Transcription:

Episode 1 – Law Enforcement Officers Wait Too Long to Invest

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 Donnelley: I want to welcome everyone to the Blue Money podcast here at Valley Financial Group. My name is Jim Donnelley. I’m an active police Lieutenant at the Bensalem Township Police Department. And I’m also an investment advisor at Valley Financial. I’m here with my co-host Kevin McGarry. He’s a managing partner at Valley Financial. We started at this Blue Money podcast to try to help police officers towards retirement, or even right out of the academy. Show them the pathway to having a nice retirement by investing and what the differences are between a 401s and 457s. And I asked Kevin for our first episode, we have done about 60 portfolio reviews in the last year of law enforcement officers. And we always see the same common mistakes and that first common mistake it’s going to be on the show today. And that’s basically why officers wait too long and start investing in their 457 or 401. You want to get into that a little bit, Kevin?

Kevin McGarry: Yeah. Before we dive into those mistakes, I’m looking forward to this podcast, Jim. Your dad was a police officer for how many years?

Jim Donnelley: 30 years, Kevin, F39th District of Philly.

Kevin McGarry: My dad was a fireman for over 20 years. And what I saw is my parents never spoke about money. My dad, your dad went out, worked, put their life in the line every single day they came home. They didn’t say much. And when I noticed, when my dad passed away, like my mom, she wasn’t prepared for the rest of her life financially. So, this podcast is really important to me. I think it’s a great idea. I’m excited about the name. I’m looking to help people and get them on the right track to a great financial life and retirement.

Jim Donnelley: And I think the one thing that really steps out to me Kev is, when we’re talking about finances is where our fathers growing up was, they just had pensions and when they retire, they just also lived check to check with their pensions. But now these officers are having pensions, but they’re also having their 401, 457 drop money, social security. I mean, they have a lot of streams of income coming in. So, it’s important to get the guidance and show them the right path and right direction. So, that’s why I really think in this podcast is exciting because I think we can really help a lot of people out there with some making some decisions.

Kevin McGarry: Right. And just the question again, Jimmy, you want to hit me with that again?

Jim Donnelley: Why do people wait too long to start investing in 457, 401? What’s the problem

With that? 

Kevin McGarry: Yeah. I think the big thing when everyone comes in here and we’re doing the reviews, they feel uncomfortable when like sitting at the dinner table with our parents talking about money, they’ll say, I wish I started sooner. Well, the first thing is you can’t do that. At least you started. The second thing is, it’s important to start now. That’s the most important thing you can take from this podcast today. Start now. Let me give you an example of starting now and waiting to start investing in yourself. I’ll give you an example. You got Katie, she’s 25 year old. She’s on the force. She starts investing $2,000 a year into her 457 over the next 10 years. The growth in her account, she’s averaging around 10%. When Katie’s turned 65, she will have over $556,000 in her account value. Now, you look at Jimmy. Jimmy’s 34, he waited a decade later, start investing into his 457. She’s going to do the same thing as Katie, invest $2,000 annually into their 457 account. But Jimmy’s going to do it for over 30 years till he’s 65, getting the same growth. He’s averaging 10% on the portfolio. Jimmy’s going to have $328,000 in that account value when he retires. So, Jimmy invested three more times than Katie and has over $225,000 less right? Two important parts here. Number one, start now start soon. That’s why Katie’s account grew more. Number two, it’s never too late. Jimmy has $328,000 nest egg to help him and his family who spend on the needs and wants in their retirement. So, I think it’s really important to get started now.

Jim Donnelley: Yeah, Kevin, I think that’s the most important thing. If a cop, police officer didn’t start when they were in their twenties, right out of the academy, it’s never too late. Maybe they’re in their thirties, their forties, or turn fifties. I mean, there’s catch up provisions that we we’ll talk about on other podcasts, but there’s always time. Saving something is better than nothing. And the two type of officers that I see Kev, that I deal with in my experience one officer is right out of academy. This guy just graduated college has a lot of school loans, living at home so he is not worrying about investing. He thinks he has 30, 35 years. He’s going to start investing eventually, but he’d rather save money right now. And get his own place, save a wedding, paying off college loans. So, I get that. Then there’s another guy that maybe he transfers from Philadelphia PD into Bensalem. And this guy might be 32 years old has a couple of years on the job already has two kids. He has a mortgage. So, when he’s coming, he is going to take a pay cut when he first comes to Bensalem. In the long run, he is going to make more money. But in the first couple years, he’s going to take a pay cut. And with that, he just don’t have the money investing on field. He feels like, I know I want to be here for 30 years. Let me get to all this situated. When I start making maxing out with salary, I start putting more away. The problem is these two officers they never start pumping money away. And if they do, it’s usually not enough percentage that’s going to really impact or the future when they retire. So, there are things I see Kevin, as much as we see that Kevin, I think it’s really important to tell these guys it’s important to pay themselves. And Kevin, can you get into that, that’s our philosophy here at Valley?

Kevin McGarry: Yeah. It’s pretty simple. Start now pay yourself first before you spend a dollar. Pay yourself first, invest in that 457, invest in that 401k. Invest in that IRA, buy life insurance, create that emergency account, have six months income set aside. The other thing is, pay down the debt, invest in the health savings account. It’s extremely important to pay yourself first because you’re paying for your future self. That’s what you’re saving for your future.

Jim Donnelley: So, Kevin leading on the other topic that we were talking about the compounds interest with Officer Katie and Officer Jim. So I think it’s a great opportunity familiarize herself with a lot of officers out there that might not know the rule 72. So, Kevin can you break down the rule 72 for audience? 

Kevin McGarry: Yeah. Well, before I dive into that definition, compound interest is extremely powerful. If you look at Katie and the Jimmy example I used the reason their money grew and accumulated, they were gaining interest on their money and they were gaining interest on their interest. And in a retirement account, they’re gaining interest on the money they could be sending to Uncle Sam. So, you’re not giving any gifts to Uncle Sam in an IRA or 401k or 457. Now, once you turn income on, when you’re in retirement, you’ll pay ordinary income tax on that, but that’s the power compound interest. And the way we like to explain it is give you a visual idea of it in a way to do that is with the rule 72. You take the number 72 and you divide it by your rate of return. And that’s how many years it going to take you to double your money. So, let’s say you’re getting 7% of your money, 72 divided by 7, my math Jimmy, it’d be about 10.2 years to double that asset. So, if I’m 25 and I have 50,000 sitting in my 457, I know when I’m 35, if I’m getting 7% of my money, little over north of 35, I’ll have a hundred grand in my account value. And then when I’m 45, I’m still getting that 7%. I’ll have $200,000. And when I hit 55, little older than 55, I have 400,000. And when I hit that 65 age, I’ve close to $800,000 in my account. And that’s without not investing is single dollar into that account. That’s just what the power of compounding. That’s it.

Jim Donnelley: So, I know you didn’t create that role 72…

Kevin McGarry: Somebody smarter than I did. 

Jim Donnelley: So, I know you didn’t come up with that. So, we’ll give a shout out to Albert Einstein to win and invented that. And he used to call it the most…

Kevin McGarry: You think, Jimmy, you think Albert Einstein would’ve hung out with us?

Jim Donnelley: Why not? You know what I mean? Why wouldn’t he? But Einstein used to call us the most [inaudible 00:08:31], the eighth wonder of the world. That’s how powerful compound interest is that. I think if officers really start understanding that, and then he start seeing those accounts double over the years, it gets you more motivated to start stashing more money away because you realize that at the finish line, you’re going to have a big nest. A big, big nest egg there. So, it’s good. We’re going to wrap the show up. Is there anything else that you would like to add or comment to the audience before we wrap this up? 

Kevin McGarry: There’s a couple things. Number one, I’m excited to do this with you, Jim. It’s going to be a lot of fun. Number two, I remember our parents working really hard, protecting community, coaching and helping people. I look forward to continue to help the people and they wear blue every single day. And for those horrible events that just carried up in New York where those two police officers went out to protect the community and they didn’t go home to their family. Something I could never imagine, but I just wanted to let those people know, those officers families, their thoughts and prayers are with us right now.

Jim Donnelley: Thanks Kevin. I’m sure everyone appreciates it out there. And that’s going to wrap up the first Blue Money podcast. And I’d just like to thank all the audience for listening. We appreciate your time. If you need any advice, don’t hesitate to reach out to me and Kev. You can get our contact information at the show notes, but also we have a website valleyfinancial.com gives you all the services and everything that we can help you out with. So, thanks for listening. Looking forward to the next podcast.

Kevin McGarry: Be safe.

Announcer: 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.

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.