Episode Transcript
[00:00:00] Speaker A: Welcome to Financial cures. Hi, I'm Dr. Wendy Labotte and today we begin with Mindset transformation. Wayne Dyer says, when you change the way you look at things, the things you look at change.
You're watching now Media Television.
Welcome to the Financial Cures where I treat money challenges like systems we can diagnose, repair and optimize. I'm Dr. Wendy Labotte, financial, financial healer and today I am joined by Rob Pugh, managing member of J Diamond Associates LLC. Rob helps employees understand workplace benefits, especially how to participate in and maximize their 401k, 413b and 457 so they can build stronger retirement outcomes with confidence. He's led practical workshop in person and on zoom. He brings a unique mix of accounting training plus real world experience from sales leadership in the pharmaceutical industry, supporting oncology teams. Rob, I'm excited to have you because so many people need this information.
So I'm excited to, you know, for you to share with them.
Now we're talking more about, I guess, retirement plans, 401ks. What are some of the misconceptions that people have when they sign up for a 401k or you know, 403 or any kind of retirement plan?
[00:01:32] Speaker B: Certainly. Great question, Dr. Wendy. And as I talk about 401s, it goes across the board, whether it be the 403 or 457. So it kind of applies to all three of them for the most part.
I think the biggest misconception, there's several. One is that once I put my money in, the company will take care of everything and they leave it there. And typically it's sitting in a money market fund and it's not growing at the rate that it should be to get them to a very comfortable retirement. So we want to make certain that once we put our money into the plan, first of all, I think it's great that they're participating in plan. That's number one. But the second thing is to make certain that you are selecting funds that are growing. That's typically an index fund. If you want to go that route or if you're not comfortable in selecting stocks, you don't feel comfortable in doing that, then place your money into a target date fund. They've done very well over the years and they've averaged about 8% or so as a target date fund. And that's a set and kind of set and forget to a certain extent.
[00:02:36] Speaker A: And we now define that. So it's basically what, I guess what the name says, a target date. So you put Your money in there, let it sit there till that date and then you may move.
[00:02:46] Speaker B: So, yes, so that's certainly how it works, but it's based on your age. So If I'm at 25 and I'm participating in a target date fund, we're going to look about 40 years, say to 65.
So I guess that would be 20, 66 is when that plan will end. And that's how they're figuring it. So the way that plan is going to look for you, which may be a little different, say than a 40 year old employee, it'll be more in stock, probably anywhere about 80 to 90% in stock and the rest in bonds. And then as you age and you get closer to that 60 retirement age, it's going to be more in bonds and less in stocks. Because the reason they do that is stocks grow significantly better than bonds for the most part. So we want to get as much growth as we can from that. But stocks are riskier than bonds. So as we get closer to retirement, it's a little bit more in bonds so that the risk is less.
We're still growing it, but it's less so than when we first started out
[00:03:47] Speaker A: and you mentioned the word index and people don't really understand what that means. Could you kind of explain that for the audience?
[00:03:54] Speaker B: Yes. When you think of an index fund, a typical one, the most common one is the S&P 500. You hear that a lot. And so what that is is a compilation of the 5, 500 largest companies in America. And they're kind of weighted based on their value, sometimes called cap, but that's like an index. So you mix those together and as those go, that is the return of kind of all those companies combined, I guess is the easiest way to explain that. So it's an index. And then different companies, Fidelity, et cetera, may have a similar fund and it's kind of tied to the S&P 500. So that's called an index fund.
[00:04:36] Speaker A: So what are some of the, I guess damaging assumptions that people have about their retirement plan?
[00:04:45] Speaker B: Well, we talked about one earlier where they feel that the companies want to take care of it, they put the money in or if it's something companies now are auto enrolling employees and then they think that the company's going to manage it. But another one is that I have to be a financial expert to make this work and you really don't. That's a great thing about 401ks is that over time consistency and allowing compound interest to do its Work, you're going to be successful with that if you follow that formula. So it's pretty simple a formula. As I said earlier, you can choose to target dated funds. If you don't want to deal with selecting individual stocks or index funds.
[00:05:27] Speaker A: Well, what area do you think is most important that people look at in terms of the process of planning for retirement?
[00:05:36] Speaker B: Well, I think the big thing is, first of all, what do I want my retirement to look like? And not only that, but then once we know what we want it to look like, then what is it going to cost to finance that retirement?
Once you know that, then you can start thinking about what are the funds that I need to get me there and how can this 401k help me do that?
And the reason we are so big and so mission focused on 401s, 403s is that for your average employee, if they max out their contribution and max out the match, they can get to most retirement goals that they have along with Social Security, along with some savings on the side them with a very comfortable retirement.
[00:06:24] Speaker A: Can you explain the match? Because some people have the retirement funds but they don't take advantage of the match. Is that automatic or is that something they have to choose?
[00:06:34] Speaker B: So it really depends on the plan of the company. It varies. As I said earlier, some of the companies are auto enrolling. I think that's a great thing.
Unfortunately, sometimes that might be 1% or it might be 3%.
So if the company says we'll match up to 6%, you're still leaving some money on the table.
We encourage folks to max out their match. And why do we say that? Well, if you don't, let's say you're making $60,000 a year. I'll give you an example. And you are putting in 3% into that fund of your salary. That's about $1,800. Assuming the company's going to match 100% for the first 3% you put in, that would be $3,600.
Let's say I choose not to do that this year. Let's say I'm going to wait until next year.
You think, well, it's only $1,800. I'll wait till next year. Well, no, that's not the case. What you have to look at is that $3,600 is not working for you.
So if you have 30 years to retirement, that $3,600 can actually grow into about a little over $70,000. So that's really the decision that you're Making, you're saying, hey, I'm going to pass up that $70,000 this year. Now, if you do that in three years in a row, that's 210,000 is a lot of money.
[00:07:51] Speaker A: So it's just unfortunate. When people go into their employer HR office, are they actually directing them or offering them this match, or is that something that they have to really look at and dig in the policy manual to see if that's something that's available?
[00:08:11] Speaker B: Again, it varies from company to company. Some companies do a great job of kind of explaining the plan to new employees and explaining the match. Others not so much.
There is something called the spd. It's sort of the plan description of the plan and it does have that information in there. We put together a worksheet so people can kind of look at that and kind of pull out some of the key things. The match, you know, when are you, when will you get the match?
Those type of things. So to help them kind of understand that a little bit better.
[00:08:44] Speaker A: And the match is basically customized to the employer offering it. So, you know, just because they say we're matching it doesn't mean they're going to match forever. Or if to say if they're going to match 3%, does that mean once you put your money in, as long as you keep your money in, they're going to match at 3%? Or if they usually have some kind of timeline that, say 3% for three years? Or how does that match? What's the typical, I guess, standard. I guess it's not going to be standard. What's the typical match agreement? Is it, like I said, long term, as long as you're putting in, we're going to match it or is it that we'll match it up to a certain point?
[00:09:26] Speaker B: Well, that's a great thing. It typically is as long as you're putting money into the plan. Now, their cutoff might be 6%. 6. Some companies even go up to 8%. So if you put in 8% of your salary, 6% of your salary, we'll match that. So that's a great thing. And that's why I think it's so powerful and it's so important that employees not pass up that match and get as much of that as they can. Because now all that money is working each year. It's compounding, it's growing for them. So that goes on for forever. Now, there is a limit in terms of how much you can put into the plan as an employee. Typically if you're under 50 this year it's 24,000.
So you get that's the limit that you can put into the plan.
But the company typically will match, as I said, up to 6%. And they'll do that as long as you're an employee with them. And as long as you are putting money into the plan,
[00:10:23] Speaker A: we don't want you to make too much money off of.
[00:10:27] Speaker B: Well, here's a little secret by the way.
That 24,000 is how much you can put in.
[00:10:32] Speaker A: Right.
[00:10:33] Speaker B: Technically employers can match that all the way up to 24%. So of 24,000. So if you're self employed and you have a 401k plan, you can do that, you can put your max in and then as an employer you can max. So a little secret for people who are self employed,
[00:10:52] Speaker A: not understanding. All these years I've been self employed, let's say over 40 years, so I've missed out on that matching like that. But hey, it is what it is.
But I know that we talk about or you talk about, you've done presentations on that 401k millionaire. Yes, I think we want to talk about that coming up in the next segment.
[00:11:15] Speaker B: Okay, great.
[00:11:15] Speaker A: I think that's an excellent draw for people to really realize the importance and how you can strategize to become a 401k millionaire. Because that's what people, you know, in retirement you definitely want to be a millionaire. And right now the way things are going, that's not going to get you at all.
You have to be a millionaire just to survive every day. But I think that's going to be an awesome, you know, topic for people to, you know, look at and you know, to reach out with, to you later on after the show to be able to position themselves for that.
[00:11:48] Speaker B: Absolutely.
[00:11:49] Speaker A: So I look forward to that.
And you know, like we said, employees, they don't need information, they need translation.
[00:11:57] Speaker B: Yes.
[00:11:57] Speaker A: And you know, they hear a lot of stuff and most people do, they hear, you know, rumors of or you know, I guess the grapevine definition of things when it comes to retirement plans and they don't really understand, you know, the nuts and bolts. And you don't have to be a financial wizard, but you do have to align yourself with more just to be able to maximize, you know, your, your retirement. Now do you find that most people, I guess what age do you find is the standard, a contribution age? Because I do taxes and you know, people that are under 45, 50, I mean they put money in but then they taking it out, they get hit with the penalty and they don't get taxes taken out. So they're wondering why their tax, you know, are so high is less. Because it's like for one, you can't penalty, you can't get around it if you're under 59 and a half. But for two, you know, why put it in if you're just going to take it out?
So what is your advice to someone that has that, I guess, experience?
[00:13:00] Speaker B: Well, Dr. Wendy, there's a lot in that, what you just said. And I kind of want to break it down because I think it's a couple of important things that we want to stress to people. And that is number one, when you participate in a 401k that's a long term plan, don't look at it as an emergency fund. Don't look at it as this is the place where I'm going to go when I need money. It's there until you retire.
That's the best way to maximize that. So first look at it that way, as you mentioned, if you do take it out before 59 and a half, you get hit with penalties, you pay taxes and you get the 10% penalty. So you don't want to do that. The other thing you mentioned is that you're typically seeing people 45, 50 years old participating in that. Not necessarily maxing it out, but participating. Well, again, we want to max it out. But what we also want to do is start younger, start in our 20s. You know, we sort of looked at Starbucks and we kind of looked at their plan. It's about 5% match and they match up to 5% I should say so. Even a barista, I guess they're called making $18 an hour. If they took 90 cents out of every hour and put it towards their 401k and got the match because they're so young, most of them in their early 20s. When they go to retire at 65, they will have over a million dollars if they invest it correctly along that time.
[00:14:25] Speaker A: So what do you think? Okay, so does the person that has the 401k, are they the ones that really need to track it or is the company that handles the 401k because some people, you know, they say I got this 401k and some folks think they know it all and they gonna track their own thing and make the switch. What do you recommend in that area? Do you Again, I guess you have to have a good financial advisor that can tell you how the market is trending and don't panic when you see Everything's dropping.
[00:14:59] Speaker B: Some comfort about that since that's so true. Wendy, that's great advice in the sense that, number one, I would recommend that someone works with a financial planner if they can, in terms of getting guidance in terms of their 401k plan.
So I think that's important, number one.
And number two, want to make clear in most cases the company says, here's your 401k plan, you are on your own.
And the reason being that is that they don't want to be sued for giving advice. They don't want to tell you how to invest your funds because if something goes wrong, then you can go against the company. So most companies say, here it is, good luck, here's some information, make it work.
So we definitely need that advice from our financial planner or we can go about learning on our own as well. Somewhere with a financial coach, someone like yourself that can kind of help guide them as to some things they should be thinking about.
[00:15:59] Speaker A: Now, when you, when they give you this and say, hey, here it is, you know, what kind of financial or what are the characteristics of a financial planner that they should, you know, the boxes they need to check to make sure this is a good fit for them.
[00:16:15] Speaker B: Well, I think the one overarching piece for financial planners is I want to make sure that they are a.
Am I going to work right now?
[00:16:26] Speaker A: Certified financial planner.
[00:16:28] Speaker B: Certified financial planner. But that they have your interest first.
[00:16:34] Speaker A: Not just trying to make a commission.
[00:16:35] Speaker B: Not just trying to make a commission because really anybody can hang a financial planner sign and say they're a financial planner. Right.
But you want to make sure they have your interest in mind.
[00:16:46] Speaker A: The first question you would expect them to ask you is is what are your long term goals?
[00:16:52] Speaker B: That's correct.
That would be one of them.
[00:16:55] Speaker A: Give me some other questions that you would ask while you're kind of vetting a financial planner.
[00:17:02] Speaker B: Well, if we're vetting the financial planner themselves in terms of whether I'm going to.
So I want to make certain that, number one, what's their clientele look like?
Are they kind of in line with my income or do they just deal with very high net worth individuals? And if I'm not a high net worth individual, is there a place for me with that financial planner?
Sometimes financial planners will have an asset limit that they'll deal with. So if it's under a certain amount of money, they won't deal with you. So you want to be sure about that and kind of get an understanding of that and then also get an understanding of what can I expect, what type of guidance can I expect, how much guidance can I expect? And in regards to that, and of course the cost, we want to know how is that financial planner compensated for his efforts or her efforts? So we want to understand that as well. Okay.
[00:17:58] Speaker A: Now could you explain the difference between a 401k and all the things that go with that and an ira? Because a lot of people don't know the difference.
[00:18:08] Speaker B: Yeah, there is a difference between the two.
First of all, there's some limits. We talked earlier. If you're under 50, you can put in up to $24,000 into a 400.
There's a smaller limit in regards to the IRA, so depending on your age, it can be anywhere from 8,500 to 7,000, you know, if you're younger. So it's kind of limited in that sense in terms of the amount that you can put in. The 401k usually is company sponsored and they have rules in regards to that that you have to follow. But there's also a match that typically comes with a 401, where with an IRA, it's an individual Retirement account. So it's you setting up that retirement account and there's no match that comes along with it. So if I put in $8,000, I won't get a 50% match of $4,000 or 100% match of $8,000, which I can get in my 401k. So that's important.
That's why I would recommend a 401k first. If you have access to it. Some companies don't offer it. And if that's the case, then the next step would be go for an ira. That's better than not having anything at all.
[00:19:17] Speaker A: Now what's the difference between a Roth IRA and just a regular ira?
[00:19:22] Speaker B: So we talk about those as the Roth and the traditional IRA or 401k. And the difference is the traditional is the plan that first came out for the most part with the 401k. Then eventually some companies offered the Roth 401. The traditional 401k works like this. If I'm making $100,000 and I put $10,000 into my 401k, when I go to do my taxes, then they're going to look at $90,000 for calculating my taxes. So I kind of get a tax break up front. On the other hand, when I come and take that money out, I'm going to pay taxes on it when I go to retire and I start pulling money out with the Roth IRA, that same hundred thousand dollars salary, and I put ten thousand dollars into the 401. I, I don't get a deduction for that. I pay taxes as if I'm making $100,000. Right. But here's a great part. When I go and take that money out when I'm 65 or old or 59 and a half or older, then all of that money comes out tax free.
So all the money I put in and all the money that, that made, all that compounding that took place. So let's say I started with 50,000. I'm at a million dollars and I'm starting to take some of that money out. It all comes out tax free.
There's one other advantage with the Roth that I like to point out to folks as well, and that is what they call the rmd. That's the required minimum distribution. And typically if you have a 401k and you haven't taken money out and you're at 73 years old, then you have to start taking money out. There's a formula that figures out how much you have to take out.
With a traditional 401, you have to do that. With a Roth, there's no rmd. So another advantage as well. Yeah, it is.
[00:21:05] Speaker A: I didn't know that. But what I call the Roth versus the traditional is with the Roth, you pay taxes on the seed, but you have tax free harvest.
[00:21:16] Speaker B: That's a great way to put that. Absolutely.
[00:21:18] Speaker A: People remember because like, okay, you think you're saving, you know, there's a little tax on 10,000, but when you make that million, that's nothing. So that's, you know, just remember if you're going to use a Roth ira, you're going to pay taxes on the seed, but it is no tax on your harvest. So keep that in mind.
[00:21:36] Speaker B: That is great analogy. That's a great analogy.
[00:21:39] Speaker A: Yeah. But we want to talk about some of the strategies that people miss, the vesting timelines and why contribute?
And it isn't always the same.
So I guess we want to, you know, talk about the actual benefits.
Well, you've talked about it a lot, but you know, younger folks just don't seem to get it. You know, they don't want to put money up and keep it there.
Most of them don't. They want to, you know, like I said, they're that microwave folks who want it right, right now.
But it's just so much simpler to, I guess because I'm at the age where I'm beyond that early 20 and some of this stuff. If I wouldn't known back then, it would have made a big difference on what's happening now. But based on, you know, what's happening with inflation and all the, you know, craziness today, what, how do you think your thinking or strategy should change with, you know, your investment, you know, you still want to put in this. We're talking long term and they talk about market correction. Can you kind of explain what that is and you know, about how often that happens and what the impact of that is?
[00:22:57] Speaker B: Certainly, certainly. And just before I answer that question, though, the word I was just had slipped my mind earlier. When looking for a financial planner is a fiduciary, you want to make sure that they are fiduciary. Okay, so that's number one. But in dealing inflation and strategies, the good thing about the 401k plans, IRAs, even, you have investments in growing things like stocks and to a certain extent bonds. The thing about inflation is it's averaging. I think I saw an article this morning, it's about 3.3% I believe, as of today.
So if you are having your money in a stock index fund or a traditional, excuse me, a target fund, and they're growing at 8%, inflation is at 3%, you're at 8%, so the difference is 5%, you're ahead by 5%. Does that make sense? And so actually having your money in an IRA or 401k and it's invested in growing things like stocks, you're going to stay ahead of inflation.
The reason we don't want you to keep it in that money market fund is that that money market fund is only paying 3%, 3.5, maybe 4%. You're barely keeping ahead of inflation. And as inflation ticks up more then you're starting to get behind. So we don't want to keep money in there sitting in cash for the most part. I mean, there may be some situations where it makes sense to do that, but for the most part it's a long term and we want to grow and we want to stay ahead of inflation. And that allows you to do that.
[00:24:25] Speaker A: Okay, now what's the difference? Or define a bond. Because some people say I got stock, but they don't look at bonds as they're, you know, tell us the difference in why it could be a good combination to have stocks and bonds.
[00:24:38] Speaker B: Sure.
So with stocks you have an ownership in the company.
So it's like if I bought shares in Disney. You are an owner of Disney as a stockholder and you get Sometimes if the company pays dividends, you get dividends. So that's the other thing about stock, too.
But as a bond, you're more of a. You're loaning money to the company. So you're kind of a lender to the company.
The company guarantees they're going to pay you back and that's the bond. So you're kind of a lender in that standpoint. But typically with a bond, I know I'm going to get that money back in the most part. So it's safe. You think of treasury bills, you think of the United States, we bought treasury bills. That's sort of like bonds. And they will give you the money at that time that they promised it to you. It doesn't necessarily grow as quickly as stock. And so it's safe. Your stock is here. But if we have a situation like we do right now with the war and the market's down, your stock can come down. Bonds tend to go down slower when that happens. So it's, it's kind of a ballast make sense. It kind of keeps the, keeps the boat floating.
[00:25:48] Speaker A: Yeah, because, you know, now, you know, just want to shut your eyes and pray and just open them when everything's settled and hope that it's all, you know, in order. But talk about the correction of the market.
[00:26:01] Speaker B: So the correction, the way. Well, first of all, I try to encourage people not to look at the market every day. It will drive you crazy. It's up, down, you know, in the short term, in the long term, though, you know, 10 year periods, 20 year periods, it's usually positive.
So again, we're talking about retirement 20, 30, 40 years from now.
So you're going to be making money within that time frame in most cases. Right.
The corrections.
So two ways to look at corrections. They typically will happen as part of the cycle. It's part of the business cycle. It's no way around it. We do well for a while, then things come down. But what you want to do is ride through that correction. And here's why you are actually buying more shares of a company at that time. A good example would be Apple. Right. Let's say Apple stock is down. We know Apple's a great company. It's not really going anywhere, but I'm kind of getting it at a discount. And I like to use the analogy. If Coach bags were on sale at 50%, there'd probably be a fair amount of women going in and buying those bags. Right.
All right, And I give it to you 50%. But when the stock market goes off 50%, everybody runs the opposite way as opposed to now. This is my chance to load up at a discount and when the market comes back, then my will be worth exactly. Right
[00:27:24] Speaker A: now we're going to take a break, but I'm sorry, let me get my outro here.
Okay. We gonna pause here for the for me to do my outro.
Okay. Coming up next, we're going to go after the money that people miss their match strategy, the vesting timelines and why I contributed isn't always the same as I capture the benefit. And like I said, we're going to focus on that 401k millionaire strategy.
[00:28:15] Speaker B: Okay.
[00:28:16] Speaker A: But we'll be right back. We'll be right back with more financial cures to help you heal your financial ills, become financially free. So stay tuned.
And we're back. I'm Dr. Wendy Labotte, the financial healer, and this is the Financial Cures on NOW Media Television. Let's continue your financial healing experience to the financial cures. I'm here with Rob Pugh and we're going straight to the invisible leaks inside retirement plans. We talked about the matches and, and we talked about 401ks and IRAs and the Roth versus the traditional.
Now let's talk about how do you explain the way that changes behavior immediately, especially for someone who might change jobs, you know, talk about rollovers and those kind of things?
[00:29:17] Speaker B: Well, there's a couple of things around that. First of all, if you're looking at changing a job, you want to look at how your 401k match vest. So in other words, the money that the company puts in some companies, it's immediate. So once they put it in, you actually own that. So when you talk about vesting, you own the monies that match. And if you left, you can take the money with you.
For other companies, it's kind of a phase in so that first year, although they'll match the money, you don't have access to it and own it or vest it with it until after being there a year or two years. So they all have their own schedule. But if that's the case, you want to always keep an eye on that because if you're looking to make a move to another company, you want to make certain that if, let's say August 9th, I'm vested, you kind of want to wait till August 9th before you leave. You don't want to leave before that because if you leave a day before it, you get nothing in terms of the match money that was put aside for you. So keep that in mind in terms of vesting.
[00:30:17] Speaker A: So a match isn't necessarily a guarantee unless you meet the terms of, I guess, longevity with the company.
[00:30:23] Speaker B: That's correct. And companies kind of use that as a way of keeping employees on board. Yeah, exactly.
[00:30:30] Speaker A: You can't blame them because it does cost to have employees.
[00:30:33] Speaker B: It does cost a lot of money to change over, for sure.
[00:30:37] Speaker A: Now, when you talk about rollovers, kind of explain that, because a lot of people, people don't understand.
I get some folks that, you know, think their money's been rolled over, but when I get their 1099R and it doesn't have that J there, or I think it's the J or G or whatever the code is, you know, it's like you're getting taxed and penalized and
[00:30:59] Speaker B: Dr. Wendy, that's probably because when they took the money out, they had it sent to them, their, their personal account and they kept the money there beyond 60 days.
So I always recommend, first of all, let's talk about what a rollover is. I leave a company, I have a 401k, I can have two options. Couple of options. One, I can roll it over into an IRA. I can go to a bank and open up an ira and I roll that money directly from that to the ira.
That's one way. The other way is I can bring that money sometimes with me to the next company I'm going with. So if they have a 401k plan, some companies will let you bring the money from the previous company you were with, roll it over into that 401k. So that's an option as well.
What you don't want to do is have the company send you a check.
Always from bank to bank or from company to company is the way you want to go. So that's the key thing you have to look for in a rollover. If you don't and you take the money and it comes directly to you. And I've had some of my clients do that, it's, oh, why'd you do that?
You're going to get tax, full tax, plus the 10% penalty. Now the other thing is a lot of people say, well, it's only $3,000. It's only $5,000. Well, that $3,000 can grow in that time that we talked about earlier in compound interest. It can grow to a significant amount of money. So you're really taking like 70,000 plus depending on your return when you take that money and you keep it. So, yeah, definitely roll it over and
[00:32:34] Speaker A: now is rollover usually an option or you just have to let them know you want to do? I mean, I guess what I'm asking is if you're saying, okay, this is my resignation and I'm leaving, say August 9th, because we invested on August 8th and I want to roll this over, do I have to tell them to roll it over? Will they automatically send me a check if I don't tell them the.
[00:32:57] Speaker B: Well, typically they're going to ask you what you want to do with the plan and you will have that option so you can check it off, send it to me, roll it over to this account. You give them directions as to what they do. Now after a certain period of time, they may send it to you directly. So you do want to indicate how you want it handled.
[00:33:15] Speaker A: Remember that audience, don't just go in there soon, they're looking out for you. Make sure you let them know you want it rolled over. Because when tax time comes and you get hit, you're going to be upset.
[00:33:25] Speaker B: Yes.
[00:33:27] Speaker A: Okay. When a company uses a non intuitive formula like partial matches or tiers, what's your method to help employees optimize without overcomplicating?
[00:33:41] Speaker B: Well, we do like to keep that simple. And typically with tiers we're talking maybe in terms of matches and the percent of match it might be for the first 3% we'll match, the company will match you 100% and then for the next 3% we'll match at 50%.
Don't get so hung up on that. Either way, if I put, just to keep numbers small, I put $5 in, I'm going to make $4 on that. Right. Because the first $3, 100% I make dollars, that's three, and then the next two, 50 cents, that's another $4. So what do I encourage employees to do? Take the match, max it out. Right. Don't worry about how that's calculated. You're getting money, you're making money and it's guaranteed money. Right. It's coming to you. So keep it simple.
[00:34:27] Speaker A: And people don't really realize that you have some people that want to count other folks money. It's like count your own money and do what you need to do.
[00:34:36] Speaker B: Absolutely.
[00:34:37] Speaker A: It's so funny how people worry like they count other people that aren't counting their own.
[00:34:44] Speaker B: Well, there's one other thing with that, Dr. Wendy, and that is that the 401k really is part of your compensation. The match is part of your compensation. So it's almost like saying I don't want that money. You keep it.
[00:34:56] Speaker A: Right? I mean, I work for that for free.
[00:34:59] Speaker B: Yeah, exactly.
[00:35:02] Speaker A: I want everybody, you know, we're going to be talking about, you know, how to get in touch with you because you got some good stuff here. So give us some information on how our audience can get in touch with you.
[00:35:14] Speaker B: The best way is probably through email, through my email. And that's JDiamond, like the stone a s s o c gmail dot com.
They can also reach it by phone at 610-213-7896. Text or call and be happy to talk to them.
[00:35:32] Speaker A: Okay, I'm an employee listening right now and I want to walk into my next enrollment conversation prepared. Where do I start with the content or workshops? And this is what we're going to talk about when we come back. Okay, we'll be right back with more financial cures to help you heal your financial ills, become financially free. So stay tuned.
And we're back. I'm Dr. Wendy Labotte, the financial healer, and this is the Financial Cures on NOW Media Television. Let's continue your financial healing experience.
Okay, welcome back. I'm continuing with Rob Pugh.
And now we're getting tactical because when people guess wrong, whether it's an Roth vs pre tax or IRA vs 401k, they get surprised later when they never planned for it. So shifting the conversation, say, how do you explain tax diversification so people stop treating retirement like a one bucket strategy?
[00:36:44] Speaker B: Well, when it comes to tax diversification, when I first started, by the way, I made that mistake when 401ks first came out, there wasn't a Roth 401k that was just traditional. And you tended to put all your money in one. And people do that and they go with the traditional. But again, as we talked about earlier, no tax today, tax on a bushel, right on a harvest.
So you kind of want to diversify that. And that's why you do want to start looking at a Roth.
Even if you've been starting with traditional, there is some reasons to put money into a Roth so that you will have that money you'll be able to take out tax free. The other thing you want to think about is putting money outside of the 401k IRA arena because if you need funds before 59 and a half, you can access those funds without penalty. And I'm talking about setting up such as a brokerage account.
It's taxable, of course, but it gives you that flexibility at that time. And so it's important to have that diversity. Because let's say you need $60,000 when you're in retirement, something happens that you need to pull out that money. Well, if I have a tax free, I can pull some from that. I can pull some and pay taxes. Or if I have an account outside of that, I have that flexibility.
So you do want that diversification.
It allows you some flexibility when that time comes and you need to do that.
[00:38:12] Speaker A: You don't want to put all your eggs in a taxable bag.
[00:38:17] Speaker B: That's right.
If you can avoid it, that's for sure.
[00:38:20] Speaker A: What about what are some of the circumstances where you can pull from your 401k or IRA without a penalty? Because there are some circumstances.
[00:38:29] Speaker B: There are. And one of those, and a big one, particularly for younger people, is that they can pull out some money for down payment on a home.
So in that case they can pull, I believe it's $10,000 that they can pull out at this point, tax penalty free for that.
There are some hardship loans that can be taken out as well, but otherwise, before 59 and a half, you will be at risk.
[00:38:57] Speaker A: And then when you say their loans, do they expect you to pay it back or is that an option you're
[00:39:04] Speaker B: expected to pay back to yourself? So a lot of folks think about using their 401k to take out loans and they say, well, it kind of makes sense because I'm paying interest back to myself to the account. But you are kind of putting yourself at a possible risk. And one of the risks is that you leave the company before you pay back the loan. And in that case it will be charged just as if you took the money out. You'll pay taxes on that. You'll have that 10% penalty as well. The other big piece we talked about earlier, the power of compound interest. You're losing the compounding on that money while it's out of your 401k. And it could be significant depending on the amount of money you're taking out as a loan.
[00:39:46] Speaker A: Now, if you have a 401k or IRA with a company that you're employed with, we talked about the impact of the matching funds. Can you just leave that money there even though you're no longer an employee? Or you have to pull it out or roll it over to another source, like another employer or just a separate institution?
[00:40:08] Speaker B: Yeah, that's a great question. And it really depends on the company's policy.
But a lot of companies will allow you to leave it there with them.
But you want to take a look at if you do that, you do lose access to those funds from, say, a loan standpoint or from a standpoint of continuing to contribute to those funds. So that's kind of the downside of that. But if you are in a situation with that company and their funds and they're doing very well, you certainly could leave the monies there. Just don't forget that you left the money there.
[00:40:43] Speaker A: Okay, now in our. Well, I don't know, I kind of went over with us just talking. So you just tap.
[00:40:49] Speaker B: But we're going to keep on going.
[00:40:51] Speaker A: Okay, now we can start again here for this next question.
What mistakes do high performers make with their incomes when their incomes rise and their contribution strategy doesn't evolve with it? You know, if you're making, you know, 100,000, you get a raise. Now you're making 200,000, but you don't make, you know, a change in your contribution strategy. What I know what the downfall is, but explain the audience what the downfall is.
[00:41:21] Speaker B: Well, yeah, you're right. There is a big downfall in that. Let's say you're making 200,000 doll, and you kind of set up your 401k when you were making 100,000. The whole idea with the 401k is to help replace your income. And typically, you know, guide says 70 to 80% of your income should be replaced when you retire.
Sometimes that's a little hard to do, but nonetheless, if you're making 200,000 and you've got a plan here working on 100,000, when you go to retire, you were kind of used to that 200,000 and, and your plan will not be able to give you that 70 to 80%, you're going to come up short.
So as you get those promotions, move to different jobs and bigger paychecks, make certain that you increase your 401k contribution as well. And that way it'll be ready for you when you go to retire at the level that you're at. And you don't have to reduce your cost of living or your lifestyle.
[00:42:15] Speaker A: You know, a lot of times people at that stage of life, you know, their, their homes are paid for so that mortgage doesn't hit them as hard. But the taxes still, the taxes still do.
[00:42:26] Speaker B: And insurance, sometimes depending on where you
[00:42:29] Speaker A: live, kids are grown. So you don't have the same level of responsibility, mandatory responsibility, but, you know, you have a certain lifestyle you want to maintain.
[00:42:38] Speaker B: So that's the key. It's the lifestyle or there's things you want to do, you want to travel. It's going to cost you more money.
Sometimes people underestimate how much retirement really costs, depending on what you want to do.
Yes.
[00:42:54] Speaker A: Okay, I'm trying to balance building wealth now while protecting my retirement income later. What's the simplest split strategy you've seen work consistently?
[00:43:06] Speaker B: I think basically where people start to think of two pots. One is I'm going to max out my 401k and get the match when I say max it out.
And then the funds after that I may put into either a taxable account that I am looking to do other investments, whether it be stocks, bonds. Sometimes people buy rental real estate and that's outside of their 401k, so they're building wealth that way, or they may want to start a business, so you want to keep some capital for that as well. So an easy way to do it is, you know, figure out what you're going to need outside here and what you have to contribute to your 401k and kind of split those two.
So that is one way of doing it.
[00:43:51] Speaker A: Now, do you recommend or has part of your strategy been using insurance policies, life insurance policies? Is that an area that you'd like to address?
[00:44:01] Speaker B: That's an area that I wouldn't feel comfortable talking to your audience about. I mean, I'm aware of those plans. And really, depending on the plan, you want to do some analysis with that, because sometimes insurance plans, they sound good, but when you really break them apart and you look at it, it may not be everything that is cracked up to be. But I'll leave that for.
Yes, that's one of my areas.
[00:44:27] Speaker A: I just threw it out there. Stocks and bonds, I'm not versed on those. But hey, that's why I got you.
Okay, I'd like for the audience again, get that pen and paper out and take down this information so you can contact Mr. Pew about his assistance for your retirement plan. So that's what we want. He's a wealth of information. Take advantage of it. Tell us how we can reach you
[00:44:54] Speaker B: again by email at JDiamond. Like a stone J D I O M O N D A S s o c gmail.com jdimondassoc mail.com and my phone number, 610-213-7896. You can call, you can text. Either way, we will respond.
[00:45:15] Speaker A: Now, it's never too late to start a retirement plan. Yes, that's something I want you to talk about.
[00:45:22] Speaker B: Talk to our folks about, please. Sometimes, you know, we talk about the young folks and if they start at 20, how they can have a million dollars plus by time they retire, maybe a couple million dollars.
But if you're at your 40s, 45, you still have 20 years to go before retirement. You can do a lot within that time. And there's a lot of catch up options now as well with the plans. If you're over 50, you can add an additional $8,000 to that base of the 24, 5, and folks between 60 and 63, you know, another $11,000 or so that you can add to the plan.
So there are catch up ways that you can catch up within that time. So don't feel like it's too late. Yeah. And you know, at the end of the day, whatever you have at that time growing as opposed to not doing anything, even if it's 2, 300,000, 400,000, it's nice at that time.
[00:46:15] Speaker A: I know that's right. And it's never too early. You know, you start getting that first paycheck. I know I started my kids, you know, with a number of investments. Just because, you know, y' all getting out of my pocket. I'm getting your pocket eventually.
And, you know, people have to, you know, start thinking about their kids, you know, start instead of spending those, that money on expensive video games and shoes and all that stuff, invest it.
[00:46:41] Speaker B: You know, I'm so happy that you brought that up. So a couple of things that I want to recommend for folks.
If your folks, if your young people are working, they can have an ira, so, you know, get that set up. Number one, you said instead of like gifts and Xboxes, my wife and I, we started giving out stock for Christmas or for birthdays to get people interested in it and let that grow. Remember, the younger you are, the way the compound works, the time, the more you'll have. Absolutely. Absolutely.
[00:47:16] Speaker A: Paying for that car. That's right. In college, when they go in the wedding they want to spend 10, $12,000 on, they should buy a house with. So there are a lot of ways that, you know, we just aren't used to thinking, you know, that strategy. We have to change our mindset when it comes to retirement and investing.
[00:47:34] Speaker B: Absolutely.
[00:47:35] Speaker A: Just, you know, hope and pray and think as we're making money now. One thing I like about Robert Kiyosaki, he says it's not about how much money you make, it's how much you keep.
[00:47:45] Speaker B: Absolutely.
[00:47:45] Speaker A: And you know, how much your money works for you, how hard your money works for you, and how many generations you keep it for. And I love that. I use that in all my talks. Because that's the mindset you have to have.
[00:47:57] Speaker B: Absolutely. And that's probably one of the greatest books I ever read, Rich dad, Poor dad, just to really understand that concept, you know.
[00:48:05] Speaker A: That's right. Some people ask me what was the favorite book and that's it. But then since I wrote my own books, I said, well, mine first. But that one's the one that I based, you know, my knowledge and experience from that one. So that's for sure. We'll be right back with more financial cures to help you heal your financial ills, become financially free. So stay tuned.
And we're back. I'm Dr. Wendy labotte, the financial healer.
This is the Financial Cures on NOW Media Television. Let's continue your financial healing experience.
Okay. Welcome back to the Financial Cures. This is our final segment and We've talked to Mr. Pugh about translating the plan language, capturing the match and making smarter tax decisions. Now, I want the truth about information inflation because people are feeling squeezed and that pressure changes behavior fast. It makes you think outside, not rationally.
Now, I've got some good questions here and I'm going to start with this one. What's your decision?
Order. When someone is juggling, paying off debt, emergency savings, every retirement, contributions at the same time.
[00:49:28] Speaker B: Dr. Wendy, that is such a great question. That is such an issue that a lot of employees and a lot of people face.
So most people probably think I get my paycheck. This is typical taxes already taken out. I pay my expenses, you know, my mortgage, etc. Then my variable expenses like my credit cards, etc. And then whatever I have left over, I'll try to save. The problem is by time you get to that part, there's nothing left.
Exactly. So what we encourage folks to do is just the opposite. Start with paying yourself first. Everybody's heard that, but what does that look like? So in this situation, I'm going to put my money into my 401k plan first.
If you're faith based and you believe in tithing, then take care of that as well.
Then I want to take care of my emergency plan. I want to put some funds there. Now that emergency plan is separate from my retirement plan. That emergency plan is so that I don't hit my retirement plan. So you build that fund up, you get it to three, $5,000, car breaks down. I do have money to take care of that issue without taking a loan on my 401k. So that sequence is really important that you are putting money in an emergency fund and building that up and then I start dealing with my bills. And you say, well, why, why would I do that? Well, are your bills giving you 50% on the dollar? If you pay a bill, do they give you, and let's say it's a dollar, do they give you 50 cents back or a dollar back?
[00:50:57] Speaker A: No, charging you an extra 50 cents.
[00:50:59] Speaker B: Exactly. They're using compound interest against you. So why not go to that source that is building up your retirement and your future and your wealth. So do that first. Get that match. That's the money, and then work through those other things. Even if I have to kind of cut back to the minimum payment for a while to do that, I would still put it in that order and then get to the point where I can start using something like a snowball effort to eliminate my, my debt.
[00:51:28] Speaker A: And one thing about debt elimination, people don't realize that money can be used elsewhere. You know, you pay it off, pay that credit card off, that whatever the amount was, $500,000, 15.
That can be invested in the other areas. You talk.
[00:51:44] Speaker B: Absolutely.
[00:51:45] Speaker A: And you know, I'm a tither. I'm sure you're a tither too. You know, that's like putting money in the bank.
[00:51:50] Speaker B: That's right.
[00:51:50] Speaker A: Or even better, that's investing money because, you know, you get a hundredfold return on that.
So that's, that's a good strategy.
Okay, if you could give one inflation proofing rule for the workplace plans that people can apply this week, what would it be?
[00:52:09] Speaker B: I would say I would look to see if my funds are sitting in a money market fund as opposed to either an index fund or a traditional, excuse me, a target fund. And I would move that money, if it is, I would move it over either into an index fund or into the target dated fund because that money's just kind of sitting here barely. As we talked about earlier, keeping up with inflation by investing any other. Your money's growing, you're going to stay ahead of inflation.
[00:52:36] Speaker A: So a money market fund, let's just make the audience clear on what that is. Sort of like a savings account. A higher yield savings account.
[00:52:44] Speaker B: Yes. And the purpose of a money market is it's liquid. So that's something you want to think about. I put my emergency funds in so that if I need it, it's there.
If you do that with stock, the market may be down when you go to take the money from stock, so you're selling at a loss. So you don't want to do that. The money market fund allows you to be flexible with Your funding.
Not a lot of growth there though, in terms of long term growth. So that's where you want to think about a money market fund.
[00:53:13] Speaker A: Okay, Sounds good to me.
Okay. We talked about, or did we talk about how you use raises as a strategy so your lifestyle doesn't absorb everything and retirement keeps compounding. So if you get a raise, then, you know, how should they treat that?
[00:53:30] Speaker B: So we call that lifestyle creep, right?
More money, bigger house, better car, better trips. So that's called lifestyle creep. The idea there is to certainly take a portion of that raise and put it into your investments, whether it's your 401k or into. You talked about some of the other funds where you're trying to create wealth and do that and kind of keep that lifestyle here and those raises here. Now you have that gap and we need that margin between what we make and what we spend to build those investments. And that's what you want to kind of use that for. It also helps make it easier. So let's say I just can't figure out a way to increase my contribution to my 401k right now to get that match.
Then those annual raises, if you did like 1% every year you got a raise until you got up to that 6% or whatever it was that you needed to max out the company match. Think about that raise as being used for that as well.
[00:54:32] Speaker A: Well, one thing I'd like to, I tell my clients, you know, you have to distinguish your wants from your needs. And just because you get a raise doesn't mean your lifestyle has to creep.
And then if you want to contribute more to your retirement or your investments, you know, I give my clients a spending challenge where they find the money to pay for things they think they can't afford. You know, one of my clients, after he finished that spending challenge, 30 days, he said, Dr. Wendy, you know, I spent $600 eating out. And he's a businessman, said, what did you do, take your clients out? He said, no, it's just me and my wife and sometimes the kids, you know, grandkids.
And it wasn't that he couldn't afford it, but it was an aha moment for him. And that $600 could have done it. Exactly what you said. And people have to realize that needs and wants are two different things. Just because you think you need it doesn't mean it's a need. So that's one way to kind of help fund it. And, you know, things are more expensive. You know, I went and filled up my gas tank and I paid 459 a gallon. And then I went to one another place, and she said, you know, our gas is only 3.99 for premium, like what I just filled up. But, you know, you can shop around for the best price if that's the kind of person you are. But don't think that you have to stay the same when you want to do something different.
And, you know, you can find that money to pay for, you know, an additional 1% in your investment.
[00:56:05] Speaker B: Absolutely, that's what I recommend. Yeah, no, no, that. I think that's a great recommendation. And, you know, you mentioned restaurants. I mean, you've been going to fast food places. Now I have a favorite hamburger place, which I won't name, but you know, it's easily. Now you can spend $20 on yourself. If you buy something for your wife, that's 40 bucks.
We're talking like fast food, Right?
And so, you know, maybe I skip that one and put that $40 into my investment plan. And then, especially if I'm doing that every day, we start to come back
[00:56:39] Speaker A: surprised at how much people, when they do that spending challenge, they're finding the money to pay for things they think they can't afford. And one thing I want to recommend, and even though this is kind of off topic as far as investments, take advantage of those loyalty programs, because everywhere you go, they got a loyalty program. And every time you spend a dollar, you can get points or dollars back, you know, cash back or whatever with credit cards, you know, groceries or even fast food places. You know, I don't. There's some that I don't really eat at that often, but when I do, I'm using these points to pay for that.
So, you know, like you said, a hamburger meal for you and a spouse could be like a steak dinner back in the day.
[00:57:21] Speaker B: Right.
[00:57:22] Speaker A: That's why I don't eat at one of these places. I'm not gonna mention it. My husband and I went there. We got burger, fry and a drink, and it was like $70. I'm like, what the.
We did it, but we hadn't been back.
[00:57:36] Speaker B: That's that inflation hitting. Right?
[00:57:38] Speaker A: Okay, but enough of that. But just remember, you know, there are ways to pay for things you think you can't afford with the money that you are making. You just have to be more aware of where you're spending and how much you're spending. You know, instead of eating now, go get you some hamburger meat, make those burgers yourself, and you can eat three or four times over the week.
[00:58:01] Speaker B: I've learned to make a good hamburger and a good omelette
[00:58:07] Speaker A: to cook in our house. So when I tell him I got a taste for something, we don't go to that restaurant. He goes to the grocery store and buys whatever we need for that.
Okay, well, we just kind of touched on this, but I'm gonna.
When inflation hits and people panic, what's the first emotional money decision you see and how did you. How do you coast them away from.
[00:58:34] Speaker B: I think one of the first things they think about is I need to stop putting into this plan because I need the money. And you just talked a little earlier about that. And that is we kind of have to figure out what we want and what's important and what order we want to put it in.
I heard there's an influencer out by the name of Paula Pant, and she says it's called Afford Anything. She says you can afford anything, but you can't afford everything.
And you have to kind of decide what it is that you want to afford. And again, I always say, well, what's going to give me the best return on the money that I invest in? So if that happens and inflation comes, let's see if we can find somewhere else. Maybe we have three or four streaming services. Can I cut back there as opposed to cutting back on my investment in my retirement plans?
[00:59:26] Speaker A: That's true. I read something today and it was so true. I said, I'm gonna use that.
It was saying, take your money. You know that people have mattress money sitting there, and then people have, you know, low interest savings accounts. And he said, that money is lazy. It's not working. He said, put that money to work. Yes, just have lazy money. That's right, that money to work. So I was like, okay, it's time. Like Robert Keith stocks and how hard is your money working for you? Is it that lazy money just making 1% or half a percent, or is it, you know, compounding at a better rate? So, you know, you definitely have to make sure that your money is working for you.
[01:00:05] Speaker B: Yes, yes, you do. And otherwise you're working harder than your money.
[01:00:09] Speaker A: Oh, that's right. Working hard for your money.
Let that money work hard for you. That's for sure.
Now I want to just kind of thank you for being here and bringing clarity to a system that intimidates so many people. So many people just don't, you know, for one lack of knowledge, they don't understand it. They don't want to try to understand it because they think it's so complicated but it really isn't as complicated, especially if they have someone like you explain it.
[01:00:38] Speaker B: Absolutely. I can stop saying that so much, but if I can tell one story before that kind of brings that home, and that is I was working with clients, name is, we'll call him Hakeem.
And he was in his late 20s. And when he first started working, he got some great advice from his manager. And the manager said, participate in your 401k plan. He didn't know all the details on that, but it was his manager. He said, well, if he says, do it, I'm going to do it. And he did that and continued to do that as he moved from company, got promotions, all the things that we talked about. When he left, he rolled over the money and continued to do that. Now he's 54. Now he's looking at $1.8 million, planning on early retirement, about 62. It's going to be about 3.8 or so when he goes to retire at that point. And here's the thing, you would think, oh, this guy really knows his stuff. He really knows how to move money around. He really knows investments, et cetera. And I talked to him and he said, you know, Rob, I really don't know anything about investment. I just put the money in and I let it do what it does, right? And he got advice along the way, of course, as we talked about, from an advisor. But the point is, he didn't have to know all of that information. He just followed the plan. Time consistency and compounding. And when we think about 401ks, that's really what we need to know. And we have other people we can lean on to help us with the other things.
[01:02:01] Speaker A: I like that. Time consistency and compound, compound interest. And like I tell my clients, if you don't understand it, you will pay it. And if you do understand it, you will earn it. So we want to make sure that people earn it because, you know, it's so crucial. And then, you know, like I said, just learn, learn, learn. And I'm not saying you have to be, you know, a rocket scientist or a financial guru, but you do need to do your homework. You know, don't be afraid to ask somebody, someone that's in the area, like Mr. Pugh, give him a call. You know, if you got a situation or even if you don't have a situation, if you want a situation that's going to benefit you, you need to reach out to a professional like him. So I want you to give your information again. And like I said, I want you to get your pen, your paper, and write this stuff. Now. This has been some good stuff.
[01:02:56] Speaker B: Shay diamond assocmail.com and that's just the letter J. J diamond assocmail.com and my number is 610-213-7896.
[01:03:10] Speaker A: Okay, today I walked away with some simple diagnosis.
Confusion isn't a character flaw. So I don't know if you were confused before the show, but hopefully you got some clarity now at this point. And if you didn't, give Rob a call because he's the one who knows and he's the expert and, you know,
[01:03:28] Speaker B: I'll be happy to talk to him.
[01:03:29] Speaker A: Yeah. Why guess when you got a professional here that can guide you along the way? So, to everyone watching, if your plan feels overwhelming, don't try to solve everything today.
Pick one move. Capture your match, adjust your contribution. Or finally choose a strategy that. That fits your goals.
So I am Dr. Wendy LaBotte, and this is the Financial Cures. And remember, when you think right, speak right, and do right, things will flow right to optimize your financial health. See you next time.
