Episode 94: Retirement 101 | Everything Frugal People Need to Know About Saving For Retirement

Episode 94: Retirement 101 | Everything Frugal People Need to Know About Saving For Retirement

It’s never too early to start saving for retirement, but with all the weird acronyms and other necessities vying for our money it is easy to push this off to the ‘someday’ category. On this episode we’re breaking down more of those barriers to saving and making retirement feel a bit more attainable!

Sponsors: 

  • Empower: An awesome mobile app jam packed with features that make managing your money easier. With a high-yield checking account offering 1.6% APY, and direct access to their financial coaches; Empower is an obvious choice in mobile apps! For more info about Empower, visit: empower.me/FRUGAL and use offer code FRUGAL to get a $5 bonus when you reach your savings goal
  • Florida: Jen’s birthplace, and home to where all good and right things happen! It’s also quite fitting that this southern-most state, this place of sunshine and warmth, decided to sponsor us this week. With an official state song titled “old folks at home” we can think of no better supporter as we discuss retirement. Florida, the place Jen lives, the place I WANT to live, and the place we can ALL live if we dream big and save for retirement!

Notable Notes:

What the Internet has to say:

This article from investopedia answers the question, ‘how much do I need to retire?’

What Jen + Jill have to say:

  • First, 401(k) participants believe they need $1.7 million, on average, to retire. And second, many are not on track to get there
  • Manage investment (avoid ‘set it and forget it’ mindest)
  • You need to pay attention to and actively manage a 401(k) to really make it grow. That also applies to other investment accounts, including IRAs, brokerage accounts, and HSAs.
  • 4% rule – take out this amount of retirement fund yearly without ever touching nest egg – living off of dividends
  • Saving vs. investing
    • savings accounts typically pay much lower returns (or nothing at all) compared to investment accounts. In the early and middle years of your career, you have time to recover from any losses. That’s a good time to take some of the risks that allow you to earn more with your investments.
  • How much?
    • Most experts say your retirement income should be about 80% of your final pre-retirement salary (ex. $100,000 = $80,000 per year)
    • Savings by age:
      • Fidelity suggests you should have an amount equal to your annual salary in accumulated savings by age 30
        • Age 40—two times annual salary
        • Age 50—four times annual salary
        • Age 60—six times annual salary
        • Age 67—eight times annual salary

More from the Internet:

This article from Money Under 30 provides us with a beginner’s guide to saving for retirement, and breaks down all the scary terms into understandable and tangible tips!

More from Jen + Jill:

  • Dont be confused by wierd acronyms
    • A 401(k) is just an account you get through your employer and which is funded through pre-tax payroll deductions. A 403(b) is an account you get if your employer is an educational institution or a non-profit.
    • IRA “vehicles for your money”: IRA stands for Individual Retirement Account, and is an account that’s not dependent on where you work; anyone can open one
      • people save in an IRA and a 401(k) or 403(b) simply because IRAs offer some benefits that employer-sponsored retirement accounts don’t. IRAs come in different varieties:
        • Roth IRA, which uses after-tax money
        • traditional IRA, which is tax-deductible
        • SEP IRA, which is for the self-employed (and is also tax-advantaged).
  • A word about Social Security – don’t count on it
  • Take advantage of employer matches
  • Once you are set up with saving/investing – leave it alone – avoid unnecessary anxiety!
  • Once you’ve started saving – make dat $ work for you!!
    • Younger people should take larger risks, such as stocks  or ETF’s (low cost index funds)
    • 40’s, 50’s, 60’s – start to move that money out of stocks into ‘safer assets’; like bonds

BILL OF THE WEEK – Erin thanks for sharing your bill about the buffalo bills going to the playoffs! We know were a little late, but we are still excited!

Lightning Round

Your Retirement questions answered

  • What accounts should I have? IRA, 401k, HSA 
  • What’s in my retirement account? Usually mutual funds, we prefer index funds (passively managed – less expensive). You can control what goes in your IRA but you can’t always control what’s in your 401k or 403b
  • Stocks vs bonds? Index funds are made up of them. They determine how risky your portfolio is, you want both, bonds increase as you get closer to retirement.
  • What should I do with a windfall or inheritance? First figure out how much in taxes you’ll owe on it, then use the rest to get you closer to your financial goals. Prioritize paying off debt, saving an emergency fund and maxing out your IRA. If you have any left have some fun with it or open a taxable investment account. It’ll act exactly like your IRA, you can invest in the same funds, it just doesn’t have the tax benefits of a retirement account.

Wrap up:

We’ve got a new way to enter our monthly giveaway!

  • Share this episode on facebook or social media, tag us in it and you’ll be entered to win a $10 amazon gift card! We’ll pick 1 winner for every 5 tags at the end of the month.
  • ALSO you can still enter by leaving us a review on iTunes or Stitcher, screenshot the review and send it to frugalfriendspodcast@gmail.com. We’re just adding a new way to win!

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