Saving, Investing, and Career Moves for Couples of All Ages – Episode 151

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have our co-host, bestselling financial author, Kim Butler with us. And today we’re going to be specifically talking about an article out of the November 2016 Money Magazine. And it’s called the 21 Smartest Saving, Investing, and Career Moves for Couples of All Ages. So Kim, I know we’re going to have some fun with this. I’m sure there are a few things in here you’ll agree with, but we’re just going

[00:55] to jump in here, if you would. We’re going to start about our 20s and 30s. And I did not realize this now, but from what I understand, companies now mandatorily start you at a 3% contribution to your 401k. It’s not an election. You have to sign an election to not contribute 3%. Were you aware of this? Yes, that is crazy and I think really, really evident on why the 401k is so much forced upon people because it is now being offered in a really unfair way, a really inappropriate way, and it is not helpful to people. And yet this is what all the magazines are recommending. It’s crazy. It makes no sense. And then, of course, the next thing is that, of course, they’re saying 3% is nowhere near enough and that you should go for the absolute maximum that your employer would be willing

[02:10] to take out for you. Well, they’re right on one part, and that’s that 3% is nowhere near enough. But if you are able to get a higher match, MATCH, of your money, then sure, I could support taking out more of your income. But let’s leave the decision to you, the employee, not have it forced upon you by your employer. And then second of all, this idea that you should max out your 401k, MAX, is just really not effective. And we’ve proven this numerically a hundred different ways with lots and lots of different clients. And it goes against all of the seven principles of prosperity. It goes against our clue acronym. We can just run through that real quick. Your 401k money is not anything that you can control at all.

[03:02] You are putting it into a black box to be locked up until you’re 59 and a half with a small selection of investments available. And it’s not liquid. And this is a big problem that families are having, is they don’t have any liquidity. They might have a little bit of money stashed into their 401k, and then they are maybe laid off or they want to switch gears from an employment standpoint, or they need to replace their air conditioner on their home or whatever it is. And they have no liquidity. And this is very detrimental to families. And then, of course, you can’t use your 401k. It just sits there and hopefully it grows. But it’s probably invested in the stock market, which means it grows like a roller

[03:43] coaster ride. And the actual end result is who knows what. And then you also can borrow against it, but it’s not a very effective strategy because what you do when you pay it back is use after-tax dollars to pay it back. And then those after-tax dollars are stuck in that box again called the 401k plan, which of course comes out taxable. So you’re double-taxed on the dollars that you pay back the loan with. So it completely goes against our stated principles of control, liquidity, use, and equity. And again, I’m not saying don’t do a 401k. If you have one and you get matched on it, absolutely, contribute up to the match, M-A-T-C-H. But it is not our recommendation at all that you max it out, M-A-X.

[04:30] Now, here’s one that I do think that I could agree with, and we’ll see what your opinion is. And that is if you are a couple looking at each of your 401ks and deciding that the one with the match is the one that you want to contribute to and possibly using an IRA for the other spouse. So, yeah, that could work, but I’m not sure I see the value of the IRA. So here’s the old thinking that is get the deduction today for putting money in the IRA. Of course, IRAs are not matched at all. And then take that money out down the road when you’re, quote, in a lower tax bracket. And yet I don’t know anybody today that feels like tax brackets are going to be going lower over time. And so you are submitting to old thinking, which was an IRA is a good way

[05:27] to save money for the future. Whereas right now, it’s quite clear that IRAs are going to subject you to potentially more tax in the future. So I have to say, no, I disagree with that one also. OK, let me rephrase this. I probably didn’t phrase it properly. But number first point is, is that you shouldn’t automatically fund both IRAs. Look at which IRA it makes sense to fund first. And then number two, if it doesn’t you don’t have a match and it doesn’t make any sense. Look to the Roth IRA. OK, the Roth IRA. Now, that’s interesting. So the Roth can be beneficial. It is certainly better tax law. And yet the money is still locked up till 59 and a half. And I already covered how detrimental this can be for families.

[06:23] So you just have to be careful with it. I think if you have good savings already handled and you have a good place to continue to build that savings, because we all know the older we get, the more savings we want, then you could consider the Roth IRA. But I think families need to be very, very careful about locking money up for 30 years. It’s just not wise in today’s very fast moving world. All right, now we’re going to jump ahead into our 40s. And it says our 40s now is when we should be focusing average 40 year old couple has a household income of one hundred thousand dollars, should have amassed a savings of two point six, two point six times their salary are two hundred and sixty thousand dollars, according to research at JP Morgan.

[07:12] And now’s when you really need to start looking at like paying off all of your debt, including your home. Oh, gosh. Well, let’s work backwards. So paying off your home is something that some people have to make a decision around that is very peace of mind oriented. So I’ll just set that aside. If you absolutely no matter what anybody says to you want to pay off your home, then fine, you can do that. But is that the most financially efficient thing to do? Absolutely not. We’ve got a book called Busting the Interest Rate Lies that goes through this very, very thoroughly. And we have some video material as well. If you need it, let us know. You can email us hello at partners number four prosperity dot com.

[07:58] And we can get you the video. But paying off other debt is fine. But I don’t know why one would want to wait until their 40s like to get out of credit card debt and you’re always going to have car loan debt. So I don’t worry about that so much. But I will agree that the get out of credit card debt is OK. But I absolutely do not agree that get out of mortgage debt is OK. I think your goal should be to have as big a mortgage as possible for as long as possible. And, you know, for most people, that’s just a 30 year mortgage and that’s fine. But please don’t prepay it. Please don’t lock money up in that home that you cannot get at and is not controllable, is not liquid, is not usable for anything.

[08:42] Because although the bank might give you a line of credit on it, they might not. So we certainly can’t say that it’s usable for anything. And while it certainly does act like equity, it negates itself because the first three of our clue acronym are not going to work for prepay mortgage dollars. Those are just not controllable, not liquid and not usable by anything. Now, here’s another one that I like. We can see what you think. It says, don’t flunk the college test. By the numbers, you should put retirement savings ahead of college. After all, no one will lend you money to finance your golden years, even though your heart may say otherwise. Well, I will agree with that. And you are right. We see a lot of families wanting to send children to school,

[09:35] spending lots of money sending children to school. And they are clearly hurting any of what we would call typical retirement dollars. So I agree. It’s hard for me to say it, but I can agree that we should be putting dollars aside for our future before we subjected them to the loss that college is going to get. Now, of course, you know, gets a child’s education. But when you send money to the college, you’ve not only lost those dollars, you’ve lost the opportunity to invest those dollars for the rest of your life. And those can be big, big numbers. And the final one for your 40s is embrace enough. It’s time to stop trying to keep up with the challenges and decide what is your lifestyle and stick to it.

[10:28] Well, I’d have to say that works well for all ages, in addition to just the 40s. But, you know, I don’t know, that’s a toughie. I think sometimes embracing enough is a good approach, but it can also be very limiting. So if you have a desire for more, then find a way to earn more income. And that can then help you save more money. And then you can have whatever lifestyle you want. One of the biggest things that I think is so helpful, no matter where you are, no matter what your age is, is to save 10 to 20% of your income first and then spend the rest. And then that can help you create a lifestyle that you consider enough. I’ll definitely admit I’m a big one to say stop focusing so much on the material, etc.

[11:18] And I do totally understand that that’s harder to do maybe in your 20s and 30s. But if you can add some inspirational or spiritual aspect to your life, then the focus on the material can become less important. And that can happen at any age. Got it. Now we’re going to jump into the 50s. 50s is where you should be using online retirement calculators to decide where you are versus where you want to be so that you know how much you’re behind. Oh, dear. So I wonder, how much does it help somebody when they know they’re behind? I mean, to me, that is something that people kind of know inherently. And no matter what financial calculator you look at, most people are behind. I mean, you just have to have a ridiculous amount of money

[12:14] to actually be able to, quote, retire at the typical age of 65 or what have you and live for another 40 years without ever saving any more money. I mean, it’s just astronomical the amounts of money that is required to do that. Arguably, some families can. But for most of the rest of us, me included, it is so important that we keep working and that we find work that we love and we do it for as long as we can and that we feel good about our savings and good about our financial capability. Not bad. We don’t want to pull out the ruler and be the disciplined nun, you know, tapping on all the kids’ knuckles because you didn’t save enough money to me, it’s just better to focus on what you can control,

[13:00] which is how much you save today and not try to figure out what you need in the future. Nobody knows anyway. So why are we continuing to try to figure that out? We’re better off just focusing on what we can control, which is saving today, saving the money that we can save today and inching forward, trusting that the rest of our financial lives will work out when the time is right. And again, yes, at some point, maybe you can do a little light retirement projection, but to me, this heavy emphasis on calculators and trying to figure out averages, which as we’ve already stated, are not actually going to be anything relevant to your money. The exercise might be mathematically correct, but it’s not going to be monetarily correct.

[13:54] I just don’t find that helpful. In fact, I find it detrimental. Okay. How about close the bank of mom and dad, as well as the apartment of mom and dad, I guess, as far as the kids need to go and take care of themselves. Absolutely. And that too, that needs to start way earlier than when the parents are in their 50s. The children need to have opportunities to earn money when they’re younger and to start to learn how to live within that capability. And that’s tough stuff. I understand. I talked to somebody the other day. They’re still supporting their 28-year-old daughter. He knew that he shouldn’t be. So it’s not like it was my job to help him understand that. He already knew that. That is tough.

[14:42] I understand. But find a way to sit down with your children if they’re already past adult stage and help them understand how you’re continuing to provide them financially is actually hurting them, not helping them. And ideally, we’ve caught you at a younger age and you can start to help your children understand that there is not going to be a continual providing of capability from mom and dad once they have the ability to live on their own. And it isn’t anything that’s going to happen overnight. And it’s not an easy thing. I understand that. I’ve got kids that are still in college. And so obviously, I’m still helping them. And I’ve got other kids in our family that are out on their own and making a go of it.

[15:29] And those lessons, though tough, are part of what they need to learn to be adults in our society and to be productive and to feel like they can stand on their own two feet. So as hard as that is, I really encourage if you are still supporting adult children, sit down and have a conversation with them, give them 30 days notice or whatever you need to do, but cut those ties. Super, super important thing to do. And if they do need to live at home, you said the apartment of mom and dad, okay, then let’s have them live as adults. They need to be contributing. They need to be, if not financially, then at least by work, by hours, by cleaning the home, mowing the yard, you know, picking things up, running errands, fixing food,

[16:19] whatever it is that they can do, develop that as a strategy for them to be contributing. This one, I would swear that you wrote this next point. So this is one you’re going to have to agree with. Don’t confuse retirement and holidays. You don’t have to retire in order to have holidays. You can have holidays at any point you want them. I do like that. Yay. Absolutely. And I think for a lot of people, that’s truly what they need is they need a couple weeks of true vacation or a, you know, maybe a sabbatical. If you are feeling like, oh my gosh, I’m 55, 65, whatever, and kind of wanting to quote, slow down or quit. I can’t stand the term slow down personally, but if that’s running through your head,

[17:11] then ask your employer or structure your business in a way that you can take a sabbatical. Go take three months off, go take six months off, really disconnect and get the holiday, get the rejuvenation back in your life that you want. And then go forward again, because that is where you’re going to really get your juice is when you’re in an active contributing role. And we don’t want every day to just fall into being a Saturday where we spend more money, but we don’t really do anything of substance. Truly take a holiday of an extended period of time and go get the rejuvenation you’re looking for. Super. Well, again, I want to make mention that this is the November 2016 Money Magazine, 21 Smartest Savings Investing and Career Moves.

[18:03] This is No BS Money Guy, Todd Strobel, special guest, Kim Butler for the Prosperity Podcast. Again, we invite all of you to send us your comments at hello at partnersforprosperity.com. Thank you all so much and we’ll see you again soon. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.