Using TRAK in the 403(b) and 457 Markets



Welcome to this short video of features found in The Retirement Analysis Kit that are popular in the 403(b) marketplace. I am Ed Dressel, President of Trust Builders. We have been working in the 403(b) market for over 25 years, helping advisors increase their sales by moving the meetings from “I’m here to sell you something” to “I’m here to educate you”. When the meeting paradigm changes from sales to education, people start leaning forward and walls or hurdles go down. People are being sold to all day long and have a natural barrier to “I really don’t want to hear this sales pitch.” When the meetings go from the paradigm of sales to education, people start leaning forward and go “I didn’t expect this” and they start connecting with what you’re saying.

In today’s meeting I want to highlight 2 features found in The Retirement Analysis Kit. The first one is the Paycheck Calculator. How to connect with individuals when they see their paycheck illustrated right on the screen and how to move them forward from that, into talking about increasing deferrals and also what other accounts do they have. The other very popular tool in the 403(b) space is the Quick Gap Calculator, helping clients see the income they’ll have from the pension system that they may have and the ability to move them forward and naturally talk about “I have also got some money over here” because they’re being educated.

So without any further ado, let’s jump into the Paycheck Calculator. The Paycheck Calculator lays out like a lot of TRAK calculators, over on the left hand side we have the data entry that is critical to it. On the right hand side, we’re going to have the calculations and eventually we’ll fill this space with additional calculations as well. The first data entry is the Employer File, critical to setting up the analysis. This determines what pension system they’re in, what kind of retirement plan that they have, what state they’re taxed in, how many times they’re paid in a year, etc. It can be accessed by the editor here. But I’m going to skip over that and just highlight the features today.

There are a few more data points that are entered as we move down the screen including the options of a TSA Roth which can be turned on or off inside of the employer file. After the data is entered we can take a look over on the right-hand side and we can see pretty closely if not to the penny, their paycheck stub. Often this matches to the penny and when a client sees their net pay represented right down here they go, “Wow! How did you do that?” and “That is pretty new, cool!” and they start leaning forward and start wanting to know “What is this meeting really about?” Not your typical approach to the TSA, 403(b) sales.

At this point I would recommend hiding the withholding taxes and now we can talk about what we really want to talk about: retirement planning contributions. We also take a different approach as we move forward to many other approaches. I can click add a calculator and by default, you can change this if you like, we have the Quick Max calculator. What this highlights is how much they are allowed to contribute per year on an annual basis. Given that this client is not 50 yet and they don’t have the 50 and over catch-up, this client would be allowed to move their $100 contribution to $1450. But the meaningful information is that would affect their paycheck by almost $1100 per paycheck. Now most clients wouldn’t be able to afford that. But there is a reason to use this approach, rather than thinking of small increments 25, 50, 75 dollars they are now seeing the whole spectrum and the conversation goes like this: we’re sitting down with Eric Smith in this situation. “Eric, if you gave the maximum your income would reduce by $1100 and your take home pay would almost be $2600” and Eric would probably object “I can’t afford that!” “Didn’t think you could Eric. But what do you think you can afford?” And notice that we’ve done a couple things; we’re talking about their take-home pay, the number that means something to them. Additionally, we’re adding money to the maximum contribution and the take home pay, versus taking it away from the current level, a different approach. And Eric might say “I can afford $3500 per paycheck. That’s what I need to live on.” And we enter the $3500 and hit tab and it automatically calculates the new TSA contribution. So if we go right here, we can say that we’ve moved their TSA contribution from $100 to $272, a significant increase in their deferrals.

TRAK has a number of other features that I’m not highlighting in this area and we’ll skip over them but they’re covered in the User Manual that’s available on the File-Help & Support Tab. At this point, if we’re still looking for an increase in their deferrals we have a number of options. Often somebody will jump into the optional 1040 calculator and in this calculator we talk to them about taking some of all of their Federal refund and moving it to their retirement plan. Why? Well, there is no interest given by the Federal government on the Federal refund and additionally, a lot of people blow the money and also TSA plans often offer a hardship clause should they need some of that money due to a sickness or illness. So here we have some year to date information over on the left and over on the right we have some 1040 information. It’s nice if we have a 1040 form from last year and ask them if there are any significant changes in their deferrals this year. We can walk through some of drop down screens and enter data off of that. We find out about things we naturally may not found out about. They’re getting taxable interest income or some dividend income indicating they’ve got money sitting in a CD or a bond, something we may be interested in. In our training we talk about how to approach that in a very soft way.

Once we get through the data entry we can click the Show 1040 Analysis button and down below we instantly get to see the two paychecks: the current year and what we call the whole year. We’re going to reduce the withholding taxes and we can see it still has the $3500 worth of income. Over on the right, we can see that the refund has changed from the $1800 to $125. That occurred because in the withholding allowances, the values were changes from married and 2 to married and 5 and this allows an increase in the income but that increase in the income was automatically deposited in the TSA account. So rather than the $100 or the $200-some dollars that they were contributing we’re now at $460 per paycheck. Eric may say “I’d still like to have a little bit of Federal refund” so we can enter it at $800 and the software will automatically calculate the Federal refund and now we almost at TSA contributions of almost $400, a nice contribution. And a significant increase from the $100 that Eric is contributing today. Again, the 1040 is an optional calculator that some advisors use to find additional contributions.

The next calculator option, we could have gone straight from Paycheck to the Projections Calculator, we accessed it thought the 1040, is the Projections. What does this accumulate and distribute over time? We enter information on the left as we do in many TRAK calculators and one of the key pieces of information is the $50,000 TSA balance and we also ask them in a natural part of the conversation “What do you have in other accounts today?” Do we have an Old IRA and Old 401k that Eric may have some money in that he may not be managing? We talk about that in training and how to talk to them about it. And say “If you ever need any help with this, that’s what I’m here for”. Instantly as we make data changes on the left the calculations of the right are changed so if I change the rate of return to 6 percent during retirement we can see the impact of it and that shows them the amount of income that they’re going to get during the retirement time. Right now Eric’s anticipating about a 61% replacement income with these values.

Eric may say to you at this point. “I like what you have but give me a couple of years, I have a couple of expenses” or “Give me a year, I have a couple things going on.” We can talk to him under the Cost the Wait tab and say “Eric I want you to know what it’s going to cost to put your decision off a year. It’s about the $25,000 cost in your account balance; it’s going to cost you 1.5% of your income for every year in retirement. If you push it off 2 years it’s a 3% reduction of the income for retirement”. So very quickly we can make it a very meaningful number. We’re not selling anything, we’re just educating why the decision is better made today than a year or two down the road.

This can also be coupled with, if I hit Control P or go under the File menu and select print, we can preview the reports and take a look at where they are at and what they might want to do and generate a preview of the reports of what Eric’s doing and taking a look at the Paycheck analysis. So very quickly and efficiently we can walk an individual through the Paycheck Analysis. This whole process takes about 10 minutes when working with somebody and you have been trained on the software.

One other calculator I want to highlight today is TRAK’s Quick Gap calculator. This is a 10 or 15 minute tool to sit somebody down and talk to them about their pension system and where they are at. In this system, again, the data is on the left and the calculations are on the right. We can highlight somebody in the Ohio STRS pension system and show them the various options that are available to them under the pension system; additionally, we don’t always just calculate the pension system and the options but we’ll calculate the COLA per the plan document, we’ll calculate cash balance options for example in the state of Ohio you have the option of a PLOP, and those values are entered right here. And the math for that and how that’s calculated is always highlighted on the report. We don’t want to hide how we did the math but show you how we put that together. So if a client is considering the PLOP account you’re going to be there when they are making the decision. That’s a great place to be.

We can also ask a client about what other accounts they have. Over here on the far left we add the other accounts and we can enter multiple different accounts. Including retirement investment that same IRA and old 401(k) we were working with earlier. A known income account, such as an annuity, working part-time, a rental house income. Or a Lump Sum account, such as the sale of a rental. Those can all be included in the software, very efficiently and very effectively. And it’s a great place to ask them, ”What other accounts do you have that I need to know about for providing you a good retirement calculation?”

And then we can drill through any of the pages, highlighting it, showing them where they are at. Here’s a typical Retirement Years report including the pension system. Ohio STRS, the IRA, various monies that they have, you control distribution orders. A General Values tab showing that they are 75% funded. How is the typical person going to feel about that? “OK, 75’s not too bad.” How would they feel about a 25% cut in pay today? Probably not too good. A Retirement Solutions tab showing them what are some of the solutions that they can come up with; $360 in savings today or if they wait a year the cost is going to go up. What happens if we change the retirement age? How does that impact the values? And we can show it right in front of them. A DB Cost Analysis page showing them the cost of taking an option. I want to highlight one other page and then show you a retirement report specifically geared toward the pension/403(b) world. Here’s a report calculating what are they leaving on the table if they should decide to retire at age 65? What more might they get from their pension system? And here it’s going to show them a 3% increase in deferral or a 6% if they push it off a year or two years or three years so they get an idea of what’s being left on the table. The nice thing about this report is it’s education, it’s not sales. And it’s really helping you establish yourself as “I’m here to educate you.”

Under the File menu, I’m going to select Print again and there’s one report I want to drill down to and show you a preview of. Down here we have the DB plan information. I’m going to select that and generate a preview so we can take a look at it. And this provides a one page report for the client that gives them a highlight of their plan, highlighting how the primary option is calculated and what other options there are for them and other things such as COLA, Partial Lump Sum Payment, Social Security, etc. So they get an idea, it’s an education sheet for them to understand their plan and some of the options that are available to them.

TRAK has a host of other tools that you could be working with including the Quick Gap calculator calculator, a more detailed analysis of what we went through in the Quick Gap. A Pension Max calculator and a whole suite of tools for helping you be effective when you’re working with your client. This overview was just that, a quick overview of how The Retirement Analysis Kit works and why it’s effective and been proven effective in the 403(b) market space.

My name is Ed Dressel. If you have more questions and you want to answer them please feel free to give us a call, our phone number is on the screen. Its 503-831-1111. And I look forward to talking to you and interacting with you about how The Retirement Analysis Kit can help increase your deferrals.