Albert Einstein once referred to compound interest as the 8th wonder of the world. Saying he who understands it earns it; he who doesn’t pays it. And he couldn’t have been more right. Today we’re going to be looking at the miracle that is compound interest and how can protect my retirement as it relates to the #1 killer of your wealth. Let’s get started. So the #1 wealth killer is debt. Yeah, I know, big shocker. But it’s really true and today we’re going to look at why that is.
The truth is, having too much debt can put a limit on your greatest wealth-building tool – your income. While it may be tempting to invest rather than pay off your debt, compound interest is a force to be reckoned with. In fact, I recently dedicated an entire video to its power. Financial advisors often use the example of Jane, who invests $100 per month ($1,200 per year) from the age of 18 to 25 and earns an average of 10% per year on her investments. By the time she stops investing at age 25, her nest egg will be worth just over $15,000.
However, before you start investing, it’s important to consider your debt load. Here are some reasons why paying off your debt first may be the smarter choice:
High-interest rates: Many forms of debt, such as credit card debt or personal loans, carry high-interest rates that can negate any potential investment gains.
Risk: Investing always carries some degree of risk, and if you have high levels of debt, taking on additional risk may not be advisable.
Stress: Debt can be a significant source of stress and anxiety, which can have negative impacts on your overall financial well-being.
Freedom: Paying off debt can give you a sense of freedom and control over your financial situation, allowing you to make better long-term decisions.
That being said, paying off debt doesn’t mean you can’t invest at all. Here are some steps you can take to balance debt repayment and investing:
Create a budget: Determine how much money you can allocate towards debt repayment and investing each month.
Focus on high-interest debt: Prioritize paying off high-interest debt first, as this will save you the most money in the long run.
Consider employer-matched retirement accounts: If your employer offers a retirement plan with a matching contribution, take advantage of it. This is essentially free money that can help you save for the future.
Seek professional advice: A financial advisor can help you create a personalized plan that takes your unique financial situation into account.
In conclusion, while compound interest is a powerful tool for building wealth, it’s important to consider your debt load before investing. Paying off high-interest debt should be a priority, but that doesn’t mean you can’t invest at all. By creating a budget, focusing on high-interest debt, taking advantage of employer-matched retirement accounts, and seeking professional advice, you can balance debt repayment and investing to achieve your financial goals.
Over the course of the next 45 years, those investments will continue to grow. Assuming that it continues to grow at an average annualized rate of 10% per year she will end up with $1.1 million in her portfolio at age 70. That’s all achieved with eight years of investing $100 a month. Jane becomes a millionaire by investing $9,600 of her own money. On the other hand, we have John. John doesn’t start investing at age 18. Instead, he starts at the age of 26 (just after Jane had finished all of her investing). He also invests $100 a month. However, unlike Jane, he does it from the age of 26 all the way until the age of 70. John invests $54,000 of his own money over the course of those years and ends up with a nest egg of just under $950,000. So John ends up with approximately $150,000 less than Jane. This is in spite of the fact that he invested six times more of his own money than she did.
It’s no secret that excessive debt can put a damper on your ability to build wealth using your most powerful tool – your income. While the concept of compound interest is widely known to be an effective way to grow your money over time, paying off debt may seem like a counterproductive move. However, it’s important to remember that not all investments are created equal, especially when you’re dealing with debt payments.
Let’s take a look at an example: Jane invests $100 a month for 7 years starting at 18 and ends up with a net worth of $1.1 million at the age of 70. Now, let’s say John starts investing $100 a month at the same age and earns an average of 10% per year, just like Jane. Even if John continues to invest until he’s 100 years old, Jane would still have more money than him, and her lead would only increase with time. In fact, at the age of 100, Jane would have $19.2 million to her name, while John would have $16.7 million. This just goes to show the power of compound interest, as famously called by Albert Einstein as the 8th Wonder of the world.
However, when it comes to investing, it’s important to consider the context of one’s financial situation. Comparing someone who is debt-free to someone who is not will not provide an accurate comparison. While Jane invested $100 a month for 7 years, John was dealing with debt payments and didn’t invest anything for those first 8 years. But what if John managed to free up an extra $200 a year, or less than $17 a month, by paying off his debts? In that case, he would come out ahead of Jane by the time they’re both 70. And if he freed up more money than that, he would pass Jane even earlier.
So, what’s the takeaway? While compound interest is undoubtedly a powerful tool, it’s important to also consider the impact of debt on one’s ability to invest. Paying off debt and freeing up funds for investment can ultimately lead to greater financial success in the long run.
And given the state of the average American debt situation, $17 a month in payments is a remarkably conservative estimate. According to articles in business insider,
CNBC, and Forbes the average American debt situation looks like this: About $9,000 in credit card debt which is
often split between several cards. $30,000 in student loan debt. And assuming a used vehicle was bought a little
over $21,000 on a car loan. That’s around $60,000 in total debt. If we assume 18% interest on the credit cards
and 4.5% interest on the other loans and terms of 5 and 10 years on the car loan and student
loan respectively, the minimum payments could be roughly $900 a month. Freeing up that much cashflow could make a
tremendous difference in the previous example. Let’s look back at John’s situation from before
and assume that his household’s debt situation was that of the average American. John uses his $100 a month of excess cash
flow to pay off these debts.
Based on the numbers it would take him roughly
six years to become debt-free. This is assuming he did not work any extra
hours or sell anything to get out of debt faster. Once he was debt-free he would have almost
$1,000 a month left over to invest. If he starts the process of becoming debt-free
at the age of 18 when Jane was starting to invest he would have become debt-free by his
24th birthday. If he then turned around and started investing
the full $1,000 a month he would actually be further along in his investments by his
25th birthday then Jane was. Granted this is largely because he has invested
more money than Jane has at this point. Jane by her 25th birthday had only invested
$8,400. That’s quite a bit less than John’s $12,000
but think of the potential payoff of this down the road if John keepS investing that
He’ll also likely be able to lead a much
better lifestyle than Jane in the present due to his lower monthly expenses. Jane may eventually equal him in that regard
if she gets her debts paid off, but for those first several years after John is debt-free,
it is worth noting. Remember, compound interest is an incredibly
powerful mathematical force. But it can work just as hard against you as
it can for you. So it’s important to make sure that compound
interest is your ally in your finances, not your enemy. So with that being said how do we avoid this
killer of wealth? First, if you’re lucky enough to not have
any debt right now research some ways to ensure that you keep it that way.
If you’re planning to go to college look into
ESA or 529 plans. They are ways to start saving for college
while lowering your tax burden (which is always a nice perk). Also, look into scholarship opportunities
or PSEO. Don’t be afraid to have a summer job and work
during the school year part-time. For the record, this can also be a good option
in high school to give yourself a head start financially so long as it doesn’t take away
from your studies too much. Make sure that you always have an emergency
fund. It should contain three to six months worth
of expenses so that you don’t have to take on debt for those moments when life happens. Make sure you have insurance for those catastrophes
that you wouldn’t be able to cover with your savings. Catastrophic health emergencies are a good
candidate for this.
If you’re already in debt, learn about how
people have paid off their debts. Then choose the strategy that is most likely
to get you (and keep you) completely out of debt. Three of the most popular strategies are the
debt snowball, debt avalanche, and debt tsunami. I have done videos on all three of those and
they will be linked in the description. The debt snowball is the one made famous by
financial personalities such as Dave Ramsey. It has you order your debts from smallest
to largest balance and pay them off in that order regardless of the interest rates on
those debts. The plus side is the momentum you can build
up for yourself by quickly wiping out those bills. The downside is it isn’t the most mathematically
efficient way to get out of debt, all else being equal.
The debt avalanche is the more mathematically
efficient option if you can stick to it. It has you order your debts from highest to
lowest interest rate and pay them off in that order. This is regardless of the size of the loan
itself. The upside is the fact that you’ll be paying
less in interest. The downside is in some situations it may
take quite a while to get rid of that first bill. For those who are more motivated by seeing
the balances of the debts themselves going down this may not be much of an issue.
For those that are more motivated by the lowering
of bills, this could be an issue in some situations. The debt tsunami has you order your debts
from the most emotionally stressful to the least emotionally stressful and pay them off
in that order. In some cases, this could mean paying off
the largest balance that also has the lowest interest rate first. However in my experience that is not commonly
how it goes. Most of the people that I’ve seen use this
strategy tend to use it because there are personal loans between family or friends that
are causing a lot of stress in the relationship. The person with the debt uses the tsunami
to get rid of that loan first and then often switches to a different strategy such as the
snowball or avalanche. Which is another viable option for many people. There’s nothing stopping you from starting
with one strategy that will help get you going and then switching to another that will work
for you longer-term.
I know a lot of people who have started with
the snowball to get themselves some momentum and then switched to the avalanche once they
were on a roll so that they could save on interest. Another thing I would recommend looking into
is the power of the debt snowflake. If you haven’t heard, the debt snowflake is
a strategy where you find ways to free up money (or just happened to find the money)
that you can put towards your debt payoff strategy. The nice thing about it is it works well with
any of the other three strategies I mentioned. While by itself it isn’t game-changing it
does help your primary strategy do its job a little better. And as we know every little bit helps. If you need more motivation make sure to check
out Dave Ramsey’s YouTube channel and their debt-free screams playlist.
It’s filled with a lot of amazing stories
of people paying off loads of debt on various levels of income and getting to see their
relief when they are finally debt-free is very inspiring. You might also find their Turning Points playlist
interesting. It is essentially interviews of people who
have become debt-free talking about what made them decide to go through that process and
achieve that lifestyle. I’ll leave a link to both playlists in the
description as well..
– Fidelity offers zero fee index funds. Can you believe it? They're such a kind,
privately held company that's willing to give
up a bunch of profit to help out the little guy
investor like you and me. – So you're telling me
there's a chance? Yeah. – Ah, not so fast. – What?!
– As with most things, there's a bit of a catch, and the Fidelity zero fee
index funds are no different. So, let's go through what you need to know about these things, then we'll stack up each one
to its fee based competitor. Before we get too deep into it, I need to say that I am by no means implying that you should
sell these index funds if you currently hold them. You could be investing in
much worse financial products, like anything that Cathie
Wood has her name attached to. I'm basically going to be giving you a peak behind the curtain of
these zero fee index funds to show you what isn't so
obvious on the surface, In 2018, Fidelity started offering four different index funds where they charge you $0 to own them.
These four funds consist of
a large cap, total US market, extended market and
international index fund. At first glance, this seems
like an odd thing to do, because they already offer
an S&P 500, total US market, extended market and
international index fund where they charge you to own them. Yes, the fees for these funds
are extremely cheap as it is. But by offering these zero fee funds, they're in direct
competition with themselves.
I can promise you they're not doing this out of
the goodness of their hearts. To help uncover why they're doing this we just have to follow the money, but not the money that they
don't make from these funds, the potential money that they could make in other areas of their business by offering you these zero fee funds. These funds are what you would consider to be a loss leader for Fidelity. Kind of like how Costco sells their rotisserie chickens for a loss to the tune of being out $30,000,000 to $40,000,000 per year. The goal for Costco, and
Fidelity in this case, is to get you into their ecosystem so that they can sell you on more profitable products and services. If you are already through
the doors of Costco to buy your unhealthy, corn-fed,
GMO, rotisserie chicken, then you're more likely
to buy additional items. If you are already investing
in Fidelity's zero fee funds, then you're more likely to use them first if you are looking for
a financial advisor, annuity, life insurance
or more expensive funds. This of course won't
work for every customer.
But the lost leader business model doesn't need to have a 100% success rate. They just need a small portion of people to buy these more expensive
products and services. Once Fidelity has you in the doors and investing into their funds, they lock you into
their umbrella even more by penalizing you if you wanna move to a
different investment platform. These Fidelity zero
fee funds are exclusive to their investing platform and cannot be bought on or transferred to any other platform. With their other fee based index funds, you can transfer those out of Fidelity and onto any other platform like Vanguard, Charles
Schwab or any of the others. They'll usually come with a transfer fee, but this is par for the
course no matter where you go and which fund you decide to move.
With these zero fee funds,
you have to sell them if you wanna move your
investment somewhere else, which means that you might
have to pay capital gains taxes if they're held within a
taxable investment account. It might not be a big
deal to you right now, but if for some reason
at a point in the future you become unhappy with
Fidelity, then you're screwed. Before I tell you my biggest issue with these zero fee funds, please help and support this channel, and my dog, Molly, who
actually just tore up her leg and had to get stitches, by
hitting that thumbs up button.
The word index fund
gets thrown around a lot by these large investment
institutions nowadays because of how successful
they've been over the years. At this point, a lot of people understand the power of investing in index funds. But not all index funds
are created equally, and it's not so obvious unless
you know what to look for. Technically, you could create your own custom stock market index. And if I wanted to create a
fund that tracks your index, then I could call it an index fund. The problem is that you are
most likely an unknown person with an unknown track record
and an unproven process. There's a couple levels of trust that need to exist
within this whole process between the financial index provider, the index fund and the investor. My fund needs to trust
your indexing process, and the potential investors within my fund needs to have some level of trust in how my fund attracts your index. There's a few different well-known and trusted
financial index providers that index fund creators like Fidelity, Vanguard and Charles Schwab pay a licensing fee to to create their fee based index funds.
The Fidelity zero fee index
funds are a lot different in that they don't want to
have to pay the licensing fee to these trusted index providers because they need to cut corners to reduce the cost to run their funds. Because if they're still
doing a bunch of work and you are not paying
them to do that work, they're gonna cut corners
wherever they can. But they still need to
track some sort of index to be able to call
themselves an index fund. To do that, Fidelity has created
their own internal index, which is what their zero fee funds track.
This might not seem like a big deal, but their indexing methods haven't been around for very long, which means that they are unproven. I'm also not sure how
I feel about Fidelity creating the index that
their zero fee funds track. Having an unassociated
third party index provider at least gives a little
bit of separation of power within the whole process. To show you why I'd prefer 75% of the fee based Fidelity index funds over the zero fee index funds, let's compare them against each other so I can show you the biggest differences. For the total market index we have the zero fee index fund FZROX and the comparable fee
based index fund FSKAX. The stock style for both are pretty close so there's really no issue there. Next, we can look at the
total holdings for each one. The zero fee fund holds 2,655 stocks, while the fee based fund holds 3,998. For me, I want my index funds, especially my total market index funds, to hold as many stocks as possible.
The zero fee fund fails to do this. Lastly, the portfolio turnover
for each is different. This is important to know because the higher portfolio turnover means more stocks are
being bought and sold which is going to cost you money. The zero fee fund is at 4%, while the fee based fund is at 3%. Not a huge difference, but for me, I prefer to keep
this as low as possible. I also like the option
of investing in the fund that charges 0.015% to track
a larger number of stocks, instead of only sampling 2,600 stocks like the zero fee fund does. For the large cap index, we have these zero fee index fund FNILX, and the comparable fee
based index fund FXAIX. The stock style for both of these are pretty darn close as well so there's nothing too concerning here. Since both of these are large cap only we see that the total
holdings are about the same, which it should be. For the portfolio turnover, we see that the Fidelity
S&P 500 index fund is at 2%, while the zero fee
large cap fund is at 5%.
I personally choose to
pay the extra 0.015% to hold the true S&P 500 index fund. We see the biggest divergence with the extended market index funds. For this comparison we have these zero fee index fund FZIPX and the fee based index fund FSMAX. As you can see, the stock
styles are way different. The stock style for FSMAX is more in the mid and small cap range with a tilt towards growth. FZIPX is more in these small cap stocks with a tilt towards value. The sector breakdown
for the fee based fund has more money going into technology, while the zero fee fund has more money going into
everything else except tech. Once again, the fee based
fund holds more stocks, which I like, at 3,703 of them, while the zero fee fund
only holds 2,143 stocks. The turnover ratios make me
sick just looking at them. 18% for the fee based fund
and 25% for the zero fund. I am not a huge fan of
any extended market funds, so I prefer to stay
away from both of these. The last zero fee fund that we have is the international index fund FZILX. We'd wanna compare it to the fee based international
index fund FSPSX.
Stock style for both
are basically identical. The sector exposure between them both are all over the place. So, I'll throw up a screenshot so you can pause the video
to see it for yourself. The holdings are a lot
different than you'd think. The zero fee fund holds 2,377 stocks, while the fee based fund
only holds 832 of them. One of the big reasons the
zero fee fund holds more stocks is because it encompasses both developed and emerging markets, while the fee based fund
excludes emerging market stocks and only focuses on developed market. Believe it or not, I kind of like the zero fee
international index fund a little bit more because I prefer developed
and emerging market stocks to get more diverse exposure. The only things I don't like about it is the 8% turnover ratio, as well as the fact that you're kind of stuck
in the Fidelity ecosystem if you hold these zero fee fund. Make sure to hit that thumbs up button to support the channel before you go. If you wanna see my preferred
Fidelity index funds or Vanguard ETFs that you can purchase on the Fidelity platform, then watch these videos to your left next.
I'll see you in the
next one, friends. Done..
Welcome, everyone, thank you for joining us today. My name is Ewelina Caplap, Wealth Management operations manager at Coastal Credit Union, where we bank better to live better. Today, we will be sharing with you three retirement savings tips before year end. So hopefully today you will come out of this session with some great action items. Joining me today are David Burk, CFS financial advisor, and Drew Snider, CFP, director of financial planning here at Coastal Credit Union. Welcome to you both. So before we get into our exciting conversation, we will very quickly cover our disclosure slide. Coastal Credit Union contracts with CUSO Financial Services to offer investment products to its members, which can fluctuate with market activity and potentially have some risk. So getting into our exciting conversation today about three retirement savings tips for year end. At this time, let's talk about tip one. Tip one, Roth IRAs. We hear about Roth IRAs quite a lot and the potential tax free income they provide. David, why don't you start us off with a little bit about what this tip is? Thanks, Ewelina.
A Roth IRA is an IRA that you're actually using after-tax dollars to invest in a credit union or an investment Roth IRA and letting that grow tax deferred so that after age 59 and a half, you'll be able to withdraw money out of that account that is 100 percent tax free. That's a huge financial and tax benefit that you should certainly consider before year end. Why don't you add a little bit more to that, Drew? Yeah, the Roth IRA is is definitely the greatest savings tool we have for retirement. As the illustration shows, the seed for our tree is what's getting taxed. And then you grow this beautiful tree with all this great money on it and you get to take the money off and you don't pay taxes on the money.
So it's fantastic and everyone should consider if they can do it or not. The beauty of looking at a Roth IRA going into December is you have a vision of what your income is for the year and you have limitations on contributions based on what your income was for twenty twenty one. So if your income is basically under about one hundred twenty five thousand dollars as a single person or one hundred ninety eight thousand dollars as joint filers, you should definitely be looking at a Roth IRA and coming into the credit union and talking to us to see if it'll work for you. That's excellent. What a great first tip to consider taking care of before the year end. So we're now going to move over to tip number two, and we're going to talk about some 401(k)s. What can you tell us here, David? 401(k)s are offered typically through an employer or as an employer sponsored retirement plan. They've been around for quite some time now, and many employees should be taking full advantage of this retirement savings.
And again, since we're now getting towards the end of the year, it's always a benefit to evaluate your income at this year, like Drew mentioned in the previous slide. But then also what your income will be next year and give yourself a savings raise of trying to increase your savings. Drew, I'll let you expand more about the comparison of Nick versus Maria and what their savings has done over time. Sure, I'd be happy to. This is a very simple graphic of two individuals who make the same amount of money and started off saving the same amount of money, the same percentage to their 401k plan. Nick maintained that savings rate, whereas Maria, each year, increased her savings rate by one percent or her contribution rate by one percent to her 401k plan until it maxed out at 15 percent.
And you can see that over time, Maria had quite a bit more money. This is after 30 years. She had twice as much money for retirement as did Nick. And you know what? You don't really need to concentrate on anything other than the fact that that right bar looks a lot bigger than the left bar. So with proper planning, we can help our viewers get there. Yeah, just one more comment here. Before year end, everyone should take a look at their 401k statement and see if they maximized. If they're trying to maximize the amount that they can contribute, they should take a look at that and see if they've been able to do that this year, because a lot of people may think that they are maximizing their contributions when in fact they haven't.
Right? Good point. And another thing, I'm not sure if we mentioned it, if you have a Roth 401k option on your plan, if we're talking about a Roth IRAs, certainly Roth 401k option is something that our viewers should be looking into. Can either one of you speak to that for a minute? Yeah, that's an interesting comment, Ewelina, because that's still relatively new in the marketplace and offered through employer 401k plans, but the numbers are astounding how few people are really taking full advantage of that Roth opportunity in their 401k. And what that means is, you can actually contribute more towards your Roth 401k than you can a Roth IRA outside of your employer-sponsored plan. Plus, your income is not a restrictive factor in being able to contribute to the Roth 401K plan. And just add to that, I would encourage anybody, even high income people who really do like the tax deduction that they're getting from their traditional 401k contributions. It's not an either/or situation. You know, if you're not doing either traditional or Roth, you can do some in both.
Personally, I do some in both of mine. I do some in the traditional and I do some in the Roth in my contributions. I do the same thing on my own planning as well. Well, certainly a lot to take in and consider for year end. So we're going to move on to our final tip. Tip three. Health savings accounts, right? HSAs. And who doesn't like the sound of triple tax savings? So, David, what don't you tell us a little bit about that first? The triple tax saving on a health savings account is phenomenal, and many people have completely overlooked this opportunity for their own household and and being able to save tax free money. So what ends up happening. If your employer offers you a high deductible health account, then you can participate in an HSA.
And what you're able to do is contribute on an individual basis or as a family, and that money can be tax deductible as far as the contribution. Once that money is in your HSA, it grows tax deferred. And then when you're ready to start withdrawing money from an HSA for a qualifying medical or health care expense, it's one hundred percent tax free as a distribution. And I want to comment here. As as you come to the year end, some employers are going to contribute some money to your HSA for you. You can add the rest up to the maximum. And you have until April 15th to do that. But the year end is a great time to take a look to see how much your employer has put into that plan for you. And then what is the calculation? What's the amount that you can add to it? Because you can reduce your taxes in your 2021 tax return, you get tax deferral and you can take the money out tax free for qualified health care expenses.
Excellent. So it sounds like there's a lot to get done here working with Team Coastal. So who are we right? Who is Team Coastal? Drew, can you talk to us about how we can help our viewers in meeting these three tips? Putting them into action? Yeah. Whether you're talking to Coastal Wealth Management about these concepts that we talked about today, or if you go into the branch, the credit union, you're going to get a team of experienced people that are going to be able to help you make your contributions, maximize your retirement. At Coastal, they're going to talk to you about your savings account options and Wealth Management.
If you have a more longer term perspective, we're going to show you some investment options for your IRAs. And then, you know, one thing about Coastal Wealth Management is, you know, we have lots of options to help you to find a great solution that you're comfortable with. That fits your risk tolerance and your needs, and we're all working together. So whether you talk to someone at the branch and you tell them, Hey, I'd like to get a better rate of return, than you're offering in that savings account, they're going to bring us into the conversation with Wealth Management so we can talk to you about how we can help. So we're all working together at Team Coastal. And then obviously, if you want to do a financial plan with us, we'd be happy to help you with that. Absolutely. And speaking of that financial plan, for our viewers, if they are not aware, it is a complimentary financial review to meet with our team and discover all the options available to you with Team Coastal, whether that be something that our retail team can help you or our Wealth Management department specifically, we all work together and can hopefully help you reach your goals.
Schedule your complimentary Financial Review with us today. You can call us at 919-882-6655. You can certainly send us an email [email protected]. And of course, you can find us online as well. There are some action items to take here with these three tips before year end. We're happy to help you with that. Thank you again… David Burke, CFS financial advisor, one of our dedicated advisors for being with me here today, and of course, Drew Snider, our financial planning director here at Coastal Credit Union. Thank you for your time today and thank you to our viewers for joining us.
And reach out to us. We'll be happy to help you..Read More
in a volatile Financial landscape imagine having an asset that's been a beacon of stability for Millennia gold are you amidst a career shift or contemplating your retirement security you're not the only one many of us are haunted by the uncertainty of our financial future but there's a gleaming Ray of Hope a gold Ira as you contemplate career changes or even setting up a regular Ira think about the potential of diversifying with gold transitioning from a 401k to a gold Ira is more straightforward than you think especially when you align with the industry's best leading gold Ira providers are not just reliable pillars they're equipped with a myriad of irs-approved precious metals ready to ensure a seamless rollover experience isn't it time to offer your savings the Golden Touch and shield them from the tempestuous tides of the stock market what's a gold IRA rollover ever wondered what a gold IRA rollover is let's dive deep and simplify it for you you can invest in physical gold gold provider stock a gold growth fund or an exchange-traded gold fund the gold must be stored with an IRS approved trustee away from your home thinking about rolling your existing retirement assets into a gold Ira that's a bit more complex and might cost you a bit more you'll need a self-directed IRA for that this special account allows you to invest in a wider range of assets bits then comes the custodian a trusted entity to help set up and manage your gold account they should be federally and state approved and importantly able to store that Shiny Gold for you and lastly to actually get your hands on physical gold you'll need a broker your trustee might know a few good ones picking a broker is crucial they ensure that the gold meets all necessary government standards for inclusion in an IRA at a minimum you want your broker to have the following characteristics certifications ensure your broker is equipped with all vital licenses bonds and insurance to protect your investment record reputation is key look for positive reviews check if they're endorsed by the Better Business Bureau and ensure they have minimal complaints attentiveness your broker should prioritize your needs familiarity with tax laws governing IRAs and a willingness to work closely with you are Essentials the truth about a gold IRA rollover a gold IRA rollover is your Bridge it allows you to transfer your retirement savings steering them into the radiant domain of precious metals here your Investments take a tangible form from gold and silver coins to magnificent bars and bullion but it's not just about ownership it's about security every precious item you invest in Finds Its place in an IRS approved depository safeguarded for your future can I roll my 401k into gold Ira an existing 401K can indeed be converted into a gold Ira or another precious metals Ira to make the switch there's one primary step leaving your current job is essential before making that 401k leap into a self-directed IRA with your newly rolled over funds you can invest in a glittering array of gold and silver assets diff difference between a gold IRA rollover versus gold transfer when diving into the world of gold Investments it's essential to understand the difference between a gold IRA rollover and a gold transfer a rollover is specific to certain situations maybe your employer's retirement plan administrator has shifted or perhaps you've left the company managing your finances even significant changes to your company's pension can trigger a rollover but not all rollovers are made the same there's the direct rollover and the indirect rollover direct rollovers involve assets moving seamlessly from a qualified retirement plan like a four on one k straight into an IRA it's like a relay race passing the Baton directly from one Runner to the next you don't touch the asset until it lands safely in its new home the indirect rollover sometimes called the 60-day rollover to technique has a bit of a detour here the investment reaches your IRA within 60 days of its withdrawal think of it like a layover on a long flight the investment might first be sent to your checking or savings and from there you'll transfer it to your new IRA benefits of rolling over a 401k to an IRA one strong choice is rolling over your 401k into an individual retirement account or IRA it offers flexibility and a wide range of investment options transfer your 401k to your new employer's plan if they have one it's a straightforward path but may limit your investment choices feeling tempted to cash out think twice taking the money now means paying taxes and facing a withdrawal penalty or you could just let it be if your previous employer allows it's the do nothing approach but remember to keep tabs on those funds lower fees with each step on the 401K Journey the byte of management and administrative fees can slowly diminish the green of your savings as these funds can be pricier than the average the money you hoped would grow might just trickle away add to this storm the general annual costs from the Giants who manage these plans of course the Majestic fortresses of 401K plans armed with Millions can access exclusive corridors with fewer costs with an IRA while there will still be expenses you're in the driver's seat you get to choose how where and what to invest in all while having greater control over the fees you shell out lower fees greater control your Investments your way take the key to a brighter financial future more cash incentives these financial institutions with open arms and eager eyes might tempt you with a golden handshake to transfer your retirement funds to their vaults and if Hard Cash isn't the song they serenade you with watch out for the melodious offers of free stock transactions and more relaxed rules on the other hand the Internal Revenue Service or IRS has standardized rules for IRAs this means that an IRA from One bank will have the same rules as an IRA from another another advantage of controlling your tax withholding with an IRA is that your retirement money isn't depleted faster than necessary this allows your Investments to continue to grow compounding tax deferred more investment options ever felt limited with your 401K investment options most 401ks offer only a handful of mutual funds often from just one supplier imagine a world with more freedom in your investment choices from Individual stocks to bonds to exchange traded funds ETFs the possibilities are almost endless more options mean more flexibility to tailor your portfolio to your unique needs and aspirations easier estate planning there's a high chance that after you're gone your hard-earned 401k might just be handed over in a single transaction a lump sum convenient but not necessarily tax friendly most companies prefer the quick Handover primarily so they don't have to manage the account of an employee who's no longer with them on the flip side inheriting an IRA isn't tax-free either IRAs come with more distribution choices it's like being handed a menu giving your beneficiaries options looking for more information with a team dedicated to finding the latest news and information for gold and precious metals IRAs the retired veteran is your 12 son One Source to help you with your investment Journey Don't forget to check them out you can find the link belowRead More
Loren the Game of Life it came out
in 1960. A board game that you had in your household growing up? Most definitely we played lot of games growing up and this is one
of them. Okay so today what we want to do is we want to go through the milestones of life we're
kind of going to do it in numbers. So in a way we're taking some liberties here the board game is
like a series of numbers as you move through life. And as we specifically talk about moving to and
through retirement what we want to do is give you strategies give you tips gives you things you
should be talking to a retirement planner about. And we'll have a little fun with the Game of Life
along the way. But we should first talk about how we look at every retirement whether you come
talk with you Loren if you're 55 or 75. We apply five guiding principles to your retirement
to help you win the game of life.
Yeah there's two distinct phases of life there's accumulation years
then there's the retirement years. And when it comes to those retirement years that's when it's
important to really start to get organized in the form of retirement plan. And in that retirement
plan there are five guiding principles. When you retire you still need income your W-2 wages
go away where's the income going to come from? When you take income you're still going to have to
pay taxes there's long-term care Medicare planning legacy planning and then of course the fifth one
is the investment planning principle. Okay so we have our cars this is the cutest little thing I've
got six people in my car because I've got four children and my husband in here.
Loren has his
daughter Jace and the little dog Coco no Mocha, Mocha is in the car with Loren. So Loren like I
said we're gonna have a little fun with this. Why don't you spin once for the first time and then
we won't spin to continue. But we'll get started on our game. Oh two, alright Loren gets started on
two. Would you like me to take the, goes he goes two. And let's draw a card just fun so we can kind
of refresh ourselves on what the cards are for the Game of Life. I'll draw the card, I'll answer the
first one. Alright you go first. Ah get a pool, I like this first card you probably like that
Jace would like to get a pool as well. So it says pay the bank $50,000. Wow, pools are expensive.
Well, that sounds a lot like today's prices. So that's the first stop or the first card that we've
picked on the game of life.
Now the first stop on your journey to and through retirement as we
pull the numbers kind of on your board game is age 50. So you're going through the game of
life you hit age 50. What should you be thinking about in terms of retirement? From a retirement
planning standpoint age 50 is a milestone. A big portion of this milestone is now you're able
to contribute more towards your retirement savings than what you've ever been able to do before.
If you're under age 50 into your IRA the max you can contribute is $6,000 but at age 50 you
have a thousand dollar catch-up contribution. So a total now of $7,000 but here's
where the real fun comes into play. At age 50 is through your employer sponsor plans
your 401k plans.
Before age 50 you could only contribute up to $19,500 you get an extra $6,500
contribution bonus if you will. Once you obtain age 50 for a total contribution of $26,000. So
now if you're age 50 or beyond you can actually contribute the max to your 401k plan. And if you
qualify from an income standpoint also you can contribute the max to your IRA. So, the 7,000 plus
the 26.5 now you can start saving for retirement and accumulate that wealth a lot more quicker.
And you ever have conversations with people about you know is it usually a no-brainer contribute
that 6,500 or do they have to look at all the other moving pieces in their life too. Because at
50 I know I'll still have kids at home, a lot of people still have kids at home so that 6,500 feels
like a lot of money. It does feel like a lot of money and so it's different for everybody. In each
one of these milestones that we talk about here on this on this show. The outcomes or the strategies
that you incorporate with it will be different for everybody. And that's the necessity of a
customized written plan as you make the transition from the working years to the retirement years.
Your life your circumstances your resources that you have your cash flow is different than most
So your plan needs to be customized to your circumstance. Okay I have to spin I
know I cannot spin a two that's not hard to do, I got three okay I'm gonna take the bus here
go with me and the four kids we got three. Alright here we go, promotion!
Your hard work paid off spin again. So a promotion obviously is a real piece of
retirement and the nice thing about a promotion is maybe you can contribute a little bit more to
that 401k or or do a little bit more retirement planning as those promotions come along so. Let's
talk about our next stop on the game of life retirement style and it's age 55. What do we need
to know there? Age 55 is an important milestone because now if you separate service from your
employer and you have an employer-sponsored plan now you have penalty free withdrawal privilege.
And this is a very little known loophole as it relates to these employer-sponsored plans. So,
if you're working with your employer you're 56 years old you retire or you get laid off or you
just decide hey i'm going to go somewhere else if you take your distributions from that employer
plan you will not have to pay that 10% penalty even though you're under age 59 and a half.
lot of people think 59 and a half I take money out of my retirement plan I'm going to be imposed
that 10% penalty but if you take it after you separate service post 55 from that employer plan
you don't have that 10% penalty. And when you say take it can you take it all at once is that the
best strategy typically or do you want to spread that out? Well there's a couple different things
that goes into that. Let's say you can take it all once so if you have $200,000 underneath your
employer plan your 56 you leave that employer. You can take that full $200,000 out but if it's
pre-tax money meaning it's never been taxed before it's going to jump you up into a tax bracket that
So even though you can, you may not want. So you can't put it in an IRA or something right
away? You can put it into an IRA but once you do so now that money lives underneath the IRA rules.
Which means you cannot take it out until 59 and a half without the 10% penalty so here's where a
lot of the planning will come into play especially if you want to retire prior to 59 and a half.
Is you may choose to leave that $200,000 there maybe you have some other IRA money that you know
you're not going to use until post 59 and a half or you can say between 56 and 59 and a half you're
only going to need a 100,000 of that so many times the employer's plan will allow you to roll the
100,000 keep a 100,000 there and then you can use that for the penalty free cash flow.
for watching this clip of retiring today and don't forget to subscribe. If you have questions
about your retirement plan, take advantage of the complimentary 15-minute
retirement checkup phone call..
– If I wanna work 100 hours a
week and never see my family and die at an early age
that's my prerogative. – I would have money as big as this room. And kiss it. – 33 pounds of gold and diamonds
given to me by superstars of the world. – I love money. Come to me. – I've been a photographer for 25 years. With my lens focused on wealth,
I noticed that no matter how much people had, they still want more.
I wanna figure out why our
obsession with wealth has grown. It seemed to be a shift
in the American dream. – I know the name's of the
Kardashians better than I know the names of my neighbors. – This fictitious
lifestyle fuels this sense of inadequacy. – I have the classic Birkin
in almost every color. – The bags start $20,000 and go up. – I realized wealth was
much more than money. It was whatever gave us value. Fame, sex, even plastic surgery for dogs. – It's kind of like the end of Rome.
Society's accrue their greatest
wealth at the the moment that they face death. – If you look great and
you have a nice car, I'm all for it. But at the expense of what? – [Woman] You sell your soul to the devil. – You're so hungry for it you're blinded. – I am on the FBI most wanted list. – All of us are following the toxic dream. – If you think that money
will buy you anything and everything, you've
never ever had money. – Dollars, dinero, money is what it takes..
2 million dollars can pay out $200,000
a year of income. In this episode,
I'm going to address the question that you wouldn't believe how many times is
asked. "How to invest 2 million dollars for
retirement?" Well, the answer is similar to how can I invest a million or 5
million or 20 million or recently a billionaire asked me,
"How can I invest 400 million dollars to have tax-free income?" So, get ready. I'm
going to show you the power behind creating
predictable rates of return that can give you 10 payouts tax-free
for as long as you live.
Hi, I'm Doug Andrew. I'm in my radio
studio right now. I have broadcast a radio show every
single week for the last 12 years. It's called 3-dimensional
wealth radio. And that is also the name of my YouTube
channel. 3-Dimensional Wealth. See, 3 dimensions has to do with the
financial dimension where I've helped people for 46 plus years
optimize their financial assets, minimize taxes and
not outlive their money in retirement. But also there's two other dimensions
that have to do with the wisdom and the experiences you gain in life and how to leave behind your heritage and
how to fish instead of dumping fish to your kids and grandkids laps.
And this is actually a concern for many people
that have several million dollars because they don't want to ruin their
children. So, whenever people come to me and ask,
"Golly, Doug. How to invest 2 million or 5 million or
10 million? A huge lump sum for retirement?" Usually i'm impressed
because they have that much money.
And it's not because they need that
money to generate income but they would like to have the ability,
the option to be able to take income out and not deplete that nest egg.
And so, many times when i find out their goal
and where the money came from, maybe a settlement, maybe the sell of a business,
I have counseled many dentists who sold their dental practice for 2 million
Or one time I had a jewelry store owner
that sold his jewelry stores for 2 million dollars several
years ago. It can be an electrician. Many a chiropractor did
the same thing. Hey, I have I have a couple of million dollars. So,
what advice did I give all of these people when they
asked the question? Well, first of all i wanted to know is
this your main or sole source for income
in retirement? Or is this sort of on top of what you already accumulated?
Now, many times they'd say, "Oh, no. This is like bonus money.
I don't need the money right now but I want it liquid and safe.
That's pretty nice to have an extra couple of million that you really don't
need. But I don't want them to lose that." They
don't want to lose it either. That's why they came. Because they know
that I'm very passionate about preserving principle,
safety of that principle.
They don't want to lose this 2 million.
Many people came across a lump sum like that from an
inheritance where they've been going along and they were responsible and
accountable. And they saved 2, 3, 4, 5 million in their
accounts. Maybe IRAs and 401Ks. But then
all of a sudden they inherited 2 million or more. And they would come
and say, "Golly, Doug. Where can i invest this 2 million in retirement?" So,
whether you need the money for income immediately or not or whether
you want to preserve it so if you did need it in
your lifetime, or you want to pass it on to your
children, you want to maximize what you leave behind,
i know the answer where to put it regardless of which of those goals you
have for a lump sum like 2 million dollars.
You want to hear the answer? If the 2 million
in this example is a lump sum, a windfall or a settlement or something like that,
an inheritance. And they tell me they don't need the money, I go, "Well, I could
show you how to safely set aside that 2 million so it will
double about every 7 years.
Probably at the worst return I've ever
achieved it would double every 10 years. Does that sound pretty good?" They go, "Well,
what rate of return is that?" "Well, rule of 72. If it doubles every 7.2
years that's a 10% rate of return." "Really? You can do that?"
And I said, "Well, Ii can't guarantee it but I've averaged 10.07 for the last 25
years by putting money into a max-funded, tax-advantaged
indexed universal life insurance contract if it's structured correctly.
Where you take the least amount of death benefit
allowed under the IRS guidelines and you put in the most allowed.
In this case 2
million dollars." So, you're taking the least amount of
insurance you can get away with. If you were 60-years old, the least
amount of insurance to accommodate 2 million would be 5 million of insurance.
If you're 70 years old, the least amount of insurance for
2 million might be just over 3 million. Because
the objective isn't to get a bunch of insurance. It's to get the least amount
of insurance the IRS will let you get away with and
put in the most they will allow. In this case the most would be 2 million,
in this example. That's called the GSP. It stands for
guideline single premium. Very few advisors understand this
terminology that's why it's critical you go to somebody
who understands how to do what i'm talking about. So, when you do that,
then the money will grow very safely at internal rates of return of 7 to 10
Bery uh predictable based upon some of the
worst periods since the great depression like 2000 to
2010. I averaged 7.23% just using
indexing. By adding rebalancing, I was able to earn
over 10%. So, your money can double every 7 to 10
years. 2 million will grow to 4 million, to 8 million, to 16 million every 7 to 10
years. Now, if the person said, "You know what?
I want this uh two million dollars to generate
income for me within 5 years from now." I go, "Okay, great." So, then i comply with a
tax citation called Tamra. Tamra is an acronym that stands
for the technical and miscellaneous revenue act
of 1988. This is a strategy that we're the number 1
experts on this part of the tax code in America. We teach very
savvy, sophisticated CPAs and tax attorneys
about TEFRA, DEFRA and TAMRA and section 72 E,
7702 and 101 A of the internal revenue code.
This is where money inside of a properly structured insurance contract
will accumulate tax-free and allow you to access or take tax-free income when
Tamara says you can throw in
2 million bucks in one fell swoop into a maximum funded insurance contract
and it will grow tax-deferred at those rates of return.
But if you want tax-free income that tells me, "Hmm, okay.
So, instead of maximizing what you leave behind….
In other words you put in 2 million and you don't need the money.
And when you die you want it to leave behind 5 million.
You don't have to worry about Tamara." You put in 2 million
and when you die, it leaves behind 5 million.
And you can tap into income but it would be taxable income.
So, if you wanted to maximize what you left behind
and you put in 2 million dollars, you don't have to worry about Tamra.
The minimum death benefit is 5 million.
So when you die,
you're leaving behind 5 million totally income tax-free.
But if you want to preserve the right to have tax-free
income, then you want to comply with Tamra.
That means 2 million would allow you to fund it
in 4 years in one day with approximately 20% a year. What's
20% of 2 million? It's 400 000. So, you create
a plan to take 400,000 of the 2 million
every year and put it into the insurance contract.
The first day of the first year, you put in the first 400,000.
The remaining uh million six hundred thousand, we
we find a place to temporarily uh keep it so that it's safe.
And there when we transfer the next $400,000 on the first day of the second year.
You do that for 4 years and 1 day and now you've got 400 000
in there 5 times.
That's 2 million. Now,
after 4 years and 1 day, 2 million dollars can
easily generate $200,000 a year of tax-free
income because 10% payouts are extremely
common with people that we've been helping for more than 45 years.
Especially with indexed universal life insurance contracts. So,
the concept here is if you want it to grow tax-free, it's the
same answer. You just structure it maybe
differently. If you want to maximize what you leave behind when you die,
you don't have to worry about compliance with Tamra.
If you want to grandfather yourself to be able to tap into it totally
income tax-free, you comply with Tamra by funding it over 4 years in one day.
But if you're wondering what to do with a lump sum like 2 million
bucks, I would make sure it is grandfathered to be tax-free.
Not only as it accumulates but if you want
income to be tax free, you make sure it complies with Tamra.
If you want to maximize what you leave behind when you die,
then you take more death benefit and you make sure that when you pass away based
upon your life expectancy, that 2 million can leave
behind 5, 6 or 7 million.
So, let me connect the dots by
sharing an actual story with a client with you right now.
After teaching a seminar, a gentleman who was aged 70 ½
came to me and he had 500,000 which was a lot of money years ago. But
this man was had a net worth well in excess of 5 million. And I was
talking about strategic rollouts where i tell
people to get money out of your IRAs or 401Ks over a 5-year period.
And so, 500,000 would mean that we would transfer 100,000 a year out
of his IRAs each year for 5 years. And then he
would have his 500,000 that could double every 7 to 10
years. And then a 500,000 could generate 50,000
a year of tax free income. He said, "Doug, I don't need this money.
But I know i have to start withdrawing it. I'm going to be penalized 50
by the IRS. I will never be in a lower tax bracket.
I want to pull out the whole 500,000 in one fell swoop."
In a 40-percent bracket, he had done the math.
"I will pay 200,000 in tax. I want to take
the net of 300,000 in one lump sum and maximize what I
leave behind because I don't need the money.
I don't need the income." He said, "I could spend 4 times
what I need to live on and never outlive my money."
What a great blessing that was. So, in that case,
knowing that he did not need it for income,
we took 300,000 and we didn't maximum fund to contract.
I calculated his life
expectancy and we were able to get 1.5 million of
insurance. Sure enough because of his health, he
died in less than 10 years. The 300,000 which was only what it was
worth after tax in his IRAs left behind 1.5 million tax free.
Once he told me his goal, he wanted to maximize what he left behind,
I could have taken his 300,000 and only had about 600,000 of insurance if
he wanted income. He wanted to maximize what he left
behind so I didn't have to comply with Tamra.
And i got 1.5 million for his heirs (which they were grateful for) by
taking the money out of his IRAs which he
already decided to do. 300,000 blossom to a million and a half dollars about a
year later totally tax-free. You analyze what is it that is the greatest
objective when you have a lump sum and taking all things into consideration.
The best solution, the miracle solution in almost every
case is a maximum-funded, tax-advantaged
So, if you want to learn more about what
that is and how it works and make sure that you structure one
correctly with the right advisor that knows what they're doing, I
would recommend you read this book. This is my 11th book. It's a bestseller.
It retails for $20. But I want to gift one of these to you absolutely
free. So, to claim your free copy, go to laserfund.org. L-A-S-E-R, fund, ".com".
You simply pay $5.95 shipping and handling. I'll pay for the book, you pay
for the shipping. You'll have options to get an audio version
if you want. There's also video master classes.
Once you get educated, I can point you to somebody who knows how to do it
correctly if you would like. There's a chapter in this book that
talks about all of the questions you should ask an advisor.
if they can't answer those questions, you'll know they don't understand how to
do it correctly. Empower yourself. You will learn more by reading this book.
The 99% of financial advisors know about what I
just talked about..
Hello and welcome to Super
Insider, where we chat about all things you need to know to make
the most out of your super. I'm Anne Fuchs and I'm the Executive General Manager
of Advice, Guidance and Education at Australian Retirement Trust. Before we begin, I'd like to acknowledge
the traditional owners of the land and waters where we're recording
this podcast today. Now, it's important also just to let you
know that this is general advice only and you'll need to decide
if it's right for you. Now, as part of our Q&A series,
we have some of the team from Member Education joining us,
April Smith and Kane Everingham. And they've got a whole list of
questions that you, our members, and in the community, ask about
what you need to know so you retire well with confidence. So, it's over to Kane and April.
Well, thank you Anne. So, as you heard, you've
got Kane and April here and we're from the Member Education
Team at Australian Retirement Trust. Last financial year, for example, just
to let you know, we did almost 2000 education events across the year and
that was to almost 100,000 people. So we get out and about quite a bit. We get to hear a lot of the questions. And in today's session,
we're going to cover off a lot of the questions that we get around
retirement and planning for retirement. So very popular field, very engaged
people that we come across when we're out and about. So, I want to start with
the first two questions I'm going to start with and I'm
going to say, look, I'd be retired if I had a dollar for every
time these got asked April.
So, the first one there,
what age can I retire? Has anyone asked you that before? Oh yes. I would be have a full
piggy bank by now as well. Beautiful. So, that's a very commonly asked question
and technically the answer to that, when can I retire, the answer is – any time you want. There is actually no set
retirement age in Australia. So, for example, I could retire
right now. I know I don't sound and look it, but I'm actually 47.
I know look like I'm 23, but I'm 47. I could retire right now,
but could I afford to? So, if I had rental
income from properties, if I had money in the bank,
if I had income from shares, inheritance money, I could
technically retire right now.
But, it's like, what are
my sources of income? What am I going to live off? I don't get access to my superannuation
until a certain age. I don't get access to any Age Pension help
till a certain age. So these are the things
you need to think about when it comes to planning your retirement. So, as an ex-financial adviser, a
client always springs to mind here. It's probably the most stark example
I have where she came to see me, and, as you do – hey, you know,
what are you here for today? And she said, I want to see
if I can afford to retire. And I'm like, okay. So I started asking the usual questions.
When you're looking to retire? And she said, well, I'm looking
to retire in two weeks. I've already handed in my notice.
So she was just looking for justification that
she was okay to retire. And so when we did the exercise,
looked at her assets, what she had, what she wanted to do in
When we did the calculations, it showed that
she could only actually do what she wanted to do for the first
6 or 7 years of her retirement. Then she would have spent all her super
and then she would have been subject to whatever the Age Pension
was going to pay her. So that wasn't the lifestyle
she wanted in retirement. After 6 or 7 years, she didn't have enough
super to do what she wanted to do.
So, I wanted to share that
because it really leads me to the next commonly asked question. And I'm sure you've
seen this in the media. How much super do I need to retire on? Now, everyone groans when I give them my
answer, but the answer is – it depends. And just like you heard me share that story with the client, it
depends on what you want to do. So a common example or an exercise I would have taken my clients
through was, you know, travel. What do you want to do with
yourself in retirement? I'll pick on April here. So, April's married to an Englishman. So I imagine, April when you retire, you want to be able to go
home to England and visit. Visit your hubbie's rellies. Yes, yes. I will need to save up
to travel to England. But unlike yourself, luckily your
family all live in Australia, so we might be saving for different things.
That's it. So very big difference. So as April said, my family are
all in South East Queensland. So I don't even have to leave the state. So for April, to visit the family,
she needs to factor in flights, accommodation, hire cars and how often do
they want to go overseas. Versus myself, I've only got to put in half a tank of gas and the furthest I've
got to go is Bundaberg. So very different needs
for how much super we need just on that topic alone.
It can also be cars. Am I looking to upgrade my car regularly? New car, second hand car.
Even things like where I go out to eat. Do I like to go to five star dining
and get my favourite bottle of wine? Or is fish and chips at the local takeaway. Is that what I like to do? So these are the kinds of
things you need to consider when it comes to your retirement
and how much super you need. What does a day look like? What does a week look like
for you in retirement? And you need to have a really good
picture, and that's a fun thing to do. Sit down with your favourite
drink and just dream. What would you like your
retirement to look like? Now, once you've done that, though,
you need to put a price tag to it. So April, could you help us with that? You do need to put an annual
price tag on that dream, Kane. And how can you do it? Well, there's three types of
ways you could actually look at finding how much you need in retirement. So, one of them might be the budget. So you're writing down,
what does electricity cost? What does my travel cost? What does my car cost? What bills am I needing to pay? Now we know, being in those seminars,
we'll have 300 people in the room and maybe about 3 people put their hands up loving that
idea with the spreadsheets.
So it's not always
the most popular one. So let's look at an easy one,
which is the two-thirds rule. So what is two-thirds rule? Basically, if you want to still
maintain the same lifestyle as you are at the moment, what you're doing is you're
looking at your current income and what is two-thirds
of your gross income. So why two-thirds? It's because the average Australian will pay
about about a third per cent in tax. Okay, so there's that two-thirds rule that might make it easier for you. But
maybe you might want a bit of guidance. And how can you actually
calculate or assume how much you might need in retirement? There's a brilliant website, it's called superguru.com.au.
And what's on that website is what's
called the ASFA Retirement Standard. So what is this? It's basically a survey that
they've gone out and surveyed our current retirees to see
how much money they're spending and what they're spending their money
on. And what you'll be able to see is a comparison between
what our current retirees consider a comfortable lifestyle
versus a modest lifestyle. And this is also assuming that
you do own your own home as well. But they'll go through things like travel,
being able to afford to have two cars, you know, being able to afford private health. So those types of questions
are answered for you. So I highly recommend going
to superguru.com.au. Now once we've got our plan,
we know how to budget, how are we going to find, Kane, if we're
on track to that ideal retirement? Okay, so great question, April.
So you've thought about what
you want to do in retirement. You've put a price tag to it,
an annual price tag to it. So then we move on to how do
you know if you're on track? A great tip here is have a look
on your superannuation website. A lot of the super funds have
some great tools or calculators on their website. It might be called a Retirement
projection calculator or Retirement income calculator, but effectively
you put in your current situation, I'm 40, I'm working, this is my
pay, this is my super balance. Then, you know, you can project ahead to see, what's my balance going to be
like when I would like to retire? So they're some great tools. Have a look on your superannuation funds' website, and, again, you can
have a look at any of the funds and see what they've got on there.
That's a really useful
tool to do yourself. And, also obviously the most accurate
way is go and get financial advice. So as I shared that story,
to open with that, if you want to know am I on track, you
can go to a financial adviser. They will find out your exact situation now and project it forward to
you with a lot more in-depth calculators and tools then what
you'll get just by yourself. So, alright, I've used the calculator,
Kane, thank you very much, but it's telling me a horrible story,
you know, I'm not on track. There might be a gap. There might be a gap. Exactly.
You might get some horrible things. So this is where you don't smash the
computer, if that's what you're using. There are lots of things you can do
and I applaud anyone that's listening, This is a really great place to start. Educate yourself. So it could be listening
to podcasts like this. It could be, again, having a look
at your superannuation website. They've often got a lot of
educational material on there.
They've got articles, they've
got short videos, some really great resources on there.
Call your super fund. No question too silly. Give your super
fund a call and ask those questions. A really great place to start as well. Also, your your fund might offer
seminars or webinars. I know that's what April and I
do for a living and we love it. That's our bread and butter. And lastly, as I've also mentioned,
you've obviously got financial advice, which is that personalised
plan for yourself. But if I've done that, April, so I've
thought about what I want to do in retirement, I've put a price
tag to it and I'm not on track. What can I do? What can you do? Yeah, exactly. So you found out this gap. How can you bridge that gap? Let's talk about growing superannuation. So we're looking at three
particular things right now. So a way to grow your
superannuation is contributions. So putting money into your
account. Now there is different types of ways you can contribute
to your superannuation. So, for example, maybe a lower income
earner might look to claim a government co-contribution, maybe a higher income
earner might look to salary sacrifice or tax deductions.
to call the superannuation fund. There's lots of different types
of contributions you can make. Find out what one's going
to be best for yourself. So your funds in superannuation
are invested. And every dollar you earn on that investment
option is being reinvested. So it's so important to choose the
right investment option for you. And maybe that option might change over
time depending on what your objectives is. Another way to grow super is
how about we reduce costs that we pay. So ask your super fund, is there a way to reduce the
costs of my superannuation? You might be paying insurance
premiums where you may not necessarily need that insurance, but
insurances are also very important. Another question we get is when
can I access my superannuation? And I remember speaking to a lady,
I just came across her in my uniform. She was 63 years of age and she
said to me, I cannot wait to retire.
And I said to her, how come
you're not retired now? And she said, well, I can only
access my super at the age of 67. And this is where there is that real misconception with
when you can access your super. When you can access Age Pension
is either 66 or 67, depending on when you were born. Okay, that's Age Pension. Superannuation is different though.
So superannuation is when you've met your preservation age
and you've permanently retired. So your preservation age, if you're
born after the 30th of June 1964, preservation age would be 60. So if you ceased work over 60,
if you're retired over 60, another age is 65. So that's a magical age
regardless of your working arrangements. But can you access your super
if you're in between? So you're over your preservation
age, under the age of 65. Can you access some of your super? Well, yes, you can look at something that's
called a Transition to Retirement account, otherwise known as
a TTR. Now Kane, take it away. What is a Transition
to Retirement account? Okay, I might take it back a step. So a question we often get asked
is, should I fully retire just working full time then quit cold turkey,
or should I ease into retirement? And that's actually why the government created this thing
called a transition to retirement. The name gives it away. It was invented so that I don't have to keep working full time.
So say I'm doing five days a week, I might want to go down
to three days a week.
I can't live on that reduced income,
so I can access some of my super through this transition to retirement
pension to top up the income I need. So that's what the government
designed it for. It's often a great way to ease into retirement so you
get a better work-life balance. And I think that's very important
because what's often not talked about is the non-financial
side of retirement. So often my purpose, my reason to get out of bed, is my
job and that's my circle of friends. You might be surprised how much
your workmates are your friends. And when you retire, they're gone. They're gone and you don't have
a reason to get out of bed. So, maybe dropping to part-time. Then I'm starting to establish new social
groups, new routines, new habits. And I've got one foot in retirement,
one foot in the work camp. And another key thing that a transition to
retirement can play is when it comes to retiring, it
might be, you know what if I had to still work full-time,
I've got one year left in me.
I just, I can't do it anymore. But if I was able to, and again you
need your employer to agree to this, but if I was able to, say, drop
back to three days a week, I've got that work-life balance. I've got a four-day weekend,
I might find that, you know what, I enjoy that balance and I might
work another 5 or 6 years rather than just one year if I was full-time. So that can actually help you stretch your retirement money because
you're not retiring cold turkey, and just living on super. You've got a bit of income, a bit
of super, so it slows the drawdown on your superannuation. So that's another great consideration to think about with this Transition
to Retirement product. Now, if I'm going to look at a TTR and sorry if I do say TTR, we are
talking about transition to retirement, it'll just shave some time off
and stop me getting tongue tied. But there is some rules around a TTR.
So can you talk to those for us, April? Yes.
So as I mentioned before, rules
and how you can access this account is once you've met your preservation
age and you're under the age of 65. So with this Transition
to Retirement account, you can access between 4% to 10%
of your superannuation account. So what happens is you be moving
that money over to a Transition to Retirement account and then you can
opt to have how that is paid to you. So what frequency? So, for example, as Kane mentioned
there, if you're not wanting to rip the band aid off. And if you're wanting to just drop
down your hours and maybe you receive a fortnightly payment. So maybe you might opt to have
a fortnightly payment sent to you to supplement that loss of income
that you might be able to choose fortnightly, monthly, quarterly
bi-annually or annually. Now as you mentioned before there,
the Transition to Retirement was designed to kind of, as it says,
transition to retirement.
But as a former financial adviser,
Kane, I know advisers actually look to the Transition to Retirement
for another answer. So, why would you maybe
open up a Transition to Retirement account if you're
actually not transitioning? Okay, so good point you raise. So once this product was
released, so it is actually a superannuation product, but
the financial advice boffins got a hold of it and they saw
a way that they could use this in what we call a Transition to
Retirement strategy or a TTR strategy.
And effectively what you're doing
is, it works particularly well if I'm 60 or over, because when I get money out of super and
I'm 60 or over, it's tax-free income. So what are effectively a TTR strategy
is, I am salary sacrificing or making tax deductible contributions into super as much as
I can up to the limit. And then what I'm doing is I'm
starting a TTR pension with my super and replacing that with tax-free income if I'm over 60. If a TTR
strategy is set up well, I'm putting more money into
super through my salary sacrifice or pre-tax contributions than
I am pulling out through my TTR. So overall, my pot of retirement money is
growing even though I am drawing on it. So that is a rather complex reason
why people might use a TTR so they are still working full-time. I don't need extra money. I'm just looking at how can I boost
or accelerate my retirement savings. A TTR strategy could be of
interest to people out there. It is a technical one.
I do recommend do some more homework
on it and I can't stress enough, if you go and see a financial adviser, they can do all the hard work and crunch
all the numbers for you and work it out to the closest dollar for you. So just something to keep in mind with
that, and that does kind of lead me to the next one. You know, talking
about doing it yourself. But is it easy to plan
retirement yourself? Well, firstly, I think you need
to plan retirement yourself. So, as you mentioned, we'll
go right to the start of this podcast, jot down what
is your goals in retirement? What do you want your
retirement to look like? Because ultimately you're the
only person that knows that.
Now, I can also appreciate that
the people that are listening to this podcast might actually be
10, 20, 30 years off retirement. So how can you actually plan
for retirement when you may not necessarily know what you
want to do in retirement? Well, think about it this way,
it's giving yourself options. So if you become engaged with
your superannuation earlier, you might be able to retire
earlier, you might be able to do more overseas travel. And that's why it's so important
to engage with your super to give yourself those options. So once you've jot down those dreams, now you can actually go ahead
yourself and work out, you know, is there any income gaps, see
any calculators, do that. But, as you mentioned, Kane, and especially if you're looking
at the transition to retirement because they can be very confusing,
trying to explain how that works, maybe you might want to seek
some financial advice.
Okay, so contact your super fund, see
if financial advice is available for you. And education is really key, isn't it? So I'm going to get you to take us home, Kane, with the types of education
that we can help ourselves with. Thanks, April. So, look, I just want to stress, if
you're hearing some of this information for the first time, it's that age old saying – the best
time to plant a tree was a year ago. The next best time is today. So with anything that
you're learning around superannuation, it's
never too late to start. Don't ever feel like
you've missed the boat. Because even just making some last minute
small changes can still make a difference to your retirement outcome. So, I really encourage you to apply some
of the knowledge you've heard today and go and find more information. Call your super fund, jump
on their website, have a look at their resources. Listen to podcasts like this,
attend seminars, seek that financial advice appointment to get
that personalised plan for you. Well, that's about all
we have time for today.
We've got some more
Q&A sessions coming up. So if you do have any questions,
we'd love to answer them. Just shoot us an email
to [email protected]. That's [email protected]. Thank you for listening to Super
Insider and we hope you can join us again next time.
Yes, thank you..