Speaker 1: Episode nine four, Retirement one oh one. Welcome to the
Speaker 1: Frugal Friends podcast, where you'll learn to save money, embrace simplicity, rights,
Speaker 1: and live with your life. Here your host Jen and
Speaker 1: Jill Mmm, welcome back to the Frugal Friends podcast. My
Speaker 1: name is Jen, my name's Jill, and we are super
Speaker 1: excited for probably our most requested episode topic of all time.
Speaker 1: It's retirement one oh one. We're going through it. And
Speaker 1: technically we're an investing podcast according to Apple Podcast, but
Speaker 1: we don't talk about investing, so we are. We're making
Speaker 1: an official today. I don't I still don't know that
Speaker 1: this is going to be a defining factor for us.
Speaker 1: Y'all are real responsible wanting to talk about retirement. I'm
Speaker 1: proud so we're providing for you. So the last time
Speaker 1: we talked about investing was episode twenty nine. We had
Speaker 1: a financial planner Andrew Yang Andrew Wing on the show,
Speaker 1: and we talked about investing for frugal folks, so a
Speaker 1: lot of low cost, low fee options for your investments,
Speaker 1: but we didn't so much touch into retirement. So tax
Speaker 1: saving strategies which saved you a lot of money now
Speaker 1: and in the future. So that's what We're gonna get
Speaker 1: on today's show, but first, our sponsors also brought to
Speaker 1: you by Florida, Jen's birthplace and home to where all
Speaker 1: good and right things happen. It's also quite fitting that
Speaker 1: the southernmost state, this place of sunshine and warmth, decided
Speaker 1: to sponsor us this week with an official state song
Speaker 1: titled Old Folks at Home. We can think of no
Speaker 1: better supporter as we discuss retirement. Florida, the place Jen lives,
Speaker 1: the place I want to live, and the place we
Speaker 1: can all live if we dream big and safer retirement. Yes,
Speaker 1: all the folks at Home? Do you know it? Do
Speaker 1: you know it? I looked it up. It's a real thing.
Speaker 1: It is Florida's national, not national, Florida's state song, Old
Speaker 1: Folks at Home. You know, I've never heard it, but
Speaker 1: I have no doubt because this is really where the
Speaker 1: old folks come to be at home. There's a line
Speaker 1: in there that says something like everywhere else I roam
Speaker 1: is dreary and cold. I just longed to be with
Speaker 1: the old folks at home. Something like that, And I
Speaker 1: was just like, Yes, that so resonates with my heart.
Speaker 1: So as this episode is releasing, Eric and I are
Speaker 1: actually in Florida pretending to be retired. We're not retired yet,
Speaker 1: but parking on Gen's property with the old folks at home. Yes,
Speaker 1: we're spending a month Frugal Friends retreat in Florida. That's
Speaker 1: going to be a business, business retreats. Everything, everything that
Speaker 1: I do for that month is going to be a
Speaker 1: business right off. And so for my tax and speaking
Speaker 1: of taxes, you know what, the one of the best
Speaker 1: tax deductions you can get every year is your deductions
Speaker 1: for your contributions to your retirement account. There. They just
Speaker 1: they lower the amount of money that you are taxed
Speaker 1: each year on certain accounts. And so we're let's dive
Speaker 1: into retirement. Let's just do it. So our first article
Speaker 1: is from Investipedia, because why not. We're talking about retirement,
Speaker 1: and it's called how much do I need to retire?
Speaker 1: So this is the big question that a lot of
Speaker 1: you guys had in our Frugal Friends community on Facebook.
Speaker 1: So it's the it's the first thing we're going to
Speaker 1: go over. What did you think of this one? Jill?
Speaker 1: Really helpful? Uh, we are not gonna lie to anybody here,
Speaker 1: because we never lie to you. This is Jen's area
Speaker 1: of expertise. So for me, I think what they talk
Speaker 1: about and the information that they provide is very entry
Speaker 1: level but yet tangible and helpful. So I really appreciated
Speaker 1: actually both the articles that we covered, uh and I
Speaker 1: thought really good tips on retirement. Yeah, and I'll prefaces
Speaker 1: to say that Jill nor I are certified financial planners.
Speaker 1: We hold no certifications in any financial industry. So the
Speaker 1: advice that we give today is meant solely for entertainment
Speaker 1: purposes and it's what we do and we're just helping
Speaker 1: friend and get together and talk about what they do.
Speaker 1: So that is our legal disclaimer the approach for this one.
Speaker 1: So first, uh, four one k participants, we're asked how
Speaker 1: much do you think you need to retire? And the
Speaker 1: answer that they gave was one point seven million on average,
Speaker 1: is how much people think they need to retire, And uh,
Speaker 1: most are not on track to get there even though
Speaker 1: that's how much they think they need. And I also
Speaker 1: read a study today that says most most Americans are
Speaker 1: confident in reaching their financial goals, yet all of them
Speaker 1: are behind on them and there's are like they're on track.
Speaker 1: So while we're confident and we think we know how
Speaker 1: much we need, we're all behind is basically what that Yeah,
Speaker 1: and they made a good point about part of the
Speaker 1: reason for that is this difference between a savings versus
Speaker 1: an investing approach that most people actually take a savings approach,
Speaker 1: thinking if I just set this money aside, that's fantastic
Speaker 1: um on my way, and yes, something is better than nothing,
Speaker 1: but you're not going to get at that one point
Speaker 1: seven million or more unless you are also investing and
Speaker 1: you're making your money work for you, because savings accounts
Speaker 1: typically pay lower returns than do investment accounts. So this
Speaker 1: is where we want to look at, what is our approach.
Speaker 1: Are we more so saving or are we actually putting
Speaker 1: in some of the leg work to invest our money
Speaker 1: so it can grow. Yeah, this mindset thing is so
Speaker 1: huge because I grew up with the not even a
Speaker 1: saving mindset, and I think a lot of other people
Speaker 1: their parents didn't say, we weren't taught to save. So
Speaker 1: to make the jump from like not saving to just
Speaker 1: trying to say and then people come in they're like, oh,
Speaker 1: now you have to be investing for your retirement and
Speaker 1: they're and you're like, hold up, let me get through
Speaker 1: this and then I'll start investing. But if you wait
Speaker 1: to take the leap, then you miss out on so much.
Speaker 1: So before you count yourself as a saver and Steve
Speaker 1: an investor, start to develop the mindset of I invest
Speaker 1: I'm an investor. Even if you're just putting money into
Speaker 1: your four oh one K and it comes out of
Speaker 1: your paycheck you don't even see it, You're still an investor.
Speaker 1: So start getting into that mindset. Yeah, I think it's
Speaker 1: a great point. And also with what you're saying, Jen,
Speaker 1: the earlier you get on board with investing as in
Speaker 1: utilizing these different platforms that can grow your money and
Speaker 1: have higher rates of return, the better off you are.
Speaker 1: Because you want to take the risks that you can
Speaker 1: when you're young. So if you're in your twenties and
Speaker 1: thirties listening to of this, this is something you really
Speaker 1: want to go hard at. Now. If you're in your forties, fifties, sixties,
Speaker 1: you don't want to be taking as many risks with
Speaker 1: investment strategies. So making that switch early on is crucial
Speaker 1: for sure. So how much do you need to retire? Specifically,
Speaker 1: that's the average amount that respondents to this survey said
Speaker 1: one point seven million. But how do you know what
Speaker 1: is right for you? So most experts say it should
Speaker 1: be about eighty per cent of your final pre retirement salary,
Speaker 1: and so you don't know what your final preretirement salary is.
Speaker 1: But you can kind of just add to percent every
Speaker 1: year to what you're making now and get a prediction
Speaker 1: of what your pre retirement salary is. And you can
Speaker 1: do that on a uh online on retirement calculators. It
Speaker 1: can do that for you. But basically, if you're making
Speaker 1: a hundred k at retirement, you need to have enough
Speaker 1: saved to take out eight thousand per year and have
Speaker 1: a comfortable to have a comfortable lifestyle. I don't know
Speaker 1: how much I agree with that as a theory, because
Speaker 1: you can't predict like maybe you're going to make a
Speaker 1: lot more money than just two compounded with raises, or
Speaker 1: maybe you're gonna make a lot less. Maybe you have
Speaker 1: to leave the workforce for a medical condition, Like you
Speaker 1: don't know, um, how much you're going to need in retirement,
Speaker 1: And that's okay. Um, some people say that you can
Speaker 1: maybe maybe it's only eight percent because you can take
Speaker 1: out the portion of your mortgage because hopefully you'll have
Speaker 1: your mortgage paid off. But then to that, I say, well,
Speaker 1: you're gonna have a lot more medical costs, so you
Speaker 1: might as well just replace that with medical costs. So
Speaker 1: there's no real real way to pinpoint what you're going
Speaker 1: to need in retirement. The best hedge we have against
Speaker 1: it is to live frugally now and just to maintain
Speaker 1: a lower cost of living in general, to to protect
Speaker 1: yourself well, and to be actively involved in this process.
Speaker 1: The article talks about managing your investments and avoiding this
Speaker 1: set it and forget it mindset of Okay, I'm contributing
Speaker 1: to my fur own k. That's it. To really grow
Speaker 1: this and to make sure that you've got the most
Speaker 1: amount of money in your retirement savings is and investment
Speaker 1: is to be paying attention to it and to be
Speaker 1: evaluating on a yearly basis, what is my salary now? So,
Speaker 1: based off of that and the standard of living that
Speaker 1: I want when I retire, how much do I need
Speaker 1: to be putting aside now? Which can include a percentage, right,
Speaker 1: like making sure that you're putting aside at least ten
Speaker 1: percent into some sort of savings investment for retirement. Yeah,
Speaker 1: I much more resonate with the goals that say you
Speaker 1: should save this percentage of your salary and just adjust
Speaker 1: that by age. So the one they give here is fifty.
Speaker 1: It says to reach your goal save of your salary
Speaker 1: beginning in age with fifty invested in stocks. And I
Speaker 1: did not start at that age, so I have just
Speaker 1: adjusted um, so I have to save more than fifteen
Speaker 1: percent to make up for that. And it's I think
Speaker 1: I I think I did a calculator and to have
Speaker 1: one point seven million, I need to invest eighteen percent,
Speaker 1: which isn't bad. It's just a little bit higher. And
Speaker 1: I know the younger start, the less you have to
Speaker 1: invest overall, so the earlier is always better. But also
Speaker 1: this is stocks, and I'm probably stocks, yeah, And I
Speaker 1: think that's totally fine for people in their thirties. I
Speaker 1: know people that are. I know tons of people that
Speaker 1: are invested just like that, like stocks all the way
Speaker 1: up until there, gosh, fifties, sixties. So it's not maybe
Speaker 1: the best idea, but people do it, so don't be
Speaker 1: it's a little riskier. You want to ideally make your
Speaker 1: portfolio more bonds as you get closer to retirement. So
Speaker 1: they're saying fifty percent stocks, and I assume the other
Speaker 1: fifty percent would be bonds. It doesn't say what the
Speaker 1: other fifty percent should be. And so that's another thing,
Speaker 1: like I I wasn't raised as an investor. How do
Speaker 1: I know what the other fifty percent is? M I
Speaker 1: don't you do the best you can what you've got. Yeah,
Speaker 1: So I need a simple I needed a simple way
Speaker 1: to figure this stuff out. So the Simple Path to
Speaker 1: Wealth by Jail Collins. It's a book we read in
Speaker 1: our book club last year. That book really helped me
Speaker 1: define a simple plan for investing. And we're all about
Speaker 1: simplicity here, and so I highly recommend The Simple Path
Speaker 1: to Wealth by Jail Collins. And uh, that's yeah, that's
Speaker 1: what I follow. And he's definitely in stocks when you're
Speaker 1: in your thirties, I think. And won't get into this more,
Speaker 1: but even just breaking down some of the barriers to
Speaker 1: even understanding these things is helpful. So yes, listening to podcasts,
Speaker 1: reading books, and teasing through some of the overwhelming or
Speaker 1: scary or confusing aspects of what this means to be
Speaker 1: investing for retirement really helps. And and so I think
Speaker 1: where the merit is in this article is giving some
Speaker 1: sort of baseline. Right, So if you just the question
Speaker 1: of how much do I need, it's a very simple question,
Speaker 1: it's a very foundational question. But I think it's very
Speaker 1: telling that that is one of the number one searched
Speaker 1: questions on the internet. Most people don't know that, so
Speaker 1: to start somewhere. And so I like these suggestions. But again,
Speaker 1: as with anything we talk about on our podcast and
Speaker 1: when it comes to frugality and financial goals, to make
Speaker 1: it work for you. But yet no, we're kind of
Speaker 1: the standard lies. And so I like some of the suggestions. Again,
Speaker 1: we can play with it, we can make it work
Speaker 1: for us. But they are suggesting that you have by
Speaker 1: the time your thirty your annual salary accumulated in savings
Speaker 1: for retirements, whatever you make in a year. That it
Speaker 1: could be a goal for you by the time you're thirty,
Speaker 1: that you have that amount in savings. Of course, if
Speaker 1: you're listening to this at different ages, the different brackets
Speaker 1: that they give is that by age forty you would
Speaker 1: have two times your annual salary accumulated in savings. By
Speaker 1: age fifty four times annual salary, by age sixty six
Speaker 1: times annual salary by age sixty seven, eight times annual salary,
Speaker 1: So you can see how it kind of continues to
Speaker 1: grow and grow and multiply upon itself as you get
Speaker 1: older and older. Hence again starting younger is best, um,
Speaker 1: but just a guideline, right, these these things where we
Speaker 1: can say, what's the guideline, what's the blueprint? A place
Speaker 1: to start from, so we even know what we're aiming at. Yeah, yeah,
Speaker 1: And so figuring out what you need to catch up,
Speaker 1: which is what I had to. I am still not
Speaker 1: at I'm thirty, and I'm not at my full annual salary,
Speaker 1: so we are as a couple at my full annual salary,
Speaker 1: but not individuals. So we're still playing catch up because
Speaker 1: we had so much debt and we paid it off
Speaker 1: and and that's going to be the story for a
Speaker 1: lot of our listeners to we're all playing catchup. So
Speaker 1: I think starting with if you can uh and and
Speaker 1: working your way up, like maybe one more percent every month,
Speaker 1: and just going at it easy until you get to
Speaker 1: a place that's stretchy but sustainable. You'll really thank yourself
Speaker 1: for investing more now, even though it seems difficult. So
Speaker 1: you might say, I'll just invest a little now and
Speaker 1: when things free up, I can invest more later. And
Speaker 1: that is the opposite approach. You should be taking invest
Speaker 1: as much now as possible, like to the point where
Speaker 1: it's uncomfortable. A lot of you who are paying off debt.
Speaker 1: You know that uncomfortable. You've been there. This is familiar, right,
Speaker 1: and so even if you even if you prolong that
Speaker 1: for maybe another year or six months or two years,
Speaker 1: however long you can sustain it, then let off the
Speaker 1: gas and and you will be in such a better
Speaker 1: place then if you just start to wait. And then
Speaker 1: if you try and wait, Yeah, don't let this overwhelm
Speaker 1: you start somewhere and know that, Yeah, Jen, you just
Speaker 1: shared where you're at. You're still playing catch up. I'm
Speaker 1: thirty and this year I will finally pay off my debt.
Speaker 1: And yeah we've got a little bit in savings, but
Speaker 1: I don't have my full salary in savings yet. So yeah,
Speaker 1: it's gonna be some catchup for me for the next decade. Yeah, yeah,
Speaker 1: so all right. There are a few other ways you
Speaker 1: can figure out how much to save. A popular one
Speaker 1: that is in the financial independence retire early is called
Speaker 1: the twenty five percent rule or the rule of so
Speaker 1: that it says you should have of your gross salary
Speaker 1: each year starting in your twenties. Percent savings figure may
Speaker 1: sound daunting, but keep in mind it includes not only
Speaker 1: your four one K withholdings, but also the other types
Speaker 1: of savings mentioned above. Actually, I don't think that's that's
Speaker 1: not the fire one that I so the fire Okay,
Speaker 1: that it doesn't have the one that I was thinking.
Speaker 1: So I'm going rogue because it's not in the article.
Speaker 1: So the four percent rule it does have. So the
Speaker 1: four percent rule is essentially you want to be able
Speaker 1: to take out four percent of your retirement fund every
Speaker 1: year because that will mean you can take the money
Speaker 1: out and it won't eat into your nest egg. So
Speaker 1: divide your desire annual retirement income by four percent and
Speaker 1: that kind of gets you to where you want to be.
Speaker 1: They used eighty thousand dollars on this one. So if
Speaker 1: you make a K at retirement you want to live
Speaker 1: off of it, that's a d K. So you would
Speaker 1: need a nest egg at retirement of about two million
Speaker 1: because eight THO divided by point zero four is two million,
Speaker 1: and so you can take four per cent of two
Speaker 1: million every year, which is a d K and lip
Speaker 1: off that and it will never touch your to your
Speaker 1: nest egg, so it'll just keep maintaining that. You're you're
Speaker 1: essentially living off the dividends every year and you never
Speaker 1: touched the two millions, so you'll never run out. So
Speaker 1: that's the four percent role. That's another way to figure
Speaker 1: out what you should have saved for retirement. And this
Speaker 1: strategy assumes a five percent return on investments because after
Speaker 1: taxes and inflation, that's what you can likely Some people
Speaker 1: say five, some people say six, but five or six
Speaker 1: is what you're going to want to use to calculate
Speaker 1: your investment returns because a lot a lot of people
Speaker 1: will be like, oh, but the stock markets returning like eight,
Speaker 1: so I'll calculate with eight percent, or it's calculate it's
Speaker 1: returning with twelve percent. Somebody likes to use the twelve
Speaker 1: percent return on all of his calculation. Who might that be?
Speaker 1: Somebody really likes. But you have to take into account
Speaker 1: inflation and taxes and being being conservative, market downturns and
Speaker 1: stuff like that. So I personally use six. I like
Speaker 1: to have a conservative, yeah, conservative but optimistic. Oh you
Speaker 1: just cute. That's what I just call cute, conservative and optimistic.
Speaker 1: This is cute, thank you. So yeah, and then the
Speaker 1: last part of this is how much can you save
Speaker 1: for retirement? Because saving of your income sounds nice, and
Speaker 1: saving two million dollars sounds nice, but like, how much
Speaker 1: can you afford to? So the percentage of income left
Speaker 1: over and available for saving for workers between the ages
Speaker 1: of five and seventy four averages eighteen point four percent
Speaker 1: on a pretax basis, and that is from a study
Speaker 1: on let's see from Investipedia. So this figure is above
Speaker 1: the percent saving formula. And so theoretically fifteen percent is
Speaker 1: possible for people because that is the difference between average
Speaker 1: incomes and spending annually, so you should be able to
Speaker 1: do that. But the figure is well about the fifteen
Speaker 1: percent savings formula and potentially within the five percent figure
Speaker 1: that I mentioned earlier. So the average pre tax percent
Speaker 1: of income left over after expenditures by age group should
Speaker 1: be four to thirty four, should be able to save
Speaker 1: nineteen and then from thirty five to forty four that
Speaker 1: jumps up to twenty three percent, forty five to fifty
Speaker 1: four that jumps up to scent. And I don't know
Speaker 1: where these getting there getting these numbers where people need
Speaker 1: to be saving almost of their income or are in college,
Speaker 1: that is what they have right so like they're probably
Speaker 1: imagining to fifty to fifty four, you're probably making the
Speaker 1: most that you will ever make. You would probably have
Speaker 1: about to be able to save. Okay, So these are
Speaker 1: just more numbers from their survey. Like, if you're between
Speaker 1: forty five and fifty four, then you should be able
Speaker 1: to save twenty seven percent of your income based on
Speaker 1: average income for these expenses. If you're not there yet,
Speaker 1: the best is yet to come. People to fifty four
Speaker 1: that's the sweet spot for earning potentials because then it
Speaker 1: does go down. Sixty four goes down and then up
Speaker 1: until retirement saving eight percent. So that that's what theoretically
Speaker 1: the numbers should show. I don't know how much people
Speaker 1: reading investipdia are making or if they founded normal people,
Speaker 1: but all that to say is not an obscene number.
Speaker 1: You should be able to work your budget, makes some
Speaker 1: extra income whatever to get to and it is the
Speaker 1: safest number. So there there's a guideline for you. You
Speaker 1: don't need to be saving sevent of your income or
Speaker 1: but so that's how much you should be saving theoretically.
Speaker 1: Our next article is about where to save for retirement,
Speaker 1: so it's for Money under thirty dot com and it's
Speaker 1: the beginner's guide to saving for retirement. So, Jill, if
Speaker 1: somebody who's beginning to save for retirement, what did you
Speaker 1: think of this one? Yes, it just felt like a
Speaker 1: breath of fresh air for me of breaking down all
Speaker 1: these acronyms, helping you to understand just the basics of
Speaker 1: retirement investing and saving. And honestly, my biggest takeaway you
Speaker 1: you already heard me say on this podcast from this article,
Speaker 1: was the worst thing you can do is nothing. And
Speaker 1: to me, that's encouraging, right because we can we can
Speaker 1: get into all the nitty gritty, we can get into
Speaker 1: all these different numbers and percentages and acronyms and all
Speaker 1: the stuff. But at the end of the day, let's
Speaker 1: do something. The worst thing you can do is nothing,
Speaker 1: So don't let it be a barrier to taking that
Speaker 1: first cup, that first step. Yeah, and we're not here
Speaker 1: to answer the debate like should you be investing for
Speaker 1: retirement while you're paying off debt? Because I think that's
Speaker 1: a really it's a divisive argument and some people want
Speaker 1: to finish off paying off debt where they retire, and
Speaker 1: that's fine. Some people want to keep investing while they
Speaker 1: pay off debt. That's also fine. That The worst thing
Speaker 1: you can do, though is wait. So after you pay
Speaker 1: off debt, then you just do nothing or you get
Speaker 1: lazy while you're paying You know, doing two things at
Speaker 1: once and you can't handle things and investing falls to
Speaker 1: the wayside. Prioritize investing at whatever time it comes for you.
Speaker 1: So this one goes through a lot of things about investing,
Speaker 1: but we really want to focus on the different tax
Speaker 1: advantage vehicles for you're testing. And if you were with
Speaker 1: us all the way back in episode, you heard us
Speaker 1: introduce index funds, and those are funds mutual funds that
Speaker 1: you'll find in a lot of different investments. So we
Speaker 1: won't go over those right now. But investing in tax
Speaker 1: advantaged retirement accounts saves you a lot of money. It
Speaker 1: saves you. You can line it up so you can
Speaker 1: save money today this year and then also save money
Speaker 1: in the future, and neither is better. You want to
Speaker 1: have a mix of both if it is available to you.
Speaker 1: So the first vehicle is your four oh one K
Speaker 1: or your four oh three B. Four oh one K
Speaker 1: is an account to that you get through your employer,
Speaker 1: which is funded through pre tax payroll deductions, and what
Speaker 1: that means is that you don't have to pay income
Speaker 1: tax on those deductions. So if you're in a tax bracket,
Speaker 1: those portions that are in, you get to keep an
Speaker 1: extra cents of every dollar invested. Essentially, so that's more
Speaker 1: money that gets to go into the four oh one
Speaker 1: K than if you were to get your paycheck and
Speaker 1: already two cents has gone to taxes, and then you
Speaker 1: invested it and you'd be just putting seventy eight cents in.
Speaker 1: So that's kind of that's what pre tax means. You
Speaker 1: just get more money up front to invest, and then
Speaker 1: when you retire and you take money out of your
Speaker 1: four oh one K, that's when it's taxed. So say
Speaker 1: you are still if you're taking out enough money that
Speaker 1: you still are in the tax bracket, you're still going
Speaker 1: to for every dollar you take out, you only get
Speaker 1: to keep seventy eight cents of it because of that
Speaker 1: goes to taxes up top. But you've let your dollar
Speaker 1: compound and interest for so long that you have a
Speaker 1: lot more money than you would if you were just
Speaker 1: investing seventy eight cents of every dollar. So it's a
Speaker 1: lot of money UM, and then you just pay that
Speaker 1: tax later and then the four and three B is
Speaker 1: the same. It's an account that you get if your
Speaker 1: employer is UM, educational or a nonprofit nice. We also
Speaker 1: want to break down what an i RA is, So
Speaker 1: I loved this simple explanation that an IRA is simply
Speaker 1: another vehicle for your money, and it stands for an
Speaker 1: individual retirement account. So this account is not dependent on
Speaker 1: where you were. Anyone can open it. So this particularly
Speaker 1: for you subcontractors, people who don't have these four oh
Speaker 1: one case four or three b s available within your
Speaker 1: work environment, absolutely be looking at i RA. So there's
Speaker 1: a couple of different kinds of iras. A lot of people,
Speaker 1: even if you do have a four oh one K
Speaker 1: or four or three B, also utilize an i RA
Speaker 1: because they offer different benefits that employer sponsored retirement accounts don't.
Speaker 1: But they come in different varieties. So you've got your
Speaker 1: rath ROTH IRA which uses after tax money, You've got
Speaker 1: your traditional IRA which is tax deductible, and you've got
Speaker 1: your step I RA A R S C P I RA,
Speaker 1: which is for the self employed, and it's all it
Speaker 1: also has some tax advantages. So there's a couple of
Speaker 1: different kinds, but essentially another vehicle for your money. Yeah,
Speaker 1: so the traditional IRA and the step I RA looked
Speaker 1: just like a four oh one K. The difference between
Speaker 1: the step I RA and the tricial I RA versus
Speaker 1: the four oh one K is that your four oh
Speaker 1: one K is offered by an employer and it has
Speaker 1: a higher limit. The limit, as we're saying this in
Speaker 1: is hundred dollars per year that you can contribute if
Speaker 1: you are under the age of fifty. If you are
Speaker 1: over the age of fifty, you can put away twenty
Speaker 1: six thousand per year. And that is in and that
Speaker 1: is for our US listeners. I can't say what it
Speaker 1: is in Canada or anywhere else. Y'all have different tax
Speaker 1: advantaged retirement accounts. But in the U S where we
Speaker 1: are at, that is it. And for IRA is the
Speaker 1: limit is six thousand per year currently, So that is
Speaker 1: for across all I RA s. So that's where it
Speaker 1: gets into wanting to balance the tax advantage. Now tax
Speaker 1: advantage later is by having both your money in a
Speaker 1: four oh one K or four oh three B and
Speaker 1: having a roth ira which is tax now, So you're
Speaker 1: putting that seventy eight cents now and then you're letting
Speaker 1: that seventy eight cents grow. But all that money that grows,
Speaker 1: you don't have to pay taxes on anything in the end,
Speaker 1: So that actually saves you more money in the end
Speaker 1: by investing in a roth ira and maxing that out
Speaker 1: every year. But it is only a six thousand dollar limit,
Speaker 1: so hopefully you're investing more than that every year, So
Speaker 1: balancing that with savings in your four oh one K,
Speaker 1: because you also don't know what your income is going
Speaker 1: to be like in thirty years. If you end up
Speaker 1: and right now you're in a lower tax bracket and
Speaker 1: you're investing of that dollar, maybe you're in a higher
Speaker 1: tax bracket later down the road. You don't want to
Speaker 1: be paying on those dollars you're pulling out that would
Speaker 1: favor an i r Well, maybe you're making less and
Speaker 1: so it's better that you pay taxes down the road
Speaker 1: than it is for putting all your money in the
Speaker 1: rath i rara now. Because things are unpredictable, that's why
Speaker 1: you want to have a balance between both types of accounts,
Speaker 1: and usually the order of operations that's most optimal is
Speaker 1: getting whatever match you can get in a four oh
Speaker 1: one K, so whether that's three, four or five, then
Speaker 1: investing in a rath I r A if you qualify,
Speaker 1: you have to make less than I think it's two
Speaker 1: dollars or something similar to that. Don't quote me on
Speaker 1: that one um, but then you qualify for a raw
Speaker 1: IRA if you make less than that every year, So
Speaker 1: then maxing out your raw IRA and then going back
Speaker 1: to your four oh n K and investing in that
Speaker 1: up to the cent mark or eighteen or twenty seven
Speaker 1: or wherever you're at. So that's the order of operations,
Speaker 1: and people in personal finance kind of agree on that
Speaker 1: across the board. It's it's not like a polarizing things.
Speaker 1: Get your free money, choose your ira A because you
Speaker 1: don't always get to pick what's in your four oh
Speaker 1: one K either. It could be a very high fee
Speaker 1: managed mutual fund, but it's still worth getting the tax advantages.
Speaker 1: But you may not want to put all of your
Speaker 1: money in there and forget about the IRA. So get
Speaker 1: your rath A where you can control it and you
Speaker 1: can choose all the good funds and then go back
Speaker 1: to the four oh one K and then there's some
Speaker 1: things you can do after that too. Yeah, and once
Speaker 1: once you've begun this, continue to make that money work
Speaker 1: for you. We said this already, but young people take
Speaker 1: bigger risks because you're able to UM, you've got more
Speaker 1: time to recover. So utilize stocks, utilize your EA E
Speaker 1: t fs A e F t S e t s. Okay,
Speaker 1: it is et F s UM. These are your low
Speaker 1: cost index funds. UM. You know, the article talks about
Speaker 1: whether or not investing in specific stocks is going to
Speaker 1: be wise over time. Everybody's got to make their own decisions.
Speaker 1: This article argues that your e t f s are
Speaker 1: a better route because research shows that generally a stock
Speaker 1: might do really well for like two to four years,
Speaker 1: but in the long run, it's unlikely that you're going
Speaker 1: to end up end up on top. And so these
Speaker 1: these low cost index funds are usually the best route.
Speaker 1: But certainly make your own decisions. But once you reach
Speaker 1: your forties, fifties, sixties and beyond, you want to start
Speaker 1: thinking about moving that money out of stocks and into
Speaker 1: your more safer assets like bonds. Yeah, and you will
Speaker 1: find them all in the same platform. It's very easy.
Speaker 1: You'll find stock funds and bond funds right next to
Speaker 1: each other. So don't be afraid of hearing the words
Speaker 1: stocks and bonds and investment stuff like that, because they
Speaker 1: have made it. These investment companies like Vanguard, Fidelity, Schwab
Speaker 1: have made it really easy for you to invest money
Speaker 1: with them. They want to, They want to make the
Speaker 1: user interfere so easy. So they even have target date funds,
Speaker 1: which is just a place where you put your money
Speaker 1: in and at a certain age it becomes more conservative.
Speaker 1: So without you even having to reallocate your stocks and bonds,
Speaker 1: it just does it for you and gets more conservative
Speaker 1: the closer you get to retirement. And target date funds
Speaker 1: are totally fine to have your entire life or until
Speaker 1: you get like super nerdy into investing and you want
Speaker 1: to switch them out. So it's yeah, so don't be
Speaker 1: afraid of those words. And we're not talking about social
Speaker 1: security here. We probably should have mentioned this when we
Speaker 1: were talking about how much to save that a lot
Speaker 1: of retirement calculators will factor in social security too. But
Speaker 1: I think for millennials we have to we have to
Speaker 1: take social security into account. But We shouldn't count on it.
Speaker 1: We don't know what it's going to look like when
Speaker 1: we get to retirement. It will it will probably be there.
Speaker 1: I'm not thinking that it's going away. It's it's unlikely
Speaker 1: it will look like what it does today. So don't
Speaker 1: count on it. Let it be a pleasant surprise. Ye,
Speaker 1: not what you base your whole retirement around, for sure. Yeah.
Speaker 1: Some of the other places where you can put your
Speaker 1: money if you're going beyond the rath Ira and the
Speaker 1: four oh one k, those include your hs A. So
Speaker 1: that's a health savings account. Part of it is a
Speaker 1: cash fund and then part of it is an investment fund.
Speaker 1: So if you have one through your work, you can
Speaker 1: you qualify if you are part of a high deductible
Speaker 1: health plan, you can have an h s A And
Speaker 1: this is different from an f S A flexible spending
Speaker 1: account f s A S And at the end of
Speaker 1: the year hs A is stay with you and they
Speaker 1: become an investment account past like two thousand dollars anything
Speaker 1: saved in their past. That is an investment account that
Speaker 1: can be used tax free, tax penalty free in medical
Speaker 1: purchases and the list of things you can use in
Speaker 1: hs A on is insane. Band aids. You can buy
Speaker 1: band aids with your hs A. And this becomes really
Speaker 1: important when we get older, and hs A becomes invaluable
Speaker 1: because a lot of our spending will become health related
Speaker 1: in retirement. So pass a certain age. You can use
Speaker 1: your h s A for any purchases penalty free. But
Speaker 1: medical expenses are something that people do not factor as
Speaker 1: much in for as they should in their retirement calculations.
Speaker 1: And the hs A is a really great thing to
Speaker 1: have around if you have extra money to invest. Speaking
Speaker 1: of a good thing to have around, have this around
Speaker 1: every week. It's the week up. That's right, It's time
Speaker 1: for the best minute of your entire week. Maybe a
Speaker 1: baby was born and his name is William. Maybe you
Speaker 1: paid off your mortgage. Maybe your car died and you're
Speaker 1: happy to not have to pay that bill anymore. That's bills,
Speaker 1: Buffalo bills, Bill Clinton, this is the Bills of the week. Hey,
Speaker 1: Jenn and Jill, this is Aaron. I've been listening to
Speaker 1: you guys for a while. Really enjoy the podcast, and
Speaker 1: my bill of the week is especially exciting because it's
Speaker 1: in the theme song. My buffalo bills are going to
Speaker 1: the playoffs. Clinched their tenth win in their playoff first
Speaker 1: last night and the Sunday night game against the Steelers.
Speaker 1: And I get so excited every week when I hear
Speaker 1: the theme song and I hear Eric out shout Buffalo Bills,
Speaker 1: and I'm playing the shout song because the Bills are
Speaker 1: going in the playoffs. Thanks so much for all you do.
Speaker 1: Talk to you soon, Buffalo Bills Bill. This yes, you
Speaker 1: actually came in with the Buffalo Bills Bill of the
Speaker 1: Weeks are going to the playoffs. Aaron, You're my hero.
Speaker 1: So after I mean when this airs, it will be
Speaker 1: after the super Bowl. When does this air after the playoffs? Yeah?
Speaker 1: Well I think it will be after, right, like after everything. Yeah,
Speaker 1: February second is when the super Bowl is. Yeah, oh
Speaker 1: my gosh, so it We'll have just happened. And I
Speaker 1: cannot honestly tell you if the Buffalo Bills are still
Speaker 1: in the playoffs. Yeah, but at this time when we record, uh,
Speaker 1: the Buffalo Bills are going to the playoffs, and we
Speaker 1: can delight in that. We we are so delighted. And okay,
Speaker 1: so they're not out anymore, they're not in anymore. But
Speaker 1: they went to the Pa, you can see how behind
Speaker 1: we are with bills. Thank you for sending in all
Speaker 1: of your bills. The Buffalo Bills went to the playoffs
Speaker 1: and we can then they were wild cards and they
Speaker 1: were in for a little while. Yes, Aaron, thanks for
Speaker 1: calling in. Thanks for your bill. Even though the bill
Speaker 1: has passed, faith has decided. Uh, if any of you
Speaker 1: all out there wants to smit your bill of the week,
Speaker 1: maybe maybe the Buffalo Bills are back doing something cool,
Speaker 1: call us next year when the bills make it bad.
Speaker 1: Trugal Friends podcast dot com slash bill. Leave us your
Speaker 1: bill and you know we'll air it about two months later.
Speaker 1: If your bill is time sensitive, send us an email.
Speaker 1: Nobody's ever sent us a time sensitive bill before you know.
Speaker 1: This is a new territory for embarrassing. Well, here we are. Yeah,
Speaker 1: we're not gonna backtrack. We're gonna. We're gonna keep it
Speaker 1: in there. This is it. Yeah, we're gonna. We're not
Speaker 1: afraid of embarrassment. We're going we stay. We don't listen
Speaker 1: to them until we record the episodes and starting out
Speaker 1: true to form, True to form, and now it's time
Speaker 1: for learning round. Noone felt more exciting. These are your
Speaker 1: retirement questions answered. Yes. When we ask you what episodes
Speaker 1: we should do every quarter, a lot of you had
Speaker 1: specific retirement questions, and we covered some of them in
Speaker 1: the main episode. But I want to make sure that
Speaker 1: your specific questions are answered, and we'll start We'll start
Speaker 1: it off with what accounts you should have, which is
Speaker 1: something I mentioned right before the Bill of the week.
Speaker 1: Your I RA A, your four oh one K or
Speaker 1: four oh three B, and your H S A. I
Speaker 1: think those are the three most important retirement accounts you
Speaker 1: can have, specifically IRA being WROTH and UH so you
Speaker 1: actually can choose in some places if you want a
Speaker 1: roth four oh one K or traditional four oh one K,
Speaker 1: and you have the same choice with an IRA. You
Speaker 1: can also choose a traditional IRA. Why would you have
Speaker 1: a traditional IRA? Well, I needed one when I left
Speaker 1: my job and needed to roll over my four oh
Speaker 1: one K. I roll it over into traditional IRA because
Speaker 1: they are the same thing. And I also had part
Speaker 1: of my retirement in my raw for a one K
Speaker 1: because balance why not? And there was absolutely no science
Speaker 1: or reasoning behind what I contributed to the raw versus
Speaker 1: the traditional four oh one K. I just did a
Speaker 1: little bit in each So those are those? Are it? Yeah?
Speaker 1: For me? Our next question is what's in my retirement account? Well,
Speaker 1: it's paraphrased. Here's the answer. Usually mutual funds, although we
Speaker 1: prefer index funds, which is a type of mutual funds. Yeah,
Speaker 1: you can control what goes into your I R A,
Speaker 1: but you can't always control what's in your four oh
Speaker 1: one K or four oh three B, So you know,
Speaker 1: there's that there's more control with the I R have
Speaker 1: fun with I kind of left that one out. Uh. Yeah,
Speaker 1: it's a just stocks and bonds so that you don't
Speaker 1: have to like individually stockpick everything that's in your IRA
Speaker 1: or four oh one K. They put them all into
Speaker 1: these mutual funds. And we like index funds because they're
Speaker 1: passively managed and that makes them less expensive. And that's
Speaker 1: what goes in. And you can choose which ones you
Speaker 1: want for an I RA, and usually you can choose
Speaker 1: them for a four oh one K too. There's usually
Speaker 1: a target date fund or something you can put in there,
Speaker 1: but sometimes there's fewer options in your four oh one K.
Speaker 1: I know, unfortunately, I know a lot of teachers don't
Speaker 1: have great options in their four or three B s.
Speaker 1: So that that's unfortunate, but you have all of the
Speaker 1: control with your IRA, So that's why we love I
Speaker 1: RA s. Next, stocks verse bonds question, It wasn't There
Speaker 1: was no question mark on it, but it just it
Speaker 1: stocks response. So index funds made up of both of them.
Speaker 1: Mutual funds also made up of both of them. So
Speaker 1: you'll usually find funds that are stock funds, and then
Speaker 1: you'll find bond funds, and bonds are just like loans
Speaker 1: made out to different companies and stuff, and then they
Speaker 1: pay them back with interest and you get some of
Speaker 1: the interest. So stocks, you know what a stock is,
Speaker 1: that's portions of a company, and instead of getting all
Speaker 1: risky with your single stocks, you buy them in a
Speaker 1: fund and they just determine how risky your portfolio is.
Speaker 1: That's the balance. You want both, but you want bonds
Speaker 1: more bonds the closer you get to retirement, so both
Speaker 1: are good. I have I'm like on a stocks right
Speaker 1: now at thirty years old because I don't plan on
Speaker 1: retiring anytime soon. So that's where I'm I live like.
Speaker 1: I always knew that about you. That's how we met. Yeah,
Speaker 1: you were living on the edge. It was final question,
Speaker 1: what should I do with a windfall or inheritance. Well,
Speaker 1: first of all, count yourself hashtag blessed, and then figure
Speaker 1: out how much taxes you'll low on it. That's always
Speaker 1: the first thing, consider taxes, and then use the rest
Speaker 1: to get you closer to your financial goals. So we
Speaker 1: recommend always prioritizing paying off your debt, saving for an
Speaker 1: emergency fund, maxing out your I ra A, and if
Speaker 1: you happen to have some left over after that, you
Speaker 1: can have some fun, you know, go on a vek,
Speaker 1: do do, do a little dance. I don't know. But
Speaker 1: you can also open a taxable investment account watah, it's
Speaker 1: their responsible thing to do. It'll act like your I
Speaker 1: ra A. You can invest in the same funds. It
Speaker 1: just doesn't have the same tax benefits as a retirement account.
Speaker 1: But certainly you can use it to continue to invest
Speaker 1: and save. Yeah, you will probably here if you're a
Speaker 1: listener of Dave Ramsey. He says that he saves for
Speaker 1: investment real estate in a mutual fund, and so that's
Speaker 1: all he's doing instead of saving money for a big
Speaker 1: purchase like a down payment or full payment, instead of
Speaker 1: saving for that in a checking account. That gets point
Speaker 1: on one percent or high yeld savings account that gets
Speaker 1: one point six Uh, he just puts it into a
Speaker 1: mutual fund or in our case specifically an index fund
Speaker 1: that can make me in a year and not much
Speaker 1: change with inflation. Because it's such a short term. You're
Speaker 1: not promised that obviously because it is short term. But
Speaker 1: if you wanted to, say, for your down payment for
Speaker 1: your house in a bond fund, that's i mean, pretty
Speaker 1: low risk, and still you'll get a higher return than
Speaker 1: a highled savings account. So you will have to pay
Speaker 1: taxes on your dividends so the growth of it, but
Speaker 1: you won't be penalized like taking out money from a
Speaker 1: retirement account early, because it's just your taxable account. You
Speaker 1: do whatever you want with it, and then you just
Speaker 1: pay your taxes when you take it out. Give Uncle
Speaker 1: Sam what do you want? Make him happy. It's part
Speaker 1: of that positioning yourself in the mindset from a saver
Speaker 1: to an investor and just figuring out how and where
Speaker 1: to save your money better best, be best, be your
Speaker 1: best self. So sorry, So that's it. That's all we
Speaker 1: have to say about retirement. It's not that confusing. It
Speaker 1: can get as complex as you wanted to. But as
Speaker 1: long as you are getting that four A one K match,
Speaker 1: you are maxing out your rath i A as frequently
Speaker 1: as possible, then you're going to be in the best
Speaker 1: situation you can be in. And and that's all. You
Speaker 1: can't compare your situation to any situation you read about
Speaker 1: on the internet. You have to do what's best for you.
Speaker 1: So that's the end of our episode, and uh, thank
Speaker 1: you for listening, thank you for supporting us, for leaving reviews,
Speaker 1: for sharing the episodes. Reviews like this one from ct
Speaker 1: what it Be says it's five stars, and she says
Speaker 1: or he relatable, approachable attitudes towards realistic goals. Great Shower
Speaker 1: and Car listen different topics that cover the non polar
Speaker 1: views that I'm accustomed to seeing all over social media
Speaker 1: and other money centric podcasts. We know what to join about. Also,
Speaker 1: I totally get the shower and Car listen. That is,
Speaker 1: that's where I listen to my podcast too, So I'm
Speaker 1: glad to be joining you in your Shower and Car m.
Speaker 1: There's no other place I'd rather be. So we want
Speaker 1: to thank our friends who share these episodes on social media.
Speaker 1: So in addition to leaving reviews. You can also enter
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Speaker 1: and tagging us on Facebook or Instagram. Yes, and instead
Speaker 1: of books this year, we're giving weight ten dollar Amazon
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Speaker 1: It helps us grow, It helps us get bigger sponsors
Speaker 1: so that we can afford to do this. Yes, I can.
Speaker 1: She can afford take care and retirement. Yeah, ye, see
Speaker 1: you next week, see you in Florida. Maybe yes. Herugal
Speaker 1: Friends is produced, edited and mixed by Eric Syria. Wow Wow, Um,
Speaker 1: what what do you want to do in retirement? Gen?
Speaker 1: What a great question. Um. So, I don't really want
Speaker 1: to travel a lot unless it's on a cruise. I
Speaker 1: really want to be one of those retirees that just cruises.
Speaker 1: I was just talking with somebody about this. It's a
Speaker 1: thing some some retirees hardly own a home. They just
Speaker 1: they figured out that it's about as cost effective to
Speaker 1: owning a home and the repairs in YadA YadA as
Speaker 1: just cruising nine months out of the year and then
Speaker 1: like visiting family the other three. And that's what I
Speaker 1: want to do, is cruise. It's what I want to do. Now.
Speaker 1: If I was to retire early, then I would just
Speaker 1: I would cruise. You'd have to find a cruise with
Speaker 1: some good medical yeah care on board. Yeah, but they
Speaker 1: do have their own medical staff, they have a doctor
Speaker 1: on board, so I think it's a safe bet. What
Speaker 1: do you want to do. I can't. I'm just picturing
Speaker 1: you on a cruise. It's gonna take me a minute.
Speaker 1: You can picture. I have pictures of meat on cruises.
Speaker 1: You don't have to picture. You show me a real picture.
Speaker 1: Heck yeah, I was considering about looking into cruises while
Speaker 1: we're there with you in Florida, Like, should go on
Speaker 1: a quick cruise in February? Why not? Let's go, let's
Speaker 1: all go dot com? Okay, oh my gosh, so when
Speaker 1: the stairs we might be on a cruise. Actually, I
Speaker 1: r l um, yeah, okay, what do I I honestly
Speaker 1: have not imagined this. I asked the question, and I
Speaker 1: don't even have an answer for it. I think I
Speaker 1: really don't even imagine myself retiring, which is I don't
Speaker 1: know what that means. Um. I guess I hope that
Speaker 1: I will be in good enough health that I can
Speaker 1: do things still, like I could still see myself speaking
Speaker 1: or writing books, or I hope that my mind is
Speaker 1: still engaged and I can still be with people. I
Speaker 1: like travel. Now, I don't know what that's going to
Speaker 1: be in retirement, maybe in my in my older age,
Speaker 1: am I going to feel ready to settle down more?
Speaker 1: I don't know, hopefully people. Yeah, my knees are already
Speaker 1: giving way, so I know I won't be walking around
Speaker 1: hiking and walking around Europe and stuff. Okay, So so cruise, okay,
Speaker 1: all right? Do you feel like you've done the travel
Speaker 1: you wanted to do in your life? Yeah, okay, I
Speaker 1: want to go back to Europe, but I want to
Speaker 1: take a cruise. You want to hear a cruises to
Speaker 1: Europe and then cruise around Europe? Just be on a cruise. Yeah,
Speaker 1: I just want to be on a cruise. They like
Speaker 1: thirty day like cruises. It's it's a thing. Let's get
Speaker 1: you on a cruise. Then I'm going to look this up.
Speaker 1: Last minute cruise dot com. Let's do it. Not sponsored,
Speaker 1: all right, I'm gonna look it up. I right talk
Speaker 1: to you. Said by