401(k)s: Your Biggest Investment Asset. What You Need To Know. No Dumb Questions with Connell McShane and Doug Flynn, CFP. Ep. 6

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Connell and Doug discussed the importance of early retirement planning, particularly through 401(k) plans, and the allocation of money in retirement plans. They also explored the challenges of retirement planning, comparing pensions and 401(k)s, and suggested ways to replicate a pension through investing. The conversation concluded with a discussion on the importance of self-reliance and having a plan for retirement.

Retirement Savings by Generation

In this episode of the podcast, Connell and Doug discuss retirement savings and how different generations approach the topic. They note that the way one thinks about retirement largely depends on their generation, with older generations like the boomers relying more on pensions and younger generations like millennials and Gen. Z focusing more on 401(k)s. The younger generations are also more likely to believe they will rely on their children or relatives for financial support in retirement. Connell and Doug emphasize the importance of self-reliance and early planning for retirement savings, especially for younger generations.

Early Retirement Planning and Roth 401(k)

Doug and Connell discussed the importance of early retirement planning, particularly through 401(k) plans. Doug emphasized the benefits of starting early, citing an example of someone who starts saving at age 22 and ends up with a significantly larger retirement fund by age 67. He also highlighted the advantage of the Roth 401(k) option, which allows for tax-free growth, as opposed to the traditional 401(k) which defers taxes until withdrawal. Connell agreed, noting that the Roth option is often overlooked but can be beneficial, especially considering the uncertainty of future tax rates.

Retirement Plan Allocation and Options

Connell and Doug discussed the allocation of money in retirement plans, particularly for younger individuals. Doug explained the concept of target date funds, which adjust their investment mix based on the investor's age, and recommended automatic rebalancing for those with multiple funds. He also suggested that individuals with more than $100,000 in their 401(k) might benefit from rolling over their funds to an IRA for greater investment options. Connell expressed regret over not taking more control over his retirement funds earlier. The conversation ended with a discussion on whether the current retirement system is working effectively.

Retirement Planning Challenges and Solutions

Connell and Doug discussed the challenges of retirement planning, particularly in the context of pensions and 401(k)s. They noted that pensions, while providing a fixed income, often do not keep pace with inflation and may not cover all expenses. In contrast, 401(k)s offer more flexibility but require individuals to manage their own retirement income. Doug suggested that individuals could potentially replicate a pension by investing a portion of their 401(k) in an annuity, providing a guaranteed income for life. Connell agreed, emphasizing the importance of having a plan for retirement and managing one's own finances. They ended the conversation by wishing everyone a happy holiday season and looking forward to their next meeting.

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