There were a number of big takeaways from Goldman Sachs annual Retirement Survey & Insights Report, one of which was a decline in the impact of the financial vortex. So what is the financial vortex, and how well are people managing it?
Robert "Bob" Powell is joined by Chris Ceder, Goldman Sachs Asset Management Senior Retirement Strategist, to discuss the financial vortex, whether to delay your retirement, personalized planning and advice, financial wellness programs, AI, and much more in this week's episode of Decoding Retirement.
Financial vortex (00:35)
According to Goldman Sachs, the financial vortex is a term used to describe the combination of personal and economic factors that can make it difficult for people to achieve financial stability.
"What we're really interested in learning is how well people are managing what we call that financial vortex, because it's really about competing priorities in terms of that impact how people can actually save for retirement," Ceder explains. "And this is really the first year that we've seen really a decline in people saying that things like saving for college or credit card debt or other competing priorities is actually on the decline this year."
The importance of retirement planning tools (05:00)
Most people who are 401(k) plan participants have access to retirement planning tools from their employer. "Tools are helpful and people can access those tools, but we need to make sure that people can take those tools and really make a personalized plan out of that," Ceder says. "So how do we then account for things that are going on in the individual's life? Do they have a spouse? Do they have other assets? Do they have family members that they're taking care of? All of that becomes part of it."
Ask Bob: Fed funds rate vs. discount rate (13:25)
Question:
The Federal Reserve lowered the interest rate back in September, but what is the difference between the fed funds rate and the discount rate?
Answer:
The federal funds rate and the discount rate are both interest rates set by the Federal Reserve, but they serve different purposes in the US financial system.
The federal funds rate is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight.
The discount rate is the interest rate the Federal Reserve charges commercial banks and other depository institutions when they borrow funds directly from the Fed’s discount window.
Restricted stock units (17:35)
A restricted stock unit (RSU) is a form of compensation offered by an employer to an employee in the form of company shares. Unlike regular shares, RSUs come with restrictions, meaning the employee does not immediately own or control the stock. Instead, RSUs are subject to a vesting period – a set amount of time that the employee must remain with the company before gaining full ownership of the shares.
"When we think about portfolios, we need to be thinking more around all the other assets that they have, whether it's equity, RSUs, a pension benefit that they have, those are just coming from the employer," Ceder explains. "But maybe you have rental income, all of those factors really should come into play when we think about what portfolio you have."
Robo-advice and AI (19:20)
Powell and Ceder broke down the role that robo-advice and artificial intelligence could play in the future of retirement planning. "They're not inherently robo advisors because what they're doing is they're actually bringing personalization, personalized investment solutions along with the planning aspects," Ceder says. "AI is a little bit of a different animal because the question in my mind around AI and whether we can provide financial advice in a 401(k) plan with the regulations that we have to live with is harder."
Ask Bob: What Is IRMAA? (22:45)
Question:
I received notice from the Social Security Administration (SSA) that I am subject to the income-related monthly adjustment amount (IRMAA) for my Part B and Part D premium. What is IRMAA?
Answer:
IRMAA is an additional charge on Medicare Part B and Part D premiums for individuals with higher incomes. Social Security uses information from your tax return filed with the IRS two years prior to determine if you are subject to IRMAA.
For example, your 2024 Medicare premiums would be based on your 2022 tax return. You will need to pay these additional amounts as long as your income remains above the threshold.
05:00 - The importance of retirement planning tools
08:15 - The importance of educating yourself on assets outside of 401(k)
12:00 - Financial wellness programs: Should I participate?
13:25 - Ask Bob: Fed funds rate vs. discount rate
14:05 - What to know about new or alternative investments
17:35 - Restricted stock units: Can they improve opportunity for risk-adjusted returns?
19:20 - Robo advice and AI's role in retirement planning
Retirement planning doesn’t mean locking up your money for a rainy day and forgetting about it. Planning your future means reacting to events today. Decoding Retirement gives you the tools to navigate the years ahead, and take action now!
Yahoo Finance's Decoding Retirement is hosted by Robert Powell, and produced by Zach Faulds.
