2657: 6 Ways to Strengthen Your Retirement Savings This Year by Stacker of Radical FIRE on Financial Spring Cleaning

[00:00:00] Hey y'all, I'm Adrian and I just used a self-directed IRA to buy shares in my buddy's

[00:00:04] tech startup.

[00:00:05] Behold Adrian, not your typical retirement planner.

[00:00:09] I just wanted to diversify and invest in local companies.

[00:00:12] OMG!

[00:00:13] Adrian invested pre IPO!

[00:00:15] Yeah, new direction trust company helped me open an account and I directed the investment

[00:00:20] myself.

[00:00:21] Freedom!

[00:00:22] Exactly!

[00:00:23] Can your IRA invest in private equity?

[00:00:25] At New Direction, the answer is yes.

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[00:01:10] This is Optimal Finance Daily, Episode 2657.

[00:01:15] Six ways to strengthen your retirement savings this year.

[00:01:18] Buy Stacker with RadicalFire.com.

[00:01:21] And on your host and personal finance enthusiasts, Diana Mariam.

[00:01:25] Thanks so much for joining today.

[00:01:27] I have another article that can help you optimize your finances, just like each and every day,

[00:01:33] Rain or Shine.

[00:01:35] So with that, let's get right to it as we optimize your life.

[00:01:43] Six ways to strengthen your retirement savings this year.

[00:01:46] Buy Stacker with RadicalFire.com.

[00:01:50] Starting out of one of the most volatile years on record for the stock market, investors

[00:01:55] are looking for ways to take back some control over their investments.

[00:01:59] Especially the savings they're putting away for retirement.

[00:02:03] We've analyzed common retirement savings best practices from sources including the Federal

[00:02:08] Deposit Insurance Corp and the Securities and Exchange Commission, along with reports

[00:02:14] from reputable news and financial institutions so that you don't have to.

[00:02:19] Think of these suggestions as a kind of spring cleaning for your finances.

[00:02:24] Much like other important things in life, your savings need occasional maintenance to ensure

[00:02:29] they're working as hard as possible to fund the future you hope for after retirement.

[00:02:35] Number one, assess and update your net worth and budget.

[00:02:39] It's commonly said that acting on emotions is a terrible way to make important financial

[00:02:44] decisions.

[00:02:45] And that recommendation extends to if you feel you've stockpiled enough savings.

[00:02:51] Instead of going on how secure you feel, sit down and go over all the numbers to give

[00:02:56] an accurate calculation of your net worth.

[00:02:59] Calculating your net worth isn't just about looking at the bottom line on your financial

[00:03:03] statements.

[00:03:04] A true net worth calculation means totalling all of your assets, including crucially your

[00:03:10] home and subtracting liabilities, such as student loans, credit card debt and mortgages.

[00:03:16] By doing the work to figure out this number, as well as updating it from time to time,

[00:03:21] you'll have a much clearer picture of where you currently stand financially.

[00:03:25] That number can also color how you set your retirement goals, as well as how you plan

[00:03:30] to achieve them.

[00:03:32] Seeing a concrete figure for your net worth also helps to inform what a responsible day-to-day

[00:03:37] budget should look like.

[00:03:39] If you're falling behind on your goals, it'd be wise to adjust how you spend your income.

[00:03:45] 2.

[00:03:46] Prioritize paying down debt.

[00:03:49] Another benefit to calculating your net worth is that you gain a clear sense of how much

[00:03:53] debt you're carrying.

[00:03:55] Socking away a million dollars in the bank sounds nice, but that seven figure bank balance

[00:04:00] is nothing more than a mirage if you owe two million dollars on credit cards.

[00:04:06] It can be difficult to plan strategically for retirement if you're carrying too much

[00:04:10] debt.

[00:04:12] Facing a mountain of bills can also tempt you to dip into retirement savings and delay

[00:04:17] building your nest egg.

[00:04:19] One strategy popularized by Dave Ramsey is the debt snowball method.

[00:04:24] With this method, you continue to pay the minimum required balance on all your debts, but

[00:04:29] any cash you can set aside is applied to the debt with the lowest balance.

[00:04:34] Once that debt is paid, you apply all the money spent on the cleared debt to the next lowest

[00:04:39] amount.

[00:04:41] Simply paying down debt can go a long way towards improving your financial situation, but

[00:04:46] not all debt is the same.

[00:04:48] Estimates vary, but in August 2022 report from McKinsey says the average yearly return

[00:04:54] from US stock market investments from 1800 to today is 6.5% to 7%.

[00:05:02] It suggests that it may be better to focus a debt snowball on loans with interest rates

[00:05:06] above 7%.

[00:05:09] Number three, cut unnecessary subscription expenses.

[00:05:13] Many tech products aim to provide a seamless experience, meaning they aim to make it as

[00:05:19] easy as possible to sign up for a service or purchase a product.

[00:05:24] Streaming services have made it exceptionally easy to click a couple of buttons and sign

[00:05:29] up for a new service so you can binge watch whatever you're fascinated by next.

[00:05:34] But a few months later, it's equally easy to forget you agreed to ongoing payments

[00:05:39] in exchange for seeing just one season of some now forgotten series.

[00:05:44] Many subscription service fees seem like small monthly amounts, but when bundled together

[00:05:49] they could be taking a serious bite out of your income.

[00:05:53] One writer found that by canceling all the services she didn't use on a weekly basis,

[00:05:58] she lowered her monthly expenses by over $450.

[00:06:03] If she put all that money into a stock market index fund and never touched it again,

[00:06:08] she could end up with over $41,000 for retirement in 30 years.

[00:06:13] Number four, top up your emergency fund.

[00:06:17] Some important details of your financial life do not necessarily appear in your net worth

[00:06:21] calculation like liquidity.

[00:06:24] You might be worth $300,000 but if all that money is tied up in the value of your home,

[00:06:29] you'll be hard pressed to find the cash if an expensive, urgent situation comes your way.

[00:06:35] The money's not in your bank account and getting access to it like through a home equity

[00:06:39] line of credit comes with its own costs and time delays.

[00:06:44] Financial advisors suggest you keep an emergency cash fund available for unexpected expenses.

[00:06:50] The traditional advice is to have three to six months worth of expenses saved in that

[00:06:54] account.

[00:06:55] So if your expenses have gone up or you're at the lower end of that range, consider increasing

[00:07:00] your contributions to your rainy day stash.

[00:07:04] Having this financial cushion will help prepare you for unforeseen crises so you don't have

[00:07:09] to turn to retirement savings for emergency cash.

[00:07:14] Number five, max out or increase your 401k contribution.

[00:07:19] A well-known benefit of a 401k program is that the money contributed from your paycheck

[00:07:24] isn't taxed as income until you withdraw it after age 59 and a half.

[00:07:30] So if you get paid 40 grand yearly after taxes and contribute 5,000 of that for your 401k,

[00:07:37] you're only on the hook to pay taxes on the remaining 35 grand this year.

[00:07:42] The plans also let investors contribute towards their retirement automatically via direct

[00:07:47] deduction from their paychecks.

[00:07:49] That way, the money is scrolled away before it hits your bank account so you won't even

[00:07:53] have to think about it or be tempted to spend it.

[00:07:57] Perhaps the biggest bonus to 401k plans is that some full-time employers offer matches

[00:08:03] to employee contributions at least up to a certain level.

[00:08:07] But nearly a quarter of all employees eligible for that free money from their employer don't

[00:08:12] set aside enough money to maximize the employer contribution.

[00:08:16] In December 2022, President Biden signed an appropriations bill into law that includes

[00:08:22] a set of provisions known as Secured 2.0 that will impact retirement savings plans.

[00:08:29] One of the provisions requires employers to automatically enroll workers into new company

[00:08:34] retirement plans at no lower than a 3% rate starting in 2025.

[00:08:40] Take some time this year to review how your plan is set up.

[00:08:44] If you're expecting a raise, consider applying most or all of it towards your retirement savings.

[00:08:49] You may not even notice a missing increase in your regular paycheck and you'll be setting

[00:08:54] yourself up for a more relaxing retirement.

[00:08:58] And number 6, resolve to advance an existing savings goal or start a new one.

[00:09:05] Saving for retirement like many personal goals is not a competition against anyone else,

[00:09:10] like other goals.

[00:09:12] Sometimes you need to stretch your horizons to continue to grow.

[00:09:15] It's possible that your needs in retirement may be considerably less than you initially

[00:09:19] planned, especially if you've downsized your home or have adjusted your aspirations

[00:09:24] to be a bit more frugal.

[00:09:26] In other cases, many experience lifestyle creep, an endless cycle of buying things you don't

[00:09:32] need, usually for more than you need to pay just to keep up experiences.

[00:09:38] People often find that if they've steadily upgraded their lifestyle habits over the years,

[00:09:43] they'll need even more money and retirement than they initially planned.

[00:09:47] If you realize your expenses and retirement might be higher, consider an increase in how

[00:09:51] much you set aside from each check towards retirement.

[00:09:55] Keeping your future needs in mind can lead to financially wise decisions today.

[00:10:04] You just listen to the post titled, Six Ways to Strengthen Your Retirement Savings This

[00:10:08] Year by Stacker with RadicalFire.com and I'll be right back with my commentary.

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[00:11:53] When it comes to building wealth, I think it's important to be mindful of the gap.

[00:11:58] The gap is the difference between your income and your expenses and your wealth building

[00:12:03] is dependent on growing the gap.

[00:12:07] This is done through reducing your expenses, budgeting, tracking your expenses and otherwise

[00:12:12] being mindful about spending as well as increasing your income.

[00:12:18] You also want to protect the gap through good financial planning and emergency fund

[00:12:23] and proper insurance.

[00:12:25] But the real fun begins when you deploy the gap.

[00:12:28] This is how you really put your money to work.

[00:12:31] You deploy the gap through paying off debt, creating a strong cash cushion and most importantly

[00:12:37] investing your money.

[00:12:40] There are so many frugal people out there who are great at staying away from debt, minding

[00:12:44] the gap and saving their money, but they're too scared to invest it.

[00:12:49] Here's the thing.

[00:12:51] Wealthy people buy assets.

[00:12:53] They understand that money can make more money and money can always work harder than you

[00:12:58] can.

[00:13:00] You can invest in stocks, bonds, real estate and even your own business.

[00:13:04] But when you're first starting out, I would encourage you to prioritize investing in

[00:13:09] your tax advantage retirement accounts.

[00:13:12] Your money simply grows faster when pesky taxes aren't getting in the way.

[00:13:17] Invest in your 401k, IRAs and HSA and start building wealth today.

[00:13:23] But that brings us to the end for today.

[00:13:25] Thanks so much for listening all the way through and I'll catch you tomorrow on our next

[00:13:29] episode where your optimal life awaits.