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Retirement

So we're nearing the final stretch here with talking about investing and going back to that initial idea where I got on my soapbox of hating the fact that we say save for retirement because you are investing for retirement. And I want to talk more about what that means and the fact that it's really important that you prioritise this and it's usually the number one way you should get into the market. So first is this concept of life doesn't tend to get less complicated as we age. I think sometimes what happens is where 25 or so When we think one of when I'm 40 I'm gonna be making a lot more money. So that's when I'm actually gonna take this seriously and start saving for investing for retirement. See, it's so pervasive that I screw it up. That's what I'm gonna start investing for retirement or take on investing seriously. But also at that point, maybe you started a family, maybe bought a house. Maybe you've had a health scare. Ah, whole slew of things can happen, so even if you're maki...

ng a lot more money doesn't necessarily mean you have more discretionary income to put towards investing. And this is why I always like for people to prioritise investing when they're young and also going back to this idea of Leslie and Ben. You start earlier. You can put less in and achieve even greater results than trying to play catch up 10 15 20 years down the line. One thing. And if you've seen the boot camp to get your financial life together, bouquet. If you might be familiar with this, it can be really hard for us to connect with the future. This idea of myself in 40 years, that's so abstract. But this study out of U. C. L. A. Found that actually seeing and interacting with an aged photo of yourself can help you bridge that disconnect. Luckily for us, there are APS available to age photos of ourselves, and you can get this horrifying. I'm really hoping for not thes jowls, but you know, now it's funny cause I've talked about this quite a bit over the years, and one time a woman reached out to me on Instagram and said So I did this and it was terrifying. So instead I've printed out a photo of me at my happiest, and I've put that in a place where I see it every day. And I think I want to gift that person the advantage of financial freedom and a secure life in the future. So if this is just absolutely don't want to do it, it's terrifying. Maybe find a picture of yourself at your happiest and try to connect with that image to. So let's run down different types of retirement accounts. I also know we're in the final stretch here, and I also want to say that there is a huge section about retirement and saving and preparing for the future, and they get your financial life together boot camp. So please be sure to check that out, too. This is more of an overview, but three of the main types of retirement accounts will talk about is a 401 K which, if you're traditionally employed, usually what you get from your employer. Ah, 403 b similar scenario. But that usually indicates you work for a nonprofit and then an IRA, so an individual retirement arrangement or account, depending on who you're asking now, rather traditional, I batted these words words around a little bit earlier. What they basically are referring to is how your money is taxed when you put it into a retirement account with a traditional account, you are getting a tax benefit today, but in the future, when you take the money out, it's going to get taxed. So right now it's lower in your taxable income. It's gonna grow tax free for a bunch of decades. But then, when you take it out in the future, you owe Uncle Samson money. He's not gonna let this slide. You always have to cut Uncle Sam his paycheck. Ross is just the opposite. You are investing with post tax dollars today, so you've already paid taxes on it. And in the future, when you take the money out, you take it out tax free, the question that always becomes, which is better again. It depends. It depends on a lot of factors. Often times we're speaking about younger people. You're gonna hear Roth get touted as the option for you. The logic there being that when you're younger you're probably in a lower tax bracket, you're going to be paying less in taxes compared to in the future when you take the money out that it really does depend. And it really kind of just depends on your personal preference, too. Ultimately, whoops. Ultimately, though, what I like to say is that as long as you are investing for retirement somewhere, that is great. It doesn't super matter of his traditional and Roth as long as it's getting you started, and especially if you work for a company and you get a 401 k You don't always have a Roth option, so don't let that freak you out like Oh no, I only have traditional. This isn't good. Oh, no, it's fine. Take advantage of it. So the things that you need to decide when opening up a 401 K or an IRA is how much you want to save which type of investments you want. This is the most stressful part of the whole equation, because I really very vividly remember my first real job in getting access to a 401 K logged in, filled in all the information. You know where you live, your legal name, your beneficiaries, who's gonna get the money if you die? My Social Security number all of that stuff. And then it takes me to the page where I'm supposed to pick my investments. I just remember seeing mid cap small cap, large cap dodging Cox as terms had no idea what any of it meant. And I just exited out the browser. I think a lot of us have that initial reaction. We're trying to figure out how to pick investments. So we're gonna talk about a solution to that here in a little bit. And then step three coming back again to this idea of fees. What are the costs of this fund? So one of the first things I want you to know when you're looking at being traditionally employed and having a match on your account does your employer offer and match on your contributions. So what that might mean is, they might say we will match 100% up to 4%. So if you put 4% of your salary into your K your employer will also put 4% in. So what does that look like in real life? Well, if you earn $35, a year, you contribute 4% to get the match. That's $1400 a year that you're putting in. But then your employer puts in the same amounts. You magically get 2800. It's a really easy way to be doubling down on how much you're putting in. Often times your employer will not put the money in unless you do to. Not always, but a lot of the time, so make sure that you are really taking advantage of that. Now you do want to check the fine print. Sometimes you have to be working at the company for a particular period of time before you even get access to the retirement plan, and you want to make sure to keep an eye on eligibility. So as soon as it's available to you, you can get started now. If that say it takes a year before you can get in the game, you could open up an IRA in the interim so that you still are investing for retirement, and that's something you can do by yourself. You don't have to have an employer legally, you only have to have taxable income in order to open an IRA. So then there's the vesting schedule more fine print when it comes to a 401 K What this means is your employer usually uses this as a retention strategy to try to get you to stay at your company. So any money that you put into your for a one K, you get to walk away with your contributions or yours. Not always the case for your employer contributions, so they can try to get you to stay the first. There's three vesting schedules. One is immediate, obviously the best option. As soon as your employer puts the money in, it's yours to keep. If you leave the company tomorrow, you get to take your contributions and the employers. Not a lot of people do this. The other one is grated. So every year you get a percentage of your employer contributions to take with you so you're one maybe 20% your to its 40% so on and so forth until typically around your five or six, you are fully vested. So if you leave the company, you get all of those employer mattress and then the worst offender is cliff. You don't get anything until you're fully vested, often around your five, so you have to stay at the company for five full years before you get to walk away with any of the employer contributions. Make sure you know how your for a one K vests. If you have access to one, it's really critical thing to understand and could be a game changer about when you might want to leave a job and move to another company. The other thing you need to know is, what will this cost me? I'm not going to spend a lot of time harping on this. We've talked a lot about fees, but I do want you to understand some of the seas you're going to see within a 401 K You still have to pay expense ratios. Your employer doesn't cover that for you. So when you're picking the funds that go into your 401 K make sure that you're keeping an eye on how much those will cost you. You also probably will have to pay what's known as a plan administration or the investment costs. Your employer isn't so benevolent that they necessarily cover the full cost of the 41 K Sometimes they disperse that to you, the employees and you have to pay a percentage to. And finally what sometimes known as an account maintenance fee again, just a fee that might get passed on to you in order to have the 401 k again. I'm not saying to not use your for a one K if you have to pay any of these fees, because oftentimes the employer match is a huge benefit to you and really does outweigh the costs of these. But it's just good to know if you're paying them. What if you don't have an employer sponsored account? I don't. I'm self employed, so I totally understand what that feels like. We're gonna run down a few of your options to most of them being a form of an IRA. But there's also something called a solo 401 K This gets a little text heavy. I'm not going to dig into everything, but just so you understand your options, 2019 you can contribute up to $6000 in an IRA, either traditional or Ross. So if you're self employed, that could be a perfectly great option, especially if you're just kind of testing the waters, and maybe you're not making a ton of money yet, but it's a way for you to be saving and investing for retirement. Now if you also, um, have if you're freelancing on the side and you have a workplace sponsored retirement plan of any sort, that might phase out what you can do with an IRA or if your spouse is covered, there are some liabilities there, so you always want to make sure to do your research. Now my favorite is the stuff IRA, because you can put a whole heck of a lot more money on that bad boy compared to a regular IRA. So if you're self employed, I highly recommend looking into the step or the solo for a one K because, and this is a fun way to freeze it the lesser of 25% of your net earnings, or $56,000 so you can put up to 56 grand into a step IRA, which blows $6000 out of the water. So as you start to earn Maura's a self employed person, you can start to put a lot more away, which is a really important thing to understand. There are, of course, caps in ways that it gets maxed out. But you can go toe I r s stock Gove and there's all that information they're available for you to now a solo 401 K is a pretty similar option. Also, if you know you're gonna expand your small business and hire employees, this could be a really nice benefit to offer them a swell. They get capped at the same as a regular for a one k at any other kind of employer. Which is it? $19,000 a year and with a solo 401 K same as the step. You have a cap of $56,000. So a good chunk of change that you could be putting away for retirement and a lot more than if you were traditionally employed and you got Max out at $19,000. So actually a perk of being self employed, especially if you're successful. But how do you actually set aside money for retirement? I use a rule of thumb of every single time I get paid. 40% of my money gets put into a savings account that is earmarked for taxes. Generally, what you'll hear is a rule of thumb of 30%. I kick it up to 40 to 45% depending on how saucy, um feeling was preparing for my future self. And I do this because one. I live in New York City. So I pay federal, city and state tax, but also because any money that's leftover and there's always some left over, I get to put into myself, Ira. It is a way that I am forcing myself to set money aside for retirement. You are your own boss. You're the only person in charge of your future. It's incredibly important for you to put these kind of systems into place to make sure that as a self employed person, you are setting aside money for retirement. I have said it is all up to you. There's no accountability, no employer match, no one else watching your back. You have to take advantage of being in control. So I have a 9 to 5 job, and I also work a side hustle. So when I had a 401 k I had a 41 K a step IRA an IRA. So can you talk about the kind of mixing and matching you can do with different options? I would love to, but we have only a few minutes left of class, so I'm going to wrap it up. But I will say that's a great point that if you do have a side hustle in addition to your 9 to 5 job, you actually could open up a step IRA on the side and be funding that in addition to getting to put money into your employer match for a one K, so that is something that's great to look into.