Transcription:

Episode 2 – You Can Start Investing Now

Announcer: This is Blue Money. A finance podcast made for cops by cops. With us you know your money safe. Lieutenant Jim Donnelley of the Bensalem Police Department and cohost Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money.

Jim Donnelly: I want to welcome everyone back to the Blue Money podcast here at Valley Financial Group. My name is Jim Donnelly.

Kevin McGarry: Jimmy D.

Jim Donnelly: I’m a police Lieutenant at Bensalem township police department. And I’m also an investment advisor here at Valley Financial. My co-host Kevin McGarry. He’s a management partner at Valley Financial. This podcast is really just going to hit upon some investment tips for law enforcement officers and share some mistakes that we commonly see when we’re doing portfolio overviews. So, this is going to piggyback off our episode one. Today we’re really going to talk about cops, police officers, not investing enough when they have the cash flow available to them. So Kevin, want to go talk about that a little bit more?

Kevin McGarry: Let me ask you a question, Jim, do you think when you first started you could invest 200 to $250 a month into your 457 plan under your 401k?

Jim Donnelly: I mean, could I? I could but I didn’t.

Kevin McGarry: Why not? 

Jim Donnelly: Because I was worried my lifestyle was different then. I wasn’t thinking long term. I was thinking where am I going this weekend? Me and my boys are going to go to AC or we’re going to the Eagles game. What are we going to do? I wasn’t thinking about I’m going to get married and have children and retire one day and college, weddings. They didn’t teach me anything at the academy about that. So, it really wasn’t important to me.

Kevin McGarry: The reason I asked you that is you could start with something, but you weren’t thinking about it. In our last podcast was like, let’s just get it started. And to be quite honest, if you’re investing 200, $250 a month into your retirement plan, it’s probably not going to get you that dream portfolio over time. I think the way we should look at it by rule of thumb nature, we’re always trying to get the people to come in here. Be if they’re in law enforcement or any profession, we’re trying to get them to save 50% of their salary into their retirement plan each year. That’s what we’re striving for. And if they can’t do that, we’re least trying to get them to invest a percentage that matches their employers match. Let me give you an example. Let’s say you’re making 50,000 a year. And the employers match is 50% of the employee’s contribution up to 5% of that salary. That means you’re going to contribute 2,500. Your employer’s going to kick in another $1,250. That’s free money. So, least try to get to that match. That’s what we’re trying to do. Why is this important? Or better yet, let me take a step back. Just to say, you can’t even get the employer match, Jim. You get pay raises over there. 

Jim Donnelly: That’s correct. 

Kevin McGarry: Like how your pay raises work?

Jim Donnelly: Every January, first you usually get between 3 and 4%.

Kevin McGarry: 3-4%…

Jim Donnelly: Through body contract. 

Kevin McGarry: So, what have you done in the past the work to get your contributions up with those pay raises?

Jim Donnelly: So, what I did, Kevin start maxing out my accounts was, I started investing in my 457 10%. And I tell a lot of officers’ right out of the academy, a good number’s 10%. You’re not even feel it. So, put 10% in there. Now at Bensalem, we have a 2% match. So, if you’re saving 10%, you got the 2% match. That’s 12% in your first year. Every year we get that raise that you were just talking about the 3½, 4%, whatever it is I say put 1% in you’re 457 and take the other raise. So, say it’s a three and a half percent raise. You’re going to put a percent in your 457 and you’re going to take the two and a half raise. So, you’re making more money every year, but you’re also putting another percent in your account so that if you do that for eight years, that’s a percent, every year, you’re already saving 12% with the 10% you started at 2% match from the township. And now eight years, you put a percent every year, that’s 20%. If you’re hitting 20% in eight years, and you’re going to have a career for 30 years, you’re maxing at your account. Every year, you’ll be maxing account and it’s going to grow astronomically. And it’s a big number at the end.

Kevin McGarry: And that’s the big thing here, is always having a plan. And the plan you just walked us through is a plan, that you’re living right now, right?

Jim Donnelly: Yeah, no, absolutely.

Kevin McGarry: And you’re contributing more than over 15% to your 401A and your 457. And just to let everyone know a lot of people that come in here, they don’t even know how much they can contribute to their plans, right?

Jim Donnelly: No, that’s correct. I think before we jump into that, one other important thing is tell guys, if you can’t put a hundred percent, we get checks through law enforcement and what those checks are through the years, education, holiday, longevity, vacation. A lot of times we’d like to spend those checks, call it play money, or maybe swish your money for your kids or whatever it may be. But if you can just get half that and roll that right in and over your 457 to 401, that’s another way to step into it. So, and Kevin, since we’re sitting here talking about all these accounts, can you share with the audience limits for 2022? It changes every year. 

Kevin McGarry: It changes every year, but for this year in your 401k or 457, if you’re under the age of 50, you can contribute up to $20,500 for 2022. If you’re 50 or older, you have a catch up provision where you can put it at additional 6,500 in. So, you can put in, if you’re 50 or older, you can invest up to 27,000 into your retirement plan this year. And if you have an IRA, you can contribute up to $6,000 this year. So, contributing and paying yourself is really important. I think the reason the look here is why, and the one reason why you want to pay yourself first, as we mentioned before, is you’re paying for your future self and the reason why is retirement can be expensive. Right now…

Jim Donnelly: Inflation rate this year Kevin, what’s it? Seven and a half?

Kevin McGarry: Half it’s up over seven. Yeah. I mean, the price of goods are definitely increasing that’s. We can do a whole another podcast on that topic. But I think what to look at is right now, the average retiree cost of living and retirement’s over $48,000. And that’s from [inaudible 00:06:04] numbers. Based from some facts from fidelity, the average retired couple is going to need $300,000 saved after tax money to pay for healthcare in retirement. And then the other thing is those retirees they’re going to take their medicine. They also got to eat. They have to save close to $6,500 a year just to eat the food they’re paying for, times that over 20 years in retirement, that’s over $131,000 just to eat. So, the reason why this is important to save more now, because it costs a lot more later and here’s a rule to help them out. It’s the 50, 30, 20 budget rule. When you get you that paycheck use 50% of it to pay for your needs, 30% of it to pay for your wants and 20% to go into your savings into your retirement accounts and your savings accounts. So, just a tip there for [crosstalk 00:07:02]

Jim Donnelly: That’s great way to look at it. Kevin, I think that’s one thing they, you hit upon. And I know, especially me and law enforcement, I think anyone in the world doesn’t matter what job we do. We don’t realize what the cost of living is going to be in 15, 20, 30 years. If we look back in the eighties and you can look for like a gallon of milk was or bread or what gas was, we laugh at those numbers now because in 2022, those numbers are tripled.

Kevin McGarry: I mean, just think about this, Jim, it’s going to cost the retiree. They’re going to need $500,000 just to take their drugs and eat their food in retirement right now.

Jim Donnelly: It’s a lot of money, man, a lot of money. So, to start guys, it’s really important. Start maxing out those accounts as early as you can and for as long as you can, you’re going to be thankful in the long run. So, Kevin, that’s going to wrap up a podcast for today. I wanted to thank all the listeners for tuning in to Blue Money podcast. If you have any questions, please feel free to contact me and Kev, our contact information will be at the show notes. Or also visit our website at valleyfinancial.com. We have a lot of useful resources in there and a lot of good information. So, thank you.

Kevin McGarry: Be safe out there.

Announcer: Thanks for listening to Blue Money, to learn more about Jim and Kevin or for a free financial assessment, visit valley financial.com or click on the link in the podcast description or show notes. Until next time safe investing

This material is intended to be educational in nature and not as a recommendation for any particular strategy approach, product or concept for any particular advisor or client. These materials are not intended for any form of substitute or individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset class security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley Financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.