Episode 22 - Facts Out on the Max Out
In this episode of Blue Money, Jim & Kevin are talking more about retirement accounts. This time the guys are focusing on maxing out your retirement accounts. Kevin gives a great rule-of-thumb metric for calculating an estimate of what you’ll need for retirement.
Jim & Kevin are helping you prioritize where your money goes in order to set yourself up for a comfortable retirement. Jim gives the perspective needed to invest in your retirement, as much or as little as you are currently able.
If you were ever wondering who Kevin’s man-crush is, listen to this episode to find out.
Calculations in this podcast have been calculated under the following assumptions:
Pre-retirement portfolio 60/40 diversified portfolio
Post-retirement portfolio: 40/60 diversified portfolio
Inflation rate: 2.5%
Primary earner: 65
Years in retirement:35
To contact Lt. Jim Donnelly: firstname.lastname@example.org
To contact Kevin McGarry: email@example.com
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Episode 22 – Facts Out on the Max Out
This is Blue Money, a finance podcast made for cops by cops. With us, you know your money’s safe. Lieutenant Jim Donnelly of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group, come together to help protect and serve your financial needs. This is Blue Money.
Jimmy: I want to welcome everyone back to the Blue Money Podcast. This is your host, Jim Donnelly.
Jimmy: I’m here on my co-host Kevin McGarry. And Kev for this episode for the Blue Money Podcast. I thought we would touch upon maxing out retirement accounts, the importance of it, what we see when we’re doing portfolio reviews. So, kick it off. Kev, what do you got?
Kevin: No, before I jump into this, I’m talking about maxing out. How about Inner Miami and Messi boy, they’ve been kicked some butt.
Jimmy: Stop. They bought that championship brother. That shouldn’t even be allowed. Like the NBA has that trade deadline. They just pick up Messi during last place with a couple games left the next day they win it.
Kevin: I don’t know.
Jimmy: I don’t know, man. That’s why life sucks.
Kevin: I know. It may, but so many people are watching. I mean, Inner Miami has more Twitter followers or ex followers now than any NFL team. So, Messi bringing the heat. So, but anyhow, I think this topic get off Messi for a second. This topic about maxing out…
Jimmy: I didn’t know who was your man crush, by the way, dude. I didn’t know that.
Kevin: I’ll tell you what.
Jimmy: You like the little Argentina guy. Okay, I got I like that guy. No problem. Yeah, continue.
Kevin: I like guys that score.
Jimmy: Get back to the track, not talking about your man crush.
Kevin: Anyhow, let me score a goal here. But I think the big thing is it’s important topic. I think a lot of people we see Jim come in are under prepared for retirement and not just a lot of prospects or potential clients that come in at Valley Financial Group, but American in general, according to US, census Bureau data, 50% of women, 47% of men between the ages of 55 and 66 has $0 saved for retirement.
Jimmy: That’s scary.
Kevin: It’s crazy. And I think the big thing is, retirement costs something. What’s it cost? I can tell you this, the fidelity ages 55 to 64 married couples will spend around $66,000 a year. Over 10 years that’s $660,000. And you got a big percentage of Americans that don’t have any money saved for that. And social security’s not just going to pay for it. So, maxing out retirement is really, really important.
Jimmy: It’s important. I thought Kevin, I’m like, man, I wonder how many people are maxing out. So, the one thing I saw the IRS data from a study they released in 2018, a 5.1 million Americans maxed out their retirement plan. So, you think that’s sounds like a lot, but then when you realize that’s only 3% of roughly 162 million workers that worked that year, it’s really not. So 3% in 2018, that was when the IRS released it, it’s really not that many people maxed it out. I was kind of surprised by that number. I thought it’d be a lot higher. So, it goes to show you if you’re not maxing out, you’re not by yourself, you’re not out there. If you’re maxing out, you’re great, man. You’re top 3% are only doing it as of right now. I don’t know what it’s in 2023, but I’m imagining it’s not that much higher. Maybe a little bit, maybe.
Kevin: It’s really trying to figure out what retirement’s going to cost you. It’s like, when you’re going up on a road trip and you plug that address into the GPS your destination, the same thing for retirement. What’s that number? And what we know, depending on what you make on annual income a year, you’re going to live off 80 to around 55% of your pre-retirement income. I mean, give you an example. If you’re living off $50,000, you’re making $50,000 a year, you’re most likely going to live off 80% of your pre-retirement income, which would be 40. If you’re making 200,000 a year, that number comes down to around 55%. So, you’re going to need around $110,000 to live all to maintain that type same lifestyle. And if you have zero saved, man, it gets really costly in the saving numbers as you get older. For example, Jim, take a shot at this. You’re 50, you make a hundred thousand dollars a year, you don’t have anything saved for retirement. How much of your income per year for the next 15 years are you going to need to save to get that 80% pre-retirement income?
Jimmy: Probably 50, 60%, somewhere like that.
Kevin: 47%. I mean, it’s half your annual income, right?
Jimmy: It’s almost impossible at that point.
Kevin: So, the most important thing here is to start as soon as possible and it’s never too late, but before you jump in, there’s other things you got to identify to make sure in your financial planning debt, you’re taking care of other issues.
Jimmy: Yeah, like let’s get in that Kev. Like one thing we always tell people, make sure I got the emergency fund right. That’s going to be important. I don’t want to hear, listen, you always have to do your employer’s match. That’s important. I want you got to do that from jump street because you’re leaving money on the table. Before you start maxing out, you got to make sure you have an emergency fund. God forbid something happens, you start tapping in your 401 because you need to take money out. If you have a 457, you only can get money. It’s hard to get money out of your 457, 401 is a lot easier. Law enforcement on 457, it’s tough to get out. Another thing you need to make sure you’re paying down high interest debt, what we mean by that is credit cards. We don’t want you maxing out your retirement account if you’re 20, $30,000 in debt on credit cards, right? It makes no sense. You’re paying, what’s the APR these days? Like 20%?
Jimmy: I mean, through the roof, you’re going to get bury yourself. So, we got to make sure you pay that down. And we hit upon that on a couple podcasts. You could do the snowball approach, avalanche, different ways. So, if you want a credit card debt and you’re hearing this dial back in one of our previous podcasts.
Kevin: I think the big thing is if you look at credit card debt right now, I mean, we just as a country just hit over a trillion dollars and credit card usage, that’s a lot of debt.
Jimmy: That’s with a T bro, a trillion.
Kevin: And you’re probably getting a high APR and people come in in here and they’re looking — if you’re getting, 6 to 7, 8% on a portfolio, you getting charged 29%, you’re losing.
Jimmy: So, you’re losing. So Kev, let me ask you this, what would you recommend now, we have a police officer, he’s maxing out his 457. What other thing do you recommend? And he’s still looking to invest. What other things could you look at?
Kevin: I think you got to look at a few things. Number one is, can you contribute? Are you there to contribute enough to a traditional IRA or a Roth IRA? If you’re making too much income, maybe there’s not tax deductible on the IRA, but there’s a way to open up money if you’re not hitting the brackets where you can contribute to a Roth or to contribute to a Roth. But even if you can open up a traditional brokerage account where you have liquidity and money’s growing and you can outpace cash and safe investments out there.
Jimmy: Yeah, I mean, another thing they can look at like, you’re going to need medical coverage. So, if you’re maxing out, you’re 401, you’re maxing out a Roth or a traditional IRA, I mean there’s also health savings accounts out there for a post-retirement, for your medical that’s going to be needed one day. So, there’s different things out there. That’s why it’s important to talk to financial advisors. Any financial advisors can give you a tip because there’s not a blanket statement. It’s better to bring the individual in look at it, see where their strengths are, their struggles are, and see how you can, capitalize on the money they’re making and what you invest in. So, Kev, let’s wrap this up, but what three points do you want guys to remember or ladies out there in law enforcement,
Kevin: There’s always a solution. We really want you to pay yourself first. And you don’t have to max out from day one. You can start off slowly. You can start off as much as you can, whatever cash flow, extra cash flow you have, you put into your 457 or your retirement plan. And each year if you get a pay raise or your raises or bonuses as we know a lot of law enforcement gets, you can bump up high 1%. You’re going to see an added benefit, especially over time. You have the ability to invest as much as you can into your 457 or your retirement plan. So start early, pay yourself first and understand where your money’s going.
Jimmy: Like you said, the time, it’s the compound interest starts kicking in. That’s when you get excited. There’s nothing sexy about investment in at first. You’re giving, you’re just seeing money go. You might only have 50 grand, a hundred grand, but when you start seeing 300 grand and then 500 grand, 600 grand and you’re getting close to a million, you get excited about investing, you get excited, you see how a compound interest is working. You start seeing how you’re going to change your lifestyle maybe. You’re going to have a better retirement now. More money than you do currently with your current income. Alright, Kevin some great points. I think the most exciting thing, like you said, this is compound interest. It’s going to build over time. And that’s one thing it’s really not great watching your invest first is start off small and you think, oh man, this is really going to change my life as I retire. But you do it for 10, 20, 30, 40, 50 years and you watch that compound interest kick in. I mean, you’re going to have a better lifestyle when you get older than you do currently. So, that’s going to wrap up the Blue Money Podcast. I’d like to thank all of our listeners out there. If anyone has any questions about this podcast or anything in the financial industry, you want a portfolio overview, please don’t hesitate to reach out to me and Kev, thank you for listening and be safe.
Kevin: Be safe.
Thanks for listening to Blue Money. To learn more about Jim and Kevin or for a free financial assessment, visit valleyfinancial.com or click on the link in the podcast description or show notes. Until next time, safe investing.
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