Jenny & Tina Gymsplain Retirement Savings Part 2

On this episode of Financially Naked: Stories from The Financial Gym, Tina, an NYC based trainer is joined by colleague Jenny, who resides in the mountainous state of Colorado. Today’s episode is the second in a series about Retirement Savings. The two trainers discuss different kinds of retirement accounts and which ones to consider investing in.

Today’s episode is less about account logistics and more about strategy. You can listen to Part One and read the show notes HERE.


Podcast Notes

  • If your employer offers a 401k and match, that should be your first priority when it comes to retirement savings. This is because an employer match is FREE MONEY and we at the gym can’t emphasize enough how much we love that. 

  • After that, our next recommendation for most clients is a Roth IRA.

  • The Roth IRA comes with many advantages, which is why we are big fans of them at the gym. 

ROTH ADVANTAGES:

  • It’s an after tax account, which means it grows tax free and you aren’t taxed when the money is withdrawn. This is because you’ve already paid taxes on the money contributed.

  • You can invest up to $6,000 per year, either at once or in increments.

  • While we don’t want to withdraw retirement savings, you are able to withdraw the money that you contributed tax and penalty free. Any money earned cannot be withdrawn penalty free until the retirement age, which is currently 59½.

ROTH IRAs ARE NOT PERFECT 

  • Once you reach a certain income level, you are not eligible to contribute to a ROTH IRA.

  • If you happen to over contribute, there is a 6% penalty every year that money is there. You can fix that right away penalty free by withdrawing the over contribution. 

TRADITIONAL IRAs ARE AN OPTION 

  • Contributing to a Traditional IRA allows you to claim a tax deduction. 

  • You can only contribute $6,000 between both Traditional and Roth IRA’s, so be mindful. We usually recommend the Roth unless you are ineligible.

ACTUALLY INVESTING THE MONEY

  • After you decide which kind of account is right for you and begin saving, it’s important to actually INVEST that money. 

  • Two main recommendations for clients: target date funds or choosing your own investments. 

  • With retirement savings, the best strategy is ‘set it and forget it’ 

  • Target date funds sometimes go by different names such as ‘lifecycle funds’ and are found in most workplaces. 

  • They are set up to allocate your investments based on your age and the year you choose to set for retirement. 

  • You select the year you plan to retire and the fund is managed for you as time goes on. The allocation is more aggressive when you are younger and becomes more conservative as you approach retirement age. The fund is managed for you and you just have to pop in from time to time to check in. 

  • If a Target Date Fund isn’t available or you want to be more hands on with your investments, you can choose your own! You still want to treat it like your own target date fund, not putting all of your retirement eggs in one basket! 

  • Diversification is important. You’ll want to have a nice blend and include bonds as well. 

  • Choosing your own investments means you have to be more hands on, rebalancing your allocation more often. 

  • Stocks and bonds have an inverse relationship and should be considered when building your portfolio. 

  • When you add money into the account, most Roboadvisors and Workplace accounts will automatically invest in more shares. 

  • Some brokerages make you do it manually each time you add cash, it’s always better to double check. 

  • If automation is an option, we always recommend that! 

  • Whether you invest with a target date fund or choose your own investments, it is important to remember there will be more recessions before you retire, (especially if you’re young!) 

  • We have a new partnership with a company called Capitalize - check out THIS EPISODE where Bevin sits down with the co-founder, Gaurav. Capitalize helps you find forgotten assets in 401k accounts and roll them over into other investment accounts! It is completely FREE to the user. Check out their services HERE! 

READ MORE ABOUT INVESTING FOR RETIREMENT ON OUR BLOG
It’s (Almost) Always the Right Time to Start Investing for Retirement

Retirement for Beginners Pt. 2: The Power of Compounding Interest 

Meet The Trainers
MEET JENNY HARP
MEET TINA HANG

The Financial Gym Team