Retirement

MONDAY MONEY TIP PODCAST: Roth vs. Traditional IRA

In Episode 23 of The Monday Money Tip Podcast, we’re discussing how to choose between a Roth and Traditional IRA/401k when saving for retirement. In addition, I have some updated information in regards to mortgage rates, savings rates and CD rates. We will also hear a success story from a woman who used a 0% credit card transfer and how it changed her debt freedom journey.

It’s our goal at the end of each episode that you gain hope and encouragement in your financial journey, you’re equipped to take a next step, and that you’ve had FUN with us!

Find the Monday Money Tip Podcast HERE. Please let us know what you think by leaving us a rating!

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Email info@iwbnin.com to ask questions or share success stories.

Show Notes

About the Episode:

  • Hear Joe answer a question about whether to choose a Roth or Traditional 401k at work.
  • Joe shares information about current mortgage rates, savings rates and CD rates.
  • Megan shares a success story about a woman who gained traction in her debt freedom journey by using a 0% credit card transfer.

Resources:
IWBNIN Next Steps
Marcus by Goldman Sachs
Ally Bank
American Express
0% Credit Card Transfer
IWBNIN Ladder
IRS Website
Voya Retirement Calculator
Fidelity Retirement Calculator

Quote of the Day: “Whether you choose Roth or Traditional, what is most important is that you actually choose one and invest! BOTH are great decisions for your financial future.” – Joe Sangl

 

Pulling Money Out Of Retirement Accounts Early

As people take off on their debt freedom journey, so many times they are tempted to withdraw money from their retirement accounts in an attempt to speed up their debt elimination process. We get questions all the time from people who want to know whether or not we think this is a good idea.

I do not think it is ever a good idea to take money out of a retirement account in an effort to pay off debt. Many people feel like retirement is so far away that they have plenty of time to begin saving. And while you may have plenty of time to start saving, you will never regret starting as early as possible. The key is to start investing early and invest consistently. In all likelihood, no matter when you begin saving for retirement, you will wish you had started sooner.  

When you get started on your debt freedom journey, it can seem like the end is so far away. But I would encourage you to stay the course. Get a budget using one of our FREE tools, calculate your debt freedom date using our FREE calculator and slowly but surely, you will see those debts drop off. And once they are all gone, not only will you be debt free but you will also still have your money working for you in your retirement accounts.

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Preparing for Retirement Income

We were recently asked this question, “I’m a few years out from retirement. What are some things I should be considering?”

It was a great question, and one that applies to all of us. With that in mind, we decided to share our answer with everyone.

As you prepare for your retirement, I encourage you to do the following:

  1. OUTGO:  Calculate your “needed” and “desired” retirement income
    • “Needed” income is what is absolutely necessary to maintain your life – giving, saving for known, upcoming non-monthly expenses (Christmas, vacations, property taxes, car maintenance/replacement, homeowner’s association fees, insurance deductibles, etc), food, car insurance, etc.
    • “Desired” income is what you would like to have in monthly income – it covers your “needed” income plus the extras you would like to be able to do throughout retirement
  2. INCOME:  Visit SSA.gov to determine your options
    • Upon establishment of your personal account, you will be able to see all of the available options including early retirement, full retirement, and delaying benefits until sometime past full retirement age.
  3. INCOME:  Determine other sources of income you expect to receive throughout retirement
    • Do you have any pensions?
    • Do you have any rental income sources?
    • Do you have any 401k, 403b, 457, TSP, Roth IRA, IRA, or other similar investments?
    • Do you have any assets (property, precious metals, business interest) you expect to sell to help fund retirement?
  4. Calculate your retirement nest-egg from multiple sources

It’s NEVER too early to start thinking about and planning for those retirement years!

Do I Have Enough Money To Retire?

“Do I have enough money to retire?”

This is one of the top questions I receive. It is usually asked by someone who is deciding when to retire, and they want to be financially prepared.

Let’s define retirement from the perspective of most people.

retirement date n. that moment when a person ceases to earn money and begins living on money from other sources – sources which include social security, pensions, retirement savings plans, and other investments.

Let’s back to the question – “Do I have enough money to retire?” The hidden message behind the question is, “I don’t want to run out of money and end up eating dog food to survive.”

Here’s the rough step-by-step calculation I use that can help you answer this question:

  1. Determine your monthly guaranteed income (social security, pensions, annuities, rental income, business income, etc.)
  2. Determine your monthly expenses (include savings for known upcoming non-monthly expenses like Christmas, vacation, car repairs, house repairs, annual insurance premiums, etc. Be sure to include even longer term expenses such as vehicle replacement and major appliance replacement.
  3. Subtract #2 from #1. This will determine your “monthly financial gap” (if one exists). If you have no gap, congratulations! You are in great financial shape. If there is a monthly financial gap, continue to step #4.
  4. Multiply the “monthly financial gap” by 300 – This is your “projected investments required” to provide enough income for the gap.
  5. Add up the total value of all of your investments – retirement savings plans, stocks, mutual funds, etc. and compare to the number calculated in step #4. If the total value of your investments meets or exceeds your “projected investments required,” you are in the financial position to retire!

Here’s an example:

Suppose Tom and Mary are preparing to retire. They are eligible for Social Security monthly payments of $2,875. They also have a small pension that will pay $300 per month. Their monthly expenses, including savings for short and long term known upcoming non-monthly expenses, are expected to be $4,500 per month. They have saved up $450,000 in their retirement savings plans – 401(k), 403(b), and Roth IRA.

Let’s use the steps to see how much they need to have saved to retire well.

  • Step 1  Monthly guaranteed income is $3,175
  • Step 2  Monthly expenses are $4,500
  • Step 3  Monthly Financial Gap is $1,325
  • Step 4  The “Monthly Financial Gap” is multiplied by 300 which provides a “Projected Investments Required” of $397,500
  • Step 5  Because they have have $450,000 in their RSPs, they appear to be in great shape!

A few notes:

  1. This is a rough calculation. I encourage any person who is preparing to retire to meet with a retirement specialist to walk through individual needs.
  2. It is appropriate to understand taxes to ensure that money is utilized in the most tax-efficient manner. Using the services of a retirement specialist and CPA can help with this.
  3. Ensure that appropriate insurance is in place. This includes consideration of long-term care insurance and life insurance policy analysis.
  4. This calculation essentially assumes a 4% nest-egg growth rate that provides necessary income and preserves capital.

ING: How Much Money Do You Need To Retire?

If you have read this website with any regularity, you will know that I am a freak about having a financial plan.  I want a written and very detailed plan for anything related to my finances.

One thing that I teach during live events is the importance of calculating how much money you need to retire.  It is also taught in my book, I Was Broke. Now I’m Not.

It is SO IMPORTANT to know how much money is needed to retire well.

How much money do you need to retire?

One of my favorite on-line banks, has created a terrific website to help you answer the question. I went to the website and calculated my number, and it FIRED ME UP!!!

I enjoyed the brief exercise so much that I want to CHALLENGE to everyone today to take five minutes to complete the following two tasks (trust me, it will be worth it):

  1. Calculate Your Number at INGYourNumber.com
  2. Calculate Your Number using the JosephSangl.com “Retirement Nest-Egg Required Calculator“.

Are YOU going to be able to retire well?

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