Saving for retirement, episode 4
When is the right time to start saving for retirement? Our host talks with an Everence financial advisor about retirement saving and what to think about as you make your savings plans.
Listen to the episode
- Craig Foor, Financial Advisor, [starts at 02:17]
- Producers roundtable, retirement stories, [starts at 13:12]
IRA rollover guide
Get an overview of some of the options for your employer retirement plans when you change jobs.
Read the transcript
Trisha Handrich, host:
To be honest, retirement seems like a very long time away but experts say the sooner you start saving for retirement the better off you'll be. In this episode, I will share a bit about my experience with retirement saving and also talk with Everence Financial advisor on how to save for retirement and what to think about as you start to make those savings plans. At the end of the episode, I sit down with their producers and talk retirement. I'm Trisha Handrich and this is Smart Living Simple Money.
First up we talk with Craig Foor. He is a financial advisor with Everence friends and has been with Everence for about 13 years. He specifically enjoys talking about retirement saving and helping people through those bigger questions and intersecting their faith and finances. Before we get to his interview, in a nutshell, here's a bit of what my experience has been with retirement saving.
I was very fortunate at 23 years old to have a full time job that did provide a benefit of saving for retirement. I didn't know what that meant but I thought well, why not. I'll sign up for it and they matched 3 percent of what I made weekly because it was a commission based position. I did match the 3 percent and actually added on top of that after a year to 5 percent.
Moving on in my career path I had a salaried position. Now this position unfortunately did not have any kind of retirement plan. I was faced with the decision do I put money in a retirement savings plan that they had set up but not get any benefit from my employer or just hold off for a while. I decided to hold off for a while and hope that my previous retirement fund was accumulating some interest.
Unfortunately that didn't really happen and I probably should have kept on putting money into that account.
Moving, once again in my career path I have a salaried position and this one fortunately does put in 8 percent, hands down no matching and I believe I've done a good job so far. I'm not a financial advisor and Craig Foor is and he has some really good advice throughout our interview. The first thing I ask him is when should people really start saving for retirement.
Craig Foor, Everence Financial Advisor:
The obvious answer is soon as you start working. It's one of those things where we've got clients that are 18 that are saving if they have some part time job or something like that. So there really is no too soon when you think of retirement savings. There's a rule that we use of compounding interest, you probably heard about it before, and it really does make a difference over the long haul. There are studies and you can go online and read statistics about waiting too long versus starting sooner. The reality is you can save less and end up with more if you start sooner as quickly as possible, for retirement savings it's more when you start having a job. We'll talk about some of the accounts later but if you're going to get some tax benefits there you have to have some income there. The earlier you start the better for sure.
Yeah. Most of us think we can only do that when we start our job but if you can start that on your own is that a possibility?
Absolutely. Saving for retirement is just not in retirement accounts. Starting a savings account or something like that at a local bank, just setting the money aside and getting in the habit of doing that at a young age really makes it easier when income levels go up, careers increase. Building those habits early on really help down the road to make it not so difficult to see money go out of the paycheck and to a retirement account.
What are some of the different kinds of retirement plan options that are available?
Sure. I think you can really categorize it as two that you could really do and from those two there's a broad set of options there. So the first one that a lot of people think of is their company retirement account. So if they are working, there's usually not all the times but there's usually a retirement account that you can start funding there. The benefit of doing that is it comes right out of your paycheck. You don't see the money, it just goes right into the account.
A lot of times employers will incentivize their employees to contribute to those accounts so they'll offer matching dollars or even give dollars without matching, which is really nice too. So, that's one of the big benefits of using the employer account is that you just don't see it, it automatically gets taken out of there.
The other nice thing about there is a lot of times the employers will monitor those plans to make sure A, the investments are up to date and quality investments with low expenses. They'll provide all the reporting and do a lot of that stuff. So it makes a really good starting place to save for retirement for employees.
The second way that somebody can start retirement or the direction they can go is individually as well. There are a lot of employers out there that may not have an employee retirement account. Some small employers even self-employed people may not have those accounts. You can always set that up outside as an individual account. They're called IRAs or even some Roth IRAs or things like that that you can do outside of the employer and even in addition to the employer account.
So you started out with your individual option and then you got a job that has an employer program. Would it be advantageous for you to combine those or keep them separate?
There it gets a little tricky. There's a lot of stuff that you want to take into account there. Fees, expenses, options. There are a lot of different things that come into account there. I would recommend again meeting with an advisor that can explain the pros and cons of consolidation versus not consolidation there. There's nothing wrong with having both or consolidating them. The big thing is do the employer account if there's a match. There's free money on the table. We don't want to encourage folks not to at least to that piece.
In fact, a lot of times now, there's automatic enrollment features that are built into a lot of those plans where you don't have a choice which is a really good thing because we don't want to leave that money on the table.
When you're talking about employer sponsored options, you hit a little bit on investments and how do you figure out which investments to choose within your retirement plan and if you're going to go conservative or moderate. Am I in the right direction here?
Sure. There's really two schools of thought. So when you think of investing in a retirement plan like that there's do I want to be a passive investor or do I want to actually have some skin in the game when I think of my investments. Most people they don't want to have to really research it and do the education on it so they want to be the passive investor. It's a set it and forget it model.
So most of those are going to have actually have pre-built models in the accounts themselves. You'll hear words like target date or conservative or aggressive or growth allocation. Those are models that are going to be automatically self-managed. You said it, forget it. You may want to make sure that you're not changing your thought process on aggressive, conservative or balance but for the most part you don't have to do anything to it.
The target dates are really nice because they actually move the closer you get to retirement. So they'll start out very aggressive and then as you get closer to that date they'll automatically move to a more conservative model. So that makes it really easy to do.
Is there a difference of what you need to do when you're in your 20's versus your 30's versus your 40's and so on and so forth?
Sure. There's a thing that we talk about all the time called time horizon. How long do you have until you're going to need this money. It doesn't just go into retirement it can be anything, saving for a car, home purchase, things like that. The longer you have the more time you're going to be able to withstand the ups and downs of the market. So, if you're comfortable with risk, a longer term perspective, 20, 30, 40 years until retirement typically would lean toward a growth allocation because we have that time horizon on our side.
As it gets a little bit closer to retirement, maybe 20, 15, 10 years out, then we'll start moving to more of a conservative model. That's kind of the rule of thumb especially early out in your career. We're going to see ups and downs in the market a lot over that cycle. So just look at that long term time horizon.
How much should somebody contribute towards their retirement funds? For example, by the time you're 30, is there something that I need to keep in mind?
Sure. There's no really rule of thumb there. If I were to say look towards anything, try to start out setting 10 percent of your income away. That's going to be a really good start. Now that's going to be difficult too. There's going to be some challenging times where maybe that's going to really feel it but that's going to get you in the best long term position.
Then the other thing that I really recommend is every year come January 1st, go online at your website and increase your percentage a half a percent to a percent. The nice thing is over a 10 year period, now you're five to 10 percent more. A lot of times you'll never really feel that coming out of the paycheck but it's a way of systematically trying to increase your savings.
You're talking about that 10 percent. Now is that 10 percent the part that your employer is contributing and the part that you are contributing as well that equals that 10 percent or are you saying I need to put in 10 percent on top of what my employer is putting in?
There's no right or wrong answer there. If somebody was doing 10 percent then I challenge them to get to 15, and if they were doing 15 then I challenge them to get to 20. My experience over the last 15 to 20 years is that 10 percent is difficult for some people. Continuing to look to increase that percentage is going to put you in the best possible position for success.
The trend with millennials is that we don't stay in jobs very long. There's a possibility that if you stay in a job for two years and every two years you go to another job or every three years, by the time you're 30 you've had at least two maybe three jobs out of college. I'm using that as the starting point. So how do you rollover a retirement plan from a previous employer or do you just let it go?
The Department of Labor changed a lot of what we do on rollovers and things like that within the last year or so. I always say, look at the pros and cons of doing it. Some of the pros would be, in transferring it over or rolling it over would be consolidation. You don't have a bunch of different statements. Maybe you're saving on fees and expenses by not having multiple employer accounts.
So those are the types of things that you want to look at. By and large though, keeping things consistent, rolling them over as you go over from job to job typically would be a good idea from a consolidation standpoint.
Kind of going with that, somebody that's right out of college, which is more important, putting money towards your retirement or paying off those lovely student loans?
Can I say a little bit of both?
Rates are low enough these days that dollars and cents wise there's not a great answer. There's a psychological component with paying down debt for a lot of people that comes into play there. So if somebody really wants to pay down that debt, as an advisor I usually don't argue with them. That being said, I would typically recommend at least if there is a match in the employer count, do it towards that match. It's just again free money sitting on the table. In some cases it's 3 percent a year. Well, we can't give you that return right off the bat so that's a good thing.
Outside of that, if paying down debt, especially if it's a large amount of student loan debt, that probably isn't a bad idea as well.
Thanks Craig. I really appreciate your time, your advice and your insight.
Yup, no problem.
After the break, once again I'll bring in my executive producers and producer into the studio and we'll continue the conversation on saving for retirement.
Jeff Shafer, voiceover:
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Top five things about saving for retirement that you wish you would have known by the time you were 30. So, just giving a little bit of background here. Sarah and I are under 30 by a year and two years.
Madalyn Metzger, Executive Producer:
And Hannah and Madalyn are over the age of 30 by a few years.
By a few years. A handful or so.
Full transparency. This is Madalyn and I just turned 40 in late 2017.
Hannah Heinzekehr, Executive Producer:
And you're rocking it. I wish I can look as good as you at 40. And I'm 33.
And you're rocking 33.
Yeah, I'm trying.
So I would assume by this point you've had more than one job. What did you do when you changed jobs for retirement? Did you combine?
When I, I should say changed organizations because I've had a variety of different positions here at Everence. Prior to Everence I worked for an international humanitarian aid organization so still nonprofit but they had a different retirement plan platform. So, I went from having a 401(a) to here at Everence I have a 403(b) and a 401(k) here at Everence. So those are a lot of numbers and letters that might not make a whole lot of sense to most people but it's not as easy to just do a rollover from one type of plan and to another type of plan. There might be tax implications and that sort of thing.
I have not yet rolled over my previous retirement plan from the last organization but it is something that I've been talking to my financial advisor about doing eventually. Not because I'm not happy with the platform that it's on but just because it might be easier to monitor and manage if it's all dispersed between one or two plans rather than three.
My first three jobs I was a little bit lucky there with different organizations but all connected to Mennonite Church USA and all using the Mennonite Retirement Trust. So I could keep paying into the same plan even though I had a different job. Although, as we're recording this I'm three days away from starting a new job at the University of Notre Dame which has a different type of retirement plan, a 403(b). So right now I actually have a meeting set up with my financial advisor to talk through what the tax benefits and drawbacks would be of rolling that over or whether it should stay separate.
So I guess one thing I wish I would've known earlier is to talk to a financial advisor because I think Justin and I did a lot of googling sometimes to try to figure out what we should be doing about some of these things and I think it would have been smart, you can get a lot of free help as an Everence customer or at a lot of places ...
I would agree with that because when I, so the humanitarian aid organization I worked for before was Church World Service, and when I made the transition from Church World Service to Everence, I originally talked to the retirement plan benefits manager at Church World Service about my options. This is by no means saying that your H.R. department doesn't have this information but she told me that there may be tax implications. I might actually have to pay money to roll it over.
You would think that working at a place like Everence I would have immediately gone to a financial advisor to ask to clarify on that but with transitioning to a new job there's a lot you're already trying to learn for like your everyday stuff so I just kept tabling it. I just kept putting it on the back burner. It wasn't years until a few years later that I finally did talk to my financial advisor about my options and it turns out it won't be as difficult as I had assumed.
Sara Alvarez, Producer:
How did you guys know when to talk to a financial advisor? For me, when should I?
Or should we already have started talking to financial advisors?
I think I had this impression for a while too. I think it's easy for people to think oh, I don't have a lot of money, I don't have a lot in savings or I'm not at a place where I have money to put into investments outside of maybe my retirement plan so I don't need a financial adviser. I think it's actually beneficial and I wish that I would have known this when I was younger. I think it's actually beneficial to work with a financial advisor earlier rather than later because my financial advisor is really great at helping me see the big picture and where I want to go and not just where I'm at right now financially.
I think we didn't start seeing a financial advisor until it felt like our finances were getting a little bit more complex. Until we were starting to do graduate school things and figuring out what good debt would be to take on for how, something like that and trying to navigate those decisions.
I think like you said, we probably should have done it earlier. We could've had some help with budgeting and even planning ahead for some of those big things that we were hoping to do rather than kind of doing it when we were already there.
Did any of you set a specific retirement savings goal by the time you were 30?
I did not. Rather than focus on a dollar amount that I felt like I needed to have saved for retirement by a certain time, I've tried to focus more on how do I get the most bang for my buck.
Yeah. We still haven't set like a dollar amount that we're trying to hit but we have set a percentage amount, a percentage of our total income we're trying to put to retirement. Yeah, and some of my employers have had sort of a mandatory percentage that you need to contribute if you want to get their percentage into your retirement. Often that's been about on par with what we wanted to contribute so that's an extra incentive.
How do you guys figure out what you want to invest in in your retirement plan? How do you make those decisions? Does it change?
That's a really good question. I was really fortunate when I got married one of my former professors, not a financial professor, he actually was a music professor, his wedding gift to us was a book on money management for all stages of life. He was really funny. He told us later, he said, I know this is a really boring gift. I will say that I did refer to it numerous times over the years on what should I be doing with my investments in my retirement plan.
One of the things that helped me realize is I'm naturally, when it comes to riskiness with my money, I'm naturally a little bit more conservative. I don't want to lose a lot of money if I don't have to. But, the advice in the book and I've also received similar advice from financial professionals was the younger you are, the more capacity you have to be able to absorb that risk in order to get a greater return.
So, my first employer retirement plan I did choose a more aggressive investment mix. So more stocks maybe than some of the safer investments like bonds in the hopes that I would get a bigger return then it would make my savings grow more. Then as I've gotten older I've changed that mix a little bit so that I'm not risking as much the closer I get to retirement.
I would say too I was really lucky and privileged to step into a job that provides retirement contributions that was full time and that kind of encouraged saving and did some education around that. I'm realizing if people, like if they're doing a freelance gig and and trying to piecemeal things or part time, you might not automatically have those perks. I think what you said is right Madalyn, whatever you can put away, it doesn't have to be huge, I think it is worth it to think about starting to save for retirement in some capacity.
Smart Living Simple Money is a podcast of The Mennonite and Everence. I'm your host Trisha Handrich with executive producers Hannah Heinzekehr, Madalyn Metzger and Sheldon Good.
Our producer is Sara Alvarez. Voiceover by Jeff Shafer. Sound producer by Norm Sohar. Thank you to our intern Jace Longenecher, graphic design by Jena O'Brien and thank you to Greg Yoder for our music at the beginning and end of the podcast. All recording is done at Everence.