Swipe Right On Retirement: What You Can Do Now | Millennial Money Matters

Description

What does a champagne tower have to do with retirement? In this episode, Kelly and Derek break down the current state of retirement for Millennials. We discuss, what to do with an old 401k plan, social security, getting the basics done first, retirement income planning and more. Get ready to level up your financial game, secure your future, and design the retirement of your dreams. Remember, it's never too early (or too late) to start planning for your retirement.

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Transcription

Speaker #0
All right. Welcome to episode two. We made it. We made it. We haven't actually published the first one yet, but these are all going to come out at the same time.
Speaker #1
We'll make it. Yeah. Millennial money matters.
Speaker #0
Where we're talking about finance.
Speaker #1
Finance today, mortgages, but today's going to focus a little bit on the scary thing known as retirement.
Speaker #0
Because Derek, you hear 401k, Roth IRA, traditional IRA, 403bs, 457s, and I think most of us hear this and just go like, la, la, la, la, la, la, la. And we like to ignore it. I'm busy worrying about baseball right now. I don't know about you. I'm worried about kids baseball, not even good grown-up baseball.
Speaker #1
Oh, no, no. T-ball, which is not even really baseball, which is probably like the fun one because the kids are either picking dirt up with their gloves or running in the wrong direction every time. Every time. Parents are screaming at it. I'm just very thankful I'm not a coach. I know your husband's a coach.
Speaker #0
My husband is a coach.
Speaker #1
Bless him.
Speaker #0
Yeah. And I have two children playing right now. I have one playing T-ball and one playing softball tees. So four times a week. we get to go to a baseball dive and hang out.
Speaker #1
And you guys are also doing karate.
Speaker #0
And we're also doing karate and dance class and all of the things that we do with our kids. Because so how can I worry about retirement when I am busy paying for all of my children's activities and going to their activities?
Speaker #1
Well, if you're like half the millennials, you should just do nothing, right? Because that's essentially where we're at right now.
Speaker #0
Is that where we're at?
Speaker #1
Yeah, so I pulled up all these stats. Half of millennials do not have a retirement account at all.
Speaker #0
Well, Social Security is going to take care of us, so I don't need to worry about that.
Speaker #1
Well, do you know what the median... Social Security payment is.
Speaker #0
I don't know. Isn't social security what you get paid in your job? Isn't that what it is? I make whatever, $80,000 a year, and I get $80,000 from social security because I paid into it for a million years.
Speaker #1
That would be awesome. That is not how that works.
Speaker #0
No? How does it work then? No,
Speaker #1
actually. Social security is kind of complicated, but it's meant to be a replacement of some of your income. Typically, depending on how much you earn, it's going to be 20% to 60% of your pre-retirement income. And if you're at the 60% level, you're probably not making much right now. The median income is like $1,750 a month.
Speaker #0
A month for one, like a month.
Speaker #1
A month. Yeah. That's not even rent anymore.
Speaker #0
No.
Speaker #1
Right. So it's pretty low. So that's just over $21,000 a year. You know, I think one of the things that we tend to do is rush into this decision. You know, if you look at that median amount, that's a $400,000 decision in retirement. So it's kind of a big deal. And when I was writing my book, I read a lot of stats on retirement and Social Security in general. But the thing that was kind of jarring was that 41% of people take Social Security right away at age 62.
Speaker #0
And you get more if you delay, right?
Speaker #1
Correct. So every year you wait, essentially you're getting an 8% return or you're going to increase your income 8%. So if you take it earlier, you're dropping your income down pretty significantly for the rest of your retirement.
Speaker #0
Now, Social Security, because there's also people who have the elusive pension, right? You got pensions. Retirement is not like a single wrong approach, right? And I think that's the part that a lot of people miss is like, oh, I got a 401k. I'm good. I did the thing I was supposed to do. I'm good. But if we're talking about $1,700 a month, like that's not going to cut it for most of us. No.
Speaker #1
We got to have other things. It's just like canned tuna. Love it, right?
Speaker #0
I do love me some ramen and canned tuna.
Speaker #1
Well, yeah, I think the biggest misnomer out there about retirement in general is you just need some magic number. Oh, when I get to a million dollars, I'm going to be fine. Right. But people have no idea how to spend that money down. They have no idea how to integrate it with their Social Security. They totally overlook a lot of challenges we have, like market risk returns, taxes in retirement, health care. Yeah, it's all this fun stuff that no one ever thinks about. You know, the odds of you actually needing some kind of long-term care. Do you know what it is?
Speaker #0
What is it? I don't want to know the answer to this.
Speaker #1
Is it higher or lower than 50%?
Speaker #0
Well, the way you asked that question, I would have answered lower, but I think the answer is higher.
Speaker #1
It's much higher. It's 70%. 70%?
Speaker #0
Yeah. But I get that. And I get it on the mortgage side of things in that we talk a lot about people aging in place and that the vast majority of people over the age of 60 declare that they're going to age in place. But it actually doesn't happen as often as people think that it's going to. And if it does happen, you're often aging in place with... some sort of care in your home. So even if you're at home and you're not in a convalescent home, you've got a full-time aide, you've got home health care workers, and it is very expensive.
Speaker #1
Yeah, and generally it's not just I'm fine and then I'm in a home, right? There's generally this transition period. So you're usually having someone come in, maybe initially just someone did the dishes, right? And that's going to cost a little bit, but it's probably manageable. Then you have someone, all right, now we maybe need to change Grandpa's diapers a little bit here. So we've got to have someone a little bit more qualified for that. And then they end up in a facility if it gets really bad. And I think just people really underestimate it. And as an advisor, anytime I bring it up, you know, no one ever wants to talk about it. It sucks. I mean, no one wants to talk about, like, someone having to change their pants. That's awful. but the real thing is it's more likely going to happen than not, and if you don't have a plan for it, you could be in trouble.
Speaker #0
Well, the other thing to contemplate in this too, which just came to me as we're having this conversation, is in the last couple of years, the people who were getting to retirement age probably had children earlier than millennials had children, so they had children in their 20s, so by the time their kids were hitting college age, they were in their 40s to mid-40s. a lot of us millennials were having children in our 30s, late 30s, 40s. We're going to be hitting like retirement age at the same time I'm going to have to send my kids to college. So like, it's a double whammy here that I need to contemplate both like future educational planning and retirement planning at the same time. And like, how can I retire if I'm trying to pay for three kids to go to school at the same time?
Speaker #1
Well, that's a big point because I think a lot of parents especially will say, okay, my next 20 years, 22 years is focused on the kids. how do I get them to be proper adults? And, you know, a lot of that is paying for college. And I found that once they are done with that last college bill, they're like, okay, this is the first time in 22 years, I can actually think about myself and okay, am I on track for retirement? I mean, not like, where do I stand with this whole thing? Um, and I traditionally, a lot of those people say, okay, now I've got all these expenses that I wasn't paying for. I've got all this quote unquote extra cash. Where do I put it? And I'm going to juice up my retirement savings. And a lot of times it's a little too late. Um, so it's really, um, the biggest thing that we need to do. is start saving for retirement. I know that's easier said than done. You know, we've got all these extra expenses. First, you have daycare, which is outrageous. Outrageous. Outrageous. And then you have, you know, sports and activities, and that all adds up. And then you have summer camp because, hey, you know, we got the daycare bill off the plate, but now we've got summer camp to worry about. or like next week's spring break, right? So now we've got to worry about that for a week.
Speaker #0
Yeah, what are we doing with them? And summer camp is like, that's a new car, man. And summer camp is the Hunger Games. If you haven't gotten to summer camp age yet, you're like logged into a website at 8 a.m., refresh, refresh, refresh, trying to get into the weeks that you want. They're all sold out, you know? And yeah, that's the stuff that we're focused on. I know that I have to retire at some point, but that's not necessarily something that I'm thinking about regularly. And I think the hardest thing for people to understand is that your money is worth way more when you're younger than it is when you're older, as far as retirement's concerned, right? For every dollar you're putting in when you're 20, it's worth how many dollars when you're 60, that same dollar's worth a whole lot less when you're 50.
Speaker #1
Right. I mean, the way I look at it is kind of the opposite way, maybe more negative than you, but to me, retirement just gets more expensive as you age. Right. So it's going to get more costly the longer you wait. So I would recommend always the first thing we need to do. And I was, when I talk about financial planning in general, I always think of a champagne tower. It's got a very easy analogy to kind of imagine, right? We've got the top cup. So the first thing you always want to try and make sure you fill out is that that initial cup should be your emergency fund, right? So make sure in case anything hits the fan, you've got that money, three to six months of expenses saved in a nice cash account. Actually, Larry Fink had a letter. He's a BlackRock CEO about the state of retirement now. And he said, if you have an emergency fund, you're 70% more likely to save for retirement. So just get the basics done first, makes people feel a little bit better about where they're at. So the next thing you need to do is the next row of glasses in the champagne tower is really going to be get the employer match. I know not everyone has an employer plan. Not everyone that has a plan will get a match. But if you get a match, you have to take advantage of it. You're doubling your money. It's free money. You're doubling it. So, I mean, you get 100% rate of return. If I got you at 100% rate of return in the market every single year.
Speaker #0
I would think you were the bomb.com.
Speaker #1
Yes. I think Warren Buffett would be like, oh, shining my shoes or give me the Wayne's rule. We're not winning, right? It's amazing what you can get and you're giving up when you don't do the match. So, like, to me, that's table stakes. Just do those two things and you're already going to be ahead of a lot of people. I mean, you're going to be ahead of half of millennials, apparently.
Speaker #0
Apparently half of us don't have money.
Speaker #1
So, you need to set aside that amount. The good thing is it's automated. And for those that are self-employed. or don't have access to a retirement plan, they're still traditional IRAs, they're still Roth IRAs, they're SEP IRAs, which you have as a business owner. So there are opportunities for you to save. You just need to automate it. That's the biggest thing. Because when you have your paycheck and you look, it's like, I got my FICA taxes. That's a bummer. I got my healthcare. That's a bummer. Like all these deductions come out. You live with whatever the ending amount is anyway. You just adjust. That's who we are as people. So that would be the first thing I would recommend doing is getting those two things squared away and getting a habit of saving because you could always build on the saving after that.
Speaker #0
One of the interesting things about this as well, because again, I sort of see people's financial picture in a different light than you do in financial advising. I'm almost looking at like the urgent need as opposed to the future need where you're generally looking at future need. And I would agree with you. It doesn't matter how much people make. I have people who make gobs of money who don't have anything saved. And then I have people who make very little money who have a ton saved. It's really about your like financial literacy and who you're talking to. and the advice that you're getting from professionals. Are you using a professional? Are you just kind of doing this on your own? And I think retirement is such a, like, almost a taboo topic for millennials because our parents didn't really talk to us about it. And for most millennials, your parents are... maybe just hitting retirement now or not quite there yet. So you haven't seen the repercussions of their retirement decisions yet. So you can kind of be like, la, la, la, la, la, like whatever, it'll happen, and not really think about it because we don't know what it's doing.
Speaker #1
Yeah, I think there's a lot of truth to that. We can learn a lot of stuff from our parents about the good things they've done or the bad things they've done. And some people have said, hey, look, I'm going to continue that habit, whether it's good or bad. Or they're going to say, hey, look, I'm going to do the opposite no matter what because I want to be in a better position than they were. I have conversations with clients like that all the time. You know, the things I would just mention are just when it comes to retirement planning, you know, you're trying to project a long-term thing out, which is challenging, right? Because a lot of millennials I talk to say, hey, look, I don't think Social Security is going to be there. We mentioned it because it's, you know, may not be funded. It is there right now. I think it will be. It's, you know, old people vote and old people are on Social Security. That's what I always say. I just can't imagine it's not going to be there. It may not be the same form, but. we actually had this issue back in 1982 or 81, something like that. And they were able to refund it again and have it, you know, where we are today. But it's just so long out and it's just so hard for people to say like, I've got all these short-term things. Like, how do I project this stuff out? And they don't think about it. And they think, okay, I just save a little bit of my 401k, then I'll be good. I think when it comes to retirement plan in general, you need to look at all these different factors that go into it because it's not just, all right, I saved some money and now I got to spend my money.
Speaker #0
Yeah. What is, where are you using it for? What do you think your housing, you know, and we talk about that in housing. that I occasionally have first-time homebuyers are people who are retired, right? And why? And a lot of times I end up with them because a financial advisor has sent them to me. And it's because they're trying to project what they're going to pay in retirement and they're currently renting. And rent is really hard to predict. And that's a challenge for a lot of older... older adults who don't own homes because a home is stable. It's stable shelter. And you'll hear me talk about housing as shelter a lot on this podcast because it's a concept that we don't like to think about. Housing is shelter. And rent is an unstable payment. And these last two years are a great example of it, that rent has gone up exponentially. Somebody who was planning their retirement renting two or three years ago could not have predicted what rent looks like today. They couldn't have predicted it. It has gone up so much. And so if you're in, if you own your home, yes, taxes can go up. Yes, homeowners insurance go up, but like 85% of that payment is incredibly stable and you can predict for it. And I think that's part of really when you're having these contemplations about what are you going to do when you grow up? I have air quotes going right now when you grow up, when you're a real adult and have to retire is you do have to contemplate like what bills are you going to have? What thing, what fixed expenses, what medical expenses, where, where is. you know, if you're only going to make whatever, $1,700 a month in social security, like. what's your mortgage payment? How are you going to bridge that gap? And I think so many millennials, again, we're just kind of squeezed. We just don't, we don't contemplate that. And we don't, when we do contemplate it, and I talk to a lot of borrowers about this, is I'll be like, oh, do you have retirement accounts when we're talking about assets? And they're like, oh yeah, I've got a 401k through my job. Oh, I've got another 401k with an old job. Like, it's not like a plan. It's just a thing. It's not a plan. Right.
Speaker #1
Yeah. It's a piece of it. And, you know, to your point, I think that one of the biggest benefits of working with advisors, we do project out as much as we possibly can. I mean, there's always going to be a challenge with it. I can't tell you exactly 20 years from now what certain expenses will be. We could at least get a general picture. I mean, if you think, you know, 25 years ago, we didn't have iPhones, we didn't have Netflix accounts, we didn't have half the stuff you have now, Spotify, whatever you want to call it. So those things are always going to be there. But when it comes to retirement, you really want to look at, okay, your expenses in a few categories. What are my fixed expenses going to be? And that's where the challenge of renting versus buying comes into play because the rental increase is going to happen every year. you know, at least with the mortgage, the mortgage itself is going to stay flat. And, you know, actually we look at inflation, it's going to decrease every year technically. So you want to have your fixed expenses, get a real good handle on that. And does social security cover that? Yes or no. That's a good question to ask yourself. Next stage is the variable one. Okay. What are the, what are the, like the fun things I want to do? Do I want to go golfing? Do I want to go on vacations, spoil the grandkids or just, you know, throw parties every weekend, whatever you want to do.
Speaker #0
Living the life.
Speaker #1
Yeah. Put that down, right. Cause to figure that out and have a number to that. And that's the stuff we want to have your assets, like your 401k cover. because those are going to be variable anyway. Then there's that third bucket, which a lot of people leave out. It's the, oh, crap, or things happen, you know, bucket, right? It's not just the emergency fund. It's the, all right, I'm going to live in this house for 20 plus years. I've already lived in it for 20 more years or 20 years prior. what if the roof needs done? I mean, think of like one thing that I always go back to during COVID, you're in your house all the time. And what did everyone want to do?
Speaker #0
Redo everything.
Speaker #1
Redo everything.
Speaker #0
Compared to a contractor. It was a very, very busy time for both of us.
Speaker #1
Yeah. Look what happened to prices of lumber, right? So those are the things that when you're living in your house, every retiree ever met wants to redo their kitchen. Every retiree, or the roof's going to break, or they want to get two or three new cars. So those are all the things you're going to want to have to map out. And those are chunk expenses. You're paying $50,000, $60,000, $70,000. in a year for some of those items. So those can get really expensive really quick and you'd be like, okay, I only have 150,000, 200,000, my 401k at 60. I might need to do some stuff.
Speaker #0
Right. Like what else? And I think, you know, again, the professional advice is always helpful for people. What if you have multiple 401ks? Because I think that's another millennial thing. Like a lot of people from the generation prior to us, like it was not uncommon for someone to work at the same company for 20 or 25 years. So they often did not have multiple of these. I've had four 401ks. in my life. And like, what should we be doing with them? Like, are you rolling those into the new one? Should you be turning them into something else? Should you be cashing them out and going on vacation? Like what should you be doing with your old 401ks? All right.
Speaker #1
Good question. So I'll break down the four options you have. So option number one, don't do this. The worst option, but it's an option is you can just take the money out and put it in your bank account.
Speaker #0
Just that's the vacation option. Love it. I'm here for that.
Speaker #1
That's the scoop tomorrow. Yeah. hey, let's say, oh, where did this money come from? Yeah. But the problem with that is you're paying taxes if it's a pre-tax account and a 10% penalty if you withdraw before age 59 and a half. So generally, you're losing a lot of money right off the bat. The second option you can do is you can roll money into your new employer's 401k plan. So if they accept rollovers, which 99% of them probably do, you just take the money and roll. So if you have a Roth 401k and a traditional 401k, you roll them both into the new 401k. No tax implication of doing that. Everything's rolled over as is. The one benefit of that is you're a consolidated encounters. I'm always a big fan of like don't have four or five foreign case because companies can go out of business. They can be super hard to track down. You just definitely want to make sure you're combining accounts. But you know, one thing you want to look at are what are the fees of the foreign K account because small companies tend to have higher fees and a larger company would. And then the other thing you want to look at is are you afraid of getting sued? Most people aren't but I have had some clients say yeah, that's a problem for me and a foreign K itself is creditor protected. So there's an extra benefit of that. And you can take loans out of your 401k. And the other piece is if you're ever doing the backdoor Roth, and that could be a whole conversation, it doesn't count against the pro rata rule. So if your plan is to do backdoor Roth IRAs, it could make more sense to have your money in a 401k. The third option is rolling into IRAs. So traditional IRA or Roth IRAs. Those are accounts that you own. The benefits of that is you have a lot more investment options than you have with a 401k. A 401k may have 30. investment options are all just mutual funds. And with a Roth IRA or traditional IRA, you can actually convert them. Some plans will allow that conversion process, but not all of them will. So the IRAs will give you some flexibility. So like in a down market, you say, hey, look, I've got some money in traditional IRA. The market's down 25%. Maybe I'll roll some of that into a... Roth. So you have a little bit more flexibility with the IRAs because you control them. They're yours. So those are your various options with the phone cable. And the other thing is you just keep it there, but I just wouldn't recommend it.
Speaker #0
Yeah. I have been guilty of that in the past. So great to know. I think the other thing in this conversation is if you could give all of these millennials who are listening, hopefully there's lots of you, I don't know, two pieces of advice, right? If you could do two things right now to put yourself in a better position for retirement. what would those two things be?
Speaker #1
I would say save. This may seem like the lamest advice ever.
Speaker #0
Lame, but it's true.
Speaker #1
Yeah. The more you save now, the less you have to do later. That's one. Two is pay attention to your tax buckets. Right? Because we mentioned, okay, I'm going to redo my kitchen. All right. Let's say we're always taught, all right, save taxes today. So let's say you put all that money into pre-tax IRA. So that means you're not taxed today, but when you take it on retirement, you'll be paying taxes. So flash forward 30 years, you're in retirement, you're redoing your kitchen. It's beautiful. Granite countertops. I don't know, maybe you got a robot in there now, who knows? Now you're taking 50,000 or 60,000 out on an after-tax basis. You're paying taxes on all of that, on top of you getting your social security, on top of you getting whatever distributions you're getting from your IRA for living expenses. So now- how your income may go from $150,000 to $200,000. That may push you into the bracket and all this other stuff. And that also impacts how much your Medicare can be. So that has tax brackets. So those things are all interrelated. So if you have some money that's after tax, some money that you put in like an investment account or money that's Roth as well, now you can pull different levers. So having the ability and flexibility of having these three different tax buckets, let's just say, okay, I'll take for this kitchen 20 grand from the Roth. I'll take, you know, 10 grand from the... IRA and I'll take the rest from the investment account. And this way you can say, okay, now my tax brackets on a lower tax bracket, my Medicare payments are staying low. You know, you're, you're in a good spot. So that's why I think most people tend to overlook the tax impact of it.
Speaker #0
I would not have even thought about that as part of this conversation. I will not lie.
Speaker #1
No, I mean, most people don't tax play. Like when I was doing research for the book again, sorry to keep plugging it, but it's you know, the number one tax move, do you know what it was?
Speaker #0
What?
Speaker #1
Do nothing. They're like Austin Powers of the blackjack table. I'll stay. They're just not going to do anything. And the number two thing was taking deductions, which does very little.
Speaker #0
So I think for retirement, what I'm getting out of this, too, is that not only do you have to have a good financial planner, but you also have to have a good CPA to have these conversations with. Like, you've got to be thinking about your taxes with all of these moves and not just again, I think especially like the millennial mindset is we're thinking like right now. Everything is right now. I'm contemplating. paying for baseball and paying for after-school care and paying for summer camp. And you're not thinking about the stuff that you have to have set up. And CPAs are always an interesting concept, and probably what you do as well. They're like the hardest people to find. Everybody's like, do you have a good CPA? No. I like,
Speaker #1
no. No, no. Everyone, I'm like, oh, do you have a good CPA? No. Do you want to leave them? No. No. Yeah. Can't find anyone else.
Speaker #0
Can't find anybody. And when you do find a really good one, don't ever leave them because you will never get them back again. And that's, we know some awesome CPAs, but we're like, are you taking new clients? No, they're never taking new clients. But you've got to find one and hold on to them because you're going to need them later on.
Speaker #1
I think my one challenge with CPAs, and please listen to CPAs, is they tend not to do a lot of forward projections. They'll do... All right, I'll look back and they may say, okay, it's December. What are your tax going to be next year? But they're not going to say, all right, in 30 years, what is your retirement going to look like? Where are you going to be spending money? Because they're giving themselves a pat on the back for saying, hey, look, I just saved you $5,000 in your tax return because we dumped more money in your IRA this year. Cool, great. But then your tax bill balloons up in retirement. So you really want to make sure you're doing, I mean, the biggest thing a challenge model has is we kind of have this whack-a-mole approach to finances right now where something pops up and they just have to hit it. Like, I got to pay for my kids. you know, whatever, or I got to buy this house and all these things come up and you just hit them down as they go. And all of a sudden you're 65. So you really want to have that balance of looking at, okay, what am I doing today? And how is that going to impact me tomorrow? And can I do a little bit of both?
Speaker #0
And then you're 65, it feels like a slight personal attack. I'm 41 this month and I don't know what happened. And like, that's like thinking about retirement and all of this is like, guys, it goes by so fast. And as your elder and elder millennial tell you, it, it, happens really quickly where all of a sudden you're like looking and I'm going, wow, like retirement could be sooner than it feels like it should be because I have small kids. So I'm like retirement's a thousand years away, but it's really not that far away. And I was totally guilty of a lot of the things that you talk about the whole like millennials, not like Gen Z, 92% of Gen Z does not own a retirement account. That was me in my twenties. I, and Derek knows this, the employer that I had had a spectacular match when I was in my 20s and I didn't use it for like five of the 12 years that I worked there. Truthfully, because it was like, what's worth more to me, cash now or cash later? Well, when you're 20, cash right now is worth way more to you. You're like, yeah, I need that $50 in my pocket. If I could go back and know that that $50 in my pocket was worth thousands of dollars today. I would have made very different choices, but like, you just don't know what you don't know. And I think like my piece of retirement advice for millennials is number one, get a professional. You think you can do this on your own. This is way more complicated than you think it is. Your 401k administrator is not your retirement professional. They're not, they may be lovely. They may be helpful, but like you need somebody looking at your whole life, which is not what they're doing. And number two, we have to educate our kids about how all of this works, because I think again. One of the things that we're going to talk a lot about on this podcast is like what we didn't learn from our parents because they had, and it's not that they didn't want to teach us, they just lived under a different set of rules, right? They had pensions. A lot of our parents had pensions and like we all know if you have a pension, God bless you, you're the luckiest, enjoy it, live as God's favorite because most of us don't have that. and it's kind of just the we really have to make sure that we're educating people, but educating them that things are going to change by the time you retire, but you have to stay up on this because no one's going to be able to afford to live if we don't do these things.
Speaker #1
Yeah, absolutely. I totally echo all of that stuff because at the end of the day, the amount of education you have is going to help, and there's more available information than ever. I feel like my job now is really kind of parsing that information for folks. No, no. And LLC is not going to save a W2 person taxes. I'm sorry. It's just not. I don't care what TikTok video you saw. That is not. They all want to That is not.
Speaker #0
That and house hacking. Yeah.
Speaker #1
Not how any of this works. So you really want to make sure, okay, if you're paying attention to stuff, it's like, how does this apply to me? And really kind of look at it. And if you don't know, or if you're putting stuff off because you're scared of it, or you don't know it, find someone to help you. Yeah. You just have to, uh, you know, the dumb analogy I always talk about too, is, you know, if you're overweight and you want to lose weight and you're afraid of seeing a trainer, like you're not, not gonna lose 20 pounds, then go see a trainer, right? Just go see someone to help you now. And if, you know, some advisors do have minimums, which I get, um, some don't. So find the ones that don't, if you don't have any money and then they'll help you get more money and then you can leave them. I'm just kidding. No, stay with them.
Speaker #0
So if you want to retire, you need a professional. That's the big message for today. And we all, I want to retire. I want to retire now. So.
Speaker #1
Many people do. That's a big conversation I have a lot is retiring early. And it's more of a goal than people think. There's just some other things you need to watch out for like health insurance.
Speaker #0
Health insurance, all those things. Well, and I got to pay for college. So we got to get through the college payment. And baseball, let's be honest. Again, and are you looking at baseball? Baseball is a great thought in all of this. My son is six. How old is your son? Five. Five. baseball, man, is already expensive. And like, what's going to happen when I got to have you on like two travel teams and I'm driving to Long Island for baseball games?
Speaker #1
I didn't realize we had to buy their own helmets and bats. We had a bin of bats and one helmet that everyone shared.
Speaker #0
Yeah. Well, my son has been walking around the house in his baseball helmet. Now we have the helmet because my husband coaches. So that's why it lives in my house. And every single morning before we get on the bus, I have to be like, take the baseball helmet off. You can't wear it to school. Because my son would wear it. He walks around the house fake pitching and fake hitting balls wearing a helmet 24-7.
Speaker #1
I like the visualization. I think that's very important. Good thing you're teaching him that right away.
Speaker #0
Yeah. Yeah. Everybody, he walks around the house doing it. So how can I worry about retirement when I'm busy worrying about baseball? who knows?
Speaker #1
Well, was this, was this a little helpful? Did we clear up some stuff for you, Kelly? Some questions that you had?
Speaker #0
You honestly did. And I think, you know, hopefully for people who are listening, um, it was helpful and, and just know that like, you're not alone. You know, I, I think that's again, one of the hopes of this podcast is to disseminate some of these myths and, and take the embarrassment out for people that like, people don't ask questions because they feel embarrassed. I should know about this. No, you shouldn't. It's not your fault that you don't know about it, but it is your fault if you don't ask questions.
Speaker #1
Correct. Yeah. If you don't know. a lot of people don't know. If you have a question, 90% of people probably have the same exact question. I mean, I explain what a stock and a bond is all the time. So that's one-on-one stuff to me. But for you, that may be something you really need to hear.
Speaker #0
Great. I want to hear that in our next episode. Please explain that to me.
Speaker #1
So yeah, don't feel bad about it. But I think the biggest thing is start saving, get help when you need it, ask questions, find someone. I think the biggest thing that I kind of, my pet peeve is always just listen to your neighbor and stuff like that. That's one thing I'm like, timeout, because they're applying their life situation to you. and sometimes that may make some sense, but many times that does not.
Speaker #0
Yeah, it's not relevant.
Speaker #1
It cost my father-in-law a few thousand dollars a month in Social Security because he was given the bad advice from his brother.
Speaker #0
Right. We deal with that in mortgages too. People are like, my dad said, I'm like, your dad bought a house 35 years ago, and life was very different then. Very different. So yeah, you need current relevant professionals to be helping you who are professionals, not your dad's friend, your mom's brother's friend, your whoever, somebody's neighbor. People always think that because people are rich, they understand money. And that's like one of the biggest probably myths for millennials too, is that just because somebody is wealthy doesn't mean they understand money. Full stop. Keep that in mind. So just because you see like an old rich dude and he's trying to give you some advice, it doesn't mean it's good advice.
Speaker #1
Not always. Yeah. And can you do that same thing that that person did? Probably not.
Speaker #0
Probably not.
Speaker #1
So there you go. Well, I hope everyone enjoyed this episode of Millennial Money Matters about retirement. And hopefully stay tuned and watch out for the next episode. All right.
Speaker #0
Sounds great. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Welcome to "Millennial Money Matters," your essential guide to navigating the world of finance as a millennial. Hosted by Kelly Turner, a mortgage loan officer, and Derek Mazzarella, a financial advisor, this podcast offers straightforward, practical advice on managing your money.

Kelly and Derek tackle topics like budgeting, student loans, real estate, and investing, breaking down complex financial concepts into easy-to-understand tips. Each episode delivers actionable insights and real-life stories to help you make smart financial decisions and secure your future.

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to episode two. We made it. We made it. We haven't actually published the first one yet, but these are all going to come out at the same time.
Speaker #1
We'll make it. Yeah. Millennial money matters.
Speaker #0
Where we're talking about finance.
Speaker #1
Finance today, mortgages, but today's going to focus a little bit on the scary thing known as retirement.
Speaker #0
Because Derek, you hear 401k, Roth IRA, traditional IRA, 403bs, 457s, and I think most of us hear this and just go like, la, la, la, la, la, la, la. And we like to ignore it. I'm busy worrying about baseball right now. I don't know about you. I'm worried about kids baseball, not even good grown-up baseball.
Speaker #1
Oh, no, no. T-ball, which is not even really baseball, which is probably like the fun one because the kids are either picking dirt up with their gloves or running in the wrong direction every time. Every time. Parents are screaming at it. I'm just very thankful I'm not a coach. I know your husband's a coach.
Speaker #0
My husband is a coach.
Speaker #1
Bless him.
Speaker #0
Yeah. And I have two children playing right now. I have one playing T-ball and one playing softball tees. So four times a week. we get to go to a baseball dive and hang out.
Speaker #1
And you guys are also doing karate.
Speaker #0
And we're also doing karate and dance class and all of the things that we do with our kids. Because so how can I worry about retirement when I am busy paying for all of my children's activities and going to their activities?
Speaker #1
Well, if you're like half the millennials, you should just do nothing, right? Because that's essentially where we're at right now.
Speaker #0
Is that where we're at?
Speaker #1
Yeah, so I pulled up all these stats. Half of millennials do not have a retirement account at all.
Speaker #0
Well, Social Security is going to take care of us, so I don't need to worry about that.
Speaker #1
Well, do you know what the median... Social Security payment is.
Speaker #0
I don't know. Isn't social security what you get paid in your job? Isn't that what it is? I make whatever, $80,000 a year, and I get $80,000 from social security because I paid into it for a million years.
Speaker #1
That would be awesome. That is not how that works.
Speaker #0
No? How does it work then? No,
Speaker #1
actually. Social security is kind of complicated, but it's meant to be a replacement of some of your income. Typically, depending on how much you earn, it's going to be 20% to 60% of your pre-retirement income. And if you're at the 60% level, you're probably not making much right now. The median income is like $1,750 a month.
Speaker #0
A month for one, like a month.
Speaker #1
A month. Yeah. That's not even rent anymore.
Speaker #0
No.
Speaker #1
Right. So it's pretty low. So that's just over $21,000 a year. You know, I think one of the things that we tend to do is rush into this decision. You know, if you look at that median amount, that's a $400,000 decision in retirement. So it's kind of a big deal. And when I was writing my book, I read a lot of stats on retirement and Social Security in general. But the thing that was kind of jarring was that 41% of people take Social Security right away at age 62.
Speaker #0
And you get more if you delay, right?
Speaker #1
Correct. So every year you wait, essentially you're getting an 8% return or you're going to increase your income 8%. So if you take it earlier, you're dropping your income down pretty significantly for the rest of your retirement.
Speaker #0
Now, Social Security, because there's also people who have the elusive pension, right? You got pensions. Retirement is not like a single wrong approach, right? And I think that's the part that a lot of people miss is like, oh, I got a 401k. I'm good. I did the thing I was supposed to do. I'm good. But if we're talking about $1,700 a month, like that's not going to cut it for most of us. No.
Speaker #1
We got to have other things. It's just like canned tuna. Love it, right?
Speaker #0
I do love me some ramen and canned tuna.
Speaker #1
Well, yeah, I think the biggest misnomer out there about retirement in general is you just need some magic number. Oh, when I get to a million dollars, I'm going to be fine. Right. But people have no idea how to spend that money down. They have no idea how to integrate it with their Social Security. They totally overlook a lot of challenges we have, like market risk returns, taxes in retirement, health care. Yeah, it's all this fun stuff that no one ever thinks about. You know, the odds of you actually needing some kind of long-term care. Do you know what it is?
Speaker #0
What is it? I don't want to know the answer to this.
Speaker #1
Is it higher or lower than 50%?
Speaker #0
Well, the way you asked that question, I would have answered lower, but I think the answer is higher.
Speaker #1
It's much higher. It's 70%. 70%?
Speaker #0
Yeah. But I get that. And I get it on the mortgage side of things in that we talk a lot about people aging in place and that the vast majority of people over the age of 60 declare that they're going to age in place. But it actually doesn't happen as often as people think that it's going to. And if it does happen, you're often aging in place with... some sort of care in your home. So even if you're at home and you're not in a convalescent home, you've got a full-time aide, you've got home health care workers, and it is very expensive.
Speaker #1
Yeah, and generally it's not just I'm fine and then I'm in a home, right? There's generally this transition period. So you're usually having someone come in, maybe initially just someone did the dishes, right? And that's going to cost a little bit, but it's probably manageable. Then you have someone, all right, now we maybe need to change Grandpa's diapers a little bit here. So we've got to have someone a little bit more qualified for that. And then they end up in a facility if it gets really bad. And I think just people really underestimate it. And as an advisor, anytime I bring it up, you know, no one ever wants to talk about it. It sucks. I mean, no one wants to talk about, like, someone having to change their pants. That's awful. but the real thing is it's more likely going to happen than not, and if you don't have a plan for it, you could be in trouble.
Speaker #0
Well, the other thing to contemplate in this too, which just came to me as we're having this conversation, is in the last couple of years, the people who were getting to retirement age probably had children earlier than millennials had children, so they had children in their 20s, so by the time their kids were hitting college age, they were in their 40s to mid-40s. a lot of us millennials were having children in our 30s, late 30s, 40s. We're going to be hitting like retirement age at the same time I'm going to have to send my kids to college. So like, it's a double whammy here that I need to contemplate both like future educational planning and retirement planning at the same time. And like, how can I retire if I'm trying to pay for three kids to go to school at the same time?
Speaker #1
Well, that's a big point because I think a lot of parents especially will say, okay, my next 20 years, 22 years is focused on the kids. how do I get them to be proper adults? And, you know, a lot of that is paying for college. And I found that once they are done with that last college bill, they're like, okay, this is the first time in 22 years, I can actually think about myself and okay, am I on track for retirement? I mean, not like, where do I stand with this whole thing? Um, and I traditionally, a lot of those people say, okay, now I've got all these expenses that I wasn't paying for. I've got all this quote unquote extra cash. Where do I put it? And I'm going to juice up my retirement savings. And a lot of times it's a little too late. Um, so it's really, um, the biggest thing that we need to do. is start saving for retirement. I know that's easier said than done. You know, we've got all these extra expenses. First, you have daycare, which is outrageous. Outrageous. Outrageous. And then you have, you know, sports and activities, and that all adds up. And then you have summer camp because, hey, you know, we got the daycare bill off the plate, but now we've got summer camp to worry about. or like next week's spring break, right? So now we've got to worry about that for a week.
Speaker #0
Yeah, what are we doing with them? And summer camp is like, that's a new car, man. And summer camp is the Hunger Games. If you haven't gotten to summer camp age yet, you're like logged into a website at 8 a.m., refresh, refresh, refresh, trying to get into the weeks that you want. They're all sold out, you know? And yeah, that's the stuff that we're focused on. I know that I have to retire at some point, but that's not necessarily something that I'm thinking about regularly. And I think the hardest thing for people to understand is that your money is worth way more when you're younger than it is when you're older, as far as retirement's concerned, right? For every dollar you're putting in when you're 20, it's worth how many dollars when you're 60, that same dollar's worth a whole lot less when you're 50.
Speaker #1
Right. I mean, the way I look at it is kind of the opposite way, maybe more negative than you, but to me, retirement just gets more expensive as you age. Right. So it's going to get more costly the longer you wait. So I would recommend always the first thing we need to do. And I was, when I talk about financial planning in general, I always think of a champagne tower. It's got a very easy analogy to kind of imagine, right? We've got the top cup. So the first thing you always want to try and make sure you fill out is that that initial cup should be your emergency fund, right? So make sure in case anything hits the fan, you've got that money, three to six months of expenses saved in a nice cash account. Actually, Larry Fink had a letter. He's a BlackRock CEO about the state of retirement now. And he said, if you have an emergency fund, you're 70% more likely to save for retirement. So just get the basics done first, makes people feel a little bit better about where they're at. So the next thing you need to do is the next row of glasses in the champagne tower is really going to be get the employer match. I know not everyone has an employer plan. Not everyone that has a plan will get a match. But if you get a match, you have to take advantage of it. You're doubling your money. It's free money. You're doubling it. So, I mean, you get 100% rate of return. If I got you at 100% rate of return in the market every single year.
Speaker #0
I would think you were the bomb.com.
Speaker #1
Yes. I think Warren Buffett would be like, oh, shining my shoes or give me the Wayne's rule. We're not winning, right? It's amazing what you can get and you're giving up when you don't do the match. So, like, to me, that's table stakes. Just do those two things and you're already going to be ahead of a lot of people. I mean, you're going to be ahead of half of millennials, apparently.
Speaker #0
Apparently half of us don't have money.
Speaker #1
So, you need to set aside that amount. The good thing is it's automated. And for those that are self-employed. or don't have access to a retirement plan, they're still traditional IRAs, they're still Roth IRAs, they're SEP IRAs, which you have as a business owner. So there are opportunities for you to save. You just need to automate it. That's the biggest thing. Because when you have your paycheck and you look, it's like, I got my FICA taxes. That's a bummer. I got my healthcare. That's a bummer. Like all these deductions come out. You live with whatever the ending amount is anyway. You just adjust. That's who we are as people. So that would be the first thing I would recommend doing is getting those two things squared away and getting a habit of saving because you could always build on the saving after that.
Speaker #0
One of the interesting things about this as well, because again, I sort of see people's financial picture in a different light than you do in financial advising. I'm almost looking at like the urgent need as opposed to the future need where you're generally looking at future need. And I would agree with you. It doesn't matter how much people make. I have people who make gobs of money who don't have anything saved. And then I have people who make very little money who have a ton saved. It's really about your like financial literacy and who you're talking to. and the advice that you're getting from professionals. Are you using a professional? Are you just kind of doing this on your own? And I think retirement is such a, like, almost a taboo topic for millennials because our parents didn't really talk to us about it. And for most millennials, your parents are... maybe just hitting retirement now or not quite there yet. So you haven't seen the repercussions of their retirement decisions yet. So you can kind of be like, la, la, la, la, la, like whatever, it'll happen, and not really think about it because we don't know what it's doing.
Speaker #1
Yeah, I think there's a lot of truth to that. We can learn a lot of stuff from our parents about the good things they've done or the bad things they've done. And some people have said, hey, look, I'm going to continue that habit, whether it's good or bad. Or they're going to say, hey, look, I'm going to do the opposite no matter what because I want to be in a better position than they were. I have conversations with clients like that all the time. You know, the things I would just mention are just when it comes to retirement planning, you know, you're trying to project a long-term thing out, which is challenging, right? Because a lot of millennials I talk to say, hey, look, I don't think Social Security is going to be there. We mentioned it because it's, you know, may not be funded. It is there right now. I think it will be. It's, you know, old people vote and old people are on Social Security. That's what I always say. I just can't imagine it's not going to be there. It may not be the same form, but. we actually had this issue back in 1982 or 81, something like that. And they were able to refund it again and have it, you know, where we are today. But it's just so long out and it's just so hard for people to say like, I've got all these short-term things. Like, how do I project this stuff out? And they don't think about it. And they think, okay, I just save a little bit of my 401k, then I'll be good. I think when it comes to retirement plan in general, you need to look at all these different factors that go into it because it's not just, all right, I saved some money and now I got to spend my money.
Speaker #0
Yeah. What is, where are you using it for? What do you think your housing, you know, and we talk about that in housing. that I occasionally have first-time homebuyers are people who are retired, right? And why? And a lot of times I end up with them because a financial advisor has sent them to me. And it's because they're trying to project what they're going to pay in retirement and they're currently renting. And rent is really hard to predict. And that's a challenge for a lot of older... older adults who don't own homes because a home is stable. It's stable shelter. And you'll hear me talk about housing as shelter a lot on this podcast because it's a concept that we don't like to think about. Housing is shelter. And rent is an unstable payment. And these last two years are a great example of it, that rent has gone up exponentially. Somebody who was planning their retirement renting two or three years ago could not have predicted what rent looks like today. They couldn't have predicted it. It has gone up so much. And so if you're in, if you own your home, yes, taxes can go up. Yes, homeowners insurance go up, but like 85% of that payment is incredibly stable and you can predict for it. And I think that's part of really when you're having these contemplations about what are you going to do when you grow up? I have air quotes going right now when you grow up, when you're a real adult and have to retire is you do have to contemplate like what bills are you going to have? What thing, what fixed expenses, what medical expenses, where, where is. you know, if you're only going to make whatever, $1,700 a month in social security, like. what's your mortgage payment? How are you going to bridge that gap? And I think so many millennials, again, we're just kind of squeezed. We just don't, we don't contemplate that. And we don't, when we do contemplate it, and I talk to a lot of borrowers about this, is I'll be like, oh, do you have retirement accounts when we're talking about assets? And they're like, oh yeah, I've got a 401k through my job. Oh, I've got another 401k with an old job. Like, it's not like a plan. It's just a thing. It's not a plan. Right.
Speaker #1
Yeah. It's a piece of it. And, you know, to your point, I think that one of the biggest benefits of working with advisors, we do project out as much as we possibly can. I mean, there's always going to be a challenge with it. I can't tell you exactly 20 years from now what certain expenses will be. We could at least get a general picture. I mean, if you think, you know, 25 years ago, we didn't have iPhones, we didn't have Netflix accounts, we didn't have half the stuff you have now, Spotify, whatever you want to call it. So those things are always going to be there. But when it comes to retirement, you really want to look at, okay, your expenses in a few categories. What are my fixed expenses going to be? And that's where the challenge of renting versus buying comes into play because the rental increase is going to happen every year. you know, at least with the mortgage, the mortgage itself is going to stay flat. And, you know, actually we look at inflation, it's going to decrease every year technically. So you want to have your fixed expenses, get a real good handle on that. And does social security cover that? Yes or no. That's a good question to ask yourself. Next stage is the variable one. Okay. What are the, what are the, like the fun things I want to do? Do I want to go golfing? Do I want to go on vacations, spoil the grandkids or just, you know, throw parties every weekend, whatever you want to do.
Speaker #0
Living the life.
Speaker #1
Yeah. Put that down, right. Cause to figure that out and have a number to that. And that's the stuff we want to have your assets, like your 401k cover. because those are going to be variable anyway. Then there's that third bucket, which a lot of people leave out. It's the, oh, crap, or things happen, you know, bucket, right? It's not just the emergency fund. It's the, all right, I'm going to live in this house for 20 plus years. I've already lived in it for 20 more years or 20 years prior. what if the roof needs done? I mean, think of like one thing that I always go back to during COVID, you're in your house all the time. And what did everyone want to do?
Speaker #0
Redo everything.
Speaker #1
Redo everything.
Speaker #0
Compared to a contractor. It was a very, very busy time for both of us.
Speaker #1
Yeah. Look what happened to prices of lumber, right? So those are the things that when you're living in your house, every retiree ever met wants to redo their kitchen. Every retiree, or the roof's going to break, or they want to get two or three new cars. So those are all the things you're going to want to have to map out. And those are chunk expenses. You're paying $50,000, $60,000, $70,000. in a year for some of those items. So those can get really expensive really quick and you'd be like, okay, I only have 150,000, 200,000, my 401k at 60. I might need to do some stuff.
Speaker #0
Right. Like what else? And I think, you know, again, the professional advice is always helpful for people. What if you have multiple 401ks? Because I think that's another millennial thing. Like a lot of people from the generation prior to us, like it was not uncommon for someone to work at the same company for 20 or 25 years. So they often did not have multiple of these. I've had four 401ks. in my life. And like, what should we be doing with them? Like, are you rolling those into the new one? Should you be turning them into something else? Should you be cashing them out and going on vacation? Like what should you be doing with your old 401ks? All right.
Speaker #1
Good question. So I'll break down the four options you have. So option number one, don't do this. The worst option, but it's an option is you can just take the money out and put it in your bank account.
Speaker #0
Just that's the vacation option. Love it. I'm here for that.
Speaker #1
That's the scoop tomorrow. Yeah. hey, let's say, oh, where did this money come from? Yeah. But the problem with that is you're paying taxes if it's a pre-tax account and a 10% penalty if you withdraw before age 59 and a half. So generally, you're losing a lot of money right off the bat. The second option you can do is you can roll money into your new employer's 401k plan. So if they accept rollovers, which 99% of them probably do, you just take the money and roll. So if you have a Roth 401k and a traditional 401k, you roll them both into the new 401k. No tax implication of doing that. Everything's rolled over as is. The one benefit of that is you're a consolidated encounters. I'm always a big fan of like don't have four or five foreign case because companies can go out of business. They can be super hard to track down. You just definitely want to make sure you're combining accounts. But you know, one thing you want to look at are what are the fees of the foreign K account because small companies tend to have higher fees and a larger company would. And then the other thing you want to look at is are you afraid of getting sued? Most people aren't but I have had some clients say yeah, that's a problem for me and a foreign K itself is creditor protected. So there's an extra benefit of that. And you can take loans out of your 401k. And the other piece is if you're ever doing the backdoor Roth, and that could be a whole conversation, it doesn't count against the pro rata rule. So if your plan is to do backdoor Roth IRAs, it could make more sense to have your money in a 401k. The third option is rolling into IRAs. So traditional IRA or Roth IRAs. Those are accounts that you own. The benefits of that is you have a lot more investment options than you have with a 401k. A 401k may have 30. investment options are all just mutual funds. And with a Roth IRA or traditional IRA, you can actually convert them. Some plans will allow that conversion process, but not all of them will. So the IRAs will give you some flexibility. So like in a down market, you say, hey, look, I've got some money in traditional IRA. The market's down 25%. Maybe I'll roll some of that into a... Roth. So you have a little bit more flexibility with the IRAs because you control them. They're yours. So those are your various options with the phone cable. And the other thing is you just keep it there, but I just wouldn't recommend it.
Speaker #0
Yeah. I have been guilty of that in the past. So great to know. I think the other thing in this conversation is if you could give all of these millennials who are listening, hopefully there's lots of you, I don't know, two pieces of advice, right? If you could do two things right now to put yourself in a better position for retirement. what would those two things be?
Speaker #1
I would say save. This may seem like the lamest advice ever.
Speaker #0
Lame, but it's true.
Speaker #1
Yeah. The more you save now, the less you have to do later. That's one. Two is pay attention to your tax buckets. Right? Because we mentioned, okay, I'm going to redo my kitchen. All right. Let's say we're always taught, all right, save taxes today. So let's say you put all that money into pre-tax IRA. So that means you're not taxed today, but when you take it on retirement, you'll be paying taxes. So flash forward 30 years, you're in retirement, you're redoing your kitchen. It's beautiful. Granite countertops. I don't know, maybe you got a robot in there now, who knows? Now you're taking 50,000 or 60,000 out on an after-tax basis. You're paying taxes on all of that, on top of you getting your social security, on top of you getting whatever distributions you're getting from your IRA for living expenses. So now- how your income may go from $150,000 to $200,000. That may push you into the bracket and all this other stuff. And that also impacts how much your Medicare can be. So that has tax brackets. So those things are all interrelated. So if you have some money that's after tax, some money that you put in like an investment account or money that's Roth as well, now you can pull different levers. So having the ability and flexibility of having these three different tax buckets, let's just say, okay, I'll take for this kitchen 20 grand from the Roth. I'll take, you know, 10 grand from the... IRA and I'll take the rest from the investment account. And this way you can say, okay, now my tax brackets on a lower tax bracket, my Medicare payments are staying low. You know, you're, you're in a good spot. So that's why I think most people tend to overlook the tax impact of it.
Speaker #0
I would not have even thought about that as part of this conversation. I will not lie.
Speaker #1
No, I mean, most people don't tax play. Like when I was doing research for the book again, sorry to keep plugging it, but it's you know, the number one tax move, do you know what it was?
Speaker #0
What?
Speaker #1
Do nothing. They're like Austin Powers of the blackjack table. I'll stay. They're just not going to do anything. And the number two thing was taking deductions, which does very little.
Speaker #0
So I think for retirement, what I'm getting out of this, too, is that not only do you have to have a good financial planner, but you also have to have a good CPA to have these conversations with. Like, you've got to be thinking about your taxes with all of these moves and not just again, I think especially like the millennial mindset is we're thinking like right now. Everything is right now. I'm contemplating. paying for baseball and paying for after-school care and paying for summer camp. And you're not thinking about the stuff that you have to have set up. And CPAs are always an interesting concept, and probably what you do as well. They're like the hardest people to find. Everybody's like, do you have a good CPA? No. I like,
Speaker #1
no. No, no. Everyone, I'm like, oh, do you have a good CPA? No. Do you want to leave them? No. No. Yeah. Can't find anyone else.
Speaker #0
Can't find anybody. And when you do find a really good one, don't ever leave them because you will never get them back again. And that's, we know some awesome CPAs, but we're like, are you taking new clients? No, they're never taking new clients. But you've got to find one and hold on to them because you're going to need them later on.
Speaker #1
I think my one challenge with CPAs, and please listen to CPAs, is they tend not to do a lot of forward projections. They'll do... All right, I'll look back and they may say, okay, it's December. What are your tax going to be next year? But they're not going to say, all right, in 30 years, what is your retirement going to look like? Where are you going to be spending money? Because they're giving themselves a pat on the back for saying, hey, look, I just saved you $5,000 in your tax return because we dumped more money in your IRA this year. Cool, great. But then your tax bill balloons up in retirement. So you really want to make sure you're doing, I mean, the biggest thing a challenge model has is we kind of have this whack-a-mole approach to finances right now where something pops up and they just have to hit it. Like, I got to pay for my kids. you know, whatever, or I got to buy this house and all these things come up and you just hit them down as they go. And all of a sudden you're 65. So you really want to have that balance of looking at, okay, what am I doing today? And how is that going to impact me tomorrow? And can I do a little bit of both?
Speaker #0
And then you're 65, it feels like a slight personal attack. I'm 41 this month and I don't know what happened. And like, that's like thinking about retirement and all of this is like, guys, it goes by so fast. And as your elder and elder millennial tell you, it, it, happens really quickly where all of a sudden you're like looking and I'm going, wow, like retirement could be sooner than it feels like it should be because I have small kids. So I'm like retirement's a thousand years away, but it's really not that far away. And I was totally guilty of a lot of the things that you talk about the whole like millennials, not like Gen Z, 92% of Gen Z does not own a retirement account. That was me in my twenties. I, and Derek knows this, the employer that I had had a spectacular match when I was in my 20s and I didn't use it for like five of the 12 years that I worked there. Truthfully, because it was like, what's worth more to me, cash now or cash later? Well, when you're 20, cash right now is worth way more to you. You're like, yeah, I need that $50 in my pocket. If I could go back and know that that $50 in my pocket was worth thousands of dollars today. I would have made very different choices, but like, you just don't know what you don't know. And I think like my piece of retirement advice for millennials is number one, get a professional. You think you can do this on your own. This is way more complicated than you think it is. Your 401k administrator is not your retirement professional. They're not, they may be lovely. They may be helpful, but like you need somebody looking at your whole life, which is not what they're doing. And number two, we have to educate our kids about how all of this works, because I think again. One of the things that we're going to talk a lot about on this podcast is like what we didn't learn from our parents because they had, and it's not that they didn't want to teach us, they just lived under a different set of rules, right? They had pensions. A lot of our parents had pensions and like we all know if you have a pension, God bless you, you're the luckiest, enjoy it, live as God's favorite because most of us don't have that. and it's kind of just the we really have to make sure that we're educating people, but educating them that things are going to change by the time you retire, but you have to stay up on this because no one's going to be able to afford to live if we don't do these things.
Speaker #1
Yeah, absolutely. I totally echo all of that stuff because at the end of the day, the amount of education you have is going to help, and there's more available information than ever. I feel like my job now is really kind of parsing that information for folks. No, no. And LLC is not going to save a W2 person taxes. I'm sorry. It's just not. I don't care what TikTok video you saw. That is not. They all want to That is not.
Speaker #0
That and house hacking. Yeah.
Speaker #1
Not how any of this works. So you really want to make sure, okay, if you're paying attention to stuff, it's like, how does this apply to me? And really kind of look at it. And if you don't know, or if you're putting stuff off because you're scared of it, or you don't know it, find someone to help you. Yeah. You just have to, uh, you know, the dumb analogy I always talk about too, is, you know, if you're overweight and you want to lose weight and you're afraid of seeing a trainer, like you're not, not gonna lose 20 pounds, then go see a trainer, right? Just go see someone to help you now. And if, you know, some advisors do have minimums, which I get, um, some don't. So find the ones that don't, if you don't have any money and then they'll help you get more money and then you can leave them. I'm just kidding. No, stay with them.
Speaker #0
So if you want to retire, you need a professional. That's the big message for today. And we all, I want to retire. I want to retire now. So.
Speaker #1
Many people do. That's a big conversation I have a lot is retiring early. And it's more of a goal than people think. There's just some other things you need to watch out for like health insurance.
Speaker #0
Health insurance, all those things. Well, and I got to pay for college. So we got to get through the college payment. And baseball, let's be honest. Again, and are you looking at baseball? Baseball is a great thought in all of this. My son is six. How old is your son? Five. Five. baseball, man, is already expensive. And like, what's going to happen when I got to have you on like two travel teams and I'm driving to Long Island for baseball games?
Speaker #1
I didn't realize we had to buy their own helmets and bats. We had a bin of bats and one helmet that everyone shared.
Speaker #0
Yeah. Well, my son has been walking around the house in his baseball helmet. Now we have the helmet because my husband coaches. So that's why it lives in my house. And every single morning before we get on the bus, I have to be like, take the baseball helmet off. You can't wear it to school. Because my son would wear it. He walks around the house fake pitching and fake hitting balls wearing a helmet 24-7.
Speaker #1
I like the visualization. I think that's very important. Good thing you're teaching him that right away.
Speaker #0
Yeah. Yeah. Everybody, he walks around the house doing it. So how can I worry about retirement when I'm busy worrying about baseball? who knows?
Speaker #1
Well, was this, was this a little helpful? Did we clear up some stuff for you, Kelly? Some questions that you had?
Speaker #0
You honestly did. And I think, you know, hopefully for people who are listening, um, it was helpful and, and just know that like, you're not alone. You know, I, I think that's again, one of the hopes of this podcast is to disseminate some of these myths and, and take the embarrassment out for people that like, people don't ask questions because they feel embarrassed. I should know about this. No, you shouldn't. It's not your fault that you don't know about it, but it is your fault if you don't ask questions.
Speaker #1
Correct. Yeah. If you don't know. a lot of people don't know. If you have a question, 90% of people probably have the same exact question. I mean, I explain what a stock and a bond is all the time. So that's one-on-one stuff to me. But for you, that may be something you really need to hear.
Speaker #0
Great. I want to hear that in our next episode. Please explain that to me.
Speaker #1
So yeah, don't feel bad about it. But I think the biggest thing is start saving, get help when you need it, ask questions, find someone. I think the biggest thing that I kind of, my pet peeve is always just listen to your neighbor and stuff like that. That's one thing I'm like, timeout, because they're applying their life situation to you. and sometimes that may make some sense, but many times that does not.
Speaker #0
Yeah, it's not relevant.
Speaker #1
It cost my father-in-law a few thousand dollars a month in Social Security because he was given the bad advice from his brother.
Speaker #0
Right. We deal with that in mortgages too. People are like, my dad said, I'm like, your dad bought a house 35 years ago, and life was very different then. Very different. So yeah, you need current relevant professionals to be helping you who are professionals, not your dad's friend, your mom's brother's friend, your whoever, somebody's neighbor. People always think that because people are rich, they understand money. And that's like one of the biggest probably myths for millennials too, is that just because somebody is wealthy doesn't mean they understand money. Full stop. Keep that in mind. So just because you see like an old rich dude and he's trying to give you some advice, it doesn't mean it's good advice.
Speaker #1
Not always. Yeah. And can you do that same thing that that person did? Probably not.
Speaker #0
Probably not.
Speaker #1
So there you go. Well, I hope everyone enjoyed this episode of Millennial Money Matters about retirement. And hopefully stay tuned and watch out for the next episode. All right.
Speaker #0
Sounds great. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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Speaker #0
All right. Welcome to episode two. We made it. We made it. We haven't actually published the first one yet, but these are all going to come out at the same time.
Speaker #1
We'll make it. Yeah. Millennial money matters.
Speaker #0
Where we're talking about finance.
Speaker #1
Finance today, mortgages, but today's going to focus a little bit on the scary thing known as retirement.
Speaker #0
Because Derek, you hear 401k, Roth IRA, traditional IRA, 403bs, 457s, and I think most of us hear this and just go like, la, la, la, la, la, la, la. And we like to ignore it. I'm busy worrying about baseball right now. I don't know about you. I'm worried about kids baseball, not even good grown-up baseball.
Speaker #1
Oh, no, no. T-ball, which is not even really baseball, which is probably like the fun one because the kids are either picking dirt up with their gloves or running in the wrong direction every time. Every time. Parents are screaming at it. I'm just very thankful I'm not a coach. I know your husband's a coach.
Speaker #0
My husband is a coach.
Speaker #1
Bless him.
Speaker #0
Yeah. And I have two children playing right now. I have one playing T-ball and one playing softball tees. So four times a week. we get to go to a baseball dive and hang out.
Speaker #1
And you guys are also doing karate.
Speaker #0
And we're also doing karate and dance class and all of the things that we do with our kids. Because so how can I worry about retirement when I am busy paying for all of my children's activities and going to their activities?
Speaker #1
Well, if you're like half the millennials, you should just do nothing, right? Because that's essentially where we're at right now.
Speaker #0
Is that where we're at?
Speaker #1
Yeah, so I pulled up all these stats. Half of millennials do not have a retirement account at all.
Speaker #0
Well, Social Security is going to take care of us, so I don't need to worry about that.
Speaker #1
Well, do you know what the median... Social Security payment is.
Speaker #0
I don't know. Isn't social security what you get paid in your job? Isn't that what it is? I make whatever, $80,000 a year, and I get $80,000 from social security because I paid into it for a million years.
Speaker #1
That would be awesome. That is not how that works.
Speaker #0
No? How does it work then? No,
Speaker #1
actually. Social security is kind of complicated, but it's meant to be a replacement of some of your income. Typically, depending on how much you earn, it's going to be 20% to 60% of your pre-retirement income. And if you're at the 60% level, you're probably not making much right now. The median income is like $1,750 a month.
Speaker #0
A month for one, like a month.
Speaker #1
A month. Yeah. That's not even rent anymore.
Speaker #0
No.
Speaker #1
Right. So it's pretty low. So that's just over $21,000 a year. You know, I think one of the things that we tend to do is rush into this decision. You know, if you look at that median amount, that's a $400,000 decision in retirement. So it's kind of a big deal. And when I was writing my book, I read a lot of stats on retirement and Social Security in general. But the thing that was kind of jarring was that 41% of people take Social Security right away at age 62.
Speaker #0
And you get more if you delay, right?
Speaker #1
Correct. So every year you wait, essentially you're getting an 8% return or you're going to increase your income 8%. So if you take it earlier, you're dropping your income down pretty significantly for the rest of your retirement.
Speaker #0
Now, Social Security, because there's also people who have the elusive pension, right? You got pensions. Retirement is not like a single wrong approach, right? And I think that's the part that a lot of people miss is like, oh, I got a 401k. I'm good. I did the thing I was supposed to do. I'm good. But if we're talking about $1,700 a month, like that's not going to cut it for most of us. No.
Speaker #1
We got to have other things. It's just like canned tuna. Love it, right?
Speaker #0
I do love me some ramen and canned tuna.
Speaker #1
Well, yeah, I think the biggest misnomer out there about retirement in general is you just need some magic number. Oh, when I get to a million dollars, I'm going to be fine. Right. But people have no idea how to spend that money down. They have no idea how to integrate it with their Social Security. They totally overlook a lot of challenges we have, like market risk returns, taxes in retirement, health care. Yeah, it's all this fun stuff that no one ever thinks about. You know, the odds of you actually needing some kind of long-term care. Do you know what it is?
Speaker #0
What is it? I don't want to know the answer to this.
Speaker #1
Is it higher or lower than 50%?
Speaker #0
Well, the way you asked that question, I would have answered lower, but I think the answer is higher.
Speaker #1
It's much higher. It's 70%. 70%?
Speaker #0
Yeah. But I get that. And I get it on the mortgage side of things in that we talk a lot about people aging in place and that the vast majority of people over the age of 60 declare that they're going to age in place. But it actually doesn't happen as often as people think that it's going to. And if it does happen, you're often aging in place with... some sort of care in your home. So even if you're at home and you're not in a convalescent home, you've got a full-time aide, you've got home health care workers, and it is very expensive.
Speaker #1
Yeah, and generally it's not just I'm fine and then I'm in a home, right? There's generally this transition period. So you're usually having someone come in, maybe initially just someone did the dishes, right? And that's going to cost a little bit, but it's probably manageable. Then you have someone, all right, now we maybe need to change Grandpa's diapers a little bit here. So we've got to have someone a little bit more qualified for that. And then they end up in a facility if it gets really bad. And I think just people really underestimate it. And as an advisor, anytime I bring it up, you know, no one ever wants to talk about it. It sucks. I mean, no one wants to talk about, like, someone having to change their pants. That's awful. but the real thing is it's more likely going to happen than not, and if you don't have a plan for it, you could be in trouble.
Speaker #0
Well, the other thing to contemplate in this too, which just came to me as we're having this conversation, is in the last couple of years, the people who were getting to retirement age probably had children earlier than millennials had children, so they had children in their 20s, so by the time their kids were hitting college age, they were in their 40s to mid-40s. a lot of us millennials were having children in our 30s, late 30s, 40s. We're going to be hitting like retirement age at the same time I'm going to have to send my kids to college. So like, it's a double whammy here that I need to contemplate both like future educational planning and retirement planning at the same time. And like, how can I retire if I'm trying to pay for three kids to go to school at the same time?
Speaker #1
Well, that's a big point because I think a lot of parents especially will say, okay, my next 20 years, 22 years is focused on the kids. how do I get them to be proper adults? And, you know, a lot of that is paying for college. And I found that once they are done with that last college bill, they're like, okay, this is the first time in 22 years, I can actually think about myself and okay, am I on track for retirement? I mean, not like, where do I stand with this whole thing? Um, and I traditionally, a lot of those people say, okay, now I've got all these expenses that I wasn't paying for. I've got all this quote unquote extra cash. Where do I put it? And I'm going to juice up my retirement savings. And a lot of times it's a little too late. Um, so it's really, um, the biggest thing that we need to do. is start saving for retirement. I know that's easier said than done. You know, we've got all these extra expenses. First, you have daycare, which is outrageous. Outrageous. Outrageous. And then you have, you know, sports and activities, and that all adds up. And then you have summer camp because, hey, you know, we got the daycare bill off the plate, but now we've got summer camp to worry about. or like next week's spring break, right? So now we've got to worry about that for a week.
Speaker #0
Yeah, what are we doing with them? And summer camp is like, that's a new car, man. And summer camp is the Hunger Games. If you haven't gotten to summer camp age yet, you're like logged into a website at 8 a.m., refresh, refresh, refresh, trying to get into the weeks that you want. They're all sold out, you know? And yeah, that's the stuff that we're focused on. I know that I have to retire at some point, but that's not necessarily something that I'm thinking about regularly. And I think the hardest thing for people to understand is that your money is worth way more when you're younger than it is when you're older, as far as retirement's concerned, right? For every dollar you're putting in when you're 20, it's worth how many dollars when you're 60, that same dollar's worth a whole lot less when you're 50.
Speaker #1
Right. I mean, the way I look at it is kind of the opposite way, maybe more negative than you, but to me, retirement just gets more expensive as you age. Right. So it's going to get more costly the longer you wait. So I would recommend always the first thing we need to do. And I was, when I talk about financial planning in general, I always think of a champagne tower. It's got a very easy analogy to kind of imagine, right? We've got the top cup. So the first thing you always want to try and make sure you fill out is that that initial cup should be your emergency fund, right? So make sure in case anything hits the fan, you've got that money, three to six months of expenses saved in a nice cash account. Actually, Larry Fink had a letter. He's a BlackRock CEO about the state of retirement now. And he said, if you have an emergency fund, you're 70% more likely to save for retirement. So just get the basics done first, makes people feel a little bit better about where they're at. So the next thing you need to do is the next row of glasses in the champagne tower is really going to be get the employer match. I know not everyone has an employer plan. Not everyone that has a plan will get a match. But if you get a match, you have to take advantage of it. You're doubling your money. It's free money. You're doubling it. So, I mean, you get 100% rate of return. If I got you at 100% rate of return in the market every single year.
Speaker #0
I would think you were the bomb.com.
Speaker #1
Yes. I think Warren Buffett would be like, oh, shining my shoes or give me the Wayne's rule. We're not winning, right? It's amazing what you can get and you're giving up when you don't do the match. So, like, to me, that's table stakes. Just do those two things and you're already going to be ahead of a lot of people. I mean, you're going to be ahead of half of millennials, apparently.
Speaker #0
Apparently half of us don't have money.
Speaker #1
So, you need to set aside that amount. The good thing is it's automated. And for those that are self-employed. or don't have access to a retirement plan, they're still traditional IRAs, they're still Roth IRAs, they're SEP IRAs, which you have as a business owner. So there are opportunities for you to save. You just need to automate it. That's the biggest thing. Because when you have your paycheck and you look, it's like, I got my FICA taxes. That's a bummer. I got my healthcare. That's a bummer. Like all these deductions come out. You live with whatever the ending amount is anyway. You just adjust. That's who we are as people. So that would be the first thing I would recommend doing is getting those two things squared away and getting a habit of saving because you could always build on the saving after that.
Speaker #0
One of the interesting things about this as well, because again, I sort of see people's financial picture in a different light than you do in financial advising. I'm almost looking at like the urgent need as opposed to the future need where you're generally looking at future need. And I would agree with you. It doesn't matter how much people make. I have people who make gobs of money who don't have anything saved. And then I have people who make very little money who have a ton saved. It's really about your like financial literacy and who you're talking to. and the advice that you're getting from professionals. Are you using a professional? Are you just kind of doing this on your own? And I think retirement is such a, like, almost a taboo topic for millennials because our parents didn't really talk to us about it. And for most millennials, your parents are... maybe just hitting retirement now or not quite there yet. So you haven't seen the repercussions of their retirement decisions yet. So you can kind of be like, la, la, la, la, la, like whatever, it'll happen, and not really think about it because we don't know what it's doing.
Speaker #1
Yeah, I think there's a lot of truth to that. We can learn a lot of stuff from our parents about the good things they've done or the bad things they've done. And some people have said, hey, look, I'm going to continue that habit, whether it's good or bad. Or they're going to say, hey, look, I'm going to do the opposite no matter what because I want to be in a better position than they were. I have conversations with clients like that all the time. You know, the things I would just mention are just when it comes to retirement planning, you know, you're trying to project a long-term thing out, which is challenging, right? Because a lot of millennials I talk to say, hey, look, I don't think Social Security is going to be there. We mentioned it because it's, you know, may not be funded. It is there right now. I think it will be. It's, you know, old people vote and old people are on Social Security. That's what I always say. I just can't imagine it's not going to be there. It may not be the same form, but. we actually had this issue back in 1982 or 81, something like that. And they were able to refund it again and have it, you know, where we are today. But it's just so long out and it's just so hard for people to say like, I've got all these short-term things. Like, how do I project this stuff out? And they don't think about it. And they think, okay, I just save a little bit of my 401k, then I'll be good. I think when it comes to retirement plan in general, you need to look at all these different factors that go into it because it's not just, all right, I saved some money and now I got to spend my money.
Speaker #0
Yeah. What is, where are you using it for? What do you think your housing, you know, and we talk about that in housing. that I occasionally have first-time homebuyers are people who are retired, right? And why? And a lot of times I end up with them because a financial advisor has sent them to me. And it's because they're trying to project what they're going to pay in retirement and they're currently renting. And rent is really hard to predict. And that's a challenge for a lot of older... older adults who don't own homes because a home is stable. It's stable shelter. And you'll hear me talk about housing as shelter a lot on this podcast because it's a concept that we don't like to think about. Housing is shelter. And rent is an unstable payment. And these last two years are a great example of it, that rent has gone up exponentially. Somebody who was planning their retirement renting two or three years ago could not have predicted what rent looks like today. They couldn't have predicted it. It has gone up so much. And so if you're in, if you own your home, yes, taxes can go up. Yes, homeowners insurance go up, but like 85% of that payment is incredibly stable and you can predict for it. And I think that's part of really when you're having these contemplations about what are you going to do when you grow up? I have air quotes going right now when you grow up, when you're a real adult and have to retire is you do have to contemplate like what bills are you going to have? What thing, what fixed expenses, what medical expenses, where, where is. you know, if you're only going to make whatever, $1,700 a month in social security, like. what's your mortgage payment? How are you going to bridge that gap? And I think so many millennials, again, we're just kind of squeezed. We just don't, we don't contemplate that. And we don't, when we do contemplate it, and I talk to a lot of borrowers about this, is I'll be like, oh, do you have retirement accounts when we're talking about assets? And they're like, oh yeah, I've got a 401k through my job. Oh, I've got another 401k with an old job. Like, it's not like a plan. It's just a thing. It's not a plan. Right.
Speaker #1
Yeah. It's a piece of it. And, you know, to your point, I think that one of the biggest benefits of working with advisors, we do project out as much as we possibly can. I mean, there's always going to be a challenge with it. I can't tell you exactly 20 years from now what certain expenses will be. We could at least get a general picture. I mean, if you think, you know, 25 years ago, we didn't have iPhones, we didn't have Netflix accounts, we didn't have half the stuff you have now, Spotify, whatever you want to call it. So those things are always going to be there. But when it comes to retirement, you really want to look at, okay, your expenses in a few categories. What are my fixed expenses going to be? And that's where the challenge of renting versus buying comes into play because the rental increase is going to happen every year. you know, at least with the mortgage, the mortgage itself is going to stay flat. And, you know, actually we look at inflation, it's going to decrease every year technically. So you want to have your fixed expenses, get a real good handle on that. And does social security cover that? Yes or no. That's a good question to ask yourself. Next stage is the variable one. Okay. What are the, what are the, like the fun things I want to do? Do I want to go golfing? Do I want to go on vacations, spoil the grandkids or just, you know, throw parties every weekend, whatever you want to do.
Speaker #0
Living the life.
Speaker #1
Yeah. Put that down, right. Cause to figure that out and have a number to that. And that's the stuff we want to have your assets, like your 401k cover. because those are going to be variable anyway. Then there's that third bucket, which a lot of people leave out. It's the, oh, crap, or things happen, you know, bucket, right? It's not just the emergency fund. It's the, all right, I'm going to live in this house for 20 plus years. I've already lived in it for 20 more years or 20 years prior. what if the roof needs done? I mean, think of like one thing that I always go back to during COVID, you're in your house all the time. And what did everyone want to do?
Speaker #0
Redo everything.
Speaker #1
Redo everything.
Speaker #0
Compared to a contractor. It was a very, very busy time for both of us.
Speaker #1
Yeah. Look what happened to prices of lumber, right? So those are the things that when you're living in your house, every retiree ever met wants to redo their kitchen. Every retiree, or the roof's going to break, or they want to get two or three new cars. So those are all the things you're going to want to have to map out. And those are chunk expenses. You're paying $50,000, $60,000, $70,000. in a year for some of those items. So those can get really expensive really quick and you'd be like, okay, I only have 150,000, 200,000, my 401k at 60. I might need to do some stuff.
Speaker #0
Right. Like what else? And I think, you know, again, the professional advice is always helpful for people. What if you have multiple 401ks? Because I think that's another millennial thing. Like a lot of people from the generation prior to us, like it was not uncommon for someone to work at the same company for 20 or 25 years. So they often did not have multiple of these. I've had four 401ks. in my life. And like, what should we be doing with them? Like, are you rolling those into the new one? Should you be turning them into something else? Should you be cashing them out and going on vacation? Like what should you be doing with your old 401ks? All right.
Speaker #1
Good question. So I'll break down the four options you have. So option number one, don't do this. The worst option, but it's an option is you can just take the money out and put it in your bank account.
Speaker #0
Just that's the vacation option. Love it. I'm here for that.
Speaker #1
That's the scoop tomorrow. Yeah. hey, let's say, oh, where did this money come from? Yeah. But the problem with that is you're paying taxes if it's a pre-tax account and a 10% penalty if you withdraw before age 59 and a half. So generally, you're losing a lot of money right off the bat. The second option you can do is you can roll money into your new employer's 401k plan. So if they accept rollovers, which 99% of them probably do, you just take the money and roll. So if you have a Roth 401k and a traditional 401k, you roll them both into the new 401k. No tax implication of doing that. Everything's rolled over as is. The one benefit of that is you're a consolidated encounters. I'm always a big fan of like don't have four or five foreign case because companies can go out of business. They can be super hard to track down. You just definitely want to make sure you're combining accounts. But you know, one thing you want to look at are what are the fees of the foreign K account because small companies tend to have higher fees and a larger company would. And then the other thing you want to look at is are you afraid of getting sued? Most people aren't but I have had some clients say yeah, that's a problem for me and a foreign K itself is creditor protected. So there's an extra benefit of that. And you can take loans out of your 401k. And the other piece is if you're ever doing the backdoor Roth, and that could be a whole conversation, it doesn't count against the pro rata rule. So if your plan is to do backdoor Roth IRAs, it could make more sense to have your money in a 401k. The third option is rolling into IRAs. So traditional IRA or Roth IRAs. Those are accounts that you own. The benefits of that is you have a lot more investment options than you have with a 401k. A 401k may have 30. investment options are all just mutual funds. And with a Roth IRA or traditional IRA, you can actually convert them. Some plans will allow that conversion process, but not all of them will. So the IRAs will give you some flexibility. So like in a down market, you say, hey, look, I've got some money in traditional IRA. The market's down 25%. Maybe I'll roll some of that into a... Roth. So you have a little bit more flexibility with the IRAs because you control them. They're yours. So those are your various options with the phone cable. And the other thing is you just keep it there, but I just wouldn't recommend it.
Speaker #0
Yeah. I have been guilty of that in the past. So great to know. I think the other thing in this conversation is if you could give all of these millennials who are listening, hopefully there's lots of you, I don't know, two pieces of advice, right? If you could do two things right now to put yourself in a better position for retirement. what would those two things be?
Speaker #1
I would say save. This may seem like the lamest advice ever.
Speaker #0
Lame, but it's true.
Speaker #1
Yeah. The more you save now, the less you have to do later. That's one. Two is pay attention to your tax buckets. Right? Because we mentioned, okay, I'm going to redo my kitchen. All right. Let's say we're always taught, all right, save taxes today. So let's say you put all that money into pre-tax IRA. So that means you're not taxed today, but when you take it on retirement, you'll be paying taxes. So flash forward 30 years, you're in retirement, you're redoing your kitchen. It's beautiful. Granite countertops. I don't know, maybe you got a robot in there now, who knows? Now you're taking 50,000 or 60,000 out on an after-tax basis. You're paying taxes on all of that, on top of you getting your social security, on top of you getting whatever distributions you're getting from your IRA for living expenses. So now- how your income may go from $150,000 to $200,000. That may push you into the bracket and all this other stuff. And that also impacts how much your Medicare can be. So that has tax brackets. So those things are all interrelated. So if you have some money that's after tax, some money that you put in like an investment account or money that's Roth as well, now you can pull different levers. So having the ability and flexibility of having these three different tax buckets, let's just say, okay, I'll take for this kitchen 20 grand from the Roth. I'll take, you know, 10 grand from the... IRA and I'll take the rest from the investment account. And this way you can say, okay, now my tax brackets on a lower tax bracket, my Medicare payments are staying low. You know, you're, you're in a good spot. So that's why I think most people tend to overlook the tax impact of it.
Speaker #0
I would not have even thought about that as part of this conversation. I will not lie.
Speaker #1
No, I mean, most people don't tax play. Like when I was doing research for the book again, sorry to keep plugging it, but it's you know, the number one tax move, do you know what it was?
Speaker #0
What?
Speaker #1
Do nothing. They're like Austin Powers of the blackjack table. I'll stay. They're just not going to do anything. And the number two thing was taking deductions, which does very little.
Speaker #0
So I think for retirement, what I'm getting out of this, too, is that not only do you have to have a good financial planner, but you also have to have a good CPA to have these conversations with. Like, you've got to be thinking about your taxes with all of these moves and not just again, I think especially like the millennial mindset is we're thinking like right now. Everything is right now. I'm contemplating. paying for baseball and paying for after-school care and paying for summer camp. And you're not thinking about the stuff that you have to have set up. And CPAs are always an interesting concept, and probably what you do as well. They're like the hardest people to find. Everybody's like, do you have a good CPA? No. I like,
Speaker #1
no. No, no. Everyone, I'm like, oh, do you have a good CPA? No. Do you want to leave them? No. No. Yeah. Can't find anyone else.
Speaker #0
Can't find anybody. And when you do find a really good one, don't ever leave them because you will never get them back again. And that's, we know some awesome CPAs, but we're like, are you taking new clients? No, they're never taking new clients. But you've got to find one and hold on to them because you're going to need them later on.
Speaker #1
I think my one challenge with CPAs, and please listen to CPAs, is they tend not to do a lot of forward projections. They'll do... All right, I'll look back and they may say, okay, it's December. What are your tax going to be next year? But they're not going to say, all right, in 30 years, what is your retirement going to look like? Where are you going to be spending money? Because they're giving themselves a pat on the back for saying, hey, look, I just saved you $5,000 in your tax return because we dumped more money in your IRA this year. Cool, great. But then your tax bill balloons up in retirement. So you really want to make sure you're doing, I mean, the biggest thing a challenge model has is we kind of have this whack-a-mole approach to finances right now where something pops up and they just have to hit it. Like, I got to pay for my kids. you know, whatever, or I got to buy this house and all these things come up and you just hit them down as they go. And all of a sudden you're 65. So you really want to have that balance of looking at, okay, what am I doing today? And how is that going to impact me tomorrow? And can I do a little bit of both?
Speaker #0
And then you're 65, it feels like a slight personal attack. I'm 41 this month and I don't know what happened. And like, that's like thinking about retirement and all of this is like, guys, it goes by so fast. And as your elder and elder millennial tell you, it, it, happens really quickly where all of a sudden you're like looking and I'm going, wow, like retirement could be sooner than it feels like it should be because I have small kids. So I'm like retirement's a thousand years away, but it's really not that far away. And I was totally guilty of a lot of the things that you talk about the whole like millennials, not like Gen Z, 92% of Gen Z does not own a retirement account. That was me in my twenties. I, and Derek knows this, the employer that I had had a spectacular match when I was in my 20s and I didn't use it for like five of the 12 years that I worked there. Truthfully, because it was like, what's worth more to me, cash now or cash later? Well, when you're 20, cash right now is worth way more to you. You're like, yeah, I need that $50 in my pocket. If I could go back and know that that $50 in my pocket was worth thousands of dollars today. I would have made very different choices, but like, you just don't know what you don't know. And I think like my piece of retirement advice for millennials is number one, get a professional. You think you can do this on your own. This is way more complicated than you think it is. Your 401k administrator is not your retirement professional. They're not, they may be lovely. They may be helpful, but like you need somebody looking at your whole life, which is not what they're doing. And number two, we have to educate our kids about how all of this works, because I think again. One of the things that we're going to talk a lot about on this podcast is like what we didn't learn from our parents because they had, and it's not that they didn't want to teach us, they just lived under a different set of rules, right? They had pensions. A lot of our parents had pensions and like we all know if you have a pension, God bless you, you're the luckiest, enjoy it, live as God's favorite because most of us don't have that. and it's kind of just the we really have to make sure that we're educating people, but educating them that things are going to change by the time you retire, but you have to stay up on this because no one's going to be able to afford to live if we don't do these things.
Speaker #1
Yeah, absolutely. I totally echo all of that stuff because at the end of the day, the amount of education you have is going to help, and there's more available information than ever. I feel like my job now is really kind of parsing that information for folks. No, no. And LLC is not going to save a W2 person taxes. I'm sorry. It's just not. I don't care what TikTok video you saw. That is not. They all want to That is not.
Speaker #0
That and house hacking. Yeah.
Speaker #1
Not how any of this works. So you really want to make sure, okay, if you're paying attention to stuff, it's like, how does this apply to me? And really kind of look at it. And if you don't know, or if you're putting stuff off because you're scared of it, or you don't know it, find someone to help you. Yeah. You just have to, uh, you know, the dumb analogy I always talk about too, is, you know, if you're overweight and you want to lose weight and you're afraid of seeing a trainer, like you're not, not gonna lose 20 pounds, then go see a trainer, right? Just go see someone to help you now. And if, you know, some advisors do have minimums, which I get, um, some don't. So find the ones that don't, if you don't have any money and then they'll help you get more money and then you can leave them. I'm just kidding. No, stay with them.
Speaker #0
So if you want to retire, you need a professional. That's the big message for today. And we all, I want to retire. I want to retire now. So.
Speaker #1
Many people do. That's a big conversation I have a lot is retiring early. And it's more of a goal than people think. There's just some other things you need to watch out for like health insurance.
Speaker #0
Health insurance, all those things. Well, and I got to pay for college. So we got to get through the college payment. And baseball, let's be honest. Again, and are you looking at baseball? Baseball is a great thought in all of this. My son is six. How old is your son? Five. Five. baseball, man, is already expensive. And like, what's going to happen when I got to have you on like two travel teams and I'm driving to Long Island for baseball games?
Speaker #1
I didn't realize we had to buy their own helmets and bats. We had a bin of bats and one helmet that everyone shared.
Speaker #0
Yeah. Well, my son has been walking around the house in his baseball helmet. Now we have the helmet because my husband coaches. So that's why it lives in my house. And every single morning before we get on the bus, I have to be like, take the baseball helmet off. You can't wear it to school. Because my son would wear it. He walks around the house fake pitching and fake hitting balls wearing a helmet 24-7.
Speaker #1
I like the visualization. I think that's very important. Good thing you're teaching him that right away.
Speaker #0
Yeah. Yeah. Everybody, he walks around the house doing it. So how can I worry about retirement when I'm busy worrying about baseball? who knows?
Speaker #1
Well, was this, was this a little helpful? Did we clear up some stuff for you, Kelly? Some questions that you had?
Speaker #0
You honestly did. And I think, you know, hopefully for people who are listening, um, it was helpful and, and just know that like, you're not alone. You know, I, I think that's again, one of the hopes of this podcast is to disseminate some of these myths and, and take the embarrassment out for people that like, people don't ask questions because they feel embarrassed. I should know about this. No, you shouldn't. It's not your fault that you don't know about it, but it is your fault if you don't ask questions.
Speaker #1
Correct. Yeah. If you don't know. a lot of people don't know. If you have a question, 90% of people probably have the same exact question. I mean, I explain what a stock and a bond is all the time. So that's one-on-one stuff to me. But for you, that may be something you really need to hear.
Speaker #0
Great. I want to hear that in our next episode. Please explain that to me.
Speaker #1
So yeah, don't feel bad about it. But I think the biggest thing is start saving, get help when you need it, ask questions, find someone. I think the biggest thing that I kind of, my pet peeve is always just listen to your neighbor and stuff like that. That's one thing I'm like, timeout, because they're applying their life situation to you. and sometimes that may make some sense, but many times that does not.
Speaker #0
Yeah, it's not relevant.
Speaker #1
It cost my father-in-law a few thousand dollars a month in Social Security because he was given the bad advice from his brother.
Speaker #0
Right. We deal with that in mortgages too. People are like, my dad said, I'm like, your dad bought a house 35 years ago, and life was very different then. Very different. So yeah, you need current relevant professionals to be helping you who are professionals, not your dad's friend, your mom's brother's friend, your whoever, somebody's neighbor. People always think that because people are rich, they understand money. And that's like one of the biggest probably myths for millennials too, is that just because somebody is wealthy doesn't mean they understand money. Full stop. Keep that in mind. So just because you see like an old rich dude and he's trying to give you some advice, it doesn't mean it's good advice.
Speaker #1
Not always. Yeah. And can you do that same thing that that person did? Probably not.
Speaker #0
Probably not.
Speaker #1
So there you go. Well, I hope everyone enjoyed this episode of Millennial Money Matters about retirement. And hopefully stay tuned and watch out for the next episode. All right.
Speaker #0
Sounds great. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to episode two. We made it. We made it. We haven't actually published the first one yet, but these are all going to come out at the same time.
Speaker #1
We'll make it. Yeah. Millennial money matters.
Speaker #0
Where we're talking about finance.
Speaker #1
Finance today, mortgages, but today's going to focus a little bit on the scary thing known as retirement.
Speaker #0
Because Derek, you hear 401k, Roth IRA, traditional IRA, 403bs, 457s, and I think most of us hear this and just go like, la, la, la, la, la, la, la. And we like to ignore it. I'm busy worrying about baseball right now. I don't know about you. I'm worried about kids baseball, not even good grown-up baseball.
Speaker #1
Oh, no, no. T-ball, which is not even really baseball, which is probably like the fun one because the kids are either picking dirt up with their gloves or running in the wrong direction every time. Every time. Parents are screaming at it. I'm just very thankful I'm not a coach. I know your husband's a coach.
Speaker #0
My husband is a coach.
Speaker #1
Bless him.
Speaker #0
Yeah. And I have two children playing right now. I have one playing T-ball and one playing softball tees. So four times a week. we get to go to a baseball dive and hang out.
Speaker #1
And you guys are also doing karate.
Speaker #0
And we're also doing karate and dance class and all of the things that we do with our kids. Because so how can I worry about retirement when I am busy paying for all of my children's activities and going to their activities?
Speaker #1
Well, if you're like half the millennials, you should just do nothing, right? Because that's essentially where we're at right now.
Speaker #0
Is that where we're at?
Speaker #1
Yeah, so I pulled up all these stats. Half of millennials do not have a retirement account at all.
Speaker #0
Well, Social Security is going to take care of us, so I don't need to worry about that.
Speaker #1
Well, do you know what the median... Social Security payment is.
Speaker #0
I don't know. Isn't social security what you get paid in your job? Isn't that what it is? I make whatever, $80,000 a year, and I get $80,000 from social security because I paid into it for a million years.
Speaker #1
That would be awesome. That is not how that works.
Speaker #0
No? How does it work then? No,
Speaker #1
actually. Social security is kind of complicated, but it's meant to be a replacement of some of your income. Typically, depending on how much you earn, it's going to be 20% to 60% of your pre-retirement income. And if you're at the 60% level, you're probably not making much right now. The median income is like $1,750 a month.
Speaker #0
A month for one, like a month.
Speaker #1
A month. Yeah. That's not even rent anymore.
Speaker #0
No.
Speaker #1
Right. So it's pretty low. So that's just over $21,000 a year. You know, I think one of the things that we tend to do is rush into this decision. You know, if you look at that median amount, that's a $400,000 decision in retirement. So it's kind of a big deal. And when I was writing my book, I read a lot of stats on retirement and Social Security in general. But the thing that was kind of jarring was that 41% of people take Social Security right away at age 62.
Speaker #0
And you get more if you delay, right?
Speaker #1
Correct. So every year you wait, essentially you're getting an 8% return or you're going to increase your income 8%. So if you take it earlier, you're dropping your income down pretty significantly for the rest of your retirement.
Speaker #0
Now, Social Security, because there's also people who have the elusive pension, right? You got pensions. Retirement is not like a single wrong approach, right? And I think that's the part that a lot of people miss is like, oh, I got a 401k. I'm good. I did the thing I was supposed to do. I'm good. But if we're talking about $1,700 a month, like that's not going to cut it for most of us. No.
Speaker #1
We got to have other things. It's just like canned tuna. Love it, right?
Speaker #0
I do love me some ramen and canned tuna.
Speaker #1
Well, yeah, I think the biggest misnomer out there about retirement in general is you just need some magic number. Oh, when I get to a million dollars, I'm going to be fine. Right. But people have no idea how to spend that money down. They have no idea how to integrate it with their Social Security. They totally overlook a lot of challenges we have, like market risk returns, taxes in retirement, health care. Yeah, it's all this fun stuff that no one ever thinks about. You know, the odds of you actually needing some kind of long-term care. Do you know what it is?
Speaker #0
What is it? I don't want to know the answer to this.
Speaker #1
Is it higher or lower than 50%?
Speaker #0
Well, the way you asked that question, I would have answered lower, but I think the answer is higher.
Speaker #1
It's much higher. It's 70%. 70%?
Speaker #0
Yeah. But I get that. And I get it on the mortgage side of things in that we talk a lot about people aging in place and that the vast majority of people over the age of 60 declare that they're going to age in place. But it actually doesn't happen as often as people think that it's going to. And if it does happen, you're often aging in place with... some sort of care in your home. So even if you're at home and you're not in a convalescent home, you've got a full-time aide, you've got home health care workers, and it is very expensive.
Speaker #1
Yeah, and generally it's not just I'm fine and then I'm in a home, right? There's generally this transition period. So you're usually having someone come in, maybe initially just someone did the dishes, right? And that's going to cost a little bit, but it's probably manageable. Then you have someone, all right, now we maybe need to change Grandpa's diapers a little bit here. So we've got to have someone a little bit more qualified for that. And then they end up in a facility if it gets really bad. And I think just people really underestimate it. And as an advisor, anytime I bring it up, you know, no one ever wants to talk about it. It sucks. I mean, no one wants to talk about, like, someone having to change their pants. That's awful. but the real thing is it's more likely going to happen than not, and if you don't have a plan for it, you could be in trouble.
Speaker #0
Well, the other thing to contemplate in this too, which just came to me as we're having this conversation, is in the last couple of years, the people who were getting to retirement age probably had children earlier than millennials had children, so they had children in their 20s, so by the time their kids were hitting college age, they were in their 40s to mid-40s. a lot of us millennials were having children in our 30s, late 30s, 40s. We're going to be hitting like retirement age at the same time I'm going to have to send my kids to college. So like, it's a double whammy here that I need to contemplate both like future educational planning and retirement planning at the same time. And like, how can I retire if I'm trying to pay for three kids to go to school at the same time?
Speaker #1
Well, that's a big point because I think a lot of parents especially will say, okay, my next 20 years, 22 years is focused on the kids. how do I get them to be proper adults? And, you know, a lot of that is paying for college. And I found that once they are done with that last college bill, they're like, okay, this is the first time in 22 years, I can actually think about myself and okay, am I on track for retirement? I mean, not like, where do I stand with this whole thing? Um, and I traditionally, a lot of those people say, okay, now I've got all these expenses that I wasn't paying for. I've got all this quote unquote extra cash. Where do I put it? And I'm going to juice up my retirement savings. And a lot of times it's a little too late. Um, so it's really, um, the biggest thing that we need to do. is start saving for retirement. I know that's easier said than done. You know, we've got all these extra expenses. First, you have daycare, which is outrageous. Outrageous. Outrageous. And then you have, you know, sports and activities, and that all adds up. And then you have summer camp because, hey, you know, we got the daycare bill off the plate, but now we've got summer camp to worry about. or like next week's spring break, right? So now we've got to worry about that for a week.
Speaker #0
Yeah, what are we doing with them? And summer camp is like, that's a new car, man. And summer camp is the Hunger Games. If you haven't gotten to summer camp age yet, you're like logged into a website at 8 a.m., refresh, refresh, refresh, trying to get into the weeks that you want. They're all sold out, you know? And yeah, that's the stuff that we're focused on. I know that I have to retire at some point, but that's not necessarily something that I'm thinking about regularly. And I think the hardest thing for people to understand is that your money is worth way more when you're younger than it is when you're older, as far as retirement's concerned, right? For every dollar you're putting in when you're 20, it's worth how many dollars when you're 60, that same dollar's worth a whole lot less when you're 50.
Speaker #1
Right. I mean, the way I look at it is kind of the opposite way, maybe more negative than you, but to me, retirement just gets more expensive as you age. Right. So it's going to get more costly the longer you wait. So I would recommend always the first thing we need to do. And I was, when I talk about financial planning in general, I always think of a champagne tower. It's got a very easy analogy to kind of imagine, right? We've got the top cup. So the first thing you always want to try and make sure you fill out is that that initial cup should be your emergency fund, right? So make sure in case anything hits the fan, you've got that money, three to six months of expenses saved in a nice cash account. Actually, Larry Fink had a letter. He's a BlackRock CEO about the state of retirement now. And he said, if you have an emergency fund, you're 70% more likely to save for retirement. So just get the basics done first, makes people feel a little bit better about where they're at. So the next thing you need to do is the next row of glasses in the champagne tower is really going to be get the employer match. I know not everyone has an employer plan. Not everyone that has a plan will get a match. But if you get a match, you have to take advantage of it. You're doubling your money. It's free money. You're doubling it. So, I mean, you get 100% rate of return. If I got you at 100% rate of return in the market every single year.
Speaker #0
I would think you were the bomb.com.
Speaker #1
Yes. I think Warren Buffett would be like, oh, shining my shoes or give me the Wayne's rule. We're not winning, right? It's amazing what you can get and you're giving up when you don't do the match. So, like, to me, that's table stakes. Just do those two things and you're already going to be ahead of a lot of people. I mean, you're going to be ahead of half of millennials, apparently.
Speaker #0
Apparently half of us don't have money.
Speaker #1
So, you need to set aside that amount. The good thing is it's automated. And for those that are self-employed. or don't have access to a retirement plan, they're still traditional IRAs, they're still Roth IRAs, they're SEP IRAs, which you have as a business owner. So there are opportunities for you to save. You just need to automate it. That's the biggest thing. Because when you have your paycheck and you look, it's like, I got my FICA taxes. That's a bummer. I got my healthcare. That's a bummer. Like all these deductions come out. You live with whatever the ending amount is anyway. You just adjust. That's who we are as people. So that would be the first thing I would recommend doing is getting those two things squared away and getting a habit of saving because you could always build on the saving after that.
Speaker #0
One of the interesting things about this as well, because again, I sort of see people's financial picture in a different light than you do in financial advising. I'm almost looking at like the urgent need as opposed to the future need where you're generally looking at future need. And I would agree with you. It doesn't matter how much people make. I have people who make gobs of money who don't have anything saved. And then I have people who make very little money who have a ton saved. It's really about your like financial literacy and who you're talking to. and the advice that you're getting from professionals. Are you using a professional? Are you just kind of doing this on your own? And I think retirement is such a, like, almost a taboo topic for millennials because our parents didn't really talk to us about it. And for most millennials, your parents are... maybe just hitting retirement now or not quite there yet. So you haven't seen the repercussions of their retirement decisions yet. So you can kind of be like, la, la, la, la, la, like whatever, it'll happen, and not really think about it because we don't know what it's doing.
Speaker #1
Yeah, I think there's a lot of truth to that. We can learn a lot of stuff from our parents about the good things they've done or the bad things they've done. And some people have said, hey, look, I'm going to continue that habit, whether it's good or bad. Or they're going to say, hey, look, I'm going to do the opposite no matter what because I want to be in a better position than they were. I have conversations with clients like that all the time. You know, the things I would just mention are just when it comes to retirement planning, you know, you're trying to project a long-term thing out, which is challenging, right? Because a lot of millennials I talk to say, hey, look, I don't think Social Security is going to be there. We mentioned it because it's, you know, may not be funded. It is there right now. I think it will be. It's, you know, old people vote and old people are on Social Security. That's what I always say. I just can't imagine it's not going to be there. It may not be the same form, but. we actually had this issue back in 1982 or 81, something like that. And they were able to refund it again and have it, you know, where we are today. But it's just so long out and it's just so hard for people to say like, I've got all these short-term things. Like, how do I project this stuff out? And they don't think about it. And they think, okay, I just save a little bit of my 401k, then I'll be good. I think when it comes to retirement plan in general, you need to look at all these different factors that go into it because it's not just, all right, I saved some money and now I got to spend my money.
Speaker #0
Yeah. What is, where are you using it for? What do you think your housing, you know, and we talk about that in housing. that I occasionally have first-time homebuyers are people who are retired, right? And why? And a lot of times I end up with them because a financial advisor has sent them to me. And it's because they're trying to project what they're going to pay in retirement and they're currently renting. And rent is really hard to predict. And that's a challenge for a lot of older... older adults who don't own homes because a home is stable. It's stable shelter. And you'll hear me talk about housing as shelter a lot on this podcast because it's a concept that we don't like to think about. Housing is shelter. And rent is an unstable payment. And these last two years are a great example of it, that rent has gone up exponentially. Somebody who was planning their retirement renting two or three years ago could not have predicted what rent looks like today. They couldn't have predicted it. It has gone up so much. And so if you're in, if you own your home, yes, taxes can go up. Yes, homeowners insurance go up, but like 85% of that payment is incredibly stable and you can predict for it. And I think that's part of really when you're having these contemplations about what are you going to do when you grow up? I have air quotes going right now when you grow up, when you're a real adult and have to retire is you do have to contemplate like what bills are you going to have? What thing, what fixed expenses, what medical expenses, where, where is. you know, if you're only going to make whatever, $1,700 a month in social security, like. what's your mortgage payment? How are you going to bridge that gap? And I think so many millennials, again, we're just kind of squeezed. We just don't, we don't contemplate that. And we don't, when we do contemplate it, and I talk to a lot of borrowers about this, is I'll be like, oh, do you have retirement accounts when we're talking about assets? And they're like, oh yeah, I've got a 401k through my job. Oh, I've got another 401k with an old job. Like, it's not like a plan. It's just a thing. It's not a plan. Right.
Speaker #1
Yeah. It's a piece of it. And, you know, to your point, I think that one of the biggest benefits of working with advisors, we do project out as much as we possibly can. I mean, there's always going to be a challenge with it. I can't tell you exactly 20 years from now what certain expenses will be. We could at least get a general picture. I mean, if you think, you know, 25 years ago, we didn't have iPhones, we didn't have Netflix accounts, we didn't have half the stuff you have now, Spotify, whatever you want to call it. So those things are always going to be there. But when it comes to retirement, you really want to look at, okay, your expenses in a few categories. What are my fixed expenses going to be? And that's where the challenge of renting versus buying comes into play because the rental increase is going to happen every year. you know, at least with the mortgage, the mortgage itself is going to stay flat. And, you know, actually we look at inflation, it's going to decrease every year technically. So you want to have your fixed expenses, get a real good handle on that. And does social security cover that? Yes or no. That's a good question to ask yourself. Next stage is the variable one. Okay. What are the, what are the, like the fun things I want to do? Do I want to go golfing? Do I want to go on vacations, spoil the grandkids or just, you know, throw parties every weekend, whatever you want to do.
Speaker #0
Living the life.
Speaker #1
Yeah. Put that down, right. Cause to figure that out and have a number to that. And that's the stuff we want to have your assets, like your 401k cover. because those are going to be variable anyway. Then there's that third bucket, which a lot of people leave out. It's the, oh, crap, or things happen, you know, bucket, right? It's not just the emergency fund. It's the, all right, I'm going to live in this house for 20 plus years. I've already lived in it for 20 more years or 20 years prior. what if the roof needs done? I mean, think of like one thing that I always go back to during COVID, you're in your house all the time. And what did everyone want to do?
Speaker #0
Redo everything.
Speaker #1
Redo everything.
Speaker #0
Compared to a contractor. It was a very, very busy time for both of us.
Speaker #1
Yeah. Look what happened to prices of lumber, right? So those are the things that when you're living in your house, every retiree ever met wants to redo their kitchen. Every retiree, or the roof's going to break, or they want to get two or three new cars. So those are all the things you're going to want to have to map out. And those are chunk expenses. You're paying $50,000, $60,000, $70,000. in a year for some of those items. So those can get really expensive really quick and you'd be like, okay, I only have 150,000, 200,000, my 401k at 60. I might need to do some stuff.
Speaker #0
Right. Like what else? And I think, you know, again, the professional advice is always helpful for people. What if you have multiple 401ks? Because I think that's another millennial thing. Like a lot of people from the generation prior to us, like it was not uncommon for someone to work at the same company for 20 or 25 years. So they often did not have multiple of these. I've had four 401ks. in my life. And like, what should we be doing with them? Like, are you rolling those into the new one? Should you be turning them into something else? Should you be cashing them out and going on vacation? Like what should you be doing with your old 401ks? All right.
Speaker #1
Good question. So I'll break down the four options you have. So option number one, don't do this. The worst option, but it's an option is you can just take the money out and put it in your bank account.
Speaker #0
Just that's the vacation option. Love it. I'm here for that.
Speaker #1
That's the scoop tomorrow. Yeah. hey, let's say, oh, where did this money come from? Yeah. But the problem with that is you're paying taxes if it's a pre-tax account and a 10% penalty if you withdraw before age 59 and a half. So generally, you're losing a lot of money right off the bat. The second option you can do is you can roll money into your new employer's 401k plan. So if they accept rollovers, which 99% of them probably do, you just take the money and roll. So if you have a Roth 401k and a traditional 401k, you roll them both into the new 401k. No tax implication of doing that. Everything's rolled over as is. The one benefit of that is you're a consolidated encounters. I'm always a big fan of like don't have four or five foreign case because companies can go out of business. They can be super hard to track down. You just definitely want to make sure you're combining accounts. But you know, one thing you want to look at are what are the fees of the foreign K account because small companies tend to have higher fees and a larger company would. And then the other thing you want to look at is are you afraid of getting sued? Most people aren't but I have had some clients say yeah, that's a problem for me and a foreign K itself is creditor protected. So there's an extra benefit of that. And you can take loans out of your 401k. And the other piece is if you're ever doing the backdoor Roth, and that could be a whole conversation, it doesn't count against the pro rata rule. So if your plan is to do backdoor Roth IRAs, it could make more sense to have your money in a 401k. The third option is rolling into IRAs. So traditional IRA or Roth IRAs. Those are accounts that you own. The benefits of that is you have a lot more investment options than you have with a 401k. A 401k may have 30. investment options are all just mutual funds. And with a Roth IRA or traditional IRA, you can actually convert them. Some plans will allow that conversion process, but not all of them will. So the IRAs will give you some flexibility. So like in a down market, you say, hey, look, I've got some money in traditional IRA. The market's down 25%. Maybe I'll roll some of that into a... Roth. So you have a little bit more flexibility with the IRAs because you control them. They're yours. So those are your various options with the phone cable. And the other thing is you just keep it there, but I just wouldn't recommend it.
Speaker #0
Yeah. I have been guilty of that in the past. So great to know. I think the other thing in this conversation is if you could give all of these millennials who are listening, hopefully there's lots of you, I don't know, two pieces of advice, right? If you could do two things right now to put yourself in a better position for retirement. what would those two things be?
Speaker #1
I would say save. This may seem like the lamest advice ever.
Speaker #0
Lame, but it's true.
Speaker #1
Yeah. The more you save now, the less you have to do later. That's one. Two is pay attention to your tax buckets. Right? Because we mentioned, okay, I'm going to redo my kitchen. All right. Let's say we're always taught, all right, save taxes today. So let's say you put all that money into pre-tax IRA. So that means you're not taxed today, but when you take it on retirement, you'll be paying taxes. So flash forward 30 years, you're in retirement, you're redoing your kitchen. It's beautiful. Granite countertops. I don't know, maybe you got a robot in there now, who knows? Now you're taking 50,000 or 60,000 out on an after-tax basis. You're paying taxes on all of that, on top of you getting your social security, on top of you getting whatever distributions you're getting from your IRA for living expenses. So now- how your income may go from $150,000 to $200,000. That may push you into the bracket and all this other stuff. And that also impacts how much your Medicare can be. So that has tax brackets. So those things are all interrelated. So if you have some money that's after tax, some money that you put in like an investment account or money that's Roth as well, now you can pull different levers. So having the ability and flexibility of having these three different tax buckets, let's just say, okay, I'll take for this kitchen 20 grand from the Roth. I'll take, you know, 10 grand from the... IRA and I'll take the rest from the investment account. And this way you can say, okay, now my tax brackets on a lower tax bracket, my Medicare payments are staying low. You know, you're, you're in a good spot. So that's why I think most people tend to overlook the tax impact of it.
Speaker #0
I would not have even thought about that as part of this conversation. I will not lie.
Speaker #1
No, I mean, most people don't tax play. Like when I was doing research for the book again, sorry to keep plugging it, but it's you know, the number one tax move, do you know what it was?
Speaker #0
What?
Speaker #1
Do nothing. They're like Austin Powers of the blackjack table. I'll stay. They're just not going to do anything. And the number two thing was taking deductions, which does very little.
Speaker #0
So I think for retirement, what I'm getting out of this, too, is that not only do you have to have a good financial planner, but you also have to have a good CPA to have these conversations with. Like, you've got to be thinking about your taxes with all of these moves and not just again, I think especially like the millennial mindset is we're thinking like right now. Everything is right now. I'm contemplating. paying for baseball and paying for after-school care and paying for summer camp. And you're not thinking about the stuff that you have to have set up. And CPAs are always an interesting concept, and probably what you do as well. They're like the hardest people to find. Everybody's like, do you have a good CPA? No. I like,
Speaker #1
no. No, no. Everyone, I'm like, oh, do you have a good CPA? No. Do you want to leave them? No. No. Yeah. Can't find anyone else.
Speaker #0
Can't find anybody. And when you do find a really good one, don't ever leave them because you will never get them back again. And that's, we know some awesome CPAs, but we're like, are you taking new clients? No, they're never taking new clients. But you've got to find one and hold on to them because you're going to need them later on.
Speaker #1
I think my one challenge with CPAs, and please listen to CPAs, is they tend not to do a lot of forward projections. They'll do... All right, I'll look back and they may say, okay, it's December. What are your tax going to be next year? But they're not going to say, all right, in 30 years, what is your retirement going to look like? Where are you going to be spending money? Because they're giving themselves a pat on the back for saying, hey, look, I just saved you $5,000 in your tax return because we dumped more money in your IRA this year. Cool, great. But then your tax bill balloons up in retirement. So you really want to make sure you're doing, I mean, the biggest thing a challenge model has is we kind of have this whack-a-mole approach to finances right now where something pops up and they just have to hit it. Like, I got to pay for my kids. you know, whatever, or I got to buy this house and all these things come up and you just hit them down as they go. And all of a sudden you're 65. So you really want to have that balance of looking at, okay, what am I doing today? And how is that going to impact me tomorrow? And can I do a little bit of both?
Speaker #0
And then you're 65, it feels like a slight personal attack. I'm 41 this month and I don't know what happened. And like, that's like thinking about retirement and all of this is like, guys, it goes by so fast. And as your elder and elder millennial tell you, it, it, happens really quickly where all of a sudden you're like looking and I'm going, wow, like retirement could be sooner than it feels like it should be because I have small kids. So I'm like retirement's a thousand years away, but it's really not that far away. And I was totally guilty of a lot of the things that you talk about the whole like millennials, not like Gen Z, 92% of Gen Z does not own a retirement account. That was me in my twenties. I, and Derek knows this, the employer that I had had a spectacular match when I was in my 20s and I didn't use it for like five of the 12 years that I worked there. Truthfully, because it was like, what's worth more to me, cash now or cash later? Well, when you're 20, cash right now is worth way more to you. You're like, yeah, I need that $50 in my pocket. If I could go back and know that that $50 in my pocket was worth thousands of dollars today. I would have made very different choices, but like, you just don't know what you don't know. And I think like my piece of retirement advice for millennials is number one, get a professional. You think you can do this on your own. This is way more complicated than you think it is. Your 401k administrator is not your retirement professional. They're not, they may be lovely. They may be helpful, but like you need somebody looking at your whole life, which is not what they're doing. And number two, we have to educate our kids about how all of this works, because I think again. One of the things that we're going to talk a lot about on this podcast is like what we didn't learn from our parents because they had, and it's not that they didn't want to teach us, they just lived under a different set of rules, right? They had pensions. A lot of our parents had pensions and like we all know if you have a pension, God bless you, you're the luckiest, enjoy it, live as God's favorite because most of us don't have that. and it's kind of just the we really have to make sure that we're educating people, but educating them that things are going to change by the time you retire, but you have to stay up on this because no one's going to be able to afford to live if we don't do these things.
Speaker #1
Yeah, absolutely. I totally echo all of that stuff because at the end of the day, the amount of education you have is going to help, and there's more available information than ever. I feel like my job now is really kind of parsing that information for folks. No, no. And LLC is not going to save a W2 person taxes. I'm sorry. It's just not. I don't care what TikTok video you saw. That is not. They all want to That is not.
Speaker #0
That and house hacking. Yeah.
Speaker #1
Not how any of this works. So you really want to make sure, okay, if you're paying attention to stuff, it's like, how does this apply to me? And really kind of look at it. And if you don't know, or if you're putting stuff off because you're scared of it, or you don't know it, find someone to help you. Yeah. You just have to, uh, you know, the dumb analogy I always talk about too, is, you know, if you're overweight and you want to lose weight and you're afraid of seeing a trainer, like you're not, not gonna lose 20 pounds, then go see a trainer, right? Just go see someone to help you now. And if, you know, some advisors do have minimums, which I get, um, some don't. So find the ones that don't, if you don't have any money and then they'll help you get more money and then you can leave them. I'm just kidding. No, stay with them.
Speaker #0
So if you want to retire, you need a professional. That's the big message for today. And we all, I want to retire. I want to retire now. So.
Speaker #1
Many people do. That's a big conversation I have a lot is retiring early. And it's more of a goal than people think. There's just some other things you need to watch out for like health insurance.
Speaker #0
Health insurance, all those things. Well, and I got to pay for college. So we got to get through the college payment. And baseball, let's be honest. Again, and are you looking at baseball? Baseball is a great thought in all of this. My son is six. How old is your son? Five. Five. baseball, man, is already expensive. And like, what's going to happen when I got to have you on like two travel teams and I'm driving to Long Island for baseball games?
Speaker #1
I didn't realize we had to buy their own helmets and bats. We had a bin of bats and one helmet that everyone shared.
Speaker #0
Yeah. Well, my son has been walking around the house in his baseball helmet. Now we have the helmet because my husband coaches. So that's why it lives in my house. And every single morning before we get on the bus, I have to be like, take the baseball helmet off. You can't wear it to school. Because my son would wear it. He walks around the house fake pitching and fake hitting balls wearing a helmet 24-7.
Speaker #1
I like the visualization. I think that's very important. Good thing you're teaching him that right away.
Speaker #0
Yeah. Yeah. Everybody, he walks around the house doing it. So how can I worry about retirement when I'm busy worrying about baseball? who knows?
Speaker #1
Well, was this, was this a little helpful? Did we clear up some stuff for you, Kelly? Some questions that you had?
Speaker #0
You honestly did. And I think, you know, hopefully for people who are listening, um, it was helpful and, and just know that like, you're not alone. You know, I, I think that's again, one of the hopes of this podcast is to disseminate some of these myths and, and take the embarrassment out for people that like, people don't ask questions because they feel embarrassed. I should know about this. No, you shouldn't. It's not your fault that you don't know about it, but it is your fault if you don't ask questions.
Speaker #1
Correct. Yeah. If you don't know. a lot of people don't know. If you have a question, 90% of people probably have the same exact question. I mean, I explain what a stock and a bond is all the time. So that's one-on-one stuff to me. But for you, that may be something you really need to hear.
Speaker #0
Great. I want to hear that in our next episode. Please explain that to me.
Speaker #1
So yeah, don't feel bad about it. But I think the biggest thing is start saving, get help when you need it, ask questions, find someone. I think the biggest thing that I kind of, my pet peeve is always just listen to your neighbor and stuff like that. That's one thing I'm like, timeout, because they're applying their life situation to you. and sometimes that may make some sense, but many times that does not.
Speaker #0
Yeah, it's not relevant.
Speaker #1
It cost my father-in-law a few thousand dollars a month in Social Security because he was given the bad advice from his brother.
Speaker #0
Right. We deal with that in mortgages too. People are like, my dad said, I'm like, your dad bought a house 35 years ago, and life was very different then. Very different. So yeah, you need current relevant professionals to be helping you who are professionals, not your dad's friend, your mom's brother's friend, your whoever, somebody's neighbor. People always think that because people are rich, they understand money. And that's like one of the biggest probably myths for millennials too, is that just because somebody is wealthy doesn't mean they understand money. Full stop. Keep that in mind. So just because you see like an old rich dude and he's trying to give you some advice, it doesn't mean it's good advice.
Speaker #1
Not always. Yeah. And can you do that same thing that that person did? Probably not.
Speaker #0
Probably not.
Speaker #1
So there you go. Well, I hope everyone enjoyed this episode of Millennial Money Matters about retirement. And hopefully stay tuned and watch out for the next episode. All right.
Speaker #0
Sounds great. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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