EP 240: Financial Decision Making When Reentering the Workforce, with Lazetta Rainey Braxton
Lazetta Rainey Braxton is the co-CEO of 2050 Wealth Partners, a financial planning firm. She is also the Founder and CEO of Lazetta and Associates, a consulting practice that helps financial services firms create culturally aware and hospitable workplace environments. Today we are focusing on financial decision making when returning to work after a career break. Relaunching can impact Social Security benefits, tax brackets, budgeting and more. If a spouse or partner is involved, money-related conversations can change significantly when a non-working partner is working again. Listen in to the conversation as Lazetta offers financial advice to relaunchers coming back from a career break.
Carol Fishman Cohen: Welcome to 3,2,1 iRelaunch, the podcast where we discuss return to work strategies, advice, and success stories. I'm Carol Fishman Cohen, CEO and co-founder of iRelaunch, and your host. Today, we welcome Lazetta Rainey Braxton. Lazetta is the co-CEO of 2050 Wealth Partners, a financial planning firm. She's also the founder and CEO of Lazetta and Associates, a consulting practice that helps financial services firms create culturally aware and hospitable workplace environments.
Today, we're focusing on financial decision making. When returning to work after a career break, relaunching can impact the way social security benefits are calculated. Tax brackets may change. If a spouse or partner is involved, budgeting conversation can change significantly when a non-working partner is working again. So that's a conversation in itself. I know I have my own personal experience with that, and I cannot wait to get Lazetta's advice on all of this. Lazetta, welcome to 3,2,1 iRelaunch.
Lazetta Rainey Braxton: Thank you for your warm hospitality, Carol. It's wonderful to be reconnected with you in this way.
Carol Fishman Cohen: Yes. and I should mention that Lazetta and I go way back as colleagues in a range of different contexts, and we've known each other for a long time. So this is a special pleasure. Maybe, Lazetta, can we start by getting a little background from you about your career path leading to what you're doing today?
Lazetta Rainey Braxton: I'll keep this very brief, and to say that financial planning was not an option when I got my degree in finance, my undergraduate degree in finance and my MBA in finance.
So I have always wanted to explore personal finance due to my background with my parents being high school sweethearts, struggling with their finances, I wanted something different for them. I wanted something different for my life and generations to come as well, too. So I took a route of accounting.
Accounting has been around for, milllenia. I'm sure. That was my love. I did finance, well, accounting is second love, finance, major love. But it was easier to focus on accounting jobs for which I did as an internal auditor for Marriott. That was my first job, not finance, certainly wonderful for understanding business.
Then I did corporate accounting. Then I finally went into investment management, then wealth management. Through my experience with wealth management, I discovered a certified financial planner, Melissa Hannibal, and I'm like, she's who I I want to be! She took me under her wing, and I got my CFP credential and launched my first firm, Financial Fountains, back in 2008 and now have merged my firm with Rianka Dorsainvil, and we are now 2050 Wealth Partners.
Carol Fishman Cohen: Very good. And just for our audience, can you explain briefly the CFP credential?
Lazetta Rainey Braxton: Yes. So one thing we know for sure is that there are many designations and licenses for which people can identify as a financial advisor. What is special to the certified financial planner designation is that we have requirements for the exam, for the experience, for ethics as well too.
And so I am one of over 90,000, and 90,000 doesn't seem like a lot when you have millions of people living in the US as well, appreciate our fiduciary responsibility as a CFP professional. And what that means is that we are required to keep our clients best interests first.
Carol Fishman Cohen: And what does CFP stand for? Because there are gonna be people in the audience who don't know.
Lazetta Rainey Braxton: Certified financial planner.
Carol Fishman Cohen: Great, thank you. And actually that is a good segue into the next question I wanted to ask you, which is, can you break down the wealth advisory or financial advisory profession for us a little bit, and maybe describe the difference between fee based financial advising and commission based and why, fee based is often recommended.
Lazetta Rainey Braxton: And I'm gonna add another term to your question as well too. So what we are talking about is how advisors are compensated, how they're paid. And also the delivery of service. So let's first talk about the business model. Commissions was the one that a lot of people were familiar with. What does that mean, is that you would be sold products, maybe insurance and or, and other investments that the advisor would receive commission from.
The client would not see that money being transferred. They would only see their investment or the products. So the question was, if an advisor is incentivized to sell because they're getting paid by what they sell, is what they're selling really in the best interest of clients? So here is the second aspect of this, what we know is that we know meaning advisors, not necessarily clients, is that commission base is a suitability viewpoint. Meaning that the products could be suitable, but maybe not in their best interest.
Carol Fishman Cohen: Got it.
Lazetta Rainey Braxton: So this conflict of interest of selling for the benefit of the advisor may not be for the benefit and best interest of the client, although it could be suitable.
And that's what we hope, but oftentimes we didn't see that being such the case. The next level is fee based, which is changing in terms of its definition, but I'm gonna do the traditional definition. Fee based may have a component of commission as well as fees that are obtained directly from the client.
So are the fees coming from the product? Are the fees coming from the client or a combination of the two? So now let's talk about how fees can be obtained from the client directly. Fee based, usually for most people means that they're getting the fees from the assets under management, right? So that means the client owns the assets.
The advisor is taking money from the assets to pay him or herself for their self. Okay, I'm using pronouns, I wanna be inclusive. This advisor may also in its approach to servicing the client as a financial planner may also offer insurance, which has a commission base. Insurance is just commission based. And insurance is necessary.
So we're not saying it's not necessary. It's to compliment the financial planning experience. Now I'm introducing the third option, which is the option that I selected my business partner and our firm is fee only. Meaning all of the engagement is paid from the client directly and with transparency.
So our model, we've decided to be a combination of retainer plus assets under management, also known as AUM. What does that mean for us? Lot of people don't have a million dollars as a starting point for investible assets. And so with the retainer that allows people to pay out income, to help build their wealth.
And we are very advice driven. We add the AUM later, so our retainer includes 400,000 in investible assets under management. As your assets grow, we do add a component of AUM and that's because of the complexity that usually grows as you attract more wealth. So we are proud for us, to be fee only virtual financial planners, for which this allows access to financial planning, particularly for an industry that has valued AUM currently and as you know, starting to transition away from commission.
Carol Fishman Cohen: All right. So just to make sure that we're clear, when you say fee base before someone it kicks in that they have enough wealth that they're actually paying you, I don't know if it's a percentage of assets under management. Is it a flat fee, and do they pay it once a year or they pay it monthly? Or what is it?
Lazetta Rainey Braxton: The models can change about when you pay. I will give you the norm and I'll put this in air quotes is 1%, 1% of your assets under management. So if you have a million dollars, that's $10,000 a year, which typically is billed quarterly. Regulations really don't allow you to bill in advance of services more than six months, where compliance headed as well, too. So the expectation is that you'll be paying quarterly. This fee it'll be calculated quarterly based on the assets under management at that particular valuation date. And this is the piece clients should be able to see what the fee is and be invoiced. And sometimes, a lot of the firms are not as rigorous with their reporting and transparency.
Carol Fishman Cohen: Okay. And so let's say I have half that amount or less, is there a certain minimum that it doesn't make sense to have a financial planner, if you have, or a financial advisor, if you have, less than a certain amount of assets under management maybe at any point?
Lazetta Rainey Braxton: There's a financial planner for everyone. And what do I mean by that? There are some advice only financial planners that will charge by the hour. And what I realize is that a lot of people, particularly middle income people who may not, who may believe that financial planning is not for the rest of us, for which I strongly believe, will spend $5,000 on vacation, trips and travel. So if people are really serious about where their money is going, I'm saying if you work with a financial planner you can have that plus more. And it's proven. I know that to be certain. So I do not believe, to answer your question, that financial, having a financial planner is only for certain people.
I think it's for everyone. I think there are models out there. I said the fee only, which a subset of that is advice only where there's no investment management, only guidance and direction, which you can use retail accounts for, in terms of implementation with the investment side of things. What I also want to introduce as well is that there are our financial coaches who cannot advise on investments, 'cause that is the key area for which requires regulation. They can advise on money habits, savings, budgeting, debt, bringing you aware of some of the other asset protection strategies with insurance, estate planning and the like. My point being is financial planning includes coaching, if it's done well. There are entry points on an hourly basis to get you started. And there are financial coaches, if you wanna ease into financial planning, then their fees are typically lower and it gets you a good foundation as well.
Carol Fishman Cohen: And, if you're new to this and you're seeking out a financial planner or someone who is in this field, how do you know whether they operate on a commission based model or whether it's a fee based model? Are they required to put something in their description? Or do you have to ask certain questions, or how do you figure that out?
Lazetta Rainey Braxton: I would be prepared, regardless, to ask the question of what is your model? And we've said that clearly language, commission fee base, which is a combination of money from the client, money from product. And fee only which means money solely from the client and with fee only or your advice only and, or are you comprehensive in terms of implementing investments?
Carol Fishman Cohen: All right, so everyone's listening to what the language that Lazetta is using and that vocabulary in terms of, what question to ask when you're essentially interviewing financial planners or financial advisors about, and trying to select one. Okay. I wanna now move into the issues around that relauncher face when, when we're resuming careers after an extended leave.
And I've heard that there are social security payment implications from having a career break and then resuming, and sometimes people do that more than once. Is there anything, any guidelines or any explanation that you can give to us to demystify that a little bit?
Lazetta Rainey Braxton: Yes. So these are the steps that I think everyone should take.
First of all, claim your profile, go to ssa.gov, so sam, sam, apple, or social security administration.gov. Secure your online profile, so nobody else does it. We know what we're dealing with online, and we wanna make sure you have your account. Next, when you're in there, know that you'll be able to see your social security statement.
So that social security statement for Gen Xers and Baby Boomers was something that we were accustomed to getting in the mail. Now, everything is online. When you get your social security statement, you will be able to see all your earnings that were taxed for social security during your working years, and you'll see the zero for years that you did not work. What is important to know is that when it comes to your benefit calculation, that is based on your years that you've worked. Now, let me take a step back. We also wanna talk about eligibility for social security before we talk about the calculation. For eligibility, you need to have worked 10 years of work, which is the equivalent of 40 credits to qualify for the benefits.
The 10 years of work does not have to be consecutive. It is over your career journey before you are eligible to claim for that social security benefit.
Carol Fishman Cohen: Okay, so it's the aggregate of 10 years. It could be before your career break and then after your career break, as long as it adds up in total to 10.
Lazetta Rainey Braxton: Yes. And this 40 credits, you'll have to depend on the social security administration to determine if you have those credits, which it'll show on your profile. So as long as you have 10 years, solid years, it should be straightforward. And I'm also saying to you, there's no calculator to determine the credits, just look in your profile, to see where you are on your credits. Okay?
Carol Fishman Cohen: Okay. All right.
Lazetta Rainey Braxton: And then we were also talking about the primary insurance amount. So that calculation, once again is a social security calculation. You'll see the definition in ssa.gov. There's different tiers about how the benefit is calculated based on certain percentages. Complicated, yes. The key is knowing PIA in terms of concept, that calculation, knowing your eligibility, you've worked 10 years or have 40 credits, and then your PIA is gonna be calculated for you. And then you can see how much you can expect to get each time you log into your account year by year, because the more data you have, the more it's gonna be factored into the calculation of your estimated benefit.
Carol Fishman Cohen: Okay. Let me just dissect this for a minute. So you're saying, the social security benefit is some amount that you get paid after you qualify, whatever age you qualify, we can talk about that, and that you just get a payment. But then the PIA is that's the insurance part? Does that have to do or,
Lazetta Rainey Braxton: No, it's how your benefit is calculated. So think about PIA as the formula for which your benefit is determined. So that calculation, benefit calculation, they call it PIA, cause social security is not of an insurance concept, but not in this traditional insurance terminology.
Carol Fishman Cohen: Thank you for clarifying that. Wow. All right, I have to go to ssa.gov myself now and do this. I'm glad that I'm glad we had this conversation now, not only for the whole audience, but also for me. Okay, and then let's can you give us a little insight about age. So let's say I worked for a number of years, I took a 10 year career break. I went back to work, I'm back in the workforce for a while. Then I start to get close to retirement age and I decide I'm gonna retire. And then when I'm retiring, I'm like, this isn't, I don't wanna be retired anymore, and I go back to work. Is there anything significant about the age at which the retirement or unretirement happens and your social security benefit?
Lazetta Rainey Braxton: Okay. The answer to that, it depends. So let me first define for everyone the different ages for claiming social security benefit.
Carol Fishman Cohen: Okay.
Lazetta Rainey Braxton: All right.
Carol Fishman Cohen: Great.
Lazetta Rainey Braxton: The early retirement is age 62. The full retirement is based on the year you were born. So I'm gonna say for those who were born 1960 or later, the full retirement age is 67.
Okay. Those who are born in 1954 or younger, really if you haven't claimed in the window, your full retirement age, I'm gonna say was 66. Okay. Because those who are 1954 already age 66. And then there's some tiers and months in between. So you were born 1955 to 1959, your full retirement age is 66 and some months.
Carol Fishman Cohen: Okay.
Lazetta Rainey Braxton: So for most, I won't say for most of the listeners, I would just say in essence, think about 66 to 67 being your full retirement age. At age 70 is when you do not receive any greater benefit for delaying your social security benefit.
Carol Fishman Cohen: Okay. Is there a penalty or it's just no additional benefit.
Lazetta Rainey Braxton: It's just no additional benefit. No penalty is like, your benefit is what your benefit is, and will be they're for you, thereafter. And and then each year once you claim your benefit, the question is, will there be a cost of living adjustment, which is declared every year? Now your question is if someone has claimed their benefit and then returned, how does that impact their benefit?
What I do wanna say before addressing that question is be mindful of when you're ready to take the benefit. First of all, before we go back to relaunching your career. Cause some people as they're, it depends on the break that you need and when you need the break could be caregiving could be life, a lot of different reasons, right?
Is that we say if possible, don't take it at 62 because you're chopping off a lot of your benefit that's locking in for the rest of your life, assuming that you don't return back to work. So if you can delay it, if you can, to your full retirement age, normal retirement age.
Carol Fishman Cohen: let me make sure I understand this you're saying, if you take start taking it at 62 versus 66 or 67, you have those extra four, five years there to have the benefit increase a little bit more.
Lazetta Rainey Braxton: No, you don't have the benefit. That's why I was like, if you take it at 62, you're locking in at a substantially reduced benefit.
Carol Fishman Cohen: Okay. I see. Okay. Because it's not the full benefit.
Lazetta Rainey Braxton: It's not the full benefit. And you cannot, say, okay, now this age I wanna change. No, you've locked in. You've made that decision at 62.
Carol Fishman Cohen: All right. So that's an important decision when you decide to start claiming your social security benefits, you are allowed to do it at 62, but if there's any way possible, it's better to prolong it as, as long as you can, until you get to 66 or 67, depending on how old you are.
Lazetta Rainey Braxton: And if you can even delay from 66, or 67 to 70, then what you're doing is increasing that amount that you will eventually lock in.
Carol Fishman Cohen: Okay. Wow. All right. So I'm talking to an expert, because this is complicated.
Lazetta Rainey Braxton: And let's add another tier to that, medical insurance. So when you're talking about exiting the workforce. We're all saying, how will my benefits be covered? Will it be a spouse, or a partner? Do I have to go through the exchange? Cause you need to be insured. So as you're in this age of thinking about insurance, we know at age 65 is when you're eligible for Medicare, Part B . So for those who are maybe not returning to the workforce, as we're thinking about social security income, then 65 is the age for Medicare. You cannot get Medicare sooner. So you may start with your benefit for social security, so you have some income coming in, and you'll have to wait until you're age 65 to have the benefit of Medicare as insurance coverage.
Carol Fishman Cohen: Okay. All right. I guess I'll, I'm gonna leave the Medicare discussion there because I'm sure we could have a completely separate conversation on that piece of it. But I wanna, ask you the question about, for people who are a little earlier stage, who are maybe earlier in their career, they're anticipating they may be taking a career break later. Is there anything that you would recommend that they think about in order to plan for that career break from a financial planning perspective?
Lazetta Rainey Braxton: So we see human capital as an asset. So when I have discussions with clients about what they want to do, that's important to know what income you can make that will be sustainable to support how you wanna live financial planning wise, and building your assets. So our core of the discussion that helps us move along on this journey is really anchored in the human capital. Really anchored in what it is you want to do, and then what should you be paid for it?
So once you know what you want to do, you catch up on what the market is saying about what you wanna do and what the market is paying. So then we go to salary.com or something so that you go in to negotiate your salary because you are your biggest asset. What you bring in is gonna determine what you can put to work, to support how you wanna live now and in the future.
Carol Fishman Cohen: Lazetta, let me just take a giant step back though, I'm thinking about if I am early in my career, I'm still working, and I think I'm gonna take a future career break. Is there any sort of special planning I need to do? Do I have to save up a certain percent, a certain amount of money per year that I'm going to be on career break?
Is there a formula or something that I should be thinking about in terms of savings planning for taking a career break or is that too hard to talk about? Cuz everyone's situation is so different.
Lazetta Rainey Braxton: We do have strategies for those who wanna take a career break. Ideally, when you hear people say emergency funds, or we like to say a cushion account, we like to use the word cushion so you can help sleep at night is to have that six months of living expenses.
So then the question is your living expenses as they are before you take the break, are they as low as they possibly can be for you to be comfortable? Because the idea is, the lower the expenses, the more flexibility you have, and the more assurance you have when the money that you've saved is depleted and gives you some room to think about when you have to return.
And I said, have to return, because you don't have the resources to support being out of the workforce.
Carol Fishman Cohen: Got it. All right. So that's a good context for the next question is, if you decide to go back, but you're not gonna jump right back into a full-time job as employee for a company, let's say, and you wanna do something, consulting or something where you're more of your own you're self-employed and you're a contractor.
Can you explain the tax difference between being a contractor and working for yourself and being an employee and working for a company?
Lazetta Rainey Braxton: There are two tax forms that help where you fall in terms of your earned income, W2 and 1099. So that's how I'm gonna respond to your question, W2, meaning you're working for someone else. And then 1099, you're working for yourself. Now your question was about the 1099 aspect, and that's easier for me to talk about because a lot of people have experience with the W2 and not the 1099, right? The biggest difference, two things, one the social security taxes that is paid, and two, the benefits you receive.
Let's talk about the social security tax. We know it as FICA tax, it's a acronym, just stick with the acronym. Even if you the full term, it wouldn't matter to you.
What that means is 15.2% goes to the bucket of social security.
Carol Fishman Cohen: Hold on a second, one- five or five - o?
Lazetta Rainey Braxton: Fifteen point two percent, 15.2%. And there are two components that fund Medicaid and disability and social security. The W2 side, that 15.2% is split in half. Meaning the employer pays one half, the employee pays another half, and then when it gets to a certain limit, then the employee no longer contributes, that amount is only half of 2.9%. This sounds complicated, but just know, keep 15.2% in your mind. That's on the W2 side. On the 1099 side, you're paying for the 15.2% contribution into this bucket. The other aspect of this in terms of taxes, I'm talking about the 15.2% Medicare. You also have the income tax, which regardless you have to pay. The benefit on the W2 side is that is being calculated for you and remitted to the IRS on your behalf as a part of your paycheck. When it comes on a 1099, you have to do estimated tax payments. So you have to estimate what you should remit and responsible for remitting it yourself on a quarterly basis.
Carol Fishman Cohen: Okay. Very helpful.
Lazetta Rainey Braxton: So that's the tax side, and then the benefit side of the question is, how are you gonna have the benefits that an employer may or may not provide, retirement, medical life insurance, et cetera, disability.
Carol Fishman Cohen: Okay. All right. Thank you. So we're wrapping up right now and there are a couple of questions I wanted to ask before we, before we, we finish our conversation and one of them is about when someone, if you're in a relationship with a spouse or partner, you've been on career, and then you go back to work, all of a sudden you're bringing in income, whereas before you weren't. And I remember in my own case, I was on career break for 11 years and the longer I was not bringing in income, the more, the less I felt I had a right to contribute to certain financial decisions. I know this was my own thing in my own head, but if I'm being honest, that's how I felt.
And then when I started making money, again, I felt much more empowered to have a voice in those conversations. So I wanted to know if you have any recommendations for spouses or partners when there are changes in income in terms of who's earning it, and when?
Lazetta Rainey Braxton: Yes, and I too was in that situation when I took a break to help support, raise our daughter and shared in the same sentiment as well.
There is in terms of the human nature and how this world operates, that money does talk. And if you're not making any, you feel like your voice is muted. And that's what you're saying, and that is a human tendency. So then I go back to conversations with couples, is to have the space for each couple, each person to say how they feel about being the primary breadwinner. That's a lot of responsibility as well. And also there is some assumptions that is made sometimes by the breadwinner are how taxing it is for the one who's not bringing in money, how that feels. So communication is key to give space for the raw emotions that come along with it. And then you move to what it looks like in balancing the contributions to the family, knowing that those who are not contributing money are contributing work, contributing their human capital and to making the household work that has an economic value to it, but no transfer of money that is happening.
Carol Fishman Cohen: Interesting way to think about it. Yes.
Lazetta Rainey Braxton: And that's where the balance is.
Carol Fishman Cohen: Yeah. All right, that's a really good perspective for those of us who are in a situation where we are not the breadwinner, and then we become an income producer and how that dynamic changes the conversation between partners. Lazetta, I'm going to now ask you the question that we ask all of our podcast guests, and that is what is your best piece of advice for our relauncher audience even if it's something that we've already talked about today?
Lazetta Rainey Braxton: Is to commend yourself on hanging in there in the different seasons of life, always protect and know your worth and your value for being, and knowing what you are capable of doing under any circumstances presented to you when you return, or if you decide to return, get the income you deserve.
And then also, because you are able to live off less, don't let lifestyle creep up on you. When the money comes back flowing again, to keep the wisdom that you had during those tough times, and also rewarding yourself in a reasonable way, and be sure to pay attention to your financial records, including going to ssa.gov.
Carol Fishman Cohen: Excellent. Very comprehensive and great advice. Lazetta, how can people find out more about your work?
Lazetta Rainey Braxton: Yeah. So my financial planning firm I mentioned is 2050 Wealth Partners, and that is plural with an s.com, our hundred percent virtual-fee-only financial planning firm. And I also do DEIB work, diversity equity, inclusion, and belonging work.
And I do see relaunchers as a part of that community, of those who are coming back and not being discriminated based on gaps in their work history and being honored for what they bring to the table and being paid what they deserve as well, too. That is lazetta.com website.
Carol Fishman Cohen: Excellent. Yes. We didn't even get a chance to talk about that part of your work, but we will definitely include those links in the podcast notes. And I'm glad you also talked to our audience about it. Lazetta, thank you so much for joining us today.
Lazetta Rainey Braxton: It's been a pleasure and I commend you for the tireless work you have done to, to bring voice and joy to iRelaunch.
Carol Fishman Cohen: Thank you so much. And thanks for listening to 3,2,1 iRelaunch, the podcast where we discuss return to work strategies, advice, and success stories. I'm Carol Fishman Cohen, the CEO and co-founder of iRelaunch and your host. For more information on iRelaunch conferences and events, to sign up for our job board and access our return to work tools and resources, go to iRelaunch.com.
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