November 24, 2023 Best of Simply Money Podcast
401(k) mistakes to avoid, a key time on the road to retirement, and sage advice from Warren Buffett
The 401(k) often holds the largest chunk of a nest egg. Amy and Steve discuss specific mistakes to avoid with that account if you want to both grow your money and protect it.
Plus, how genetics can play a role in the financial planning process.
Transcript
Tonight, there's those little mistakes that are not so great, but what about the big mistakes? We've got the biggest mistakes you're going to want to avoid with your 401(k.) You're listening to "Simply Money" tonight, presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach.
It's true, right? There's like, little mistakes we make along the way that are just kind of nuisances, right? Like I wish I hadn't done that, but everything turned out okay. When it comes to your 401(k), which for most people is the number one way that they save for retirement, you make some big mistakes, it's going to make a huge difference.
Steve: It can... Well, let's put it this way, it's going to impact the rest of your life in retirement, you know?
Amy: Yeah.
Steve: So, you might want to pay a little bit of attention. I mean, for most people, their 401(k) is either number one or number two on the largest percentage of their net worth. It's usually right up there with your house. The problem with your house is you can't eat the bricks, okay?
Amy: Yeah.
Steve: You can't convert that into cash, that's what a 401(k) is for. And so many people look at their 401(k) as an afterthought, I don't understand this stuff, I don't get it. Yeah, I'm in it, I think I'm fine. They really don't know what they're doing, and you know, the number one thing you want to do with your 401(k) is make your contributions a habit. And by habit, I don't mean, okay, let's make sure I enroll, and yeah, it's set up automatically so it comes out of my paycheck, but know what percentage you're putting in. And I'll tell you what, you know, it's easy to say the more you put in, the better off you are, but you know, if you don't get started early, you're going to have to take advantage of the catch-up provisions that much more later.
So I tell everybody, when you're young, 10% if you can swing it, and if you're already in, and you already have kids, and money's going in 18 different directions, just be very, very deliberate about how much you're putting in, and maybe even bump it up 1% a year until you get up to a level that's really starting to pay dividends.
Amy: You made a point about 401(k)s at one point that I thought, oh, my gosh, this is so on the money, it's worth repeating now. And you said...
Steve: Really? Moments of lucidity [crosstalk 00:02:17.739]
Amy: Yeah. Well, one time you made this really great point, and I think it's worth repeating. You said most people spend more time planning their vacation than they do looking at their 401(k).
Steve: Yeah.
Amy: Well, think about it this way. You're doing the research on the restaurants, the hotel, what there is to do in that area, you've got flights, rental cars, all those things.
Steve: Sure, it's fun. Yeah.
Amy: But it's one time.
Steve: Yeah.
Amy: That vacation is one, and it's done, and it's over. Meanwhile, that 401(k) is sitting there, in many cases neglected, and this is the number one vehicle you have to getting to retirement. When you think about it that way, I think a lot of people are like, ah, I might revisit that 401(k) now. I see how important that is.
Steve: Yeah. Yeah, well, you know, and planning for vacation is fun. For most people, planning their 401(k) allocations is not fun.
Amy: You think? Come on...
Steve: You know, they don't understand it, there's stress involved... You know, this is...and I call it financial literacy, it's not rocket science. It's not advanced calculus. I could easily say if I figured out most of this, anybody can. But no, in all seriousness, really you just need to get a few terms down, and understand what they mean. Little concepts like stocks and bonds, what are they? Because if you don't put enough in to your 401(k) when you're young, you're going to have to do what a lot of people do, myself included, and you're going to have to save more later on in life, and take advantage of the catch-up provisions. Luckily, the government has increased those catch-up provisions, and what that means is if you're under 50, you're maxed out of your own money, of putting $22,500 into your 401(k).
Amy: Yep.
Steve: If you're 50 or older, you can bump that up to $30,000. And if you are way behind because life got in the way, that's something you want to start planning for so that you can retire at the age you want to retire at.
Amy: I've never seen the percentage, but I'm going to guess it's under 5% of people who straight out of college said, yes, like, I'm going to put the max into that 401(k) at the age of 22, 23, whatever it was, and I'm going to max this thing out from here until the day I retire. Most of us, myself included, right, I mean, we do this show not because we're perfect with money, because we've learned a lot of lessons along the way when it comes to money.
Steve: No, not at all. Yeah.
Amy: I wasn't serious about my 401(k) until my early 30s. Gosh, I wish I had been in my 20s.
Steve: Yeah.
Amy: But yeah, so if you've got kids who are in college, high school, whatever it is, that are maybe heading in this direction, maybe they've recently graduated, graduation season's coming up in just a few months, if you can make any point to them, it's hey, the most that you can possibly put into that 401(k) now... I know it seems like retirement is a long ways away, the magic power of compounding, to give it enough time, decades in that account, you're going to be so much better off. And honestly, month after month, you're going to have to put far less in, right, because you started earlier.
Steve: Mm-hmm.
Amy: And I would say it has to be, and this is across the board, regardless of your age, please put enough money in that 401(k) to get the maximum company match.
Steve: Oh, no question. No question.
You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Amy Wagner, and we're talking about the big mistakes that too many people make in their 401(k). Here's the one that drives me nuts, Amy. I will ask someone that walks in my door, so tell me how you're invested in your 401(k). What are you invested in? And nine times out of ten they're like, I'm pretty sure I'm in mutual funds. That doesn't help me, and it sure doesn't help them, because a mutual fund is just a method of investing. That's like saying I own real estate, as opposed to, yeah, I've got some commercial properties, or something like that.
Amy: So, no one says, I'm 20% bonds, and I've got this mix of...
Steve: Almost nobody. Yeah.
Amy: ...yes, emerging markets, and these small caps and these large caps... This is just a way of saying I'm diversified, right?
Steve: Yeah.
Amy: And getting in there... Listen, and I think there's a happy medium here. I'm not saying you need to be in that 401(k,) looking at your investments and your balance on a daily or a weekly basis.
Steve: Oh, you don't want to do that.
Amy: You'll make yourself insane.
Steve: Yeah. Yeah.
Amy: But you know, quarterly, get in there, make sure that you know what's in there. And I'm not saying that quarterly you make adjustments, but at least you're familiar with what's in there. For a lot of us, we've got those target date funds as an option. This is simply...the target date is the target of when you want to retire. Say you want to retire in 2045, right? So, you've got 20-plus-years until you're going to retire, it's going to be a little more aggressively invested in stocks, it's called a glide path over the years, that glides toward a little safer investments, maybe a little safer toward bonds. For a lot of people, that's kind of the easy thing. I can kind of understand this, right? This is when I want to retire... I would say, hey, if you're in your 20s, maybe your early 30s, this is a fine investment for you.
But when it becomes real money, when you're really starting to think about retirement, I think you've got to take a much more individualized approach. Because understanding these target date funds, these are kind of one-size-fits-all. If everybody who's 30 years old wants the same kind of retirement, the same goals, hopes, dreams, the same savings already, great. But that's not really the reality.
Steve: I'm not anti-target date funds or retirement funds.
Amy: No, nit at all.
Steve: No. But I think they should be renamed, well, better than nothing funds, because they are.
Amy: Yes, exactly.
Steve: In the old days, the default option was a money market, which would have killed you if you were doing that when interest rates were zero. Here's my biggest problem with target date funds. If you had a target date 2020 fund, chances are you were almost 100% bonds. It depends on the fund family. But the whole idea is heavy stocks when you're young, go to bonds that are a lot safer when you're nearing retirement. Bonds weren't exactly the safe bet in 2022. They lost a lot of money. So if you were, you know, ideally looking for a nice, stable balance in the last year of your retirement, you didn't get it in that type of fund. Now, if you were in a 2040 fund, you're still heavily in stocks, and you know, that's a whole different ballgame.
But just know what you're invested in. Know what percentage of your money is in stocks, what percentage is in bonds. And if you can break it down to domestic versus international on your stocks, so much the better. I think the best thing is hire somebody to take a look at your 401(k) options, and make sure you're using the best ones, and that the percentage of allocation in various investment classes are what you're comfortable with. I think that's about the best, most well-spent money that you can use.
Amy: Did you know the average person switches jobs about a dozen times over the course of your life?
Steve: Yeah.
Amy: I was actually goign to try to to count up how many...I lose track of how many jobs I've had through the years, when you think about all the little media markets that you kind of jump through and move around through. But with each of those jobs, you probably had a 401(k), and so you can understand it's really easy, first of all, to lose track of those 401(k)s, but also during a time like right now, when you've got kind of the Great Resignation going on, and everyone's making the jump, it's so important for you to understand how your 401(k) is vested.
Steve: Yeah.
Amy: Meaning the balance that's in there, right? You look at that, and you think, oh, that money is all mine. Well, a little bit of that money could be behind a gate, right, that you might not have access to until you've worked there for a certain amount of time. So at least you know, oh, maybe if I stay in this job six more months, this part...all of your money is your money. All the money you put into your 401(k) is still yours.
Steve: Yeah.
Amy: But that company match kind of sometimes comes with strings attached, and you want to make sure that you understand that, and that's the vesting schedule.
Steve: I'm glad you made the point about your money is your money.
Amy: Yes.
Steve: Because nobody can take away the money you put into the plan, okay? The vesting schedule, vesting just means the money that was given to you by your company, when does that money, that percentage actually become your money? And the longest they can withhold that is six years. So, you'll see it on your statement, just because it's on your statement doesn't mean it's yours. It may be a six-year cliff vesting, which means not a dime of that is yours until you've worked for that company six years. They're kind of a dinosaur. I don't see many of those anymore. But if you happen to be in one of those plans, and you leave at five years and 11 months, boy, you should have stuck around that extra month, because you don't have any of that match.
Amy: Well, knowledge is power here.
Steve: Yeah.
Amy: It's not necessarily that you are going to stay for six more years, or five more years or whatever that is. My aunt retired last spring, and she came to me with the same thing, she realized that part of that company match wasn't going to be fully vested unless she stayed for three more months.
Steve: Hmm, okay.
Amy: So we looked at the amount of money that she was going to get if she waited, and I said, okay, here it is in dollars and cents, is it worth it for you to stick around for three more months? She was like, no, I'm mentally already out of there, you know? But at least she had the...yes.
Steve: She had the data. That's the important...yeah.
Amy: She had the data to make the decision, absolutely. Absolutely.
Steve: Yeah.
Amy: Another major no-no we would say here is taking an early withdrawal.
Steve: Oh, my gosh...
Amy: I think for many of us, because this is the big balance that we see, right, when that statement comes in the mail, you're like, oh, this is really starting to be something, and then all of a sudden, and I know this personally, someone who had the ability to buy...it was a used, really nice BMW, and they took the deposit out of a 401(k), and I was like no, no...too late, right?
Steve: Yeah. And I've heard so many rationalizations. Well, I'm borrowing it from...I'm paying myself back interest, I can't bet on anybody that I feel more comfortable with than myself. Don't do it. Just don't do it. I visited a company that was going through early terminations, we had a contract with a group on the East Coast, and I would say two-thirds of the people had borrowed against their 401(k). And guess what? When you lose your job, it's usually 30 days, maybe 90 days that you've got to pay back that balance.
Amy: It's not a lot of time.
Steve: Well, you didn't borrow the money because you've got tons of money sitting in the bank, you borrowed the money because you needed to for whatever reason, okay?
Amy: You need it.
Steve: And these people all had to come to the realization that, okay, whatever my outstanding loan balance is that I can't pay back, that's considered a distribution that I'm taxed on. And if you're under 55, or it might be 59-and-a-half, but if it's an early withdrawal, 10% additional tax penalty, they got creamed. So, don't do it. Just don't.
Amy: Another big one, if you've got the ability to put company stock, right, invest in company stock and not 401(k), I'm talking to you, you P&Gers... I get it's a great company, but many of you also have so much company stock on the outside, so you're getting your paycheck from there, you've got company stock from there, and then you're putting it in your 401(k) as well? We would say, hey, please remember, as good as any company is, you still have to be diversified.
Steve: Yeah, watch how much you've got in your own company stock. And the government has made it easy. If you don't know what the deal is with your company plan, find out through HR or your plan provider, because chances are you probably can start to divest, start to sell off some of that company stock within your plan, and split it among the other investment choices. And as long as it's all done within the plan, without leaving the plan, there shouldn't be any tax consequences.
Amy: Here's the Allworth advice. Treat your 401(k) with a little bit of tender loving care. It will definitely pay you back later in life.
Coming up next, what you need to know about retirement once you hit your 50s, or if you're already there. You're listening to "Simply Money" here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't listen to our show, well, every single night, you're in luck. We've got a daily podcast, you can listen to it at any time. If you've got a friend who you know maybe could use a little bit of extra money help, spread the word to them as well. All you've got to do, search Simply Money on the iHeart app, or wherever you get your podcasts.
Coming up at 6:43, genetics and money. You might think they're not related, but they are. We'll tell you how.
I mean, so every stage of your life, and I know when you're in your 20s it's hard to think about retirement, but every stage of your life should have some kind of piece of financial planning. Everyone has goals, regardless of how old you are, and we really want to kind of drill down right now to, hey, if you're in your 50s, or if you're coming up on your 50s, or what you really need to be thinking about when you get there.
Steve: Yeah, 50s are crunch time in financial planning. If you're like most people, you're just, you know, you're running around like crazy. You've been taking kids to, you know, soccer practice, baseball games...
Amy: All the places, yes.
Steve: Yeah, and spending money, you know, as fast as it comes in, it goes right out the door. And you know, you just wake up one morning, and I'm speaking from experience, in your 50s and saying, crap, I wonder where I am financially? And can I afford to retire at the age I want to retire? Because if you wait past your 50s, chances are you can't fix it. In your 50s, you can fix it, and that's why we want to talk about what you need to pay the most attention to when you're in your 50s.
Amy: Start with your goal, right? And if you and your spouse have not had this conversation, please, regardless of how old you are, how long you've been married, just throw it out there over dinner tonight, or breakfast tomorrow or whatever, hey, what's the ideal age do you think that you want to retire? See if you're even on the same page.
Steve: Yeah, don't say I'm done at 60, but hon, I figure you're going to have to keep going until at least 65 to make that work. And I have experienced that conversation with people sitting in front of me.
Amy: Oh, that's a fun conversation.
Steve: Oh, yeah, no, it's not, actually. But you know, here's why... And you know, yeah, we do financial plans, I guess this comment is self-serving. But I don't care who you use, when you're in your 50s, have somebody draw up a financial plan for you, because again, this is the age where if you need fixing, you can fix it.
And I'll give you a great example. The guy's become a friend of mine, but when I first met him, he worked at a company in a very high stress job, he was probably 54, 55, and he said, I'm out of here at 62. You can tell me I can afford it or I can't afford it, I don't care what you tell me, I'm out of here at 62. I can't handle this. And I ran a plan, and I said, well, financially, I don't care where you work, but the numbers that I plugged in say you can't afford to retire at 62 if you're going to live past about 75. It looks like 66 is your best bet. But I'll tell you what, if you do this...and it was basic. It was just add more to your 401(k), pay off debt by the time you retire. If you just do these basics, you might be able to improve this to come close to 62.
And he buckled down, and I'll tell you what, he made that work so that I actually walked in his office I think on his 63rd, it might have been 64th birthday and said, hey, you can walk right out of this meeting, and go to HR and tell them you're done, because your plan finally works. Congratulations. And he didn't. He stayed there, but it was on his terms now. He knew he could leave whenever he felt like it.
Amy: Yeah. Yeah. That's a good feeling.
Steve: And he wound up working for another year or so. But he got the data, and got the problem solved, and everybody in their 50s needs that answer.
Amy: And one of the things I think you also need to know is how much do I need to spend, right? What do I live on, you know?
Steve: Yeah.
Amy: Because you're not going to want to change your lifestyle drastically when you get to retirement. And I know a lot of you are working, and you're dreaming and hoping and praying for that retirement date, you can easily say, well, I can cut back on this...but you're not really going to want to. So look at what your living expenses are now. People, I think, think that it's going to be cheaper in retirement. I don't know why that gets into so many people's heads.
Steve: No. No.
Amy: But the first few years, think about it. I always say this, do you spend more on weekdays or weekends, when you have more time available? Well, for me, I shop and I, you know, do things with my family. We see movies, we travel, we do those kinds of things on the weekend, it costs more. Your free time ends up costing more, so plan for that.
Steve: Yeah, life is for living.
Amy: Yes.
Steve: You don't want to go into retirement thinking, well, I need to cut back here, I need to cut back there...that's not what you worked so hard for. I had this conversation with a brother-in-law a few weeks ago, and he's a very successful realtor, and he's 65 and keeps working and working, and he's kind of afraid to cut back. And you know, I take it for granted that everybody wants to enjoy life, and do your planning based on what you want to do, not what you have to do, and that was like a light bulb going off for him. He said, I never heard that from anybody, that I shouldn't have to worry about cutting back. I should look at what's my income, and can I afford in retirement, will I have enough income to do everything I always dreamed of doing? He never had that conversation. I think everybody should. You might not be able to afford it, but at least you'll know what you can do, if you know your expenses, and you start tracking where your income is going to come from.
Amy: A few other things I think worth considering in your 50s, how much can you at least plan on getting from Social Security, right? Socialsecurity.gov, if you don't have that account set up, do it. Long-term care insurance, start thinking about that. And just mentally prepare, because for so many of you, when you think about retirement, it's all about the money. But what are you going to do when those work friends aren't there? Or the meetings, or the structure of your work day isn't there? I like the idea of taking a practice retirement, look at that. Here's the Allworth advice. The money choices you're making in your 50s could make or break the kind of life you're going to live in retirement.
Here's a question for you. Do you know where every one of those old 401(k)s is? Did you totally maybe forget about one? This happens all the time, believe it or not. We're going to tell you how to find it next. You're listening to "Simply Money" here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach.
It happens all the time, right? You leave one job, you go on to another one, I don't know, maybe another one after that, and then all of a sudden you realize, where's the 401(k) that I had with that job that I had two jobs ago, or whatever it is? And is the company even still there? And who's even in charge of HR now, right? I mean, these old 401(k)s, I don't think most people think about it during the time, because you're excited about jumping to that kind of new thing.
Steve: Sure.
Amy: But you have to be super intentional about taking care of those old 401(k)s as well.
Steve: Right, and there's a lot of them out there, Amy. The numbers, to me, are staggering, the estimate is over 24 million 401(k) plans have been completely forgotten. People don't know that they exist. And the amount of money in those plans total over $1.3 trillion. To me, it's incredible. But you know, when you look at why this could happen, you know, at first I was thinking, you've got to pay attention to your money, for crying out loud, you know? Why would you not know about it? But I'll give you a local example.
A company in town was sold about four times over a ten-year period, and one of those plans had a component that went into the...that has the ability to go into their pension. So this plan is not not called the original company's 401(k) plan, it's changed names four times, and now it's online only.
Amy: Gosh.
Steve: You're not even getting statements. S, how...you know, even the employees that have this money in the plan, they're not sure that that money still exists, nevermind...
Amy: Well, and those are current employees.
Steve: Exactly.
Amy: Think about if you worked there seven years ago, or ten years ago, are you going to know the most recent name? Yeah.
Steve: Or if you passed away, or...yeah. And I'm dealing with this right now, kids are going through their deceased father's estate, and you know, they're uncovering stuff, they might not uncover a plan like this. So yeah, I definitely get why some of these plans have been forgotten. And the key is, figure out how you can find this money, if you're one of those impacted.
Amy: And understand this, right, this is called the Economic Growth and Tax Relief Reconciliation Act of 2001. But essentially, if you had $5,000 or less in an old 401(k)... I mean, if you think about it, if that went back to your 20s, that could actually be pretty substantial money, you know, a couple decades down the road. But under that act, the old employer can roll that money into an IRA.
Steve: Yeah.
Amy: Here's the problem. They're not calling Steve Sprovach and saying, hey, we're rolling this into an IRA, how would you like that money to be invested?
Steve: Right.
Amy: They are investing it usually in cash or money market accounts. So even when you find that money later on, assuming that you do after it's been rolled into that IRA, it is essentially decaying. It is not keeping up with inflation and everything else, and it's certainly probably not invested the way you would have.
Steve: Amy, I know somebody that had this happen to them. It was about $1,000, and there was a $35 annual fee. So it goes into the IRA, it pays, you know, bupkis for interest, and so it's going backwards by $35 a year, year after year after year. It almost went away after five, six years of, you know, forgetting that they had that money. The government tried to help, but I don't think they figured out, you know, the correct way to resolve that. There's got to be some way for investors to go ahead and find this money a lot easier than we currently have.
Amy: You're listening to "Simply Money" tonight here on 55KRC, as we talk about old 401(k)s, do you have them? I was actually just tallying up in my head, I think I've worked for seven different companies at this point in my life.
Steve: You just can't keep a job, can you?
Amy: Well, if you think about it, I started out in media, and it's like, you know, you go from market to market, bigger markets, hopefully you grow... I worked at a smaller company for a while... And anyway, as you kind of go through, you're thinking, the 401(k)s with all of those old jobs that I had back in my 20s and 30s, when I was kind of building a career, am I keeping track of all those? And to your point, there's databases out there where where you can search kind of missing funds, or...
Steve: Yeah.
Amy: I remember doing that several, several years ago, and calling my uncle and saying, like, hey, I think there's, like, an old life insurance policy or something that might have been in your name, check this out, that doesn't exist, though, unfortunately, for these 401(k)s. So, you have to do the due diligence on your end of tracking it down. If that company no longer exists, right, if HR people have changed, it can be really, really difficult to figure out where is that money?
Steve: It can be. And the Department of Labor is aware of this, they're working on it, but I'm not holding my breath on this. What they're trying to do...
Amy: Yes, there's talk of a database.
Steve: Exactly. And they're trying to set that up where, you know, wouldn't it be nice if you can call up a Department of Labor 800 number and give them your birthday, your name, you know, maybe you need to give them a social security number, and they could just, you know, check the database, oh, yeah, you do have this plan, and here's the information you need to have this money transferred into your name, or move it over into your IRA? That doesn't exist now. I hope they keep on it, because we need that.
Amy: In the meantime, what you can do is as you switch jobs, think about that old 401(k,) what makes the most sense? Many times you can roll it over. Maybe you wouldn't have otherwise, but I think it's much easier to keep track of a couple of 401(k)s, maybe one or two, than it is if you've worked maybe six or seven jobs, you know? I know that when I got married to my husband, I was like, wait a second, you know, when you're listing all of the... I'm like, there's like, so many different accounts here, can we simplify this? It hurts my brain, even, to try to keep up with it, and to figure out what everything is invested in, and is this the right kind of investment for me at this stage of my life?
So yeah, I think one of the great options here is to roll that money over, again if there's more than $5,000 in it, but that's an option for you.
Steve: Yeah, if you want to simplify your life, just go through your old 401(k) plans, and consider rolling it over into an IRA. You might be worried about too many eggs in one basket, that really pertains more to the specific investments than it does the custodian. And what I mean by that is if you set up an IRA at a bank or brokerage firm, or whatever the case is, you can roll multiple 401(k)s into that IRA rollover, and diversify the investments internally, okay? To me, that's your diversification and your protection. It's not a gimme that you always want to do a rollover. There are certainly other factors that you want to plug in, like expenses, on whether or not you should roll that money over. But if your whole goal is to simplify life, and not lose track of old plans, that's one of your options.
Amy: Here's the Allworth advice. Lots of things can fall through the cracks when a big life event like a job change happens. Don't let your old 401(k) be one of those things. Coming up next, the role that, yes, genetics can play in your financial planning. You're listening to "Simply Money" here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Straight ahead, I love me some Warren Buffett. He is such a smart guy. The one thing he says you'll regret if you don't make it a priority right now, you're going to want to stick around for, of course, what are always his very sage words of advice.
You know, when you think of financial planning, of course you think about money and retirement and investments. Do you ever think about the word genetics? Probably not.
Steve: Yeah, but believe it or not, genetics plays into financial planning.
Amy: It does.
Steve: And you know, it's a little bit of a leap, but not a huge leap. And you know, there's a really interesting article written by Dr. Jamie Sharp, he's the chief medical officer at Aetna, and he's developed something called the "1-2-3-4 rule," and this interesting. In his view, 10% of your health is determined by the quality of your healthcare, good hospitals, good doctors versus bad, 20% from your genes... And I could vouch for that because I'm, you know, 50% Irish, 50% Hungarian, and you know, here I have a heart bypass done at age 60, you know, that's definitely from the shallow end of the gene pool. I won't go into which side that is. But 20% from your genes, 30% social environment. You can literally, you know, through smoking, as an example, turn on cancer genes. And 40% of your health is determined by your behaviors. So, let's take a hard look at that 20%.
Amy: Cancers, right? Certain cancers, studies show, have strong genetic components, and some don't. I can speak to this firsthand, there is a very strong history of breast cancer in my family.
Steve: There you go, yeah.
Amy: We've actually been through all of the genetic testing, and we don't seem to have any of the known gene mutations. But if you talk to anyone in the medical community, my mom, my aunt, my cousin, all of them in their 40s, diagnosed with breast cancer, something's probably going on there. And what is the link to this? Because it sounds like a health segment, not a money segment. Well, first of all, knowledge is power. I say that all the time. I, because of this strong family history, had a prophylactic double mastectomy in my 30s in order to say, okay, listen, I'm going to do this now, and my health insurance completely covered it because they knew from a money standpoint they're either looking at a costly surgery one time only, or likely a future of chemo, radiation, surgeries and all those things. So I went ahead and got that knowledge, made the decision based on it, and that will hopefully add to the longevity of my life.
So, if there... As you're thinking about retirement planning, looking back at how long did my parents, my grandparents live? What kind of genetic conditions were there? Was there anything running through my family, or not running through my family? That can play a role in what age you claim Social Security, you know, how much you have in that retirement account. For most of us, I think now at Allworth, we're looking at people living into their 90s. Is there any reason why you shouldn't expect to live in your 90s? If not, you need to be planning, then, for a retirement that's going to last that long, for funds that will last that long as well.
Steve: Yeah, and this number shocks a lot of people, but in running a financial plan for a retiree, we budget...I mean, it totals out to about $380,000 for healthcare expenses.
Amy: Yes.
Steve: And you don't think of that, you know? Okay, I sign up for Medicare, I don't have to pay, you know, for health insurance, that's done automatically, and then I have to buy, yeah, that Medigap policy, $150 a month or whatever it works out to, these numbers add up, because there are still some out-of-pocket expenses. Those, you know, just as monthly expenses add up. And you want to talk inflation? You think eggs are going up rapidly in price? Take a look at health costs, okay?
So yeah, this isn't necessarily a health segment, this is still a financial segment. But because of these other factors, your health expenses may wind up being a lot more than the average, and that's why it is so important to know what your history is, and modify whatever behaviors you can. In my case, just start eating better. I mean, it was pretty simple for me.
Amy: Drop the nightly graders, Sprovach.
Steve: Oh, don't get radical on me here. Let's get real.
Amy: It's too much. I'm asking way too much there.
Steve: But I'll give you a personal example on my case. Both my parents were two-pack-a-day smokers, okay?
Amy: Yeah.
Steve: Dad lived to 84 without any symptoms, Mom died at 50 from lung cancer.
Amy: Oh, wow.
Steve: So, guess what Steve didn't do? I never smoked, you know?
Amy: You didn't smoke. Yeah.
Steve: I cut out... Although I probably had enough secondhand smoke growing up that maybe it didn't matter all that much. But you know, these are the things that make...that you need to know, and make financial decisions later in life as a result. If you know that one of your parents died young of a heart attack, you want to modify behavior, and you might want to go ahead and buy a permanent life insurance policy, even though we tend to tout term life insurance that goes away at a certain point. So, there are financial components based on your living and health history.
Amy: And for a lot of people, you're just living, right? You don't know how Great-Aunt Bessie passed away, or what age she is, but hey, the next time you're together with aunts, uncles, cousins, parents, siblings, whatever that looks like, bring this up, right? Kind of just get an idea of, hey, is there anything kind of running through our family? Is there a trend? Is it heart disease, is there any kinds of cancers, is there anything we need to be talking about, anything we can be looking at? There are so many tests out there, so many kind of preventative things that you can do, but at least once you've got the knowledge, you can make those decisions. And yeah, I think money decisions are part of that.
23andMe has become incredibly popular. Have you ever done one of these tests?
Steve: No. No, never have.
Amy: I haven't either, but I think it's interesting, because what they're able to do now is not only break down your ancestry, but they can also kind of point out maybe potential health issues that could come from your ancestry.
Steve: Yeah.
Amy: I don't know how much stock you put into it, but again, maybe something pops up on that that you say, huh, I'm going to bring this up to my doctor next time I'm in, right?
Steve: Yeah. I've got a buddy who found out through 23andMe he's very highly likely to have a B12 vitamin deficiency. So, you know, there's a case where he's acknowledged it, he's treating it, and he's going to save probably a ton of money in the future on health expenses because he takes a supplement now that he didn't know he had to take.
Amy: Yeah.
Steve: I mean, that's the financial component right there, not just living longer, but spending less in retirement on your health costs.
Amy: Yeah. Preventative medicine, right, the preventative measures that you take are always going to be cheaper than when the thing comes later, and it is actually a full-blown diagnosis, and then you have to deal with it then. Here's the Allworth advice. Getting a handle on predisposed health issues can help you with your financial planning process probably more than you would have ever imagined.
Coming up next, words of wisdom from one of my favorite investors of all time, Warren Buffett. Stick around for this one. You're listening to "Simply Money," here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach.
The greatest investor of all time, I don't know that everyone would be completely on the same page here, but I would bet, Steve, probably 90% of people, when asked that question, would say Warren Buffett.
Steve: Yeah. I mean, the guy...the Oracle of Omaha, you know?
Amy: Yes.
Steve: And he deserves it, you know? He's been doing this forever.
Amy: Smart guy.
Steve: I think he's in his...is he in his 90s now?
Amy: Yes, yeah.
Steve: But you know, he is, besides one of the geniuses, and you know, time-tested sage advisors and investors out there, he's got some pretty good advice on taking care of your mind and body also.
Amy: This is the way he put this, and actually, it's funny, because we were just talking about cars with our kids at the dinner table last night. He says, okay...this is Buffett saying, let's say I'm offering to buy you the car of your dreams, right? Pick any car you want, and after school today or after work today, it's going to be there in the parking lot. What would you say? You know, think about the car. My son would say a McLaren, my daughter would say a BMW...whatever it is, the coolest car that you could ever imagine. And then he says, but there's a caveat. This is the only car you're ever going to get in your entire life. Do you still want that sports car, yeah? Or are you maybe thinking...now you're starting to do Google searches, longevity, maybe I'm thinking a Toyota, maybe I'm thinking a Honda here, right? How can I get the most out of this car if it's the only one I'm ever going to get?
Steve: And I think his point is, okay, if this were the only car you're ever going to get, yeah, you're going to want something that you're going to super take care of. I mean, you're going to know that owner's manual inside and out. You get a little ding on it, you're going to take care of that immediately, you're going to keep it waxed, you're going to keep that thing looking like new.
Amy: Regular oil changes, regular maintenance...
Steve: Exactly. Exactly. And then, and this is...to me, totally threw me, because I didn't expect this direction, he then said, okay, by car, I mean your body, your body and your mind. Okay, you've got one body, you've got one mind that has to last you the rest of your life. Why aren't you taking care of your body the way you would take care of your car, if you knew it was the only car you ever had? And that's neat. Yeah.
Amy: And I think when you put it that way, yeah, when you put it that way, you're like, oh, yeah, maybe I should do more.
Steve: Good point, yeah.
Amy: And again, we're talking about your health, and taking care of your body, but there are so many money implications to this, you know? You're talking about the fact that, you know, your parents both smoked so much, right?
Steve: Yeah.
Amy: The medical bills that come with a diagnosis, or being on oxygen, and those kinds of things, right? One body, you've only got that, how are you going to take care of it?
Now, here's the interesting thing. Turn this back on Buffett himself. We say he's a brilliant investor, but when you think of, like, the epitome of health, well, you might not think about Buffett. I mean, he talks about...
Steve: Oh, he talks about he loves burgers, he loves Coke, you know? Yeah.
Amy: Yeah. Doesn't he...? I think he's gone to McDonald's for breakfast, like, every day of his life. Like, you're thinking, okay, dude, like...
Steve: Another reason to like him.
Amy: ...you're telling me one body, and here, you're putting McDonald's into it the other day... Actually, you're making a good point, if you're thinking this. Well, there's a New Jersey nutritionist who actually wrote Buffett a letter, and said, like, hey, you're a really smart guy, we'd like to keep you around, so maybe you should, like, eat more healthy foods. And so he said, listen, don't worry about me. I've got a great doctor. I'm sure he does. And he says, he gave me some options, right? Cut back on the bad foods, or exercise more, and I chose to exercise more.
Steve: I can relate to that, exercise does reduce a lot of evils. And I remember my dad had a doctor that was probably 350 pounds, and smoked like a fiend, and he would tell my dad, you need to cut...
Amy: The doctor?
Steve: Yeah.
Amy: Wow.
Steve: And he would tell my...this was back in the '60s, you need to cut down on your intake, and stop smoking, and my dad just said, as soon as you do, Doc, I'll do it, and he outlived the doctor, so what are you going to do?
Amy: Most of the time, though, when you see doctors, right, they are usually healthy themselves, so good advice. And back to Warren Buffett, I mean this guy, he just makes some points that make you stop sometimes, and say, oh that makes a lot of sense, right, about how you diversify your investments.
Steve: Yeah.
Amy: He said I'm not jumping on to cryptocurrency, because if you can't explain it to me, and I don't fully understand it, then I want no part of that. And let's face it, he's got a pretty strong history in making the right decisions.
Thanks for listening tonight. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
It's true, right? There's like, little mistakes we make along the way that are just kind of nuisances, right? Like I wish I hadn't done that, but everything turned out okay. When it comes to your 401(k), which for most people is the number one way that they save for retirement, you make some big mistakes, it's going to make a huge difference.
Steve: It can... Well, let's put it this way, it's going to impact the rest of your life in retirement, you know?
Amy: Yeah.
Steve: So, you might want to pay a little bit of attention. I mean, for most people, their 401(k) is either number one or number two on the largest percentage of their net worth. It's usually right up there with your house. The problem with your house is you can't eat the bricks, okay?
Amy: Yeah.
Steve: You can't convert that into cash, that's what a 401(k) is for. And so many people look at their 401(k) as an afterthought, I don't understand this stuff, I don't get it. Yeah, I'm in it, I think I'm fine. They really don't know what they're doing, and you know, the number one thing you want to do with your 401(k) is make your contributions a habit. And by habit, I don't mean, okay, let's make sure I enroll, and yeah, it's set up automatically so it comes out of my paycheck, but know what percentage you're putting in. And I'll tell you what, you know, it's easy to say the more you put in, the better off you are, but you know, if you don't get started early, you're going to have to take advantage of the catch-up provisions that much more later.
So I tell everybody, when you're young, 10% if you can swing it, and if you're already in, and you already have kids, and money's going in 18 different directions, just be very, very deliberate about how much you're putting in, and maybe even bump it up 1% a year until you get up to a level that's really starting to pay dividends.
Amy: You made a point about 401(k)s at one point that I thought, oh, my gosh, this is so on the money, it's worth repeating now. And you said...
Steve: Really? Moments of lucidity [crosstalk 00:02:17.739]
Amy: Yeah. Well, one time you made this really great point, and I think it's worth repeating. You said most people spend more time planning their vacation than they do looking at their 401(k).
Steve: Yeah.
Amy: Well, think about it this way. You're doing the research on the restaurants, the hotel, what there is to do in that area, you've got flights, rental cars, all those things.
Steve: Sure, it's fun. Yeah.
Amy: But it's one time.
Steve: Yeah.
Amy: That vacation is one, and it's done, and it's over. Meanwhile, that 401(k) is sitting there, in many cases neglected, and this is the number one vehicle you have to getting to retirement. When you think about it that way, I think a lot of people are like, ah, I might revisit that 401(k) now. I see how important that is.
Steve: Yeah. Yeah, well, you know, and planning for vacation is fun. For most people, planning their 401(k) allocations is not fun.
Amy: You think? Come on...
Steve: You know, they don't understand it, there's stress involved... You know, this is...and I call it financial literacy, it's not rocket science. It's not advanced calculus. I could easily say if I figured out most of this, anybody can. But no, in all seriousness, really you just need to get a few terms down, and understand what they mean. Little concepts like stocks and bonds, what are they? Because if you don't put enough in to your 401(k) when you're young, you're going to have to do what a lot of people do, myself included, and you're going to have to save more later on in life, and take advantage of the catch-up provisions. Luckily, the government has increased those catch-up provisions, and what that means is if you're under 50, you're maxed out of your own money, of putting $22,500 into your 401(k).
Amy: Yep.
Steve: If you're 50 or older, you can bump that up to $30,000. And if you are way behind because life got in the way, that's something you want to start planning for so that you can retire at the age you want to retire at.
Amy: I've never seen the percentage, but I'm going to guess it's under 5% of people who straight out of college said, yes, like, I'm going to put the max into that 401(k) at the age of 22, 23, whatever it was, and I'm going to max this thing out from here until the day I retire. Most of us, myself included, right, I mean, we do this show not because we're perfect with money, because we've learned a lot of lessons along the way when it comes to money.
Steve: No, not at all. Yeah.
Amy: I wasn't serious about my 401(k) until my early 30s. Gosh, I wish I had been in my 20s.
Steve: Yeah.
Amy: But yeah, so if you've got kids who are in college, high school, whatever it is, that are maybe heading in this direction, maybe they've recently graduated, graduation season's coming up in just a few months, if you can make any point to them, it's hey, the most that you can possibly put into that 401(k) now... I know it seems like retirement is a long ways away, the magic power of compounding, to give it enough time, decades in that account, you're going to be so much better off. And honestly, month after month, you're going to have to put far less in, right, because you started earlier.
Steve: Mm-hmm.
Amy: And I would say it has to be, and this is across the board, regardless of your age, please put enough money in that 401(k) to get the maximum company match.
Steve: Oh, no question. No question.
You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Amy Wagner, and we're talking about the big mistakes that too many people make in their 401(k). Here's the one that drives me nuts, Amy. I will ask someone that walks in my door, so tell me how you're invested in your 401(k). What are you invested in? And nine times out of ten they're like, I'm pretty sure I'm in mutual funds. That doesn't help me, and it sure doesn't help them, because a mutual fund is just a method of investing. That's like saying I own real estate, as opposed to, yeah, I've got some commercial properties, or something like that.
Amy: So, no one says, I'm 20% bonds, and I've got this mix of...
Steve: Almost nobody. Yeah.
Amy: ...yes, emerging markets, and these small caps and these large caps... This is just a way of saying I'm diversified, right?
Steve: Yeah.
Amy: And getting in there... Listen, and I think there's a happy medium here. I'm not saying you need to be in that 401(k,) looking at your investments and your balance on a daily or a weekly basis.
Steve: Oh, you don't want to do that.
Amy: You'll make yourself insane.
Steve: Yeah. Yeah.
Amy: But you know, quarterly, get in there, make sure that you know what's in there. And I'm not saying that quarterly you make adjustments, but at least you're familiar with what's in there. For a lot of us, we've got those target date funds as an option. This is simply...the target date is the target of when you want to retire. Say you want to retire in 2045, right? So, you've got 20-plus-years until you're going to retire, it's going to be a little more aggressively invested in stocks, it's called a glide path over the years, that glides toward a little safer investments, maybe a little safer toward bonds. For a lot of people, that's kind of the easy thing. I can kind of understand this, right? This is when I want to retire... I would say, hey, if you're in your 20s, maybe your early 30s, this is a fine investment for you.
But when it becomes real money, when you're really starting to think about retirement, I think you've got to take a much more individualized approach. Because understanding these target date funds, these are kind of one-size-fits-all. If everybody who's 30 years old wants the same kind of retirement, the same goals, hopes, dreams, the same savings already, great. But that's not really the reality.
Steve: I'm not anti-target date funds or retirement funds.
Amy: No, nit at all.
Steve: No. But I think they should be renamed, well, better than nothing funds, because they are.
Amy: Yes, exactly.
Steve: In the old days, the default option was a money market, which would have killed you if you were doing that when interest rates were zero. Here's my biggest problem with target date funds. If you had a target date 2020 fund, chances are you were almost 100% bonds. It depends on the fund family. But the whole idea is heavy stocks when you're young, go to bonds that are a lot safer when you're nearing retirement. Bonds weren't exactly the safe bet in 2022. They lost a lot of money. So if you were, you know, ideally looking for a nice, stable balance in the last year of your retirement, you didn't get it in that type of fund. Now, if you were in a 2040 fund, you're still heavily in stocks, and you know, that's a whole different ballgame.
But just know what you're invested in. Know what percentage of your money is in stocks, what percentage is in bonds. And if you can break it down to domestic versus international on your stocks, so much the better. I think the best thing is hire somebody to take a look at your 401(k) options, and make sure you're using the best ones, and that the percentage of allocation in various investment classes are what you're comfortable with. I think that's about the best, most well-spent money that you can use.
Amy: Did you know the average person switches jobs about a dozen times over the course of your life?
Steve: Yeah.
Amy: I was actually goign to try to to count up how many...I lose track of how many jobs I've had through the years, when you think about all the little media markets that you kind of jump through and move around through. But with each of those jobs, you probably had a 401(k), and so you can understand it's really easy, first of all, to lose track of those 401(k)s, but also during a time like right now, when you've got kind of the Great Resignation going on, and everyone's making the jump, it's so important for you to understand how your 401(k) is vested.
Steve: Yeah.
Amy: Meaning the balance that's in there, right? You look at that, and you think, oh, that money is all mine. Well, a little bit of that money could be behind a gate, right, that you might not have access to until you've worked there for a certain amount of time. So at least you know, oh, maybe if I stay in this job six more months, this part...all of your money is your money. All the money you put into your 401(k) is still yours.
Steve: Yeah.
Amy: But that company match kind of sometimes comes with strings attached, and you want to make sure that you understand that, and that's the vesting schedule.
Steve: I'm glad you made the point about your money is your money.
Amy: Yes.
Steve: Because nobody can take away the money you put into the plan, okay? The vesting schedule, vesting just means the money that was given to you by your company, when does that money, that percentage actually become your money? And the longest they can withhold that is six years. So, you'll see it on your statement, just because it's on your statement doesn't mean it's yours. It may be a six-year cliff vesting, which means not a dime of that is yours until you've worked for that company six years. They're kind of a dinosaur. I don't see many of those anymore. But if you happen to be in one of those plans, and you leave at five years and 11 months, boy, you should have stuck around that extra month, because you don't have any of that match.
Amy: Well, knowledge is power here.
Steve: Yeah.
Amy: It's not necessarily that you are going to stay for six more years, or five more years or whatever that is. My aunt retired last spring, and she came to me with the same thing, she realized that part of that company match wasn't going to be fully vested unless she stayed for three more months.
Steve: Hmm, okay.
Amy: So we looked at the amount of money that she was going to get if she waited, and I said, okay, here it is in dollars and cents, is it worth it for you to stick around for three more months? She was like, no, I'm mentally already out of there, you know? But at least she had the...yes.
Steve: She had the data. That's the important...yeah.
Amy: She had the data to make the decision, absolutely. Absolutely.
Steve: Yeah.
Amy: Another major no-no we would say here is taking an early withdrawal.
Steve: Oh, my gosh...
Amy: I think for many of us, because this is the big balance that we see, right, when that statement comes in the mail, you're like, oh, this is really starting to be something, and then all of a sudden, and I know this personally, someone who had the ability to buy...it was a used, really nice BMW, and they took the deposit out of a 401(k), and I was like no, no...too late, right?
Steve: Yeah. And I've heard so many rationalizations. Well, I'm borrowing it from...I'm paying myself back interest, I can't bet on anybody that I feel more comfortable with than myself. Don't do it. Just don't do it. I visited a company that was going through early terminations, we had a contract with a group on the East Coast, and I would say two-thirds of the people had borrowed against their 401(k). And guess what? When you lose your job, it's usually 30 days, maybe 90 days that you've got to pay back that balance.
Amy: It's not a lot of time.
Steve: Well, you didn't borrow the money because you've got tons of money sitting in the bank, you borrowed the money because you needed to for whatever reason, okay?
Amy: You need it.
Steve: And these people all had to come to the realization that, okay, whatever my outstanding loan balance is that I can't pay back, that's considered a distribution that I'm taxed on. And if you're under 55, or it might be 59-and-a-half, but if it's an early withdrawal, 10% additional tax penalty, they got creamed. So, don't do it. Just don't.
Amy: Another big one, if you've got the ability to put company stock, right, invest in company stock and not 401(k), I'm talking to you, you P&Gers... I get it's a great company, but many of you also have so much company stock on the outside, so you're getting your paycheck from there, you've got company stock from there, and then you're putting it in your 401(k) as well? We would say, hey, please remember, as good as any company is, you still have to be diversified.
Steve: Yeah, watch how much you've got in your own company stock. And the government has made it easy. If you don't know what the deal is with your company plan, find out through HR or your plan provider, because chances are you probably can start to divest, start to sell off some of that company stock within your plan, and split it among the other investment choices. And as long as it's all done within the plan, without leaving the plan, there shouldn't be any tax consequences.
Amy: Here's the Allworth advice. Treat your 401(k) with a little bit of tender loving care. It will definitely pay you back later in life.
Coming up next, what you need to know about retirement once you hit your 50s, or if you're already there. You're listening to "Simply Money" here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't listen to our show, well, every single night, you're in luck. We've got a daily podcast, you can listen to it at any time. If you've got a friend who you know maybe could use a little bit of extra money help, spread the word to them as well. All you've got to do, search Simply Money on the iHeart app, or wherever you get your podcasts.
Coming up at 6:43, genetics and money. You might think they're not related, but they are. We'll tell you how.
I mean, so every stage of your life, and I know when you're in your 20s it's hard to think about retirement, but every stage of your life should have some kind of piece of financial planning. Everyone has goals, regardless of how old you are, and we really want to kind of drill down right now to, hey, if you're in your 50s, or if you're coming up on your 50s, or what you really need to be thinking about when you get there.
Steve: Yeah, 50s are crunch time in financial planning. If you're like most people, you're just, you know, you're running around like crazy. You've been taking kids to, you know, soccer practice, baseball games...
Amy: All the places, yes.
Steve: Yeah, and spending money, you know, as fast as it comes in, it goes right out the door. And you know, you just wake up one morning, and I'm speaking from experience, in your 50s and saying, crap, I wonder where I am financially? And can I afford to retire at the age I want to retire? Because if you wait past your 50s, chances are you can't fix it. In your 50s, you can fix it, and that's why we want to talk about what you need to pay the most attention to when you're in your 50s.
Amy: Start with your goal, right? And if you and your spouse have not had this conversation, please, regardless of how old you are, how long you've been married, just throw it out there over dinner tonight, or breakfast tomorrow or whatever, hey, what's the ideal age do you think that you want to retire? See if you're even on the same page.
Steve: Yeah, don't say I'm done at 60, but hon, I figure you're going to have to keep going until at least 65 to make that work. And I have experienced that conversation with people sitting in front of me.
Amy: Oh, that's a fun conversation.
Steve: Oh, yeah, no, it's not, actually. But you know, here's why... And you know, yeah, we do financial plans, I guess this comment is self-serving. But I don't care who you use, when you're in your 50s, have somebody draw up a financial plan for you, because again, this is the age where if you need fixing, you can fix it.
And I'll give you a great example. The guy's become a friend of mine, but when I first met him, he worked at a company in a very high stress job, he was probably 54, 55, and he said, I'm out of here at 62. You can tell me I can afford it or I can't afford it, I don't care what you tell me, I'm out of here at 62. I can't handle this. And I ran a plan, and I said, well, financially, I don't care where you work, but the numbers that I plugged in say you can't afford to retire at 62 if you're going to live past about 75. It looks like 66 is your best bet. But I'll tell you what, if you do this...and it was basic. It was just add more to your 401(k), pay off debt by the time you retire. If you just do these basics, you might be able to improve this to come close to 62.
And he buckled down, and I'll tell you what, he made that work so that I actually walked in his office I think on his 63rd, it might have been 64th birthday and said, hey, you can walk right out of this meeting, and go to HR and tell them you're done, because your plan finally works. Congratulations. And he didn't. He stayed there, but it was on his terms now. He knew he could leave whenever he felt like it.
Amy: Yeah. Yeah. That's a good feeling.
Steve: And he wound up working for another year or so. But he got the data, and got the problem solved, and everybody in their 50s needs that answer.
Amy: And one of the things I think you also need to know is how much do I need to spend, right? What do I live on, you know?
Steve: Yeah.
Amy: Because you're not going to want to change your lifestyle drastically when you get to retirement. And I know a lot of you are working, and you're dreaming and hoping and praying for that retirement date, you can easily say, well, I can cut back on this...but you're not really going to want to. So look at what your living expenses are now. People, I think, think that it's going to be cheaper in retirement. I don't know why that gets into so many people's heads.
Steve: No. No.
Amy: But the first few years, think about it. I always say this, do you spend more on weekdays or weekends, when you have more time available? Well, for me, I shop and I, you know, do things with my family. We see movies, we travel, we do those kinds of things on the weekend, it costs more. Your free time ends up costing more, so plan for that.
Steve: Yeah, life is for living.
Amy: Yes.
Steve: You don't want to go into retirement thinking, well, I need to cut back here, I need to cut back there...that's not what you worked so hard for. I had this conversation with a brother-in-law a few weeks ago, and he's a very successful realtor, and he's 65 and keeps working and working, and he's kind of afraid to cut back. And you know, I take it for granted that everybody wants to enjoy life, and do your planning based on what you want to do, not what you have to do, and that was like a light bulb going off for him. He said, I never heard that from anybody, that I shouldn't have to worry about cutting back. I should look at what's my income, and can I afford in retirement, will I have enough income to do everything I always dreamed of doing? He never had that conversation. I think everybody should. You might not be able to afford it, but at least you'll know what you can do, if you know your expenses, and you start tracking where your income is going to come from.
Amy: A few other things I think worth considering in your 50s, how much can you at least plan on getting from Social Security, right? Socialsecurity.gov, if you don't have that account set up, do it. Long-term care insurance, start thinking about that. And just mentally prepare, because for so many of you, when you think about retirement, it's all about the money. But what are you going to do when those work friends aren't there? Or the meetings, or the structure of your work day isn't there? I like the idea of taking a practice retirement, look at that. Here's the Allworth advice. The money choices you're making in your 50s could make or break the kind of life you're going to live in retirement.
Here's a question for you. Do you know where every one of those old 401(k)s is? Did you totally maybe forget about one? This happens all the time, believe it or not. We're going to tell you how to find it next. You're listening to "Simply Money" here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach.
It happens all the time, right? You leave one job, you go on to another one, I don't know, maybe another one after that, and then all of a sudden you realize, where's the 401(k) that I had with that job that I had two jobs ago, or whatever it is? And is the company even still there? And who's even in charge of HR now, right? I mean, these old 401(k)s, I don't think most people think about it during the time, because you're excited about jumping to that kind of new thing.
Steve: Sure.
Amy: But you have to be super intentional about taking care of those old 401(k)s as well.
Steve: Right, and there's a lot of them out there, Amy. The numbers, to me, are staggering, the estimate is over 24 million 401(k) plans have been completely forgotten. People don't know that they exist. And the amount of money in those plans total over $1.3 trillion. To me, it's incredible. But you know, when you look at why this could happen, you know, at first I was thinking, you've got to pay attention to your money, for crying out loud, you know? Why would you not know about it? But I'll give you a local example.
A company in town was sold about four times over a ten-year period, and one of those plans had a component that went into the...that has the ability to go into their pension. So this plan is not not called the original company's 401(k) plan, it's changed names four times, and now it's online only.
Amy: Gosh.
Steve: You're not even getting statements. S, how...you know, even the employees that have this money in the plan, they're not sure that that money still exists, nevermind...
Amy: Well, and those are current employees.
Steve: Exactly.
Amy: Think about if you worked there seven years ago, or ten years ago, are you going to know the most recent name? Yeah.
Steve: Or if you passed away, or...yeah. And I'm dealing with this right now, kids are going through their deceased father's estate, and you know, they're uncovering stuff, they might not uncover a plan like this. So yeah, I definitely get why some of these plans have been forgotten. And the key is, figure out how you can find this money, if you're one of those impacted.
Amy: And understand this, right, this is called the Economic Growth and Tax Relief Reconciliation Act of 2001. But essentially, if you had $5,000 or less in an old 401(k)... I mean, if you think about it, if that went back to your 20s, that could actually be pretty substantial money, you know, a couple decades down the road. But under that act, the old employer can roll that money into an IRA.
Steve: Yeah.
Amy: Here's the problem. They're not calling Steve Sprovach and saying, hey, we're rolling this into an IRA, how would you like that money to be invested?
Steve: Right.
Amy: They are investing it usually in cash or money market accounts. So even when you find that money later on, assuming that you do after it's been rolled into that IRA, it is essentially decaying. It is not keeping up with inflation and everything else, and it's certainly probably not invested the way you would have.
Steve: Amy, I know somebody that had this happen to them. It was about $1,000, and there was a $35 annual fee. So it goes into the IRA, it pays, you know, bupkis for interest, and so it's going backwards by $35 a year, year after year after year. It almost went away after five, six years of, you know, forgetting that they had that money. The government tried to help, but I don't think they figured out, you know, the correct way to resolve that. There's got to be some way for investors to go ahead and find this money a lot easier than we currently have.
Amy: You're listening to "Simply Money" tonight here on 55KRC, as we talk about old 401(k)s, do you have them? I was actually just tallying up in my head, I think I've worked for seven different companies at this point in my life.
Steve: You just can't keep a job, can you?
Amy: Well, if you think about it, I started out in media, and it's like, you know, you go from market to market, bigger markets, hopefully you grow... I worked at a smaller company for a while... And anyway, as you kind of go through, you're thinking, the 401(k)s with all of those old jobs that I had back in my 20s and 30s, when I was kind of building a career, am I keeping track of all those? And to your point, there's databases out there where where you can search kind of missing funds, or...
Steve: Yeah.
Amy: I remember doing that several, several years ago, and calling my uncle and saying, like, hey, I think there's, like, an old life insurance policy or something that might have been in your name, check this out, that doesn't exist, though, unfortunately, for these 401(k)s. So, you have to do the due diligence on your end of tracking it down. If that company no longer exists, right, if HR people have changed, it can be really, really difficult to figure out where is that money?
Steve: It can be. And the Department of Labor is aware of this, they're working on it, but I'm not holding my breath on this. What they're trying to do...
Amy: Yes, there's talk of a database.
Steve: Exactly. And they're trying to set that up where, you know, wouldn't it be nice if you can call up a Department of Labor 800 number and give them your birthday, your name, you know, maybe you need to give them a social security number, and they could just, you know, check the database, oh, yeah, you do have this plan, and here's the information you need to have this money transferred into your name, or move it over into your IRA? That doesn't exist now. I hope they keep on it, because we need that.
Amy: In the meantime, what you can do is as you switch jobs, think about that old 401(k,) what makes the most sense? Many times you can roll it over. Maybe you wouldn't have otherwise, but I think it's much easier to keep track of a couple of 401(k)s, maybe one or two, than it is if you've worked maybe six or seven jobs, you know? I know that when I got married to my husband, I was like, wait a second, you know, when you're listing all of the... I'm like, there's like, so many different accounts here, can we simplify this? It hurts my brain, even, to try to keep up with it, and to figure out what everything is invested in, and is this the right kind of investment for me at this stage of my life?
So yeah, I think one of the great options here is to roll that money over, again if there's more than $5,000 in it, but that's an option for you.
Steve: Yeah, if you want to simplify your life, just go through your old 401(k) plans, and consider rolling it over into an IRA. You might be worried about too many eggs in one basket, that really pertains more to the specific investments than it does the custodian. And what I mean by that is if you set up an IRA at a bank or brokerage firm, or whatever the case is, you can roll multiple 401(k)s into that IRA rollover, and diversify the investments internally, okay? To me, that's your diversification and your protection. It's not a gimme that you always want to do a rollover. There are certainly other factors that you want to plug in, like expenses, on whether or not you should roll that money over. But if your whole goal is to simplify life, and not lose track of old plans, that's one of your options.
Amy: Here's the Allworth advice. Lots of things can fall through the cracks when a big life event like a job change happens. Don't let your old 401(k) be one of those things. Coming up next, the role that, yes, genetics can play in your financial planning. You're listening to "Simply Money" here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Straight ahead, I love me some Warren Buffett. He is such a smart guy. The one thing he says you'll regret if you don't make it a priority right now, you're going to want to stick around for, of course, what are always his very sage words of advice.
You know, when you think of financial planning, of course you think about money and retirement and investments. Do you ever think about the word genetics? Probably not.
Steve: Yeah, but believe it or not, genetics plays into financial planning.
Amy: It does.
Steve: And you know, it's a little bit of a leap, but not a huge leap. And you know, there's a really interesting article written by Dr. Jamie Sharp, he's the chief medical officer at Aetna, and he's developed something called the "1-2-3-4 rule," and this interesting. In his view, 10% of your health is determined by the quality of your healthcare, good hospitals, good doctors versus bad, 20% from your genes... And I could vouch for that because I'm, you know, 50% Irish, 50% Hungarian, and you know, here I have a heart bypass done at age 60, you know, that's definitely from the shallow end of the gene pool. I won't go into which side that is. But 20% from your genes, 30% social environment. You can literally, you know, through smoking, as an example, turn on cancer genes. And 40% of your health is determined by your behaviors. So, let's take a hard look at that 20%.
Amy: Cancers, right? Certain cancers, studies show, have strong genetic components, and some don't. I can speak to this firsthand, there is a very strong history of breast cancer in my family.
Steve: There you go, yeah.
Amy: We've actually been through all of the genetic testing, and we don't seem to have any of the known gene mutations. But if you talk to anyone in the medical community, my mom, my aunt, my cousin, all of them in their 40s, diagnosed with breast cancer, something's probably going on there. And what is the link to this? Because it sounds like a health segment, not a money segment. Well, first of all, knowledge is power. I say that all the time. I, because of this strong family history, had a prophylactic double mastectomy in my 30s in order to say, okay, listen, I'm going to do this now, and my health insurance completely covered it because they knew from a money standpoint they're either looking at a costly surgery one time only, or likely a future of chemo, radiation, surgeries and all those things. So I went ahead and got that knowledge, made the decision based on it, and that will hopefully add to the longevity of my life.
So, if there... As you're thinking about retirement planning, looking back at how long did my parents, my grandparents live? What kind of genetic conditions were there? Was there anything running through my family, or not running through my family? That can play a role in what age you claim Social Security, you know, how much you have in that retirement account. For most of us, I think now at Allworth, we're looking at people living into their 90s. Is there any reason why you shouldn't expect to live in your 90s? If not, you need to be planning, then, for a retirement that's going to last that long, for funds that will last that long as well.
Steve: Yeah, and this number shocks a lot of people, but in running a financial plan for a retiree, we budget...I mean, it totals out to about $380,000 for healthcare expenses.
Amy: Yes.
Steve: And you don't think of that, you know? Okay, I sign up for Medicare, I don't have to pay, you know, for health insurance, that's done automatically, and then I have to buy, yeah, that Medigap policy, $150 a month or whatever it works out to, these numbers add up, because there are still some out-of-pocket expenses. Those, you know, just as monthly expenses add up. And you want to talk inflation? You think eggs are going up rapidly in price? Take a look at health costs, okay?
So yeah, this isn't necessarily a health segment, this is still a financial segment. But because of these other factors, your health expenses may wind up being a lot more than the average, and that's why it is so important to know what your history is, and modify whatever behaviors you can. In my case, just start eating better. I mean, it was pretty simple for me.
Amy: Drop the nightly graders, Sprovach.
Steve: Oh, don't get radical on me here. Let's get real.
Amy: It's too much. I'm asking way too much there.
Steve: But I'll give you a personal example on my case. Both my parents were two-pack-a-day smokers, okay?
Amy: Yeah.
Steve: Dad lived to 84 without any symptoms, Mom died at 50 from lung cancer.
Amy: Oh, wow.
Steve: So, guess what Steve didn't do? I never smoked, you know?
Amy: You didn't smoke. Yeah.
Steve: I cut out... Although I probably had enough secondhand smoke growing up that maybe it didn't matter all that much. But you know, these are the things that make...that you need to know, and make financial decisions later in life as a result. If you know that one of your parents died young of a heart attack, you want to modify behavior, and you might want to go ahead and buy a permanent life insurance policy, even though we tend to tout term life insurance that goes away at a certain point. So, there are financial components based on your living and health history.
Amy: And for a lot of people, you're just living, right? You don't know how Great-Aunt Bessie passed away, or what age she is, but hey, the next time you're together with aunts, uncles, cousins, parents, siblings, whatever that looks like, bring this up, right? Kind of just get an idea of, hey, is there anything kind of running through our family? Is there a trend? Is it heart disease, is there any kinds of cancers, is there anything we need to be talking about, anything we can be looking at? There are so many tests out there, so many kind of preventative things that you can do, but at least once you've got the knowledge, you can make those decisions. And yeah, I think money decisions are part of that.
23andMe has become incredibly popular. Have you ever done one of these tests?
Steve: No. No, never have.
Amy: I haven't either, but I think it's interesting, because what they're able to do now is not only break down your ancestry, but they can also kind of point out maybe potential health issues that could come from your ancestry.
Steve: Yeah.
Amy: I don't know how much stock you put into it, but again, maybe something pops up on that that you say, huh, I'm going to bring this up to my doctor next time I'm in, right?
Steve: Yeah. I've got a buddy who found out through 23andMe he's very highly likely to have a B12 vitamin deficiency. So, you know, there's a case where he's acknowledged it, he's treating it, and he's going to save probably a ton of money in the future on health expenses because he takes a supplement now that he didn't know he had to take.
Amy: Yeah.
Steve: I mean, that's the financial component right there, not just living longer, but spending less in retirement on your health costs.
Amy: Yeah. Preventative medicine, right, the preventative measures that you take are always going to be cheaper than when the thing comes later, and it is actually a full-blown diagnosis, and then you have to deal with it then. Here's the Allworth advice. Getting a handle on predisposed health issues can help you with your financial planning process probably more than you would have ever imagined.
Coming up next, words of wisdom from one of my favorite investors of all time, Warren Buffett. Stick around for this one. You're listening to "Simply Money," here on 55KRC, THE Talk Station.
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You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach.
The greatest investor of all time, I don't know that everyone would be completely on the same page here, but I would bet, Steve, probably 90% of people, when asked that question, would say Warren Buffett.
Steve: Yeah. I mean, the guy...the Oracle of Omaha, you know?
Amy: Yes.
Steve: And he deserves it, you know? He's been doing this forever.
Amy: Smart guy.
Steve: I think he's in his...is he in his 90s now?
Amy: Yes, yeah.
Steve: But you know, he is, besides one of the geniuses, and you know, time-tested sage advisors and investors out there, he's got some pretty good advice on taking care of your mind and body also.
Amy: This is the way he put this, and actually, it's funny, because we were just talking about cars with our kids at the dinner table last night. He says, okay...this is Buffett saying, let's say I'm offering to buy you the car of your dreams, right? Pick any car you want, and after school today or after work today, it's going to be there in the parking lot. What would you say? You know, think about the car. My son would say a McLaren, my daughter would say a BMW...whatever it is, the coolest car that you could ever imagine. And then he says, but there's a caveat. This is the only car you're ever going to get in your entire life. Do you still want that sports car, yeah? Or are you maybe thinking...now you're starting to do Google searches, longevity, maybe I'm thinking a Toyota, maybe I'm thinking a Honda here, right? How can I get the most out of this car if it's the only one I'm ever going to get?
Steve: And I think his point is, okay, if this were the only car you're ever going to get, yeah, you're going to want something that you're going to super take care of. I mean, you're going to know that owner's manual inside and out. You get a little ding on it, you're going to take care of that immediately, you're going to keep it waxed, you're going to keep that thing looking like new.
Amy: Regular oil changes, regular maintenance...
Steve: Exactly. Exactly. And then, and this is...to me, totally threw me, because I didn't expect this direction, he then said, okay, by car, I mean your body, your body and your mind. Okay, you've got one body, you've got one mind that has to last you the rest of your life. Why aren't you taking care of your body the way you would take care of your car, if you knew it was the only car you ever had? And that's neat. Yeah.
Amy: And I think when you put it that way, yeah, when you put it that way, you're like, oh, yeah, maybe I should do more.
Steve: Good point, yeah.
Amy: And again, we're talking about your health, and taking care of your body, but there are so many money implications to this, you know? You're talking about the fact that, you know, your parents both smoked so much, right?
Steve: Yeah.
Amy: The medical bills that come with a diagnosis, or being on oxygen, and those kinds of things, right? One body, you've only got that, how are you going to take care of it?
Now, here's the interesting thing. Turn this back on Buffett himself. We say he's a brilliant investor, but when you think of, like, the epitome of health, well, you might not think about Buffett. I mean, he talks about...
Steve: Oh, he talks about he loves burgers, he loves Coke, you know? Yeah.
Amy: Yeah. Doesn't he...? I think he's gone to McDonald's for breakfast, like, every day of his life. Like, you're thinking, okay, dude, like...
Steve: Another reason to like him.
Amy: ...you're telling me one body, and here, you're putting McDonald's into it the other day... Actually, you're making a good point, if you're thinking this. Well, there's a New Jersey nutritionist who actually wrote Buffett a letter, and said, like, hey, you're a really smart guy, we'd like to keep you around, so maybe you should, like, eat more healthy foods. And so he said, listen, don't worry about me. I've got a great doctor. I'm sure he does. And he says, he gave me some options, right? Cut back on the bad foods, or exercise more, and I chose to exercise more.
Steve: I can relate to that, exercise does reduce a lot of evils. And I remember my dad had a doctor that was probably 350 pounds, and smoked like a fiend, and he would tell my dad, you need to cut...
Amy: The doctor?
Steve: Yeah.
Amy: Wow.
Steve: And he would tell my...this was back in the '60s, you need to cut down on your intake, and stop smoking, and my dad just said, as soon as you do, Doc, I'll do it, and he outlived the doctor, so what are you going to do?
Amy: Most of the time, though, when you see doctors, right, they are usually healthy themselves, so good advice. And back to Warren Buffett, I mean this guy, he just makes some points that make you stop sometimes, and say, oh that makes a lot of sense, right, about how you diversify your investments.
Steve: Yeah.
Amy: He said I'm not jumping on to cryptocurrency, because if you can't explain it to me, and I don't fully understand it, then I want no part of that. And let's face it, he's got a pretty strong history in making the right decisions.
Thanks for listening tonight. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.
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