it. A lot of times the camera is exposed, whether it is a front facing camera or rear facing camera, and so it gets finger prints on it a lot. So one of the first tips I usually do when I pull out my camera or phone to take a picture is to wipe off the lens.
ERIK: That seems so obvious and yet I can’t remember the last time that I actually cleaned the lens on my camera or on my phone camera. And if I did, I’m sure I just did it with my thumb and smeared more grease onto that lens so using a soft cloth and just not forgetting to clean that before you shoot that sounds like basic but extremely important.
KRISTINA: Yeah, even now as a professional a lot of times I will quickly pull my phone out of my pocket to take a picture. And I will take a picture and look at it and it is not as sharp as it could be and it’s because my lens is dirty. So it is a very common thing and it happens all the time, but it is a very quick fix to make your photos sharper.
ERIK: Awesome, well thank you for that. Why don’t we talk about some basic concepts that everyone should follow, whether they’re using their camera phone or if they are using their DSLR or digital camera. What are some of the basics they should understand and maybe we could break this into pieces, the first one being lighting. Does that sound like an appropriate place to start?
KRISTINA: Yes absolutely. So when you are taking photos, one of the trickiest things to kind of think about and after is the lighting. And that is because the camera doesn’t have as much dynamic range as your eye does. So what you are seeing does not always translate into the camera. Because your eye’s adjusting to the differences between the lightness and darkness. Lighting is a really big part of taking good photos.
ERIK: Can you highlight a little bit when it comes to different environments, perhaps maybe it’s a birthday party indoors compared to maybe an outside bright sunny day? What are some basic ideas about how you should think about that lighting when you’re taking a picture?
KRISTINA: So if you are, for example, taking photos at your granddaughters first birthday party. The best place to take the photos if you’re indoors is closer to a window because that’s going to give you more light, more natural light, and you won’t have to rely on your flash as much. So the closer you can move your subject to the window is usually best. If you are outdoors and you are trying to photograph something, finding shade is probably your best bet. Because you are not having to deal with really bright conditions where your subject is squinting, or your camera is trying to figure out if you are backlighting with the sun behind your subject or if it’s in the front. So shade is really good and overcast days are really good.
ERIK: So Kristina, when you are talking about working in the shade as an example, are you saying that the subjects are in the shade or the photographer is in the shade?
KRISTINA: A lot of times for sure your subject is in the shade. You know, if you are under a tree, me as a photographer and if I’m not in the sun, it is not that big of a deal as long as the sun is not shining directly into your camera lens. It is more important for your subject to be in the shade just because the lighting is more even. If both of you can be in the shade, even better.
ERIK: What would you recommend then out here in Colorado, you may very well be at a place like Daniel’s Park where there really is no shade and you want to get that background of the mountains or the backdrop of the mountains? How do you handle that if it is a bright sunny day, what are some tips?
KRTISTINA: Usually, shooting earlier in the morning or later in the day when the sun is a little bit lower in the sky makes for better even lighting. So a place like Daniel’s Park, it all kind of depends on what your goal is. If you were just out there photographing the mountains and wanting a nice landscape scene, it’s better to shoot earlier in the morning because the sun will be to your back, the photographer’s back, and shining on the mountains. If you’re shooting a family out at Daniel’s Park, it is better to photograph them in the evening, closer to sunset, because then the sun is behind the subjects and you can get it so it’s maybe slightly back lighting them a little bit. But that way you don’t have the sun directly in their eyes and they are squinty.
ERIK: And you know that seems counter-intuitive, I think that naturally most people who don’t do photography for a living, they think that a bright sunny day in the middle of the day actually is probably the best. And what I’ve heard you say is that it is probably the worst time of the day to get a really good picture, that you get better color, better shadows, and maybe better contrast, by taking your photos early in the morning or late in the afternoon.
KRISTINA: That is exactly right. This morning I photographed this family and it was cloudy out and they made this comment of, oh how this must be horrible lighting for you. And I said no, actually a cloudy day is perfect for me, because everything is nice and even lighting, you don’t have to worry about really bright highlight spots and really dark shadows. It is more even. And it opens up the opportunity that I can take you kind of wherever and not have to worry about, well will you be facing the sun, how do I get the sun to your back.
ERIK: Excellent. I have a question that keeps popping into my mind and I know when I take photos with my iPhone or really any camera, the one thing, especially if I am taking pictures of the mountains or a landscape if you will, is that it just doesn’t do it justice. You know, a sunset, as beautiful as the colors may be, you just don’t seem to get the, I don’t know, the depth or the detail or the expansiveness that you are seeing with yours eyes. What is it that causes the difference between what you are seeing and a photograph that just doesn’t really pull it out and make it look as great as you think it is when you are looking at it live.
KRISTINA: Great question. It all has to do with, your eyes are very dynamic. Because, you know they are attached to your brain. And so your brain kind of knows that this is the thing you are looking at and you can see the different colors whereas when you are taking a photograph, you are at the mercy of your camera and what your camera thinks is how it should be. Especially when shooting with your smartphone. Your smartphone is programmed to kind of look at the entire scene and kind of average it out so that your brights aren’t too bright and your darks aren’t too dark. It will kind of be in the middle. When photographing something like a sunset on the mountains, it can be kind of tricky because you have that sunlight pouring into your lens. And your camera is saying, oh it’s really really bright and I need to darken it down. So then you lose the detail in the mountains. Or your camera will go the other way and say, oh look at the mountains and that is the really dark area, let’s brighten that up, which then makes you lose your sunset because it is overexposing it and you lose all the colors. So there is actually a setting on all the cameras that I recommend using for situations like this. It’s called the HDR setting and that stands for High Dynamic Range. And while that is not a fix-all for everything, it does really help create more of a little bit closer to what your eye is seeing. Because what it does is your camera is taking all this information and saying those are the really bright spots, those are the really dark spots. Let’s kind of average that out and not overexpose or underexpose, but kind of go right in the middle.
ERIK: I always wondered what that meant, I didn’t know what it meant, I didn’t know what it did. Sometimes my camera would be on HDR and sometimes it’s not. So that’s very helpful, so there is a specific time and place for using that, so that’s awesome to know. So we have talked a little bit about lighting, actually we talked a lot about lighting and I know I have learned a couple of things for sure. One of the other components of photography is staging. Which in my mind, and correct me if I’m wrong, is really talking about what elements do you have inside of the picture. Are there things on the table? If there is a birthday cake with candles, what do you do to make the photograph more interesting knowing that sometimes you have limited control over what you can actually do as far as staging is concerned. But maybe you can enlighten us a little bit on some tips and some techniques that you use.
KRISTINA: Staging is definitely important because it is kind of setting the scene for what you are taking. But kind of a couple things to think about, anything that is in the foreground. You are photographing a birthday, and there’s a table with a cake, and your one-year old granddaughter behind the cake. But then there’s a bunch of presents right in front of you on the table. If you were to put those in the picture, they’re going grab your attention and it is going to take away from the actual picture you want to take of your granddaughter and her birthday cake and the candles. Something as simple as just moving things off of the table, getting them out of the foreground, will help. When you are grouping people together, like if you are doing a family photo, put people in groups so that obviously the taller people are in the back and the shorter people are in the front. But to create even more interest, you can do different levels. So instead of just having everyone standing, put people on different levels where there are some standing, some sitting, to create some interest.
ERIK: And I think that little bit of controlling the environment and changing those head heights as you say can really make a big difference, so that’s really good input.
KRISTINA: Yes, and even doing something where instead of lining everyone up in one big line, you do two different rows. So have the taller people in the back and the shorter people in the front. And put the taller people towards the middle of your grouping so that kind of naturally falls off on either side.
ERIK: Excellent. The next topic we had talked about a little bit earlier today and I just find it extremely interesting how the human brain works and when it’s evaluating a picture, what makes it just seem better, naturally. And when it comes to framing a picture appropriately, what are some of the techniques and rules of thumb that the amateur photographer should be thinking about?
KRISTINA: One of the rules that first comes to mind is what is called the Rule of Thirds. And this is more for composition. So to make something a little bit more interesting in your photos, instead of putting your subject directly in the middle of your frame, move it slightly to the left or to the right. So picture your view finder, or looking through your view finder, as a grid going across to kind of make like a tic-tac-toe board.
ERIK: Right, so there’s nine blocks.
KRISTINA: Yes, exactly. So when you do that, put those people kind of on one of the, not right in the middle, but the line to the left or to the right. That will kind of just create a little more visual interest. That way it kind of draws your eye through the photo a little bit more.
ERIK: I do believe that the iPhone actually has the ability for you to have that grid up and probably you could expand on this too. Do the DSLR cameras actually have a grid that you can see? I think the iPhones do.
KRISTINA: Yes, a lot of time on your iPhones and on your smartphones just in general, there are apps or ways you can put up a grid on there. So that you can kind of be mindful of the Rule of Thirds and be like, oh instead of right here in the middle, let’s move them to the left or to the right depending on what we are trying to capture just to add a little bit more interest.
ERIK: And I think to expand on that one little bit, is the Rule of Thirds applies vertically as well. So depending on the photo you’re taking, it’s not always a left or right adjustment, it may be an adjustment high and low, correct?
KRISTINA: Correct. For example, let’s say you are doing a landscape photo and you have the mountains and you’ve got beautiful clouds in the sky and you want to be able to capture both of those. It’s better to put maybe towards the bottom of the frame versus right in the middle so you can get more of the clouds or vice-versa depending on what you are going for.
ERIK: Excellent, it seems straight forward and obvious when we talk about it here. When in reality, I probably haven’t been using any of these techniques when I take pictures and then I wonder why they don’t look as good as they probably could, so that’s great information. Next let’s talk a little bit of what I think what is becoming more and more important, which is nobody has photographs anymore. I know down in our basement, we have hundreds of photographs of our first three children. And then since iPhone’s became kind of ubiquitous, my youngest child, Jacob, who is eleven years old, that poor kid, he’s not in any paper photographs. And what it really highlights is the need for appropriate backup and then how you might be able to use those digital pictures other than showing somebody your phone periodically and then one day it gets deleted and it’s no longer there. Do you have any advice on backing up the photos?
KRISTINA: Yes, so backing up is becoming very important. Because when you think about it, if you are documenting everything on your phone, what do you do if you lose your phone? For example, I know my sister, who has four little kids, she doesn’t have a camera. She has her phone, that is what she uses for her camera. Which is great, because then she can take pictures on the go. But she doesn’t print them as often as she should. And so a lot of her memories are living on her phone. Well what do you do then when you go to upgrade your phone? Are you saving them to an external hard drive? Do you even save them to an SD card in your phone? Are you just saving them on the actual phone hard drive itself?
ERIK: What are some ways of backing it up? Maybe what are the top two ways you would recommend for somebody to quickly and easily get those photos off of the iPhone for future use?
KRISTINA: One of the quickest ways to back up your photos, is most phones in general will even let you setup so that every photo you take on your camera will back up to a DropBox folder or your Google Drive. And so it is actually constantly backing up with every photo that you take once you attach yourself to WIFI. Sometimes it will pull everything from your phone and put it into your DropBox folder. So that would be my number one recommendation, if you don’t have something like that setup, do it now. Super easy, both Dropbox and Google Drive are free. And so it’s a very simple thing that you just go into your camera settings on your phone and tell it where to back up to. So it will just upload it to the cloud for you.
ERIK: If they don’t have that, somebody might not be quite tech savvy enough or have a desire to work with an app, how else do you simply get your pictures off your phone if you need to do it manually?
KRISTINA: There’s a bunch of different work arounds I would say. You can always email yourself photos. But that can be kind of cumbersome. A lot of phones have like an internal SD card that you can put in there and you can set it so that your camera is saving your photos to the SD card, which then at some point in time you can take out and you can download them to your computer and back them up on a hard drive that way. But again, if you lose your phone, you lost your SD card. The backing up to the cloud is actually the easiest, and a lot of times it is as simple as finding it in your settings and saying go.
ERIK: That explains though why most people have all these photographs and then when they run out of room they have to start deleting them. It is because it actually isn’t just obvious and straight forward how to get them off of your phone and onto your computer. So using either the cloud, and I think that Apple offers an Apple cloud kind of area where you can download photos, but using a free app called DropBox or Google Drive, once again, which I use extensively for saving documents actually for business purposes. Otherwise, I think both of those are great ideas, so thank you for those. Kristina, can you just briefly touch on the idea of zooming in with the iPhone or Android phone. What are some of the pros and cons of using what I think you refer to as the pinch zoom?
KRISTINA: With digital cameras or normal cameras, you have what they call an optical zoom, where they’re actually taking the lens and moving it closer to the subject, so you are not losing quality when you zoom in. It is moving your lens closer. However, with phones, you don’t have that luxury. With phones, you have what is called the digital zoom. So what a digital zoom is, when you open up your phone, your camera, and you go to take a picture and you want to be closer and you take your fingers and you spread them apart on the screen to zoom in, what that is actually doing is taking the pixels and making them larger. And so it deteriorates your quality. If you are in a position where you want to be closer to your subject instead of trying to zoom with your fingers or doing it on your camera phone, actually walking closer to your subject is better and it will make for a clearer picture.
ERIK: That’s awesome, that is really good information. I think all of this information is fantastic because certainly if we applied all of these techniques every time, we would have fantastic pictures. Some people may be concerned though that they don’t have the time to do that, they don’t want to miss the moment, and I would agree. I think it’s important that you get the picture, that’s like step one, what would be some advice to allow somebody to have a happy medium of improving their pictures but still making sure they are getting them without ruining the moment?
KRISTINA: It is very important to kind of have an idea of what your phone can do, but not to get so wrapped up in all the details and miss the moment. My biggest piece of advice for everybody is to remember what you are taking the photo of most times is the moment so that you can remember the moment, and don’t get so wrapped up in making it the perfect photo. With digital, there’s a lot of things you can fix afterwards. And so if something’s a little bit off, a lot of times you can go in and make it a little bit better. But don’t get so wrapped up in needing to know all the details and everything that your phone can do. Maybe pick one or two things and kind of work on that so that it becomes second nature. And then you can always add on things as you go. Don’t get bogged down by technology.
ERIK: That’s great advise. You know and I do think about that every computer out there has pretty standard photo software and I’m looking at my Windows 10 operating system and it has a built-in photo editor that can do some amazing things these days. As long as you can figure out a way through your backup system to get your photos to your computer, you can crop them. So that if so when you took the picture, for example, you didn’t create that third idea that we spoke about, getting the subject into one third of it, but when you crop the picture, you can actually create that type of feeling and that people should just remember like you said. It is about the moment so that you can remember it and you know the most important thing is get the shot, you might be able to fix it later.
KRISTINA: Exactly.
ERIK: Well I want to thank you so much for taking your time to speak with me. We always enjoy getting together with you. Why don’t you tell everybody your website address and certainly if anybody ever is interested in professional photography, Kristina is a great person to use. We’ve used her successfully and have been really happy with the results, so why don’t you give some contact information.
KRISTINA: Sure! So my website address is kristinalynnphoto.com and on there you can see some of the work that I have done. I’ll have a list on there of all my travel dates, of where I’m actually going, or I have scheduled to go. But anytime you ever need photos, like I said I’m mobile and love to travel, so have passport will travel they say. And there is also a contact form on there so if you ever have questions you can always feel free to drop me a line and I’d be happy to help.
ERIK: Well thank you very much, I truly appreciate it. I hope everybody out there got something useful out of today’s podcast. So go out there and live the best day of your life. Thank you very much.
You’re listening to uncommon sense, a podcast by Bowman Financial Strategies. I’m your host, Erik Bowman, and thank you for joining me today. Hi everyone and thank you for joining me today. This is Erik Bowman, owner of Bowman Financial Strategies. Our topic today is required minimum distributions or more commonly known as RMDs. Erik: (00:32) To some of you, it may come as a shock that you cannot keep your retirement funds in your retirement account indefinitely. Generally speaking, you really must start taking withdrawals from your IRA, your simple IRA or your SEP IRA or even your qualified retirement plans such as a 401k or 403B when you reach 70 and a half. Roth IRAs by contrast do not require withdrawals until after the death of the owner. Your required minimum distribution or RMD is the minimum amount of taxable distribution that you must take out of your retirement account each year. Once you reach 70 and a half. Erik: (01:16) The RMD poses all sorts of conundrums for retirees, like how is it calculated? Who calculates it, when is it due? What happens if I don’t take it and what if I don’t want to take it? And the list goes on. Today I’m going to cover the basics of an RMD. Who does it apply to? Calculations and resources to further educate yourself and of course some potential strategies that may alleviate some of the challenges surrounding RMDs, namely taxes. Erik: (01:52) So let’s start from the beginning. When you turn 70 and a half, you are required to take an RMD from your retirement account, an IRA, for example, by April 1st of the following year. For all subsequent years, you must take the distribution by December 31st of that year. For example, if you turn 70 and a half in August of 2020 you must make your distribution by April 1st of 2021. If you choose to do that, you would also have to calculate your 2021 RMD and also take that in 2021. So in actuality, in the first year that you decided to take that RMD, you would actually have to take two distributions. Now you don’t have to delay until April 1st you can take your RMD in the year that you turn 70 and a half. Erik: (02:49) An exception to this rule applies to 401ks, also known as a qualified retirement plan, which is the terminology that’s used to describe an employer sponsored 401k, 403B, 401A, just to name a few. For these accounts, you must take an RMD by April 1st of the year following the year you turn 70 and a half or upon retirement, whichever is later. If you’re still gainfully employed for example, and you have an act of 401k and you’re 72 years old, you don’t have to take an RMD from that qualified plan that you have at that current employer, even though you’re older than 70 and a half. However, once you retire, those RMDs are due by April 1st following the year that you retire. And one really big caveat and a mistake that you do not want to make that is even if you are working and you’re older than 70 and a half, if you have an IRA in addition to your 401k, you still must take your required minimum distribution from that IRA. Don’t make that mistake and I’m going to be talking about the penalties the IRS can impose if you fail to take your RMDs. Erik: (04:07) here are a few other points that may save you some headaches and money in the future. If you have multiple qualified plans or multiple 401k’s, meaning maybe you’ve worked at previous employers and you have simply left your money behind at those various employers 401ks and you have not moved them into IRAs, you must calculate the RMD for each account individually and then take the distribution from each of those respective 401ks by the deadlines. By contrast though, if you have an IRA or multiple IRAs, you can calculate the required minimum distribution for each IRA individually. Add those together and take the total sum of those as a distribution from one of your IRAs. Now, depending on how you’re investing your assets, this may be a beneficial thing to do. It certainly seems a little bit simpler than making a distribution from multiple IRAs. Since 403B’s are considered qualified plans, you might think that the same rule applies. Erik: (05:09) However, it is a little bit different. If you have more than one 403B tax, sheltered annuity account, also known as a TSA, you can total the RMDs from each of those 403Bs and then take them from any one or more of the tax sheltered annuities. So I mentioned penalties a little bit earlier. So let’s gather round and chat about this one. Most people are aware that if you take money out of an IRA before 59 and a half, that you will pay a 10% penalty on that distribution in addition to the taxes. And that’s not fun and should be avoided in most cases. By comparison, if you fail to take your RMD on time, you will pay a whopping 50% penalty to the IRS. Yes, that’s a 5- 0% penalty. So if you were supposed to take $10,000 out and you failed to do that, by the respect of deadline, you would literally owe a $5,000 penalty to the IRS in addition to income tax on the total amount. The IRS wants their taxes and they will get them one way or another. So don’t let this rule catch you by surprise. Erik: (06:27) So let’s talk a little bit about the actual distributions themselves. You actually do have a couple of options. First, if you’ve calculated your RMD for the current year, you can actually opt to take the full calculated amount in one lump sum anytime up until December 31st of that year. The one exception, of course, is your first year of required minimum distributions. You do have until April 1st of the following year, but that is only for year one. Another option is you may also choose to take periodic distributions over the course of the year to meet your obligation. You also want to take into account income, cash flow and expenses to help guide you here. But there could be strategic and tactical reasons why you might want to spread that out on a monthly or quarterly basis over the course of that year as opposed to making one large lump sum distribution. It’s a little synonymous with the concept of dollar cost averaging when you’re buying into stocks and bonds and other investments that you get a better average share price potentially by buying in over time. Same on the way out when you’re making distributions from your IRA. It could be beneficial to take smaller amounts out over a 12 month period and in that case in, if there was a declining market, you may have actually saved yourself some principle over time. Erik: (07:56) Okay, now onto calculations. How do we determine how much you must withdraw each year? No surprise here. It’s not the same every year. It’s kind of complex and it totally depends on your unique situation. The IRS publishes a table called the uniform lifetime table. It’s table three on the IRA RMD distribution worksheet that’s available on our website on this podcast page. For example, your first IRA distribution for the year you turn 70 and a half, requires you to know your exact balance of your IRA or IRAs on December 31st of the prior year. You then take this balance and divided by 27.4. Seems like an odd number but it’s a joint life expectancy number. So by dividing that balance by 27.4 the answer to that equation is the exact amount you must make as required minimum distribution. You need to do this for every single retirement account you have unless one of the exceptions I mentioned or other exceptions that your financial professional mentions may apply to you. Erik: (09:06) In the next year, when you turn 71, you will take the prior year’s 1231 balance and divided by 26.5 and by the time you reach 114 yes, the table actually goes out to 115 and older, you will divide by 2.1. So 2.1 is the divisor for one 14 it drops down to 1.9 when you reach one 15 and stays there if you happen to live longer than that. But what you’ll notice is that each year that goes by, the lower number in this equation gets smaller and smaller, which means the amount of money you have to distribute from your account becomes a larger portion of that account every single year. Erik: (09:53) another exception that we see periodically, it’s not an everyday occurrence, but it could be your situation. So this is an exception to the rules on that table and that is if your spouse is the sole beneficiary of your IRA and he or she is more than 10 years younger than you in this case, the IRA utilizes another table for you to calculate your distribution. The IRS wants more money from you while you are alive so that when your IRA is left to your younger spouse, who by the way can usually take RMDs based on their age and spread that out over a longer period of time. Well, there’s going to be less money in that account to spread over a supposedly longer lifespan of your younger spouse. It’s just another way of the government saying, we would like to ensure that we get these tax dollars sooner than later, but don’t forget that it is a totally different calculation with a different bottom number on that fraction when you’re calculating your RMDs, if your spouse is more than 10 years younger than you. Now there are many, many other rules regarding RMDs. If you’re a 5% owner of a company for example, and you’re still working in that company and you have a 401k, you’re not allowed to continue to delay RMDs, passed 70 and a half. You actually still have to take them per the original rules, but just know that you really should be talking with your financial professional before you solidify any of your RMD calculations or distribution strategy. Erik: (11:30) So relating to strategies, the name of our company after all is Bowman Financial Strategies and we really try to look for opportunities to save our clients money, save them on taxes and just to be efficient when it comes to the distribution of their assets during the retirement stage of their life. So relating to strategies, one of the challenges to a moderately high net worth individual is that you may have a pretty substantial retirement account. When you turn 70 and a half, you’re going to be forced to take a large taxable distribution if that account has grown and you haven’t made any distributions up until then. So for example, if you have a $3 million IRA under current law, your distribution that’s required the year you turn 70 and a half is roughly $109,000. Imagine you began taking your social security benefits at age 64 because you wanted to get it while the getting was good, you are afraid it was going to run out. Erik: (12:26) And that’s a separate topic. So you don’t take any meaningful distributions from your IRA from age 64 to age 70 and a half. Now you find that not only is your social security payment forever reduced because you filed early, but now you’re forced taxation at 70 and a half, maybe significantly higher than it otherwise would’ve been. All this is to say that your social security filing strategy should include understanding how your retirement accounts will be impacted by RMDs and ultimately how much in taxes you may pay by appropriately timing your social security filing, potential Roth conversions and IRA distributions along with distributions from your non-qualified brokerage accounts and other income streams, you may be able to significantly lower your tax burden over the life of retirement. Erik: (13:20) Well, I’m afraid I only scratched the surface on RMDs and all of the moving parts and potential strategies. Suffice to say it is complex penalties can be onerous and there may be strategies available to you that could lower your taxes significantly under the right circumstances. If any of this information is compelling to you and you want to learn more, I would love to hear from you. You can email me at E R I K @bowmanfinancialstrategies.com. That’s E R I K @bowmanfinancialstrategies.com. You can call our office at (303) 222-8034 and just simply schedule an appointment to come on in, have a cup of coffee and allow us to perform some analysis for you. Thanks so much for your time and I hope you have a great day. Thank you for joining me for Uncommon Cents, the Bowman Financial Strategies financial education series. I’d love to hear your feedback on financial topics you would like to learn more about. Just drop me an email at Erik, that’s E R I K @bowmanfinancialstrategies.com or go to the Bowman Financial Strategies website and send me a note on our contact page. In addition, you can always search for topics of interest in my archive on our podcast page at www.bowmanfinancialstrategies.com/podcasts. Have a great day. Disclosure: (14:52) This communication does not constitute federal tax advice and may not be used as such. Please consult a qualified tax professional for tax advice or assistance. In addition, investment advisory services offered by ChangePath LLC, a registered investment advisor, Change Path and Bowman Financial Strategies are unaffiliated entities.
You’re listening to uncommon sense, a podcast by Bowman financial strategies. I’m your host, Erik Bowman, and thank you for joining me today. Hi everyone. My name is Erik Bowman and I am the owner and founder of Bowman financial strategies. Thanks for taking the time to listen to this podcast. Today, I’m going to be discussing the three primary risks in retirement. Erik: 00:34 At Bowman Financial Strategies, we work every day helping clients who are transitioning from accumulation to distribution to do so wisely and confidently. I’ve seen the success stories, worked with many challenges facing retirees and helped my clients craft income plans they are confident will meet their needs for the entirety of retirement. Importantly, these plans are built to provide stability and to support your standard of living regardless of market conditions. Getting motivated to take the necessary steps to create an effective retirement plan can be challenging. However, not crafting an effective plan can be catastrophic to your retirement. It’s often been said that your retirement outcome is a result of your retirement income and never truer words have been said. You have worked hard, saved during your careers and budgeted wisely, knowing that the day was going to come when you will need to replace your income without working. Now you have an accumulated bucket of money to retire with and the primary goal many times is to maintain your current standard of living you enjoy now plus add in more travel. 00:34 At Bowman Financial Strategies, we work every day helping clients who are transitioning from accumulation to distribution to do so wisely and confidently. I’ve seen the success stories, worked with many challenges facing retirees and helped my clients craft income plans they are confident will meet their needs for the entirety of retirement. Importantly, these plans are built to provide stability and to support your standard of living regardless of market conditions. Getting motivated to take the necessary steps to create an effective retirement plan can be challenging. However, not crafting an effective plan can be catastrophic to your retirement. It’s often been said that your retirement outcome is a result of your retirement income and never truer words have been said. You have worked hard, saved during your careers and budgeted wisely, knowing that the day was going to come when you will need to replace your income without working. Now you have an accumulated bucket of money to retire with and the primary goal many times is to maintain your current standard of living you enjoy now plus add in more travel. Erik: 01:43 Well one method is to invest in the stock market, hope you’re diversified and allocated correctly, and hope to get enough of a return, and hope that the market doesn’t crash and take your retirement with it. At Bowman Financial Strategies, we don’t ever use the word hope in our retirement plans. Our plans are designed to remove anxiety knowing that all three risks in retirement are addressed appropriately. The Bowman Financial Strategies income planning process known as the LiveWell formula focuses on three primary risks in retirement, and every recommendation in our plans directly addresses these primary risks. The risks in order are sequence of return risk, inflation risk, and longevity risk. To further break these down, let’s look at them one at a time. Erik: 02:37 The first risk: sequence of return risk. I also call this early retirement market timing risk. This risk is represented by the risk of significant negative market returns in the early years of retirement. You only have to go back to 2007 through 2009 to witness over a 50% drop in the U.S. Stock market. It’s been over 10 years since that low and the markets have marched steadily upwards since then with very few exceptions. And with markets routinely setting new highs, some would say that the potential for continued growth for the next 10 years is less likely than a significant drop during that same period. If you are just starting retirement and you’re fully exposed to potential market losses like 2009, and many seniors were and are, your future retirement plans may change dramatically requiring an unpleasant adjustment in your standard of living to make ends meet. We seek ways to limit early retirement market timing risk by using fixed or guaranteed rate of return solutions to reduce the exposure to pure stock market. Erik: 03:50 The second primary risk is: inflation risk. And this is really the opposite of the market timing or sequence of return risk because inflation risk is the risk that your assets and income may not get enough of a return and be able to keep up with the ever rising costs of goods and services. If your income never increases or your assets never increase the rate of return, but the cost of a gallon of milk doubles in 10 years, your effective purchasing power has just dropped significantly. Accounting for inflation is critical to a good income plan. By failing to plan for inflation, you may misjudge the amount of money you can spend each year in retirement, finding yourself running out of money a decade sooner than you planned. This leads once again to a catastrophic change in your standard of living if you run out of supplemental income sources like IRAs, in addition to social security and pensions midway in retirement. We typically address inflation risk by having professionally managed stock and bond portfolios for our clients that are appropriately allocated for their timeline and risk tolerance. Erik: 05:00 The third primary risk is: longevity risk. This risk can be further divided into two types of risk, longevity risk associated with income and longevity risk associated with health care expenses. Income risk is the risk of running out of income sufficient to cover your essential expenses in retirement. Having enough guaranteed income to meet your essential needs or a floor of income provides not only a financial advantage but also a psychological one. Your confidence and baseline income allows you to live anxiety free and stick with the long term plans related to your invest-able assets that may be in the stock market that are dedicated to long term inflation protection. The other longevity risk is healthcare risk, which is the risk that you may experience deteriorating health that require the assistance of qualified professionals to help you with the six basic activities of daily living also known as A.D.L.s. Contrary to what many believe, health insurance and Medicare do not pay for long term care expenses. Erik: 06:05 If you don’t have a strategy in place, you are considered “self-insured”, quote unquote. This means that if you experience a health condition requiring assistance with the six activities of daily living, you will need to spend down your assets until you have $2,000 (at least that’s the requirement in most states to be eligible for Medicaid as well as some income thresholds that if you exceed would make you non eligible). But if you even are eligible for Medicaid at some point, then your state Medicaid program may help. And as former president, Ronald Reagan said, “don’t worry, I’m with the government and I’m here to help.” So most people don’t look at Medicaid as the primary route to take care of their health care expenses later on in life if they have the resources to help plan against that risk. Erik: 06:54 Now that we understand the three basic risks, that being: sequence of return risk, (you don’t want to lose a lot of money early in retirement), inflation risk, (we still need to seek growth with our retirement assets because things will get more expensive and over a long 30 year lifespan in retirement or more, things can get significantly more expensive.) And then finally, longevity risk. And that would be the risk associated with assuming that you can figure out how to have guaranteed income streams that will last as long as you live, no matter how long that is, and then the long-term care expenses that are also commonly associated with longevity. Once we gather all of your required information, we then begin using sophisticated financial software to calculate the maximum annual income using agreed upon assumptions and always addressing those three financial risks in retirement. Thanks a lot for joining me today. I truly appreciate your time. If you ever have any ideas of topics that you would like to have me discuss here, please drop us a line. You can send me an email at erik@bowmanfinancialstrategies.com that’s E R I K @bowmanfinancialstrategies.com or you can simply give us a call at (303) 222-8034. And finally you could go to our Facebook page and you can drop us a note there as well. Thanks again for joining me today. I hope you enjoy the rest of your week. Erik: 08:20 Thank you for joining me for Uncommon Sense. The Bowman Financial Strategies financial education series. I’d love to hear your feedback on financial topics you would like to learn more about. Just drop me an email at Erik, that’s E R I K @bowmanfinancialstrategies.com or go to the Bowman Financial Strategies website and send me a note on our contact page. In addition, you can always search for topics of interest in my archive on our podcast page at www.bowmanfinancialstrategies.com/podcasts. Have a great day. Disclosure: 08:56 This communication does not constitute federal tax advice and may not be used as such. Please consult a qualified tax professional for tax advice or assistance. Any references to protection, guarantees or lifetime income refer to insurance products, never securities products. Insurance and annuity products are backed by the financial strength and claims-paying ability of the issuing insurance company. In addition, investment advisory services offered by Change Path, LLC, a registered investment adviser. Change Path and Bowman financial strategies are unaffiliated entities.