In July 2020, Harley-Davidson Inc. announced that it will be eliminating 700 positions, leaving many employees with severance or early retirement packages.
If you’re a Harley-Davidson employee, how can you make the most of your retirement or severance?
Today, Jeremy Keil shares his insight and experience from working with Harley-Davidson employees and the considerations these employees should keep in mind when offered early retirement or severance packages.
In this episode, you’ll learn:
Three success secrets of a Harley-Davidson retirement or severance
Why you need to look at your overall financial picture with every decision you make
How the timing of your severance or retirement can drastically change your tax planning picture
Why you should think twice when rolling your 401(k) over to an IRA
Two ways to figure out if you have the right financial advisor for you
Join Jeremy now and discover how you can make the most of your retirement or severance package from Harley-Davidson!
Resources: Keil Financial Partners: (262) 333-8353 | 6 Questions Retirees Aren’t Asking But Should Be | 3 Keys You Should Know Before Choosing a Financial Advisor | Podcast #5: Planning Ahead For Social Security | Harley-Davidson Retirement Checklist | Subscribe
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Retirement Revealed Episode 19: Harley-Davidson Employees - What You Need to Consider Around Your Retirement & Severance Package
Are you ready to uncover your retirement solution? Learn more as Jeremy Keil and his guests guide you along the path of retirement and reveal the five steps you need to take to solve your retirement puzzle. Now onto the show!
Aric Johnson: Hello and welcome to Retirement Revealed with Jeremy Keil. Today we're talking about motorcycles. I'm really excited. I love motorcycles. Jeremy, how are you?
Jeremy Keil: Doing well, thanks.
Aric Johnson: I know we're not exactly talking about motorcycles, but it's in the ballpark, right?
Jeremy Keil: Yeah. We are talking about people that make motorcycles.
Aric Johnson: Fantastic. I like people that make motorcycles. Harley Davidson is a fantastic brand. There's a huge history there starting in the early 1900s. I think he started out making bicycles if I'm not mistaken.
Jeremy Keil: Yeah. If you want to go back to the beginning, you have to come out here to Milwaukee and check out the Harley Davidson Museum.
Aric Johnson: Oh, that'd be fantastic.
Jeremy Keil: You could learn the whole history.
Aric Johnson: Yeah, that would be great. So why are we talking about Harley today?
Jeremy Keil: Well, Harley is a great brand. Great place. It has been in Milwaukee for years, but it has just been a little interesting here in 2019 and 2020. It seems like there’s a little bit of turmoil. I am not trying to make a commentary on it, but we've just seen a little bit of turmoil, which has caused a lot of people to leave Harley for different reasons. Maybe you're close to retirement and you retire. There's been some different severance packages in the last few years that have been offered. Interestingly enough, since 2019 people that used to work at Harley have been our number one source of new clients. More new people have been coming to us for help on their retirement and severances packages from Harley than from any other company in Milwaukee. Just from that, we've noticed a few things, and we wanted to get it out there to people that work at Harley. If you're in a similar position at a different company, let's figure out what things you need to be looking at when you're ready to retire from a great company like this. Maybe you've been offered a severance plan. What do you have to figure out when these things happen?
Aric Johnson: Yeah, and companies go through all sorts of different issues, whether it's restructuring or streamlining, whatever you want to call it. There may be people that are just either put out of work, offered packages for early retirement, or severance packages and things like that. I'm not going to try and guess at what's going on with Harley. That's their own business, and the employees are the ones who are affected in any company that makes changes, so I'm glad that you're there. I'm glad that you're bringing the subject up, and I'm hoping that this goes far and wide for anybody that is in this type of situation so that they can take advantage of it. I know we've talked a lot about this. Some of these points were on our last podcast as well, so some of this will be a reminder, but a lot of this is going to be very pointed to Harley Davidson folks themselves. So where do we start today?
Jeremy Keil: Exactly. The first thing is just understanding what you need to decide when you leave a place like Harley, whether it's retirement or through a severance. There are five places that we've seen that make the most sense when you're looking at Harley. The first one is the pension. Do you take the monthly amount, or do you take a lump sum? When do you start it? Just because you leave a company doesn't mean you have to start the pension immediately. Then you've got health insurance. Are you going to take on COBRA, which is a way to continue on with what you had, or do you need to find something else. Then there are these stock plans you might have been participating in. Maybe you were buying stock with your payroll, or you might have been part of stock options if you're maybe one of the executives. A lot of times there is stock inside of your 401k. Speaking of your 401K, do you keep it there or do you do a roll over? That's a big decision a lot of people need to look at. Then the last one is social security. Social security in a way has nothing to do with Harley or whatever company you're working with, but you need to figure out how and when to start that. You need to base those decisions on the overall plan. None of this is in a vacuum. For your pension, health insurance, stock plans, 401k, social security, none of it is in a vacuum. It's the idea that you take all these pieces of your puzzle and put it together in a way that makes for a better retirement.
Aric Johnson: Yeah, absolutely. You've spoken about social security specifically on previous podcasts, and there are some major things with delaying social security. If you can delay, you actually make more money every year. I think that's something that people need to understand and pay attention to, and it's not even just by year. It's every month that the amount goes up that you'll receive from social security if you can delay that. So go back and find that podcast. I'm not sure what number it is.
Jeremy Keil: We'll put it in the show notes. We'll figure that one out, but you are right on there with social security. You can delay it and get a higher benefit. That's usually the case with your pension too. I was just with a lady looking at her Harley pension, and oddly enough, the lady that's retiring still works there. She's going to hit retirement from Harley Davidson, and her pension maxes out at the age of 62. That's just her personally. Meanwhile her husband, who hasn't worked there for years, still gets a pension. His keeps on going. His maxes out at age 65, which is really odd. There are just different rules that are out there. They both worked at the same company. I think they're both in the corporate area, so it's not as if one was a production worker and one was an executive. There are just different plans. It just all depends on when you sign up for it and how long you have worked at the company. Pensions change all the time, even within companies. It doesn't matter whether you are at WE Energies, Harley Davidson, General Electric, or the government. The government pension changes. There are all types of things. You have to go and figure out your pension specifically and how it relates to you. We go and do this all the time. We're getting all that pension information and putting it into a spreadsheet so we can see what's changing. Does your monthly amount change? When does that max out? Does your lump sum change? When does that max out? How do we compare those two? Those are big things you ought to be looking at.
Aric Johnson: Absolutely.
Jeremy Keil: Yeah. To make it a little bit easier for you, we actually created a checklist. So if you're working at Harley Davidson or leaving Harley Davidson because of severance or retirement, go to harleyretirement.com. We've got a section on our website at harleyretirement.com, and we created a checklist, so you can go through and say, these are the things I need to take a look at whether I’m retiring or have a severance. That way you don’t miss any of these steps.
Aric Johnson: Yeah, absolutely. So you created a website at harleyretirement.com?
Jeremy Keil: Correct.
Aric Johnson: I love that.
Jeremy Keil: Yeah. Why not? I like thinking of a good idea like that and going out and buying the website.
Aric Johnson: That's fantastic.
Jeremy Keil: It's fun to do. When you're going through and figuring this out, whether it's a severance or retirement, there are some pitfalls that could be there. We want to help you avoid those pitfalls. One of them is that when you get a severance, that could drastically change your tax situation for the year. It is the same thing I suppose with retirement. If you retire at the end of the year and they pay out all of your sick leave and vacation, you might have a higher income for that year that you retired than the year before when you were working and the year after when you're not working. With a severance, depending on how much they pay out and when they pay it out, you might have the biggest taxable year of your life. So that's step one is that pitfall. Don't wait until April when your taxes are due to find this out. You can do some things ahead of time. If you're getting that severance or you're hitting retirement, figure out whether this is going to be a taxable income year that's higher or lower than normal. If it's higher than normal, we want to find some ways to decrease that taxable income. There are some different ways to do that, and we can help you figure that out, but what if maybe you leave in the early part of the year and what if this is a year that you have a lower tax situation? You might have an opportunity to pay taxes on purpose. We've talked about this in the past. When you have a lower tax year, you might want to pay taxes on purpose to help avoid those taxes later on. So step one is that potential pitfall of your severance or retirement changing your taxes for the year, so figure out how it is going to do that? Is it going to make your taxable income higher? In that case you might be looking for deductions. Is it going to make your taxable income lower? In that case you might have this opportunity to pay taxes at a lower rate.
Aric Johnson: That'd be great. Everybody likes that.
Jeremy Keil: Yeah, exactly. Step two or the second pitfall that might be out there is understanding that your pension could be calculated and paid out in so many different ways. What happened to your husband for his pension and what happened to your coworker for his pension could be completely different. You've got to figure this out on your own. It’s not terribly hard, especially for us because we've been doing it all the time for years, but go ahead when you leave Harley or any place you're working at that has a pension and make sure you run all of the possible scenarios. A lot of these places have this self service where you go in and say, well, what if I retire this month? What if I retire that month? Go in and change it based on your retirement date. If you're preparing for your own retirement and you're trying to decide whether you should retire at 58, 60, or 62, run those dates in there and it'll show you how your pension is affected. That might help you make a good decision when you actually choose to retire, but it's not even just about your retirement date. It's also about the age that you choose to take your pension. A lot of people feel like if I retire today, I take my pension tomorrow. That’s not true at all. You do not have to take your pension the day you leave a company. Even if you are at retirement age, you don't have to do that. So you can go through even if you are at a specific retirement date and plug it in and say, well, what if I take it at the age of 58, 59, or 60? Just keep on going. It doesn't take you too long. Then you've got some data, and you can plug that into a spreadsheet and start seeing, how does my lump sum amount grow? How does my monthly amount grow? You can figure out when that pension maxes out. Well, if it maxes out at a certain age, that just might tell you what age to take it. Or it will tell you these rates. I've been seeing lump sums growing at 4-5%. You know, it's pretty tough to find 4-5% guaranteed growth. If you're somebody that wants the cash and wants to take a lump sum from the pension, that’s hard to turn down. You can say, well, give me the cash, but give it to me next year after it has already grown 4-5% or whatever it is. Until you've done the math and until you've plugged it in, you don't know what you're dealing with, and you could be missing out on tens of thousands or even hundreds of thousands of dollars. It's a huge amount over your lifetime that you could be missing out on because you didn’t go through and look at the options or even compare them, so you have to do that. That's a pitfall. That's a warning sign. You have to figure out your pension options, put them together, and see what the math is telling you.
Aric Johnson: Yeah, just so you can make that educated decision. Absolutely.
Jeremy Keil: Yup. That's exactly it. Speaking of pension, that's the third and last pitfall. Remember that you have to complete your pension start forms before you want the pension to start. In this case with Harley it's with Willis Towers Watson. That's the actuarial firm that figures this out for you. A lot of people when they hit retirement tell their boss they are retiring, they fill out some forms in HR, and then they're waiting to get their pension check. It doesn’t happen automatically. You actually have to go through a separate process and complete those pension starting forms. So if you're retiring in June and you're expecting a pension check in July and you don't get it, it's probably because you didn't quite fill out those forms. So it's a separate part of the process. You've got to make sure you go and do that. We just see that all the time where it's kind of in our psyche that if I retire today, I take my pension tomorrow. Pitfall number two might be the bad way to go, but also for pitfall number three, you might be expecting your pension and not getting it because you didn't go and take out those pension forms. So you have to fill out those forms. It is a little bit of work, but they're paying you. It will be worth it.
Aric Johnson: Definitely going to be worth it.
Jeremy Keil: Yeah, so let's talk about some fun stuff. Let’s talk about some successful secrets of a Harley retirement or severance. How do we make this a success? Whatever transition you're going through, whether it's a severance, looking for another job, or retirement, we want to make this a success for you, right? So here are a few things that we've seen that can help make things a little bit better for you as you're heading into it. One of them has to do with if you happen to be in management. So if you're in management at Harley Davidson, you might have this deferred compensation plan. What's interesting about that is that most people when they get deferred compensation think they’re taking money out of their income today to save on taxes. But at some point in time, you're going to get that back in the future, and depending on how you sign up for it and the different rules that are out there, you might get paid out a lot of money right away, and that could be a huge tax situation. Or you might be able to get it paid out over like a five year type of plan. So what is interesting about that is what if you're working, you get a severance, and then all of a sudden your deferred comp pays out. That could be like a doubly high tax year. You have all these different things that are hitting you all at once. So you need to project out the taxes for the year when you're going to get this deferred compensation. Other times, especially if you're hitting retirement, it's probably going to pay out over maybe like a five year option. Well, let's just think through what's happened in the last five years. The market dropped by quite a bit at the end of 2018. The market dropped by quite a bit in the spring of 2020. If you're retiring soon and you're planning on living on this deferred comp that is paying out to you over the next five years, do you want to rely on the market for money? That's going to be paying out to you for the next 1-5 years. So in anything we always want you to match the risk of your account with when you're going to use it, but especially for here, this is money that came out of your paycheck. You might be relying on it for the next five years. If that's the case, look into the investments. You may want to get more conservative because if it's going to pay out to you and you're gonna be using it, you might not want to rely on the stock market too much. So the two things there to make your retirement or severance even more successful is if you're part of that Harley Davidson management deferred comp plan, figure out when it is going to pay out to you and figure out the tax part of it. Also figure out if you need to change your investments around to make things a little bit more conservative. A story for you is that we met somebody who had left Harley in the fall. The way it worked out is their deferred comp was going to pay out six months later. We said, well, you know six months is a pretty short timeframe, and right now you're a little bit weighted in the stock area. Do you want to be weighted in the stock area if you're gonna be getting this money in six months and perhaps be using it in six months? They said no. So we figured out all the different investments there. We found a money market so it was completely out of the stock market. Well, about halfway through spring of 2020, the market tanked, and then they got the payout. They could have gotten 20-30% less than what they thought they were getting because they happened to be in the stock market area because we knew they were planning on getting this. The plan was paying out to them in six months. We just changed the investments to match that risk. When you have a shorter time frame, you usually don't want to take out as much risk. Now this might not always happen that way, but for them, they were very happy that we took the time to figure out when it was going to pay out to them and how much risk they were willing to take. Because there was a mismatch, we changed it around to make sure that the investments were more conservative because you can make these choices. You can take some control there. We made sure that their plan and investments matched up with the risk. When the market dropped, it turned out it was a good thing that we had done that.
Aric Johnson: Yeah. Honestly, I'm not sure I remember any time in history where the stock market just shot up 30% in a very short amount of time, unless it was a rebound. I just haven’t seen the market shoot up 30% suddenly. It does do the opposite, which we've seen, right? It tanks down really low really quickly. So I think that that's really important to know and to have that conversation. If you're only going to be in for six months, don't expect that 30% gain, but you do need to be wary of a 30% loss just in case.
Jeremy Keil: Yeah, you never know. In their case, they saw the drop on the way down, but the account paid out. They just send you a check. There was a week where the market went up 20% in just three days. That was late March of 2020. The market had just dropped on a Monday. Over the next three days it shot up 20%. What if you got your payment sent out to you on Monday, and then meanwhile when the market's coming back up your check is sitting there in the mail waiting for you. So you might not have this choice of investing for the long run and letting it recover. That's why it's just really important to figure out when this money is going to pay out to you. How much risk are you willing to take? If those things are not matched up, we can make a change. You have that choice. You've got that ability to make that choice. Another thing that happens when you hit retirement or when you get severance is you have your 401k, and sometimes, especially under the severance area, you feel like the 401k has something to do with the old company. You might be a little ticked at the old company. I don't like them anymore. They let me go, so I'm going to pull my 401k just to show it to them. We hear that, so don't automatically roll over your 401k. Other times you meet with an advisor and they say, guess what? Your 401k is available. Now you can roll that into an IRA. Well, why would that advisor tell you that? Because the advisor doesn't get paid on the 401k, but they do get paid when they roll the money into an IRA. One reason why people do this rollover of the 401k is they think that the rules on a 401k and an IRA are exactly the same, and that's not true. A lot of people have this age in mind: 59 and a half. Usually you have to wait until 59 and a half to take money out of your traditional IRA without a 10% penalty. Well, with a 401k it's actually 55. So if you leave your company at the age of 55 or older, you can take money from the 401k without the 10% penalty. We see this all of the time. Imagine you leave the company for whatever reason. You're 55 years old. Some advisor says, hey, roll it to an IRA. Now it's in the traditional IRA, and now it's a 10% penalty until you reach age 59 and a half. You might have just taken money that was penalty free and locked yourself up for another four years with that 10% penalty. You have to be careful with that. Here’s another interesting story. This is actually down in Northern Illinois. There's this place called Abbott AbbVie that's done well. I had a client from there, and we were telling him this and he said, well, how come the advisors who do the lunch seminars right next to the AbbVie headquarters don’t tell us that? Well, because they are getting paid when you move to the IRA. They're not getting paid if you keep it in the 401k. This guy that I'm thinking of was about 58 years old, so I said, it’s fine if you want to move it to a traditional IRA. You just might want to wait maybe a year or two. Until you get past the 59 and a half age, why not leave it in the 401k? Why not leave it available? In case you need it, you'd rather get it from the place without the penalty than all of a sudden you lock yourself into something that does have a penalty. Age 55 to 59 and a half sounds like a small time frame, but that is four and a half years. There are a lot of people who retire at that age, or they offer these voluntary severances and you take it at that age, so there's a lot more people than you might think. From age 55 to 59 and a half, think twice about rolling over your 401k to that IRA. You may want to keep it in the 401k at least until you turn 59 and a half because then you avoid that penalty. That’s a big deal. Now the last secret to success here is kind of the opposite of a pitfall. We said, watch out when you're taking your pension because you didn't run the scenarios. Well, guess what? If you want to make it a successful retirement, you have to run those pension scenarios. You do it based on different ages, and you'll be able to see, here's when my monthly pension maxes out. Here's how much my lump sum grows over time. Then you can take control. You can decide when you are going to take your pension and how you are going to take it. It's just amazing, especially when you coordinate it with all those other things. We talked about the 401k and social security. You can coordinate it all together to make your retirement even better by maximizing when you take your pension, when you take your social security, and when you take out your 401k. You're not locked in stone with when any of these things happen. So if you take the time to run these pension scenarios and you decide on an age and on how you are going to do it, you can set yourself up for a much better retirement than if you had done things kind of automatically. So that's a great thing to do is run those pension scenarios, take control, and decide exactly when you're going to take that pension.
Aric Johnson: Yeah. Timing is everything, and I think that you've covered that really well with those different ideas.
Jeremy Keil: Yeah, for sure. As you can see from the pitfalls, the things that can go wrong, and the successes, the things that can go right, it's a lot more than just filling out one form and telling your boss you're going to retire. You get only one shot at this. You get one shot at retirement. There's no room for mistakes. So just find someone who focuses on retirement. Find a planner that's helped other Harley employees retire or someone who has dealt with those severance packages. We'll finish up here by just giving you two quick ways to find out if you have the right financial advisor for you. If you're trying to retire or you have the severance from Harley Davidson, how do you even know if you have the right financial advisor? One good thing to look for is are they a curious financial advisor? Are they trying to get all the facts? So here's a couple good signs and things that they ought to be doing. If they're talking about your pension and they're helping you get projections on that pension and they're putting it into a spreadsheet and they're running the numbers and they're comparing it to what else is out there in the market, that's probably a good sign that they know what they're talking about and that they've got your best interest in mind. An advisor that just says, well, roll over the pension and I'll manage it for you. Well, they get paid when they do that, and if that's all they talk about, they might not be thinking about you, but if the first thing out of their mouths is well, let's get all the facts. Let's get the pension information together. Let's run some projections, and let's decide what's best for you. That's a good sign that you're talking with the right advisor. The second thing to look for is are they projecting out your tax situation in the year you retire or get that severance. If you come to them and say, I got the severance or retirement, and all they say is, well, we'll roll over your 401k. We’ll roll over the pension. We'll do some investments. You're good to go. If they're not talking about your tax situation, if they're not giving you ideas on taking the lump sum for your pension or for the severance, if they’re not helping you figure out some of these incentive and bonus payments, if they're not talking about all these different things that affect your taxes, they might not be thinking about you either. So those are the two things to think about when you're meeting with an advisor and when you're retiring from Harley Davidson or anywhere or when you're getting this severance package and trying to figure it out. If they are trying to figure out these different projections on your pension, then they're keeping an eye out for you. If they are helping you project out your tax situation, then they're helping you make some good decisions. That'll benefit you. Those are the two things. I can't promise you that they're going to be a great advisor, but I’ll tell you what: if they're doing those two things, I think you're on the right track.
Aric Johnson: Yeah, absolutely. I know that that's something that you do with everybody that calls you. You take the time to go through it, and I've worked with you for quite some time, so I myself know that, but for the people who are listening to this podcast who are saying, well, I've got an advisor who sounds like he or she falls in the first category and is not exactly in my best interest. I'd like to talk to Jeremy and his team. Can you give them your phone number? I know we've done it on previous podcasts, but let's remind them what that is so that they can give you a call.
Jeremy Keil: Yeah, no problem. Well, the easy way right now is to just go to harleyretirement.com because that's going to have all this information. That is going to have that Harley Davidson checklist for you. Otherwise you can give us a call at 262-333-8353. If you're somebody who doesn't work at Harley, just go right to our website at keilfp.com. We'd love to talk to you.
Aric Johnson: Perfect. Jeremy, thank you so much for your time today.
Jeremy Keil: Thank you, Aric.
Aric Johnson: You bet. For all of you listening, I want to thank you for listening to the Retirement Revealed podcast with Jeremy Keil. If you have not subscribed to the podcast yet, please click the “Subscribe Now” button below. This way, when Jeremy comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends, family, and maybe coworkers. They need to be hearing this. Again, thanks for listening today. For everyone at Keil Financial Partners, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time.
Thank you for listening to the Retirement Revealed Podcast. Click on the subscribe button below to be notified when new episodes become available. Visit Retirement-Revealed.com to learn more. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.