Planning in Your 20's & 30's
Planning for your retirement in your 20's & 30's
How can you get ahead of the game and start planning for your retirement early?
In this episode we discuss how to form good habits early on so that you have options when it's time to retire.
Here are a few topics we will cover:
- Having realistic retirement goals - Don't plan on marrying rich or getting a big inheritance
- How to be ready for retirement so you have options. About 50% of people are pushed into retirement rather than choosing retirement
- How/where can I save more?
- Keeping track of your accounts and how much they should grow
- Roth conversion
Thanks for tuning in. Questions about today's episode let us know.
https://ascendinvestment.com/
(801) 476 - 1200
Full Transcript:
00;00;06;29 - 00;00;20;20
Speaker 1
Hello and welcome to your investment partners with Paul and Garrett, where we talk about all things financial, focusing on helping you plan, keep and grow for a successful future. If you're new to the podcast, welcome. And if you're tuning in again, welcome back and thank you for listening.
00;00;20;27 - 00;00;38;05
Garrett Smith
Hello and welcome to your investment partners with Paul and Garrett. Today we're going to talk about financial planning topics and questions that come up most often in your twenties and thirties. We cover areas such as budgeting and how to pay yourself first considerations when taking a new job and some ideas about if you should contribute to a Roth or a traditional retirement account.
00;00;38;18 - 00;00;45;09
Garrett Smith
My name is Garrett Smith and we look forward to having you with us today. Welcome back. Here we go. Episode seven. You ready for another one of these, Paul?
00;00;45;12 - 00;00;53;01
Paul Norman
Oh, you bet. So this is an interesting one. Thinking of what you'd tell a you know yourself when you're just getting started.
00;00;53;02 - 00;01;08;25
Garrett Smith
Yeah. So I kind of wanted to cover the common financial questions we get from people in their twenties and thirties. Just those basic foundational tools, main ideas that if you get right early, it seems to make everything else in the future at least a little bit easier.
00;01;09;02 - 00;01;09;12
Paul Norman
Yeah.
00;01;10;13 - 00;01;18;22
Garrett Smith
Well. Okay, look in the rearview mirror away. Long time ago. 20 year old Paul.
00;01;18;22 - 00;01;19;29
Paul Norman
That is a long time ago.
00;01;20;06 - 00;01;21;20
Garrett Smith
What would you tell 20 year old Paul?
00;01;23;00 - 00;01;47;06
Paul Norman
Well, 20 year old Paul, you know, I think I think when you're talking about finances that early on it's just establishing some, you know, good habits. And so let's just let's just think of somebody just, you know, getting their first real job. You know what? You know what what really should they be looking at? Because, you know, I mean, you come from being a teenager.
00;01;47;06 - 00;02;06;09
Paul Norman
You're living off of your folks. You're you know, you're you have a place to live. You have food. You have a little spending money. You had a job, you know, we all work when we're kids and, you know, you have a little money. But, okay, now you're out on your own and you have a real job. So, you know, what do you do?
00;02;06;09 - 00;02;28;18
Paul Norman
And it's easy to blow it because you you've had more money than you've ever had. But you also write, but you also have expenses. You know? And so I think the first thing that the people need to really take a look at is just, you know, figure out how to budget. And budget's kind of a dirty word, but budgeting is just a very powerful tool.
00;02;28;19 - 00;02;49;01
Paul Norman
That's what I would tell myself first is learn to budget. And I did learn to budget early on and we didn't have, you know, a lot of technology back then when Pam and I first got married. But we read a book, I can't remember that it was called it was called Rich on any Income. And it was a budgeting book.
00;02;49;01 - 00;02;57;11
Paul Norman
And they used the envelope system will now use the envelope system on your phone and, you know, it's still a popular way to do it. But we literally had.
00;02;57;11 - 00;02;59;20
Garrett Smith
Envelopes put cash in an envelope.
00;02;59;20 - 00;03;10;17
Paul Norman
Put put cash in the envelope. And when the envelope ran out, the theory was you just you know, you just quit spending out of that envelope until you filled it up when you got your paycheck again.
00;03;10;26 - 00;03;28;20
Garrett Smith
Yeah. And I think one thing to highlight around budgeting is, is there's there's kind of tracking the expenses, but then there's also the future planning side of it, too. And it seems to be the successful, the more successful I've been in my personal life is when when we were planning ahead instead of just saying, well, where did our money go?
00;03;29;04 - 00;03;32;12
Paul Norman
Well, if you're if you're just looking at where your money when. That's just a diary.
00;03;32;26 - 00;03;34;27
Garrett Smith
Yeah. You're not in control of that.
00;03;34;28 - 00;03;36;20
Paul Norman
That's not a budget. That's a diary.
00;03;36;20 - 00;03;53;12
Garrett Smith
Yeah. And but I think there's a lot of apps and financial trackers that are looking in the rearview mirror and a lot of people start with those. I've had a lot of friends that that's what they started with and it doesn't really get you moving forward because it's just saying, Oh, by the way, you spent more money than you should have in these categories, right?
00;03;53;12 - 00;04;05;18
Garrett Smith
And so I like the idea of saying we have this much coming in and budgeting for the next month or the, you know, the future months to say where we're planning our future income. And so you spend it once in planning and then you spend it again as you go through the month.
00;04;06;02 - 00;04;08;04
Paul Norman
Right. And you do that now, right? Yeah.
00;04;08;05 - 00;04;13;08
Garrett Smith
We still do that. I don't I don't I don't know if I could ever get away from it just for my own personality sake.
00;04;14;17 - 00;04;19;04
Paul Norman
Well, I've kind of gotten away from it. I mean, well, Pam's kind of gotten away from us, so.
00;04;19;21 - 00;04;22;25
Garrett Smith
I'm sure you have to.
00;04;22;25 - 00;04;29;20
Paul Norman
But I guess the point is, is if you if you do that early on, then later on, you don't have to worry as much about it.
00;04;29;27 - 00;04;38;00
Garrett Smith
Well, we've just built such a buffer at this point. Yeah. That, you know, between emergency funds and preplanning, you know, all our vacations and cars are all preplanned.
00;04;38;00 - 00;04;48;28
Paul Norman
For preplanned. We paid for it. Yeah. And you can just go and relax, right? Because you're not on the credit card going, well, this is really fun, but gosh, how am I going to pay this thing off when I get home?
00;04;48;29 - 00;05;07;17
Garrett Smith
Exactly. Well, when we ran into, you know, a few weeks ago, we had the car accident. There's deductibles and everything that's got to be ready for. And, you know, it's just we already had that money set aside because we've been budgeting for so long right now. I, I think a budget allows you, if you're if you're married, to kind of get on the same page with somebody, I think it's easy to have different priorities, obviously.
00;05;07;17 - 00;05;27;13
Garrett Smith
And when, you know, one spending in one area and other spending another area, it's the dollars just don't seem to go as far. But if you can kind of come on agreement and say these are our priorities, you know, we want to travel a little bit more as a family versus going out to eat as much. You know, you can make that decision as is a trade off and and that you know, we sit down every month and kind of go through where we're spending and and it helps.
00;05;27;13 - 00;05;35;26
Garrett Smith
It's just made things a lot easier for the two of us, too. So not only does it keep you from spending too much money, but I really think it helps in a relationship as well for sure.
00;05;35;26 - 00;05;58;00
Paul Norman
And I remember reading a book early on again and there was a phrase in there that caught my attention that applies to budgeting, that is a very powerful savings tool. And the phrase was, 10% of all I earn is mine to keep. And and what that means is that you don't get it's not yours to keep to buy a car with.
00;05;58;00 - 00;06;19;03
Paul Norman
It's not yours to keep to to, you know, spend somewhere else to buy a house, whether it's yours to keep. And the idea there is that you need to take 10% of your income and just put it away. You know, for 40, 50 years, it's it's yours to keep until you need to draw on it down the road is not to keep to spend.
00;06;19;03 - 00;06;24;26
Paul Norman
It's yours to keep. And budgeting will allow you to kind of set those kind of priorities.
00;06;25;09 - 00;06;36;20
Garrett Smith
And so as that kind of leading into saving into like a company sponsored retirement plan or an IRA, that's those dollars that you're referring to to get, get maybe some tax benefits as well as some future savings.
00;06;36;20 - 00;06;56;13
Paul Norman
Yeah, any, any and all sources of savings. Any time you defer current spending for future spending, that's how you build that nest egg. A lot of people think, well, I need you know, I mean, there's a couple of ways to look at retirement. I'm going to win the lottery. I'm going to marry Rich, I'm going to get a big inheritance.
00;06;57;17 - 00;07;13;07
Paul Norman
But for most of us, that just never happens. You know, we have to we have to plan this out. But there is a very methodical way to to grow wealth over time. And that's just to start early and be disciplined and and just don't don't blow the plan up by being stupid.
00;07;14;18 - 00;07;47;11
Garrett Smith
Yeah, I think, you know, time is your biggest benefactor. If you can get a higher savings rate earlier, it's just a bigger buffer in the plan. It allows more flexibility in the future. And a saving high savings rate also is kind of a backup emergency fund plan to, you know, sometimes if you have a high savings rate and problems happen in your life and you can pause for a month or two and use that extra income in the near term and then return it back on, you know, as you kind of get over those humps to I do see high savings rates as a as, you know, a little bit of a buffer in the
00;07;47;11 - 00;07;51;11
Garrett Smith
system as well because you're not spending every dollar you're earning today, right?
00;07;51;21 - 00;08;10;08
Paul Norman
Yeah. You don't go into the car dealer and say, how much can I afford? Right. You don't go to the mortgage person and say, What's the biggest house I can buy? It needs to be all in the confines of what, you know, what really makes sense. So, you know, I was self-employed for, you know, most of my early years.
00;08;11;09 - 00;08;19;07
Paul Norman
And so when you got your first job, what you know, what were the issues when you you know, what was it all fear that you.
00;08;19;11 - 00;08;39;20
Garrett Smith
Yeah I just there's the local you know calibration company out here that does they measure lasers is a pretty fun little job there. It was kind of my first real you know had company benefits retirement package and and that whole deal up to that point I'd really just worked for myself mowing lawns and doing things like that and I was kind of surprised everything that a company offers.
00;08;39;20 - 00;09;02;01
Garrett Smith
I wasn't really aware of it at the time. But yeah, generally speaking, you have a retirement plan. a41k plan is the most common. And what you have in there is if you put in some money, if you save some dollars, defer a percentage of your paycheck, your company will most often match you a percentage. So if you save 5% of your paycheck, oftentimes the company will match 3% of that as well.
00;09;02;14 - 00;09;22;22
Garrett Smith
And and so the sooner you can do that, when you have a, you know, quote unquote, a real job, I guess a paid salary job is it's that's extra dollars you get into your savings because it's basically a 3% pay raise. Now, there's some places that will just pay you, you know, north of 14% to match your to match your retirement package.
00;09;22;22 - 00;09;42;04
Garrett Smith
And so getting into those earlier is more dollars now versus waiting because you didn't understand what you had. And so I spent some time in those in those packages that I think that for one case are critical. And there's other retirement plans out there for one case, the most common. But getting that company match as soon as you can is just a pay raise.
00;09;43;03 - 00;09;59;07
Garrett Smith
And I also think it's you know, you get into the health insurance world and health insurance is really expensive when you're out on your own. And so utilizing the benefits from an employer is a great way to go. An understanding in and out of network doctors. That took us a while to get used to understanding, you know, deductibles.
00;09;59;07 - 00;10;18;25
Garrett Smith
Not only, you know, you have individual deductibles, but as well as family deductibles are often different. So even though one person may have met your deductible, you're still paying out of pocket to meet the family deductible for for another individual. So just understanding how all those work together so you can start saving that those dollars planning ahead because you know stuff does happen.
00;10;19;20 - 00;10;39;19
Paul Norman
Yeah. And I think that kind of helps to just finding out when you're trying to figure out where to work, just look at the benefit package because, you know, benefit packages are very, very expensive. You know, as an employer, I know that it costs you know, it costs a lot of money to have retirement plans, provide health insurance for employees.
00;10;40;07 - 00;10;47;18
Paul Norman
You know, sometimes there's dental plans and all kinds of things, and those certainly should be taken into consideration and job selection.
00;10;47;18 - 00;11;24;01
Garrett Smith
So and I think just to touch on one extra point that's become really popular, especially in the tech industry, are those that get stock options for ownership into a plan and those you need to take really good consideration because when the market only goes up, stock options look awesome. But when you get a big sell off, you know, you may be actually underemployed versus be underpaid versus market norms because if a large percentage is coming from stock options and those options are not worth anything because the company's hasn't performed as expected, that can be a detriment too.
00;11;24;01 - 00;11;35;06
Garrett Smith
So there's pluses and minuses there and spending your time, if that becomes an option to really understand how those benefits work, especially at different prices of of the company valuation.
00;11;35;18 - 00;11;36;03
Paul Norman
You know.
00;11;36;10 - 00;12;02;06
Garrett Smith
I think another thing that we, you know, we often get asked during that time is, is, you know, do you do a traditional IRA or a Roth IRA? There's a lot of options. Now, that's a, you know, traditional for one K or a Roth four. Okay. Newer plans have a Roth option in there. I think kind of highlighting some of those differences about when it's beneficial versus the others is something that comes up a lot this time.
00;12;02;15 - 00;12;27;15
Paul Norman
Yeah, it really does. And it's, you know, when you're in your twenties and thirties, it's it's a real easy decision and it's the Roth. And then the reason you should do Roth early on is and so the big difference is, is the deductibility of the contributions going in and then how the money comes out and the taxation there.
00;12;27;15 - 00;12;49;23
Paul Norman
So a Roth for a1k, you do not get a tax deduction to put the money in at just a traditional one. You do you get a you get a tax break to put it in, but you're in your early earning years. So your, you know, your tax bracket is probably not as high, but more importantly is just the time of compounding that occurs.
00;12;49;23 - 00;13;17;29
Paul Norman
If you're in your twenties and thirties, that money is going to compound for, you know, 30, 40 years. And the growth is just phenomenal at that point. And then the difference when you pull the money out the traditional way, you build this big pile of money. So let's say your foreign K grows to $1,000,000, you're ready to retire, you start pulling money out in the traditional way.
00;13;18;10 - 00;13;51;22
Paul Norman
All the money that's pulled out of there is taxed 100%. And on the Roth for one K option, all that growth, if you had that, say, million dollars in a Roth for a1k, you could pull as much out of there as you want. And there's just no income taxes do on it. So early on. The decision is really easy just for speed that that Roth 401k and get all the as many dollars in there as you can later on when you hit 4550 you know, then you have to kind of do a little more advanced planning to make that decision.
00;13;51;22 - 00;13;54;16
Paul Norman
But early on, it's really easy to decide.
00;13;54;16 - 00;14;11;14
Garrett Smith
Yeah, in virtually all cases, starting with the Roth is the best place to go. You know, I think the only exception might be is if you have a high income for just a few years, you know, for two years you're making a lot of money in your mid-twenties because of a business you started or, you know, a job you happen to take.
00;14;11;14 - 00;14;32;02
Garrett Smith
And you just need that reduction in the short term. But generally speaking, 99% of the time, getting as many Roth dollars in as soon as you can is is beneficial because, you know, it allows it just gives you more flexibility down the road of kind of being a little bit more in control of your tax bracket because you can pull from that bucket whenever taxes are too high in retirement.
00;14;32;13 - 00;14;51;01
Garrett Smith
And the more you have in there, the more flexibility you have. And and time it time is your biggest friend right now in your twenties and thirties of just trying to get more dollars in there. You know, and I think the best way to I've seen this start doing it is, you know, start with whatever number you're comfortable with, you know, 5% of your salary.
00;14;51;05 - 00;14;52;23
Paul Norman
And whatever it takes to get the match.
00;14;52;23 - 00;15;14;08
Garrett Smith
You want the minimum to get the match for sure. And then and then. But if you can do more than that, you know, get up to 10%, that's great. And then anytime you get a pay raise to take half of the raise home and put half in the 401k, I think it's a great option if you get a 4% raise at the end of the year, but 2% extra into that 41k and take 2% home, then you're just not used to the extra dollars yet.
00;15;14;08 - 00;15;23;06
Garrett Smith
It's really hard myself. Seen it for clients, see it time and time again. It's it's really hard when you get used to money to then go back and save.
00;15;23;11 - 00;15;46;16
Paul Norman
Right yeah that extra doing it at the time of a raise you know before long, you know you're at ten, 12% and you just, I just don't think a person can fail financially saving, you know, ten or 12% of their income over the course of their working career. It's just they're going to have what they need to retire very, very comfortably if they do that.
00;15;46;24 - 00;15;58;12
Paul Norman
Yeah. Sometimes it's you know, you get right off the bat. It's it's it might be tough to just do 10%, but do what you have to do to get the match and then just bump that every time you get a raise is a great way to do a yeah.
00;15;58;12 - 00;16;16;03
Garrett Smith
And, and the sooner you can do it obviously the better because it's just more dollars working for for a longer period of time. Lastly, I just kind of wanted to touch on is is oftentimes you're having a lot of job turnover during your twenties and thirties, maybe job hopping. You don't quite know where you're at, which is which is fine.
00;16;16;03 - 00;16;49;12
Garrett Smith
And I think it's actually a beneficial thing because we've seen lately that usually those that change jobs do end up earning a little bit more money than just staying with the same employer, especially during these early years. And, you know, so what's kind of some consideration before you choose to leave a job, before you take another one? You know, one thing I was I was thinking about was just making sure that you had enough cash on hand, that if getting that next job doesn't pan out quite as quickly and I've seen some people leave a job because they've been frustrated with it, but they didn't quite get hired on the job that they were expecting
00;16;49;12 - 00;17;12;19
Garrett Smith
to for whatever reason. They and and that period of time can can be long especially got a young family or and so making sure before you choose to leave a job that you've got a little extra emergency cushion in your in your pocket, you know, just in cash in a checking your savings account that's ready to go before you choose to leave a job.
00;17;12;23 - 00;17;18;16
Paul Norman
Yeah, and I've always felt like it's easier to get a job when you have a job, you know, means you're in demand.
00;17;18;27 - 00;17;39;00
Garrett Smith
And I think last considerations, just buying a home. This is, you know, a big one right now. It's on everybody's mind with interest rates moving around. And, you know, nobody has a crystal ball. But what have you kind of seen some successful ways of somebody preparing to buy their first home, especially? And, you know, it's a tough market right now.
00;17;39;00 - 00;18;04;16
Paul Norman
Yeah, that's a that's a tough one because there's you know, we are our homes are kind of a a source of security, but also a source of pride for us. Right. I mean, we want to live in the right neighborhood and we want to have the right kind of housing. And it seems like most of us kind of overextend when it comes to, you know, buying that first home.
00;18;04;16 - 00;18;25;20
Paul Norman
We we want to just get as much as we can. And that's a that's a you know, you have to be really, really careful there because I don't know what the the lending ratios are right now, but it used to be you could you could have your house payment be like 35 to 40% of your of your income.
00;18;25;20 - 00;18;50;20
Paul Norman
And I just think that's you just have to be really careful because it just squeezes out everything else that you can do. And so, you know, especially with interest rates going up, I think people just need to be really careful about, you know, not maximizing the amount that they can pay for a home. You know, start off modest and and then go from there, get in the market somehow.
00;18;51;16 - 00;19;10;13
Paul Norman
But don't I? I just would caution people to not get overly ambitious early on because it's you know, it can it can really sink you for a long period of time. If your house payment's too big and you don't you're not able to build up that emergency fund. You're not able to properly find your 401k. And that goes really with any debt.
00;19;10;13 - 00;19;17;16
Paul Norman
You just have to be really careful with debt service because it can you can kind of suck all the energy out of your out of your budget in a hurry.
00;19;17;23 - 00;19;41;22
Garrett Smith
Yeah. Consumer debt. Home home debt. You know, home mortgage payments. It's those are the first dollars. You got to pay those. Yeah. You know, it's tough, but if you can get in, you're getting your first home. You don't need to buy the 100 year home right off the bat. Yeah. You know, we've stepped around a few times and it's worked out for us and it being when you when you can at least be participating in the market, it makes the next step easier.
00;19;41;28 - 00;20;00;20
Garrett Smith
The first one's the toughest one. Yes, first one's by far the toughest one. Yeah. And so if you can have enough cash on hand to get into a home, especially if you're planning on being in an area for a while, you know, obviously there's renting considerations. If if you're moving on, you know, you don't want to take on that kind of obligation.
00;20;00;24 - 00;20;14;08
Garrett Smith
Yeah, for sure. And then I think that kind of is just, you know, the last idea of, you know, just avoiding consumer debt during this time of life. It's really easy just to pull out the credit card and buy the new TV. Yeah, you know, Super Bowl Sunday's coming up by the TV. Put it on the credit card.
00;20;14;10 - 00;20;30;25
Paul Norman
Just don't do it. Just, you know, couches, you know, washing machines, all that kind of stuff. Just don't just don't borrow on it. It just they just don't last long enough that, you know, they just immediately depreciate. And you have to do with less there.
00;20;31;07 - 00;20;46;10
Garrett Smith
Yeah. And it seems to me if you start doing that early on, you never really change, you never get out of that. But if you're used to, you know, buying the washing machine on a credit card, just what you're going to do the rest of your life. You know, big habits are really built in your twenties and thirties.
00;20;46;14 - 00;20;52;08
Garrett Smith
Yeah. And so, yeah, avoiding consumer debt in any way, shape or form is just, just a great bet.
00;20;52;08 - 00;21;00;18
Paul Norman
That's why it comes back to that first principle of just the budget. It just right. If you just get that right, it just makes everything else so much easier as you go along.
00;21;00;27 - 00;21;12;02
Garrett Smith
Right. Well, I think it's been a good discussion and obviously everybody's in each situations their own. And if you have any questions, we're always happy to answer for you if they want to give us a call.
00;21;12;10 - 00;21;15;11
Paul Norman
Thanks for listening. Appreciate it.
00;21;15;11 - 00;21;32;02
Speaker 1
Thank you for tuning in and listening to your investment partners with Paul and Garrett. If you like what you heard, be sure to subscribe to our podcast on iTunes, Spotify or wherever you get your podcasts. Also visit us as an investment dot com where you can subscribe to our newsletter to keep you up to date. See you in the next episode.
00;21;32;13 - 00;22;09;03
Speaker 1
Kessler Norman and right LLC DBA Ascend Investment Partners is a registered investment advisor. Advisory services are only offered to clients or prospective clients where our firm and its representatives are properly licensed or exempt from licensure. No advice may be rendered by ASCEND investment partners unless the client service agreement is in place. The opinions expressed in this podcast are for general informational purposes only and are not intended to provide specific advice, performance data or recommendations that any particular security portfolio of securities transaction or investment strategy is suitable for any specific person.
00;22;09;13 - 00;22;32;24
Speaker 1
This program is only intended to provide education about the financial industry. All opinions contained in this podcast are subject to change at any time without notice to determine which, if any, investments may be appropriate for you, please consult with your financial advisor prior to investing. Any past performance discussed during this podcast is not guaranteed of future results. As always, please remember that all investing involves risk and possible loss.
This content may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.Ascend Investment Partners is not a legal or tax advisor. You should consult with your attorney, accountant and/or estate planner before taking any action. Ascend Investment Partners did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Ascend Investment Partners or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy Services offered through Kesler, Norman & Wride, LLC dba Ascend Investment Partners, a Registered Investment Advisor. This message and any attachments contain information which may be confidential and/or privileged and is intended for use only by the addressee(s) named on this transmission. If you are not the intended recipient, or the employee or agent responsible for delivering the message to the intended recipient, you are notified that any review, copying, distribution or use of this transmission is strictly prohibited. If you have received this transmission in error, please (i) notify the sender immediately by e-mail or by telephone and (ii) destroy all copies of this message. If you do not wish to receive marketing emails from this sender, please send an email to garrett@ascendinvestment.com Please note that trading instructions through email, fax or voicemail will not be taken.
To Get Started Click Here
(https://ascendinvestment.com/start)
Sign Up for Email to stay in touch
(https://ascendinvestment.com/signup)