Today, we welcome back Shannon Maloney of Strategic Retirement Partners to talk about retirement plans - and how important it is to start saving early.
Social Security is not going to cover your cost of living in retirement. So your retirement plan becomes your paycheck after you stop working. Time in the market is one of the most important ways to grow these accounts, due to the power of compounding interest. Shannon also talks about dollar cost averaging, which is putting the same amount of money into the market. Now, this may seem counter-intuitive after a year like 2022, but you're actually buying the market "on sale." She explains. Finally, take advantage of your employer match. This is, essentially, free money from your employer that you're leaving on the table if you don't participate.
Targeted retirement funds based on investors' age have taken some of the stress out of investing, and that's certainly one way to plan for retirement. But most people don't know much about the space; that's why Shannon is thrilled that Michigan is mandating this be taught in schools starting in 2024.
Paula and Shannon touch on the importance of budgeting, and prioritizing your retirement savings. This should be an important line item in your budget, like a mortgage, groceries, etc.
We also answer the question: Should you save for retirement first, pay off debt first, or both?
To reach out to Shannon regarding the workplace plan you have for your employees, email her at Shannon@SRPretire.com.
For bigger picture financial help, you can email Paula Christine: paula@paulachristine.com, or visit her website: https://paulachristine.com/
Disclaimer: Investment advisory services are offered through Strategic Retirement Partners, an SEC registered investment advisor. All the opinions and comments made on this podcast today are the opinions of Shannon Maloney and not the opinions of Strategic Retirement Partners
Paula: Welcome to Beyond the Paycheck. I'm Paula Christine. So today we're gonna be joined by Shannon Maloney, who is a very good friend of mine, and actually I call her my 401K expert. She specializes in everything that has to do with fours and retirement planning. So Shannon, I wanna welcome you to the show.
Shannon: Thank you so much, Paula. It's great to be here with you again.
Paula: So let's just dive right in. Some people have 401k's, some people don't. But those who do, why should they contribute to that 401k?
Shannon: Because the 401k, or your retirement savings, whether it's a 401K or a 403b or an IRA, individual retirement account. That is your paycheck for life when you actually retire.
If you have not saved anything prior to your retirement, you're going to be living just on social security. Where is your income gonna come from? Your income is gonna come from retirement savings.
Paula: I just talked with someone the other day that he started talking about getting ready to retire, and he goes, yeah, I don't have any of that four money or anything like that.
I'm just gonna live on my social security, and I almost wanted to fall off my chair. I don't even know how to respond to that because. I'm not sure if he is ever gonna be able to retire when you just depend on social security to get you through.
Jon: Tell me this was a potential client, Paula, and not a date. Cuz if it was a date that he's one and done.
Paula: No. It's not a date. No, I have a little higher standard .
Jon: Good to know..
Paula: So what are the top three benefits to contributing to a 401k plan?
Shannon: So the top three benefits, number one, especially contributing when you're younger. I've been doing this for over 30 years. And Paula,I have never had someone come to me at the end when they're about ready to retire and say, oh my gosh, Shannon, I have too much money when I'm going to retire.
So it's always that they don't have enough money. So you really want to take advantage of time in the market. The next thing that you want to do is dollar cost average. You want to be putting your money into the market at all times when it's high, when it's low, and that's what a retirement savings plan through your company or education institution does for you.
It automatically buys the market, whether it's up or down, which is called dollar cost averaging, and that is the way you make money in the market. Right now we've been through a very difficult market of 2022, Paula, and we had a lot of people say, Shannon, is this a great time for me to stop contributing to my plan?
Every time I see my money going in, I don't see it. I see it's lost. It doesn't make any sense. And what we try to focus them on is take a look at the number of shares that you're buying. That is the key to dollar cost averaging. You are gonna be buying more shares at a lower price so that when the market does go up, you are going to benefit from that.
And finally, the last thing is the compounding. We all took math and middle school and we never really wanted to pay attention to that compound interest thing that they talked to us about. But that is really and truly the benefit of long-term investing. And the ability for your money to work harder for you while it works on itself.
And then finally, if your employer matches, you should be contributing up to the match. Because otherwise, if you are doing the same job as me, Paula, and you are contributing to the plan, and I'm not. It's as if you are making more money from the company than I am, so why would I leave that money on the table? Just because I don't want to contribute to the four plan?
Paula: Yeah. That's something I've never quite understood how people can give up what I call free money.
Shannon: It's amazing, and I think it's because people get intimidated, because we don't learn about how to invest or how to take care of our retirement. And especially how to take care of our paycheck for life in high school or in middle school, or sometimes even by our family.
I'm really excited that the state of Michigan is now going to be mandating financial classes in the high school starting in 2024. But until then, we have a lot of people who don't know how to do this, and they get intimidated by the math part of it. And really and truly, they just need to focus on the fact that you are getting more money from the company. It's an immediate raise. It's an immediate return on your money just by participating in the retirement plan.
Paula: I hear you, but I still think it's difficult for people to understand. It's because they, I think it's when the human resources, I remember, okay, back when I had my first real job when it was probably some 37 years ago, that booklet, they drop on your desk.
And they say, here, this is your 401k. Can't really tell you what to do, but here you go. And you read it, you don't understand it. You might ask someone else, maybe they understood it, maybe they didn't. And then you gotta make a decision, and less times people just don't make that decision.
Shannon: Right. The most common ways people make decisions in the retirement plan is that number one, because of the proliferation of what we call target date funds, which is a "do it for me" solution. All you have to know is your birthdate and someone else is going to manage your money for you, and it's going to get more conservative as you get closer to that retirement date.
That has really taken some of the burden off of the participants. Because what we used to see, Paula, and I'm sure you can attest to this as well, is that younger people who'd never been in the market, were some of the most conservative investors and some of the people who were closer to retirement were some of the aggressive, which is backwards if you think about it.
So the target data funds really and truly help people do what they need to do, but they might not be comfortable doing. So that takes some of that decision away from them, but they still have to decide how much to contribute to the plan, and that's always something that they struggle with. And we always challenge people, and it sounds corny, but to really and truly put as much as they can in the rule of thumb right now, is you need to be contributing at least 15% of your income to the retirement plan in order to be able to retire.
Your retirement savings plan, again, whether it's to a 401k, a 403b, or an individual retirement account, should be as important to you as your mortgage or your rent, because this will be your paycheck in retirement, but you can't eat an elephant all at once. You have to start small. So we suggest starting with where the match is, give it a try for three pay periods.
If it's still pinches after three pay periods, then you can ratchet it down. For the majority of people, they will not notice it after three pay periods, and then next year we recommend you increase it by 1% and the year after by 1%. If your plan happens to have features that will do it for you. Set it and forget it because again, you don't notice that 1%, but over time that 1% is going to make a huge difference to what your lifestyle and retirement is going to be.
Are you gonna have to go be a Walmart greeter or are you gonna get to go and knock off everything on your bucket list?
Paula: Yeah, I'm doing the bucket list thing. But that guy that was telling you about earlier, he actually said that I think I might have to be a Walmart greeter.
Shannon: Yeah, I believe it. I. No one has working in retirement as part of their retirement dreams.
Paula: No. You wanna travel.
Jon: This is the classic example of, I wish I'd known then what I know now. So many people, I think it's so close to retirement and they say, oh, I wish I'd known how important it was to save when I was in my twenties and thirties instead of trying to catch up in my forties and fifties.
Shannon: And they also say, oh my gosh, more money would solve all of my problems. And Paula, you can attest to this. More money. Same problems. They still have credit card debt. They still have debt. What they're just doing is if you are making more, they're spending more. Some of the people with the largest balances, and some of our plans are some of the people who make the least amount of money, but save the most.
Paula: It always brings me back to a couple I met a few years ago when I hear that statement, because their average income was, I think, about $65,000 for both. So that's not really a lot of money, but they raised two children. They put both of their kids through college without loans, and they were sitting in front of me and they had over a million dollars in retirement assets.
And that's nothing. $65,000. When you think about trying to raise kids and putting them in college your living expenses is not a lot of money.
Shannon: It's not, and what it takes to sacrifice and we don't wanna talk about sacrifice and savings and spending less than we earn. We all have heard about sports players who make millions of dollars.
Yet if you make 3 million and you spend 3.5, you're still broke. It all comes down to doing something today that your future self is going to thank you for. And that means setting goals. That couple that earned $65,000 had goals. They had short-term goals to eliminate credit card debt, establish that emergency fund, maybe making a household purchase like a couch and saving up for in cash before you spend on it.
Long term purchasing a home, all those kinds of things are all things that you have to save for. You can't just all of a sudden go out and get it, otherwise you're gonna end up with a lot of debt.
Paula: Truly, they paid for everything with cash. . So if they didn't have the money, they didn't purchase it.
Yeah, I mean they did everything right and during their retirement, cuz they didn't live on much, they didn't really need much. Living on a million dollars with their social security and they actually think one even had a small pension and they were living on more in retirement than they were when they were working.
Shannon: And that is truly the American dream because that is a testament to sacrifice and being able to have your money work hard for you and paying yourself first. All those kinds of things are going to get you to your retirement goals so that you can have that million dollars in retirement. And a million dollars is not everyone's goal.
There is no magic number, Paula. That million dollars is going to let me retire. For some people, a million dollars is not enough. For other people, a million dollars is plenty. Again, it goes back to your lifestyle and how much are you going to live on, and how much are you going to spend.
Paula: So do you suggest that people pay off their debt before they start contributing to their retirement, or a combination of both?
Shannon: No, we suggest a combination of both, and this is something that men have done very well, and we women have not done very well. Most women are debt averse. We like the security of not having any debt, so we think that we need to put all of our money towards credit cards or paying off our house first and we're gonna get to retirement. Or we're gonna get to investing. But you and I both know that time in the market is one of the best gifts we have to making money over the long term. So we really do suggest doing both at the same time. It may feel uncomfortable, it may not feel like something that you can do, but we assure you with the right plan, you can do it.
It just takes time and again, that future self will. Thank you for those little steps that you take today to help you get out of debt. and to start investing because you don't wanna start investing with five years before retirement. You wanna start investing with 55 years before retirement.
Paula: Yeah. Cuz you can put a less amount away than you do if you start later in life.
You look at people who start in their twenties, maybe it's putting, $5,000 a year away, but when you get into your fifties and you start saving for retirement, it might need to be $30,000 or $40,000 a year.
Shannon: Absolutely. So we really want people to, number one, save for your emergency fund. That's the most important thing you can do. You need to have a thousand dollars in your bank account because everything that seems to go wrong costs a thousand dollars. Then you wanna contribute to your retirement plan. Then make your list of goals for your short-term and your long-term goals to start making sure that you are managing your debt and it is not managing you. And that's the real secret to a paycheck for life.
Paula: You are so smart.
Shannon: Or I'm so old. I'm not sure which one. . .
Jon: We'll split the difference between old and smart and say wise. How's that?
Shannon: Oh, I like that, Jon. Oh, wise. That's very nice.
Paula: I like that too. Yeah. So you are so wise.
Shannon: I'm so wise. Our goal is really to help make sure that every American worker can retire in dignity.
And everybody's goals are unique and dreams are unique, but you have to make sacrifices in order to achieve them.
Paula: That's why I started Paula Christine and the course that I have called Making Money Matter, which talks about taking control of your finances, and it really starts with building a budget.
And it does go into more about, not too specific, but does talk about retirement savings and college savings and all that stuff in the program. But the key is really developing that budget, keeping track of what you're spending, and you don't wanna be in a negative situation. You wanna make sure that everything that's coming in has a place to where it's going, if it's going to savings or if it's going to pay bills.
It has a place and it hopefully is not a negative at the end. What is it? 64% of people are living paycheck to paycheck right now?
Shannon: Absolutely. And 59% are financially stressed. And just imagine the life you could leave if you took a course like the one that you're offering to really and truly figure out ways to reduce your financial stress.
And yes, we all know that budget is the B word of our generation, but it really does help to put your eggs in order so that you can have the life you want to live without worrying constantly about your finances.
Paula: Just think how much freedom you have when you don't have to worry about your finances. Again, it doesn't matter if you make $20,000 a year or a million dollars a year. Everybody needs to be living on a budget.
Shannon: Absolutely. Because when we retire, guess what? You're on a budget. You're on a fixed income. It's much more difficult. You're not gonna get a raise, you're not gonna get another job, unless you have to.
So you have to figure out how to budget way before you get to retirement, because otherwise you're gonna not have the skills that we need. That's why we go to middle school and high school is so that we can learn how to study. We learn in middle school how we can study in high school. Taking a course like this, learning how to budget now, will help us when we finally get to retirement.
Paula: Thank you Shannon. You're such a wealth of great inform. Because you're so wise.
Shannon: One of the wise women. Well. I appreciate it.
Paula: Between the two of us, we can just overcome the world, right?
Shannon: If only they'd let us.
Paula: So Shannon works with Strategic Retirement Partners. Investment advisory services are offered through Strategic Retirement Partners, an SEC Registered Investment Advisor.
Now, I know that you work with the employers on the 401K side. Do you mind if somebody called you or would you prefer?
Shannon: We absolutely can try and help somebody. If we can't help them, we can point them in the right direction. So again, our goal is to be a resource to the people that are trying to take care of themselves and trying to take those steps forward in the right direction for their future selves.
Paula: Okay, so how can someone get ahold of you?
Shannon: The easiest way is probably by email, which is Shannon@SRPRetire.com. Or you can always call my office, which is (248) 773-7046.
Paula: Thanks again. So if you need to get ahold of me, you can reach me at paula@paulachristine.com or you can check my website paulachristine.com.
And you can look for that Making Money Matter course if you're interested in taking control of your finance. So next week we have Shannon back again, and we're not gonna talk about 401ks. She's got some tips that she's gonna give us on savings and getting your spending under control. So we will talk to Shannon again next week.
Thanks again, Shannon.
Shannon: Thank you, Paula.