Take the Money and Run

SHOW NOTES

Go On, Take the Money and Run

• Go on, take the money and run! No, we’re not talking about robbing a bank – on today’s episode, we’re talking all about money-making tips as you save for the future!
• This story’s not about Billy Joe and Bobbie Sue, this one’s about you!
  • The future you want doesn’t often come easy.
    • You’ve got to be intentional
• #1: Budget for What Matters
  • That doesn’t mean only budget for important things and leave the rest up in the air. That means aligning your spending with your priorities.
  • Helpful hint: keeping up with the Joneses doesn’t matter.
  • Budget for saving
    • Have your savings directly deposited into your savings account – don’t rely on “I’ll move what’s left over” because you likely won’t ever get around to it.
  • Pay off debt
    • If you don’t owe anyone money, you’re in a better position than most Americans.
      • And if you don’t owe anyone any money, that’s more you can make work for you.
    • Work on paying off your student loans and other debt quickly.
• #2: Avoid Emotional Decisions
  • Emotional decisions are a fast track to losing money.
    • Whether it’s through retail therapy or a gut reaction to a change in the market, emotions don’t make good money decisions.
    • According to Harvard research, sadness increases the amount of money we’re willing to spend and makes us impatient.
      • When we’re sad, we’re more likely to give up a larger future benefit to have a smaller benefit right now.
      • That’s the exact opposite of the ability to delay gratification, which is what we need to save money and build wealth.
    • Angry people tend to take bigger risks and dig in their heels when their choices are questioned, refusing to admit they made a mistake.
      • Investors do need to take some risk to make their money grow, and being stubborn can help you stick to your budget and investment goals. The trouble comes when you gamble your retirement fund by buying only highly speculative stocks.
    • Fear has the exact opposite effect of anger, making us exaggerate risks rather than discount them. It also causes us to second-guess ourselves, making us abandon a plan of action if it goes even slightly off course.
      • For example, you may bail out of a stock when the market hits bottom (and miss the subsequent rebound).
• The future can’t be what you want without planning for it.
  • In some ways you can’t have a future without a plan; because all you really have is what you’re doing now and a hope that it all works out.
  • So, what’s the plan? Get our free download with 10 ways to shift your perspective of planning

Chillin’ Out, Maxin’, Relaxin’ All Cool

• 3: Max Out Your Match
  • If you aren’t maxing out your employer match, you’re leaving free money on the table.
  • The earlier you start the better!
    • The power of compound interest
  • Once you’ve maxed out the match, if there’s more money you can save, we will likely look to something like a Roth IRA.
    • IRAs are tax-advantaged vehicles designed for long-term savings and investment—to build a nest egg for your post-career life.
    • With Roth IRAs, you pay taxes on contributions now and get tax-free withdrawals later.
    • Roth IRAs function more like regular investment accounts, only with tax benefits: They have fewer restrictions than Traditional IRAs, but fewer breaks.
• #4: Avoid Penalties
  • Excess Contributions
    • Building a large amount of retirement savings is, really, a good thing. But if you contribute too much to an IRA, it can cost you.
    • How does this happen?
      • Contributing an amount of money that exceeds the applicable annual contribution limit for your IRA
      • Improperly rolling over money into an IRA
    • So, let’s talk contribution limits. For 2021:
      • The most you can contribute to your Roth and Traditional IRAs is a total of $6,000 if you’re younger than 50 or $7,000 if you’re age 50+.
    • It’s good to max out your IRA contributions, but if you go overboard, the IRS considers it an ineligible (or excess) contribution.
      • If you contribute too much, you’ll owe a 6% penalty on the excess contribution each year until you fix the mistake.
    • The good news is that there are several ways to fix this mistake, but it’s best to avoid excess contributions altogether.
  • Early Withdrawal
    • Taking money out too soon from a retirement account is another potentially costly mistake.
    • If you pull money from your IRA before the age of 59½, you might be subject to paying income taxes on the money, plus an additional 10% penalty.
    • The same penalties apply to early withdrawals from retirement plans like 401(k)s.
  • There’s a proposal in the works for penalty-free $1000 withdrawal for emergencies
    • We talked a little about this a couple of weeks ago on the Fastest Four
    • If you want market updates sent straight to your inbox, click here!

*The More You Know*

• #5: Know Your Options
  • In-Service Withdrawal/Distribution
    • It is a distribution that a participant takes from a retirement plan while still employed.
    • There are restrictions to this, generally based on age and service.
    • You are subject to a 10% early withdrawal penalty if you take an in-service withdrawal before 59½.
  • When it comes to in-service withdrawals, you have 3 options:
    • Keep the money in the plan (not required to take it out at 59½)
    • Cash out (in most cases, we don’t recommend)
    • Rollover to IRA accounts and begin retirement income planning process
  • You can keep your 401k and continue to contribute on your next paycheck following the in-service withdrawals.
• #5b: Know Your Options
  • Pensions
    • Lump-sum option
      • While most of the payout options available are annuity distributions (monthly payments), you can choose to take a lump-sum payment instead.
        • Some people are attracted to the idea of getting all of the money they’re owed at once, and there are some benefits, namely that you can control where that money is invested.
        • You can roll your pension into an IRA, for example (which also means you don’t owe any money on your pension payout until you take distributions from the IRA).
      • The question you’ve got to ask is – is this right for you?
    • Monthly payout options
      • There are 4 types of monthly payout plans for pensions, each with their own benefits and drawbacks.
      • Single Life Plan:
        • Typically your highest monthly payout
        • No benefits for a surviving spouse – when you die, the payments end.
      • Joint and Survivor Plan:
        • Lower monthly payout than a single life plan
        • Percentage of benefits paid to a surviving beneficiary after your death.
      • Period-Certain Plan
        • Monthly payout for your entire life with a guaranteed minimum number of years that payout will occur
        • Ex: If you died after 5 years but the minimum was 10, payouts to a beneficiary would continue for another 5 years
      • Social Security Income-Leveling Plan
        • Start with larger monthly payments that get reduced once you start taking Social Security
          • Often used for those taking an early retirement
  • Per the American College of Financial Services, people actually give themselves permission to enjoy their money when they receive it in a regular income as opposed to when they withdraw it from a lump sum.
    • Basically, seeing the withdrawal come out makes them sad and insecure.
    • You need an income plan to even be able to truly give yourself permission to spend the money that you receive.

One is the Loneliest Number That You’ll Ever Do

• #6: Don’t Go it Alone
  • A relationship with a trusted financial advisor can boost your retirement accounts 22.6% (SOURCE: Morningstar)
  • Maybe you think that if you were “really” independent (or smart, or savvy), you would do all of this yourself. You would save a little on fees and pick your own stocks.
    • The problem is: Few, if any, become financially solvent or cultivate wealth that way.
    • True financial independence isn’t doing this on your own; it’s knowing who to ask and when to listen. You may worry that you can’t afford the fees. But what you really cannot afford is a mistake.
• Your situation is unique. Your financial advice should be, too.
  • MoneyWorks
    • Contrary to the common practice, our 20s through 40s are the times to make our big money moves.
      • Many see their 50s as the time to start buckling down on retirement planning because that is typically our highest-earning years and also when the kids are finally off the family budget.
      • But let’s be honest, if you lacked the discipline to save and plan in your 20s, 30s, and 40s, what are the chances you’ll be a disciplined planner and saver in your 50s?
    • Higher incomes only help if we know how to manage them.
    • The best place to get started is our MoneyWorks program.
      • Uniquely designed to give you the ease of technology and the accountability of a real financial coach.
      • Click here to learn more.
  • MoneyGuide
    • This program is designed specifically for those who are in the middle of their financial journey and need a coach to guide them as they balance family and finance.
      • If that’s you, MoneyGuide is a great place to start.
      • Click here to learn more.