Episode 1: Retirement Strategies for People Under 40

About the Episode

On this episode of Making it Count, hosts Cristina and Will explore retirement savings strategies for people under the age of 40. Helping them along the way are guests John Stanton and Rob Mazur, both financial advisors at CUNA Brokerage Services. Together, they tackle the big retirement questions for our younger audience: When should we start saving for retirement? What’s the best strategy for younger people to save and invest for retirement? Is Social Security going to be around when those under 40 hit retirement age? Take a listen to the latest episode to learn what our experts have to say!


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Cristina asks Question 1: “So when do you start planning for retirement? And do you start saving?”

John answers: “As soon as possible! If your company offers you a 401k, you can start with that account. If they don’t, you can still save on your own with either a Traditional or Roth IRA.”

Learn more: Retirement Strategies: When Should You Start Saving for Retirement?


Cristina asks a follow-up question: “What’s the difference between those accounts?”

Rob answers: “With a Traditional IRA, you get a tax deduction when the money the money goes in, it grows tax deferred while it sits inside the account, and when the money comes out to be spent, it gets taxed at that point in time. With a Roth IRA, you get no tax deduction up front, your money still grows tax deferred, and when the money comes out to be spent, it comes out tax free. 

Will asks a follow-up question: “So how do we know which one to choose?”

Rob answers: “For most of those under 40, the Roth IRA tends to be the best option. Right now tax rates are trending on the lower end of the scale, so you don’t get as much value from the tax deduction with a Traditional IRA. You’re going to make more money later in life when you hit your peak earning years (late-40s to mid-50s), so it makes sense to pay taxes now versus later.”

Learn more: Traditional IRA vs. Roth IRA: 4 Critical Differences



Will asks Question 2: “What is the biggest mistake you see people under 40 making when they’re investing for retirement?”

John answers: “I think they’re putting it off. The more you can save, the better – even if it’s not in a traditional retirement investment account. Putting money into savings yourself and investing that as capital gains for long-term growth is another way to set yourself up for a successful retirement. Of course, this is after you’ve saved up enough for emergencies.”

Will asks a follow-up question: “How much should we have in our emergency fund?”

Rob answers: “Five months worth of expenses would be a great target amount for an emergency fund. And another tip for saving in a 401k account is to take advantage of employer matching contributions as much as possible. That’s a free return on your money! If you put in a dollar and your employer matches a dollar, that’s a 100% rate of return. Along the same lines, you want to make sure you’re putting in at least 10% of your take home page into some sort of savings. That’s really going to set you up for success in the long-term.”

“If you put $2,000 into a Roth IRA per year starting at age 21 and did that for 10 years, depending on your rate of return, you would have about 1.2 million dollars at age 65. That’s saving only $2,000 per year for 10 years. If you instead waited until age 31 to put in $2,000 per year and saved for the rest of your career until age 65 (34 years!), you’d still only have $800,000.”

Learn more: How to Start an Emergency Fund and Set Savings Goals



Cristina asks Question 3: “So how much should we be putting away each year for retirement?”

John answers: “Ask yourself what you want your lifestyle to be like in retirement. Also, I don’t think you’d be too upset at yourself if you over do it. But I would say start by matching up to the maximum of your employer contribution and even looking at the maximum yearly contributions, which is currently $6,000 for those under 50.”

Will asks a follow-up question: “Explain to us the difference between a 401k and an IRA and how they earn interest.”

Rob answers: “They’re similar in that they both typically comprise of either mutual fund or exchange traded fund type investments. The difference comes from the contribution limits: with an IRA, if you’re under 50, the max you can put in per year is $6,000 across all of your IRA accounts. With a 401k, the maximum contribution for those under 50 is $19,500 per year. And because a 401k is an employer-sponsored plan, your savings comes right out of your paycheck.”

Learn more: What Are the IRA Contribution Age Limits in 2020?



Cristina asks Question 4: “What’s the thing you see your younger clients finding the most surprising when it comes to retirement and investing?”

John answers: “The most frequently asked question that causes the most surprise is really the question of how much they need to have saved by retirement. When we explain the math Rob mentioned earlier, they are really surprised with the amount that is saved in that short timeframe.”

Rob also answers: “I see the same thing surprising people: the impact of compound interest. People don’t realize what a big mistake it is to take that retirement savings when you move jobs and spend it on something else versus reinvesting it back into your new 401k. For example, let’s say someone took $20,000 out of their retirement savings to buy a car. If they would have kept that money in their savings account and it grew at 7% over 20 years, that could have been $200,000. You're forgoing that earning potential and lessening the impact of compounding interest.”

Learn more: The Sum Up: Here’s how much Americans have saved for retirement at different ages


Cristina asks a follow-up question: “In a previous episode we talked about the trend of Millennials job hopping. What advice would you give to them as they move from job to job and get those 401k checks?”

John answers: “There are multiple options here: If the company you’re leaving allows you to keep the 401k, you could just leave the money in that account. If you’re looking to have all your money in one place, you could do a direct roll-over to avoid taxable consequences.”

Rob also answers: “A lot of people do the latter just for administration simplicity. You could also reinvest the money from an old 401k into an IRA so that you have thousands more options to diversify and increase your return.”

Expert Strategies for Setting and Sticking to Your Retirement Goals


Will asks Question 5: “What are some mistakes you’ve made or you’ve seen your clients make when it comes to retirement savings and investments?

John answers: “I just didn’t start early enough. That’s my biggest regret. I could probably be retired by now if I had done what I’m telling everyone to do now.”

Rob also answers: “It’s learning that difference between a want and a need when you’re putting together your budget. Just having the discipline to save is not a natural thing for some people. Luckily legislation has tended to help in that area through things like negative election, where your employer signs you up for saving automatically and you have to go in and undo the election.

Learn more: 7 Retirement & Investment Myths that are Costing You Money



Cristina asks Question 6: “We want to wrap up with a question that we think gets to a common misconception about retirement. If people are paying into Social Security, isn’t that enough to retire?”

John answers: “Everyone is worried that Social Security will be gone by 2030 if things don’t change. The worst case scenario (that is if legislation doesn’t improve Social Security or make it stronger) is that you’ll lose 25% of your pay. So if you’re receiving $2,000 per month now, by around 2030, you’ll receive $1,500. It doesn’t completely go away, just reduces the amount. If nothing is still done, the next impact won’t happen until 2090. The average Social Security payment right now is $1,500 per month; that’s also the average monthly expenses in retirement. So if you want to live a break even life in retirement, then sure, rely solely on Social Security.”

Rob also answers: “The latest report I saw says Social Security funds about 40% of someone’s retirement. So that’s just one leg of the stool. The next tools are those employer plans, personal savings accounts, IRA accounts, etc.”



Will asks Quick Question 1: “What’s the best way to start saving for retirement if you haven’t already?”

Rob answers: “The best way is within a 401k with payroll deductions.”

Learn more: 5 Recommended Retirement Savings Plans (With Calculator)



Cristina asks Quick Question 2: “How much of their savings should people be putting into the stock market?”

John answers: “You really need to sit with a financial advisor to figure this out. It really comes down to you as an individual and how you want to invest.”

Learn more: 5 Best Ways to Save for Retirement in Your 30s



Will asks Quick Question 3: “What about IRAs? What are the maximum contributions for 2020?”

Rob answers: “$6,000 if you’re under 50 and if you’re over 50, you can make an additional $1,000 catch-up contribution.”



Cristina asks Quick Question 4: “How much money do people need to retire?”

John answers: “It depends on how you want to retire. There are some people that are completely happy with not doing anything extra in retirement so they can save all their money for their kids and legacy. For someone like that, it could only be $100,000. For someone that wants more of a lavish lifestyle in retirement to do traveling and all the fun stuff, we are easily looking at 2 million dollars nowadays.”

Learn more: How to Create a Retirement Expense & Budget Worksheet



Will asks Quick Question 5: “Finally, what’s the easiest way to diversify your investments?”

Rob answers: “The easiest way is to utilize a mutual fund or an exchange-traded fund, so that way instead of buying into one company, you’re getting pieces of many different companies.”



Cristina brings up a recent Washington Post article that discussed the trend of Millennials overwhelmingly putting their money into Roth IRAs found in a Fidelity Investments report. For younger investors, a Roth account makes sense because they’re likely to be in a relatively lower tax bracket and the tax-free growth with years of compounding can far outweigh the benefit of current-year tax deductions for contributions to a traditional 401(k). Under the new Secure Act, employers can automatically increase employee contributions up to 15 percent of their pay.

She asks: “Are you noticing the same trends amongst your younger clients?”

Rob answers: “We are definitely noticing that trend with our under 40 segment. They come in and want a Roth IRA, even if they don’t know what it is or why that’s the best option. With the over 40 crowd, we are also noticing some curiosity with the Roth accounts. We encourage our clients to have a little bit of both so you have options in retirement.”

Will asks a follow-up question: “What would you say to the younger crowd that might feel intimidated when coming to speak with a financial advisor about saving for retirement?”

John answers: “Just like when you are feeling sick you go to a doctor, the same applies here. It’s perfectly normal to see a professional about your financial health. Our job is to get enough information about you and your goals to come up with a strategy to fit your needs. You don’t have to follow that strategy, but it’s there if you want to. We are always here to help; it doesn’t matter how young or old you are.”

Learn more: 6 Benefits of Hiring a Fiduciary Financial Adviser


Cristina asks a follow-up question: “When should people come to see a financial advisor?”

Rob answers: “We tend to see clients come in during ‘money in motion’ events – changing jobs, getting a raise, getting married, having a kid, someone dies and leaves money with you, etc.”

John also answers: “A follow-up to that would be if you’ve made a budget for your monthly expenses and have money left over – that’s a good time to come in and talk with a professional about what to do with it.”



Want more in-depth coverage of retirement savings and investing strategies? The experts at Addition Financial created a retirement goal setting guide for our listeners to download here. And find more retirement resources here!

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