May 16, 2023 • 26 mins
For the very first episode of “Grown-Up Stuff: How to Adult,” we’re gonna get down to the basics of a very adult matter: retirement. Joined by CPA and Asset and Wealth Management Assurance Senior Manager Jonah Batista, Molly learns it’s never too early to start thinking and saving for retirement and another important lesson about which types of retirement accounts you should be investing.
Cited Sources:
- 2020 US Census Data - "New Data Reveal Inequality in Retirement Account Ownership"
- Social Security Administration - "Are Americans Financially Educated on Retirement Savings"
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Do I have any questions about retirement?
Speaker 2 (00:08):
Aging is natural, getting old is a choice.
Speaker 3 (00:11):
The new retirement is not retiring. No, I need you're
billion dollars when you're in your twenties and thirties. Retirement
seems like an abstract concept.
Speaker 1 (00:20):
My biggest concerns with retirement right now is just starting
from zero.
Speaker 3 (00:26):
Not to mention, the idea of saving large sums of
money early in your career feels impossible when you're just
trying to pay rent.
Speaker 1 (00:34):
But I just don't think I know enough different terms,
the different types of accounts you can have.
Speaker 3 (00:40):
For most of us who don't have an extensive education
in financial planning, were launched into adulthood without really any
information or guide around how to get started.
Speaker 1 (00:50):
You know, I keep hearing that social Security just isn't
kind of be a thing.
Speaker 3 (00:54):
In fact, according to twenty twenty US sets of data,
only forty nine point five percent of the life eils
held some sort of retirement account. That's just barely half
given the current economy, given inflation, so many different things
that we are up against. What's even more telling, eighty
percent of US adults wished that they were required to
(01:16):
complete a semester or even a year long course focused
on personal finance education during high school?
Speaker 1 (01:23):
How much money should I be aiming to have saved?
Speaker 3 (01:26):
Honestly, that would have been great. And I don't understand
why they don't teach us this type of thing in
high school or even as a required gen ed course
in college. I'm not really sure what a roth ira is.
And it's not just planning for retirement. There's all sorts
of stuff that we have to figure out on our
own once we're thrust into adulthood.
Speaker 1 (01:46):
What else should we be doing?
Speaker 3 (01:49):
But today I say no more, no more living in
anxiety over what the future looks like. Today, we are
all taking charge of our lives and learning all the
sea rits and lessons needed to be perfectly functioning and
responsible adults. And we're also going to finally figure out
what the hell ira actually means.
Speaker 1 (02:10):
Hi.
Speaker 3 (02:10):
I'm Molly Soosha, and I'm a podcast producer and a
mediocre millennial who's trying to do the best you can
to figure out how to be a more responsible adult
and better human one day at a time. Along with
my trustee co producer and colleague Matt Stillo.
Speaker 1 (02:23):
Hey there, fellow works in progress we're.
Speaker 3 (02:26):
Going to learn about all the things we wish they
would have taught us in school that might have been
way more useful to our everyday lives.
Speaker 1 (02:32):
I don't want you leaving that money on the table
just because nobody could be bothered to.
Speaker 3 (02:36):
Explain, So start taking notes. Because this is hello everyone,
and welcome to the very first episode of Grown Up
Stuff how to Adult, a show we've created to help
you figure out the stuff you're supposed to know once
(03:00):
you become a quote unquote grown up. Throughout this first season,
we're going to talk to some experts who are going
to help guide us through things like finding and leasing
an apartment, buying a house, carcare one oh one, how
to apply and get approved for a credit card, and
why you need one. But today we're going to be
talking specifically about the basics of how to plan for
retirement and when you should start. But before we get
(03:24):
too far into it, Matt Yes smiling, what do you
know about retirement plans?
Speaker 1 (03:30):
Well? I do know that if I could answer that question,
we wouldn't be making this podcast. But here's what I
can tell you. I know that I want to retire.
I know that I've been lucky enough to work with
a few companies that offer four oh one K plans. Actually,
our current employer offers a matching program with our four
oh one K, which you know is basically just them
(03:51):
offering us free money to help us retire, right, So
I'm definitely taking advantage of that. But other than that,
I'm thirty three. I would like to retire at a
respectable age. But am I on track to do that?
And if not, how can I course correct? Those are
things that I am hoping to find out today.
Speaker 3 (04:09):
You sound like you have your shit together way more
than I do.
Speaker 1 (04:13):
I doubt that very much, but fill me in. I mean,
where are you at with retirement?
Speaker 3 (04:17):
I remember the first time I got a job, my
dad started talking to me immediately about saving for retirement
and all the different retirement plans I needed to have.
But when you start off in media, you do not
make a whole lot of money. And I was living
in New York City.
Speaker 4 (04:32):
And stuff be expensive, just trying to pay that rent,
and so, God love my dad, I just started to
zone out every time he talked about it, which was
probably not the best because he's just trying to help
and make sure I'm covered for my future.
Speaker 1 (04:48):
Okay, well, no zoning out today, because we are joined
by a special guest who thankfully knows a heck of
a lot more about retirement than we do.
Speaker 2 (04:57):
I'm Jonah Batista, and i'm Asset and Wealth Management Senior Manager.
Speaker 3 (05:03):
Jonah works for one of the leading international accounting firms,
and essentially it's his job to ensure that the financial
statements of his clients are accurate.
Speaker 2 (05:12):
I'm kind of like a referee. When management of a
company says we have a bajillion dollars. My job is
to audit those financial statements and give assurance to readers
of those financial statements that what they're reading is complete
and accurate.
Speaker 3 (05:30):
But what makes Yonah even more apps to help us
understand financial planning for retirement is that most of his
clients are in the wealth management sector, so oftentimes their
companies are firms that people seek out to set up
funds for retirement. I wanted to start with the basics
and understand what Jonah sees as the biggest struggles or
misconceptions around retirement planning and figure out how much we
(05:52):
actually need saved a way before we retire. How do
you think about retirement plans from your line of work.
Speaker 2 (06:05):
When I come across friends, family, just anyone who's generally
interested in personal finance, I always try to stress the
importance of planning for retirement. And the main reason the
punchline is no one is going to loan you money
for retirement because they know they'll never get that money back,
(06:27):
right like you can get a loan for a car,
a house, school, home improvements, you name it. But it's
a scary thing to think and acknowledge that no one's
going to fund your retirement. The government will give you
Social Security, but at the end of the day, it's
not going to cover your expenses.
Speaker 3 (06:49):
What do you think are some of the biggest points
of confusion that you notice either talking to your friends
or your family about retirement and retirement planning.
Speaker 2 (06:57):
There's confusion and or misunderstanding of how important time is
in the accumulation of wealth. If you have a million
dollars and you start investing when you're in your twenties
and you're not gonna need this money until you're retired,
you're gonna have a ton of money. And you would say, well,
(07:20):
that's easy. You started with a million dollars, So everyone
kind of is just like, well, the biggest input to
having a successful retirement is having a lot of money
to begin with, and that's not true. What is true
is the amount of time you give yourself to invest
for retirement. For example, if you saved one hundred to
(07:41):
two hundred dollars a month when you were like twenty two,
and you just do that all the way up until
you retire, you would have millions of dollars in retirement.
To get that same amount of money, if you start
that at forty five, you need to be saving maybe
to one thousand dollars or more a month.
Speaker 3 (08:02):
Wow.
Speaker 2 (08:03):
So time is a big misunderstood input to retirement, even
if it's a little bit of money, Just start right
to the extent you can do that. Don't put that
on until you're in your forties or even later. In
some people's cases, it becomes a snowball that's very, very
hard to get on top of if you're waiting too long.
Speaker 3 (08:26):
So let's break it down to the most basic level
of things, like what is a retirement account and how
is it different from a traditional savings account that we
might all already have at a bank.
Speaker 2 (08:38):
There's different kinds of retirement accounts. But the general thing
with these retirement accounts is they have tax advantages. So
for example, you can draw on these accounts once you
hit a certain age and not pay any taxes or
pay lower taxes than what you would have to pay
(08:59):
when and you are investing through a regular brokerage account.
So for example, a lot of people have companies sponsored
four oh one K accounts. That's a type of retirement account.
You could have an individual retirement account and IRA, you
could have a roth IRA. There are various different retirement accounts,
but the punchline on those is there are tax advantages
(09:23):
that you want to take advantage of, and so you
want to maximize the potential of those types of accounts.
Speaker 3 (09:29):
Wroth IRA to me sounds so similar to what a
lot of traditional savings accounts are, right, Like, we take
money that we've already been taxed on, so it's ours.
So what is truly the difference between our wroth ira
and say your savings account at your bank.
Speaker 2 (09:46):
So when you go to a bank, you open up
a checking account or a savings account, right, that's really
just to park your money. So you're not going to
really earn anything significant by parking your money there. So
then the next type of account is a taxable account,
also known as a brokerage account.
Speaker 1 (10:05):
So that's where you.
Speaker 2 (10:06):
Would take the money in your checking account or your
savings account, you'd transfer it to a brokerage account, and
in there you can start buying stocks and bonds. However,
that account is structured differently than a retirement account, so
a roth ira, an IRA, A four to oh one k.
These types of retirement accounts are structured to benefit later
(10:31):
on in life where you can draw on them in
retirement and not pay taxes or at least not pay
as high attax. So let's say you open up a
taxable account and then you also open up a roth
ira and you buy the same stocks in both. Let's
say it's one hundred thousand bucks in these accounts and
(10:52):
I'm sixty five. I can pull out that one hundred
k through my wroth IRA and I'd get one hundred
K in my checking account. Right if I pulled that
hundred k out from my taxable account, it would be
one hundred kus whatever tax bracket I'm in that year,
so it would be maybe seventy five thousand. So they
(11:14):
serve different purposes those types of accounts.
Speaker 3 (11:22):
Is there an amount or percentage of our paycheck? And
I know this depends on this changes based on how
old we are, but on average that you would recommend
a person put away each month.
Speaker 2 (11:33):
So if you try to set up a retirement account
or work with a financial advisor or anything like that,
the first question they're going to say is do you
have a budget? And I think most people don't. And
so going back to what I was saying earlier, where
one of the main inputs is time right to retirement,
the second input is having a budget. And so again
(11:57):
you can do your own research and see where you
want to land. But I've found the fifty thirty twenty
budget to be the one. What that means is you
take fifty percent of your money that should be for
your needs like rent, food, things like that. Thirty percent
should be your wants so like entertainment, traveling, vacations, stuff
(12:23):
like that, and then twenty percent should be your saving.
So the fifty thirty twenty budget is considered to be
pretty frugal. So what I did and what I tell
you know anyone that's interested in this kind of stuff,
is I actually flipped my thirty in my twenty. So
I went super frugal and I saved thirty percent and
(12:48):
limited my wants to twenty percent. And I did that
for a number of years just to get my snowball
kind of rolling. So the I guess the long way
to answer your question is is people need to create
a budget and track their money and see what they
actually can do.
Speaker 1 (13:07):
Right.
Speaker 2 (13:08):
It's easy to say, all right, I'm gonna save twenty
five percent, but if you don't know that you can
do it, you're kind of setting yourself up for failure.
So when you set up a budget, you can say,
holy crap, like I'm spending so much money on these
subscriptions that I forgot I even have I don't need.
This turns out I can actually save thirty percent. Right,
(13:28):
you don't know that stuff until you're going through the process.
So long way to answer your question is fifteen percent
I think is probably a base. The higher you go,
the better it is. The higher you go the sooner
in life, the less you have to do later in life.
It's kind of how it works. Everyone's situation is different.
(13:50):
Some people have families earlier in life, so they can't
save as much, and that's okay. It's knowing how much
you can save and starting the process.
Speaker 3 (13:59):
Yeah, that's an excellent point, and it kind of perfectly
transitions into the next question that I have for you.
How much should we have stashed away, you know, for retirement?
What should be the goal? Like, at what point should
we say? Okay, I think we can start thinking about
this now.
Speaker 2 (14:14):
The rule of thumb is you're going to need around
eighty percent of your expenses a year, plus or minus,
depending on the type of life you want you want
to live. So there are tools out there, like, for example,
I use Vanguard a lot. They have a lot of
free investor tools. Every dollar I spend I throw into
like a calculator and it'll say, okay, is this the
(14:37):
quality of life you want to maintain? Well, yeah, I
love my quality life right now, so yes, let's do that, right.
Speaker 1 (14:43):
Cool.
Speaker 2 (14:44):
It spits out a number and says, here's what you're
going to need each year to maintain this quality of life.
It factors in medical expenses, it's averages, right, stuff like that,
And then it'll say, okay, so this here's the number
that you're going to need to retire. And so so
once you have that figure, you have something to work towards.
Speaker 1 (15:08):
Grown up stuff. How to Adult will be back after
a quick break. Welcome back to grown up stuff How
to Adult?
Speaker 3 (15:27):
Okay, So, a retirement account is different from a traditional
savings account that you open at a bank because it
actually invests your money and grows it, unlike a savings account,
which just accrues minimal interest over time. A retirement account
is then different from your standard brokerage account that also
invests your money because there are various tax benefits associated
(15:47):
with the retirement account. But not all retirement accounts are alike,
and there are lots of different kinds in which you
can put your money, each with its own benefit. According
to Jonah, the smartest move is to diversify the types
of retirement accoun you have. How does it work once
we are retired? Is there a rule on you know,
when you can take money out? Is it a certain amount?
(16:09):
Is it a certain age?
Speaker 4 (16:10):
Like?
Speaker 1 (16:10):
How does it work?
Speaker 2 (16:12):
So let's fast forward twenty eight years from now and
I'm sixty. If I follow all of the financial advice
that's out there, I would have a handful of different
accounts because you have different structures and different advantages. So,
for example, a roth IRA is money I put in
(16:34):
like today that is post tax, and so it accumulates
until I get to that age limit, and then I
can pull it out. And when I pull it out,
I pay zero taxes. So I could actually retire early
if I wanted to, and I could just live off
of that account because I don't have to pay the government.
So whatever I pull out of that account, I get today,
(16:56):
and I can coast until I get to that next
age limit that I have to hit for my four WAK.
So you want to have different accounts for different tax
advantages in different timings. You don't want to put all
your eggs in one basket because say you have an
accident at work, or you don't want to deal with
the stress or family issues and you just can't do
(17:17):
that job. Okay, But then I can't tap my four
to one K cause I haven't hit that age requirement yet,
so I get penalized when I pull money out. So
you want different types of retirement accounts for a tax diversification,
but b it gives you more flexibility, which really equates
(17:37):
to more financial freedom when you get closer to that
retirement age.
Speaker 3 (17:42):
I think this is something really important because to be honest, like,
this is something that I have never thought about, and
I'm sure a lot of the people listening are like, well,
I have my four oh one K through work and
that's all I need. This is a great recommendation, is
that they should probably start also investing on the side
in like an IRA. That's what you're saying, exactly, what
(18:03):
do you recommend when we do leave a job where
we have a four to oh one K or a
four or three B and we start a new job
at a different company with a four to h one
K account, how do we go about making sure we
don't lose track of that money that we already started with.
Speaker 2 (18:18):
So, first of all, that is your money. You don't
want to lose track of it. So there's a couple
of options that you have. You have option one, which
is leaving it with your now former employer. Option two
is you can roll it over. Let's say you have
a new employer they also offer you a four oh
(18:39):
and K or whatever it is. Option three would be
to roll it over into your own IRA. So you
might have one that already exists, or you might open
up anyone. So those are the three options. The biggest
deciding factor in what to do between those three is
(19:01):
what can you invest in? Depending on who the employer is,
their program might have a limited selection of investment options.
So if you know what you want to invest in,
or you have a preference in what you want to
invest in, and one of those options gives that to you,
then go with that option. I'll give you a real
(19:21):
life example. My partner was working and their program was
with Fidelity, and then she left that job and got
a different job and they work with Vanguard, And so
she came to me and said, what do I do?
And I looked at the funds that she was invested
in at Fidelity, and then I looked at the funds
(19:43):
that she would invest at Vanguard, and it looked like
it was five times more expensive for her to invest
in the Fidelity funds than the Vanguard funds, but the
return was the same. So why pay five times the
cost of something to get the same results. So that
(20:03):
was an easy one. We rolled over her for a
one K plan from her old employer to her new employer.
If her new employer didn't have one, or her new
employer had a worse option, then the third option would
have maybe made sense, which was to just open up
her own IRA and then roll it over there. And
(20:24):
so if your old employer is giving you an option
to invest in some pretty mediocre funds that get a
decent return, but they have a really high cost, like
a high management fee, why do that when you can
go to the new employer account where the returns are
higher and the cost is lower. And so again it's
(20:48):
a no brainer. The difference is that it's not convenient, right.
Speaker 3 (20:51):
You got to you got to put some you got
to do your homework.
Speaker 2 (20:54):
You gotta put Yeah, you got to put some legwork
into operationally moving the money around. But when you know
you're going to to save five times costs, I think
you'd be pretty stoked about it.
Speaker 3 (21:08):
You mentioned that there's a penalty with taking things out
of your four oh one K early. Are there any
other extenuating circumstances in any of these retirement or you know,
these types of funds that allow you to take out
your money early, like for example, say buying a house.
Speaker 2 (21:26):
Short answer is yes, And the reason is you want
the ability to draw an accounts at different times in
your life. For example, you come to a point where
you want to buy a house and you may say, oh,
I've just put so much money into my retirement accounts
and I can't touch them. Well, that's not entirely true.
(21:48):
Depending on the type of account and the structure of it,
you may have some advantages, and a roth ira is
an example of one, because any money you put in
as a contribution, you can pull that out free. And
it makes sense, right because that money you put in,
you already paid taxes to begin with. They can't be
double taxing you, right, So as long as you're only
(22:09):
pulling out what you put in, that's your cash. So
there's a down payment, and any of the earnings or
the dividends or interests that you received over those ten years,
don't touch it, leave it in the account. And that's
also accumulating for retirement, so you don't get penalized in
that case. Whereas let's say you're one of those people
(22:32):
who only has a four to oh one K. Well,
if you only have a four to one K, you
come along this path and you're like, oh, I need
money for a down payment, Well you're going to be
in a bit of a tough situation because if that's
your only source of money, you need to take money
out before the age limit, and you get a ten
percent penalty tax on top of the taxes you're going
(22:54):
to pay on it.
Speaker 3 (22:55):
Already, this has been so enlightening and incredibly helpful. But
before I let you go, do you have any final
parting wisdom about retirement planning or even just how we
should be thinking about planning for our financial future.
Speaker 2 (23:11):
If you try to do financial things based on convenience,
I wouldn't recommend it, because it's because it's when you
put the legwork in you differentiate yourself personal finance. Because
it's not very tangible and it's so far into the future,
people kind of don't bother with it. I'll give you
(23:33):
an example, Vanguard. You can give them your budget, how
much you plan to save, and they run that through
ten thousand different market scenarios. So it's pretty good and
it'll tell you like, here's what you're going to have
in this year and this year and this year and
this year. And I've been using them for like ten
years now, and they're pretty close. If I look back
(23:54):
to each of these last ten years, they were very
very good at forecasting where we were going to be.
I can look thirty years down the road and see
where I'm going to be. I mean that's like, that's empowering.
Speaker 3 (24:11):
Okay, So here are some of the major takeaways that
we have learned today. First, start early. It's going to
help you in the long run. And even if you
start with just a small amount that you're putting away
for retirement every day in your twenties, it's going to
mean that there's a lot less you have to do
later on in life in your forties, fifties, and even sixties.
So even if it's a small amount, start now. We
(24:34):
also learned that we want to diversify. It's super important
to have more than one type of retirement account, So
even if you already have a four to oh one
K set up with your company, consider opening a roth ira,
which has different tax benefits. We also learned about matching,
and that's when your company basically gives you free money
to retire. So if you have a matching program for
(24:55):
your four ROH one K, make sure you're taking advantage
of it. Don't leave that money on the table. And finally,
do your homework and make sure you're setting up a budget.
Seek out free financial planning tools. Those are a great
way to start figuring out how much you should be saving. Now. Well,
that's all for today's episode.
Speaker 1 (25:13):
Join us again in two weeks as we continue our
journey becoming better adults and healthier humans, as we learn
how you can be the perfect guest at your next wedding.
Speaker 3 (25:23):
Thank God, because I think I've been doing a lot
of things wrong, starting with returning oursup cards super late
and buying things off the registry. Can I do that?
I don't know.
Speaker 1 (25:32):
At least you've been getting people gifts. I've been going
around telling my friends that my presence as a present.
Have I been an asshole this whole time? We'll find
out in two weeks on grown up stuff, How to Adult.
Speaker 3 (25:44):
This is a production from iHeartRadio.
Speaker 1 (25:46):
Our executive producers are Molli.
Speaker 3 (25:48):
Soosha and Matt Stillo. This episode was engineered by Matt
Stillo and.
Speaker 1 (25:52):
Written by Molly Sosha. Special thanks to the Ruby team
at iHeart, including Ethan Fixel, Rachel swankras of Amber Smith, Nikkiathswinton,
Sierra Kaiser, Sierra Spreen, and Andy Kelly
Do I have any questions about retirement?
Speaker 2 (00:08):
Aging is natural, getting old is a choice.
Speaker 3 (00:11):
The new retirement is not retiring. No, I need you're
billion dollars when you're in your twenties and thirties. Retirement
seems like an abstract concept.
Speaker 1 (00:20):
My biggest concerns with retirement right now is just starting
from zero.
Speaker 3 (00:26):
Not to mention, the idea of saving large sums of
money early in your career feels impossible when you're just
trying to pay rent.
Speaker 1 (00:34):
But I just don't think I know enough different terms,
the different types of accounts you can have.
Speaker 3 (00:40):
For most of us who don't have an extensive education
in financial planning, were launched into adulthood without really any
information or guide around how to get started.
Speaker 1 (00:50):
You know, I keep hearing that social Security just isn't
kind of be a thing.
Speaker 3 (00:54):
In fact, according to twenty twenty US sets of data,
only forty nine point five percent of the life eils
held some sort of retirement account. That's just barely half
given the current economy, given inflation, so many different things
that we are up against. What's even more telling, eighty
percent of US adults wished that they were required to
(01:16):
complete a semester or even a year long course focused
on personal finance education during high school?
Speaker 1 (01:23):
How much money should I be aiming to have saved?
Speaker 3 (01:26):
Honestly, that would have been great. And I don't understand
why they don't teach us this type of thing in
high school or even as a required gen ed course
in college. I'm not really sure what a roth ira is.
And it's not just planning for retirement. There's all sorts
of stuff that we have to figure out on our
own once we're thrust into adulthood.
Speaker 1 (01:46):
What else should we be doing?
Speaker 3 (01:49):
But today I say no more, no more living in
anxiety over what the future looks like. Today, we are
all taking charge of our lives and learning all the
sea rits and lessons needed to be perfectly functioning and
responsible adults. And we're also going to finally figure out
what the hell ira actually means.
Speaker 1 (02:10):
Hi.
Speaker 3 (02:10):
I'm Molly Soosha, and I'm a podcast producer and a
mediocre millennial who's trying to do the best you can
to figure out how to be a more responsible adult
and better human one day at a time. Along with
my trustee co producer and colleague Matt Stillo.
Speaker 1 (02:23):
Hey there, fellow works in progress we're.
Speaker 3 (02:26):
Going to learn about all the things we wish they
would have taught us in school that might have been
way more useful to our everyday lives.
Speaker 1 (02:32):
I don't want you leaving that money on the table
just because nobody could be bothered to.
Speaker 3 (02:36):
Explain, So start taking notes. Because this is hello everyone,
and welcome to the very first episode of Grown Up
Stuff how to Adult, a show we've created to help
you figure out the stuff you're supposed to know once
(03:00):
you become a quote unquote grown up. Throughout this first season,
we're going to talk to some experts who are going
to help guide us through things like finding and leasing
an apartment, buying a house, carcare one oh one, how
to apply and get approved for a credit card, and
why you need one. But today we're going to be
talking specifically about the basics of how to plan for
retirement and when you should start. But before we get
(03:24):
too far into it, Matt Yes smiling, what do you
know about retirement plans?
Speaker 1 (03:30):
Well? I do know that if I could answer that question,
we wouldn't be making this podcast. But here's what I
can tell you. I know that I want to retire.
I know that I've been lucky enough to work with
a few companies that offer four oh one K plans. Actually,
our current employer offers a matching program with our four
oh one K, which you know is basically just them
(03:51):
offering us free money to help us retire, right, So
I'm definitely taking advantage of that. But other than that,
I'm thirty three. I would like to retire at a
respectable age. But am I on track to do that?
And if not, how can I course correct? Those are
things that I am hoping to find out today.
Speaker 3 (04:09):
You sound like you have your shit together way more
than I do.
Speaker 1 (04:13):
I doubt that very much, but fill me in. I mean,
where are you at with retirement?
Speaker 3 (04:17):
I remember the first time I got a job, my
dad started talking to me immediately about saving for retirement
and all the different retirement plans I needed to have.
But when you start off in media, you do not
make a whole lot of money. And I was living
in New York City.
Speaker 4 (04:32):
And stuff be expensive, just trying to pay that rent,
and so, God love my dad, I just started to
zone out every time he talked about it, which was
probably not the best because he's just trying to help
and make sure I'm covered for my future.
Speaker 1 (04:48):
Okay, well, no zoning out today, because we are joined
by a special guest who thankfully knows a heck of
a lot more about retirement than we do.
Speaker 2 (04:57):
I'm Jonah Batista, and i'm Asset and Wealth Management Senior Manager.
Speaker 3 (05:03):
Jonah works for one of the leading international accounting firms,
and essentially it's his job to ensure that the financial
statements of his clients are accurate.
Speaker 2 (05:12):
I'm kind of like a referee. When management of a
company says we have a bajillion dollars. My job is
to audit those financial statements and give assurance to readers
of those financial statements that what they're reading is complete
and accurate.
Speaker 3 (05:30):
But what makes Yonah even more apps to help us
understand financial planning for retirement is that most of his
clients are in the wealth management sector, so oftentimes their
companies are firms that people seek out to set up
funds for retirement. I wanted to start with the basics
and understand what Jonah sees as the biggest struggles or
misconceptions around retirement planning and figure out how much we
(05:52):
actually need saved a way before we retire. How do
you think about retirement plans from your line of work.
Speaker 2 (06:05):
When I come across friends, family, just anyone who's generally
interested in personal finance, I always try to stress the
importance of planning for retirement. And the main reason the
punchline is no one is going to loan you money
for retirement because they know they'll never get that money back,
(06:27):
right like you can get a loan for a car,
a house, school, home improvements, you name it. But it's
a scary thing to think and acknowledge that no one's
going to fund your retirement. The government will give you
Social Security, but at the end of the day, it's
not going to cover your expenses.
Speaker 3 (06:49):
What do you think are some of the biggest points
of confusion that you notice either talking to your friends
or your family about retirement and retirement planning.
Speaker 2 (06:57):
There's confusion and or misunderstanding of how important time is
in the accumulation of wealth. If you have a million
dollars and you start investing when you're in your twenties
and you're not gonna need this money until you're retired,
you're gonna have a ton of money. And you would say, well,
(07:20):
that's easy. You started with a million dollars, So everyone
kind of is just like, well, the biggest input to
having a successful retirement is having a lot of money
to begin with, and that's not true. What is true
is the amount of time you give yourself to invest
for retirement. For example, if you saved one hundred to
(07:41):
two hundred dollars a month when you were like twenty two,
and you just do that all the way up until
you retire, you would have millions of dollars in retirement.
To get that same amount of money, if you start
that at forty five, you need to be saving maybe
to one thousand dollars or more a month.
Speaker 3 (08:02):
Wow.
Speaker 2 (08:03):
So time is a big misunderstood input to retirement, even
if it's a little bit of money, Just start right
to the extent you can do that. Don't put that
on until you're in your forties or even later. In
some people's cases, it becomes a snowball that's very, very
hard to get on top of if you're waiting too long.
Speaker 3 (08:26):
So let's break it down to the most basic level
of things, like what is a retirement account and how
is it different from a traditional savings account that we
might all already have at a bank.
Speaker 2 (08:38):
There's different kinds of retirement accounts. But the general thing
with these retirement accounts is they have tax advantages. So
for example, you can draw on these accounts once you
hit a certain age and not pay any taxes or
pay lower taxes than what you would have to pay
(08:59):
when and you are investing through a regular brokerage account.
So for example, a lot of people have companies sponsored
four oh one K accounts. That's a type of retirement account.
You could have an individual retirement account and IRA, you
could have a roth IRA. There are various different retirement accounts,
but the punchline on those is there are tax advantages
(09:23):
that you want to take advantage of, and so you
want to maximize the potential of those types of accounts.
Speaker 3 (09:29):
Wroth IRA to me sounds so similar to what a
lot of traditional savings accounts are, right, Like, we take
money that we've already been taxed on, so it's ours.
So what is truly the difference between our wroth ira
and say your savings account at your bank.
Speaker 2 (09:46):
So when you go to a bank, you open up
a checking account or a savings account, right, that's really
just to park your money. So you're not going to
really earn anything significant by parking your money there. So
then the next type of account is a taxable account,
also known as a brokerage account.
Speaker 1 (10:05):
So that's where you.
Speaker 2 (10:06):
Would take the money in your checking account or your
savings account, you'd transfer it to a brokerage account, and
in there you can start buying stocks and bonds. However,
that account is structured differently than a retirement account, so
a roth ira, an IRA, A four to oh one k.
These types of retirement accounts are structured to benefit later
(10:31):
on in life where you can draw on them in
retirement and not pay taxes or at least not pay
as high attax. So let's say you open up a
taxable account and then you also open up a roth
ira and you buy the same stocks in both. Let's
say it's one hundred thousand bucks in these accounts and
(10:52):
I'm sixty five. I can pull out that one hundred
k through my wroth IRA and I'd get one hundred
K in my checking account. Right if I pulled that
hundred k out from my taxable account, it would be
one hundred kus whatever tax bracket I'm in that year,
so it would be maybe seventy five thousand. So they
(11:14):
serve different purposes those types of accounts.
Speaker 3 (11:22):
Is there an amount or percentage of our paycheck? And
I know this depends on this changes based on how
old we are, but on average that you would recommend
a person put away each month.
Speaker 2 (11:33):
So if you try to set up a retirement account
or work with a financial advisor or anything like that,
the first question they're going to say is do you
have a budget? And I think most people don't. And
so going back to what I was saying earlier, where
one of the main inputs is time right to retirement,
the second input is having a budget. And so again
(11:57):
you can do your own research and see where you
want to land. But I've found the fifty thirty twenty
budget to be the one. What that means is you
take fifty percent of your money that should be for
your needs like rent, food, things like that. Thirty percent
should be your wants so like entertainment, traveling, vacations, stuff
(12:23):
like that, and then twenty percent should be your saving.
So the fifty thirty twenty budget is considered to be
pretty frugal. So what I did and what I tell
you know anyone that's interested in this kind of stuff,
is I actually flipped my thirty in my twenty. So
I went super frugal and I saved thirty percent and
(12:48):
limited my wants to twenty percent. And I did that
for a number of years just to get my snowball
kind of rolling. So the I guess the long way
to answer your question is is people need to create
a budget and track their money and see what they
actually can do.
Speaker 1 (13:07):
Right.
Speaker 2 (13:08):
It's easy to say, all right, I'm gonna save twenty
five percent, but if you don't know that you can
do it, you're kind of setting yourself up for failure.
So when you set up a budget, you can say,
holy crap, like I'm spending so much money on these
subscriptions that I forgot I even have I don't need.
This turns out I can actually save thirty percent. Right,
(13:28):
you don't know that stuff until you're going through the process.
So long way to answer your question is fifteen percent
I think is probably a base. The higher you go,
the better it is. The higher you go the sooner
in life, the less you have to do later in life.
It's kind of how it works. Everyone's situation is different.
(13:50):
Some people have families earlier in life, so they can't
save as much, and that's okay. It's knowing how much
you can save and starting the process.
Speaker 3 (13:59):
Yeah, that's an excellent point, and it kind of perfectly
transitions into the next question that I have for you.
How much should we have stashed away, you know, for retirement?
What should be the goal? Like, at what point should
we say? Okay, I think we can start thinking about
this now.
Speaker 2 (14:14):
The rule of thumb is you're going to need around
eighty percent of your expenses a year, plus or minus,
depending on the type of life you want you want
to live. So there are tools out there, like, for example,
I use Vanguard a lot. They have a lot of
free investor tools. Every dollar I spend I throw into
like a calculator and it'll say, okay, is this the
(14:37):
quality of life you want to maintain? Well, yeah, I
love my quality life right now, so yes, let's do that, right.
Speaker 1 (14:43):
Cool.
Speaker 2 (14:44):
It spits out a number and says, here's what you're
going to need each year to maintain this quality of life.
It factors in medical expenses, it's averages, right, stuff like that,
And then it'll say, okay, so this here's the number
that you're going to need to retire. And so so
once you have that figure, you have something to work towards.
Speaker 1 (15:08):
Grown up stuff. How to Adult will be back after
a quick break. Welcome back to grown up stuff How
to Adult?
Speaker 3 (15:27):
Okay, So, a retirement account is different from a traditional
savings account that you open at a bank because it
actually invests your money and grows it, unlike a savings account,
which just accrues minimal interest over time. A retirement account
is then different from your standard brokerage account that also
invests your money because there are various tax benefits associated
(15:47):
with the retirement account. But not all retirement accounts are alike,
and there are lots of different kinds in which you
can put your money, each with its own benefit. According
to Jonah, the smartest move is to diversify the types
of retirement accoun you have. How does it work once
we are retired? Is there a rule on you know,
when you can take money out? Is it a certain amount?
(16:09):
Is it a certain age?
Speaker 4 (16:10):
Like?
Speaker 1 (16:10):
How does it work?
Speaker 2 (16:12):
So let's fast forward twenty eight years from now and
I'm sixty. If I follow all of the financial advice
that's out there, I would have a handful of different
accounts because you have different structures and different advantages. So,
for example, a roth IRA is money I put in
(16:34):
like today that is post tax, and so it accumulates
until I get to that age limit, and then I
can pull it out. And when I pull it out,
I pay zero taxes. So I could actually retire early
if I wanted to, and I could just live off
of that account because I don't have to pay the government.
So whatever I pull out of that account, I get today,
(16:56):
and I can coast until I get to that next
age limit that I have to hit for my four WAK.
So you want to have different accounts for different tax
advantages in different timings. You don't want to put all
your eggs in one basket because say you have an
accident at work, or you don't want to deal with
the stress or family issues and you just can't do
(17:17):
that job. Okay, But then I can't tap my four
to one K cause I haven't hit that age requirement yet,
so I get penalized when I pull money out. So
you want different types of retirement accounts for a tax diversification,
but b it gives you more flexibility, which really equates
(17:37):
to more financial freedom when you get closer to that
retirement age.
Speaker 3 (17:42):
I think this is something really important because to be honest, like,
this is something that I have never thought about, and
I'm sure a lot of the people listening are like, well,
I have my four oh one K through work and
that's all I need. This is a great recommendation, is
that they should probably start also investing on the side
in like an IRA. That's what you're saying, exactly, what
(18:03):
do you recommend when we do leave a job where
we have a four to oh one K or a
four or three B and we start a new job
at a different company with a four to h one
K account, how do we go about making sure we
don't lose track of that money that we already started with.
Speaker 2 (18:18):
So, first of all, that is your money. You don't
want to lose track of it. So there's a couple
of options that you have. You have option one, which
is leaving it with your now former employer. Option two
is you can roll it over. Let's say you have
a new employer they also offer you a four oh
(18:39):
and K or whatever it is. Option three would be
to roll it over into your own IRA. So you
might have one that already exists, or you might open
up anyone. So those are the three options. The biggest
deciding factor in what to do between those three is
(19:01):
what can you invest in? Depending on who the employer is,
their program might have a limited selection of investment options.
So if you know what you want to invest in,
or you have a preference in what you want to
invest in, and one of those options gives that to you,
then go with that option. I'll give you a real
(19:21):
life example. My partner was working and their program was
with Fidelity, and then she left that job and got
a different job and they work with Vanguard, And so
she came to me and said, what do I do?
And I looked at the funds that she was invested
in at Fidelity, and then I looked at the funds
(19:43):
that she would invest at Vanguard, and it looked like
it was five times more expensive for her to invest
in the Fidelity funds than the Vanguard funds, but the
return was the same. So why pay five times the
cost of something to get the same results. So that
(20:03):
was an easy one. We rolled over her for a
one K plan from her old employer to her new employer.
If her new employer didn't have one, or her new
employer had a worse option, then the third option would
have maybe made sense, which was to just open up
her own IRA and then roll it over there. And
(20:24):
so if your old employer is giving you an option
to invest in some pretty mediocre funds that get a
decent return, but they have a really high cost, like
a high management fee, why do that when you can
go to the new employer account where the returns are
higher and the cost is lower. And so again it's
(20:48):
a no brainer. The difference is that it's not convenient, right.
Speaker 3 (20:51):
You got to you got to put some you got
to do your homework.
Speaker 2 (20:54):
You gotta put Yeah, you got to put some legwork
into operationally moving the money around. But when you know
you're going to to save five times costs, I think
you'd be pretty stoked about it.
Speaker 3 (21:08):
You mentioned that there's a penalty with taking things out
of your four oh one K early. Are there any
other extenuating circumstances in any of these retirement or you know,
these types of funds that allow you to take out
your money early, like for example, say buying a house.
Speaker 2 (21:26):
Short answer is yes, And the reason is you want
the ability to draw an accounts at different times in
your life. For example, you come to a point where
you want to buy a house and you may say, oh,
I've just put so much money into my retirement accounts
and I can't touch them. Well, that's not entirely true.
(21:48):
Depending on the type of account and the structure of it,
you may have some advantages, and a roth ira is
an example of one, because any money you put in
as a contribution, you can pull that out free. And
it makes sense, right because that money you put in,
you already paid taxes to begin with. They can't be
double taxing you, right, So as long as you're only
(22:09):
pulling out what you put in, that's your cash. So
there's a down payment, and any of the earnings or
the dividends or interests that you received over those ten years,
don't touch it, leave it in the account. And that's
also accumulating for retirement, so you don't get penalized in
that case. Whereas let's say you're one of those people
(22:32):
who only has a four to oh one K. Well,
if you only have a four to one K, you
come along this path and you're like, oh, I need
money for a down payment, Well you're going to be
in a bit of a tough situation because if that's
your only source of money, you need to take money
out before the age limit, and you get a ten
percent penalty tax on top of the taxes you're going
(22:54):
to pay on it.
Speaker 3 (22:55):
Already, this has been so enlightening and incredibly helpful. But
before I let you go, do you have any final
parting wisdom about retirement planning or even just how we
should be thinking about planning for our financial future.
Speaker 2 (23:11):
If you try to do financial things based on convenience,
I wouldn't recommend it, because it's because it's when you
put the legwork in you differentiate yourself personal finance. Because
it's not very tangible and it's so far into the future,
people kind of don't bother with it. I'll give you
(23:33):
an example, Vanguard. You can give them your budget, how
much you plan to save, and they run that through
ten thousand different market scenarios. So it's pretty good and
it'll tell you like, here's what you're going to have
in this year and this year and this year and
this year. And I've been using them for like ten
years now, and they're pretty close. If I look back
(23:54):
to each of these last ten years, they were very
very good at forecasting where we were going to be.
I can look thirty years down the road and see
where I'm going to be. I mean that's like, that's empowering.
Speaker 3 (24:11):
Okay, So here are some of the major takeaways that
we have learned today. First, start early. It's going to
help you in the long run. And even if you
start with just a small amount that you're putting away
for retirement every day in your twenties, it's going to
mean that there's a lot less you have to do
later on in life in your forties, fifties, and even sixties.
So even if it's a small amount, start now. We
(24:34):
also learned that we want to diversify. It's super important
to have more than one type of retirement account, So
even if you already have a four to oh one
K set up with your company, consider opening a roth ira,
which has different tax benefits. We also learned about matching,
and that's when your company basically gives you free money
to retire. So if you have a matching program for
(24:55):
your four ROH one K, make sure you're taking advantage
of it. Don't leave that money on the table. And finally,
do your homework and make sure you're setting up a budget.
Seek out free financial planning tools. Those are a great
way to start figuring out how much you should be saving. Now. Well,
that's all for today's episode.
Speaker 1 (25:13):
Join us again in two weeks as we continue our
journey becoming better adults and healthier humans, as we learn
how you can be the perfect guest at your next wedding.
Speaker 3 (25:23):
Thank God, because I think I've been doing a lot
of things wrong, starting with returning oursup cards super late
and buying things off the registry. Can I do that?
I don't know.
Speaker 1 (25:32):
At least you've been getting people gifts. I've been going
around telling my friends that my presence as a present.
Have I been an asshole this whole time? We'll find
out in two weeks on grown up stuff, How to Adult.
Speaker 3 (25:44):
This is a production from iHeartRadio.
Speaker 1 (25:46):
Our executive producers are Molli.
Speaker 3 (25:48):
Soosha and Matt Stillo. This episode was engineered by Matt
Stillo and.
Speaker 1 (25:52):
Written by Molly Sosha. Special thanks to the Ruby team
at iHeart, including Ethan Fixel, Rachel swankras of Amber Smith, Nikkiathswinton,
Sierra Kaiser, Sierra Spreen, and Andy Kelly
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