Planning in Your 40's & 50's
Planning for retirement in your 40's & 50's
How can you financially enjoy your life?
In this episode, we discuss different things you can do to help plan for your retirement in your 40's and 50's so you're not constantly stressed about your next payment.
Here are a few topics we will cover:
- Work option flexibility
- "Pay off my house account"
- Options of where to pull money from
- Being intentional about your retirement savings
- Knowing what your tax bracket is
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;21
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;28 - 00;00;41;08
Speaker 2
Hello and welcome to your investment partners with Paul and Garrett. Today we're talking about financial planning topics and questions that come up most often in your forties and fifties. Cover additional areas to save. They may help to pay off debt down the road, such as a mortgage. Some considerations about what to do with an old for one game and a little bit of family dynamics as your parents start to show their age.
00;00;41;26 - 00;00;47;15
Speaker 2
My name is Garrett Smith and we look forward to having you with us today. Episode eight Here we go. Another topic, another day.
00;00;47;17 - 00;00;52;17
Speaker 3
A little older people a little closer to my age. Still still pretty young people, though.
00;00;52;17 - 00;01;11;13
Speaker 2
Yeah. Today we're going to cover, you know, kind of your financial planning considerations through your forties and fifties. I think this is a critical time. I think this is an interesting time of life. Your late thirties, early forties is kind of when the old habits really start start to rear their heads if you're an early saver. Really makes a difference in your forties and fifties.
00;01;11;14 - 00;01;16;13
Speaker 2
If you're a late saver, it's a little more painful to start saving it, you know, in your fifties.
00;01;16;13 - 00;01;29;11
Speaker 3
Well, it's a heavy lift to. Yeah. I mean, you've really got to have you haven't got much going by the time you're in your mid-forties. You know, you've really got to sit up and pay attention because it's it's a steep climb from there.
00;01;29;14 - 00;01;44;14
Speaker 2
Especially if you're wanting to retire in your early sixties, have your you know, if you're in the camp of I'm never going to retire, that's a different conversation. And we kind of generally lean to, you know, how can we help? Most people have the common goal of of at least having the option to retire in their early sixties.
00;01;44;25 - 00;01;52;10
Speaker 3
And that is the key, the option to retire. So I can if I want to. But if I'm enjoying work, I'm going to keep going.
00;01;52;13 - 00;02;00;20
Speaker 2
Yeah. And I also think it opens up the flexibility of maybe I'll change a job and and work part time somewhere. I really enjoy working versus full time at a place that's like me.
00;02;01;02 - 00;02;01;12
Speaker 3
Yeah.
00;02;01;17 - 00;02;07;09
Speaker 2
Yeah, exactly. Yeah. So the just the work option all is really the goal is just having that flexibility.
00;02;07;11 - 00;02;12;25
Speaker 3
Absolutely. You said something about a statistic about in people in their fifties, like 50% of them.
00;02;13;00 - 00;02;34;26
Speaker 2
Yeah. When you well, just general retirement, about half the people fall into retirement or kind of pushed into retirement versus choosing to retire, meaning they may have a family member who becomes disabled. They have to go take care of, you know, there's layoffs at a company. You know, we all hear stories of, you know, you're you're kind of the 50 year olds are the ones that are usually those that get cut when layoffs happen.
00;02;35;00 - 00;02;38;29
Speaker 3
They're the most expensive and the sickest. So how can we legally get rid of these people?
00;02;39;00 - 00;03;04;16
Speaker 2
Yeah, it's it happens all the time. And so it's it's about half the time, you know, you have a 5050 shot, whether you choose to retire or kind of you're pushed that direction. And and so in your fifties, you've just got to be ready whether it's, you know, whether it's for retirement or just being, you know, able to have enough cushion to pivot into another job if something were to happen because cause layoffs are common in this age.
00;03;04;22 - 00;03;13;22
Speaker 3
So being ready just gives you options. Right. I mean, that's the idea is just just be ready for unexpected things to happen because for half, half the people at will.
00;03;13;23 - 00;03;28;08
Speaker 2
Right. And if you had a high savings rate through your twenties, thirties and forties, you may not need to put as much away in your fifties, which opens up the job possibilities. Right. Because likely you won't be able to replace an income at that age of if you had a high paying job, it's tough to go get another one.
00;03;29;06 - 00;03;43;18
Speaker 2
I'm not saying it doesn't happen, but it's it's a little less common. But if you can take a lower paying job to at least keep some income coming in, and if you've had savings already going in, maybe your retirement plans already funded, it's just not ready to go yet. Right.
00;03;44;14 - 00;03;44;24
Speaker 3
Yeah.
00;03;45;15 - 00;04;02;01
Speaker 2
And so I think but, you know, under an optimistic scenario, you're fully employed working a really common question we get at this age is, you know, how can I save more? Where can I save more and maxing out the 401k? I may or may not still be eligible for an IRA or a Roth IRA getting some money in there.
00;04;02;23 - 00;04;10;21
Speaker 2
But I want to be. There's more dollars than I'm living on. Maybe as kids get out of the house, you know what? What do you do with them?
00;04;11;18 - 00;04;33;23
Speaker 3
Yeah, we get that question quite a bit. And you know, the other question that people ask a lot is, you know, I'm a make an extra payments on my house and and, you know, what do you think about that? And so I think one of the really best ideas that that we've kind of put out there is just I think everybody ought to have a, quote, pay off my house account.
00;04;34;16 - 00;05;07;00
Speaker 3
And what I mean by that is let's just set up what's called a non-qualified investment account. So it's just a regular account. You can buy all the same investments that you would in an IRA or for a1k and you just you just plow money in there with the idea that you want to get that account to grow to the point where you could pay your house off if you wanted to and the reasoning behind that is most of us, up until just the last week or so, have really low mortgage rates.
00;05;07;24 - 00;05;34;07
Speaker 3
You know, we're down. There's a lot of people down, the two and a half, 3%, three and a half percent range. And, you know, it seems silly to pay off those cheap dollars to me. You know, inflation's running seven, 8%. You know, the banks are just hating having that money lend out at 3%. They love you to pay that off because they can lend it back out at much higher rate.
00;05;34;07 - 00;05;53;21
Speaker 3
And so don't do that. Just continue to make the minimum payment, but at the same time set up an account and just start with whatever you can. If you're paying an extra 200 on your house payment, put that $200 in that investment account. And the odds are that that investment account is going to grow faster than the cost of the mortgages.
00;05;53;29 - 00;06;03;11
Speaker 3
And I've done this twice in my life, and you just let that account grow to the point where you could pay the house off if you wanted to with that account.
00;06;04;09 - 00;06;24;12
Speaker 2
Yeah. And I think it's, you know, one thing to consider when you're starting that account as you can be as conservative or as aggressive as you want to go, you don't have to put the pedal down. If that's not your style, you can find some other options to get you a higher, you know, interest rate bonds or there's there's lots of other options out there that may get you a higher rate than just your, you know, mortgage payment.
00;06;24;20 - 00;06;41;23
Speaker 2
And I think another consideration, too, is when you put money into paying off your mortgage, the only way to get it out is to take a loan. Right. You know, you got to set up a line of credit and that's generally based off your income. And so if you lose a job, you know, the worst case scenario, you lose a job and you need some extra dollars.
00;06;41;23 - 00;07;04;06
Speaker 2
You're you may not qualify for that loan because it's based on your ability to repay, right? Not on the equity in the house. And so if you have high equity and and not an ability to repay a loan, it may be tough for you to be able to pull some of that money back out of the house. So having it in a separate account gives you the flexibility if if something were to happen and you need funds today, at least there's something there.
00;07;04;18 - 00;07;15;18
Speaker 3
Exactly. Yeah. It's it's kind of a backup emergency fund until you get to the point where you're, you know, that you actually do pay the house off, which is which is a really good feeling for sure.
00;07;15;26 - 00;07;34;12
Speaker 2
Yeah. You know, then you just got your, you know, your property taxes and maintenance that you got to keep up on. But if that account starts to grow and it gets twice the size of your mortgage and you can, you know, make a decision of what would help me sleep best at night, because sometimes not all financial decisions are based on how can I maximize these dollars?
00;07;34;12 - 00;07;51;22
Speaker 2
That's a good question. And conversation to have. But the reason to have a high savings rate and make all these, you know, conservative decisions is so that you can kind of have peace of mind and actually enjoy your life. And you're not just stressed all the time about trying to make a payment, right?
00;07;52;13 - 00;07;53;15
Speaker 3
Yeah, exactly.
00;07;54;16 - 00;08;12;05
Speaker 2
And so I think also touching on that. So you get the, you know, pay off the house account. And and it can just it can be more than just pay off the house account. It can you know, you can use those funds to help pay college or maybe a, you know, future motor home, if that's what you're saving up for, for, you know, five, ten years down the road, something that you want.
00;08;12;13 - 00;08;26;13
Speaker 2
You know, it's the nice thing about those accounts because you just set them up. They're non-qualified. So you set them up in your name, the name of you and a spouse. If you have a trust set up, it's just in the name of the trust and and there's no limit. You can put as much as you want in there.
00;08;27;04 - 00;08;46;19
Speaker 2
And then that just starts to build the flexibility into your financial plan, because those dollars can go go wherever. And in many cases they may be a little better tax situation. The capital gains rate might be lower than your ordinary income rate. It is taxed on, you know, capital gains. And so I could be you know, it may be beneficial from a tax perspective as well.
00;08;47;05 - 00;09;10;26
Speaker 3
Yeah. Ideally, people get to retirement, they have a plan excuse me, a a large for one K balance, a good sized Roth four on K and then they have a big non-qualified account. So they can, you know, you've got options of where to pull money from and that pay off the house account goes right along those lines.
00;09;10;26 - 00;09;36;05
Speaker 2
Yeah. When you have all three of those buckets, then you're kind of in control about where you're pulling your taxes from. Yeah. And I think that just leads to any other considerations. You know, I you know for sure during this time, if you have the option to save into an HSA, you want to be maximizing that. Those health savings account are a great benefit for now and down the road to be maximizing those dollars because you now you can invest those, they can grow.
00;09;36;05 - 00;10;00;28
Speaker 2
So if you have an ability to put some in there and not necessarily use it, you can at least get some growth on it that can give you a tax benefit down the road. I think the other option is if you're self-employed, it kind of opens up some flexibility in retirement plans. It may open up a pension plan if you're looking to save more than than 401k limit, there's there's some other options there if you're if you're, you know, trying really hard to reduce your taxable income, there's some other options.
00;10;01;08 - 00;10;28;22
Speaker 3
Yeah. For the self-employed people, there's a there's a ton of other options out there. And some of them, depending on the situation, you can put massive amounts of money in a plan on a tax deductible basis. I'm talking, you know, over $100,000 for for people who qualify for it. So if that's your situation, you need to, you know, look at pension plan and and how they work.
00;10;28;22 - 00;10;34;26
Speaker 3
And and you can you can really, you know, accelerate your retirement savings that way for sure.
00;10;35;16 - 00;10;49;24
Speaker 2
And, you know, during this time, too, we also run into kind of orphaned for one case. You know, maybe you've changed jobs a time or two and you've got an old 401k plan. And the question is always, what do I do with this? And then you have you have a few options. You know, you can roll them into a new plan.
00;10;50;18 - 00;11;10;24
Speaker 2
Sometimes plans allow rollovers, which is a good thing. You can roll them for one K from a previous employer into an IRA to give you some flexibility there. Or you can just, you know, pay the taxes and penalty and take all the money out. So you have you know, there's a handful of options and working through each one of those will lead to different tax and penalty situations depending on what you do.
00;11;11;10 - 00;11;34;22
Speaker 3
I think the idea there is to be intentional about what you do. Don't just, you know, let it go. I remember couple of years ago we ran into a lady and she had, I think it was like four different 41k plans and, you know, various companies and you know, one of them was just sitting in a cash account earning essentially zero, and it had been there for like ten or 12 years.
00;11;34;22 - 00;11;59;14
Speaker 3
And that's just not being intentional about, you know, your retirement savings. So whenever you move, you know, look at it, make a decision, make sure you're you're keeping track of it and it's added into your financial plan, the plan for the future. You have to keep track of those dollars and know, okay, well, this account should grow to about this amount.
00;11;59;14 - 00;12;04;04
Speaker 3
And that's what's it's going to mean to me in retirement rather than just ignoring it.
00;12;04;17 - 00;12;21;24
Speaker 2
Right. And and that is a common problem that we've seen. So when you when you're working, not only do you have to choose how much you're deferring into a41k plan, you have to choose the investment options inside of this. The default is generally just cash. And we've seen it, you know, a handful of times where it's just stayed in cash for for a decade.
00;12;21;24 - 00;12;45;08
Speaker 2
And that doesn't help anywhere. Now, if that's your deliberate choice, that's a different decision. But if it's but if it's not, you know, if it's just because you didn't pay attention to it, that's that's a problem. And I think any time we get old for one case, it's just working through those options about what's the best possibility, because during this time, there's often a window for a Roth conversion.
00;12;45;08 - 00;13;07;19
Speaker 2
You know, you can roll those dollars into a traditional IRA and then make your Roth conversion. If you have some losses to offset, you may not end up having, you know, too heavy a tax burden. Then you fill Jareth bucket during this time. So there's there's definitely flexibility of of different scenarios. But making a conscious choice is critical for those old 401k dollars for sure.
00;13;07;28 - 00;13;25;09
Speaker 3
They're easy to lose track of. I mean, just some you only get a statement once a year and it's like, Oh, I forgot I had that until the next year. Oh, I forgot I had that. And so, you know, keep track of them and, you know, bring statements in or we're good at kind of gathering those up and plus that reduces your paperwork.
00;13;25;16 - 00;13;40;14
Speaker 3
Yeah. You know, instead of getting paperwork from four different companies, you just roll them all into an IRA and and then you've got, you know, one account that's, you know, has an investment philosophy and and it just reduces your your paperwork and everything else.
00;13;40;14 - 00;13;58;23
Speaker 2
So, yeah, I remember not too long ago we had a prospective client come in that we were making conversation and she had six or seven different IRAs, but she was over the age of 72. So she had to take required minimum distributions out of each one of those. Yeah. And any time you get into a scenario like that, it's really easy to lose track of and then it becomes really expensive tax wise.
00;13;58;23 - 00;13;59;26
Speaker 3
Yeah. Yeah.
00;14;00;17 - 00;14;30;24
Speaker 2
I think one other anytime you're during this time, you know, reviewing those not only old for one case but any time you get your taxes done, you want to take a real close look at those because your tax picture's kind of like what happened this last year. You know, where where did the income come from? You know, oftentimes people have, you know, maybe some side income coming in from odd jobs plus their plus their work and and just understanding what your overall tax bracket doing kind of helps lead to making better financial decisions.
00;14;30;24 - 00;14;35;03
Speaker 2
Just just by the nature of knowing where you're at in your tax situation.
00;14;35;03 - 00;15;17;16
Speaker 3
Yeah. And that's why we, we always ask people to bring their tax return down for review when we when we review their your accounts because you know where you're at on the on that in the tax bracket situation really has a lot of influence on the advice that we give you, whether you should do a Roth conversion or not, whether you should be putting your contributions in in your 401k into a Roth or whether you shouldn't be, you know, knowing what that taxable income line is, how much it's going to change from year to year, and is really has a big influence on a lot of a lot of investment decisions.
00;15;17;21 - 00;15;43;02
Speaker 2
Yeah. And oftentimes you're, you know, if you have a CPA doing your taxes, they'll give you a year over year summary. So you can see two or three years of how it's changed and what your marginal tax bracket is. And and then you can at least know where you're standing and that, you know, it's just a number you've you've just got to keep an eye on and pay attention to, just so you're aware, because that impacts, you know, almost every financial decision going forward.
00;15;43;10 - 00;15;44;11
Speaker 3
Yeah, for sure.
00;15;44;25 - 00;15;51;03
Speaker 2
And my guess if you went out and just asked 80 people, you know, a hundred people on the street, 80 of them would have no idea what their tax bracket is.
00;15;51;03 - 00;15;51;09
Speaker 3
Yeah.
00;15;51;16 - 00;15;53;15
Speaker 2
You know, because you just high yeah.
00;15;53;16 - 00;16;01;17
Speaker 3
It's high percentages and well it's high. I pay a lot of tax. We all do.
00;16;01;17 - 00;16;31;12
Speaker 2
Yeah. And then one common, another common issue we get on this is sometimes mom and dad may or may not need a little help and mom and dad may or may not want you to have any idea about their financial situation. And so, you know, it's a tricky situation. Is is an older child when parents may or may not be aging, but they haven't quite brought you in the loop of of things for privacy reasons totally understandable but kind of how do you handle that in your, you know, forties and fifties?
00;16;32;12 - 00;17;00;21
Speaker 3
Yeah, that's kind of that's kind of a tricky issue because it really it it just depends so much on the parents some some of our clients are just, you know, super private with their money and they don't want their kids to know that that they have a big nest egg. And I think maybe they're worried about telling their kids now, if the kids found out they had, you know, a lot of money, they don't want to tell them, no, I'm not going to give you that for whatever.
00;17;02;14 - 00;17;24;07
Speaker 3
And other other folks are, you know, really, really open with their kids. And so it just varies by the situation. If you have an aging parent, I think the idea would be, you know, to have conversations, just basically saying, hey, you know, you're getting a little older if you need help in this area. I'm happy to. I'm happy to help.
00;17;24;07 - 00;17;37;06
Speaker 3
But, you know, probably not. Don't try and force yourself in because it, you know, makes some parents uncomfortable if you're too aggressive that way. And but some people do need some help, too.
00;17;37;08 - 00;17;55;06
Speaker 2
Yeah, I think at a bare minimum at this age, you need to know who are the professionals in their life. You know, who's helping them out with insurance, who's helping them out with investments, who's helping them out with taxes. And at least know who those people are. You know, having contact information made contact with them just to say, hey, this is who I am.
00;17;55;06 - 00;18;13;18
Speaker 2
I'm not here trying to get any information. I just want to make sure I have a name and a face and a phone number. Sure. If something were to happen. And I also think having, you know, it's a good idea to have a general conversation with, you know, how medical decisions for an aging parents should go. What you know, what do they want to have?
00;18;13;18 - 00;18;32;03
Speaker 2
And and if they've already had a trust set up, they've already kind of worked through some of those decisions. But, you know, but maybe you're going to be on, you know, asked to step up and you're not aware of it yet. Right. And so if you know, at least asking the question, is there anything I'm potentially responsible for if something were to happen to you?
00;18;32;11 - 00;18;40;17
Speaker 2
So yeah, at least you're aware and and then know, you know, and where are the documents at? So I so it's not just a scramble if something were to happen. Mom and dad.
00;18;41;16 - 00;18;55;29
Speaker 3
Yeah. Those end of life situations or, you know, they're, they're just tricky and they're very, very complicated and they're very, very individual in everybody's situations. Just, you know, it's just totally different. So it's hard to know exactly what to do. All the time.
00;18;56;00 - 00;19;10;03
Speaker 2
Yeah. And on the other side of the table, you know, our our interest is always to protect the best interest of our clients. Right. You know, we have you know, we have both age groups. We have a lot of 40 and 50 year olds and we have a lot of 1890 year olds. And so, you know, we see both sides of it.
00;19;10;03 - 00;19;26;11
Speaker 2
And sometimes mom and dad just need an excuse to tell, you know? And so that's why they're keeping it private. And so, you know, it's it's tough, but, you know, trying to keep as much emotion out of those decisions, the better. It just leads to a better family dynamic, it appears.
00;19;26;20 - 00;19;39;05
Speaker 3
And for our aging clients, too, we do try and get them to list, you know, a a trusted person that we can talk to if that, you know, if we need to.
00;19;39;14 - 00;19;48;06
Speaker 2
Yeah. Yeah. That's, you know, a successor trustee or a trusted contact or just just another name. If something were to happen, you know, we at least know where to go.
00;19;48;06 - 00;19;48;16
Speaker 3
Yeah.
00;19;49;08 - 00;20;06;20
Speaker 2
Yeah, I think I think the worst case scenario during this time is just nobody knows anything. It doesn't have to be. You have to know the dollar amount. So that's not what I'm talking about. But it's just kids don't know who's helping mom and dad and mom and dad haven't decided who's helping them in the case of a problem, right?
00;20;07;22 - 00;20;08;00
Speaker 3
Yeah.
00;20;08;24 - 00;20;22;08
Speaker 2
I think that kind of covers the major areas during this time. It's it's if, if, you know, it's a great time in life to really put the accelerator down for some people and, and you can really start to bring that retirement age closer or.
00;20;22;10 - 00;20;31;23
Speaker 3
Your incomes up, you know, your, your peak earning years. And, and you probably already got a good foundation set because you've been saving money for a while and.
00;20;32;00 - 00;20;35;10
Speaker 2
And likely childhood expense. You know, children expenses are starting to go down, debts are.
00;20;35;10 - 00;20;52;19
Speaker 3
Moving out and and hopefully getting on their own. So, yeah, it's a it's a great it's a great time to life and a great time to try to get to the point where, hey, I can pull the plug it, you know, 55 or 60 if I want to. Not that you have to, but but if I, if I need to or if I want to, I can.
00;20;52;19 - 00;21;03;26
Speaker 2
And by pulling the plug, you know, retiring not. Yeah, you know. Yeah. Just it it's a, it's a fun time of life and it's it's a big time change. But I guess until next time. Thanks for listening.
00;21;04;01 - 00;21;06;17
Speaker 3
Thanks again.
00;21;06;17 - 00;21;23;10
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;23;20 - 00;22;00;17
Speaker 1
Kessler, Norman and Ride 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 US and 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;00;27 - 00;22;24;11
Speaker 1
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