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Unknown 401k Rule?

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
January 2, 2023 2:39 am

Unknown 401k Rule?

MoneyWise / Rob West and Steve Moore

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January 2, 2023 2:39 am

To win any game, you first must know the rules. That’s true for everything from Monopoly to your 401k. And managing your 401k is certainly no game. It’s serious business. On today's MoneyWise Live, host Rob West will explain a little-known rule related to your 401k that could be a real blessing in a financial crisis. Then he’ll answer your questions on various financial topics. 

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Rob West and Steve Moore

Have you ever wanted to read through some everything from Monopoly to your 401k?

Hi, I'm Rob West. Well, managing your 401k is certainly no game. It's serious business. But there's a little known rule about your 401k that could be a real blessing in a financial crisis. I'll explain today.

Then we have some great questions lined up for you. But don't call in today because we're prerecorded. This is MoneyWise Live, biblical wisdom for your financial decisions. Okay, if you have a 401k retirement plan, you know it's filled with rules that most people aren't fond of.

But the one we're talking about today is an exception. It's the so-called rule of 55. Normally, you're not allowed to withdraw money from your 401k without incurring a 10% penalty until you reach age 59 and a half. But the rule of 55 is a special IRS provision that waives the penalty once you reach 55 or older. By the way, the rule of 55 also applies to 403b retirement accounts. That's the equivalent plan for nonprofit organizations.

Now, how does it work? Well, it only applies in a few specific conditions. For example, if you're 55 or older and leave your job, you can withdraw funds without the penalty. But you can't take advantage of the rule if you're still working at the company where you have the 401k or 403b. And you have to leave that job in the calendar year you turn 55 or later to get a penalty-free distribution.

But if you're a public safety worker, such as a police officer, firefighter, or even air traffic controller, the rule actually kicks in at age 50. If you lose or leave your job before the eligible age, you miss out on the rule entirely. You won't be able to take a penalty-free withdrawal until you reach the usual age of 59 and a half. And as with all exceptions to the 10% penalty, the rule of 55 still has tax implications. It doesn't get you out of paying taxes on your withdrawals, which are considered income on your federal return, and probably your state return if your state has an income tax.

I know all of that can be confusing, so maybe it would be easier to talk about when the rule doesn't apply. For starters, it doesn't apply to retirement plans from previous employers. It has to be the 401k at your current or latest job to be eligible. Also, it doesn't apply to individual retirement accounts, either a traditional or a Roth IRA. For those, you'd still have to be 59 and a half before making penalty-free withdrawals. However, there's a way around the provision that excludes previous 401k or 403b accounts. You can roll those funds over from a previous account to your current one if your employer accepts rollovers.

Not all do, so check with your HR department to find out. Then, once you've completed the rollover, all of the money in your current account, including the transferred amount, will be available if you make an early withdrawal under the rule of 55. But of course, just because you can do something doesn't mean you should. In almost all cases, tapping into your 401k is not advisable because you're essentially robbing your future and giving up not just the money but the time you've invested in building up those funds. You may be able to replace the funds eventually, but you can never get back the time, which is critical for long-term compounding gains in your portfolio. You're essentially starting over but with less time before retirement, so you want to avoid early withdrawals if at all possible, even if you can do it without the 10% penalty under the rule of 55. Proverbs 13 11 teaches, wealth gained hastily will dwindle, but whoever gathers little by little will increase it. Okay, so when would it be okay to take an early withdrawal from a 401k?

Well, only if you simply have no other choice. Remember, you can only use the rule of 55 if you're no longer with the employer where you had the account. In some cases, that probably means you've lost your job or a significant part of your income due to your hours being cut, but even then, you should delay as long as possible before making an early withdrawal from your 401k. You can use the Mayday budget available at It'll help you prioritize your spending, and we'll put a link to that in today's show notes.

And keep in mind that you should have an adequate emergency fund of three to six months living expenses saved up before financial calamity strikes, and you want to exhaust that before making a withdrawal from your 401k or 403b. Well, folks, we're going to pause for a brief break when we come back much more as we apply God's truth to your financial situation, whether it's your lifestyle, your giving, your debt, or your saving, we'll apply God's principles. I'm Rob West, and this is MoneyWise Live.

At least for a few more days, and then we'll have a brand new name to ring in the new year. It's great to have you with us on MoneyWise Live today, but unfortunately, today we're not live. We're prerecorded and therefore won't be taking your calls. However, we've lined up some calls in advance that we think you'll find helpful.

So stay tuned and enjoy the rest of the program. You know, as we navigate our finances, there's seemingly an unending number of choices and decisions we have to make each day and each week with our finances. And yet we can boil it down into four big categories, if you will. There's the money we live on. That's our lifestyle. You might think of your budget fitting in there. It's the money that we spend every month to cover the bills and put food on the table and keep the utilities paid. That's our living expenses, but that also includes those discretionary expenses. You know, when we plan a vacation or we need some new clothes, that's all in our lifestyle. And we need to take that before the Lord and ask, Lord, what lifestyle have you called me to? How much is enough?

Where should I cap my spending, even if my level of income continues to rise beyond that? So that's the live category. The second? Well, it's give. That's the area where we're giving to others. We're supporting the work of the local church. We're giving sacrificially beyond that to people in need on our path or to ministries connected to our hearts, doing great work in the name of Jesus in our local communities and to the ends of the earth. So we've got live, give, there's two more, owe and grow. Owe is the money that we owe to our creditors and others, plus the government.

Those are the two areas that we owe. The Bible has something to say about that. Borrowing is not a sin, but there are clear warnings. And so we need to be careful when we change the relationship. You remember the Bible says that when we borrow, it's a master-slave relationship.

There's a change that occurs there, and we need to be careful. We also don't need to presume upon the future when we encumber ourselves with debt. So it's live, give, owe, and then finally grow. The money that we're saving for the future that might be on a short-term basis, what we call an emergency fund, or it could be for the longer term as well, which is, you know, we most commonly think of retirement savings when it comes to our long-term savings. We also need to go before the Lord there and ask how much is enough, because it's not only about capping our lifestyle and setting a finish line for our monthly spending, but also for our accumulation. What is our ultimate target and are we on track for that? And could we overfund that if possible?

And maybe we ought to step back and just say how much is enough? Well, as we put it into those four categories and recognize that God's Word has something to say about every one of them, it does help to simplify a bit our financial lives. And again, God's Word is the source for how we handle that most effectively. Well, I know you have questions in those areas. We'd love to tackle them here on this program today. Also coming up on the broadcast today, we'll tackle a few of your emails, as well as talking about teaching kids generosity at Christmas. What an incredible time of year to teach the idea of generosity, of taking a portion of what God has entrusted to us and giving it back to Him to support His work. Teaching that big idea to our kids is something I think that's especially helpful this time of year.

I'll weigh in on some things you can be thinking about as you do just that. Before we head to the phones, let me take a quick moment to remind you of the importance of your financial support to this ministry by December 31st. We're trying to close the year strong and you can help us.

Would you head to and click Give? We'd certainly be grateful. All right, let's head to the phones today.

We're going to begin in Wilmington, North Carolina. David, you'll be our first caller, sir. Go ahead. Yeah, hi. I'm wondering about like gold backed currency and is that something to pursue or is it something like gold and silver, purchasing gold and silver online or online to hedge against the deflating dollar?

Yes. So tell me how this would fit into your overall investment strategy, David. Are you thinking about taking a portion of what you were putting in maybe to a stock and bond portfolio for long-term savings and diverting it to gold or this be in addition to your retirement savings that you're doing through work? Where does this fit into your financial plan in your mind? Okay, well we've already liquidated most of our 401k to purchase our house because the market seemed very uncertain so we did purchase our shelter but it's more really has to do with liquidating remaining emergency fund money, a couple thousand dollars to buy at least half of that money to go towards gold and silver tangible assets.

Yeah, you know, I'm not a fan of that, David, and let me tell you why. You know, when you think about gold, yes, it's a store of value. It is a hedge against a falling dollar and inflation, although it has not performed quite the way we would have expected in these uncertain times we find ourselves now. And because it can't generate an income, you've got the storage issues, you've also got the markups from the dealers on the buy and the sell, and then really the biggest idea here in terms of why I wouldn't overweight in the precious metals is just the performance.

You know, it tends to be more volatile and the performance is not as good over the long haul as a properly diversified stock and bond portfolio. Do we have challenges, real headwinds here in the United States? Sure, but if we look at the US versus the rest of the world, we're in far better shape than the other economic powerhouses. Certainly China has big problems right now, especially with the ongoing COVID lockdowns.

Japan, Europe, the US is really the largest and the by far the strongest economy in the world. You know, do we have issues with regard to the rising debt we have here in the US? Yes, absolutely. Could that come to roost down the road? It could, but I see that pretty far down the horizon if it happens at all. And I think right now the very best place for you to build wealth is in a properly diversified stock and bond portfolio. Yes, we have 40 year high inflation right now, but it's on its way down. And the US in terms of strength, both with the corporations that you would be investing in here, as well as the sheer amount of money now more than a trillion or two on the sideline of this market ready to come back in when we get an indication that the Fed is done raising interest rates. I think you'd be missing out on a pretty significant turnaround in this market once we see that the recession is either past us or it's not going to happen at all. So for that reason, I maintain the position that for your long term money, I would have that invested in a stock and bond portfolio with no more than a 5% allocation to gold and the precious metals.

Certainly no more than 10%, because for the reasons that I mentioned. With your emergency fund, I would keep that liquid. And if you're buying physical gold, whether that's gold coins or bars, very difficult to convert that to cash to be able to cover an unexpected expense, which is really by definition what that emergency fund is for.

So for that reason, and again, you're the steward, so you need to make this ultimate call. But my just take on it is I'd rather see you have, you know, your emergency fund in a high yield savings account, ready and liquid. And I'd rather see you have your long term investment dollars, you know, in a stock and bond portfolio with an allocation to gold, but probably through an exchange traded fund, which is like a gold tracking fund, as opposed to the actual physical gold.

Give me your thoughts, though. Well, I've arrived at my doctor's appointments, like I have to go, but the five thoughts are, we're keeping our emergency funding cash available. And we are looking at possibly purchasing in on gold backed currency, which was one of my first questions.

And I'm not exactly sure where to get it or if our country is heading. But if it is, I'd like to get in on some of that. Yeah. Yeah.

You're not going to see that here in the U.S. anytime soon. I'll let you go. I've also got to hit a break, but I'll give you further thoughts on the other side of it. We'll be right back. Stay with us.

Thanks for joining us today on MoneyWise Live. Hey, our team is out of the studio today. We're away from the microphone, if you will. So don't call in because we're not here. But we lined up some questions in advance, some good ones, and we hope you'll enjoy.

Let's head right back to the phones. Before the break, we were talking to David. David was asking about investing in specifically gold backed currencies. You know, as of 2022, none of the world's currencies use the gold standard.

Several did in the past, but we really have a fiat money system, at least here in the U.S., which is a government issued currency that's not backed by a physical commodity like gold or silver, but backed by the government that issued it. You know, when we look at just the long term performance of gold, well, for instance, it's down 7% since last December, a year ago. Now, you might say, well, that's better than the market. And that's true. But keep in mind, we talk a lot about how it's a store of value and it's a fear trade. And there's certainly been a lot of fear and uncertainty as of late, and perhaps it hasn't performed quite as well as many would have expected in this season.

Certainly over the long haul, the performance is not there in terms of versus a stock and bond portfolio, which is why I would say it really should be just about a 5% allocation to a typical portfolio, in my view, as we're thinking about our long term kind of serious money for really offsetting the costs that we have in retirement not covered by Social Security. But David, appreciate you being a part of the program, sir. God bless you and feel free to call back anytime.

Let's head to Tennessee. Joe, you'll be next up. Go ahead, sir. Yeah, this is Joe. And thank you for taking my call.

Sure. Um, I am I'm a 62 year old laborer. I have no bills or anything. I don't know anybody any money or anything. And I do tithe accordingly. And I don't have any retirement. My job just started offering a 401k. So this is all new to me. I have no earthly idea what I'm even getting into. Sure. And could you explain to me what questions I should ask?

Yes. Anything relating to that? I'd be happy to, Joe. Give me a sense of what your thoughts are just in terms of your future work. How long do you expect to work? Is this a job that physically you'd be able to continue for some time? You know, what are you thinking in that regard? Well, it's a it's a I work for a auto parts company store. And yeah, I can see me doing it probably for the next five or six years, seven, maybe. Okay, very good. And you know, you've obviously put yourself in a position where you're completely debt free.

I love that idea. That's going to allow you to keep your lifestyle as modest as possible. You know, I think when it comes to retirement, the what you need to be thinking about is ultimately, what would your expenses look like in retirement? Now, I would say according to Scripture, and just as we think about the way God has designed us to be workers, even before the fall, our calling doesn't have an expiration date. I don't believe that God's designed for us is to work to 65 and then retire to a life of leisure doesn't mean we can't slow down, spend more time with the kids, maybe do a bit more travel.

But God's calling on our life should continue out throughout the whole of our lives. But we do recognize there may come a season where we're being diverted away from paid work, either because we can't do it any longer, or because God has called us to something else. And so we should be saving for the future.

So we can fund our expenses in that season of life. Now, when most folks reach retirement, David, they live on somewhere between 70 and 80 percent of their pre-retirement income. If you have kids, they're off the payroll. Typically, you're not saving for retirement. You have less work-related expenses, travel and gas and work-related clothes, those types of things. You may drop your life insurance because you no longer need it. So we have expenses that come off the table, which allows us to live on less.

So it's really about determining what is my budget going to look like in retirement, and how am I going to solve for the income that's needed to support it? Now, a lot of folks are counting on Social Security, and I think we should, even with the current challenges in the Social Security trust fund being depleted by 2035. If nothing changes, they'll still be paying 75 percent of the current benefits. And I think we will see changes. It's too much of a political football for them not to deal with it, either through pushing the full retirement age out or raising FICA taxes that fund Social Security or both.

But I think it'll be there. However, it was never intended to cover more than 40 percent of your pre-retirement income. So the question is, how are you going to make up that gap? And really, the very best way to do that is to build wealth over time by moderating and limiting your lifestyle so that you have surplus every month that you can put away and preferably invest in a tax-favored environment so that you can see the effect of compounded growth over a number of years. A very effective way to do that is through just what you're asking about, and that is a 401k. This is a company-sponsored retirement plan that, with the traditional version, allows you to put in money pre-tax, so it comes out of your paycheck.

It's not added to your taxable income for the year, so you essentially have that excluded from your taxable income. You then invest it among the investment options inside the 401k, and there will be a list of them. And then as you do that and systematically add more to it, plus the growth of the investments over time, not in a quarter or a year, but over one year and three years and five years, you will build up a nest egg that could then be converted to an income stream in retirement to supplement Social Security. So I think the key for you right now, because you're playing catch-up, so to speak, is to try to reduce your spending as much as possible so you can get as much going into that 401k as you possibly can each month so that you can build that up over the the rest of your working years so you have something meaningful to supplement your income when you get to that season of life. Does that all make sense to you?

Yes sir, it sure does. Okay, very good. So I would reach out to your HR department and get that set up, figure out how much you can have through your salary deferral go into the 401k, and then you're going to want to pick the investments that the money goes into.

One of the easiest ways to do that is what's called a target date or a lifestyle, a life cycle fund, where you essentially pick the fund that matches your target retirement date and then they do all of the rebalancing and allocations in terms of how aggressive or conservative based on that retirement date. David, thanks for your call. We'll be right back. We are grateful for support from Eventide Investments on the MoneyWise program. Eventide's approach to values-based investing is grounded in the belief that humankind was created in the image of God with intrinsic dignity, value, and worth. Eventide calls this investing that makes the world rejoice. More information is available at

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Visit and click Give on the home page. I'm Miriam Neff, and I'm Valerie Neff Hogan with Wise Women Managing Money. Reading Ecclesiastes, I'm reminded of C.S. Lewis' words, If we find ourselves with a desire that nothing in this world can satisfy, the most probable explanation is that we were made for another world. King Solomon had it all, and his all was not his source of contentment. James 1.17 echoes this truth, Whatever is good and perfect is a gift coming down to us from God our Father. God gives us peace, happiness, and contentment all based on Him, not our efforts, as Solomon states so often, pursuing the wind.

In the midst of year-end celebrations, may your greatest celebrating be of God's goodness and His gifts to us. This is MoneyWise Live with Rob West. Hey, if you hear a phone number mentioned today, please ignore that number and don't call us because today's broadcast is a reprise edition. But we think the upcoming information will help you and make you a wise steward of what God's given you, so please stay tuned. Let me remind you as we head toward year-end, we count on your financial support to continue this ministry to help us finish the year strong and plan for our ministry activities next year. And so if you consider yourself a part of the MoneyWise family, perhaps you listen regularly to this program, we would invite you to be either a one-time or a monthly partner of ours. You can do that quickly and easily at Again, that's As a ministry supported by generous donors like you, we can't do it without you. So again, just head to and click the Give button. And if you could do that by December 31st, we would be grateful. Be sure you request a copy of Jim Neuheiser's 31-day devotional entitled Money, Seeking God's Wisdom. It's what we were talking about in our opening segment of the broadcast today. I know it'll be an encouragement to you as you renew your mind and focus on the passages from God's Word that speak to money, more than 2300 of them.

You won't deal with all of them, but I know it'll be an encouragement to you. And it's our gift to you between now and the end of the year with any gift. Thanks in advance. All right, let's head back to the phones to Kentucky we go. Hey, David, how can I help you, sir? Hi, Rob. Hey, I hate to ask you to go back, but about 20 minutes ago, you said there were four areas of how we spend our money.

And I got pulled away halfway through that talk. And I know the first was living expenses and the second was gifts and generous, but I didn't get the third and fourth ones. Sure.

Well, I appreciate you asking. Yeah, you can think about it this way. It kind of rhymes live, give, owe and grow. So there's the money we live on. That's our lifestyle spending. There's the money we give to our church and to support the work that God is doing around the world and even to help those in need on our path.

So live, give and then owe. And that would be for debt and taxes. And then the fourth one is grow the money we're growing for the future. And that would be everything from our short term savings.

We want to grow that all the way to our long term retirement savings that we're growing as well. And the really great thing, David, is that God's word really speaks to each of these ideas. We can see how we should think about planning and budgeting our expenses in God's word. We can see the idea behind debt and how we should think about that. Clearly, generosity is on the heart of God as well. And even as a steward, taking a portion of what he gives us and setting it aside for the future as we grow it. So live, give, owe and grow.

Does that make sense? Yeah, I got it. I was trying to help my I was trying to help my daughter because, oh, OK, I'll let you go. And thank you so much. OK, no problem. Thank you, David. We appreciate your call today.

Eight hundred five to five, seven thousand to North Carolina. Richard, you're next up, sir. Go ahead.

Yes, sir. I am 64 years old and I run my own business and I was wondering about the step. I went ahead and in the past, what I was doing was I was investing in my IRA through just through the bank and made some investments. And now I've got about two hundred fifty thousand dollars in stock. Yeah. And I want to think, what can I how can I get that money out of qualified money into a Roth IRA and set when how much can I and should I start taking out ten or fifteen thousand dollars a year to get into something else, which is I can pay little taxes or pay as minimal amount of taxes now compared to my wife's 10 years younger than I am. So I cannot retire because she's only 55 and she will be worth another eight more years. Yeah.

Yeah, very good. So what is it ultimately you're trying to accomplish, Richard? You you want to try to get it out of the SEP specifically because you think tax rates are headed higher down the road? Well, get out of get out of my regular IRA. I I've never I have not invested in the SEP yet and I don't know what it is.

And I just heard it is for business owners. And so I usually I only put in three or four thousand dollars in my IRA per year because that's what I could handle. Put it, you know, putting cash away because I'm paying off bills, buying houses. To be honest with you, I've got, you know, three or four houses. I'm buying my own building, my business office. So in I have real estate instead, probably about a million dollars worth of real estate.

OK. So that's what my that's what that's what my retirement is going to be for later on. But with my wife working in five years and she's pulling in over one hundred thousand dollars a year. So we're in the 30 percent tax bracket. So I mean, I kid her that she's going to be wheeling me around when I'm 75 years old. She's 65 and saying, I spent your money on that and on that and on that, because I'm wondering how can I get some of this money out of the IRA accounts and maybe put more into my Roth, which I have only put in like thousand dollars so far. Yeah, yeah.

OK, well, let's back up just for a second. I mean, the SEP IRA is essentially the same as the traditional IRA in terms of tax treatment. There's no difference. It's just that for the SEP IRA, which is, as you said, for self-employed individuals who don't have access to a company sponsored retirement plan, it gives you the ability to put away quite a bit more. So someone over 50, you can only put in seven thousand in your traditional or Roth this year, whereas with the SEP, you can put in the lesser of twenty five percent of your compensation or sixty one thousand dollars as you know, you continue to fund that, which gives you quite a bit more room to put away money as you build wealth for the future. You know, the idea behind should we put it into a, you know, a traditional or a SEP IRA where we get the deduction now versus the Roth really comes down to do you think your taxes are going to be higher in the future than they are today? And if so, then let's, you know, take the use the Roth option, go ahead and pay the tax now and then put it in the Roth, let it grow tax free and then pull it out down the road, especially if you have a long time to let that accrue. If you feel like you're in a higher tax bracket today than you will be in retirement, then there's a case to be made for just staying with your current plan, perhaps shifting from the traditional IRA over to the SEP to give you quite a bit more ability to put money in as you have, you know, a big, big job come through or you have a good year or something like that, it gives you, you know, more contribution capacity and go ahead and realize that deduction now. But the idea I think is you need to do some retirement planning at this point, Richard, to determine what is my ultimate savings goal? Looking at all of your assets, your real estate portfolio plus the stock and bond portfolios you're building, whether that's traditional or Roth and forecasting between now and retirement when you guys are ready to transition to what God has for you next, maybe in the next decade, what are you ultimately going to need to fund your lifestyle?

And that at least gives you a target. And then you have to determine, you know, is it best to do that first through the Roth? And I like the Roth a lot just because you get that tax free growth. But you're going to cap that out pretty quickly, even with you plus your spouse. You know, the most you're gonna be able to put in that is 14,000, which is where I think the SEP IRA can give you a lot more ability to put money aside for the long term. Does that make sense?

Yeah, it does. And I forgot about my wife also putting it in the Roth. So that way there I can because my wife wants to pay off bills more than anything else.

Sure. So we've got like three mortgages with the rentals and they're taking care of that. So if the if the house payment with the mortgage payment, eight hundred, she pays a thousand or twelve hundred dollars on it a month to try and get them taken care of. So, yeah, I love that.

An accountant. So, yeah, and that's she she wants to make sure less debt. So, yeah, I like that one. The great thing is that you're welcome.

And the great thing is once you get to retirement, you're going to have all these properties, Lord willing, free and clear, plus the retirement assets that you're building through the Roth and the traditional or the SEP. Thanks for your call. We'll be right back. This is our final segment of a broadcast we previously recorded.

Thanks so much for being with us today and we hope you'll stick around and enjoy the rest of today's program. Let's head back to the phones. Another David, several Davids today, this one in Virginia. Hi, David. Go ahead, sir. OK, so I'm a little overwhelmed listening to, you know, your advice to all these people who have, I guess, gotten their act together through the years.

My wife and I are both in our mid 50s and we probably have, I'd say, about six thousand dollars. You know, anyway, so my question, I have two questions, really. The first question is after, you know, my call, maybe there's a place that we could go to have, you know, good Christian counseling because we have a whole lot more issues that I think that could be covered on this phone call. But we are we are believers. We do tithe. We have a budget and this budget kind of got kicked in the teeth with inflation and everything because things are tight. Yes.

So I guess there's my two questions. Yeah, well, first of all, David, I can understand how this can be overwhelming. And I think the first step is just to back up and say, you know, where are we at and what is the most effective way to be found faithful with what passes through our hands moving forward, regardless of what we perhaps would in hindsight have done differently, you know, previously, you know, you sound like you're in a good spot in the sense that you're not your budget's not way out of whack and you're not you don't have a bunch of debt.

Is that right? Well, we do have one credit card that's right at about 14000. We do have a car payment that is less than the you know, what's remaining is less than the credit card. And we we do rent our home. I don't think we have a lot of debt now. And I would say that probably my wife's income and mine combined is probably around just over a hundred thousand. Okay.

All right. So there's something to be grateful for there. God's given you some significant provision. And it sounds like you're in a pretty manageable situation from a debt perspective. I think the key is really going back to that spending plan to say, what would it look like for us to be able to start systematically putting money away here in our mid 50s for the longer term?

Because we want to have something that we can use to supplement Social Security when we get to that season of life. And you know, you all being able to do that through either a company sponsored retirement plan or an IRA would probably be the easiest way to go about that. Do you all have 401Ks at work, David? I have Edward Jones and my wife has something similar. And I would say that we both have about four to five thousand dollars in each tied up. Okay.

Very good. But you're not currently contributing. You're not currently contributing to those? Well, we are through our employers. And I wouldn't say that we are giving the max because we need to also change our. Yes, and the woman who advises us that Edward Jones, she was saying that there is a decent amount of money that's not accounted for us because we're allowing the IRS to take out so much in taxes that we need to change, you know, change that and then it'll account for a certain amount of money. But yes, she also said that, you know, I asked here we are at fifty five, how much money should we have in our, you know, saved away by now? And I think her answer was probably between the both of us.

Three hundred thousand, which is one hundred and fifty thousand each. And we are. Yeah, you know, it's a good thing the Lord restores what the the locust has eaten. Yeah, well, you know, those those rules of thumb. Can be pretty scary when you begin to look at multiples of your income that you should have, you know, at 40 and 50 and 60 in retirement savings, especially if you're behind. And it can be very discouraging. I think the key for you all right now is just to try to limit your lifestyle as much as you can look for any areas to cut back. And I realize that's harder now than ever with inflation doing what it's doing and then try to create as much margin as you can on a monthly basis so that you can increase those contributions to that retirement plan and just do that every month over the next decade or more. Maybe you've got to work a few extra years beyond what you were planning until you shift to whatever the Lord has for you next.

But I think that's going to be really the key. Also, you mentioned something about more than you need being withheld from your paycheck for taxes. If you're getting a big tax refund every year, I would concur with your adviser that there's no reason to give an interest free loan to the government. So let's decrease the withholding so that you can ideally not have to pay anything in but not get a whole lot back either. That's going to bump up your monthly check. And then you could take that same amount and add that to the retirement plan as well. And I think as you all do that faithfully over the next 10 years and just really try to control the flow of money and look at your expenses very carefully, that's really going to be the key to try to build up as much wealth as you can between now and retirement so that you've got something that you can convert to an income stream that would supplement Social Security. So I'd perhaps schedule a time to visit with that adviser at Edward Jones and see if you can do some retirement planning. Just do some projections around what your lifestyle might look like in that season, what your monthly income need will be. Compare that to what you could expect to get from Social Security. And let's determine kind of what that gap is that you're solving for and then what a savings goal might be to be able to fund that. And at least that way, it gives you an idea of what are we ultimately trying to save for, not just a rule of thumb we find on the Internet, but what is actually needed for you to fund your lifestyle in that season of life, which, by the way, should be 70 to 80 percent of what you're spending now.

It typically is for most folks. And I think that may give you a little more peace of mind as you actually have a real target in mind that you're shooting for. And then it's just a matter of, OK, what can we do to cut back so we can get more going into long term savings? So I think that's your next step. David, don't be discouraged. You guys will get there one step at a time, one month at a time as you try to bump up those retirement contributions. And if we can help further along the way, let us know. God bless you, sir.

To Ohio we go. Our final caller today, Brian, how can I help you? Yes, I have a grandson at 18 months old. And I've been thinking about this, putting a small chunk of money for his birthday for just different holidays or situations away for him for in the future. I was wondering what the easiest way or best investment would be yet still keeping to control in case he's not, you know, when he gets older, that he's not able to handle money maybe when he's in his 20s because of life situations.

Sure. I think that's wise, Brian, and that's why you wouldn't want to do, in my view, a custodial account where it automatically becomes his asset at the age of majority, typically 18. But I'm hearing you probably don't want to earmark this specifically for college, correct? True.

OK. Yeah. So you want to keep if it was for college, I'd say use a 529 college savings plan if you want to keep it more widely available. The easiest thing to do would just be to open a separate brokerage account, either in your name or if you're married, you and your wife, and then just start automatically funding with an automatic debited amount coming out of your checking account going into that every month and just start a very low-cost indexed approach to investing. I'd probably look at the Schwab Intelligent portfolios as my first choice. Basically, you'd open a brokerage account. Again, it could be a joint account.

Once this money hits the account, based on the questions you answered around the time horizon and your risk level, it would just automatically reinvest every time a deposit hits into a very low-cost indexed approach to investing, which is where you're going to capture the broad moves of the market with stock-based and bond-based ETFs. And the rebalancing that happens every month shouldn't involve any kind of expense. That would happen at no cost. And then, typically, the management fee on that, because it's essentially managed through an algorithm, is about 20 basis points, about one-fifth of one percent. So, not very expensive, but the idea would be that at least you'd have something that's capturing the moves of the market over the next decade or so, however long you intend this to grow, and then you'll have something meaningful when you're ready to either pass this off to him or to begin, you know, letting him have portions of it for specific purposes when you think he's ready.

Oh, I love the sound of that. I really appreciate that advice. I like the automatic part of it, and I like the low one-fifth of one percent, you know, cost in investing. Yeah, it's a real simple approach. And again, you're not trying to pick winners and losers, but with a small amount of money, you know, the big idea here is just to say, listen, I don't know where the market's going in the next six months or a year or two years, but I'm counting on the next decade that, you know, through, you know, small cap and large cap and some international and some domestic and maybe a little bit allocated to bonds, that that overall portfolio that mirrors the broad market indexes is going higher, and I'm going to take advantage of that compounding over a long period of time. And the great part about a systematic investment like that, Brian, is you're constantly dollar cost averaging.

So you're buying when the market's high, you're buying when the market's low. But if the long term trend is up, then you're, you know, overall going to see that money grow. And that's the idea. And then, you know, when he's ready, you've got something meaningful for his first car or apartment or, you know, whatever it might be. So I think that's your next step.

And again, I think the Schwab Intelligent portfolios would be a great, simple way to do that. And again, it's very low cost. All the best to you, Brian. It sounds like you're a great dad and we appreciate you being a part of the program today.

Well, folks, that's going to do it for us today. So thankful that you stopped by as we together in community try to find God's heart for managing his money. You know, when we think about our role as steward, it's a high calling. We're money managers for the King of Kings.

Well, doesn't get any bigger than that. So we want to be found faithful and we want to go back to his word so we understand how to go about that. Well, our team is essential to what we do here every day. So let me give them some thanks. Want to say thank you to Amy and to Courtney and to Melody and to Jim, the team serving us today, doing an amazing job, pushing buttons and serving you as you call in and doing all the things that makes this show possible.

MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. That's going to do it for us, but I hope you'll come back and join us next time. We'll do it all over again. In the meantime, may God bless you.
Whisper: medium.en / 2023-01-02 12:35:27 / 2023-01-02 12:54:03 / 19

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